On 28 May the Governor
of the Central Bank of Cyprus Cyprus
The session had
been called to examine the circumstances surrounding the sale of the Greek
branches of three Cypriot banks – Bank of Cyprus (BOC), Cyprus Popular Bank
(“Laiki Bank”), and Hellenic Bank – to the Greek commercial bank Piraeus Bank (Τραπεζα
Πειραιως Α.Ε.) on 26 March for € 500 mln.
Many rumors were in circulation regarding the motives behind this sale,
and in his testimony Demetriades stated that the decision to sell the three
banks’ branches in Greece
CBC Governor Panicos
Demetriades
The Cypriot media
treated the news as a surprising revelation, but the news that the sale of the
Greek banking assets was a Troika precondition for any “bailout” had already been
made public earlier. On 2 May the
newspaper Phileleftheros had published the text of a 24 April letter from
Demetriades to parliamentarian Irene Charalambidou which stated this at the
outset: “The sale of branches of Cypriot banks in Greece Cyprus Cyprus
The Central
Bank of Cyprus (CBC) wishes to clarify that the sale of the branches of the
three Cypriot banks in Greece had been set by the Troika as a condition for the
approval of Cyprus’s financial support programme. If the Cypriot government had
not agreed to this sale, the negotiations with the Troika for the finalisation
of the Memorandum of Understanding would have been terminated, with the
consequent disorderly collapse of the financial system and of the country
itself.
In the main text of the Eurogroup’s decision on 25
March 2013, the following is stated:
‘The
Eurogroup urges the immediate implementation of the agreement between Cyprus
and Greece on the Greek branches of the Cypriot banks, which protects the
stability of both the Greek and Cypriot banking systems.’
As a result of
the above political mandate, which was agreed with the government of Cyprus at
the Eurogroup on 26 March 2013, a relevant agreement was reached. Following
this, the CBC, serving as the Resolution Authority, took into account the
opinion of the Minister of Finance and issued a Decree on the same day, through
which the operations of the branches of Laiki Bank and Bank of Cyprus in Greece
would be sold to Piraeus Bank in Greece. It should be noted that the agreement
also involved Hellenic Bank and, therefore, the operations of Hellenic’s
branches in Greece were also sold to Piraeus Bank in Greece. The total value of
assets transferred amounted to €16,4 billion and the total liabilities €15
billion. The total sale price received was calculated based on the methodology
agreed by the Eurogroup on 25 March 2013 and amounts to €0,5 billion.
[...]
It is worth noting
that the operations sold to Piraeus Bank were not subsidiaries but branches. Readers of this column will have seen
that the distinction is crucial – and for Cyprus may have been fatal – because a
subsidiary is licensed by the host country and is outside the
control of the home country’s banking supervisors, while a branch
relies on licensing and supervision from the home country.
The terms of the
original “bailout” agreement dictated by the Troika on 16 March – terms which instantly
garnered headlines around the world – called for a “stability levy” to be taken
out of every bank deposit under the control of the Cypriot central bank. As announced, this would have applied equally to
the branches of these three banks in Greece Greece
Although the
Eurogroup and the CBC praise the rapid sale of these three banks’ operations in
Greece as helping improve the stability of the Cypriot banking system, it is evident
that this action, taken behind closed doors, had the effect of exempting Greek
depositors from the planned “stability levy”, and hence constituted in essence
a backdoor bailout of Greece by Cypriot depositors, or, as one
analyst termed it, ‘Cyprus’ Contribution to Recapitalization of Greece,
Part II’.
A similar exemption
was quietly inserted for UK Romania Eastern Europe . (As noted here
earlier, Russia does not permit foreign banks to operate in Russia through
branches but only through Russian-licensed, Russian-supervised subsidiaries, so
there was no danger that depositors in Russian subsidiaries of Cypriot banks might
have their deposits subjected to the Troika’s levy.)
