articles | 08 November 2016

EU Commission to ask for drastic changes in co-ops

Finance Minister Harris Georgiades said that the European Commission is likely to demand an immediate and drastic change of course of the bailed-out cooperative banks.

Georgiades who was commenting on state-radio CyBC, a day after the Cyprus News Agency reported that the shareholders of the Cooperative Central Bank will meet at an extraordinary general meeting on Monday, said that the European Commission is concerned that the co-op banks are moving towards becoming part of the state apparatus, which violates Cyprus’ bailout terms.

“As long as terms are violated, it is likely for the European Commission to demand an immediate and drastic course correction,” Georgiades said.

As part of Cyprus’ bailout agreement, the Cooperative Central Bank received in 2014 a €1.5bn capital injection from the government and another €175m eleven months ago. Cyprus’ second largest lander which is owned to 99% by the government and in turn has a 99% stake in the 18 cooperative saving banks it administers, is scheduled to start issuing new capital in 2018 in order to attract private equity and so gradually reduce the state’s shareholding to 25%.

The Cyprus News Agency reported that shareholders meeting was a suggestion of the European Commission’s directorate-general for competition at a meeting held on Monday afternoon in Brussels with a delegation of the Cypriot Finance Ministry and the Cooperative Central Bank.

The directorate-general for competition was against any policy or government intervention in the co-ops which could delay its privatisation or discourage potential investors, the Cyprus News Agency reported adding that the bank was instructed to increase its value and reduce its cost-to-income ratio of roughly 50% mainly through a merger of administered cooperative saving banks. The agency added that bank may also have to speed up its privatisation process.

The bank whose non-performing loan portfolio stood in June at 59%, is currently at the centre of two controversies. Akel, Cyprus’ communist party, which opposes the bank’s privatisation, submitted a draft law to the parliament to prevent it from happen. At the same time, ruling Disy and the government want to decrease the competences of the government’s Audit Offices citing the need of allowing the bank to operate on market terms.

Auditor General Odysseas Michaelides, who is known for his no-nonsense attitude and wants to remain the bank’s auditor as long as the government is calling the shots, said that the appointment of Nicholas Hadjiyiannis as bank’s chief executive officer in 2015 followed a questionable, hasty procedure. The job became vacant after former CEO Marios Clerides unexpectedly submitted his resignation in June 2015.

The auditor-general said five weeks ago in an interview to Alpha TV that the Cooperative Central Bank advertised the vacant CEO position onlyfor a week exclusively on the bank’s webpage attracting a total of eight applications, including that of Hadjiyiannis who got the job and happened to be the chairman of the board which decided the appointment.

Hadjiyiannis was not attending that meeting, auditor Michaelides said. Bank of Cyprus, instead, decided to appoint John Hourican as CEO following an “exhaustive” procedure.

The parliament is scheduled to vote on the bill which could restrict Michaelides’s agency from auditing the co-ops on Friday, three days before the extraordinary general meeting.

Georgiades who objects to both the government remaining main shareholder and allowing the audit office carry out audits in the future, on Tuesday said that the news from Brussels were a “reasonable and predictable” development and so will be the European Commission’s next steps. He added that while the bank is achieving its targets set out in its restructuring plan which provides for a staff reduction and the setup and staffing of new specialised structures. “On the other hand there is a not such a positive picture when it comes to steps which push the co-ops in a direction which conflicts with the basic terms of receiving state aid, that this financial support does not mean that the co-ops will become part of the state,” he said.

Georgiades said that in case the parliament passes any law “we shall respect (it) and have an obligation to respect (it)” and hinted that it could be appealed at the Supreme Court.

“The legislation will be enacted which may have different interpretations, it is something we see it often happen,” he said. “There are courts which ultimately interpret whether something is legal or not”.

Still, the government is not intending to resort to legal action because “we are not directly involved,” he said.

Source: Cyprus Mail

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