By Angelos Anastasiou
The government plans to pay Bank of Cyprus (BoC) €950 million, in partial repayment of a government bond of €1.8 billion issued in 2012 to prop up a now defunct lender.
BoC said on Thursday that the Public Debt Management Office has advised the lender it will pay the amount July 1.
In a written statement, the lender said the move will have a favourable impact on its liquidity, profitability and capital base.
The amount to be paid relates to the €1.8 billion government bond issued to bail out former Laiki Bank, which was transferred to BoC in March 2013.
The transfer was part of the terms of the island’s bailout, which called for shutting down Laiki and seizing deposits in BoC to be used for recapitalisation.
Part of Laiki, including €9.5 billion of Emergency Liquidity Assistance (ELA), has since been absorbed by BoC.
According to the announcement, the bond issue had been collateralised to secure liquidity from the European Central Bank (ECB), and its repayment will allow the bank to reduce its dependence on ECB funding approximately by €550 million, the remaining €400 million to be used in repaying ELA.
Additionally, the discounted price at which the bank has held the bond in its books will translate into a €95 million profit – or a boost of 0.4 per cent in core-tier 1 capital – once it is repaid at nominal value.
Repayment of the Laiki bailout bond had already been announced by Governor of the Central Bank of Cyprus (CBC) Chrystalla Georghadji on Wednesday.
She explained that last week’s government bond issue – €750 million raised at 4.75 per cent – along with €200 million of existing funds will be used, in order to replace short-term with longer-term, cheaper debt.
“This development is a positive contribution to the Bank’s effort to enhance its robustness,” the bank said. “The Bank continues to implement its strategy of deleveraging and focuses on its core domestic activities.
Through the focus on the quality of its loan portfolio, liquidity, capital adequacy and effectiveness, the Bank of Cyprus aims to restore its ability to support the recovery of the Cyprus economy.”
Meanwhile, the bank’s board of directors was scheduled to meet on Thursday morning.
The agenda included funding and capital structure options that could help speed up implementation of the lender’s restructuring plan and further strengthen the Group.
BoC, as well as the other two Cypriot banks deemed ‘systemic’ and will be stress-tested this fall by the ECB, has been repeatedly urged by Georghadji and Finance Minister Harris Georgiades to seek capital injections in order to ensure success in the upcoming stress tests.