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Crisis and opportunity

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The drastic changes in the Cyprus banking sector hinge on four key events during the past nine years, which should have taught the authorities and consumers alike a lesson or two.

After the boom and bust of the Cyprus Stock Exchange in 1999-2000, the island joined the European Union in 2004, with stricter regulations imposed on the entire financial services sector. The aim was to rid Cyprus of the image that it was a money laundering haven during the Milosevic years and after the collapse of the Soviet Union, when party apparatchiks became entrepreneurs overnight, many of whom, today’s oligarchs.

By 2013, the first tremor to shake the banking sector came out of the collapse of Laiki Popular Bank, with many individuals and businesses suffering even today from the fallout and inability to recover.

The subsequent bailout of Cyprus came with certain conditions of reform from the Troika, some of which were met, others with hesitation.

Soon after that came the bail-in, with shareholders losing the value of their shares in Bank of Cyprus, twice. Nest eggs vanished and savings were wiped out through the ‘haircut’ of deposits that served as a lesson to others, never to be repeated.

Then we had the desperate efforts to prop up the Cooperative Central Bank and the savings institutions attached to it, where greed, both financial and political, prevented decision makers from seeing the light – that the Co-op had basically become a black hole and ground for political favouritism.

Out of the seismic shifts, Bank of Cyprus had a new management team and visionary shareholders, hoping to take it into the future. But old mentalities were too hard to die and the former driving force of the Cyprus economy once again became a slow ship, searching its next port of call. Years later, it is still struggling to downsize and only catching up with technological advances, with an eye to return to dividend paying in a few years.

Hellenic Bank had better fortune, as due to its smaller size, it was quicker to adapt. The collapse of the Co-op Bank was a blessing for Hellenic, as it quickly picked up the pieces and absorbed the ‘good bank’ operation, gradually bringing it to par with Bank of Cyprus. It was no longer a David and Goliath analogy, but more of a Kane and Abel.

Out of these developments we saw the likes of Arab Bank and then Piraeus transforming into today’s Astro, century-old National Bank of Greece pulling out, Alpha Bank retaining a sturdy presence, and Eurobank growing, slowly but surely, with a few more on the sidelines.

Smaller banks have come and gone, which led to RCB picking up business, especially among a growing non-Russian customer base and making leaps in the credit card services, until recently a monopoly of the banks-owned JCC.

But after 25 years or so and fallout from the Russia-Ukraine war, RCB is winding down its banking, selling its healthy loans portfolio to Hellenic, shifting depositors and account holders to other banks, while the RCB Cards Division is up for grabs, a jewel in the crown of anyone want to buy it.

The other banks have yet to realise this opportunity and are onboarding at a snail’s pace.

Through all these seismic shifts, electronic money institutions (EMIs) such as Revolut, made their presence felt, taking on new tech-savvy customers very fast with attractive packages. Local banks are still trying to catch up, with an unjustifiable delay.

The public’s trust in banking has been shaken. To regain that trust, we need a culture change, both among banks’ management and staff, as well as customers.

Gone are the days when ‘mergers’ and ‘takeovers’ were taboo words and unheard of. Within a decade, banking has gone through radical changes and only those with a vision will stay ahead.

The phrase, “in the midst of every crisis, lies great opportunity” could not be more true. You just need to open your eyes to see the opportunity.