The Troika appraisal is the first since Cyprus secured a deal with the International Monetary Fund, the European Commission and the European Central Bank in March, pulling the cash-starved country away from the brink of financial meltdown.

According to the terms of the bailout, co-operatives must shrink in number, mainly through mergers while the Central Bank of Cyprus will also have a role in their supervision. Reports said the proposal currently on the table is to cut the number of co-ops to 18 from around 90. Around 150 branches will also have to go, leaving 250. Co-operatives will need around €1.5 billion to close a capital shortfall in the next couple of years, with the cash coming from the bailout.

The bailout includes up to €2.5 billion to cover the needs of the banking sector except Laiki and Bank of Cyprus (BoC). As part of the March deal, Laiki is being wound down while BoC is being recapitalised using use customer deposits exceeding €100,000. So far, 37.5% of the deposits have been seized but the final rate depends on an asset evaluation carried out by independent auditors KPMG. Depositors will receive equity in return.

Central Bank Governor Panicos Demetriades said on Wednesday that the final rate will be possibly known by the end of this month. After completion of the process, the stricken lender will come out of administration but capital controls, in place since March to prevent a bank run, would not be lifted immediately, government spokesman Christos Stylianides said.

Stylianides said these were two different things and the crippling controls would be lifted gradually. “I am not sure if timeframes can be set,” the spokesman said. He said the state’s finances appeared to be in a somewhat better shape than expected but urged caution as there is a possibility of this being coincidental. "That is why we must be careful and monitor developments in the next quarter,” he said.

On the possibility of further cuts in the public sector, Stylianides said the state was planning to reduce its expenses by a further €700 million next year as money was still wasted. The government spokesman said cuts would not necessarily affect the payroll but extras could be a thing of the past.“The state can no longer pay so much overtime and allowances when the job can be done possibly by regulating working hours,” he said.

Source: Cyprus Mail