Local
articles | 30 January 2015

Bank of Cyprus may need to resort to ELA to replace cheaper ECB funding

Bank of Cyprus may have to replace up to €800 million in cheaper funding from the European Central Bank with mostly costly financing in case Cyprus fails to meet its bailout terms, a bank official said recently.

“We will have to apply for emergency funding should Cyprus fail to get a positive evaluation,” of the progress in implementing the economic and financial reform programme agreed with international creditors the official who spoke on condition of anonymity said in a telephone interview today.

Cypriot banks will then be ineligible to participate in the ECB’s financing operations, the Bank of Cyprus official said adding that “this will come at a cost but it is not just that. Getting funding from normal operations, you have more freedom, you need less collateral and you can give lending”.

The comments came a day after lawmakers passed a law extending the suspension of an unpopular foreclosure law to March 2. The foreclosure law, which was passed in September, was initially suspended until January 30. The December 18, vote prompted international creditors to withhold bailout funds for Cyprus and postponed the evaluation of the reform programme until the bailout terms were met.

Lawmakers said their decision to suspend the law was in reaction to the government’s delay to submit a draft legislative framework on insolvencies.

Averof Neofytou, chairman of conservative DISY, told debating lawmakers during the plenary session yesterday that Bank of Cyprus may require up to €800 million in emergency liquidity from the ECB following the extension of the suspension of the foreclosure law.

While the lender wants to avoid getting involved in the political debate, it “is deeply concerned” over the recent development debate and vote regarding the foreclosure legislation, the official said.

“We are crunching numbers to figure outwhat the impact will be from the continuation of this situation,” the official said. “This is a very serious issue”.

The vote may also impact the cost of lending for borrowers, the official said as it may block a process, which is currently underway with the Central Bank of Cyprus to reduce lending rates in the Cypriot banking system.

“This means lending rates will not come down,” the official said adding that the bank may also see its efforts to deleveraging process outside Cyprus affected via the sale of loan packages in Romania.

Source: Cyprus Mail

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