Successful implementation of the adjustment programme would secure the stability of the island’s banking system, which is currently going through severe turbulence due to its exposure to Greece, the governor said.

“Our aim is for a banking system based on solid foundations,” Demetriades told reporters.

Demetriades, who took over at the helm of the Central Bank early last year, struck a note of optimism about the future of the sector.

“I am in a position to say today that the banking sector is turning the page. The Central Bank is looking ahead and is optimistic about the future … but at the same time it seeks to identify past mistakes so that they will not be repeated,” Demetriades said.

Cyprus sought financial assistance in June last year after its two biggest banks asked for state help to cope with the heavy losses they incurred following the write-down of Greek sovereign debt.

Bank of Cyprus and Popular also have considerable exposure to Greece’s flagging economy, which costs the lenders a lot of money in the form of provisions for bad debts.

Their acquisition of so much Greek debt as well as their expansion abroad is currently the object of an investigation carried out by professional services firm Alvares and Marsal.

Demetriades said the adjustment programme sets the basis for the recovery of the Cypriot economy, despite some painful measures.

The measures that concern the banking sector “will lead to a more robust, competitive and resistant banking system that will be able to support healthy private initiative and viable growth.”

Cyprus has come to a preliminary agreement with international lenders pending the total amount needed to recapitalise the banks.

The amount will also determine the sustainability of Cyprus’ public debt and whether additional measures like privatising public companies would be necessary.

Source: Cyprus Mail