The Cyprus Cooperative Credit Institutions will retain part of its earnings, which can be used to recover the shares acquired by the state despite the fact that it is being nationalised due to a €1.5 billion capital injection.
The state will acquire 99% of the share capital of the Cooperative Credit Institutions (CCI`s) as it will inject €1.5 billion to cover their capital shortfall for the next three years on the basis of a due diligence audit carried out by the US audit firm Pimco. The €1.5 billion is part of the €10 billion financial assistance programme agreed last March with the European Central Bank, the European Commission and the IMF, collectively known as the Troika. The capital injection will be covered by the programme`s second tranche to be disbursed in the September 13 Eurogroup meeting.
The formula on how the CCI`s will recover its share capital from the state emerged in a meeting Wednesday between the CCI`s executives and the Central Bank of Cyprus in the presence of Finance Ministry officials.
"According to the interpretation of the state aid rules, the earnings will remain to the (Cooperative Central) Bank after paying 10% of the 1.5 billion aid, to the state as set out by the European Commission DG Competition," said Giorgos Iosif, President of the Committee of the Cooperative Central Bank, noting both Troika and the EU`s DG Competition agree with this formula.
Describing the formula as satisfying, Iosif explained that the CCI`s will pay 10% of the state`s share capital annually, whereas the remaining profits will be used for the recovery of the shares acquired by the state.
During a meeting of a Parliamentary Committee of Finance last week, party officials expressed fears that the CCI`s will not be able to recover its share capital as 100% of its earnings would go to the state.
According to the state rules, the state will retain the CCI`s share capital for five years, before selling them.
"This condition does not aim at obstructing the CCI`s from recovering its share capital, on the contrary it could prove beneficial," Iosif said.
Furthermore, he noted that so far the Non Performing Loans "are very far from Pimco`s estimates."
"We are not frightened, as things stand, we are optimistic that a very large part of the NPL`s will be recovered by the CCIs" he said, adding that in a specific loans category the NPLs are 125 million less than the Pimco estimates.
The Cypriot package also featured an unprecedented "bail in", that is, the conversion of uninsured deposits to capital in a bid to recapitalise the island`s largest bank, Bank of Cyprus. A total of 47.5% of the bank’s uninsured depositors will be converted to capital, whereas Cyprus Popular Bank, the island`s second largest lender will be wound down with its uninsured depositors loosing approximately 80% of their money. Under the bailout agreement, the Cooperative Central Bank will submit a restructuring plan providing for the merger of the 93 Cooperative Credit Institution currently operating into 18 new cooperatives, while their supervision is transferred from the Cooperative Central Bank to the Central Bank of Cyprus.
