Cyprus explores a double option for banking recapitalisation and fiscal needs

Cyprus is exploring a double option in a bid to secure the recapitalisation of its banking sector and to address its refinancing needs, Minister of Finance Vassos Sharly said on Tuesday.
Speaking to the press, Sharly explained that Cyprus could resort to the EU bailout mechanism to secure a total of 1.8 billion EUR for the recapitalization of its banking sector, as well as to secure a bilateral loan to cover its refinancing needs.
He noted that he is mindful of the pressing June 30 deadline for the recapitalization of the banking sector set out by the European Banking Authority, following the haircut of the Greek sovereign debt. Cyprus government has decided to act as an underwriter of a 1.8 billion euro capital issue by Cyprus Popular Bank, which posted record losses in 2011, as a result of a massive Greek bond writedown.
"There are 278 hours left, within which we must settle the issue of the banking recapitalisation. Therefore, the issue is a very pressing one," Sharly said.
Replying to questions on the consultations for a bilateral loan, Sharly recalled that he never said that consultations are limited on one country, adding the issue remains open.
"We are optimistic that we will secure the funding needed for the banking recapitalisation, whether that would come from a bilateral agreement, or directly from Europe, that is the European Financial Stability Facility," he said, adding that no application has been submitted to the EFSF.
He added however that a Cypriot application to the EFSF would be different from previous applications made to the EFSF as it will be made only for the recapitalisation of the banking sector and not for Cyprus’ refinancing needs.
"Consequently I believe that the terms which have been imposed to other states that applied to the EFSF will not be imposed on us," he said.
Replying to questions, Sharly noted that the government explores a combination of options, that is a bilateral loan which could cover its refinancing needs for the next two – three years and the option to resort to the EU bailout mechanism to secure the 1.8 billion euro needed for the recapitalisation of the CPB.
Cyprus has obtained a 2.5 billion euro bilateral loan from Russia which assisted the island to cover its refinancing needs for 2012 as well its 2011 budget deficit.
"A (bilateral loan) can secure the state’s refinancing needs for the next one, two or three years. This has been done in the past. Therefore this can be done," he said, responding to questions, adding that Cyprus has additional need stemming from the recapitalisation of the banking sector.
"Therefore," he said, "it is not a mistake to appeal to the (EU) Mechanism while obtaining a loan at the same time and as I said in the past it could be a combination of the two. Therefore, both can be done with no absolutely no problem whatsoever."
Sharly refrained from revealing the sum discussed in the consultations for a bilateral loan.
"Yes we have been discussing the sum, the purposes and the possible terms," he said adding that "it would not be wise to say what is being discussed in an application."
Furthermore, Sharly described Sunday’s elections in Greece as a positive development, expressing hope that "Greece will have a government which will retain Greece in the euro zone."
"This is a very positive development, it takes away a lot of the pressure and anxiety which may come about for the euro zone system and Cyprus," he concluded.