Sparring over Co-op pointless unless NPLs come down, CBC official says (Update-1)

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(Adds additional bacgkround and comment in second, fourth and sixth paragraph)

By Stelios Orphanides

The state-owned Cyprus Cooperative Bank (CCB) will increase its capital via a planned share issue before the government hands over part of its stock to its customers, a central bank official said on Monday.

Yiangos Demetriou said the decision to proceed with the capital raise ahead of the stock donation was taken after a meeting of Central Bank of Cyprus governor Chrystalla Georghadji with Finance Minister Harris Georgiades after the central banker expressed reservations about the government’s plan in a June 7 letter to the minister.

Demetriou, who heads the supervision division of the central bank said, added that the CCB which the government bailed out with almost €1.7bn, should be allowed to implement its plans to reduce its non-performing loan stock, which accounts for 60 per cent of its loan portfolio, otherwise the lender may go out of business, the Cyprus News Agency reported.

The central banker was addressing lawmakers of the House watchdog committee in an extraordinary session on the CCB. It was also attended by Georgiades and other government and CCB officials, including state aid commissioner Theophanis Theophanous who disputed whether the government had a right to donate CCB stock without consulting his agency and auditor-general Odysseas Michaelides who questioned the provisions of the Altamira deal.

“We may reach a point where the involvement of (state aid) commissioner and the auditor general becomes pointless,” Demetriou was cited as saying.

The CCB, rocked by a decision of the financial ombudsman to return €111m to overcharged borrowers, is currently working on its stock exchange listing which will allow it to reduce the government’s holding of over 99 per cent, via successive share issues, to 25 per cent by 2020.

In July, the bank announced its plan to cooperate with Spain’s Altamira, a specialist in the management of non-performing loans, which prompted a backlash from opposition politicians who joined protesters outside the bank’s headquarters early this month against alleged plans to foreclose primary homes in Cyprus.

Central bank’s Demetriou said that the bank supervisor welcomes steps that lead to a reduction of non-performing loans and will review any matter of the agreement with the Spanish non-performing loan specialist concerning corporate governance.

Georgiades said in May that the government intended to donate 25 per cent of the bank’s stock to its depositors and borrowers.

The Co-op posted a €7m net profit in 2016 and adjusted its 2015 results to reflect a net loss of €176.4m. It originally posted a net loss of €165.6m in 2015. In the first quarter, it posted a €2.6m after tax profit.

Talking to reporters after the committee meeting, Georgiades said the requirement of attracting a strategic investor before the stock donation, did not cancel, substitute or delay the implementation of the government’s decision, CNA said.

The minister said the government decision was taken after securing a “written” approval from the European Commission’s Directorate General for Competition, which previously approved the bank’s bailout terms.
The minister’s reference to the approval obtained by the EU’s competition

watchdog prompted the reaction of the state aid commissioner who complained that the ministry ignored his agency both in the case of the CCB as well as in the privatisation of state-telecom Cyta, and the commercialisation of ports.

“This is the practice applied constantly by the ministry,” Theophanous said, adding that the government should clarify whether they want the state aid commission to exist as an institution or not. “It shows lack of respect to the institution”.

“I did not join to be a clown; I am a state official and demand respect,” he exclaimed and threatened to complain to the office of the attorney-general.

“If the Commissioner is upset, that is his problem,” Georgiades responded. “If he believes that there is a conflict with the European Commission’s terms, then he should ask the Commission. Of course, there is a written approval”.

He added that the government stands under no obligation to sell its CCB stock and under the bank’s bailout terms, it only has to reduce the percentage of its shareholding.

Auditor-general Michaelides, who repeatedly clashed with Georgiades in the past over the Co-op, said the government’s decision to donate CCB stock was unconstitutional and illegal, CNA reported.

Michaelides, who criticised the bank’s management for its deteriorating performance indicators and top management’s earnings, wondered how the bank can attract a strategic investor by donating 25 per cent of its stock with a value of €150m and pledged to review the terms of the agreement with Altamira.

The finance minister said that the government’s position is that the stock donation will ensure there will be a widespread ownership basis at home which is in no conflict with supervisory regulations governing the issue of shares, nor the EU Commission’s terms.

He added that the government also takes seriously into account a letter sent by Attorney-General Costas Clerides in which the latter raised issues which “can be addressed” and may delay the implementation of the decision of the government whose term expires in February next year. It is unknown whether President Nicos Anastasiades will seek re-election.

