The Popular Bank, the second biggest lender in Cyprus that needs to find more than a billion euros in fresh capital by June, wants to be considered eligible for cash that will be disbursed to Greek banks under that country's bailout programme, a senior source in the bank said on Wednesday.
"We think there is good reason to treat Popular like a Greek bank and to partake in the liquidity and capital support available to Greek banks in so far as its activities in Greece are concerned, since it was a subsidiary of a Greek bank until March 2011," the source told Reuters.
However, Cyprus Central Bank Governor Athanasios Orphanides and Finance Minister Vasos Shiarly were reported to have proposed a plan to the European Central Bank, whereby the Greek operations of the Cyprus banks would be split from their mother companies in order to reduce the expsorure to Greek government bonds and other debt. The two also reportedly discussed with ECB president Mario Draghi the option of the European Central Bank buying Cyprus bonds.
The Greek subsidiary, Marfin-Egnatia, was merged with the Cypriot holding company, Marfin Popular, last year and the group was renamed Cyprus Popular Bank earlier this month.
Popular needs to raise some 1.35 bln euros by the end of June, to meet European regulator's requirements of a minimum Core Tier 1 capital of 9%. Earlier this year, it reported record 2011 losses of 2.5 bln euros from a writedown of its Greek debt holdings.
If Popular cannot find the funds it will have to rely on government aid, placing further pressure on Cyprus's 17 bln euro economy.
The island has been shut out of international debt markets for a year on prohibitively high yields on its traded paper, and two of the wo rld's credit ratings agencies have rated the island's debt as junk.
Fearing prohibitive terms from its EU partners, Cyprus turned to its close ally Russia for financial aid l ast year, securing a 2.5 bln euro loan authorities have said should cover normal, non-extraordinary needs this year.
In Greece, government officials said on Wednesday that the country's bank support fund would receive 25 bln euros worth of bonds from the European Union by Thursday to be used to recapitalize Greek banks.
The Greek government has yet to finalise the terms of a recapitalization plan, due to be announced by April 20. The process is expected to be completed by September.
The source said Cyprus's finance ministry and central bank were supportive of the Popular's attempts, but could not provide further details.
"We raised it with the Greek prime minister and we got a good hearing," the source said. "We have also had contacts in Brussels and in Washington, because clearly, the Troika must approve this."
