Brussels, 18/12/2015 (Agence Europe) - On Friday 18 December, the European Commission announced that it has authorised €175 million in extra Cypriot state aid for the Cooperative Central Bank Ltd and its subsidiaries, the Cooperatives Credit Institutions (together “the Cooperative group”), which focus on collecting domestic deposits and lending to residents in Cyprus.
As a result of the deep recession, a high proportion of the Cooperative group's loan book became non-performing. Following an initial public recapitalisation as part of the IMF-eurozone aid programme, the Cypriot state became the owner of 99% of Cooperative Central Bank, which in turn obtained control over the previously independent cooperative credit institutions. In line with the centralisation and rationalisation foreseen under the original restructuring plan, the number of independent cooperative credit institutions was reduced from over 90 to 18 through mergers. The group has also set up an internal non-performing loan management division and started to develop more robust risk management and IT functions. However, the assessments carried out in 2015 by the ECB in its capacity as supervisor, identified that the bank did not make sufficient provisions compared to the size of its defaulted loans portfolio (a so-called “provisioning shortfall”). The bank made the requested additional provisioning in its 3rd quarter 2015 account but, as a consequence, needs additional capital of € 175 million. Mainly due to its current complex structure and the resulting lengthy process to list its shares on the stock exchange, the Cooperative group is not in a position to raise the required additional amount from private investors within the short deadline set by the regulator.
Assessments made by the ECB in 2015 found that the bank did not have sufficient capital to cover its toxic loans.
The bank needs additional capital of €175 million, but cannot raise it from private investors by the set deadline.
The investigation revealed that the extra state aid should be accompanied by other restructuring measures to ensure the bank returns to viability without needing further state aid in the future and to restrict the distortions to competition generated by the aid.
Cyprus commits to either list the Cooperative group's shares on the stock exchange or sell a significant part of the capital to solid investors in order to restore the bank's access to capital markets. The group will, moreover, deepen the rationalisation of its structure and will accelerate the development of central divisions (non-performing loan management, risk management, IT department). (Original version in French by Élodie Lamer)