Bank of Cyprus readying for key developments next month

Bank of Cyprus is preparing for important developments in September as it gets ready to elect a new board and finalize its restructuring plan – issues which have created pockets of tension between political parties, the Cypriot government and the country’s central bank. On September 10, the new shareholders of the bank (about 22,000 individuals and legal entities that saw their deposits earlier this year converted into shares) will be called upon to elect a new board.

A key role will be played by Cyprus Popular Bank (Laiki), which is destined for closure, with its healthy part to be merged with Bank of Cyprus. Laiki holds 18 percent of BoC’s share capital while all other shareholders hold blocks of shares under 5 percent, so the former is the master of the game, being in a position to elect a new board which will have to make the key decisions in the restructuring plan.

Various ethical and legal issues have arisen as a result, because until its liquidation Laiki – including its so-called bad part – is being managed by a special administration appointed by the governor of the Central Bank of Cyprus, Panicos Demetriades, who functions as the supervising Resolution Authority.

The plan, which has to be delivered by mid-October, will include a scenario of BoC being split into two new entities. One will be purely commercial and the other will deal with investment and real estate. The latter will receive all big corporate loans and deposits. The split is aimed at putting a stop to the growth of nonperforming loans and the consequent need for new provisions for large losses – in other words, to ensure the bank’s capital adequacy.

The governor of the central bank has already held a series of meetings with law firms representing BoC’s foreign shareholders. According to reports, 12 percent of the shares belong to large Russian and Ukrainian depositors whose money was subject to a haircut, 29 percent belongs to Cypriots and the remaining 41 percent to other foreigners, including legal entities, with a high degree of dispersion.

One of the plans being examined is the setting up of a board to manage the bad part of Laiki which will include representatives of its creditors. The government wants Laiki’s depositors to have a say in the management of the 18 percent of Bank of Cyprus.