articles | 01 August 2013

Central Bank of Cyprus announces significant progress with financial sector reform programme

The Central Bank of Cyprus announces that significant progress has been made with the Financial Sector Reform Programme at the conclusion of the three week mission of the international lenders the Troika (EC, ECB, IMF).

A press release by the CBC notes that the Cypriot authorities have already started to implement a comprehensive action plan to ensure that banks are well capitalised and viable. “The regulation and supervision of the banking sector is being strengthened, thus restoring depositor confidence and enhancing the sector’s capacity to contribute to economic growth”, it is stressed. In addition, the CBC notes that the entire financial sector will meetits required capitalisation level by the end of 2013, either from private sources or from state aid with programme money already reserved as part of the Troika programme. Out of the €10 billion financial assistance to Cyprus, €2.5 billion has been allocated for the recapitalisation of the cooperative credit institutions (€1.5 billion), the other commercial banks and for unexpected setbacks which may emerge in the financial sector.

It is stressed that there will be no depositor bail-in beyond the one already completed at Bank of Cyprus and Laiki Bank. All other recapitalisations will be achieved through private means or through money reserved from the programme. “The bail-in of both banks (Laiki and Bank of Cyprus) has now been fully completed and the new emerged entity is well capitalised to a level which can sustain possible future losses on its loan portfolio”, it is said. Regulation and supervision will be strengthened to ensure a more credible, robust and resilient financial sector. Cooperative credit institutions, which up to now were not subject to the supervision by the CBC, will be as from the end July of 2013 supervised by the CBC to ensure that common rules, regulations and supervision are applied throughout all credit institutions.

To better assess the credit worthiness of borrowers and therefore to enable better pricing of loans in accordance with the entire indebtedness of borrowers, the authorities will set-up a central credit register by end of September 2014. To strengthen the credit institutions’ ability to withstand shocks, the CBC will review the current regulatory framework with respect to the entire loan process, including approval and provisioning to identify any gaps and address them accordingly.

The CBC further notes that given the criticism about the governance structures that existed until very recently, the CBC will introduce tighter rules on the composition of the boards of credit institutions and on lending to board members, to ensure a more transparent and effective corporate governance. “The economic importance of Cyprus’ financial centre should not allow for the development of any credibility concerns. Therefore, to further enhance credibility, Cyprus has undergone an independent audit by Moneyval and Deloitte’s which was finalised in early May 2013. The recommendations of the independent audit will be implemented as part of a comprehensive action plan”, it is underlined.

Furthermore, trust registers will be established and a third-party assessment of the functioning of the Registrar of Companies will be launched. Cooperation with foreign intelligence units will be further strengthened. As regards the imposition of restrictive measures on transactions, it is noted that it was a necessity, given that the banking system underwent a deposit bail-in and a severe blow to depositor confidence. “Efforts have been and continue to be made in order to limit their duration and scope to the minimum extent necessary. A further gradual relaxation of the restrictive measures until they are lifted remains a top priority for the authorities”, the press release says.

Source: Financial Mirror

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