Sources:
Πιέσεις
ΕΕ για έξοδο τραπεζών από Ελλάδα (2013-05-29 10:05), with links to 26 March
internal CBC memo from the Resolution Unit to the Governor (Πώληση
των Ελληνικών υποκαταστημάτων της Τράπεζας Κύπρου και της Λαϊκής Τράπεζας) and
24 May letter from CBC governor Panicos Demetriades to Chairman of the House
Institutions Committee Demetris Syllouris containing written submissions for
the Committee meeting to be held on 28 May (Θέμα:
Υποβολή γραπτού υπομνήματος σε σχέση με την προγραμματισμένη συνεδρία της
Επιτροπής στις 28 Μαΐου, 2013)
Sale
of banks in Greece a ‘political decision’ (2013-05-29)
CBC press release about sale of three banks’ branches
to Piraeus Bank – in Greek: Πώληση
των εργασιών των υποκαταστημάτων των τριών Κυπριακών τραπεζών στην Ελλάδα
(2013-04-02)
CBC press release about sale of three banks’ branches
to Piraeus Bank – in English: Sale
of the branches of the three Cypriot banks in Greece (2013-04-02)
CBC report containing details on the 26 March sale of
the three banks’ branches: Θέμα:
Ενέργειες για υλοποίηση της τελευταίας συμφωνίας που επετεύχθη στο Eurogroup,
κατά τη συνεδρία του ημερομηνίας 25 Μαρτίου 2013, αναφορικά με το Σχέδιο για
επίλυση των προβλημάτων των Κυπριακών Τραπεζών και για τη χρηματοδότηση της
Κυπριακής Δημοκρατίας. (2013-04-08)
In other news, on
23 May the Central Bank of Cyprus (Κεντρική Τράπεζα της Κύπρου) and the
Ministry of Finance (Υπουργείο Οικονομικών) published separate press
releases disputing or rectifying media reports regarding the results of independent
assessments carried out on Cyprus’s anti-money laundering (AML) procedures.
The Troika (EC,
IMF, ECB) had placed as a precondition for any bailout – and not the only
precondition, as we have seen – the carrying out of a third-party assessment of
anti-money laundering practices in the Cypriot banking sector.
The assessment was
to be carried out in two parts: one part to be carried out by “MONEYVAL”, and
one to be carried out by “an independent auditor of the utmost integrity”.
“MONEYVAL” is the
popular name for the “Committee of Experts on the Evaluation of Anti-Money Laundering
Measures and the Financing of Terrorism”, a committee within the Council of
Europe. (The Council of Europe, which
has 47 member countries, is not to be confused with the European Council, the
supreme body of the 27-member EU.)
MONEYVAL’s scope of work, as defined by CBC and the Troika, was to carry
out an assessment of the functioning of the legal and administrative structures
in place, including analysis of the country’s business registry and of
Suspicious Transaction Reports (STRs) submitted by banks. Moneyval visited Cyprus
The task of the independent
auditor was to examine identity information for holders of deposits and loans
at the largest banks in Cyprus
After MONEYVAL and
Deloitte submitted their final reports on 24
April 2013 , a summary report was prepared. The 4-page summary report, dated 10 May 2013 was entitled “CYPRUS
Although a 2011
assessment by MONEYVAL had given Cyprus a more than passing grade (higher than
most Eurozone members, such as Germany, France, and Austria), the Troika had
placed as its precondition the production of a report that focused particularly
on Cyprus’s weaknesses or deficiencies in AML.
The leaked summary did indeed indicate six procedural areas as
“shortcomings”, and observers critical of Cyprus
The press releases
issued by the Central Bank of Cyprus
Anti-money
Laundering audit carried out in Cyprus
(23 May
2013)
In response to
the press coverage of the three page summary paper dated 10 May 2013 [1],
prepared on behalf of the "Troika" and intended to provide a resumé
of the Moneyval and the Deloitte reports on the anti-money laundering (AML)
audit recently carried out in Cyprus (the “Reports”), the Central Bank of
Cyprus wishes to make the following comments:
The summary
paper does not provide a synopsis of the main findings of the Reports but
rather a description of the perceived weaknesses of the system, drawing
inferences where none exist in the original Reports. The lack of consultation
with the authors of the Reports and the failure to refer to any of the positive
aspects mentioned therein, has resulted in erroneous and distorted conclusions
in the media, especially the international press.
