Bank run at Co-op as MPs squab­ble

DE­POS­I­TORS GET THE JIT­TERS, WITH­DRAW EUR 70 MLN IN A DAY

Financial Mirror (Cyprus) - - FRONT PAGE - By Kyr­i­a­cos Kil­iaris

As MPs traded barbs over the demise of the Co­op­er­a­tive Bank on Fri­day, ner­vous cus­tomers were rush­ing to with­draw their sav­ings in a mini-bank run.

Ac­cord­ing to CAN, hun­dreds of Co-op clients with­drew some EUR 70 mln in de­posits in a mat­ter of hours by Fri­day noon.

There was a sim­i­lar bank run on the Co-op ear­lier this year which saw the trou­bled credit in­sti­tu­tion bleed some EUR 2 bln in cash over fears of a hair­cut on de­posits. Those same jit­ters re­turned on Fri­day.

Money was flow­ing out of the is­land’s sec­ond largest bank as MPs were dis­cussing a deal to break-up the Co-op and sell its good as­sets to Hel­lenic Bank.

The ac­ri­mo­nious House de­bate on the Co-op vote rum­ble on next week.

Main op­po­si­tion party AKEL ac­cused the gov­ern­ment of han­dling the sell-off in a crim­i­nal man­ner, cen­tre-right DIKO and so­cial­ists EDEK de­manded that peo­ple po­lit­i­cally re­spon­si­ble for the demise of the Co-op, be held ac­count­able and re­sign.

DIKO leader, Ni­co­las Pa­padopou­los ac­cused the gov­ern­ment of black­mail­ing the leg­isla­tive body in vot­ing for the break-up, adding that the is­sue is pri­mar­ily a po­lit­i­cal one. He said that “or­di­nary tax­pay­ers will be called on to pay the price, as usual, which comes to EUR 5.3 bln”.

AKEL leader An­dros Kypri­anou, told state ra­dio: “the gov­ern­ment has taken a crim­i­nal de­ci­sion against the best in­ter­est of the Cypriot econ­omy and so­ci­ety”.

He ar­gued that the down­fall of the Co-op was a re­sult of mis­man­age­ment and short­com­ings of the Anas­tasi­ades’ ad­min­is­tra­tion.

The deal sees Hel­lenic un­der­tak­ing the man­age­ment and the re­spon­si­bil­ity to cover the Co-op Bank’s cus­tomer de­posits amount­ing to EUR 9.7 bln.

In re­turn, Hel­lenic has obli­ga­tions to as­sume as­sets be­long­ing to the Co­op­er­a­tive, con­sist­ing of loans, bonds and

will cash, worth EUR 10.3 bln, in­clud­ing non-per­form­ing loans of about EUR 0.5 bln. Mean­while, Co-op as­sets worth EUR 8.3 bln are to be handed over to the state.

The state has al­ready taken on NPLs worth EUR 7 bln and made a EUR 2.5 bln de­posit in April to help re­as­sure cus­tomers their money was safe.

On Thurs­day, the Cen­tral Bank of Cyprus (CCB) warned MPs that fail­ing to val­i­date the agree­ment be­tween the Co-op and Hel­lenic would be “dis­as­trous” for de­pos­i­tors, es­sen­tially im­ply­ing a bail-in.

“Let me be clear, if the deal is not com­pleted and if all that needs to be done is not done, the al­ter­na­tive so­lu­tion would be dis­as­trous,” said Yian­gos Demetriou, a CBC of­fi­cial.

“Be­cause the only al­ter­na­tive so­lu­tion would be to put the Co-op un­der res­o­lu­tion, or if the Sin­gle Res­o­lu­tion Mech­a­nism deems that there is no is­sue of pub­lic in­ter­est, the Co-op would be placed un­der liq­ui­da­tion and this, in turn, puts in­sured de­posits at risk,” he added.

The next day the CBC had to act as fire­fighter by stat­ing that de­posits of up to EUR 100,000 per per­son and per credit in­sti­tu­tion are guar­an­teed un­der the law.

This did lit­tle to calm nerves as Cypri­ots rushed to take their money out.

NPLs

The Cab­i­net has ap­proved an NPL-re­lated bas­ket of bills in an ef­fort to help to re­duce the stock of non-per­form­ing loans, com­ply­ing with the Euro­pean Com­mis­sion’s con­di­tions in ap­prov­ing the Hel­lenic-Co-op deal.

The bills - to be re­viewed by the par­lia­men­tary fi­nance com­mit­tee on Mon­day - aim to clamp down on strate­gic de­fault and speed up fore­clo­sure pro­ce­dures, by im­ple­ment­ing changes to the ex­ist­ing law re­gard­ing re­pos­ses­sions.

The changes to the law on the trans­fer and mort­gage of im­mov­able prop­erty pro­vide for elec­tronic auc­tions of fore­closed prop­er­ties, the abo­li­tion of pro­vi­sions caus­ing de­lays, changes in the way no­ti­fi­ca­tions from the lender are served and pro­vid­ing the lender ac­cess to a mort­gaged prop­erty for the pur­pose of eval­u­at­ing its value.

Changes to the fore­clo­sure law fore­see that a mort­gage can be frag­mented to cover sev­eral other lesser loan agree­ments so that no loans re­main un­se­cured when the col­lat­eral be­comes prop­erty of the buyer of a loan.

More im­por­tantly, changes abolish the favourable treat­ment en­joyed by bor­row­ers whose pri­mary home is worth less than EUR 350,000 when their debt re­pay­ment is sub­sidised with tax­pay­ers’ money, that is when a ben­e­fi­ciary re­ceives state aid in re­pay­ing his debt.

Fi­nance Min­is­ter Har­ris Ge­or­giades warned that par­lia­ment should not de­lay pass­ing the bills and should do so be­fore the 13 July sum­mer re­cess.

With­out changes to the law banks are los­ing mil­lions of eu­ros.

The Euro­pean Sta­bil­ity Mech­a­nism re­peated warn­ings that: “High NPLs re­main a key vul­ner­a­bil­ity for banks, which sug­gests the need for a re­form in the in­sol­vency and fore­clo­sure frame­work and poses a risk for the econ­omy go­ing for­ward”.

An­other source of con­cern is the fact that Cyprus’s pub­lic debt, which last year fell to 97.5% of GDP, is ex­pected to rise once again above the 100% mark this year as a di­rect re­sult of aid granted to the Coop.

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