Government reiterates Cyprus banks are resilient (updated)

The Cyprus banking system is resilient and able to cope with the ongoing issues faced by Credit Suisse, government spokesman Konstantinos Letymbiotis said on Tuesday, echoing the Central Bank’s own assurances from a day earlier.

Speaking to state broadcaster CyBC, Letymbiotis said the Swiss bank’s collapse “is no cause for concern for Cyprus.”

He added: “President Nikos Christodoulides is in constant communication with Central Bank chief Constantinos Herodotou to monitor all developments on the subject.

“We are ready to take appropriate measures should the need for them arise.”

Cypriot banks today have significant capital and liquidity to cope with the situation, Letymbiotis noted.

The Central Bank governor meanwhile met chief executives of commercial banks.

A short statement said that Herodotou and bank execs “analysed the matters arising from the shifting financial environment, as well as any potential preventative actions aimed at maintaining the financial stability of the domestic banking sector and the Cypriot economy.”

Herodotou was quoted as reaffirming the resilience of the banking system in Cyprus.

During the discussions, the Central Bank governor also stressed to the banks the need to provide viable loan restructuring solutions, and to evaluate “as soon as possible their data relating to their deposit interest rates.”

Also on Tuesday Herodotou met Disy leader Annita Demetriou who had requested a briefing on the financial situation in Cyprus.

Speaking to reporters later, Herodotou dismissed the notion that the Central Bank had taken its time in releasing statements on the matter.

He said that immediately after the collapse of two major banks in the United States, the Central Bank ran some worst-case scenario simulations to determine the potential impact on Cypriot lenders. The results showed there is no cause for concern.

The Central Bank followed the same process after the developments with Credit Suisse, and duly briefed both the president and the House president.

On Monday, Herodotou had discussed ongoing developments regarding Credit Suisse’s situation with Christodoulides.

Both men said they were “satisfied” with how Swiss authorities handled the matter.

During that meeting, Herodotou conveyed to the president that “Cypriot banks have a robust capital adequacy and liquidity.”

In a bid to address jitters, on Monday the Central Bank itself stated that Cyprus banks have no exposure whatsoever to Credit Suisse’s AT1 (Additional Tier 1) bonds – wiped out in a rescue deal brokered by Switzerland’s central bank.

As such, the Cypriot banking system will sustain no losses in connection with those bonds.

Over the weekend, the Swiss National Bank announced that UBS would buy Credit Suisse for 3 billion Swiss francs (€3 billion) – or about 60 per cent less than the bank was worth when markets closed last Friday. Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday.

Whereas shareholders would receive some compensation, however meager, the bank’s AT1 bondholders were completely wiped out. Ordinarily, bondholders are higher up the pecking order than shareholders when a banks fails.

For next week, parliament has summoned Finance Minister Makis Keravnos as well as banking and financial regulators for a briefing on the possible risk of contagion to Cyprus from the collapse of major banks in the United States.