A summary of
the Reports cannot be considered balanced if it omits to mention that they
reveal a number of strengths both in the Cypriot AML framework and in the
effective implementation of customer due diligence by Cypriot banks. The
authorities are in the process of providing a detailed response to the Troika
as well as to the Eurogroup.
The main
positive findings of the Reports are listed below.
1. In the case
of Deloitte, it was found that there is:
a) A solid
level of compliance on Customer Due Diligence (CDD) across the sector. “Most
importantly... the “All” column appears to indicate a generally solid level of
compliance across the six banks with the following (4 out of 27) areas requiring
further attention...”
b) A very low
level of suspicious activity that may be undetected. Deloitte’s forensic
analysis covered over 570,000 transactions, with only 29 circumstances in which
a transaction or pattern of activity was recommended for further investigation
by the bank to establish reasonable explanation which could reduce this number
further or a need to report. The data, therefore, provides an indication that
any potentially suspicious transactions that may not be detected are not
necessarily significant or systemic.
c)A stricter
legal framework beyond normal EU standards. “In the audit for compliance
with the CDD requirements of the Cyprus legal framework, it is worthy of note
that these requirements are more detailed, and to a certain extent
prescriptive, than in many other jurisdictions, including other EU Member
States that similarly have implemented the requirements of the Third Money
Laundering Directive.”
d)A good level
of due diligence conducted by Cypriot banks across all customers. This includes
obtaining passports and verifying addresses of all the ultimate beneficial
owners, including in cases involving politically exposed persons, with an
ownership level of 10% or more. This is more diligent than the EU standard of
25%.
e) A proactive
approach taken by the Cypriot authorities to reduce the risk of AML. “A
recognition by the Cypriot authorities of the unique risks in the jurisdiction,
and efforts to tailor requirements to mitigate those risks...”
2. Moneyval’s
report revealed that there is:
a) Strong
implementation of CDD measures. “In general, the banks interviewed
demonstrated high standards of knowledge and experience of AML/CFT issues, an
intelligent awareness of the reputational risks they face and a broad
commitment to implementing the CDD requirements set out in the law and in subsidiary
regulations issued by the Central Bank of Cyprus (CBC). Implementation of CDD
measures, as described by the banks, appeared strong under most headings.”
b) Awareness
of AML risks among managers.“In general, bank managements appear conscious
of AML/CFT risks and supportive of strong preventive measures, including, where
warranted, the rejection of some high risk business and/or closing of existing
accounts.”
c) Strong
compliance in the identification of customers. “In line with the CBC
Directive, banks confirmed that they identify customers in all cases and do not
operate anonymous or numbered accounts. For international business, most
customers are corporate entities and supporting documentation is obtained to
confirm the identification of the customer, the directors and the owners.
Although some of these structures are complex and can involve legal entities in
two or more jurisdictions, there was a consistency in the responses of the
banks that they are required to, and do in practice, identify all relevant
parties through all layers of these structures. The assessors did not come upon
any examples to suggest lack of understanding or weak compliance on this
aspect.”
d) Nothing
unique to Cyprus. “A number of individual features of international banking
business conducted in/through Cyprus, none of which are unique to Cyprus and
many of which can be found in banking systems worldwide.”
Considering
the above findings as well as the Reports as a whole, there is no reference
to or indication of systemic deficiencies. In contrast to the summary
paper, the Reports indicate that the standard building blocks are in place, the
AML preventive measures and procedures in banks are generally sound, and,
generally, the banks have a high level of compliance with the statutory and
regulatory requirements, which in some areas are more demanding than EU and
international requirements. Some weaknesses are identified in the Reports, but the
general picture portrayed is not negative, something that is not reflected
in the summary paper.
