By Stelios Orphanides
The decision of the Cyprus Cooperative Bank last week to speed up developments and invite investor interest to buy the lender or part of its assets, was triggered by the need to further increase provision for loan impairments, which the lender did not have the capacity to absorb, a senior manager said.
“As Cypriots, we are accustomed to crying over ruins,” said Yiannos Stavrinides, head of strategy and communications at the state-owned lender in a telephone interview on Tuesday. “We decided not to act proactively instead of waiting for the shock to occur”.
As the bank, struggling with a mountain of €6.5bn in non-performing loans which makes up more than half of its loan portfolio, has received clear messages from supervisors that it will ultimately have to increase its provisions again, which totalled over €3bn in September, he said.
The bank’s decision to seek private equity, while prescribed in a restructuring plan approved by the European Union’s directorate general for competition five years ago, triggered an outcry among Cypriot opposition political parties unhappy to see the Co-op, bailed out with almost €1.7bn, switching to private owners.
“We are dealing with a particularly sensitive portion of non-performing loans that involve primary residences, plus the legislative framework needs changes,” Stavrinides said. “As we are not legislators, we are taking timely action to address the situation with business solutions. More provisions, mean more capital”.
Stavrinides said that the transformation which the bank, the product of a successive mergers of initially over 300 saving banks over the past decade, has been undergoing since the 2013 banking crisis, allows it to forge ahead at this point. “I now have a bank which is beginning to become more cohesive and it is not like it was in 2013,” he said.
The bank which announced on March 19, its decision to invite private investors, gave them a deadline until Thursday, March 29 to submit their interest before inviting them to file binding offers in the second stage, expected to be completed by the end of May.
“We are ready to take the bank out of the restructuring plan, and we do it because we now can,” he said.
The Co-op, the second largest bank in Cyprus with a network of less than 200 branches, exhausted all margins of receiving additional state aid. It posted in 2016 a net profit of €7.1m against a loss of €176.4m in 2015. In the first nine months of 2017, it generated a net loss of €28.6m. The bank’s loan portfolio is granular, i.e. it has extended a large amount of relatively small loans to mainly households.