(Adds comment by Bank of Cyprus and Hellenic Bank sources in fifth paragraph)
By Stelios Orphanides
An increase in withdrawals at the Co-op compelled the Central Bank of Cyprus to say that Thursday’s comments made by one of its officials on the disastrous consequences for depositors of a failure to implement the Hellenic – Co-op deal were intended to highlight the worst-case scenario rather than present the probable scenario.
“The comments about the remote, theoretical probability of the liquidation of the Cyprus Cooperative Bank were made to stress the most extreme negative consequences if the transfer of the Cyprus Cooperative Bank to Hellenic Bank is not completed, a solution which under the circumstances constitutes the only alternative,” a central bank spokesperson said in an emailed statement on Friday.
On Friday, customers were queuing inside and outside Co-op branches leading to an increase in withdrawals, sources familiar with the matter said. In the first three months of the year, the Co-ops saw €2 billion in cash withdrawals amid concerns over the bank’s capital adequacy. Depositor concern was amplified by comments made by opposition politicians who left open whether their parties would support a government bill that would allow the government to extend guarantees to Hellenic Bank to shield it from a probable under performance of assets it agreed to acquire.
The Co-op, the second largest lender on the island, has a ‘very important market share in deposits’ facilitating ‘critical functions’ for the economy, the central bank spokesperson said.
The Cyprus Cooperative Bank declined to comment. Sources at Bank of Cyprus and Hellenic Bank said that the two other lenders had not seen any unusual inflow or outflow in deposits. The Cyprus News Agency reported that customers withdrew on Friday €70m until noon.
“Therefore, interest and economic and financial stability necessitate that there is no impact on insured depositors. Therefore, even in the case of considering the probability of resolution, public interest will lead to the complete protection of insured deposits without raising the issue of liquidating the bank if the deal on the sale of the Cyprus Cooperative Bank’s operations is not completed,”
On Thursday, Yiangos Demetriou, head of the central bank’s supervision department warned members of the parliament’s watchdog committee of the ‘disastrous’ effects the non-implementation of the agreement signed by Hellenic Bank with the Cyprus Cooperative Bank on Monday would have. Demetriou had also said that the European Central Bank and the Single Resolution Mechanism, were preparing for a scenario under which the deal was not implemented.
The deal, which provides for the transfer of the Co-op’s operations to Hellenic, including €9.7bn in deposits, would spare the Co-op from being liquidated, Demetriou said.
The implementation of the deal also requires the approval of a bundle of amendments in legislation to help banks reduce their non-performing loans, which the European Commission set as condition for allowing taxpayers’ money to facilitate the deal.
The Central Bank of Cyprus spokesperson added that deposits up to €100,000 per individual or legal entity per financial institution remain guaranteed in accordance with a European directive transposed into national law.
In 2013, depositors at Cyprus Popular Bank lost all their uninsured deposits after the bank ran out of capital while those at Bank of Cyprus recapitalised it with almost half of their savings in excess of €100,000.