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Cyprus Popular Bank Due To Be Downsized

by Lorys Charalambous,, Cyprus

15 August 2012

A substantial restructuring plan is to be put into effect in September to significantly cut the size of Cyprus's second largest lender, Cyprus Popular Bank, which requires a state bailout having suffered substantial exposure to Greek non-performing loans.

A restructuring plan being drawn up by advisory firm KPMG is to be published next month and will reportedly include substantial lay-offs, and the closure of around 60 branches in Cyprus and Greece.

The problems at Cyprus Popular Bank, which reportedly immediately requires a bailout of at least EUR4bn, have been blamed on Brussels's handling of the bailout of Greece. In a July press conference attended by the head of the European Commission, Jose Manuel Barroso, Cyprus's Finance Minister, Vassos Shiarly said that the Cypriot banking sector, with its close business ties to Greece, had been forced to shoulder some EUR4.2bn (US5.1bn) in writedowns, equal to a quarter of the economy's Gross Domestic Product (GDP), and argued that the burden of Greece's non-performing loans should have been more equally distributed among EU member states.

Popular Bank requires an immediate injection of funds worth at least EUR1.8bn to meet minimum capital requirements set by the European banking regulator. However, Fitch Ratings has estimated that the Bank may need as much as EUR4bn, equal to around 23% of Cyprus's GDP, to remain afloat, and the potential cost of propping up the bank has been said to be substantially higher. The nation's largest bank, the Bank of Cyprus has proved more resilient to the Greece crisis; despite substantial write-offs, the lender has required just EUR500m in state support to meet Tier 1 capital requirements.

Cyprus is currently in discussions with the Troika group of lenders comprising the European Central Bank, the International Monetary Fund, and the European Union regarding a bailout both to prop up the banking sector, and service the country's deficit. Cyprus has been shut out of international bond markets since last year and has relied on credit provided by Russia, which it may again seek to tap to avoid stringent bailout conditions.

TAGS: Russia | Finance | tax | business | European Commission | banking | international financial centres (IFC) | offshore | offshore banking | Cyprus | Greece | Europe

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