The sale of Greek branches of Cypriot banks to Piraeus Bank was set out by Nicosia’s international lenders as a precondition for the approval of Cyprus’ aid package, Central Bank of Cyprus Governor Panicos Demetriades said here on Tuesday.
Speaking during a closed session of the House Committee on Institutions, Demetriades said that the cost of the acquisition and the terms of sale were agreed between Cyprus and Greece on a political level, during the two Eurogroup meetings last March.
The discussion on the sale agreement to Piraeus Bank will continue before the committee next week.
CBC Governor also said that negotiations took place between the CBC and Piraeus Bank on March 23 and 26, concerning the legal document for the sale but noted that these did not concern the price and terms of sale.
Demetriades gave an example a request by Piraeus Bank to include a term giving the Bank the right to annul the agreement under certain conditions. This was not accepted by the Cypriot negotiators, he went on, and said that the matter was referred to the Finance Ministers of Cyprus and Greece to be solved.
Another example, according to Demetriades, was the issue that came up during the negotiations as regards the party that would pay the taxes emerging from the transaction. He said that this issue was also resolved by the Finance Ministers.
The final contract, he added, provides that any taxes arising from the transaction will be borne by the buyer.
The CBC Governor further noted that meetings between the Central Bank of Greece and Piraeus Bank were attended by Troika representatives, responsible for Cyprus and Greece, respectively.
Since we went ahead with the bail-in option (contribution of uninsured depositors to the recapitalization of the Bank of Cyprus (BoC) and Cyprus Popular Bank (CPB)), branches in Greece would be impossible to reopen, Demetriades noted.
“We wouldn`t have the potential to impose restrictions on capital flow and a massive deposit outflow would ensue, resulting to the banks’ collapse and the activation of the Deposit Protection Fund” he added.
The CBC Governor noted that insured deposits (under 100,000 euros) in Greek branches were estimated at around 9 bln euros.
He said that similar measures were deemed necessary for theBoC branch in Romania and the CPB branch in the UK.
The acquisition price is deemed satisfactory under the circumstances, Demetriades concluded.
Following decisions by the Euro area Finance Ministers, collectively called as the Eurogroup, Cyprus will receive a €10 billion bailout from the ESM and the IMF after bailing in bank uninsured deposits in a bid to recapitalize the island’s troubled banks, which posted massive losses worth of €4.5 billion due to the Greek sovereign debt haircut.
Furthermore, the island’s second largest bank, Cyprus Popular Bank, is wound down and its good part (loans and deposits below €100,000) is folded in Bank of Cyprus (BoC).
So far 37.5% of uninsured deposits in BoC have been converted into equity, whereas an additional 22.5% remains frozen until the conclusion of an independent evaluation of the Bank`s balance sheet after absorbing the good part of the Cyprus Popular Bank.
