Sunday vote to rubber stamp Hellenic’s acquisition of Co-op Bank
Parliament also to decide on new NPLs legislation, asset protection and mortgage arears
A mini-bank run on the Coop seems to have subsided as MPs will vote on Sunday on state guarantees allowing the Hellenic deal to go through while also protecting home owners in upgraded legislation on foreclosures.
Throughout the week, thousands of Coop customers rushed to withdraw their savings in a show of no confidence in procedures taking place in parliament.
The bank run followed statements suggesting that Co-op deposits were not safe if the deal with Hellenic fell through.
Since August 2017 an estimated EUR 3 bln in deposits have been withdrawn from the Co-op.
Over the past week alone, an estimated EUR 400 mln flowed out of Co-op banks during the panic, leaving it with just EUR 1.2 bln in cash reserves.
As fears spread about a possible banking collapse, around EUR 140 mln was taken out of the Co-op on Tuesday and EUR 100 mln on Wednesday alone.
In an effort to put a halt on the bank run, the Co-op introduced capital controls restricting withdrawals to EUR 3,000 per day.
News that the vote scheduled for Friday was postponed again, for Sunday, fueled depositor anxiety further.
MPs will vote on NPLs legislation and government guarantees for Hellenic, which are directly tied to the HB-Co-op deal.
The vote postponement came after legislators spotted gaps in the bill, due to the incompatibility of the law regarding the private banking institutions and the one covering the Co-ops.
Asset protection bill set to go through
The bill concerning state guarantees provides for EUR 2.6 bln to cover possible default of the loans taken on by Hellenic from the Co-op. This is expected to be approved as the government seems to have secured a majority with the help of opposition DIKO.
DIKO President Nicolas Papadopoulos said his party will back the bill in an effort to avoid an economic collapse.
“Those who a few months ago were mocking us about mummy’s money today are asking us to confirm that the taxpayer’s mothers will pay EUR 5.3 billion...Those who told us that we have a success story, today are asking us to save yet another bank under collapse. So, yes, there is anger but I want to send the message that this anger does not target depositors, farmers and pensioners,” said Papadopoulos.
At the beginning of the week DIKO’s president had demanded the resignation of the Co-op board in a letter sent to President Anastasiades.
Days later the board had indeed submitted its resignation to the President who accepted.
Government spokesman Prodromos Prodromou said the board was asked to remain in place until the process is complete and the non-performing loan manager is set up so that the appointment of a new Board of Directors would not be necessary.
Critics said the board’s resignation was meaningless, as it would cease to exist with the completion of the agreement with Hellenic Bank.
Opposition howls over NPLs
Although all the various financial bills should get through parliament after an expected compromise between the parties, things may get tense when it comes to the issue of NPLs. Opposition parties are demanding changes, which the Anastasiades’ administration feels may alter the philosophy behind the legislation.
Speaking in parliament on Wednesday, Finance Committee chair DISY’s Averof Neophytou, told MPs that “it would be better to reject the bills all together rather than make changes which would change the essence of the legislation”.
Neophytou stressed that “if the majority of parties want to reject them, let them do so”, noting that the bills were drafted on the basis of the requirements of the Single Supervisory Mechanism, so that the Cypriot banks pass the stress test.
He also declared family
Logicom, a company which financing Demetra participation in the structure of Hellenic.
Averof admitted that “my wife and mother-in-law had bought 142,000 out of some 74 million shares”.
His declaration followed popular demand that MPs reveal any possible conflict of interest in the HB-Co-op deal process.
Meanwhile, opposition parties proposed an amendment to the NPLs bill that secures
the right of borrowers to take legal action against repossession of their main residence if worth under EUR 350,000.
While critical towards the proposed NPLs legislation, AKEL says that their proposed amendments focus on the protection of borrowers’ main residence and small business.
The main opposition party wants to ensure the right of citizens to appeal to the courts in cases of repossession.
They also demand that cases of repossessions currently underway to be carried out under the existing legal framework rather than what the government proposes.
Andros Kyprianou, AKEL’s General Secretary, said that he does not believe that the government’s proposals will save Hellenic Bank and the banking system in general, since they have not yet provided any evidence to support this.
He reminded that until just a few weeks ago the same government declared the Co-operative was not to be sold.
Kyprianou described this behaviour of the government as “provocative and unacceptable”, accusing the Anastasiades administration of not assuming any responsibility for its decisions.
ESM calls for new legal framework
European supervisory agents are concerned with the European Stability Mechanism warning over Cyprus’ inefficient legal framework to tackle the high burden of non-performing loans hampering the island’s banking system.
The ESM, Cyprus’ largest individual creditor, pointed out that although the necessary frameworks aimed at reducing NPLs are now in place “they are still inefficient and little used.”
Furthermore, according to Co-op figures the framework voted in 2015 by lawmakers on foreclosures pathed the way only for a small number of repossessions.
The thousands of letters of formal notice sent by the banks seem to have had no effect, as only 3.2% of the real estate involved was repossessed.
Out of the 5,400 properties for which notifications have been received since Q3 2015, only 173 have been sold at auction.
NPLs are 45.3% of total loans in the banking system amounting to EUR 21.99 bln.
‘ESTIA’
Part of the legislation regarding NPLs is a bill which foresees the creation of a state agency to manage the mortgage-backed NPLs, within the framework of a plan dubbed ‘Estia’ (home) by the government.
Talking to state radio, a senior finance ministry official said the scheme is designed to help struggling borrowers repay their loans. It can provide a reduction of up to 50% in their debts, coming from partial debt relief and subsidising the rate of interest owed.
Estia “leads to a considerable decrease of the obligations of borrowers”, said Andreas Charalambous, head of the finance ministry’s directorate for financial stability.
“We estimate 50%.” He said that the scheme “introduces proper incentives and therefore, the response will be big allowing the scheme to succeed”.
According to the official, Estia is expected to cover loans of up to EUR 3 bln.
Some EUR 800 mln is expected to come from contributions by the state and, by extension, taxpayers over the duration of the Estia Plan until 2044.
Meanwhile, the Cyprus Land Development Organisation (CLDO) has found itself at the centre of the effort to reduce NPLs to protect vulnerable groups. The CLDO was established by the state in 1980 in the context of its social housing policy and is now called upon to play an important role, to manage the “Estia” project.
CLDO is in consultation with the Finance Ministry in order to be in a position to implement the plan. The organisation with just 35 staff, is asking for an increase in personnel and equipment.
Andreas Frangos, the president of the organisation, said it has undertaken the task of managing the project.
“We gave our input on the existing main residence scheme and we were asked if we could help with the ‘Estia’ project. Therefore, we are currently discussing its practical implementation,” Frangos said.