AML is a
challenge for all the international community. There is no perfect system that
can guarantee the complete elimination of money laundering risk, as shown in
the evaluations of the AML framework of countries in the relevant Moneyval and
FATF reports. In addition, it should be stressed that no benchmarking of the
Cyprus AML audit results was carried out, as this was a unique, focused and
exceptional evaluation procedure not carried out in other countries.
The Cypriot
authorities remain fully committed to strengthening any weak areas identified
in the Reports.
--------------------------------------------------------------------------------
[1]The
summary paper was titled “Cyprus – Effective implementation of Customer Due
Diligence Measures Level of implementation of preventive measures by financial
institutions Summary report of main findings by Moneyval and the independent
auditor”
MINISTRY
OF FINANCE
Press Release
Anti-Money Laundering
The Cyprus Government is committed to the fight
against money laundering and terrorist financing through continuous enhancement
of its framework. To this end, amongst other, it has repeatedly been assessed
on its framework and its implementation by Committee of Experts on the
Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism
(MONEYVAL) receiving overall positive evaluations. At the same time the
authorities have been addressing the relevant weaknesses raised after each
evaluation.
Cyprus has also agreed to proceed with an in depth
assessment of the effective implementation of Customer Due Diligence (CDD)
requirements in the Cyprus banks, through relevant evaluations by MONEYVAL and
Deloitte Italy. It should be noted that the nature and depth of these
assessments are unique and have never been carried out in any other
jurisdiction.
The outcome of the assessments by the two institutions
indicates a solid level of compliance across the sector. On the assessment of
Customer Due Diligence (CDD), Deloitte Italy notes that the results of the
audit “appears to indicate a generally solid level of compliance across the
six banks with the following areas requiring further attention” referring
to 4 out of 27 areas on CDD.
MONEYAL respectively notes the following: “In
general, the banks interviewed demonstrated high standards of knowledge and
experience of AML/CFT issues, an intelligent awareness of the reputational
risks they face and a broad commitment to implementing the customer due
diligence (CDD) requirements set out in the law and in subsidiary regulations
issued by the Central Bank of Cyprus (CBC). Implementation of CDD measures, as
described by the banks, appeared strong under most headings.”
The relevant Reports also indicate weakness areas
needing further improvement. Cyprus authorities in collaboration with Troika
partners are committed to fully address these weaknesses.
23 May, 2013
Sources:
CBC press release – in Greek: 'Ελεγχος
ξεπλύματος βρώμικου χρήματος που διεξήχθη πρόσφατα στην Κύπρο (2013-05-23)
CBC press release – in English: Anti-money Laundering
audit carried out in Cyprus (2013-05-23)
CBC press release announcing commissioning of
assessments – in Greek: Αξιολόγηση
της εφαρμογής του κανονιστικού πλαισίου για την παρεμπόδιση ξεπλύματος
παράνομου χρήματος από τις τράπεζες (2013-04-13), with appended file, KEY ELEMENTS FOR A
THIRD PARTY AML AUDIT OF THE EFFECTIVE IMPLEMENTATION OF CDD MEASURES WITH
REGARD TO DEPOSITS AND LOANS (2013-04-13 21:55:47)
CBC press release announcing commissioning of
assessments – in English: Independent
third party evaluation of the implementation of Cyprus' Anti Money Laundering
framework (2013-04-13), with appended file, KEY ELEMENTS FOR A
THIRD PARTY AML AUDIT OF THE EFFECTIVE IMPLEMENTATION OF CDD MEASURES WITH
REGARD TO DEPOSITS AND LOANS (2013-04-13 21:55:47)
Ministry of Finance press release – in English: Press
Release by the Ministry of Finance on Anti Money Laundering (2013-05-23)
