Bank test results show bailed-out Cyprus turning around -officials

Hellenic Bank Pcl

26/10/2014 18:09

By Michele Kambas 
    NICOSIA, Oct 26 (Reuters) - European stress tests have shown 
a marked improvement in the fortunes of Cyprus's banks, Cypriot 
officials said on Sunday, barely 18 months after the island was 
bailed out following a  financial sector collapse.  
    Some 25 European banks failed a "stress test" of their 
capital strength conducted by European authorities and intended 
to assess their ability to withstand three more years of crisis. 
    They included three Cypriot lenders who ranked in the bottom 
10 of 130 euro zone banks whose finances at the end of last year 
were reviewed by the European Central Bank. Of them, however, 
only Hellenic Bank  HBNK.CY  still has a shortfall to cover, and 
that of just 105 million euros ($133.04 million).  
    Bank of Cyprus  BOC.CY , the island's biggest bank, and 
state-controlled Co-Op Bank each issued new equity earlier this 
year and now have enough capital.    
    A fourth lender based in Cyprus, Russian-owned Russian 
Commercial Bank (RCB), was not found to have any problems. 
    "This is the biggest achievement for the Cypriot economy 
since the devastation of 2013," Central Bank Governor Chrystalla 
Georghadji told reporters. 
    Cyprus's outsized banking sector collapsed last year under 
the weight of bad loans to Greece, leading the island to seek a 
10 billion euro bailout form the European Union and 
International Monetary Fund.  
    The terms of rescue included the closure of one major bank 
and the conversion into equity of deposits over 100,000 euros 
held at Bank of Cyprus to help recapitalise the lender. 
    Earlier on Sunday, Finance Minister Harris Georgiades said 
the results of the stress tests could lead to a more rapid 
easing of capital controls imposed alongside the March 2013 
rescue programme to stem a flight of deposits. 
    "It won't be tomorrow but we shall commence the process of 
lifting the very last restrictions soon, in a gradual and staged 
 manner," Georgiades told Reuters.     
    Cyprus still has restrictions on capital transfers abroad,  
requiring approval of large transactions, although curbs on 
domestic transfers have been lifted. 
    Bank of Cyprus successfully raised an additional 1 billion 
euros from investors this year. Hellenic Bank, which raised 
capital from U.S. and Russian investors late last year but fell 
short in the adverse scenario of the stress test, said it was on 
track to raise more than 200 million euros in additional capital 
by December. 
    The tests also showed that 1 billion euros earmarked as a  
capital buffer for the Co-Op Bank would not be needed. That 
would have a substantial impact on reducing the island's 
projected debt, Georgiades said. 
    Some 1.5 billion euros of the 10 billion euros of bailout 
money has already been allocated to the Co-Op. 
    "It (public debt) will now be below 105 percent (of gross 
domestic product), much closer to 103 percent," Georgiades said, 
referring to projected figures for 2015. 
    "This represents a major change of circumstances ... And 
obviously one which makes the target of going below the symbolic 
threshold of 100 percent perfectly feasible before 2017." 
    The exercise provides the clearest picture yet of the health 
of the euro zone's banks more than seven years after the 
eruption of a financial crisis that almost bankrupted a handful 
of countries and threatened to fracture the currency bloc. 
    While 25 of the euro zone's 130 biggest banks failed the 
health check at the end of last year with a total capital 
shortfall of 25 billion euros, a dozen have already raised 15 
billion euros this year to repair their balance sheets. 
 
(1 US dollar = 0.7893 euro) 
 
 (Reporting By Michele Kambas; Editing by Laura Noonan and 
Catherine Evans) 
 ((michele.kambas@thomsonreuters.com;)) 
 
Keywords: EU BANKS/ITALY