The CCB chairman, Takis Taoushanis, said that the reason behind the reduction of the bank’s value had to do with the merger of heterogenous independent saving banks which one day were asked to perform as a standard bank, the CNA reported.

 

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Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]

  • Roger Thecabinboy

    I suppose since BOC found some investors there is some small possibility that the Co-op banks might….as for NPL’s and seizing primary residences, always that should be a last resort, after other avenues have been looked at, but if a property is pledged as security then the borrower must ultimately be held to the contract, even if it is a primary residence.

    • AnalogMind

      For primary residences, recast the loan rate to 1% and set monthly payments to equal average rental rates in the area so that the principal balance begins to get repaid and drawn down.

      • Barry White

        And don’t forget o raise the interest rates retroactively by 1-2% on all other loans to pay for it.

      • Roger Thecabinboy

        That is the sort of idea that should be considered….

    • Barry White

      Especially if it is a primary residence, they need to be seized and occupants moved out to the thousands of empty flats and houses littering the country for rent or buy. Otherwise, the burden and interest rates fall on those who pay their obligations.

      No other way to free up and increase bank lending and try to get the economy moving again.

      You borrow money, you spend and enjoy it, you pay it back.

      Unlike Meatloaf, two out of three isn’t good enough.

      • Roger Thecabinboy

        Something to consider for the banks might be property swap option, taking over a larger property and moving the occupants out into a smaller one which tbey can afford to pay for.

      • Adele

        Great comment Barry.

  • AnalogMind

    Easy to fix: create bad bank and deposit all NPLs there for eventual liquidation.

  • hornet

    harris is talking nonsense for cheap electioneering… the taxpayer bailed out the coop not the depositors or borrowers most of whom do not repay their loans. so he is granting 25% of taxpayer money to another group od people including cheaters – what a moron!!!

  • Bruce

    Donating shares to “reliable borrowers” is scandalous. And what serious strategic investor would be interested in injecting funds into a banks with NPLs at 60% of loans, shareholders holding many donated shares, and dubious “audited” accounting practices? Perhaps the MOF will find a compliant local investor!

  • “That’s the way you do it: money for nothing, chicks for free.”
    1) Christos Co-op loans Stavros Shark 100,000 Euros to build a house.
    2) Stavros builds the house but refuses to pay Christos back, saying that he is unemployed, has seven children and is a refugee.
    3) Harris Hamburger passes a law to say that Christos Co-op may not repossess Stavros Shark’s house to recover the debt.
    4) Christos Co-op then goes to Harris Hamburger and demands 100,000 Euros to cover the cost of Stavros Shark’s defaulted loan, so that Christos does not go bust.
    5) Harris Hamburger tells Tony Taxpayer to cough up the €100,000 or risk going to jail. Harris gives the cash to Christos Co-op.
    6) Next, Harris Hamburger tells Christos Co-op to give Stavros Shark a share of the €100,000.
    7) So Stavros Shark gets a free house plus a cash bonus, all paid for by Tony Taxpayer.
    8) Stavros Shark votes for Harris Hamburger in the election.
    9) Harris Hamburger gives Christos Co-op and Stavros Shark salary increases.
    10) Harris Hamburger increases Tony Taxpayer’s tax bill.
    “That’s the way you do it: money for nothing, chicks for free.”

    • Barry White

      All very true, Travis.

      Fortunately, this is not a finite nor sustainable state neither is the ROC State.

      Loan repayments looming to the EU and Mother Russia, trade deficit €2.5 billion, NPL’s still there, Tax arrears and all manner of services arrears, and another bank run a week-end away. Depositors with their deposits seized to keep the circus spinning with claims to the EU over select repayments by the Government to the leaky pension ‘schemes’ all bubbling up. Global interest rates and inflation picking up as the Central Banks begin to withdraw liquidity that has distorted economies and allowed no-hope borrowers and States to limp along.

      Little prospects of billions in loans next time.

      Little wonder that we approach ” The Day that the Music died”.

    • Cydee

      Excellent. Sums-up the whole business culture in Cyprus.

  • Vladimir

    Thinking about how to stage another trap for foreigners? Learn how to pay your debts instead!

  • Neroli

    Selling shares to it’s customers?? Most of them have the NPLs!