The Cyprus programme is nearing its mid-2016 conclusion deadline, with the government confident that it will not need to tap into all of the €10 billion earmarked for the bailout programme. After six successive reviews and subsequent upgrades by rating agencies, the government has also returned to the markets raising funds at favourable rates. However, reports suggest that trade unions and other groups are now pressing the government to back down from its full privatisation plans, seeing as the fiscal situation seems to be improving, arguing that further austerity and cutbacks are no longer necessary.
This may also be the reason behind the unexpected resignation of Health Minister Philippos Patsalis last week, who had been pushing for the autonomy of state hospitals and the parallel implementation of the National Health Scheme (GESY), but kept on facing obstacles and delays, one of which was the postponement by the presidency of the framework for the autonomy of hospitals.
The review of the banking system comes at an awkward time as the Central Bank and the Finance Ministry have insisted that the system is robust and can withstand the shocks from the Greek banking collapse, adding that the local subsidiaries have been ring-fenced and customer deposits are safe.
At the same time, reports have suggested that at least one back, Pireaus, has been in talks with Hellenic for a potential takeover of the Cyprus subsidiary, while Bank of Cyprus stated that it had reduced its reliance on ECB funding through the emergency liquidity assistance (ELA) programme to below €6 billion. This has fuelled rumours that with its balance sheet in a strong position and holding on to cheap funding, BoC too may be interested in any of the four Greek bank subsidiaries. Whatever the outcome, the Troika technical team will be reviewing how the banking system develops in the face of the rapid changes in Greece as well.
Another thorny issue relating to banking is the stubbornly high rate of non-performing loans held by banks, despite efforts to reschedule or service them in order to reduce the NPL national average below 50% of the system’s loanbook. It is also argued that the resignation of two banking CEOs (Bank of Cyprus and Cooperative) are not totally unrelated to interventions in this direction, mostly from political interest groups.
A delay in debating, passing and introducing a framework on foreclosures and insolvencies set the banks back by at least six months into their capital adequacy programmes, with their profits so far based on administrative costs and charges imposed on clients, an amount that is unsustainable as regards profitability.
The privatisation sector seems to have shown some progress, even though the Ports Authority and the tender for bidders for Limassol port services is the only aspect on the table at the moment, with trade unions bringing out the big guns, just ten months away from the next parliamentary elections, to press the government from backing down on the privatisations of telco Cyta and power producer EAC.
As regards the public sector, reform here is clearly delayed, most important of which is the government’s inability to change the evaluation and promotions system of public servants.
Source: Financial Mirror
