His comments came in the aftermath of a direct threat by governor of the Central Bank of Cyprus (CBC) Chrystalla Georghadji on Friday to BoC board members, that they had to either proceed with issuing new capital or face dismissal, a remark by government spokesman on Monday describing the capital increase as being of “strategic importance”.

“The lessons of previous years should lead us to a different conclusion, namely that banks and bankers cannot be left unchecked by the oversight authority, without expressing the state’s interest, resulting in the disasters of the recent past,” he said. “Therefore, within the framework set by the state, the state’s interest is being expressed in actions of strategic importance.”

The Finance Minister argued that the recent favourable investor sentiment towards Cyprus’ economic prospects represented an opportunity that should not be missed by the cash-strapped lender.

“Investors’ readiness to trust Cypriot banks proves that actions have been undertaken, but most importantly that there are prospects,” he said. “We would like to see these prospects benefit our economy as a whole.”

Since a March 2013 Eurogroup decision that saw the BoC convert about half of uninsured deposits into bank equity, the lender has been faced with a mounting pile of non-performing loans (NPLs) and found itself unable to perform its systemic role, extending credit to the real economy. That is why it is in dire need of fresh capital, Georgiades asserted.

“A thinly capitalised bank will not be in a position to restructure loans or extend new credit to the economy, nor will it be able to be placed under the direct oversight of the European Central Bank and participate in the banking union, which would definitively restore confidence and stability,” he said. “It is for these reasons that we consider an immediate capital increase to be of strategic importance.”

Meanwhile, rumours of significant investor interest in acquiring a stake in BoC were confirmed by Georgiades, though he hastened to acknowledge that the ultimate decision rested not with the government but with the bank and the oversight authority.

“We have been informed by the bank itself, and the CBC, that on the back of the government’s recent successful borrowing bid, the goal of attracting funds – especially foreign funds – is both achievable and necessary,” he said. “But of course, these decisions do not belong to the government but the banks themselves and the oversight authority.”

Georghadji’s letter to the BoC board on Friday, which sought to impose the CBC’s will for an immediate capital increase had been widely criticised by political parties across the spectrum. They charged that the government had no business meddling with banks’ internal affairs, but according to Georgiades this clashed with what they had previously said.

“I addressedthe House Financial Affairs committee on Monday,” he said. “I heard deputies express the view that while it is not the government’s job to decide or settle issues relating to the now-defunct Laiki Bank, it must care and express interest. I was surprised when minutes after the committee’s session those same deputies argued that the government had no place caring and expressing interest in the state of the banking system.”

Source: Cyprus Mail