articles | 17 March 2020

Coronavirus: Banks slated to release €1.3bn to help businesses and households

The Central Bank of Cyprus (CBC) said Monday that local lenders are “expected” to release around €1.3 billion in aggregate in capital reserves, to be used to grease the skids for businesses and individuals amid the economic slump due to measures taken to contain the spread of Covid-19.

In a statement, the central bank said CBC governor Constandinos Herodotou took part in the March 12 meeting of the Governing Council of the European Central Bank, which decided a number of contingency measures regarding the unfolding situation with coronavirus.

These included the “temporary release” of some €1.3bn in capital reserves held by Cyprus’ systemic banks.

“The CBC anticipates that banks shall make use of these reserves, demonstrating the necessary flexibility in supporting both businesses and households expected to be adversely affected by the spread of Covid-19,” it said.

In effect, banks are being green-lit to lower designated minimum capital buffers, or the percentage of capital they hold in reserve to offset lending risk.

According to the CBC, the financial support would include short-term restructuring of current loans as well as issuing new short-term loans to finance working capital needs.

Cyprus’ systemic lenders are Bank of Cyprus, RCB, Hellenic, Eurobank and Alpha Bank.

The European Central Bank (ECB) decided on March 12 that immediate additional liquidity be made available so as to provide banking facilities, particularly to small-to-medium sized businesses.

The ECB also announced a temporary extension of quantitative easing, to keep the cost of borrowing low.

For its part, the CBC stated it’s currently working on additional measures, to be unveiled in the coming days.

It said that later on Monday, it would be holding a teleconference session with leaders of commercial banks, where the latter would be outlining their specific actions in light of the liquidity relaxations.

Commenting on this, Finance Minister Constantinos Petrides tweeted: “Cypriot banks’ minimum capital requirements are being reduced by €1.3bn. Lenders must use this facility to boost liquidity through loan origination, or through greater flexibility with regard to loan repayments by those taking a hit in this crucial period.”

Bank of Cyprus sources called the ECB measures “extremely significant.”

“Generally speaking, Frankfurt [the ECB] and Brussels are sending a strong message that, whereas in 2008-2013 banks and sovereign debt were part of the problem, in today’s crisis they will be a big part of the solution.”

But the same sources added:

“Discussions are ongoing. Based on the current state of play, analyses and scenarios are being formulated around the clock on ways to support the economy. But the banks on their own cannot ‘lock in’ the measures until Frankfurt clears up certain matters.”

Regarding steps to contain the spread of the virus itself, Bank of Cyprus sources said that at this stage it is not shuttering any branches as this would run contrary to current state directives. Moreover, it was deemed that closing certain branches would only serve to increase traffic at the open ones, thus defeating the purpose of the preventative measures.

Speaking to the Cyprus Mail, industry sources said despite the ECB policy, a question mark hangs over whether Cypriots banks are able or willing to loosen lending.

“Irrespective of the coronavirus situation, with the economy already not in good shape due to high indebtedness, and cash likely to dry up from the passport scheme [citizenship-by-investment scheme], which is on the ropes, it’s doubtful if banks here will be releasing extra liquidity, at least not to the extent telegraphed by the ECB.”

Source: Cyprus Mail

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