By George Psyllides
THE Cyprus government is appealing to the European Bank of Reconstruction and Development (EBRD), the fund that invests in emerging markets and helps restructure economies, to provide short-term aid to Cyprus to help businesses recover, while the bank is also considering its role in managing an 18 per cent stake in Bank of Cyprus.
The EBRD’s operation on the island will help address the short and medium-term challenges, Finance Minister Harris Georgiades said yesterday, adding that Cyprus’ request was for a short time only.
“We believe that EBRD’s operations in Cyprus would significantly contribute in addressing the short and medium-term financial, fiscal and structural challenges the country faces today,” Georgiades said in as statement to the organisation’s annual meeting in Warsaw.
Cyprus is struggling to find its feet after seeking financial assistance from its EU partners and the International Monetary Fund in 2012.
The country received a €10bn bailout in March last year after it agreed to shut down one bank and seize deposits to recapitalise another.
This, along with subsequent capital controls, has hampered economic activity and impeded funding to the real economy.
“Whilst achieving key objectives of the programme, most notably fiscal consolidation, and although the implementation of structural reforms and enhancing the regulatory and supervisory framework of our banking system provide the necessary conditions for accomplishing sound economic growth, they are unfortunately not sufficient,” Georgiades said.
He added that more work was needed to support the recovery of the real economy, especially in the current depressed economic environment of Cyprus.
With banks having a substantial part of their funds tied up in non-performing loans and engaging in deleveraging and recapitalisation, there is a critical lack of lending capacity for financing small and medium sized enterprises, which are the primary source of output and employment in Cyprus, the minister said.
Based on this situation, Cyprus submitted at the end of 2013 a request to be granted EBRD recipient country status for “limited period of time.”
Reports have suggested that an 18 per cent stake held by the now defunct Laiki Bank in Bank of Cyprus (BoC) could be transferred to EBRD, which will function as an investment banker to manage the stake, but also as a strategic investor for the eventual purchase of this share.
Selling the stake is opposed by the association of Laiki depositors (SYKALA).
“It is clear that the EBRD option offers no prospect whatsoever,” SYKALA said.
Even as a consultant, EBRD is geared towards small and medium businesses and not banking organisations like BoC.
SYKALA said the 18 per cent stake was worth €700m and was at least 28 times bigger than the average EBRD investment in banks which was €25m.
“The owners say must always belong to the owners of the assets and no one else,” SYKALA said, calling for a general meeting of creditors to be organised by the resolution authority (finance ministry, Central Bank and the securities and exchange commission).
Meanwhile, the finance ministry and the Central Bank have kicked off discussions on the draft update of the financial adjustment programme, submitted by Cyprus’ international lenders (the EC, ECB and IMF) earlier yesterday.
Technocrats were preparing the government’s positions in view of the discussions with the lenders tomorrow, which will finalise the updated memorandum.
The Troika mission will complete its 15-day fourth review of the Cyprus financial assistance programme tomorrow.