Significant problems remain in the Cyprus banking sector

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Significant problems remain in the Cyprus banking sector

The Cypriot press and the government are in a hurry to convince everyone that the financial crisis of 2013 that led to the closure of Laiki Bank and the loss of deposits in the Bank of Cyprus is already behind us.

Nevertheless, the financial statements of Cypriot banks say the opposite. The reason for this is unsecured loans, which sooner or later will need to be written off. Will Cypriot banks attract fresh capital from external sources? That is the question! Most likely, the story of March 2013, when the Cypriot financial crisis burst like a bolt out of the blue, can repeat itself.

It’s a common concesus on the island that the main reason for the Cyprus financial crisis is the writing-off of Greek government bonds. For Cypriot banks, this cost more than €10 billion euros, which led to a chain reaction, the bankruptcy of Laiki Bank and writing off or in other words “recapitalising” deposits over €100,000 euros that are protected by the ECB. Most likely, the reason is much deeper and consists of the fact that Cypriot bankers simply did not know what to do with the money that foreigners carried and carried to Cypriot banks. Cyprus bankers have found nothing better to do than to begin literally “handing out” for unsecured loans.

So I want to say that now is the time to pay the debts, however Cyprus is in no hurry to do it. Although the law on the collection of deposits for non-performing loans has been passed, this law has never been fully implemented.

There is an option to sell debts to debt collection agencies; however this process is constantly put in the mix to maintain an order of social stability to varying degrees.

Cyprus often saves its small scale, which allows the island to solve significant issues using few resources. The unique geographical location and political and economic problems are arising here and there in different parts of Europe and the Middle East. For example, in the first six months of 2017, the Cypriot economy received more than €1 billion euros from tourists in financial investments, which was due to the fact that tourism collapsed in neighboring countries Turkey and Egypt. Interest in Cyprus offshore companies is gradually returning. So, in 2017 more than 7,000 new Cypriot offshore companies have already been registered. A special place in the restoration of the economy of Cyprus was brought by the “Cyprus passport for investment” program. Thanks to this scheme, the Cypriot government was able to attract more than 4 billion euros of investment in Cyprus property, which has significantly revived the island’s economy.

I want to believe that the Cypriot government will manage to keep Cyprus afloat and prevent a repetition of the financial crisis in Cyprus in March 2013.

It is worth noting and positive trends in the banking sector of Cyprus, which make their positive contribution to the restoration of the economy of Cyprus, which is based on four pillars – tourism, financial sector, real estate and agriculture.

There are moments that will allow looking with some hope that the banking sector, which sooner or later will come out of the crisis, if, of course, it is not drowned by the ever-growing regulation of the ECB. First and foremost, this is the fact that the Bank of Cyprus entered the London Stock Exchange and will not be able to conduct that careless credit policy that was conducted by the former management. Secondly, this is the arrival and active movement of foreign banks, which are very reserved about lending to the local population, which reduces the systemic risks in the banking system of Cyprus.