Cyprus will slowly but steadily emerge stronger from the recent downturn, the Governor of the Central Bank of Cyprus Chrystalla Georghadji told delegates at the Investors’ Summit last week, adding that a series of reforms have taken place following the unprecedented and challenging events the banking system and the wider economy faced during 2013.
She said that important steps towards fully restoring confidence and stability have been taken, in cooperation with the ECB, the IMF, and the European Commission, and that the four systemic banks – Bank of Cyprus, Cooperative Central Bank, Hellenic Bank and RCB Bank – are now directly supervised by the European Central Bank.
“The confidence of the international community is returning to the Cyprus banking sector. It is pleasing to see that the recent restructuring work and reforms are already delivering promising results, and the sector is coming out of this difficult juncture in a strong and healthier condition,” she stressed.
The centralbanker said that restructuring and cleaning up a bank’s balance sheet is not easy, and market conditions remain challenging.
However, Georghadji noted, this also provides opportunities. “We remain fully committed to the implementation of the programme agreed with the international lenders and in re-establishing a thriving banking sector that can effectively meet the needs of businesses and households,” she added.
“In the past 18 months, experienced foreign investors have participated with significant funds and have taken substantial positions in several banks incorporated in Cyprus,” she added.
These capital injections, Georghadji said, constitute some of the largest foreign investments seen in the history of the Cypriot economy.
“The Cypriot economy and society in general have exhibited considerable flexibility and endurance, keeping the country resilient even after the recent dramatic developments. In particular, while the Troika in its fifth assessment of the Cyprus economic adjustment programme last July, predicted a real GDP decline of 4.2% for 2014, the recent revised forecasts by the IMF and the European Commission project a real GDP decline of 3.2% and 2.8%, respectively. Even better, according to the latest available data, the Central Bank of Cyprus expects a decline of around 2.5%. For 2015 the economy is expected to do better and rebound with a marginal positive growth,” she noted.
The developments regarding public finances, Georghadji said, were significantly better than expected compared to past estimates by the international lenders.
“In its fifth assessment Troika forecasts a budget deficit of 4.7% of GDP for 2014. However, most recent estimates suggest that the budget deficit will be substantially smaller. This revision enables a relatively more optimistic fiscal outlook for 2015, provided of course that the consistent and prudent implementation of the state budget continues,” she added.
It is important for the wider economy and public finances, Georghadji said, that the EUR 1 bln buffer provided within the 10 bln Troika programme will not be needed to cover any capital shortfalls in the banking system.
The improving capital position of the banks, she noted, provides the opportunity to either reduce the lending required from the programme and the national debt by EUR 1 bln, or consider whether this may be allocated to other areas.
