Overview
The banking sector in Cyprus is comprised of domestic banks, international banks with Cyprus based branches or subsidiaries and cooperative credit societies. Besides the traditional deposit and lending services, banks offer a diverse range of products such ashire purchase, finance facilities, investment services (asset management, investment advice and brokerage), factoring, electronic and telephone banking, private banking as well as insurance services.
Domestic and international banks are regulated, monitored and supervised by the Central Bank of Cyprus (CBC). Following the agreement for an economic adjustment programme between Cyprus and Troika (International Monetary Fund, European Commission and European Central Bank), the CBC, since September 2013, became the supervising body for the operations of cooperative credit institutions and the Cooperative Central Bank.
As a result of the Eurogroup decision on the 25th March 2013, the size of the banking sector suffered a shock and a violent shrinkage. The largest bank in Cyprus was put under a process of restructuring and recapitalization while the second largest bank went through a “bail in” of equity shareholders, creditors and unsecured depositors. This included a spilt of the second largest bank, into a “good” and a “bad” bank. Following the completion of the recapitalisation of the bank, the Central Bank of Cyprus, in its capacity as the Resolution Authority announced that, as of 30 July 2013, the largest bank has been recapitalized and is no longer under resolution.
The cooperative credit institutions have been also put under a restructuring plan using 1.5 billion of state aid as part of the Troika program. Cooperative credit institutions underwent a process of mergers, resulting in 18 cooperative institutions on March 2014 (from 93 institutions in 2013).
Following the country’s EU-IMF financial bailout and the subsequent blow on depositors’ confidence, the CBC announced a series of capital restrictions in order to prevent capital outflows and preserve the local banking sector. The initial emergency plan included a €300 daily limit on ATM withdrawals per individual, a ban on cheque cashing, and a limit on international wire transfers or payments over €5,000. All capital restrictions have been removed on April 2015.
On March 2016, the Cyprus government has officially exited the Memorandum of Understanding with Troika after a three-year period. During this time, Cyprus has received around €7.2 billion, out of the total €10 billion earmarked in the financial bailout, which means a lower public debt. However, under the new Euro area rules, evaluations will continue every six months until 75% of the economic assistance received is repaid. Concerning the banking and financial sector, a number of reforms have been completed, although the major problem remains the huge level of non-performing loans, amounting to around 50% of the total banks’ loan portfolio, or more than 150% of the country’s GDP.
