The Cyprus Cooperative Credit Institutions (Co-ops) have expressed optimism that they would be able to buy back their shares, bought by the state, due to a €1.5 billion capital injection.
The Co-ops, enterprises whose customers are also share holders, held Thursday their last Annual General Meeting under the current share holder structure, as they will be nationalized. The state will acquire 99% of their share capital as it will inject €1.5 billion to cover their capital shortfall for the next three years on the basis of a due diligence audit, carried out by the US audit firm Pimco.
The €1.5 billion is part of the €10 billion financial assistance programme agreed last March with the European Central Bank, the European Commission and the IMF, collectively known as the Troika. The capital injection will be covered by the programme`s second tranche expected to be disbursed by the Eurogroup meeting on Friday in Vilnius.
Addressing the AGM, Constantinos Lyras, Commissioner for the Cyprus Authority for the supervision and development of cooperative credit institutions, noted that the Cooperative movement understands its mistakes and will manage the current phase by implementing the restructuring plan and carrying out the mergers programme.
Noting that the Co-ops will do their utmost to exit the adjustment programme, Lyras added "Cyprus does not need another commercial bank."
On its part, President of the Committee of the Co-operative Central Bank Giorgos Iosif said despite the financial crisis the Co-ops remained viable and robust and it is able to repay aid it received by the state "as well as the unbearable 10% of the annual balance of the loan".
According to EU state aid rules, the Co-ops should pay the state with 10% of the capital loan`s annual balance. The first year the Co-ops should pay the state with €150 millions, that is, 10% of the €1.5 billion capital injection.
Iosif pledged that the Co-ops will keep their social role and prevent a possible privatization.
"With hard work by everyone we will complete the planned mergers and we restructure our loans so that the PIMCO`s estimates will not materialize," he said.
Erotokritos Chlorakiotis, outgoing Director General of the Co-operative Central Bank, said with the right work the Co-ops could buy back the shares acquired by the state, noting that the Cyprus President and the Minister of Finance are striving to reduce the 10% the Co-ops should pay annually to the state.
Chlorakiots said the Co-ops were not bailed in (the conversion of deposits to capital) as it had been deemed viable by the Troika, adding the capital needs of €1.4 billion projected by Pimco were calculated on the basis of losses on their loan portfolio in the next three years in an adverse scenario. "The capital needs did not emerge from the impairment of Greek bonds as was the case with some commercial banks," he pointed out.
Chlorakiotis questioned concerns that the non-performing loans (NPL) in the Co-ops exceed Pimco`s calculations, noting that only small cooperatives present NPL rates that are higher than Pimcos estimates.
"We have no illusions about the difficulties that will arise and they will arise due to the state aid rules on the re-acquisition of the shares," he stressed.
"However, we are optimistic on the basis of the restructuring measures to be taken which will boost our profit-making capacity, improve the management of our loan portfolio, introduce structural changes that would strengthen the Co-ops operating mode and tackle weaknesses of the past and strengthen supervision and risk management mechanisms," he went on to say.
Chlorakiotis said following the capital injection, the Co-ops will be fully recapitalized with a core tier 1 capital ratio of 20%, satisfactory liquidity, with €1 billion deposits to the European Central Bank (ECB), no liabilities to the ECB or no dependence on ECB emergency liquidity funding,
Furthermore, according to the non-audited financial results published today the Co-operative Central Bank`s net profit for the first half of 2013 amounted to €21 million, whereas total assets reached €4 billion. Loans and other provisions to customers reached €1.4 billions, while deposits reached €3.4 billion with own capital amounting to €288 million.
The CCB`s solvency ratio on June 30 2012 stood at 27%.
According to the financial date, the CCB`s profit before provisions for impairment of loans was €59.21 million in 2012 compared with €62.35 million in 2011. The 2012 profits after provisions and after taxation reached 52.75 million as opposed to loss of 37.63 million in 2011. The Core tier 1 ration per Coop stood at 20% compared with 22% in 2011.
Total net revenues in 2012 reached €83.9 million compare with 86.72 million in 2011.
The Cypriot Financial assistance package featured an unprecedented "bail in", that is, the conversion of uninsured deposits to capital in a bid to recapitalise the island`s largest bank, Bank of Cyprus. A total of 47.5% of the bank’s uninsured depositors will be converted to capital, whereas Cyprus Popular Bank, the island`s second largest lender will be wound down with its uninsured depositors loosing approximately 80% of their money.
Under the bailout agreement, the Co-operative Central Bank will submit a restructuring plan providing for the merger of the 93 Cooperative Credit Institution currently operating in Cyprus into 18 new cooperatives, while their supervision is transferred from the Cooperative Central Bank to the Central Bank of Cyprus.
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