News Column

BoC ponders deposit release

April 30, 2014

By Elias Hazou

BANK of Cyprus (BoC) is to announce today whether or not it will release some 900m held in fixed-term deposits, funds blocked after the lender was recapitalised last year.

The amount concerns the nine-month time deposits maturing on April 30.

Sources last night told the Mail the bank leadership had already made up its mind, with the board meeting today merely set to ratify the decision.

Following a decision by EU finance ministers in March 2013 that 47.5 per cent of uninsured deposits would be seized to recapitalise the bank, the remaining 52.5 per cent was ordered frozen by the Central Bank of Cyprus (CBC).

In July the CBC said in a statement released jointly with the finance ministry that 12 per cent of the outstanding balance in depositor funds which were frozen under the bail-in arrangement would be unblocked.

The remaining frozen funds were equally divided and placed in six, nine, and 12-month timed deposits.

It is the nine-month deposits that mature at the end of April. The bank does however retain the right to renew (to not release) the time deposits once more following the maturity date. This is in line with a policy of capital controls geared at protecting the largest Cypriot lender's liquidity though free market advocates might call this a command-and-control system.

Any unblocked funds are at any rate subject to the general restrictive measures currently applicable in the Cypriot banking system.

Back in January, BoC moved to release around 900m held in the six-month timed deposits. The bank at the time cited indications that its liquidity position was improving.

The bank's leadership is now likewise keen to release the nine-month funds, but it's understood that Cyprus' international creditors in particular the European Central Bank are not so sure.

Given the uncertainty prevailing in the financial sector overall, the ECB is said to be wary of these deposits taking flight if and once they are released.

That would hurt the bank's liquidity, possibly necessitating a further injection of Emergency Liquidity Assistance (ELA) or, as a measure of last resort, a bond issue.

Following the seizure of uninsured deposits (100,000 and over) to recapitalise the bank, BoC achieved a core capital adequacy ratio of 10.2 per cent, according to figures for September 2013. New banking rules mandate a 9 per cent minimum core tier 1 ratio. The bank however is still leaking deposits, though at a slower pace over the last few months.

The Bank of Cyprus Group has meanwhile announced that it has appointed HSBC Bank to provide financial advice in relation to the disposal of a UK loan portfolio owned by the group and largely composed of residential and commercial real estate-backed facilities.

The loan portfolio, it said, is not related to the group's wholly-owned subsidiary, Bank of Cyprus UK Ltd, but is part of the wider UK loan portfolio transferred to the group following the acquisition of certain operations of Popular Bank in March 2013.

"The action is in line with the group's restructuring plan and is part of the strategy of deleveraging through the disposal of non-core operations," BoC said.

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Source: Cyprus Mail