Outgoing Central Bank of Cyprus Governor Christodoulos Christodoulou called on Marfin Popular Bank and Bank of Cyprus to tone down the tone of their recent tit-for-tat statements regarding the possibility of a cooperation, adding that the final decision is up to shareholders of both banks to decide.
Christodoulou said it was not up to him, or anybody else for that matter other than the shareholders to decide which way they wished the banks to move. He also refused to be drawn into discussing whether the pace of the expansion drive overseas was good, justified or in the best interests of the banks.
Christodoulou, who is widely credited for rescuing the Cyprus banking system from near collapse after the stock market bubble burst in 2001-2002 said the situation was now very good and Cyprus banks had healthy balance sheets, strong capital base and much better management structures than before.
“One of the most crucial issues I confronted when I took over as Central Bank governor in May 2002 was the tragic state of our banking system. I discovered that banks, during the period of the stock market bubble, had given unsecured loans for the acquisition of shares worth CYP600 mln In some cases there was not even a written application from the interested party, or an examination of a loan petition,†said Christodoulou.
Christodoulou said in addition to “this act of irresponsibility†some bank boards acting in an arbitrary and irregular manner had invested a large portion of their provident fund reserves in their own shares. As a result of these actions he said the staff pension fund deficit of the three main banks at the end of 2002 was a total of CYP135 million.
He said the Central Bank had to confront the situation discreetly and carefully to avoid a crisis in confidence or panic by the public. Measures taken included prohibiting the banks to pay out dividends temporarily, having them strictly scrutinise loan applications, and lowering bad debts. Changes to the banking laws were also effected.
Christodoulou said the days of executive chairmen from the seats of the aristocracy were now over.
“Now, chairmen, consultants and managing officers must be distinguished for their professional ability and experience,†he said.
“It is obvious our financial system, is entering a new era of increased demands in all sectors. Profitability and their survival will depend on their ability to respond to the competition. That requires flexibility, quick decision making, initiative and creativity.â€
Financial results for the island’s banks were particularly satisfactory in 2006, Christodoulou said as a result of the changes made over the past five years.
He said the satisfactory growth in the economy, the modernisation of financial systems and continuous supervision had contributed to the improvements, had assisted profitability. Bank cost-cutting and improved services to the public had also helped the increase their market share and revenue.
He also added that bank board members and senior officers working in banks were given a minor extension to respond to a detailed questionnaire on educational and working experiences and many other details including a full financial disclosure.
Christodoulou said the decision to bar Marfin Popular Bank from proceeding with a share buyback programme was because the Banking Law specifically bars such a practise and said it was up to the next Governor to decide whether the Law warrants a change.
He also confirmed to the Financial Mirror that after January 1, 2008 when the euro will be introduced, the Cyprus Monetary Policy Committee will be disbanded since responsibility for setting interest rates and monetary policy will shift to the European Central Bank.
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