Ministry of Finance press release – in Greek: Ανακοίνωση
του Υπουργείου Οικονομικών για την καταπολέμηση της νομιμοποίησης εσόδων από
παράνομες δραστηριότητες (2013-05-23)
Leaked summary: Η
έκθεση της τρόικας για ξέπλυμα Ημερομηνία Δημοσίευσης (2013-05-16 10:11 ), with report as attached PDF file
MONEYVAL 2011 evaluation report of Cyprus
FATF 2004 procedures: Methodology
for Assessing Compliance with the FATF 40 Recommendations and the FATF 9
Special Recommendations. 27 February
2004 (Updated as of February 2009)
Troika
distorted ‘dirty money’ findings (2013-05-26)
Cyprus's
Audit Whitewash (2013-03-12)
In earlier news, on
15 May the Cypriot financial newssite Stockwatch leaked a 47-page
internal document of the International Monetary Fund containing the drafts of
statements by senior IMF personnel slated to be presented an Executive Board
Meeting later that same day. The
statements all concern Cyprus Cyprus Cyprus Cyprus
The keynote
statement, by Menno Snel and Ektoras Kanaris, contains the following unembellished
description of the present situation in Cyprus
Following political agreements in the Eurogroup on March 16 and 25,
2013, real GDP is now projected to contract by 12½% cumulatively in 2013-14.
This arises largely from the frontloaded banking sector restructuring of the
island’s two largest banks combined with the extensive bail-in of uninsured
depositors. As these two banks constitute more than 70% of the domestic deposit
market, the choice of this financing instrument will have severe implications
on GDP via numerous channels. First, the loss of working capital by Cypriot businesses
held at the two main banks is estimated to be around 50% or close to 100% of their
deposits over €100,000, depending on the bank. Similarly, a number of
households saw much of their wealth in the form of savings disappear overnight.
Second, a liquidity shock is unraveling due to the remaining deposits in these
banks being frozen for months; 90%-100% of deposits over €100,000 have either
been converted or frozen. Third, the fallout from an irreversibly damaged
sector that constituted a significant part of GDP i.e. banking, finance and
related services. Fourth, the impact of fiscal consolidation already undertaken
and new measures agreed will further hamper domestic demand. Finally, all of
the above are amplified by the unprecedented internal and external capital
controls required to safeguard financial stability. In turn, these will hinder
international capital flows and reduce business volumes in both domestic and
internationally oriented companies. Overall, the above channels will sharply
reduce private consumption and business investment. Little relief can be
expected from exports amid uncertain external conditions and a damaged
financial service sector.
One of the more thought-provoking
statements included in the document is replaced verbatim below in its entirety,
with emphasis as per the original. The
authors are Brazilian economist Paulo Nogueira Batista, Jr., one of the IMF’s
24 executive directors, and Héctor R. Torres of Argentina
DOCUMENT OF
INTERNATIONAL MONETARY FUND AND FOR OFFICIAL USE ONLY
The
contents of this document are preliminary and subject to change.
GRAY/13/1373
May 13, 2013
Statement by Mr.
Nogueira Batista and Mr. Torres on Cyprus
(Preliminary)
Executive Board
Meeting
May 15, 2013
We
thank the staff for their well-structured paper and Messrs. Snell and Kanaris
for their candid buff statement. Directors are confronted with a difficult
decision. Either the Board approves a program that has little ownership and
even less chances of success, or it runs the risk of exacerbating the crisis in
Cyprus which could engulf bystanders as Slovenia or Malta and aggravate the problems
in Greece. The Executive Board is at that route-fork right now. In our view,
before deciding the road to take, the Board needs to receive further
information and assessments from staff.
