This content is from: Local Insights

Milestone in restructuring Cyprus’s domestic bank sector

Elias Neocleous
The Ministry of Finance and the Central Bank of Cyprus have jointly announced that the recapitalisation of Bank of Cyprus (BoC) is now complete. Forty seven and a half percent of so-called uninsured deposits (that is, the excess of deposits over €100,000 ($132,600)) as at the time the bank was placed under the resolution regime have been converted into shares, giving a Common Equity Tier 1 ratio estimated at approximately 12%, well above the required minimum. This is the final stage of the bank's resolution process and, according to the announcement, there will be no further measures under the Resolution Law.

Early in the resolution process, 37.5% of the excess of customer deposits over €100,000 was earmarked for conversion into shares and a further 22.5% was withheld as a contingency reserve pending an assessment of the bank's financial position and capital needs. Now that the assessment has been completed, a further five percent of the uninsured balance will be returned to depositors. The remainder, after deduction of the amount converted to shares, will be divided into three equal separate time deposits of six, nine and 12 months, respectively, carrying an enhanced rate of interest. On maturity BoC will have the option to renew the time deposits once for the same duration.

Depositors in Laiki Bank who have lost money will receive shares in BoC representing approximately 18% of its share capital as compensation for their losses.

According to the announcement, the capital structure of BoC will be amended so that all shareholders hold ordinary shares and the new structure will be compliant with the European Capital Requirements Regulation.

The recapitalisation of BoC and its exit from resolution mark a milestone in the rehabilitation of the banking sector in Cyprus and its eventual return to normal operation. It should be noted, however, that in any case there is no requirement for Cyprus companies, entities or trusts to open or maintain bank accounts in Cyprus in order to enjoy the benefits of the favourable Cyprus holding company regime and the advantages offered by other Cyprus structures.

Elias Neocleous

© 2021 Euromoney Institutional Investor PLC. For help please see our FAQs.

Instant access to all of our content. Membership Options | 30 Day Trial