Bank of Cyprus’s future up to the people (i.e. its new shareholders)

Bank of Cyprus’s future up to the people (i.e. its new shareholders)

 

By Christos Meliopoulos – Nicosia

The future of the Bank of Cyprus will be decided by its new board, after a leaked plan to separate the bank into two (a purely retail operation and a real estate or asset management operation amassing all relevant non-performing loans) was duly shelved following fire from all political parties and the powerful Orthodox Church.

The reactions to the plan were due to concerns that in a time of crisis the real estate property placed under the new “bad” bank would be subject to rushed auctions aiming at covering liquidity needs. The dance of dissent was led by Archbishop Chrysostomos who described the plan as “an abomination”. Right after his comment he held a meeting with President Anastasiades during which he received assurances that the government shared the church’s scepticism. Subsequent cross-party rejection of the idea led to its suspension.

Suspension is the right word, since the plan is not completely off the table, as officials say. It was after all supported by the transitional executive director and it did initially get the troika’s green light. The government expresses its strong reservations, but says it’s a matter to be carefully examined after the finalisation of the bank’s consolidation programme.

Commentators suggest that all these mean that the bank’s separation will be one of the proposals the new board will examine. The board will be formed in the autumn by the new shareholders of the bank, i.e. the depositors who saw 37.5% of their uninsured money turned into shares. By then the Bank of Cyprus is expected to have exited the administration status under the Central Bank.

The interim board of the Bank of Cyprus justified its support of the plan by saying that average property owners have nothing to fear and that such a move would be a way to tackle speculative real estate developers. According to government officials, however, at this point the creation of a real estate bank could indeed entail the risk of honest property owners losing their land or house in a fire sale if they are having a difficult time sticking to their repayment programme. Nevertheless, they do agree and stress that there can be no tolerance for speculative property developers who go about undisturbed pursuing huge loans without sufficient guarantees or even guilt about not repaying them, at a time when hard-working depositors bear the burden of keeping the Cyprus economy breathing.

Property owners also point to the danger of prices falling sharply should a bad bank start auctioning off real estate. Politicians and analysts have also added that it is not up to the transitional leadership of the Bank of Cyprus to oversee a restructuring with such long-term determinative consequences. Other commentators though are in two minds, claiming that the Bank of Cyprus might be running out of choices if it wants to be viable without raiding the deposits.