By Elias Hazou
A RAFT of measures pertaining to the restructuring of co-operative banks must be enacted this week if Cyprus is to receive the next tranche of financial aid from its international creditors.
Finance Minister Harris Georgiades said a string of government bills – re-organising the co-operative movement and bringing it under the direct supervision of the Central Bank – must be passed this coming Thursday at an extraordinary session of the House plenum.
Initially parliament had planned to vote on the bills on September 11, but the finance minister on Monday urged MPs to bring that date forward because the measures must be approved by the legislatures of euro-area nations before the Eurogroup convenes on September 13.
Reuters meanwhile on Monday revealed a draft European Commission report indicating that Cyprus was ‘on track’ to secure the second tranche of bailout assistance as planned.
Inspectors from the European Commission, the European Central Bank and the International Monetary Fund – collectively known as the troika – visited Cyprus in the second half of July to assess progress on strengthening public finances.
“Staff concluded that Cyprus’ economic adjustment program is on track,” said the draft report, suggesting that the next tranche of aid would be disbursed.
“The authorities have taken decisive steps to stabilise the financial sector and have been gradually relaxing deposit restrictions and capital controls,” the report said.
The government will be spending around €1.5bn of the €10bn international bailout to buy shares in the co-operative movement so the latter can meet its recapitalisation needs.
The co-ops are to receive the money after the disbursement of the second instalment of the bailout programme, pending approval of the meeting of EU finance ministers. The move will make the state the exclusive owner of the co-operatives, acquiring 99 per cent of its shares.
The €1.5bn will not be in cash but in the form of bonds that will be used to recapitalise the island’s financial sector excluding the Bank of Cyprus, which has a separate restructuring plan, and Laiki Bank, which has been shut down.
A report by investment firm Pimco had shown there is a deficit of €1.5bn in the cooperative sector’s regulatory capital, which could not be met.
During a discussion at the House finance committee yesterday, leaders of the co-operative movement questioned Pimco’s accounting methods, and argued that the figure is too high.
They, as well as some MPs, queried what would happen in the event that less than €1.5bn is needed to recapitalise the co-operatives – would the state still retain its 99 per cent stake?
Despite paying – with taxpayer money – the full amount for recapitalising the co-operatives, the state decided not to take 100 per cent control. Instead, it left a small window open for the co-operatives to buy back the shares.
The co-operative sector is to be slashed to 18 credit institutions through a merger of the 93 existing institutions.
DIKO’s Nicholas Papadopoulos was one MP none too thrilled with what is effectively the nationalisation and shrinkage of the co-operative sector.
“Those who convinced our European partners that they would be doing us a favour to destroy our banking system, because it was supposedly one big casino, today must be very happy because they have achieved their objective,” he said, in a jibe at the previous administration.
Under the government bills now being discussed, the state (finance ministry) would appoint the board of directors to the Cooperative Central Bank. However, Georgiades assured wary co-operative officials that a system of checks and balances would be put in place, with the directors being vetted by the Central Bank of Cyprus and approved by the House finance committee.
The new regulations prohibit the issuing of loans to independent board directors of co-operatives, in a bid to improve corporate governance.
Moreover, the sum of loans issued to directors cannot exceed 10 per cent of a credit institution’s core equity.
And provident fund deposits will be guaranteed up to €100,000 per depositor – this applies to all provident funds registered with the Registrar of Companies.