The Central Bank has rebuffed efforts by Bank of Cyprus to writeoff up to CYP 148 mln in sour debts from its books, refering to debts in excess of CYP 100.000 mostly made to wealthy and well connected individuals.
An effort by the BOC Management to clean up prior year debts mostly relating to share purchases of the Bank when it listed its shares in Greece backfired as the Governor of the Central Bank, Christodoulos Christodoulou stepped in with a strongly worded letter, warning the BOC Board and Management that they cannot proceed with writeoffs before exhausting all possible means, including taking court action against the wealthy debtors.
The strongly worded letter sent by Christodoulou was leaked to Philelefteros, and caused a major embarrassment for the Bank as it revealed an effort to writeoff CYP 148 mln in debts in March 2005, which is more than three times the level of writeoffs made in 2004 and more than what has been written off during the last five years.
According to the Philelefteros report, the Central Bank initially asked for clarifications regarding the massive debt writeoffs. Later on, the CB requested a list of all the debts that were written off and reminded BOC that it had issued strict instructions to the Banks not to proceed with rampant writeoffs, most of which refer to CYP 100.000 plus debts.
BOC is reported to have answered that the writeoffs were not permanent, but was made to give a better picture of the Bank’s financials and that the Bank was “vigorously” pursuing debt recovery.
The writeoffs amount to about one third of the total CYP 471 mln provisions that had accumulated until the end of 2004 and which the Bank now wishes to forget.
Fortunately, the Central Bank did not accept the explanation provided by BOC and sent a new letter, dated July 14 2005, informing the Bank that the writeoffs policy is unacceptable both when viewed legally or technically and that the Bank needs to exhaust all legal means before coming to such a decision.
The Central Bank also considers the writeoff policy as acting against the interests of depositors and shareholders, adding that BOC staff who gave the loans should be accountable for their actions.
In an official statement issued on July 26, BOC attempted to convince the public that it will do its utmost to collect the sour debts, but it was unable to cover-up the fact that there is a serious rift between Management and the Board on the issue of the writeoffs.
