Cyprus examines appeal to EFSF only for banking recapitalisation

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Cyprus is examining the possibility to request financial assistance from the EFSF only for banking recapitalization, Cyprus Central Bank Governor Panicos Demetriades has said.

"Delicate handlings are being made by the government and the Central Bank of Cyprus for the issue of granting financial support to the banking sector for which no timeframes can be given," Demetriades said in statements following a meeting with General Secretary of the Movement of the Ecologists Ioanna Panagiotou.

The Cypriot government decided to underwrite Cyprus Popular Bank’s (CPB) capital increase of 1.8 billion EUR, which posted losses in 2011 as a result of the Greek sovereign debt haircut. CPB must secure by June 30 a total capital of 1.97 billion EUR to reach the Core Tier 1 capital ratio, set out by the European Banking Authority.

"Decisions which stabilize and consolidate the banking system will be taken," he added.

Responding to questions, Demetriades refrained from elaborating on the deliberations concerning the issue, noting "rest assured that the aim (of banking consolidation) will be achieved in the best possible manner."

"If we apply eventually (to EFSF), because is not certain that we will as there are other options, we will pursue the best terms for the economy and these terms should include the consolidation of the banking sector and noting more," he went on to say.

Responding to a question whether it would be best for Cyprus to secure a bilateral loan rather than an appeal to the EFSF, Demetriades said that no one could express definite view before being aware of the terms in detail.

"Neither the first option nor the second necessarily mean additional burden to the citizens," he pointed out.

Demetriades also said that the CBC proceeds with all necessary actions, which would establish a protective fence around the presence of the Cypriot banks in Greece, which are heavily exposed to non-performing loans to the Greek economy.

"Our aim is to create this ring as soon as possible so that the possible consequences from the developments in Greece would affect the least possible," he said.

Responding to a question with regard to an audit for the Cypriot banks’ loan portfolios, Demetriades said this issue concerns the efforts of separating the Cypriot banks` operation in Greece, adding such audit can be imposed by the Central Bank of Greece and not by the CBC.

Referring to the Cypriot economy and the new set of measures aiming at covering a shortfall of 150-200 million EUR from Cyprus target for a 2.5% GDP budget deficit, Demetriades pointed out big progress has been made as the deficit has been reduced from 6.5% in 2011 to 3.5%, adding that the deficit can be reduced further with additional measures.

With regard to the EU Commission recommendations, Demetriades pointed out that these are not something that it is needed to implement immediately, adding that "examining these recommendations in dept one can say that they are not analysed fully and allow room for discussion."

He referred to the recommendation for harmonizing the supervision of Cyprus’ credit institutions with the standards applied for the commercial banks, noting that "this recommendation is not documented," adding that the diversity of an organization, even a living one, is a source of resilience.

"We do not want all credit institutions in system to be the same," he pointed out, wondering "where would we be standing today if everyone in the financial system assumed the same risks."