FURTHER signs emerged yesterday that Bank of Cyprus (BoC) has been reduced to a hapless hostage caught in crossfire between the government camp and the banking regulator.
A legislative proposal spearheaded by DISY envisages increasing the number of board members at the Central Bank of Cyprus (CBC) from five to seven, two of whom will act as executive directors.
The bill is co-sponsored by DISY’s Averof Neophytou, DIKO’s Nicholas Papadopoulos, the Greens’ George Perdikis and the European Party’s Demetris Syllouris.
The point of contention is a clause stipulating that, though final decisions rest with the governor of the CBC, the latter must have the consent of the board’s majority.
The bill, discussed yesterday at the House Finance Committee, struck a raw nerve with CBC officials arguing it would dilute the powers of the CBC chief and that it was possibly unconstitutional.
Weighing in, opposition AKEL charged the DISY-led government of trying to place the regulator under its thumb.
AKEL MP Stavros Evagorou said the bill seeks to “turn the Central Bank into a branch of DISY.”
But DISY’s Neophytou countered that the proposal related to the management and running of the regulator and had nothing to do with issues of monetary policy which remained the exclusive domain of the CBC chief.
Debate on the bill is set to continue into next week. The CBC meanwhile has been without a board since April, when three of the remaining board members quit. The government has yet to appoint replacements.
But in a roundabout way, the lack of a board at the CBC has in turn impacted on Bank of Cyprus (BoC), which since March has been placed under the regulator’s administration as it undergoes restructuring.
Under a deal with international creditors - for which Cyprus will receive a maximum of €10bn - an independent valuation of BoC must be completed by the end of June.
Cyprus had to meet certain conditions to obtain the funds. They included forcing depositors to take major losses on savings over €100,000 in the country's two largest lenders. And Laiki, once the second-largest lender, is being wound down and folded into the larger BoC.
So far 37.5 per cent of uninsured deposits in BoC have been converted to equity, whereas an additional 22.5 per cent remains frozen until the conclusion of an independent valuation of the bank’s balance sheet after absorbing the ‘good’ Laiki.
Failure to complete the valuation would constitute a breach of contract and possibly jeopardise the loan agreement, sources close to the Central Bank said.
The government wants the bank’s restructuring to be wrapped up as soon as possible allowing the lender to run its own affairs.
In turn the banking regulator says it has selected the company to undertake the valuation, but that under CBC rules it cannot activate the contract because the funds need to be approved by its board – which currently does not exist.
But a deputy belonging to the government camp yesterday dismissed this as a ploy by the regulator to delay the valuation – and thus the restructuring of BoC.
“It’s a flimsy pretext,” said the MP, speaking on condition of anonymity. “Is it so necessary that the company be paid in advance so they can start the valuation? The Central Bank is stalling, and I think it’s got something to do with this bill which they say limits the CBC chief’s powers.”
The CBC has picked KPMG London to carry out the valuation, the Mail is told.
Central Bank chief Panicos Demetriades - appointed by the previous AKEL administration – has been fiercely criticised by DISY for his handling of the banking crisis.
The CBC is relying on a legal opinion furnished by the Attorney-general’s office recommending that BoC’s status of administration should end only once the haircut amount has been finalised.
In a bid to interdict this and speed up the bank’s return to normalcy, DISY has drafted a bill that would create an escrow agent whose sole job would be to oversee the 22.5 per cent of ‘frozen’ deposits in BoC.
This arrangement, DISY hopes, would bypass the pending matter of the final haircut amount at BoC and thus take the regulator out of the equation.
Amid the controversy, BoC’s board yesterday convened for the first time at the former headquarters of Laiki in Nicosia.
The choice of venue, according to a statement released by the board, was “both substantive and symbolic.”
“It expresses the ongoing union [of the two banks] and their joint mission,” the statement said.
The move comes just days after Laiki’s insignia were removed from its head office.
DISY's Averof Neophytou