articles | 16 November 2015

Co-Op will need €150-200m before end of 2015

The Cooperative Central Bank (CCB) will need a government-funded injection of €150m to €200m in fresh capital, in order to meet its capital requirement target of 14%, chairman Nicolas Hadjiyiannis said recently.

Following the announcement of additional write-downs of non-performing loans (NPLs), the CCB posted losses of €228m for the first nine months of the year, depleting its capital reserves to 12.01%, barely over the minimum capital requirement.

Speaking on state radio on Friday, Hadjiyiannis said the state – a 99% majority shareholder, following last-year’s taxpayer-funded recapitalisation with €1.5bn – will boost the CCB’s capital before the end of the year.

“The goal is to increase our core-tier 1 capital to 14%, and to get there we will need between €150m and €200m,” he said.

His remarks were somewhat at odds with Finance minister Harris Georgiades’ announcements on Friday, in which he confirmed the government plans to strengthen the CCB’s capital buffers. But, he said, this would not exceed 10% of last year’s capital injection – or €150m – and making it before the year is over is going to require a race against time.

“Quite simply, if the European Competition Commission directorate does not approve the capital injection, there will be no government support, and the CCB will continue to rely on creating capital through its operational profitability,” Georgiades said.

The reason for the rush in getting the recapitalisation done before the end of the year is that, as of January 1, 2016, undercapitalised banks across the Eurozone will become the remit of the Single Supervisory Mechanism, which has different recapitalisation rules and does not allow for government support.

“Without the competition commission’s approval, I can’t say that government support is a given,” the minister said.

“Government support without the commission’s approval would be illegal, and reminiscent of the illegal support granted to the (now-defunct state-owned airline) Cyprus Airways.”

Still, Hadjiyiannis noted, the CCB has €3.5bn in liquidity, which can be used for healthy – and profitable – lending.

With regard to the increase in write-downs, which triggered the need for additional capital, the CCB boss said they were due to “non-recurring special provisioning”.

“These provisions did not come up from some weakness or gap or anything new in the CCB’s balance sheet,” he said, adding that they were the result of an SSM evaluation.

“Certain adverse scenarios were used with regard to macroeconomic data, and based on these, this sum arose.”

Nevertheless, he said, unless the NPLs problem is resolved, we will continue to operate under adverse scenarios.

Source: Cyprus Mail

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