The top hierarchy of the island’s closely tied and highly secretive banking community is shaking following yet another timely intervention by the Governor of the Central Bank, Christodoulos Christodoulou, who has embarked on a campaign to force the banks to clean up their acts and, in the case of the listed companies, behave like true public organisations, serving the interests of their owners: the shareholders.
When Glafkos Clerides first appointed Christodoulou as the Governor of the Central Bank, everybody, including this newspaper, viewed the appointment as a “present” to Christodoulou for serving the Clerides administration well. And we assumed that Christodoulou, a political figure, would use his time at the CB to rub shoulders with the well influenced bankers, pay lip service to their shortfalls and position himself for a nice and well paid job on his retirement from the job.
Fortunately for the whole country and contrary to expectations, Christodoulou has done exactly the opposite. He first stamped his mark of authority when he “dared” to go against the tide and told banks, weak with capital and making huge losses, to forget about paying dividends, and contrary to what the Bank chiefs were saying then, he ordered banks to go and collect the loans that the banks were saying would be left piling up interest.
In the run up to the Annan Plan referendum and when the Cyprus pound was under tremendous selling pressure as people were transferring funds outside, Christodoulou dared what no other Governor in Cyprus had done previously. He and his fellow members on the MPC ordered a 1% hike in interest rates, which not only defended the value of the Cyprus pound, but sent the message to the public that there would be no prospect of devaluation.
The resolute way in which the CB acted helped shore up confidence and has been instrumental in helping to stabilise the currency. The CB was also instrumental in the push to adopt the euro, which is set to become legal tender from January 2008.
Just as we thought that things would quieten down, Christodoulou struck again, this time by sending a warning to the Boards of Banks not to behave like family-run enterprises and to implement the corporate governance code of conduct.
Reading between the lines, that sent a message to Bank board members to repay back loans taken from banks and not to abuse their position by securing multi-million pound contracts tied to their professions.
The first casualty of the clean-up act hit Bank of Cyprus, which at the last count saw three resignations from its Board. Previously, there was a thorough shake-up of the Laiki Bank board, with more such movement expected at the other bank boards.
Last but not least, is the way with which Christodoulou intervened to block BOC’s attempt to secure control of Emporiki, after it became apparent that the staff pension fund liability of Emporiki could run up to EUR 600-800 mln, while if the deal was allowed to proceed, the capital adequacy ratio of BOC would tumble from 12.9% to 6.4%, well below the Central Bank’s minimum 8% ratio.
His U-turn on Greek banks seeking control of Cypriot banks was also well appreciated by all, but mostly by Greek bankers, who saw that they had to behave by the book, both in the case of Marfin clarifying that the stake held by Tosca was not connected and Piraeus learning the hard way that it would not be allowed to go above the 9.99% limit of BOC capital, unless it convinced the CB that such a move would be in the best interests of the country.
There is no doubt that Christodoulou is by far the best central banker that Cyprus has ever had and we hope that his term of office will be renewed by President Papadopoulos. After so much praise, we believe that we are entitled to ask for one favour from the Governor, which is to find a way to increase competition in the banking sector and encourage the international banking units already here to transact more with Cyprus residents.
We agree with Christodoulou that our banks should be very profitable to become strong and even stronger, but at the same time, we also insist that every Cypriot should be given the chance to secure banking services at the most competitive rate and have the choice to decide with whom to bank.
