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Plans to streamline banks’ contributions to resolution funds

Despite the transfer of non-performing loans (NPLs) from the Cyprus Co-operative Bank to the public sector, NPLs for households and companies remain high said the European Commission

The government has tabled to parliament a new bill redistributing commercial banks’ contributions to resolution funds.

Cypriot banks currently pay into two funds, a national bank depositors’ guarantee fund, and the Single Resolution Fund (SRF) of the euro area.

The bill aims to deduct lenders’ contributions to the SRF from their contributions to the national fund.

As heard in parliament on Monday, Cyprus is the only country whose banks contribute to two resolution funds. Banks in the other eurozone members pay only into the SRF.

Under the legislation, of the €80 million estimated to be paid in contributions by Cypriot banks for 2017, €20 million would be paid into the SRF; under the bill, this amount would be deducted from the contributions to the national fund.

Of the remaining €60 million, 35/60 (€35 million) will go into the national resolution fund, and 25/60 (€25 million) will be paid into the Consolidated Fund of the Republic.

A similar government bill was defeated last year because it had not provided for income flows to the Consolidated Fund.

Andreas Charalambous, head of the finance ministry’s financial stability division, told MPs that channelling part of the contributions to the Consolidated Fund was a temporary arrangement until the state recoups the €175 million it loaned to the Cooperative Central Bank in 2015.

As far as the SRF is concerned, each bank contributes according to the secured deposits it holds and its risk profile.

The overall contribution amount to the SRF is first set for a member state (in this case Cyprus), and this amount is then divided among local lenders according to their share of deposits.

Cyprus’ total contributions to the SRF by the year 2024 will come to some €110 million, Charalambous said.

Launched in 2016, the SRF is financed from annual contributions from banks, but it will only reach its target size of €55bn by the end of 2023.

The 19 countries sharing the euro agreed on a single bank supervisor and a Single Resolution Mechanism (SRM) for winding up failed banks, with the costs to be covered from a dedicated fund, filled by the banks themselves.

 

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