Insider Business ΕU Commission approves aid to finance the orderly market exit of CCB

ΕU Commission approves aid to finance the orderly market exit of CCB

 

The European Commission said on Tuesday it had approved, under EU rules, “Cypriot measures to facilitate the liquidation of Cyprus Co-operative Bank (CCB) under national law”, which “involve the sale of some CCB assets and deposits to Hellenic Bank. Non-governmental deposits will remain fully protected at all times.”

According to the decision published by the EC, the Commission concluded that “the Cypriot support measures constitute aid that is compatible with EU State aid rules” and “in particular, the public support will finance the orderly market exit of the bank, through the sale and full integration of some activities into another credit institution and the wind down of the rest of the bank.”

According to the EC, the CCB`s residual entity “will be entirely focused on working out its remaining assets, thus, it will not carry out any new business, which will limit potential distortions of competition arising from the aid.”

As announced the Commission was able to take this decision also “on the basis of significant binding commitments by Cyprus to reform its domestic legal and judicial framework”, explaining that `these reforms will underpin the long-term viability of Hellenic Bank (as well as the entire Cypriot banking system) and allow the Cypriot State to recover money over time from the workout of CCB`s non-performing loans, thereby reducing the net cost of the support measures for the taxpayer.”

“Cyprus’ compliance with the commitments under the Commission State aid decision will be closely monitored by an independent monitoring trustee, which will report back to the Commission on a regular basis and the Commission will also closely follow the developments as part of Cyprus` post-programme surveillance”, warns the EU executive branch.

On 17 June 2018, the Cypriot authorities notified to the Commission for assessment under EU State aid rules their plans to support the orderly liquidation of CCB, including the sale and full integration of some of CCB`s assets and deposits into another Cypriot bank, Hellenic Bank. In particular, Cyprus plans to provide around €3.5 billion to CCB (of which €2.5 billion were provided already in April 2018) and to counter-guarantee the guarantees provided by CCB to Hellenic Bank in the context of the sale, including a large asset protection scheme.

The Commission expects this transaction to remove “c.a. €6 billion of non-performing loans from the Cypriot banking sector and thereby contribute to its recovery. It is subject to standard regulatory reviews” and explains that the measures approved by the Commission today are the final steps in the restructuring process of CCB, which was initiated by the Cypriot authorities in February 2014 and modified in December 2015.”

The European Commission stated that “contrary to expectations at the time, CCB – the second largest credit institution in Cyprus – was unable to return to viability: it failed to recover much money from its very significant portfolio of non- performing loans, partly because of CCB`s own governance failures and partly because of obstacles created by the Cypriot legal framework to work out non-performing loans”, further explaining that “in light of these difficulties, CCB initiated a sale process on 19 March 2018, which however did not result in any bids at a positive price.”

“All bids proposed a negative sale price, i.e. a sale requiring additional State support,” says the Commission.

The Commission explains that as the restructuring of CCB started “on the basis of national law before EU rules entered into force (namely the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR)), the process remains governed by Cypriot national law and managed by national authorities.”

In this context, “if Member States consider public support necessary to mitigate the effects of a bank`s market exit, EU State aid rules apply, in particular the 2013 Banking Communication”, states the EC.

Finally, the Commission also confirmed that the measures “do not constitute aid to Hellenic Bank.”

This is because Hellenic Bank was selected after “an open, fair and transparent private sales process, ensuring that the activities were sold at the best offer available.”

Commissioner in charge of competition policy, Margrethe Vestager, said: “The Commission decision approves under EU rules Cypriot plans to take measures to facilitate the liquidation of CCB. CCB will exit the market in an orderly fashion, while some of its activities will be sold and integrated into Hellenic Bank. Deposits of Cypriot households and non-financial corporations will remain fully protected at all times. The approved measures will remove around €6 billion of non-performing loans from the Cypriot banking sector. This, together with Cyprus` commitment to implement key reforms to its legal framework, will help foster the stability and recovery of the Cypriot banking sector.”

According to the Commission, the treatment of CCB was designed and carried out under the national framework in place in February 2014, prior to the entry into force of Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR). Since the recapitalisation and the restructuring of the bank was initiated in 2014 under Cyprus` national law, the sale of CCB which is part of the same process, remains governed by that law, and not by the post-crisis Union legal framework, i.e. the BRRD and SRMR. This is also in line with the Commission`s practice, in respect of legacy cases of the banking crisis, to apply the same set of resolution rules in order to provide legal certainty.

The Commission`s assessment of the State aid measures granted by the Cypriot authorities rests “on the EU rules applicable for State aid control i.e. the 2013 Banking Communication.”

Separately, “this transaction is still subject to standard regulatory reviews.”

Finally the European Commission explains that “Cyprus Co-operative Bank (CCB) is the second largest credit institution in Cyprus, as of February 2018, the Bank had assets with a book value around €12 billion, it had deposits around €11 billion and gross loans in the amount around €11 billion.” “CCB had around 2,700 employees and a network comprising around 170 branches in Cyprus. CCB does not have any international presence”.

“CCB has been hampered by a very high non-performing loan ratio (57% as of February 2018), high operating costs and a subdued income generation capacity”, states the EC.
“The bank was entirely funded through deposits and it did not have any senior or subordinated debt.”

“The Cypriot economy is subject to close European monitoring through two complementary mechanisms: post-programme surveillance (PPS) and the macroeconomic imbalances procedure (MIP) and both PPS and MIP missions will continue following closely the actions taken to reduce non-performing loans in the Cypriot banking sector”, stresses the European Commission.

 

https://in-cyprus.com/news/business/ccb-ceases-to-exist-as-we-know-it-after-yesterdays-deal/

Top Stories

Rockslides caused by bad weather, police urges caution

  Police are calling on people driving up mountainous regions to exercise additional caution following at least two rockslides. One of them occurred on the Platres-Troodotissa...

Lightning causes power cuts in 12 Limassol rural areas

  Electricity Authority crews have been working through the day to restore power to many areas in rural Limassol following a technical fault in the...

Insurance agent arrested in connection to forged vehicle document

  A 40 year old insurance agent was arrested in Limassol in connection with forging a used vehicle insurance policy, circulating a forged document and...

Turkey says it will renew offer for joint working group on S-400s to Biden

  Turkey will renew its offer to form a joint working group with the United States to look into the technical aspects of its acquisition...

Iran fires long-range missiles into Indian Ocean in military drill – media

  Iran’s Revolutionary Guards today fired long-range ballistic missiles into the Indian Ocean on the second day of a military exercise, state media reported. The drill,...

Taste

Squash soup

Ingredients: 1 kg pumpkin, cut into small cubes, approximately 5 cups 2 medium (400g) sweet potatoes, cut into cubes, approximately 2 ½ cups 1 chopped leek, only...

Mezedes

No visit to Cyprus is complete without enjoying the traditional meal of many small dishes known as ‘meze’. This large feast, which has been a...

Prawns with fried cheese, barley shaped pasta

Put the barley shaped pasta into a small pan with salted water, bring to a boil and when tender, drain. Peal the prawns leaving...

Salmon and shrimp sheftalies

Mix all ingredients for tabbouli in a bowl and keep to one side so flavours can combine. Prepare the sheftalies: wash and soak the casing...