We start
by acknowledging that this program is better than the first purported
“sustainable solution” with “appropriate allocation of burden-sharing” that was
fortunately shot-down by the Congress of Cyprus on March 19th. However, that is
not a difficult mark to meet. The first package was unacceptable as it imposed losses
on small insured depositors and did not differentiate between solvent and
insolvent banks. It should have never been endorsed by Management, especially
before consulting with the Board. In contrast, this program preserves insured
depositors and does not impose losses on depositors of solvent banks. Also, by “bailing-in”
uninsured depositors, it reduces the burden on tax-payers. However, direct recapitalization
of insolvent banks by the European Stability Mechanism (ESM) would have been a
far better option, with much higher chances of success. It would have not
deprived Cypriot businesses from their working capital and medium-income
households from their life-savings. Alas, this option was, as staff puts it,
“not available” (i.e. not acceptable for Cyprus’ euro-area partners). Having
said this, we turn now to our misgivings and doubts about the program.
How
much and who? First and foremost we
need to understand how much financial support Cyprus will need and where it
would come from. According to the oral brief the Board received from the
Director of the European Department on March 18, the total financial needs of
Cyprus were around €17
billion. Cyprus requests to borrow from the Fund €1 billion; the ESM is expected to contribute with €9 billion. This adds
up to €10 billion which is, according to
staff, the overall financing package required to cover Cyprus’ external financing
needs between 2013 Q2 and 2016 Q1 (para. 39 and Table 5). However, on April 12 a
spokesman from the government of Cyprus was quoted as stating that financing
costs through 2016 had risen from the initial estimate of €17.5 bn. to €23 bn.
He did not provide details nor expand on how Cyprus was planning to raise the
difference of €5.5 bn. but there was speculation that the gap (or at least
part of it) would be covered by selling gold reserves from the Central Bank.
Finally, the overall numbers put forward by staff in Table 5 are even more
puzzling. According to the aforementioned table, on top of the €10 billion
coming from the Europeans and from the IMF, Cyprus will need to borrow,
presumably from private sources, over €85 billion between 2013 and 2016 (see
“Sources of Financing”). This
raises two questions: a) what is the actual number the IMF staff is working
with: the original €17 billion, the figure of €23 billion put forward by the
government spokesman or the €95 billion indicated in Table 5?; b) if the
figures in Table 5 are correct, and Cyprus will need to complement the €10 billion coming from the IMF and
the ESM by borrowing €85 billion between 2013-2016, who does staff believe
would be willing to lend this amount to Cyprus?
An
over-dose of optimism? Staff is projecting a
cumulative drop in output of 13 percent for 2013 and 2014. Staff is also
projecting that the primary fiscal balance will move from a deficit of 5.6
percent of GDP in 2012 to the surplus target of 4 percent of GDP in 2018. This
huge fiscal effort would be quite difficult to materialize in any country, but
even more in Cyprus that needs to find a new business model in the midst of the
deepest crisis it has ever had, in an unfavorable international environment and
while its euro-zone partners are themselves striving for more fiscal adjustment.
Every program needs a pinch of optimism but in this one the required dose of good-will
– or suspension of disbelief, if you will –goes way beyond the average. The two
pillars of the economy in Cyprus are banks and tourism. The two biggest banks
are insolvent. One will be liquidated and the survival of the other cannot be
taken for granted. The government is now determined to do what previous
governments could and should have done in better times; namely strengthen the
anti-money laundering framework (hence presumably reducing flows of “dirty” money).
Regarding tourism staff argues that, at least for this year, we may be
reassured as capacity had been sold before the crisis. We wonder if the
country’s touristic industry would not need to offer price-discounts to retain
tourism in the coming years. We
would appreciate staff’s comments on the following: a) what industries could
replace the share of banking in Cyprus’ GDP and in what period of time could
this happen?; b) are there any fiscal support measures for start-ups
contemplated in the program; c) what happened to tourism in Greece after the
crisis? does Greece’s experience provide any indication of what to expect in
the case of Cyprus?
