Finance ministry official says past sins brought down the Co-op

By Stelios Orphanides

A finance ministry official who served on the Co-op’s board of director said the lender went down mainly on problems it accumulated in the past and that the acquisition of its operations by Hellenic Bank had helped the economy.

The cooperative banking sector had a deficient supervisory mechanism before 2013 when it came under the supervision of the Central Bank of Cyprus and the following year, also of the European Central Bank’s (ECB) Single Supervisory Mechanism (SSM), said George Panteli, senior official at the finance ministry while testifying on Wednesday at the committee probing the collapse of the Cyprus Cooperative Bank, which was appointed by Attorney-general Costas Clerides.

As a result, the Co-op suffered from a lack of proper guidance, said Panteli, who was appointed to the bank’s board in March, tendering hi resignation three months later.

In addition, the decentralised administration and the large number of independent cooperative credit institutions, the absence of credit standards, combined with the Co-op’s social role in extending credit to communities and clubs without evaluating their ability to repay, all took its toll on the bank, he said.

The Frankfurt-based supervisor, Panteli continued, wanted the banking system to recover and was pressuring credit institutions to move towards the direction of a stable, (adequately) capitalised banking system without non-performing loans.

The supervisor “aimed at further mergers in the Cypriot banking sector to create larger and stronger banks able to cope with challenges, hence we saw those decisions,” he said.

The agreement between Hellenic Bank and the Co-op, the product of its failure to reduce its non-performing loans fast enough which wiped out its capital, was beneficial for the economy, public finances and the cooperative credit system, he said. The deal helped stabilise the economy, reflected in three credit rating upgrades that followed.

 

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