Kypros Protopapas, a former Co-op supervisor, said that the demise of the co-operative banking sector resulted from Cyprus’ failure to adhere to its commitment to speed up foreclosure procedures, the Cyprus News Agency (CNA) reported on Wednesday.
Protopapas, who served as deputy superintendent at the Authority for Supervision and Development of Co-operative Societies (ASDCS), was the second witness to testify on Wednesday to the committee probing the causes of the Co-op failure.
“We in Cyprus tend not to do what we promise foreigners,” he said.
Constantinos Carmios, the former head of the agency auditing co-operatives, said that smaller units lacked the sophistication to prepare financial statements which delayed audit procedures. Carmios was the third witness to testify on Wednesday.
“The time it takes to foreclose is a very important factor; we told them foreclosures would be possible within five years which never happened,” Protopapas said.
The Cyprus Co-operative Bank, into which taxpayers injected €1.7 billion in 2014 and 2015, was compelled into selling its operations to Hellenic Bank this summer after its equity was wiped out on its failure to reduce its €7bn stock in non-performing loans fast enough.
The island did not heed advice in relation to the Co-op either from Brussels before Cyprus’ 2004 EU accession or later from the troika supervising its bailout in 2013, Protopapas told the committee.
Protopapas said that while the Co-op saw its stock in non-performing loans fall in a comparable fashion to other banks, the lender did not have 30 major borrowers owing €6bn. This was an apparent reference to Bank of Cyprus, which was in position to reduce its delinquent loans stock fast by going after low hanging fruits.
In addition, the Co-op fell victim to its increase in size while legislation remained antiquated and was not given enough time to harmonise with supervisory requirements ahead of the EU accession, which ultimately allowed “crooks” to take advantage of the situation, he said.
The Co-op could have been split in two, a healthy part and a bad part which could have allowed capital to be raised which could have kept it in operation, the former deputy superintendent said.
Co-op auditor Carmios said that mid-size co-operatives lacked accountants for their bookkeeping in accordance to international standards which forced his agency’s staff to prepare the accounts for them.
The 2011 audit was the first to be completed within eight months after the financial year had ended, he said.
His agency had spotted irregularities which were referred to the Co-op supervisor, he said. In the case of the co-op in Tochni, a village in the Larnaca district, the secretary was forced to step down when the audit showed that money belonging to the workers’ provident fund was used to conceal holes at the co-operative.
Also, in the co-op of Pachna, a Limassol district village, the audit showed that its secretary who had issued a large number of cheques, had taken a loan to conceal deficits.
Carmios said that co-operatives also lacked regulations governing the hiring of personnel which allowed vacancies to be filled without being advertised.