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.
Nigel, if you are saying, ‘why shouldn’t the EU bailout Cyprus when they did Greece’ then I do not think that is the issue. The issue is, ‘Can the EU afford to do it’. Will other EU countries, who toe the line, ensure modern practice etc be willing to bailout another irresponsible neighbour? It would appear to be madness as Cyprus cannot even acknowledge there is a huge problem. Therefore, its not a case of ‘well they did it for Greece, so they must do the same for us’. If that is the criteria for a bailout then we are all doomed as Europe will go bankrupt! Now that ain’t gonna happen!
Hi Nigel and Janner,
I know what happens next!
With the appointment of Panicos O. Demetriades to the board of the ECB, times are a-changin’. Please read below:
http://www.nytimes.com/2012/05/02/business/global/new-ecb-council-member-will-have-little-time-to-learn-ropes.html
In brief, Mr Demetriades KNOWS that:
1) The extent of the problem in Cyprus banks is WAY in excess of what is being reported (as he knows the country)
2) Cyprus aint never gonna accept the austerity measures necessary, which would be deeeeeeeeppply unpopular, to be granted bailout money (why should they as no-one else has!)
3) Without Cyprus even making any attempt to pretend to let Germany run its economy, Germany will NOT grant Cyprus any bailout money and continue throwing money into the bottomless bailout pit.
So, the ONLY solution left for lil’ ole Cyprus, as advocated by Mr Demetriades is if Germany leaves the Euro and the remaining eurozone countries help each other out.
Meanwhile, over on the other side of town, German discussions on just that very thing are at an advanced stage. Please read this:
http://seekingalpha.com/article/429741-is-germany-actually-preparing-to-leave-the-euro
In a nutshell, the bets some colleagues and I made a couple of years ago will soon pay out, that Germany would be the first country to leave the eurozone! You heard it here first folks!
What will be left? Much as I feel sorry for all the poor souls caught in the cross, as far as nations like Cyprus are concerned, who milked the EU gravy train (I know, mixed metaphors but milk lake just sounds wrong) for all its worth, Suum cuique…
@Janner – if the ECB can bailout Greece, why not Cyprus?
If the ECB even consider a request from Cyprus for bailout money it will be a disgrace. Any money given to Cyprus will simply be wasted. How could they ever justify it. Cyprus doesn’t even have the economic infrastructure in place to efficiently collect taxes, recover loans etc. The real debt of that country is probably unknown.
I’m sure if I went to my bank today they would carry out a thorough check to see if I am a safe bet. I would like to think that the ECB would too. I just cannot believe that a country which is riddled with allegations of corruption, fraud etc. would even have the neck to go cap in hand to anyone! What possible ‘acceptable credit status’ could Cyprus offer. It is in virtual ruin by the sounds of it.
Absolutely no surprises at all. For Marfin, Laiki, now Popular (ha!) again the day of reckoning must be imminent. I’m surprised there aren’t queues in the street, as with Northern Rock, pre Government bailout. As previously pondered, although up to €100k are Government Guaranteed, when might the government have the wherewithal to honour such. If Cyprus weren’t such a tiny country, I’m sure it would be up there with Spain, Portugal, Italy, Greece even? across the world’s press. What a prelude all this will be to Cyprus’ much heralded (well in Cyprus anyway) EU Presidency.
@Alex – Cyprus may have to go to Europe for money to bailout the banks.
So, what was obvious to everyone a year ago (that Popular Bank would need government help) has finally dawned on the Cypriot establishment. It took 2 Finance ministers (one former and one current) and 8 months to correctly interpret the balance sheet of the second biggest bank in the country.
As far as I understand, all the parties involved had been waiting until the end of April to announce the obvious simply because this is the deadline for publication of audited financial statements of public companies and it no longer possible to pretend that everything is OK.
On that date either PWC needs to assure everyone that Popular Bank is sound and thus lose any credibility as an audit firm, or state the obvious – that its client is technically bankrupt.
The most interesting thing, however, is the source of those 1.5 billion the government intends to inject into the banking sector. Any ideas?
So Dr Sarris thinks it is positive that the Cyprus government is taking measures to support the banking system. What I want to see are the measures the government will take ultimately to recover whatever funds it “lends” to the banking system.
Popular bank, Hellenic Bank and Bank of Cyprus are not safe places to keep money. There is a government guarantee to depositors in the event of failure of these banks, but considering the government’s record on developer mortgages and title deeds, when it comes to the crunch they just don’t have the money available to deliver what they have promised. Further, the Cyprus credit rating is now so poor that they cannot borrow it on the money markets at less than crippling interest rates. Of course, there are always the Russians to fall back on at some cost we will find out about when it comes to payback time.
Good luck with your efforts Dr Sarris to get money from Greece to help you out.
You could always ask some of the Developers that you have loaned money to for a payment or two towards their loans.