articles | 28 July 2019

CSE hit by continuous changes in foreclosure laws

Insecurity caused by continuous changes in the foreclosures law are not only taking their toll on the country’s banks but have a broader effect on the local economy bringing down the local stock market heavily depended on banking stocks.

Following the announcement of amendments to the foreclosure law voted in by parliament during their last session before the House’s summer break, the CSE General Index saw eight consecutive sessions close with a drop. Revealing the CSE’s dependency on banking equity, specialists see no future for the local stock exchange if it does not invest in new markets such corporate bonds, funds and energy.

Brokers say the CSE General Index has taken a dive as investors are holding back, keeping away from banking stocks. And as the Cyprus Stock Exchange is heavily depended on these stocks, indices have taken a beating.

The changes in the foreclosure law, eventually referred back to the house by President Nicos Anastasiades, included a freeze on foreclosures of primary residencies which are eligible for inclusion in the Estia scheme for distressed homeowners and gave legal tools to borrowers to fence off the foreclosure of their property.

The latest amendments put forward by the House take back tools given to banks just last year by the same legislative body, to reduce their exposure to NPLs. While affecting the value of the assets they hold as collateral, thus seriously burdening their balance sheet, international supervisory bodies have already issued warnings that banks may face increased provisions and new capital needs.

Talking to the Financial Mirror, Andreas Epiphaniou Senior Trader at Argus Stockbrokers, said that it is clear that the driving force behind the CSE is the country’s banking sector.

“Just a look at the CyFTSE20 is enough to make the case. The index has a total capitalisation of €1.9 billion, with the banking sector accounting for 50%, which is not the case in other European exchanges,” he commented.

Epiphaniou also commented that CSE dependency on banking equity shows that that other sectors lack capitalisation through the stock exchange.

He added that developments regarding the two bills referred back to the House by the President are crucial for the future of Cyprus banks’ stocks and in turn the future of the CSE.

Epiphaniou added that this is not the first time CSE has taken the downfall due to turbulence in the banking sector, as the CSE indices have been affected in the past by the downfall of ex-Laiki Bank and more recently of the Coop.

Banking sector under-performing

 Echoing Epiphaniou’s arguments, Charidimos Papadimitropoulos Asset Manager at Global Capital Securities, said that the banking sector has been under-performing the past few years, as it was struggling to stabilise and adjust to the increased capital needs and regulatory requirements imposed at a European level. This led to the drop in interest of local and foreign capital.

Papadimitropoulos finds that as things stand today the future of the CSE is depended on the performance of the banking sector and stocks of a handful dividend paying companies. “For things to change the CSE will have to make drastic changes,” he noted.

“In order to increase interest in the CSE, banks will need to stabilise, in terms of capital needs regaining their lost attractiveness. Ultimately the CSE will need to work on convincing large non-banking companies with good dividend yields to join and develop the corporate bond market thus increasing market liquidity, providing a significant alternative to bank deposits. This would increase investor interest for the CSE and its services”.

Argus Stockbroker’s senior trader Andreas Epiphaniou sees that the CSE will also have to update its legislative framework, pricing policy, and put out incentives to draw in new companies.

“Pricing policy is very important as far as the competitiveness of the CSE is concerned. Over the past ten years we have not seen new companies opting to list on the CSE, but we have also witnessed a large number of listed companies fleeing due to high costs. This should be a matter of concern to the CSE authorities,” commented Epiphaniou.

CSE drawing up a roadmap

Acknowledging the local stock market’s dependency on banks’ stocks, CSE Chairman Marinos Christodoulides told the Financial Mirror that the CSE in cooperation with all stakeholders is currently drawing up a roadmap to help the stock exchange to see better days.

Christodoulides is optimistic that the roadmap will be a result of collective efforts of the CSE, the Finance Ministry and the government, and the advisory boards on fiscal matters.

“Our main aim is to breathe new life into the CSE by enriching its products and services, modernising procedures and ultimately attracting new local and foreign businesses to join the platform. This in turn will help the economy by drawing in new capital and investments,” he commented.

Christodoulides said that the CSE will have a key role to play in the growth of the Cypriot economy. “Stock markets are key players for economic growth, offering, among other things, the ability to raise the required capital for productive investments, while also offering a valuation mechanism for listed companies on a daily basis,” he commented.

He said that the CSE has not abandoned the idea of drawing Collective Investment Schemes, aiming to take advantage of legislation already passed by the House. The CSE is also looking into the possibility of taking on the role of custodian for these funds in the future.

Commenting on the recent turn of events regarding their proposal to set up the energy market in Cyprus, Christodoulides noted they are deeply “dissatisfied and disappointed” with the approach taken by the Energy Ministry which rejected its bid to act as the country’s electricity market operator.

In cooperation with the Hellenic Stock Exchange and the Athens Stock Exchange, the CSE had submitted a comprehensive proposal to the Ministry of Energy offering all the necessary services for the operation and management of a competitive electricity market.

However, the proposal was rejected by the Energy Ministry with Christodoulides noting that Cyprus had lost out on a historic opportunity to set up an energy exchange.

“This proposal offered significant cost and implementation advantages such as the knowhow and infrastructure of the Greek Energy Exchange (Henex) that would cover future needs such as buying natural gas,” he said, adding that their proposal, if accepted, would have given a push to the CSE.

Source: Financial Mirror

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