articles | 19 February 2013

Central Bank seeks troika approval to inform banks on their needs

The Central Bank will reportedly seek international lenders’ approval to officially inform banks about their recapitalisation needs, thus enabling the banks to accurately inform investors of their financial results for 2012.

It’s understood that the island’s two largest banks, the Bank of Cyprus and the Popular Bank, have asked stock exchange authorities for an extension on the deadline by which they are obliged to announce their yearly results.

The deadline for publishing preliminary results for 2012 is February 28. The two banks argue that they cannot meet that cut-off date as they have not yet been informed about the final amount needed for their recapitalisation.

Announcing their results without factoring in this information might be misleading to investors, the banks say. But an extension on posting financial results is prohibited by legislation governing transparency and market manipulation. An extension can only be granted by the minister of finance via a decree.

But there’s another hitch. Investment managers Pimco have been hired to carry out a due diligence of banks to determine their capital needs ahead of an overall bailout package sought by Cyprus.

Under an agreement concluded with the island’s prospective international lenders - the troika - the findings of the due diligence would be made public only upon the signing of the final loan agreement. Now the Central Bank wants to query the troika on whether the rules can be bent.

The Cyprus News Agency said the regulator would try to explain to the troika why there must be some alteration in the established procedure so that banks are informed about the amount needed for their recapitalisation based on Pimco’s scenarios.

The reported decision was taken at a meeting yesterday attended by Central Bank governor Panicos Demetriades, Attorney-general Petros Clerides, Securities and Exchange Commission (SEC) Chairwoman Demetra Kalogirou, head of the Cyprus Stock Exchange (CSE) Nondas Metaxas and Finance Ministry officials.

Reports said both the SEC and CSE cited concerns over leaks of sensitive information to the media regarding the status of Popular Bank and Bank of Cyprus, listed on the stock exchange. Such information includes the amount needed for the banks’ recapitalisation according to a due diligence report, which affects investors’ decisions.

Pimco’s due diligence is being monitored by a steering committee. It comprises representatives from the Central Bank, the finance ministry, the cooperative bank supervisory service, the IMF, European Commission, European Central Bank, European Stability Mechanism, European Banking Authority, and the European Central Bank.

On February 2 the steering committee received Pimco’s final report. The committee would next draw up a plan to determine the capital needs of the banking sector. That’s only part of the problem with the Pimco report. The investment company has reportedly come up with a worst-case scenario of €10.1 billion for the bank’s capital needs - an amount which would raise the island’s debt to over 120 per cent of GDP and thus make it unsustainable under IMF criteria.

The government has come under fire for allegedly deliberately allowing the recapitalisation figure to be inflated in a bid to drive home its argument that the banks were to blame for the mess the economy is in. But on realising that the figure quoted by Pimco could derail Cyprus’ request for aid, critics say, the government asked a second company to review Pimco’s report.

Source: Cyprus Mail

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