Brussels, 22/07/2013 (Agence Europe) - Awaiting the results of an assessment of Bank of Cyprus (BoC) assets, due on Tuesday 23 July, the Cypriot government and the troika of lenders (European Commission, European Central Bank and International Monetary Fund) have been looking at budget matters, and a Cypriot Finance Ministry source commented: “Apart from the BoC issue the review on fiscal issues is still ongoing. No concrete results yet but, in general, I think we are on the right track”.
The KPMG report on BoC assets, which will not be made available to the public, should shed light on the proportion of unsecured deposits (over and above €100,000) that will be raided in a bank bail-in. Some 37.5% of these deposits have already been converted into bonds (raided) to help the BoC raise its solvency ratio to 13% of “Core Tier 1” capital. Two other Cypriot sources say that 10% more will be raided from the same deposits and converted into top quality own resources. The first Cypriot source, who did not confirm the 47% total figure, said that, since “that initial conversion, things have changed i.e. some deposits left, increase of non-performing loans, therefore the bail-in haircut could be higher than 37.5%”. The bank aims to get a core tier 1 ratio of 9% by the end of the Cypriot aid programme.
There is agreement all round that getting the BoC out of the restructuring process is a matter of urgency. The bank's interim head, Christos Sorotos, called on Saturday for completion restructuring by October. A European source said that the restructuring should ideally be completed in the next few weeks. A Cypriot source says that a situation is being considered whereby a new bank, a merger of the solvency assets of Laiki and BoC, would be divided into two - one arm dealing with banking and another with asset management, where there are a lot of toxic assets. Both would be viable bodies.
The above European source said that the island's lenders will be examining “a draft reform plan for Cyprus' welfare system, a comprehensive reform agenda to strengthen tax administration and tax compliance and a comprehensive strategy for Cyprus energy sector. Finally, the mission will assess the economic and fiscal outlook and review the effectiveness of the fiscal consolidation that Cyprus has undertaken”. At stake is the release by the eurozone in September of the next batch of aid, the size of which has not yet been decided. In order to achieve its targets, Cyprus has decided to slash public spending. The finance minister explained that the country had lived beyond its means for years. (EL/transl.fl)