Cyprus Editorial: Is Bank of Cyprus hanging by a thread?

24 January, 2014 | Posted By: Financial Mirror

Finance Minister Haris Georgiades and Bank of Cyprus chairman Christis Hasapis were cheerful on Monday when they announced that the island’s biggest lender and the banking sector in general was in a “normalisation phase” and in accordance with their restructuring and recapitalisation plans.
However, BOCY has fallen behind in concluding the paperwork on the prospectus for the issue of new shares that resulted from last year’s bail-in, which is why the plan to reintroduce the stock on the CSE will have to be delayed beyond the initial target of end-January. It also gets complicated as the CSE share register has to be updated because the current database only has the old shareholders who have now been diluted to 1% of the new owners.
Furthermore, with some 900 mln euros in locked capital expected to be freed up from the mandatory 6-month deposits that were imposed on savers – the first of three instruments to prevent a bank-run – the market is expected to take a breather, albeit a short one. What amount will remain in the bank’s safe is anyone’s guess, and CEO John Hourican must surely have made his best-case and worst-case scenario calculations. The bigger the amount that remains in the bank, the better, as it will not erode the safety cushion created after the recapitalisation that saw the Core Tier 1 level rise to about 10.2-10.4%.
But what the bank needs right now is fresh capital, or at least to recover most of the on-performing mega-loans held by about 30 major corporate clients, some of whom abused their privileged position on the bank’s previous boards to obtain loans and facilities at below-base levels.
Hourican’s first 100 days at the helm are almost over and the gloves will soon be off as regards allowing him a grace period to return the bank to a state of normalcy. Has he, perhaps, recovered some 900 mln euros worth of mega-loans, which is why he is not worried about the potential outflow of deposits? If so, don’t the old and new shareholders, depositors and customers deserve to know?
Because if he passes the first test with the release of the 6-month deposits over the next few days and announces a timeframe to reinstating the shares on the CSE, only then will confidence return. And if the bank’s liquidity remains solid, that means it will (hopefully) return to providing new loans and facilities to the SMEs that are the backbone of the Cyprus economy, while it will not be forced to call in the security it holds on homes, or at least not all of them, and some level of calm will return.
Otherwise, we will be obliged to pay attention to Disy MP Marios Mavrides’ worrying comments over the weekend that the Bank of Cyprus may need a second bail-in.