THE Ministry of Finance has prepared an emergency plan to help the banking system cope with difficulties resulting from the write-down of Greek debts.
The Ministry issued a statement after a newspaper reported that the government was working on a nightmare scenario that demands pumping up to €2.5 billion into the banking system to cover their losses.
The statement admitted that the Island’s banking system is approaching a critical turning point and is faced with the challenge of recapitalising after suffering extensive losses on their holdings of Greek bonds.
The statement added that the Ministry plans to help the banks were based on three pillars: it is keeping watch on efforts being made by the banks to recapitalise through their own means, it is also ready to intervene if it becomes necessary to do so, and finally that any state intervention will be aimed at creating conditions of financial stability and confidence, while minimising the overall cost to the economy.
The newspaper report that prompted the Ministry’s statement said that state intervention could be triggered by concerns that the auditors of the Popular Bank, Pricewaterhouse Coopers, could express reservations on the bank continuing to function as a viable economic entity. In that case, the Government would have to offer state help to avert its crash.
Commenting on the report, Popular Bank Chairman Michalis Sarris said that it was positive that the Government was taking measures to support the banking system. However, Dr Sarris regretted that the newspaper report revealed Government plans before an official decision had been taken.
Dr Sarris added that efforts are underway to secure help for the Popular Bank out of bank stabilization funds in Greece for the sections of its operations in Greece, bearing in mind that it had been a subsidiary of a Greek bank.
A report by Finance Minister Vassos Shiarly on the plan to help the banking sector is expected to be presented to the next meeting of the cabinet on 2nd May.
Mr Shiarly told reporters earlier this week that up to €1.5 billion may be required by one Cypriot bank to recapitalise.