(Updates with fresh finance minister comment in first paragraph)
By Stelios Orphanides
Finance Minister Harris Georgiades said that deposit outflows at the Co-op have “essentially” ceased after parliament paved the way for the completion of Hellenic Bank’s deal with the bailed-out lender.
The finance minister who was commenting a day after parliament approved the extension of government guarantees to Hellenic Bank and a bundle of draft laws to speed up foreclosures, said that what follows is the establishment of a non-performing management body which will manage the Cyprus Co-operative Bank’s non-performing loans.
“The management will be carried out by a specialised foreign company and revenue is expected to be considerable and as a result, the budget is expected over the coming years not be burdened but to be strengthened rendering (public) debt management sustainable,” he said. “This positive prospect is already reflected in market reaction”.
As a result of the Co-op’s slow progress in reducing its non-performing loans over the past five years, the bank had to increased its provisions for loan impairments which ultimately wiped out its capital. Concerned depositors withdrew €2bn in the first quarter of the year and continued to withdraw their funds on fears parliament could block the deal between Hellenic Bank and the Co-op.
Earlier, in comments made to state-radio CyBC, the finance minister said he offered President Nicos Anastasiades his resignation days ago after opposition politicians asked for the assumption of the political responsibility for the Co-op’s failure.
“I am ready to leave my post to facilitate the government’s work,” Georgiades told CyBC.
“The President (already) replied to me, but I will not convey the content of the conversation,” Georgiades said. “It is up to the President to decide, not the opposition”.
Hours later, President Anastasiades said the resignation of his finance minister would not be justified, as Georgiades continues to enjoy his trust.
Diko, which on Sunday helped Disy form a majority in parliament to pass the new legislation and approve the issue of government guarantees to Hellenic Bank, was one of the political forces that demanded resignations following the agreement of state-owned Co-op with Hellenic which provided for the transfer of its operations to the latter. On Tuesday, the board of directors of the Co-op quit.
The guarantees, part of Hellenic Bank’s agreement with the Cyprus Co-operative Bank to acquire the latter’s operations, will allow the completion of the deal while the laws are a condition set by the European Commission’s competition watchdog to approve the agreement.
“The legislative framework is getting more effective and fairer,” the minister said. “The margins for strategic defaulters to take advantage of the system are limited. On the other hand, the expansion of the insolvency framework and the preparation of Estia which potentially covers almost half of the non-performing loans with a primary home as collateral, offers sufficient security”.
“The decisions that were ratified yesterday by parliament not only cause no problem but will liberate the economy from the last remaining problems of the crisis,” said Georgiades, who faced criticism in the past over the appointment of his friend Nicholas Hadjiyiannis as chief executive officer of the bank, which taxpayers recapitalised in 2014 and 2015 with almost €1.7bn.
“Our banking sector is definitely stabilised,” the finance minister continued adding that depositors were now “fully guaranteed”.
On Sunday parliament passed in an extraordinary plenary session a bill which provides for the fragmentation of a mortgage to cover several other lesser loan agreements so that no loans remain unsecured when the collateral becomes property of the buyer of a loan.
Another law passed exempts the buyer of a loan from transfer fees resulting from the transfer of collateral and regulates several other aspects including the transfer of rights and obligations, priorities, the continuation of lawsuits and the storage of documents.
Other bills expand the coverage of the insolvency legislation, increase the reward of insolvency consultants in case of successful mediation, encourage corporate debt restructuring and introduce the securitisation of loans.
The parliament also rejected amendments to the above bills proposed by opposition parties and passed two bills proposed by the chairman of Disy Averof Neofytou.
The first bill provides that the revocation of a cooperative bank’s licence will not immediately result to its resolution, leaving it to the discretion of the Central Bank of Cyprus to seek a relevant court order. The second allows the Cyprus Cooperative Bank to manage assets in its possession to secure liquidity.
The two bills will allow the legacy Cyprus Cooperative Bank to operate as a bad bank following the completion of the agreement with Hellenic which provides for the transfer of €4.6bn in performing loans, €4.1bn in government bonds, €1.6bn in cash, €9.7bn in customer deposits and other current liabilities and assets.