Cyprus is an oasis of safety and its banks are healthy having no exposure to toxic debt and are well prepared to withstand the negative impact of a slowdown as a result of the global credit turmoil, said Marfin Popular Bank Vice-Chairman Andreas Vgenopoulos.
Speaking at a press briefing in Nicosia, Vgenopoulos said the ratio of loans to deposits of Cyprus banks is 90%, and even if the foreign currency deposits are excluded from the overall calculation, the ratio goes to 110%, which is acceptable and safe when compared to the international situation.
No excessive profits
Vgenopoulos dismissed accusation by some that banks are making excessive profits. He said people should first look at the level of capital employed and then derive conclusions. For example, if a bank has employed EUR 300 mln capital and is making EUR 300 mln profit a year, that gives a 100% return which is excessive and should be questioned. But if a bank has employed EUR 3 bln capital and is making EUR 300 mln a year, then obviously that is not excessive considering the risks taken and its obligations to its shareholders, said Vgenopoulos.
Margins shrinking
Vgenopoulos said that the interest margin on loans made in Cyprus is 2.1% compared to 2.3% in Greece. However, he pointed out that normally MPB deducts 0.4% against provision risk, which may rise at a certain point to 0.8% if the economic situation worsens, leaving the bank with a margin of 1.2-1.4%.
As for profitability, all those making accusations should also consider that banks are saddled with high costs, which also limits their ability to lower rates.
Economy
The Cyprus economy is faring much better than other euro-zone countries eventhough the GDP growth forecast has been lowered for 2008 to 3.5% and for 2009 to 2.8-3.0%, but Vgenopoulos warned that the negative effects arising from the global credit crunch and crisis will reach Cyprus and have a negative impact.
“It may even affect Cyprus property prices and result in lower revenue for everybody, from the government to businesses and banks. Our hope is that the impact will be shallow and the majority can emerge from this mostly unscratched.”
Global crisis
Vgenopoulos said nobody can say when the global credit crisis will end. “A year ago, we warned that the crisis would prolong and take many casualties, but I could never imagine the bankruptcy of Lehman Bros., the rescue of Citibank and so many fast developing events,” said Vgenopoulos. “What’s for sure, is that governments and Central Banks are determined to save the situation and are taking exceptional action to help banks and their respective economies in general.”
“My message to all is to pray that the crisis is resolved quickly, but at the same time, be prepared for a prolonged and deep crisis staying for a long period,” concluded Vgenopoulos.
