Gold Magazine June - July 2013, Issue 27 | Page 44

BANKING

Bank of Cyprus
Given the systemic importance of Bank of
Cyprus, the Troika recognizes the importance
of the speedy integration of the operations of
Cyprus Popular Bank (Laiki Bank), improvements to operational efficiency, optimisation
of the recovery of non-performing loans and
the progressive normalisation of funding conditions. In order to achieve these goals and to
ensure that Bank of Cyprus can operate with
the maximum safeguards to preserve its stability and continued viability during the transition period, the CBC, upon consultations
with the Ministry of Finance, will appoint a
new Board of Directors and an acting Chief
Executive Officer until Bank of Cyprus’ new
shareholders hold a general meeting.
The terms of reference of the independent
valuation exercise should be agreed in consultation with the EC, the ECB, and the IMF
no later than mid April 2013.
To ensure that the capitalisation targets are
met, a more detailed and updated independent valuation of the assets of Bank of Cyprus
and Cyprus Popular Bank will be completed
by the end of June 2013.
Following the valuation, if required an additional conversion of uninsured deposits into
class A shares will be undertaken by the end
of June 2013 to ensure that the core tier one
capital target of 9% under stress by end-programme can be met. Should Bank of Cyprus
be found to be overcapitalised relative to the
target, a share-reversal process will be undertaken to refund depositors by the amount of
over-capitalisation.
The CBC will require the Board of Directors to prepare a restructuring plan defining
the bank’s business objectives and credit policies by the end of September 2013.

board members, and to a restructuring process in line with EU competition and state-aid
requirements, which will be scrutinised by an
external monitoring trustee.
If recapitalisation takes the form of state aid,
funds for the recapitalisation of these banks
will be made available in the context of the
programme.
The banks will be instructed by the CBC
to take the necessary steps to ensure that they
meet regulatory requirements in a stress scenario, i.e. to raise private capital, by the end
of September 2013.
The Cypriot authorities should submit
restructuring plans for these banks to the EC
by 30 November 2013.

Cooperative Credit
Institutions
As regards the cooperative credit institutions,
the CBC, assisted by the current supervisor
and in consultation with the EC, the ECB
and the IMF, will ascertain the viability of
individual cooperative credit institutions and
design a strategy for restructuring and recapitalising the sector.
Legislation will be introduced to authorise
the CBC to instruct the current cooperative
credit sector supervisor to intervene at the
level of individual cooperative credit institutions by the end of May 2013.

Other Commercial
Banks
Commercial banks with a capital shortfall,
which are deemed viable, can, if other measures do not suffice, ask for recapitalisation aid
from the State. Capital should, to the largest
extent possible, be raised from private sources
including internal measures, asset disposals
and liability management exercises.
Banks in need of aid from the State will not
be recapitalised before their restructuring
plans have been formally approved under
state-aid rules. The credit institutions benefit ing from capital injections will be subject to
specific management rules and restrictions on
the pay levels of executive and supervisory

42 Gold the international investment, finance & professional services magazine of cyprus

Legislation for the detachment of the
supervision of cooperative credit institutions from the Ministry of Commerce,
Trade and Tourism will be passed by the
end of June 2013.
The assessment of the capital needs and
viability of the cooperative credit institutions should be finalised by June 2013.
Cooperative credit institutions will
be instructed to meet capital regulatory
requirements by July 2013. If necessary,
public programme funds will be used to
recapitalise these institutions in accordance with EU state-aid rules.
Cooperative credit institutions requiring
recapitalisation should seek private sector
participation no later than 31 July 2013.
The CBC should submit to the EC –
while also informing the ECB and the
IMF – the strategy including the possibility of the application of mergers and
restructuring based on an assessment of
capital needs and viability by the end of
July 2013.
The restructuring plans for the cooperatives will be submitted to the EC by September 2013.
A strategy for restructuring and recapitalising the cooperative institutions sector
should be implemented by 30 June 2015.
As in the case of the commercial banks,
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. The cooperative credit institutions
benefiting from capital injections will
be subject to specific management rules
and restrictions, and to a restructuring
process in line with EU competition and
state-aid requirements, which will be
scrutinised by an external monitoring
trustee.
Sufficient funds for the recapitalisation
of the cooperative credit institutions will
be made available from the programme
following the first programme review and
will be deposited in a dedicated account
with the CBC to boost confidence in the
system.
The amounts will be injected following
the identification of the capital needs and
in accordance with the agreed strategy, after
approval of the restructuring plans. A new
governance structure will be established,
which allocates clear levels of continued accountability and provides for proper incentives to avoid moral hazard, having regard
to the two-tier supervisory system applied
in other EU Member States.