UPDATE: Pimco, Deloitte in due diligence of Cyprus banks

The Central Bank of Cyprus announced Friday that PIMCO and Deloitte will proceed with an independent due diligence exercise of the local banking system, which includes an asset quality review and a bottom-up stress test to determine the capital needs of each banking institution.
Confirming reports in the local press a day earlier, the central bank said the exercise will cover the three main commercial lenders – Bank of Cyprus, Cyprus Popular Bank and Hellenic Bank – the Co-Operative Central Bank and the Limassol Co-Operative Savings Bank, as well as the local subsidiaries of two Greek giants, Eurobank EFG Cyprus and Alpha Bank Cyprus.
The central bank said the exercise is being carried out at the request of the Troika of international lenders – The European Commission, European Central Bank and the International Monetary Fund – who are considering a bailout in the region of 10 bln euros. However, the Commission stated earlier in the week said that there is frustration over the delay of the Cyprus government to comment or counter-propose a cost-cutting package and a series of reforms that would drastically reduce the bloated public sector deficit, due mainly to extremely high and rigid civil service wages, as well as to ensure the viability of the national pension scheme.
The communist-led government has extensively tarnished the reputation of the local banking sector by apportioning full blame for the crisis on the island’s two leading banks that need a joint bailout of 2.5 bln euros to cover their exposure to Greek sovereign debts that has, in turn, been subject to successive haircuts. The Christofias administration fears announcing major public sector wage cuts for fear of losing the February 2013 presidential elections.
As regards the due diligence exercise, the central bank added that will be coordinated and overseen by a Steering Committee comprising representatives of the Cypriot authorities and the international organisations involved in the financial assistance programme for Cyprus, namely the European Commission, the ECB, the European Financial Stability Facility / European Stability Mechanism, the IMF and the European Banking Authority.