The European Commission announced today it approved the restructuring plan and restructuring aid measures for the Cyprus Cooperative Credit Institutions, paving the way for a government capital injection of €1,5 billion to cover the sector`s capital shortfall.
"The European Commission has found recapitalisation and restructuring aid measures in favour of the Cooperatives Credit Institutions and their central body, the Cooperative Central Bank Ltd. (together "the cooperative banking sector") in Cyprus to be in line with EU state aid rules. In particular, the measures will enable the cooperative banking sector to become viable in the long term without continued state support, while limiting the distortions of competition created by the aid", the Commission said in a statement.
Commission Vice President in charge of competition policy Joaquín Almunia said "the cooperative banking sector is heavily burdened by the poor quality of its loan book, due to past careless lending."
"The in-depth restructuring plan approved today lays the foundations to transform the cooperative banking sector into viable credit institutions servicing the Cypriot economy on a sustainable basis," he added.
"Due to a high proportion of non-performing loans, caused by the current recession and careless lending in the past, the Cypriot banking sector needs to rebuild a solid capital buffer through a recapitalisation of €1.5 billion," the release added.
The restructuring plan approved today represents a major overhaul of the structure and commercial practices of the group.
"The number of cooperative credit institutions will be reduced to 18 via mergers. They will be owned and controlled by the cooperative central body, which will in turn be owned by its new 99% shareholder, the State," the release added.
It also notes that the restructuring strategy for the cooperative banking sector has been developed in close coordination with the European Central Bank (ECB) and the International Monetary Fund (IMF) and is part of the assistance programme for Cyprus. Cyprus applied and received a €10 billion bailout by the European Commission, the European Central Bank and the IMF.
The capital will be given after the signing of an agreement between the Finance Ministry, the Cooperative Central Bank and the European Stability Mechanism.
Furthermore, the CCB will hold an extraordinary General Meeting that will approve the issuance of new shares which will be granted to the state.
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