By Angelos Anastasiou
The Cooperative Central Bank’s capital shortfall was exacerbated by parliament’s amendments to the foreclosure and insolvency bills, Finance ministry permanent undersecretary Christos Patsalides told lawmakers on Tuesday.
He was addressing the House Finance committee, which discussed five government bills facilitating the CCB’s recapitalisation by €200 million after a stress-test conducted by the European Central Bank’s Single Supervisory Mechanism (SSM).
Patsalides said the amendments parliament attached to the bills meant that the introduction of new stress-testing elements would incur additional costs to the CCB because the Troika’s view is that the changes will prolong lead times in the foreclosure process.
Answering questions by deputies, the permanent undersecretary said that if the CCB were to require additional capital next year, options other than state funds will have to be considered.
The Finance ministry’s Dionysis Dionysiou said that, in such a case, fresh capital will be raised from private investors.
“This is the last time recapitalisation is done with government money,” he said.
According to CCB boss Nicolas Hadjiyiannis, the scenarios used in stress-testing the lender were excessively adverse, including a 30 per cent drop in property prices and deteriorating mortgage values, and resulted in additional provisions of €471 million.
Head of the banks’ association Michalis Kammas noted that, since 2011, the government has received approximately €200 million from a 0.15 per cent levy on bank deposits, which was designed to cover insured deposits and banks’ capital shortfalls in the event of a financial crisis.
This money, he argued, ended up in the government’s consolidated fund and was used for other purposes, and added that the CCB’s capital injection could be effected with the use of funds raised from this levy.
He also noted that, according to the terms of Cyprus’ €10-billion bailout by international lenders, the sum of €1 billion was earmarked for the financial system’s needs, as and when they arise.
Committee chairman Nicolas Papadopoulos took offence with the implication that parliament may have been responsible for the CCB’s capital needs, and countered that the foreclosure and insolvency bills were passed in 2015, while the lender was found undercapitalised based on 2014 figures.
“The easy way out is to blame everything on parliament,” Papadopoulos said.
“How is it possible for the House to be responsible for things that happened before it voted on any bills?”
He added that the CCB is not the only one to face capital issues, noting that other banks are in need of funds too.
“How can the Bank of Cyprus hold an annual general meeting and not announce that it needs €600 million in new capital?”
Papadopoulos argued that the underlying cause of continuous capital needs by the banks is non-performing loans, and added that the government could not commit to this being the last time the taxpayer would be asked to support the CCB.
“No one can make such a pledge, since Cypriot banks’ loan portfolios show a 50 per cent figure for non-performing loans,” he said.
AKEL deputy Pambos Papageorgiou said that his party supports the CCB, which must be modernised and strengthened in order to be returned to its members and resume its social role.
“In this sense, we feel that the taxpayer must support the cooperative movement – it is a good investment because if a private investor were to supply this capital, he would be assuming a controlling stake for very little money,” he said.