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Cyprus

Banks’ losses to widen in 2014: Central Bank chief

Cyprus’ banking sector is expected to show further losses in 2014 as the economy worsens and banks book rising non-performing loans, but the sector is adequately capitalised, the head of its Central Bank said on Monday.

Panicos Demetriades also told lawmakers the island state would see an economic contraction of less than the 8.7 per cent forecast by international lenders this year, but that risks were on the downside for 2014.

Cyprus was thrown into financial turmoil in March when it was forced to close a major bank and seize savings in a second to be eligible for 10 billion euros in aid from international lenders.

That recapitalisation, Demetriades said, made capital buffers in the banks adequate to absorb any further oscillations to the sector in 2013 and possibly next year.

“Any anticipated losses are expected to be sufficiently covered and the sector will gradually stabilise and recover,” Demetriades said.

The Cypriot banker is embroiled in a bitter dispute with the island’s president, who has accused Demetriades of mismanaging the bailout and saddling Cypriot banks with billions in emergency liquidity assistance.

An economics professor appointed by the island’s previous communist government, Demetriades has repeatedly said he will not resign, even though acknowledging his relations with the government are dysfunctional.

It was his first public appearance since the Cypriot president reiterated last week he had consulted lawyers about his removal.

“It is important that the image our country projects on the functioning of institutions is a positive one,” Demetriades told lawmakers, implying the need for central bank independence to be respected.

A Reuters witness earlier saw him exchange a cold, cursory greeting and brief handshake with the Cypriot finance minister Harris Georgiades, sitting three seats away from him. (Reuters)

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