A projection by Cyprus’ lenders for over a 4.2% contraction of the local economy is rather pessimistic, Governor of the Cyprus Central Bank Chrystalla Georghadji has said.
Cyprus received a €10 billion bailout by the EU/IMF in March 2013, that featured an unprecedented haircut on baking deposits over €100,000 to recapitalise the island`s largest lender. The Troika, the EC, ECB and the IMF issued bleak projections over the course of the economy as a result of the adjustment programme. However following four programme reviews Cyprus has outperformed its targets.
“On the economic developments in 2014 the contraction of the GDP in the first quarter reached 4.1% year on year compared with a reduction of 5% in the fourth quarter of 2013. Based on this development, the Troika projection issued in the context of the fourth review for a 4.2% contraction throughout 2014 seems rather pessimistic,” Georghadji said speaking at the presentation of the CBC annual report for 2013.
Noting that the programme implementation so far is considered as “quite successful with four consecutive very positive reviews that outline an auspicious course for the economy and the banking system,” Georghadji warned that the road will be long, saying that “many challenges are ahead of us and there is no room for complacency.”
On the banking sector, Georghadji noted that a series of important steps have been taken to strengthen the supervisory and regulatory framework, setting the premises for a sound and stable banking sector both in the medium and the long term outlook.
Georghadji appeared confident that the Cypriot banks will clear the imminent stress-test to be carried out by the European Banking Authority on 124 Eurozone banks, before the ECB assumes supervision of the euro area banks in November.
“The banks will pass the stress tests because they are working towards this direction and are doing so with encouragement from us,” she said.
Replying to a question, the CBC Governor noted that the banks should consider raising capital in view of the stress-tests. Press reports suggest that the Bank of Cyprus is preparing to raise €0,5 billion, an issue to be discussed in the meeting of the BOCY Board of Directors tomorrow. Hellenic Bank Board is also discussing issues regarding equity.
“We believe that capital issue by all banks would be a very prudent move,” she said.
Replying to another question, Georghadji noted that the CBC acknowledges the difficulties the banks face in their efforts to contain rising non-performing loans, a problem considered as the main challenge facing the banking sector.
Troika believes that the banks should have all the tools that would encourage borrowers to accept debt restructuring. As part of the conditions set out by the Troika, the Parliament should approve a series of bills on personal and corporate insolvency as well as asset foreclosure for non-viable borrowers.
“We believe that the countdown (to tackle the problem) has begun. If the relative tools are given to the banks, we expect that the collection of NPLs will begin.”
The CBC Governor made clear that selling Cyprus` gold reserves is a non-issue, adding also that the whispers concerning a new haircut should stop.