Cyprus Mail

Negative assessment by troika considered ‘unlikely’

The troika begins work on Tuesday

By Stefanos Evripidou

THE second evaluation of Cyprus’ adherence to the bailout programme, which begins on Tuesday and last two weeks, will kick off with a meeting between the troika, Finance Minister Harris Georgiades and Central Bank of Cyprus (CBC) governor Panicos Demetriades at the ministry.

Members of the troika delegation will also meet separately with finance ministry and central bank technocrats to discuss implementation of the memorandum signed with international lenders.

The CBC will inform the troika on developments in the banking system regarding deposits, loans, non-performing loans, profits, and the capital adequacy of banks and co-operatives.

The supervisory authority will brief the troika on the implementation of capital controls while the two sides will also discuss how banks are handling loans to businesses and households.

Sources from the CBC said yesterday that the “necessary progress” has been made in implementing Cyprus’ obligations with regard to the financial sector and that a negative evaluation on that is considered “unlikely”.

Meanwhile, the same sources said the CBC has almost completed its evaluation of the newly appointed CEO of the Bank of Cyprus (BoC), John Hourican, noting that concluding he is “fit and proper” for the job remains a formality.

On the same day that the troika gets to work, the board of the BoC is set to approve the final version of the bank’s restructuring plan, a draft version of which has already been seen by the troika and CBC.

Regarding the regulatory framework for loans, impairment of assets and other issues, the CBC hired Deloitte in Italy to compare best practices in the Cypriot banking sector with those in Ireland, Spain, England and Australia.

The comparison revealed that Cypriot banks lag behind their counterparts in terms of transparency over their financial statements and disclosure of non-performing loans, said the sources.

The regulatory authority has already discussed a draft directive with the commercial banks on the shortcomings highlighted in the Deloitte report.

In the new directive, banks will be called upon to primarily consider the ability of the borrower to repay the loan and not the amount of collateral he may present before approving the loan.

In relation to complaints made by borrowers regarding the restructuring of loans on unfavourable terms, the supervisory authority has already issued a directive calling on banks to prioritise finding a settlement that allows the borrower to repay his loan.

The banks have also been requested to train staff dealing with the restructuring of loans, with the CBC highlighting that staff must understand what the restructuring of loans means under current circumstances, which are not considered ‘normal’.

Senior CBC officials said yesterday that in tackling the non-performing loans, the aim was not to repossess people’s houses but to save the banking system.

The restructuring of the Co-operative Movement is also making progress, said sources, noting that a draft version of the restructuring plan has already been sent to the troika for comments.

This weekend will see the biggest merger of co-operative banks with the Paphos Co-op merging with 16 other co-ops in the Paphos district.

The same sources clarified that Hellenic Bank would find the roughly €295m needed for its recapitalisation needs from its own sources through the conversion of bonds into contingent convertibles and would not be drawing any money from the bailout funds available.

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