Finance Minister Harris Georgiades said on Wednesday that the practice by which non-EU nationals and shell companies could deposit large sums of money into Cypriot banks without having a physical presence on the island had come to an end.
In a panel discussion on strategies for attracting investment, organised by a European Commission delegation to Cyprus, Georgiades said that in the past, deposits of large sums from foreign sources and shell companies made up most of the financial services sector.
“When we referred to the service sector, what we actually meant were extremely large foreign deposits – not investments – to the Cypriot banking system, and these became a problem,” he said.
“This has changed, it is over. Offices must be built and employees must be hired; this is what investment means.”
A circular of the central bank (CBC) was released earlier in November that formally and narrowly defines what constitutes a shell company.
On Monday, Moody’s rating agency in its Credit Outlook said that the central bank’s (CBC) new directive is credit positive for Cypriot banks, because the specific definitions of shell companies will help eliminate suspicious transactions.
A Moody analyst, Melina Skouridou, told the panel on Wednesday that the Cypriot banking system, which is moving in the right direct, is expected to secure a better rating by the agency as non-performing loans (NPLs) are expected to decrease further in the coming period.
The head of the European Commission delegation to Cyprus Ierotheos Papadopoulos, said that Cyprus has made limited progress in addressing excessive macroeconomic imbalances, as well as in managing issues related to building permits and contract enforcement.
Papadopoulos noted, however, that Cyprus did proceed with structural changes, and has presented one of the best economic recovery developments in the EU, which have upgraded Cyprus’ creditworthiness for investments.
“It is a very positive development, so we can see the glass half empty or half full. There has been progress – let’s remember where Cyprus was in 2013 – but a lot of effort is still needed.”