By Angelos Anastasiou
FINANCE MINISTER Harris Georgiades urged commercial banks to follow the government’s lead and seek to capitalise on foreign investors’ increased confidence in the prospects of the Cyprus economy by attracting funds to strengthen their capital base.
Speaking on state radio on Monday, Georgiades linked the opportunity for local lenders following the government’s successful bid to attract €750 million from foreign investors with the upcoming stress tests by the European Central Bank, which will determine the health and capitalisation needs of ‘systemic’ financial institutions across the eurozone. Four Cypriot banks will be stress-tested and subsequently placed under the direct supervision of the European Central Bank – Bank of Cyprus, Hellenic Bank, Russian Commercial Bank and the network of co-operatives.
“My view is that Cypriot banks should seek to recapitalise even before the stress tests,” he said. “Foreign investors are confident in the prospects of our economy.”
In the period since Cyprus’ banking meltdown in March 2013, banks have achieved major progress, analogous to that made by the government in terms of fiscal consolidation, Georgiades argued.
“Therefore,” he added, “I feel that this goal is achievable.”
But he was quick to clarify that he was referring not only to the Bank of Cyprus, in which rumours of executive management eyeing a capital injection effort have been circulating for weeks, even causing a simmering rift with the board of directors, who do not favour a dilution of existing shareholders’ stakes.
“I would like to see all banks that will undergo the stress tests recapitalise,” Georgiades said, adding “with the exception, of course, of the co-operatives, which have been fully recapitalised via the adjustment programme.”
Among the provisions of last year’s €10 billion bailout was the full recapitalisation of the co-op banks with €1.5 billion of loan money, in exchange for their consolidation and restructuring.
After four successful quarterly progress reviews by international lenders and a consistently shallower than expected recession, Cyprus was able to reverse its exclusion from international sovereign debt markets last week, handsomely achieving its best-case scenario of attracting €750 million at a rate of 4.75 per cent.
“This will be used to repay a big part of existing, more expensive and more short-term internal borrowing, which had been exerting constant pressure on public debt management,” Georgiades explained. “It will also help boost liquidity, and at the same time it will also enable the release of funds currently trapped in the system.”