Cypriot Minister of Finance Vassos Sharly refrained from elaborating as to when the government will take its decisions with a view to securing financial assistance to recapitalizing its banking sector, noting that such decisions cannot be announced in advance.
The Cypriot government decided to underwrite Cyprus Popular Bank’s (CPB) capital increase of 1.8 billion EUR. CPB, which posted record losses in 2011 as a result of the Greek sovereign debt haircut, 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.
Speaking in a Q&A session organized by Chamber of Nicosia’s Commerce and Industry, Sharly said that such decisions are usually taken when international markets are closed.
He said that Cyprus is examining all options, including requesting financial assistance from the EFSF as well as securing a bilateral loan, adding that in any case the deadline for completing the recapitalisaion of CPB is "very close."
Referring to the pressing questions as to when Cyprus will taken its final decisions with regard to the recapitalization of its banking sector, Sharly said "what I can only say is that we monitor the situation every hour, every day. Therefore I can assure that we will do it at the right moment."
Recalling that Spain took a decision to request EU financial support for shoring up its banking sector, Sharly said "in most cases these decisions are taken when the markets are closed."
Addressing the event, Sharly said that Cyprus needs to consolidate its public finances with a view to restoring its credibility among foreign investors, who are considered as one of the backbone of the economy.
On his part, Central Bank Governor Panicos Demetriades announced that the Bank in the coming months will carry out an in depth examination with the assistance of experts on the issue of the optimum size of the banking sector in Cyprus as well as on the reasons which lead to the exposure of the Cypriot banking system to the Greek sovereign debt and the Greek economy.
"We intent to learn from the mistakes of the past and to proceed with the necessary improvements to make sure that such mistakes will never be repeated," he said.
He noted that the enlargement of the banking sector in Cyprus although strategic goal which brought growth in Cyprus create "systemic risks which under the current circumstances oblige the state to support the large domestic banks in case they are facing significant financial difficulties."
"Bearing in mind the above, I have the view that the preservation of a healthy and dynamic banking sector with a manageable size so that a possible problem of an individual bank would not destabilize the financial system and would not burden the economy and the public finances should be the challenge," he stressed.
He noted that as of December 2011 the consolidated assets of the banks operating in Cyprus including the cooperative institutions was eight times bigger than Cyprus’ GDP whereas the size of the Cypriot banks including the cooperative institutions was five and a half times bigger than the Cypriot GDP.
For this reason, the Cyprus Central Bank in the coming months will examine in depth with the assistance of experts both the issue of the optimum size of our banking system as well as the issue of its structure," he concluded.
