Cyprus is on the road to cleaning out its banking sector and winning back the trust of the markets, Central Bank governor Panicos Demetriades said in his first address to eurozone ambassadors in Nicosia.
In a comprehensive discussion on the trials and tribulations of the banking system in Cyprus and the government’s efforts to secure a bailout from the European Stability Mechanism, Demetriades acknowledged that an entrenched culture existed in the banking sector which exasperated the problems facing the country, resulting in its overexposure to Greece.
According to sources, during Monday’s lengthy meeting with Cyprus-based diplomats representing eurozone countries, Demetriades argued that Cypriot banks need to return to their core business and not overstretch themselves in foreign markets.
He noted that local banks became very big while foreign banks left the Cypriot market, creating a situation where property developers and banks developed too cosy a relationship, enhancing the property bubble. He also acknowledged that the influence of banks on the government of the day was not always positive.
Demetriades, appointed last May, argued there was an initial reluctance to acknowledge that something had gone wrong with the banks in Cyprus.
Avoiding the heavier language employed by the government in recent months, Demetriades voiced serious technical criticism of the banking system in Cyprus.
He told diplomats that on arrival, he was seen as an envoy or special agent of the communist government, and had to climb a wall after initially facing a high degree of hostility from the top honchos at the banks.
However, he expressed confidence that the right people are in charge of the banks now.
Demetriades avoided repeating any of the government’s criticism levelled against his predecessor Athanasios Orphanides, restricting his comments to saying that the latter may not have seen the banking problems in the same light.
He also bemoaned Orphanides’ cost-cutting measures, saying they may have been too ambitious, leaving the Central Bank with a shortage of staff to carry out its supervisory role.
The CB governor had some strong words to say about the effort to paint Cyprus as a haven for Russian money laundering and illegal activities, arguing that the wrong impression was being given. He gave as example the fact that there are more German shipping companies registered in Cyprus than Russian ones.
Cyprus tries to follow all rules set by the Organisation for Economic Cooperation and Development (OECD) on and has no reason to stand in the corner red-faced about money laundering, the governor reportedly told his diplomatic audience.
One ambassador raised the issue of a perceived lack of urgency on the part of Cyprus in its negotiations with the troika on a bailout. Demetriades put this down to exaggeration and rumours, insisting that Cyprus was doing everything by the book and following all necessary procedures to get the memorandum of understanding with the troika signed as soon as possible.
He expressed hope that the present government signs the memorandum during its term in office so confidence and trust can be restored to the market.
In a frank exchange, the CB governor admitted that there was a steep learning curve in the whole process of securing an EU bailout, and that some things might not have been communicated on time but he reassured diplomats that the Cypriot authorities were getting a grip on things.
Another ambassador said the issue was not about attributing blame or passing the buck but the substance of what is going to happen, to which the governor gave an amicable response.
Regarding the ratio of public debt to GDP, Demetriades argued there was no magic figure that would make the debt unsustainable but that each case depended on the dynamics and specific situation of the country in question.
One diplomat said Demetriades offered “a serious discussion of content” which was warmly welcomed by ambassadors. He was “cool-headed” and thorough in his responses, leaving no question unanswered, while displaying optimism that the banks were turning the page.
Demetriades sought the support of eurozone countries, emphasizing that the CB was doing its job, working on transparency, and reshaping the management and control of banks to ensure a sustainable future for the economy.
Source: Cyprus Mail