Cyprus receives loan, economy engines turning on again

Source:Xinhua Published: 2013-5-15 8:38:24

Cyprus said on Tuesday it has received 2 billion euros of a 10-billion-euro bailout loan by the European Stability Mechanism (ESM) and declared that the engines of its economy are turning on again.

The European Stability Mechanism announced on Monday the release of the first part of a 3-billion tranche, with one billion euros to be released before June, after the Eurogroup confirmed that Cyprus has implemented all prior actions as agreed in a memorandum of understanding.

These included steps on the much discussed money laundering issue after two groups found that relative legislation is adequate and made recommendations on tightening application of rules at a practical level.

Finance Minister Harris Georgiades said part of the money received will go towards recapitalizing cooperative credit societies, an important part of the Cypriot banking system, which was left out of Eurogroup decisions.

He also pledged that Cyprus remains committed to constantly improve its legal and supervisory framework on money laundering and will do whatever it takes to apply recommendations to close loopholes.

The Eurogroup decided on March 26 to recapitalize Cyprus's banking system by imposing an unprecedented haircut on large deposits at the Bank of Cyprus (BOC), wounding down the second largest lender, Cyprus Popular Bank, also known as Laiki, and folding it into BOC.

Central Bank of Cyprus spokeswoman Aliki Stylianou said BOC is in the last stages of being restructured and is expected to soon acquire a new CEO who will lead it out of the consolidation procedure.

"The engines of the economy are turning on again after some careful planning," Stylianou said.

She also said the bank has acquired its first preliminary balance sheet after its merger with Laiki, showing that the initial value of the assets transferred from Laiki to BOC amounted to 13.8 billion euros.

However, Laiki took along a 9.2-billion euro debt which it occurred by receiving emergency liquidity assistance (ELA) from the European Central Bank during the last 12 months of its operation.

Stylianou said an independent and updated evaluation of the assets of BOC and Laiki will be completed by the end of June and this will decide the extent to which uninsured deposits of over 100,000 euros will be converted into bank stock.

As a first step, 37.5 percent of large deposits were converted into bank shares and a further 22.5 percent is being blocked pending a final settlement.

This resulted in 70 percent of BOC shares being owned by overseas depositors and the largest shareholder owing only 2 percent of the bank's stock.

Stylianou said that a new decree by the ministry of finance expected to be issued on Friday after being ratified by the troika -- the collective name by which the European Commission, the European Central Bank and the International Monetary Fund are known -- which will substantially relax remaining restrictions on bank transactions.

The transactions were imposed when Banks of Cyprus reopened late in March after remaining closed for 15 days.

Previous relaxations a week ago, which included the removal of four foreign banks from the restrictions list convinced Russian Commercial Bank group, a subsidiary of the Russian VTB state bank, to keep its operations in Cyprus, after considering moving them to Malta.

Government spokesman Christos Stylianides said a VTB management delegation informed Cypriot president Nicos Anastasiades on its decision on Monday and told him this was a vote of confidence in the future of the island's economy.

Stylianides said that while the crisis is not yet over, "there are strong signs that the situation is far better than it was a month ago."
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