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CYPRUS: Troika final deal on bank supervision, capital ratio

19 November, 2012

International lenders negotiating a bailout with the Cypriot government have agreed on a key capital ratio for banks and a system for the sector's supervision, officials said on Saturday, signalling some progress in the talks.
Cyprus has been holding talks with European Union, International Monetary Fund and European Central Bank to get financial aid after its two main banks – Bank of Cyprus and Laiki Popular Bank – were battered by exposure to debt-crippled Greece.
The lenders, who were due to leave Cyprus on Sunday but are now expected to leave on Wednesday, agreed during talks on Saturday that both commercial banks and cooperatives would be overseen by the Central Bank, Finance Ministry and Central Bank officials said. Cooperatives were previously overseen by a separate authority.
They also set a core Tier 1 ratio - a measure of financial strength - of 9% by the end of 2013 for banks, which could then rise to 10% in 2014, the Finance Ministry and Central Bank sources said. They had previously been discussing setting the ratio at 8%.
But the two sides remain at odds over the amount needed to recapitalise banks, as well as over the lenders' demands for privatising assets and cutting wages and pensions.
The size of the potential bailout - speculated to be anything between 11 and 16 bln euros and the bulk of it for banks - will be huge in proportion to the 17.9 bln euro economy, the third smallest in the euro zone.
Earlier on Friday, the Troika officials had demanded deeper spending cuts in the public sector worth 1.2 bln euros.
The European Commission, ECB and IMF had previously sought spending cuts in Cyprus of 975 mln euros.
Their demand for deeper cuts came as the statistics service said the public deficit rose to 3.2% of gross domestic product in the first nine months of the year, up 0.5 percentage points from the same period last year.
Central bank governor Panicos Demetriades urged the state to do everything possible to support the banking system, in contrast to the Communist-led administration that has been causing irreparable harm to the banking sector’s reputation by embarking on a witch hunt.
Labour minister Sotiroulla Charalambous told the state broadcaster that "many differences remained and negotiations were difficult".
Government sources told state television RIK that the troika is demanding axing payment of the 13th monthly salary to civil servants in 2013, privatisation of semi-governmental organisations within a clear timeframe and freezing wage hikes and halving it when they are unfrozen.
The two sides remain at odds over the amount needed to recapitalise Cypriot banks as well as on privatisations and pension cuts, state television said.