Georgiades Disagrees with Set-Up of Bad Bank

23:09 - 26 Σεπτεμβρίου 2016

  Cyprus Minister of Finance Harris Georgiades voiced its disagreement over setting up a state-owned asset management company (AMC or bad bank) that would acquire and manage distressed loans, as this would most probably entail possible capital shortfalls for the banks due to EU state aid rules.

In a letter replying to Environmentalists and Ecologists Movement MP Yiorgos Perdikes said in case Cyprus decides to set up a state-owned AMC this should comply with EU state-aid rules, sparking a lengthy discussion with the EU DG Competition, as in the case of Italy.

He pointed out EU prohibits the use of tax-payer money to cover banking losses, which means acquiring bad loans in book value, the Cyprus News Agency reports.

“Therefore in the most probable scenario, the EU Commission would enforce loan acquisitions in market value and subsequently the banks would suffer losses requiring additional capital that would be hard to attract under the current market conditions,” he stressed.

“The Government believes that such initiatives should be taken by the banks which in the current legal framework may set up asset management company themselves,” he said.

Georgiades said the case of Italy is very different compared to Cyprus as Italy`s bad loans amount to 12% of the country`s GDP as bad loans in Cyprus amount to 92.5% of the island`s GDP, which is the highest in the EU. According to the Central Bank of Cyprus non-performing loans in June 2016 amounted to €24.7 billion.

“The policy approach so far remains that the banks should undertake initiatives to further tackle the problem of bad loans utilising the current legal framework approved by the Parliament, taking into account that the aid given by the state to commercial banks and the Cooperative Credit Sector amounts to 20% of GDP compared with the EU average of 4.5%,” he concluded.

In 2012 Cyprus bailed-out Cyprus Popular Bank issuing a €1.9 billion bond. However a year later Cyprus concluded to a €10 billion bailout by the EU and the IMF. Under the package CPB entered a resolution process, while most of its assets along with its €9.4 billion ELA liability were absorbed by Bank of Cyprus, the island`s largest lender, which had been recapitalised by bailing-in deposits over €100,000. Cyprus injected €1.67 billion to the Cooperative Credit Sector using bailout money.

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