EXPERTS yesterday appeared confident Cyprus’ banks would weather the storm created by their exposure to debt-ridden Greece and the huge losses they will incur as a result.
Although expected, concerns were raised after Bank of Cyprus (BoC), the island’s biggest lender, posted a net loss of €1.01 billion in its 2011 results on Tuesday after making a write-down totalling €1.32 billion on its Greek sovereign debt holdings.
BoC said it reduced the book value of its Greek sovereign debt holdings by 60 per cent of their nominal value and excluding the impairment the bank said its full-year net profit was up 2 per cent at €312 million.
Michalis Sarris, chairman of Marfin Popular Bank, the island’s second biggest lender, yesterday sought to play down concerns over the financial sector’s exposure to Greek government bonds.
The consequences from the write-down of Greek bonds for his bank as well as for others was “completely manageable,” he told newsmen.
Sarris said Marfin was “quietly and discreetly” promoting a recapitalisation plan that would create a growth momentum “to the benefit of our clients, shareholders but also of the Cypriot economy.”
“I do not think we’ll need government assistance. This is entirely theoretical at this point,” he said. Media reports last night said Russian and Chinese investors were showing an interest in Marfin.
Stockwatch reported yesterday that if the Marfin’s haircut is 60 per cent, the bank would end up with losses of €1.8 billion. The bank will announce its results next week.
Both BoC and Marfin yesterday saw another three to four per cent shaved off their share prices, following a bigger hit on Wednesday, a day after BoC made its announcement. The market fell around 10 per cent led by trade in banking shares that day. Yesterday the index fell three per cent overall.
Eurozone finance ministers on Tuesday agreed on a €130 billion rescue for Greece to avert an imminent chaotic default after forcing Athens to commit to unpopular cuts and private bondholders to take bigger losses.
The accord will enable Athens to launch a bond swap with private investors to help put it on a more stable financial footing and keep it inside the euro zone.
Private sector holders of Greek debt will take losses of 53.5 per cent on the nominal value of their bonds.
“I am very positive. Its not like we didn’t know that our banks would have losses,” said Dr Alexandros Apostolides, lecturer of economics at the European University of Cyprus. “It didn’t come out of the blue.”
Apostolides said Greece’s banks have been in a perpetual crisis for several years and none have gone under.
“Why would we be in any worse position that the Greek banks?” he said.
BoC had made provisions for a 50 per cent write-down in its 3Q results, posting a loss of around €800 million.
Apostolides said the fact that there was an agreement on Greece should put an end to the uncertainty.
And BoC “understood that the worse thing is uncertainty and they are trying to draw a line by putting all their losses upfront,” he added.
BoC has said it will boost capital through a rights issue of up to €396.3 million and a voluntary exchange of convertible securities of up to €600 million.
All eyes are now on Marfin Popular Bank, which is more exposed to Greek debt and would need to raise more capital.
Both lenders have said they will raise the necessary funds without help from the state.
Apostolides said even if Marfin eventually needs assistance, it does not have to be cash from the government.
“There are solutions that do not necessarily mean a huge burden on the state budget,” he said.
Assistance could come in the form of a strategic investor buying a stake in the bank.
Former president of Cyprus, economist, George Vassiliou said Marfin would need a strategic investor.
“This is the effort the new administration is undertaking and according to information it is on the right path,” he told state broadcaster CyBC.
Vassiliou believes Cypriot banks can pull through.
“We faced much worse at the time of the (1974 Turkish) invasion and we managed,” the former president said.
By George Psyllides
Published on February 24, 2012