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ECB, crisis of 2013, party favours blames for Co-op demise (update 2)

Former Cyprus Cooperative Bank board member Lampros Pieri on Tuesday said the Co-op fell victim to European aversion to state-owned banks, while former chairman Giorgos Iosif said the 2013 economic crisis was to blame.

Meanwhile, a third person testifying, former board member Andreas Charitou said the bank went down due to a combination of bad governance and party interests.

Pieri, who was testifying at the committee probing the collapse of the cooperative banking sector, said that “supervisors in Frankfurt didn’t want a state-owned bank to exist,” the Cyprus News Agency (CNA) reported.

The Cyprus Cooperative Bank, the first casualty in Cypriot banks’ struggle to reduce their non-performing loans, jointly supervised by the European Central Bank’s (ECB) Single Supervision Mechanism (SSM) and the Central Bank of Cyprus was forced to sell its operations to Hellenic Bank in June after it failed to reduce its bad loans fast enough.

SSM chairwoman Danièle Nouy declined the Co-op’s request to delay an onsite inspection until the bank had completed its efforts to increase its capital, Pieri said. On Monday, Auditor-general Odysseas Michaelides said Finance Minister Harris Georgiades had complained to Central Bank of Cyprus governor Chrystalla Georghadji about the SSM’s “extreme assumptions” in calculating the Co-op’s capital needs, only to get a response from her that the bank’s management had not contested them in a previous meeting with a delegation from Frankfurt.

The SSM and part of the Central Bank of Cyprus, Pieri continued, wanted to settle the issue outside the bank by taking a large portion of the Co-op’s €7bn hence “the crisis occurred”.

Iosif, also testifying at the committee, said that when in 2013 the government decided to recapitalise the bank, its solvency ratio stood at 12 per cent.

The bank’s problems, Iosif, who served as chairman for a year until November 2013, said were caused by the economic downturn caused by the bail-in that led to companies going out of business and an increase in unemployment which in turn affected loan repayment.

According to the Co-op’s 2013 account’s, the bank generated an after tax loss of €1.7bn in 2013 compared to a loss of €23.8m the year before. The bank’s non-performing loans rose to €6.1bn from €2.7bn or to 46 per cent of the total from 17 per cent.

Iosif said that what went wrong with the Co-op that ultimately compelled the lender to sell its operations to Hellenic Bank was related to non-performing loans which became the main problem after the troika of the International Monetary Fund (IMF), European Commission and European Central Bank (ECB) came to Cyprus.

According to Iosif’s, largely incoherent account, authorities took no action to help the Co-op get rid of non-performing loans and so allow in fresh capital with willing investors.

“What did the Central Bank (of Cyprus) and the Finance Ministry do to tackle this approaching risk that was bigger by the day?” he asked.

He said that there has been an attempt to play down the Co-op’s overall contribution, which prompted the troika to propose its recapitalisation, and create the impression that a large feast had been taking place, by reproducing reports about irregularities observed in minor cooperatives such as those of Ayia Phyla and Ayia Napa.

The size of these scandals amounts to up to €65m compared to an overall €5.3bn in provisions for loan impairments resulting from the elimination of the value of collateralised assets of non-performing loans, Iosif said.

Charitou, who served in the board as independent member from March 2009 to October 2010, said there were members on the boards of directors of cooperatives who enjoyed political backing, allowing them to remain at their positions without being punished for wrongdoings.

“They had backing from high above,” he was quoted as saying. “Backing from parties, politicians with others who may have been their accomplices and took the decisions. There were possibly problems involving criminal cases that would have been brought to justice (and) they were dragging their feet all the time”.

Some cooperatives had very serious problems and some people, he did not name, “were trying to get as much as possible out of the corporation,” he said adding that there was reluctance to punish anyone or take action even in cases of officials implicated in possible criminal offences.

Certain cooperatives were under the control of political factions and their affiliation was known, said Charitou.

While in certain cases, managers at cooperatives acted in a conflict of interest, there were still some who did a good job, he said.

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