NICOSIA: The Greek-exposed banking system of Cyprus needs up to ¤8.86bn as part of an EU bailout to save the island from bankruptcy, a report said yesterday.
The official CNA news agency said a due diligence review by US consultancy Pimco put the amount for bank recapitalisation at ¤8.86bn ($11.71bn), based on an adverse scenario.
The government argues international lenders should adopt Pimco’s baseline scenario — reported to be ¤5.98bn — as it would ease the terms of the loan.
But a Pimco document leaked in the Cypriot media this week showed the US firm expects the island’s economy to worsen as it slides deeper into recession. Its adverse scenario predicts higher unemployment, bigger wage cuts and falling property prices — which all have a knock-on effect on people’s ability to pay bank loans.
“We do believe it reasonable to expect significant wage reductions for public sector workers which could have a material impact on borrowers’ ability to meet debt service payments,” Pimco said in a leaked letter to the Central Bank.
The bank said it “strongly disagreed” with the methodology Pimco used to discount future bank revenue inflows. “The central bank supports the speedy signing of a draft memorandum as agreed with the troika as prolonged uncertainty harms the economy, especially the financial system,” said the bank.
Pimco submitted its report this month but the Central Bank said the amount would not be made public until it signs a bailout with the European Commission, the European Central Bank and the International Monetary Fund.
Its review covered Bank of Cyprus, Cyprus Popular Bank, Hellenic Bank and a sample representing about 63 percent of the cooperative credit institutions, as well as Alpha Bank Cyprus and Eurobank Cyprus.
In a draft agreement with the troika of lenders, the amount for the banks had been set at up to ¤10bn as part of a total package which could reach ¤17bn — matching the island’s GDP.
The degree of bank recapitalisation determines whether Cyprus needs to adopt harsher austerity measures, and to pay back such a loan, it would have to start privatising utilities which it is loath to do. Eurogroup finance ministers are expected to agree on a rescue deal for Cyprus in March.
Afp
