Bad loans block Bank of Cyprus deal

Bank of Cyprus Group is reportedly freezing plans to exchange assets with one of the Greek banks operating in Cyprus.

According to sources, the issue is being put on the back burner as developments on the Cypriot side are being determined by the troika, as well as the island republic?s central bank, which has decided to probe the actions that led to the crisis in the financial system. Cypriot banks operating in Greece took heavy capital writedowns from the haircut to Greek bonds earlier this year, estimated at 4 billion euros.

The group early last week confirmed that discussions were under way with Greek banks for an exchange of assets, in the framework of efforts for bolstering its capital base. However, the discussions, which were widely believed to be taking place with Alpha Bank, seem to have come to an abrupt end a few days later. The main reason for the termination of discussions is reported to be the absence of reliable estimates regarding non-performing loans both in Greece and Cyprus, at a time when a further deterioration of economic conditions is expected in both countries.

The Cyprus central bank is considered likely to call for a reliable evaluation of provisions, in collaboration with the country?s Financial Stability Fund, if a recapitalization of banks is decided. However, the overall decisions are linked to a possible agreement between the troika and the government for a bailout loan.

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