State assistance was granted to the co-op bank in 2013 to avert a haircut on deposits, Finance Minister Harris Georgiades told an inquiry into the lender’s collapse on Thursday.
The minister, who has been heavily criticised following the co-op bank’s demise earlier this year, started his testimony by reading a prepared statement in which he said that nationalising the lender in 2013 by pumping €1.5bn initially and around €250m at a later stage, had been a political decision at EU level which President Nicos Anastasiades had secured.
Until that time, the co-op had a negative capital, he said.
“The question is not why and how the co-op came to a dead end in 2013 . The question is how it managed to operate until 2o13. How such an organisation was allowed to operate and handle people’s savings until 2013,” he said.
It was not even an organisation. It was a loose network of co-op banks that operated without credible procedures, supervision, and suitable staff, recklessly granting loans, even to its directors and nonexistent individuals, he said.
What was worse, was that no one bothered to check if those loans were serviced, he added.
“State aid in 2013 did not resolve the co-op’s problems. It prevented a haircut of deposits at the co-op bank also.”
As part of its bailout, Cyprus had to shutter its second-largest bank, Laiki, while Bank of Cyprus, the biggest one, had to seize 47.5 per cent of deposits over €100,000.