Research Center
Cyprus Economy

CHURCH OF CYPRUS VS. TROIKA: "Go easy on the banks; Core Tier 1 below 10%"

01 November, 2012

Archbishop Chrysostomos II, representing one of the biggest shareholders in two of the island’s leading banks, wants the Troika of lenders to “go easy” on the banking sector and not impose harsh recapitalisation plans that would push the financial institutions, their shareholders and the economy in general into an even greater abyss.

He has also warned that had his calls been heard, the Cypriot banks would have reduced their exposure to Greece and increased their presence in Russia a long time ago, as he had told the Financial Mirror in an interview in May, 2011.
The head of the Church of Cyprus has had successive meetings with Finance Minister Vassos Shiarly, Central Bank Governor Panicos Demetriades and the CEOs of Bank of Cyprus and Hellenic Bank, Yiannis Kypri and Makis Kervanos, respectively, where he has expressed concern that the Troika inspectors have proposed hiking the bank’s Core Tier 1 capital requirement to 10% as of 2013, instead of a more manageable 8%.
This would mean that the banks would have to return to the investor market and seek more funds at a time when money is scarce, forcing the banks to default once again or seek outside investors in haste.
Both Keravnos and BOC chairman Andreas Artemi have also said they oppose hiking the Core Tier 1 ratio to 10%.
The Church of Cyprus has increased its direct and indirect stake in Hellenic Bank from 13.72% to 16.4% following the bank’s recent 66 mln euro capital increase, but the Archbishopric’s purse is already strained, what with lower public contributions and donations, and the negligent return on its investments, either in the form of dividends or other profit payout.
In the case of Bank of Cyprus, the Church knows that its investment, estimated to be about 3%, would have to be diluted, considering that the bank announced a revised shortfall of 700 mln euros and that the Central Bank’s consultant, Pimco, will want to see some sort of state control in the island’s largest lender. The government is bailing out Laiki Group to the tune of 1.79 bln euros and has taken an 84% stake in exchange, that could rise to 88%.
The Archbishop is worried that Hellenic Bank could also turn out to be the only Cypriot-owned bank as the austerity measures and bailouts could suggest the Troika of lenders having a say or part control of both Bank of Cyprus and Laiki. He also wants the trio of lenders – the EU, IMF and ECB – to back off from greater controls over the Cooperative banks, which, he believes, should enjoy independent regulation.

WE NEED DIALOGUE

Chrysostomos II also fired a salvo at the government, saying that the current government is about to conclude a “bad deal” with the Troika.
“The government wants our cooperation. It cannot just boss everyone around and expect everybody to obey. So, it should be prepared for dialogue,” he warned.
“There will be some deal with the Troika. But which will it be? Do we destroy everything? Because if there is a bad deal, it is the people who will suffer,” the Archbishop said, adding that “already, thousands are hungry and below the poverty line.”

MORE BRANCHES IN RUSSIA

In May last year, the Archbishop wanted to see a greater return on investments in the two Cyprus-owned banks and the best way to have achieved this was for Bank of Cyprus and Hellenic Bank to expand their operations in Russia.
He told the Financial Mirror in a previous interview that the two banks should consider closing some branches in Greece. However, any merger talk between them would not add any value to the two Cyprus banks.
“Both (Bank of) Cyprus and Hellenic have strong fundamentals to prosper by following independent and organic growth,” he said.
“It is vital that Cyprus has two major banks. If, however, a hostile bid is raised on either or both banks, only then will we consider this option and the underlying circumstances.”
“Considering the serious problems Greece is currently facing, combined with the significant exposure of their portfolios there, I would advise them to close a large number of branches and in a parallel expand further into Russia where there is a strong recovery and there are clearly better prospects,” he had said at the time.

RUSSIAN INTEREST

Finally, the Archbishop may find an ally in presidential hopeful George Lillikas, with whom he seems to share a lot in political views than other candidates, with the former Foreign Minister suggesting that Cyprus embrace Russia further and encourage more investments on the island.
“It is time the relations between Cyprus and Russia were upgraded from ‘friendly’ to ‘strategic’ both on the political and economic front,” he said after returning from Moscow where he addressed a round-table discussion hosted by the Duma.
Lillikas said there was genuine interest from Russia in the prospect of issuing bonds to mortgage the potential future gas revenues from Block 12 in the Cyprus EEZ.
He urged the government to push this plan through during its talks with the Troika.
He added that Russian investors had also shown interest to invest directly in the banks that would thus escape any recapitalisation efforts that would ultimately lead to nationalisation and control by foreign powers. This, Lillikas said, would also help reduce the government’s dependence on the Troika lenders for any bank bailout.