Troika to fo­cus on bank­ing

Financial Mirror (Cyprus) - - FRONT PAGE -

In­spec­tors from the Troika of in­ter­na­tional lenders ar­rived this week to be­gin their sev­enth re­view of the eco­nomic ad­just­ment pro­gramme, with the fo­cus this time be­ing the su­per­vi­sory con­trols of the bank­ing sys­tem and the fi­nan­cial sec­tor in gen­eral, while slow progress in im­ple­ment­ing public sec­tor re­form has also raised sev­eral eye­brows.

The Cyprus pro­gramme is near­ing its mid-2016 con­clu­sion dead­line, with the gov­ern­ment con­fi­dent that it will not need to tap into all of the 10 bln eu­ros ear­marked for the bailout pro­gramme. Af­ter six suc­ces­sive re­views and sub­se­quent up­grades by rat­ing agen­cies, the gov­ern­ment has also re­turned to the mar­kets rais­ing funds at favourable rates.

How­ever, re­ports sug­gest that trade unions and other groups are now press­ing the gov­ern­ment to back down from its full pri­vati­sa­tion plans, see­ing as the fis­cal sit­u­a­tion seems to be im­prov­ing, ar­gu­ing that fur­ther aus­ter­ity and cut­backs are no longer nec­es­sary.

This may also be the rea­son be­hind the un­ex­pected res­ig­na­tion of Health Min­is­ter Philip­pos Pat­salis last week, who had been push­ing for the au­ton­omy of state hos­pi­tals and the par­al­lel im­ple­men­ta­tion of the Na­tional Health Scheme (GESY), but kept on fac­ing ob­sta­cles and de­lays, one of which was the post­pone­ment by the pres­i­dency of the frame­work for the au­ton­omy of hos­pi­tals.

The re­view of the bank­ing sys­tem comes at an awk­ward time as the Cen­tral Bank and the Fi­nance Min­istry have in­sisted that the sys­tem is ro­bust and can with stand the shocks from the Greek bank­ing col­lapse, adding that the lo­cal sub­sidiaries have been ring-fenced and cus­tomer de­posits are safe.

At the same time, re­ports have sug­gested that at least one back, Pireaus, has been in talks with Hel­lenic for a po­ten­tial of the Cyprus sub­sidiary, while Bank of Cyprus stated that it had re­duced its re­liance on ECB fund­ing through the emer­gency liq­uid­ity as­sis­tance (ELA) pro­gramme to be­low 6 bln eu­ros. This has fu­elled ru­mours that with its bal­ance sheet in a strong po­si­tion and hold­ing on to cheap fund­ing, BOCY too may be in­ter­ested in any of the four Greek bank sub­sidiaries.

What­ever the out­come, the Troika tech­ni­cal team will be re­view­ing how the bank­ing sys­tem de­vel­ops in the face of the rapid changes in Greece as well.

Another thorny is­sue re­lat­ing to bank­ing is the stub­bornly high rate of non-per­form­ing loans held by banks, de­spite ef­forts to resched­ule or ser­vice them in or­der to re­duce the NPL na­tional av­er­age be­low 50% of the sys­tem’s loan­book.

It is also ar­gued that the res­ig­na­tion of two bank­ing CEOs (Bank of Cyprus and Co­op­er­a­tive) are not to­tally un­re­lated to in­ter­ven­tions in this di­rec­tion, mostly from po­lit­i­cal in­ter­est groups.

A de­lay in de­bat­ing, pass­ing and in­tro­duc­ing a frame­work on fore­clo­sures and in­sol­ven­cies set the banks back by at least six months into their cap­i­tal ad­e­quacy pro­grammes, with their prof­its so far based on ad­min­is­tra­tive costs and charges im­posed on clients, an amount that is un­sus­tain­able as re­gards prof­itabil­ity.

The pri­vati­sa­tion sec­tor seems to have shown some progress, even though the Ports Au­thor­ity and the ten­der for bid­ders for Li­mas­sol port ser­vices is the only as­pect on the ta­ble at the mo­ment, with trade unions bring­ing out the big guns, just ten months away from the next par­lia­men­tary elec­tions, to press the gov­ern­ment from back­ing down on the pri­vati­sa­tions of telco Cyta and power pro­ducer EAC.

As re­gards the public sec­tor, re­form here is clearly de­layed, most im­por­tant of which is the gov­ern­ment’s in­abil­ity to change the eval­u­a­tion and pro­mo­tions sys­tem of public ser­vants.

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