Capital
restrictions: devaluation without benefits? Due
to restrictions in capital outflows, one euro in Cyprus can buy less goods or
services than one euro in any other partner of the monetary union. How long can
this go on before creating a parallel market where a euro in Cyprus is traded
for less than 100 cents in Germany? Wouldn’t this be tantamount to devaluation
without recovering the independence of monetary policy? How could this affect
the program? We would appreciate staff’s
views. Assuming the Board approves
this program, capital restrictions will need to be phased out with extreme care
and adequate support from the ECB. The IMF may need to request Cyprus to impose
restrictions on capital transfers in order to avoid the misuse of Fund resources
(Article VI, Section 1 (a) of the Articles of Agreement).
A
new business model with no new bank accounts? Staff notes that the aforementioned restrictions to capital
outflows need to be applied together with the prohibition to open new bank accounts.
The objective is to reduce the risk of deposit migration that could (further)
undermine banks’ liquidity. We understand the objective but have doubts on
whether banning the opening of new bank accounts would not increase the
difficulties of initiating new businesses and ultimately undermine Cyprus’
tax-revenue base, preventing start-ups or pushing them into the informal
economy. We would appreciate staff’s
views.
What
is “external” debt in Cyprus? Staff
estimates Cyprus’ “external” debt at 450 percent of 2012 GDP. Considering that
some of this debt may end up swelling the public balance sheet, we would like
to receive clarification on the following: What
is “external” regarding Cyprus’ liabilities? We understand that obtaining a residence in Cyprus was not particularly
difficult; consequently we
wonder if some of the “internal” debt could also be in the hands of actual non-residents?
Could
privileged depositors create contingent liabilities for the sovereign? Staff notes that some uninsured depositors will be exempted
from converting their claims into equity, and warned the authorities about the
legal consequences of giving unequal treatment to uninsured depositors. In
their statement, Messrs. Snell and Kanaris note that “Greek deposits in (the
two insolvent) Cypriot banks were unaffected” (regardless of their amount). We would appreciate further clarification on this
point. For instance, couldn’t UK residents
claim the same treatment? Moreover, if Cyprus gives preferential treatment to
residents in Greece, would this be consistent with Cyprus’ “most favored
nation” obligation at the relevant WTO agreement (i.e. the GATS)? We also note that some banks and cooperatives, deemed to be
solvent, will need public capital injections to survive. Uninsured depositors
in these “solvent but under-capitalized” institutions will also be exempted
from converting their claims (deposits) into equity (but will benefit from the
injection of public funds). Given the context and the implications for
depositors, we wonder if these rather subtle distinctions (between insolvent
institutions and institutions that are solvent but need to be capitalized
through public funds) would not also raise legal questions. Staff’s views will be appreciated.
Cooperatives: solvent overall? Staff notes that the cooperative sector, “assessed as a
whole and given its mutual-guarantee structure” has been found to be solvent
(para. 20). However, the sector’s NPLs averaged 38 percent of total loans at
the end of 2012 (para. 23) and this figure may have risen further (NPLs in some
cooperatives are as high as 80 percent!). Will the government need to capitalize cooperatives? Is this
contemplated in the program?
Sources:
IMF internal document (from Stockwatch): DOCUMENT
OF INTERNATIONAL MONETARY FUND AND FOR OFFICIAL USE ONLY – BUFF/ED/13/62 –
Statement by Mr. Snel and Mr. Kanaris on Cyprus, Executive Board Meeting, May 15,
2013 (2013-05-10) 47 pages, 228 kB; file created 2013-05-13 19:15:14 and
modified 2013-05-15 09:46:28
Article containing link to draft MOU by IMF leaked on
1 April: Το
Κυπριακό Μνημόνιο με τις διορθώσεις των πρωταγωνιστών (2013-04-01)
Draft MOU from IMF: Contains
sensitive information, not for further distribution DRP: Memorandum of
Understanding on Specific Economic Policy Conditionality (Created
2013-03-27 06:43:41 , modified
2013-04-01 13:05:34 )
