The European Commission has temporarily approved a rescue recapitalisation worth 1.8 billion euro that Cyprus granted to Cyprus Popular Bank for reasons of financial stability.
The Commission found the measure to be in line with EU state aid rules because it is limited to the minimum necessary and provides safeguards to minimise distortions of competition. The public support measure is approved for a period of six months. The Cypriot authorities committed to submit a restructuring plan for the bank within this period. The Commission will then take a final decision on the basis of the restructuring plan.
According to a press release by the Commission, to meet capital requirements from the European Banking Authority (EBA), Cyprus Popular Bank issued new shares for 1.8 billion, which Cyprus underwrote in May 2012. In essence, Cyprus committed to acquire any new shares not purchased by the general public or existing shareholders. As by the end of June 2012, private investors had subscribed only to negligible amounts of the offered shares, the State acquired them and thereby became the majority shareholder of the bank. The State paid the bank by transferring it a 12-month sovereign bond, which will be rolled over during five years.
The Commission found that the measure complied with the criteria laid down in its guidance on emergency recapitalisation aid . In particular, the shares issued are part of the bank`s action to overcome the capital shortfall to meet end June 2012 EBA`s requirements, the total of which was estimated at 2.5 billion. Cyprus Popular Bank is the second largest banking institution in Cyprus and a default or technical insolvency would create a serious disturbance to the economy of Cyprus. The Commission also found that the new shares were issued at a sufficiently low price so as to minimise distortions of competition in the internal market.
The Cypriot authorities committed to submit a restructuring plan within six months, from the decision, in order to demonstrate how Cyprus Popular Bank will be viable without continues state support. The Commission will take a final decision on the recapitalisation in the context of the assessment of the bank`s restructuring plan.
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