Audit Office slams Co-op, finance ministry over governance


By Stelios Orphanides

Cyprus’s audit office said that the state-owned Cyprus Cooperative Bank, which is currently in takeover talks with two investor groups, should redesign its corporate governance after an audit revealed weaknesses.

The audit office, which published on Friday its report on its probe into the Co-op’s administrative and compliance practices covering the period between July 1, 2015 and December 12, 2016, said that the attested gaps in governance are to blame for the bank’s failure to meet its own performance targets and implement its business plan.

As a result, the investment of taxpayers who injected €1.5 billion in the form of a capital injection in 2014 to the Cooperative Central Bank – as the lender was called until a year ago when it completed its merger with 18 other cooperative saving banks it administered – and another €175 million the following year, is gradually losing value, the office said.

The Co-op, which in the first nine months of 2017 generated a net loss of €63.3m compared with a profit of €7.1m for the full year of 2016 and a net loss of €176.4m the year before, had difficulties in reducing its non-performing loans portfolio, which accounted for €6.7bn in September last year, or 58.8 per cent of its total portfolio. In July, it announced its intention to assign the management of its delinquent loans to Spain’s specialist Altamira.

Two months ago, the government issued €2.4bn in bonds in favour of the bank owned by the state to over 99 per cent and deposited €2.5bn, receiving its non-performing loans stock and the underlying collaterals as guarantee. The bank announced on March 19, its intention to seek a buyer for all or parts of its operations and assets amid concerns over its capital adequacy, which prompted depositors to start withdrawing their funds.

“Unfortunately, the depreciation of the Cooperative Central Bank is accelerated by the finance ministry’s illegal decision, subsequently adopted by council of ministers to hand over, free of charge, 25 per cent of its stock to natural persons, customers of the corporation,” the state auditors said, repeating criticism made by Auditor-General Odysseas Michaelides in the past as part of a public war of words with Finance Minister Harris Georgiades.

“The finance ministry’s actions but also those of the Cooperative Central Bank in this area, appear to be related to the effort to achieve a listing before supervisory authorities could attest the need for further capital increases,” the audotors added.

The Co-op is one of the four systemic Cypriot banks jointly supervised by the Central Bank of Cyprus and the European Central Bank’s (ECB) Single Supervisory Mechanism (SSM).

“This is unacceptable and may likely constitute a violation of the relevant legislation,” the audit office said, adding that the matter also raises questions over the ethical behaviour of the state, its executives and officials.

According to the report, the lender did not apply best practices the areas of human resource management and procurements.

The Co-op’s agreement with Altamira to set up a non-performing loans management platform was the product of the company’s failure to negotiate with other companies, which brings the bank into a disadvantageous position and Altamira to an advantageous position, the state auditors said.


About Author

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

  • Mist

    best practices, you mean give your son your job and you become a consultant doing the same job at more money.

  • Copernicus

    There are very serious issues of good stewardship of the government investment, good corporate governance, management incompetence and a complete absence of oversight and challenge of management by the board. The board should be liable for civil action by borrowers who have suffered thanks to the excessive interest rates they were charged and also for any wrongful actions of the board. The Minister is ultimately responsible and he should be accountable for his ill conceived plan to offer the shares for free!

    • Bruce

      Agree completely noting that Minister wanted to denote shares to “reliable borrowers” as well as depositors.Minister is culpable also for the appointment of incompetent loyalists as managers in the Central Bank and Hellenic Bank.

      • Copernicus

        The appointees on the board of the CBC, and the executive directors, are all his friends or boys of DYSY. The Central bank is not an independent bank as it should be and the ECB did nothing. Either they do not care at the ECB, after the CO Op scandal, or they have no idea of what is going on in Cyprus.
        It is a disgrace that so soon after the TRIKA has left Cyprus is again in the hands of incompetent politicians. We though we had seen the back of such incompetence but one of the board members of the CBC is certainly so well informed about banking regulation and finance that he is on the board raking in 30k for doing nothing. Sadly OPM and they have no cares but the dots in Cyprus who pay the taxes should care.

  • JS Gost

    Lol. The words governance, accountability and responsibility are not available in the Greek language. In the same way as austerity, third world and destitute will become very important words shortly. The Co-op is the tip of the iceberg that will sink the island. In 2013 we had a chance to fix things, being arrogant and denying the truth for 5 years will make the collapse all the more spectacular and fun to watch. My sympathy has gone, a slow ironic hand clap is all they will get from me.

    • Costas Apacket


  • Rory Keelan

    more overreach by the Audit Office