In a letter written in response to a question by Green Party leader Giorgos Perdikis, Georgiades said in the event Cyprus decided to set up a state-owned AMC, this must comply with EU state-aid rules, prompting endless discussions with the EU DG Competition, as in the case of Italy.

He pointed out that the EU prohibits the use of taxpayer money to cover bank losses, which means acquiring bad loans at book value.

“Therefore in the most probable scenario, the European Commission would enforce loan acquisitions at market value and subsequently the banks would incur losses, which in turn would require additional capital that would be hard to attract under the current market conditions,” he said.

“The government believes that such initiatives should be taken by the banks, which may set up asset management company themselves,” the minister added.

Georgiades said the case of Italy is very different compared with Cyprus since Italy’s bad loans amount to 12% of the country’s GDP.

Non-performing loans in Cyprus amount to 92.5% of the island’s GDP, which is the highest in the EU.

According to the Central Bank of Cyprus non-performing loans in June 2016 were €24.7bn.

“The policy approach so far remains that the banks should undertake initiatives to further tackle the problem of bad loans utilising the current legal framework approved by parliament, taking into account that the aid given by the state to commercial banks and the cooperative sector reached 20% of GDP compared with the EU average of 4.5%,” he said.

In 2012, Cyprus bailed-out Laiki Bank by issuing a €1.9bn bond.

However, a year later Cyprus was forced to seek a €10bn bailout from the EU and the IMF.

Under the deal, Laiki was shuttered while most of its assets, along with its €9.4bn ELA liability, were absorbed by Bank of Cyprus, the island`s largest lender. Bank of Cyprus was forced to seize deposits over €100,000 to recapitalise.

The state injected €1.67bn into the cooperative sector using bailout money.

Source: Cyprus Mail