CYPRUS could require up to €10 billion to recapitalise its banks according to a draft deal with international lenders that was released yesterday.
“A bank support facility of up to €10 billion is foreseen under the programme, which will also cover potential future capital needs,” the memorandum said.
The amount is preliminary and could be subject to change as suggested by the brackets surrounding the figure.
The exact amount per bank would be determined in a due diligence exercise.
Battered by their heavy exposure to debt-stricken Greece, the island’s biggest banks sought state assistance to replenish their capital.
Unable to come up with the cash itself, the government sought a bailout from its EU partners and the IMF.
The bank assistance comes with a series of conditions whose implementation will change the island’s banking sector dramatically. The changes will also affect Cyprus’ cooperative lenders.
“Many of the problems for the sector are home-grown and relate to overexpansion in the property market as consequence of banks' poor risk management practices,” the memorandum said. “Furthermore, the financial sector is vulnerable because of its size relative to that of the domestic economy.”
The administrative hurdles and the legislative framework currently constraining the seizure and sale of loan collateral will be amended such that the property pledged as collateral can be seized within a maximum time-span of 1.5 years from the initiation of legal or administrative proceedings. In the case of primary residences, this time-span could be extended to two years.
The Central Bank’s guidance on the classification of loans as non-performing will be amended to include all loans past due by more than 90 days.
The conditions also provide for the creation of accredit register listing all borrowers and beneficial owners, from both commercial banks and cooperative credit institutions, to enable these institutions to identify the borrowers who are or were in arrears.
Authorities will also have to align the regulation and supervision of cooperative credit institutions to that of commercial banks. The supervision of cooperatives will be detached from the Commerce Ministry and integrated into the Central Bank.
In consultation with the EU and the IMF, the Central Bank will ascertain the viability of cooperative credit institutions individually and design a strategy for restructuring viable and resolving non-viable institutions.
Past reports said this would entail cutting down the number of cooperatives from around 95 to 35, mainly through mergers.
The memorandum also calls for creating an asset management company (AMC) to resolve bad assets effectively and reduce the financial sector’s exposure to non-performing and non-core assets.
An AMC or other vehicles will be able to acquire loans and other claims, including foreign exposure from credit institutions in Cyprus that have received or will receive state aid.