Nicosia - Co-op banks will gradually repurchase their stock from the state following the €1.5 billion support that leaves the government holding 99% of the shares, it was agreed yesterday.
According to regulations on state aid of the European Commission’s Directorate-General for Competition, coops have to pay 10% a year on the amount owned by the government as capital stock, while the remaining profits stay in the banks and can be used to re-purchase the shares.
After a meeting with President Anastasiades, chairman of the Cooperative Central Bank Erotokritos Chlorakiotis and head of the Cooperative Central Bank Trusteeship Giorgos Iosif said the coops will return €150 million to the state over the first year and the amount will gradually be reduced.
The €1.5 billion needed by the coops to cover their capital needs for the next three years was decided based on Pimco’s stress test and will be covered by the second instalment of the Troika bailout programme which will be disbursed on September 13 after a Eurogroup meeting in Vilnius, Lithuania.
“According to the interpretation of state aid regulations, the profits will remain in the Bank and after the 10% fine is paid, which is not imposed by the government but by the Directorate-General for Competition, the remaining amount will be used to buy back the Bank’s shares from the state,” said Iosif.
He commented on the significance of the agreement, noting that the government’s 99% ownership of cooperative banking becomes less important.
He also explained that at any given moment the coops can use new money that does not come from its profits to speed up the process.
Commenting on the Troika’s provision that coops regain their shares after five years, Iosif said that:
“This could prove to be in our benefit, because in the end it could turn out that we were right about the excessive Pimco estimations and we could be rid of the €1.5 billion burden.”
Regarding the profit that the coops are expecting, Iosif said that restructuring is needed but the aim is to remain human as the profit comes from the people.
“However, our estimations foresee good profits so that we can regain the majority of the package in a reasonable time period, so that there are no concerns over privatising the coops,” he said.
Chairman of the trusteeship also pointed out that the coops are not concerned about their non-performing loans, as the banks are a long way from PIMCO’s scenarios.
“We are not afraid of our non-performing loans as all loans are considered non-performing due to technical terms.”
He went on to say that some loans are repaid on smaller instalments but are still classified as non-performing.
“We are optimistic based on what we are seeing on the non-performing loans that a large part, larger than Pimco has estimated, will be collected by the coops.”
Iosif noted that in a specific loan category €125milion should be taken off Pimco’s estimation.