The takeover of the healthy business of the Cyprus Co-operative Bank by Hellenic Bank has changed the island’s banking sector. It has now become a form of duopoly, with Hellenic and Bank of Cyprus together having 70 per cent of bank deposits. There is a third systemic bank, RCB, but its local market share is much smaller than that of the other two and it does not seem to have any plans to expand it for the time being. The leading position of the two banks is unlikely to be threatened.
The biggest beneficiary of the banking crisis of 2013, undoubtedly, was Hellenic Bank, which from fourth largest became the second largest bank on the island without engaging in aggressive expansion plans involving any risk. On the contrary, it absorbed the healthy business of the Co-operative and was given state guarantees for potential future losses. Overnight, Hellenic saw its share of deposits rise to 32 per cent, loans to 22 per cent, number of customers increase by about 350 per cent to 550,000 and boast the largest retail footprint in Cyprus. The takeover also helped it reduce the percentage of NPLs on its books to 25 per cent.
This was a gift from the government, which after much prevarication realised that unloading the healthy part of the Co-operative was the only way to avert impending bankruptcy. It had twice intervened to prevent a bank run that would have thrown the banking system into disarray and was under strong pressure from the ECB to take action. A better deal could probably have been negotiated but the government was in a very weak position that, understandably, Hellenic’s top brass took full advantage of, securing a deal too good to be true.
Mergers are not always successful, especially when there are big differences in the corporate cultures of two organisations. In this case, however, Hellenic’s management structure will be unaffected by the takeover, its main challenge being the handling of the arrival of 1,100 co-operative workers with a different company ethos and managing some 400,000 new customers. Co-op branches will have to be closed, customers will need to be introduced to new ways of doing things, Co-op workers will have to adapt to different work practices etc. Making the merger a success will be a daunting task that will require time and hard work, something that Hellenic’s CEO Yannis Matsis made very clear from the word go.
In the last five years, banking in Cyprus has undergone more changes than in the previous 40, mostly caused by bad decisions and mismanagement. Hopefully, after the Hellenic-Co-op merger banking will enter a long period of stability.