Real Estate Investor Magazine South Africa June 2013 | Page 60

CYPRUS

BY JAMES COLBY

Where Is Cyprus Now?

Our expert, Jenny Ellinas
talks property, banks
and bailouts

C

yprus is a desirable destination
for South Africans to invest
but now Cy prus is facing
bank bailouts similar to what Greece,
Ireland, Spain and Portugal faced.
Cyprus has not only reminded us
that the crisis in the Eurozone is
far from over, but that the world
bank ing system as a whole still
remains fragile. There is also the
unprecedented step being taken to
tax depositors to effectively help save
the banking system and there are
fears that what is happening in Cyprus
might very well unfold elsewhere in the
Eurozone system.

We asked Jenny Ellinas of Cypriot
Realty 10 questions, which
investors are all asking
Was Cyprus not doing quite well before the
global financial crisis?
On 01 January 2008 Cyprus adopted the
Euro after coming off the very strong Cypriot
Pound. Cyprus’ economy was flourishing and
they were in the peak of their property boom. It
took a couple of month’s lag after the Lehman
Brothers’ bankruptcy on 15 Sept 2008, for the
effects of the global economy freefall to hit the
island. But where they were fortunate is that the
Cypriots had - and continue to have - a very
high GDP per capita (in 2009 the IMF ranked
them 30th at $29,427 p/p).
So what went wrong?
In 2010 the IMF & EU announced they would
assist Greece (and other EU countries) from
financial collapse/difficulties; and despite its
small size, Cyprus stood by its EU partners
in 2011 to bail these countries out. All EU
countries were forced to take a haircut on
Greek private sector debt; as well as to assist
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March 2013 SA Real Estate INVESTOR

in the bailout of other European countries.
Two of Cyprus’ largest banks were the highest
exposed and gave away almost €5Bn in Greek
Government Bonds in an EU-led effort to
restructure the G reek National Debt. This
of course had direct knock-on effects as
these banks were then themselves faced with
financial difficulties which affected the normal
financial arrangements of the government;
forcing it to request a loan from Europe until
its natural gas and oil reserves are realised in
the next 2 to 4 years.
Where we are now. The Troika (IMF, ECB
and EU) responded positively – although
harshly! – and in March agreed to a ‘bail-in’
which included lending Cyprus €10Bn to
refinance its debt; as well as to provide as much
liquidity to the Cypriot banks as is needed
during this period : €2.5bn will recapitalise
the Cy priot bank ing sector, €4.1bn will

redeem maturing
g ov e r n me nt d e bt
and €3.4bn will cover the
government’s f iscal needs in
the next 3 years. The Cypriot president
has been commended by European finance
ministers on the government’s swift reaction
to restructure Laiki Bank (one of the affected
banks) being split into 2 banks – a “good
bank ” taking the good loans and deposits
up to €100,000 (guaranteed by the Cypriot
government) and a “bad” bank which will go
into liquidation. The Bank of Cyprus will be
recapitalised using a percentage of the money
from deposits over €100,000 in exchange for
shares in the bank.
The government also imposed capital controls
(which are now virtually lifted) to ensure there
was not a run on the banks thereby preserving
Cyprus’ reputation as a reliable banking hub.
Can Cyprus survive this?
Absolutely – the Cypriots reacted with calm
and diplomacy when the bailout discussions
were happening, despite this being a calamitous
and uncertain time for them. There were no
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