Cabinet earmarks €20m to compensate Etyk members in major U-turn

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By Stelios Orphanides

Finance Minister Harris Georgiades said that taxpayers will have to pay additional €20m to compensate members of provident funds for their losses in the 2013 banking crisis, which constitutes a major U-turn from his previous position.

The new decision more than doubles a previous €100,000 cap in the compensation for retired affected members, which had angered bank workers’ union Etyk, to €250,000, Georgiades said according to a Press and Information Office statement. The new scheme exempts those who are still employed by Bank of Cyprus, he said. It covers 60,000 provident fund members excluding up to 300 senior bank officers whose benefits exceeded €250,000.

The increased compensation to provident funds members applies mainly to bank workers who invested in deposits at the banks they worked for, repeatedly ignoring supervisory advice to avoid risk concentration. The government already made available €300m to compensate fund members in 2013 and pledged further €168m in July.

Under the scheme announced in July, provident fund members would be compensated with 75 per cent of their losses. The introduction of the €100,000 cap was introduced in an attempt to avoid treating fund members better than other depositors.

Provident funds held €1.1bn in deposits before the bail-in in March 2013, but subsequently lost €763m when they were treated like every other bank customer. Depositors at Bank of Cyprus saw 47.5 per cent of their uninsured deposits converted to equity as part of Cyprus’s bailout programme, while those at Cyprus Popular Bank, widely known as Laiki, lost everything in excess of €100,000.

Bank of Cyprus absorbed Laiki’s operations and staff and subsequently reduced its staff levels with a number of retirement schemes.

The cabinet which met earlier this morning, decided the indexation of the compensation to inflation, Georgiades said. “If someone retires in 20 years, the compensation will not be based on today’s values but will be adjusted to take price increases into account,” he said. “It is an adjustment which will benefit all affected members substantially”.

Further, the cabinet decided to offer an additional €75,000 compensation to those who retired after 2013 and until 2017, he said.

The council of ministers also decided to cancel the obligation of affected provident fund members to transfer the ownership of their Bank of Cyprus shares to the state to get compensation, the minister said. Instead, the compensation will be determined based on the stock-market value of the share in July, allowing members to keep their shares.

The share of Bank of Cyprus, which closed yesterday at the Cyprus Stock Exchange and the London Stock Exchange at €2.59 and €2.57 respectively, was traded at around €3.25 throughout July and lost significant ground in August, especially after the lender issued a profit warning when it increased its provisions for loan impairments by €500m.

The revised scheme provides for additional public spending of €45m and as a result of the savings resulting from the cabinet’s decision not to demand the fund members’ Bank of Cyprus shares in exchange, the fiscal impact is reduced to €20m, he said.

Etyk engaged in a war of words with the finance minister in August after the latter initially rejected the union’s demands for additional €88m to fully compensate another 1,900 affected members.

This angered the union, known for its militant rhetoric and practices, which subsequently sought to meet president Nicos Anastasiades who is running for re-election next year and also said that the government would compensate funds to only 75 per cent of their losses in April 2016.

The Fiscal Council, a body tasked with monitoring the drafting and implementation of the budget to help avoid a new fiscal derailment, said in August fully compensating provident funds would increase the systemic risk “with incalculable consequences as it would send the message that the taxpayer would be liable for mistakes of institutional investors”.

The European Commission said in its December report, prepared after the latest post-programme surveillance mission, that the government’s decision to compensate provident funds “creates a precedent for other groups to make similar claims” and thus creates additional fiscal risks for the medium and long term.

Georgiades, who repeatedly warned of “returning to the bad practices of the past” when it comes to spending and seldom misses an opportunity to stress the importance of fiscal responsibility, said that “the recoupment through public funds of the pension an active Bank of Cyprus worker would be entitled cannot be justified since their deposits write-down happened to support the Bank of Cyprus itself”.

“But we have discussed this matter with the bank extensively and I have been officially informed that the bank is ready to review and implement an identical recoupment scheme for its own employees as part of a dialogue in progress on labour matters,” he said.

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About Author

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

  • SuzieQ

    @Barry White and @almostbroke—please don’t read this article as you will be ill…..

    • Barry White

      Thank you, Ms. Q. I am afraid that I read the article and was sick before reading yours. I will be returning to the naughty corner this evening with my mop and bucket to clean up.

      Abandon hope all who enter here.

      • SuzieQ

        Perhaps almostbroke will be saved. Milk of Magnesia should settle you down.

        • almostbroke

          Cod liver oil !

          • SuzieQ

            Goodness me—a radical solution!

    • almostbroke

      Ah Suzie thanks ! As long as the taxpayer have deep pockets and there are votes to be ‘bought’ , everything is fine , because the taxpayer / voter will keep bending over to have their ass kicked by their ‘betters ‘ !

  • John Henry

    Remember in Braveheart when William Wallace chased down, unknown to him at the moment, Robert the Bruce. Once he saw it was his friend, rather than kill him, he was so heart broken that all he could do was stare into space. That’s how I feel when I see Harris, the hood wink, Georgiades. What a let down. He’s a company man, ain’t he!

  • Bob Ellis

    Election BS like this will cost this island its future. It is no longer a case of ‘will there be a bigger crisis for Cyprus ?’, it is ‘When will the next crisis hit ? 2018 or 19 ?’ and will there be a Cyprus left ?

  • Barry White

    A total capitulation with Harris looking like a lost soul in announcing more confiscation of taxpayers’ money. Sickening, particularly as a good number of the chosen ones bear responsibility of the banruptcy of their employer. At least the government could have had some decency to announce that the golden pension lump some payouts are to be taxed.

  • Mommy-O

    No word on us pitiful private sector workers who also lost over 47% of their pension.

  • Vaso

    So private workers who also lost money have to fund the compensation to public workers! Who will fund the money lost by private workers! Why is this country only concerned about public sector workers! Especially when they are mostly overpaid, under worked, slow and incompetent and in a lot of cases downright lazy!

    • Didier Ouzaid

      Is BoC a public entity?

      It’s not about private/public here, even though I agree that Public sector workers get it far better, it may just be about unionised/non unionised workers.

  • Didier Ouzaid

    For all of those (including me) who saw this guy as THE start of a new breed of politicians, there you have it. Just like all his older peers, he caves in to careless populism and all the old ways he publicly denounced back when he was allowed to.

    Then Nik called for the end of recess and he had to just obey diligently.

  • Neroli

    I’m worried about Harri!