PARLIAMENT last night passed a law designed to enable cooperative banks to raise capital on their own so as to minimise their need for possible state assistance.
The government-drafted legislation makes it mandatory for cooperative credit institutions to issue shares for the purposes of raising capital, by converting cooperatives from unlimited liability to limited liability companies.
By law, all 92 cooperatives have now been converted into limited liability shareholder companies. The cooperatives are allowed to issue class B shares, and to purchase class A shares in addition to class B shares.
The new rules are designed to fall in line with a deal signed in April between Cyprus and the ‘troika’ of international lenders. Under the memorandum of understanding, cooperative credit institutions are to come under the regulatory supervision of the Central Bank, and “they will be instructed to meet capital regulatory requirements by July 2013.”
The MoU states: “With a view to minimising state aid, cooperative credit institutions requiring recapitalisation should seek private sector participation no later than 31 July 2013.”
It goes on to say that Central Bank of Cyprus, in consultation with the troika, “will ascertain the viability of individual cooperative credit institutions and design a strategy for restructuring and recapitalising the sector.”
“This strategy, including the possibility of the application of mergers and restructuring, will be submitted…by end-July 2013 based on an assessment of capital needs and viability to be finalised by June 2013.
“The restructuring plans for the cooperatives will be submitted to the European Commission by September 2013. Cooperative credit institutions in need of aid from the state will not be recapitalised before their restructuring plans have been formally approved under state-aid rules.”
Any cash for recapitalising cooperative banks will be drawn from the €10bn assistance programme funded by international lenders.
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House passes law for co-ops to raise capital
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