Con­fi­dence re­turn­ing to the bank­ing sec­tor

Financial Mirror (Cyprus) - - FRONT PAGE -

Cyprus will slowly but steadily emerge stronger from the re­cent down­turn, the Gover­nor of the Cen­tral Bank of Cyprus Chrys­talla Ge­orghadji told del­e­gates at the In­vestors’ Sum­mit, adding that a se­ries of re­forms have taken place fol­low­ing the un­prece­dented and chal­leng­ing events the bank­ing sys­tem and the wider econ­omy faced dur­ing 2013.

She said that im­por­tant steps to­wards fully restor­ing con­fi­dence and sta­bil­ity have been taken, in co­op­er­a­tion with the ECB, the IMF, and the Euro­pean Com­mis­sion, and that the four sys­temic banks – Bank of Cyprus, Co­op­er­a­tive Cen­tral Bank, Hel­lenic Bank and RCB Bank – are now di­rectly su­per­vised by the Euro­pean Cen­tral Bank.

“The con­fi­dence of the in­ter­na­tional com­mu­nity is re­turn­ing to the Cyprus bank­ing sec­tor. It is pleas­ing to see that the re­cent re­struc­tur­ing work and re­forms are al­ready de­liv­er­ing promis­ing re­sults, and the sec­tor is com­ing out of this dif­fi­cult junc­ture in a strong and health­ier con­di­tion,” she stressed. The cen­tral­banker said that re­struc­tur­ing and clean­ing up a bank’s bal­ance sheet is not easy, and mar­ket con­di­tions re­main chal­leng­ing.

How­ever, Ge­orghadji noted, this also pro­vides op­por­tu­ni­ties. “We re­main fully com­mit­ted to the im­ple­men­ta­tion of the pro­gramme agreed with the in­ter­na­tional lenders and in re-es­tab­lish­ing a thriv­ing bank­ing sec­tor that can ef­fec­tively meet the needs of busi­nesses and house­holds,” she added.

“In the past 18 months, ex­pe­ri­enced for­eign in­vestors have par­tic­i­pated with sig­nif­i­cant funds and have taken sub­stan­tial po­si­tions in sev­eral banks in­cor­po­rated in Cyprus,” she added.

Th­ese cap­i­tal in­jec­tions, Ge­orghadji said, con­sti­tute some of the largest for­eign in­vest­ments seen in the his­tory of the Cypriot econ­omy.

“The Cypriot econ­omy and so­ci­ety in gen­eral have ex­hib­ited con­sid­er­able flex­i­bil­ity and en­durance, keep­ing the coun­try re­silient even af­ter the re­cent dra­matic de­vel­op­ments. In par­tic­u­lar, while the Troika in its fifth as­sess­ment of the Cyprus eco­nomic ad­just­ment pro­gramme last July, pre­dicted a real GDP decline of 4.2% for 2014, the re­cent re­vised fore­casts by the IMF and the Euro­pean Com­mis­sion project a real GDP decline of 3.2% and 2.8%, re­spec­tively. Even bet­ter, ac­cord­ing to the lat­est avail­able data, the Cen­tral Bank of Cyprus ex­pects a decline of around 2.5%. For 2015 the econ­omy is ex­pected to do bet­ter and re­bound with a mar­ginal pos­i­tive growth,” she noted.

The de­vel­op­ments re­gard­ing public fi­nances, Ge­orghadji said, were sig­nif­i­cantly bet­ter than ex­pected com­pared to past es­ti­mates by the in­ter­na­tional lenders.

“In its fifth as­sess­ment Troika fore­casts a bud­get deficit of 4.7% of GDP for 2014. How­ever, most re­cent es­ti­mates sug­gest that the bud­get deficit will be sub­stan­tially smaller. This re­vi­sion en­ables a rel­a­tively more op­ti­mistic fis­cal out­look for 2015, pro­vided of course that the con­sis­tent and pru­dent im­ple­men­ta­tion of the state bud­get con­tin­ues,” she added.

It is im­por­tant for the wider econ­omy and public fi­nances, Ge­orghadji said, that the EUR 1 bln buf­fer pro­vided within the 10 bln Troika pro­gramme will not be needed to cover any cap­i­tal short­falls in the bank­ing sys­tem.

The im­prov­ing cap­i­tal po­si­tion of the banks, she noted, pro­vides the op­por­tu­nity to ei­ther re­duce the lend­ing re­quired from the pro­gramme and the na­tional debt by EUR 1 bln, or con­sider whether this may be al­lo­cated to other ar­eas.

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