Cyprus banking system – the aftermath

Posted on 23 Jul 2015, by Tonia Antoniou

The Cyprus banking sector found itself on the front line in March 2013 when the Eurogroup and the Government signed an agreement for the provision of €10 billion of financial assistance to Cyprus, according to which Cyprus Popular Bank was absorbed by Bank of Cyprus, bank deposits over €100,000 in Cyprus Popular Bank and some of those in Bank of Cyprus were used for recapitalisation through a "bail-in" of uninsured deposits. Liquidity to the Cyprus banking sector was maintained by the European Central Bank.

The aftermath of the "bail in" and the resolution of Cyprus Popular Bank left the island’s banking sector shaken and weakened by numerous restrictions imposed on the movement of capital. The last restriction was lifted on 6 April 2015 and the banks were called upon to defend their deposit base from leaving Cyprus.

The Cyprus banking sector comprises domestic banks, International Banking Units (IBUs), Cooperative Credit Institutions, authorized foreign credit institutions and branches of foreign credit institutions from EU Member States operating under "European Passport". Foreign banks from the Middle East, Europe and Asia also operate subsidiaries, branches or representative offices in Cyprus. There are a total of 24 local authorized credit institutions, six subsidiaries of foreign credit institutions, 26 branches of EU and non-EU foreign credit institutions and two representative offices.
Banks located in Cyprus offer a variety of services ranging from asset management, private banking, international, corporate and investment banking, retail banking, syndicated loans, custodian services and more.

The restructuring of the Cyprus banking sector has brought many changes to the banking regulations and procedures. The procedures for opening of a corporate bank account for international clients through international business units has become more complex with the stringent screening of customers, their transactions and overall business.

It may sometimes seem to us professionals and our clients that Cypriot banks are asking for things over and above of what other EU banks require. However, this is not the case. We give our clients broad options when it comes to setting up bank accounts anywhere in the world and we have come to the conclusion that the banks in Cyprus still hold a competitive advantage over their counterparts elsewhere, thanks to their faster service and personal interaction with their customers. So long as the professional introducer is approved by the bank and the required due diligence procedures and regulations are applied, then the application should go through smoothly. The more transparency there is in the application, the easier it will be to obtain approval.

Since the events of 2013, Cyprus has returned to international markets with a stronger and restructured banking sector and it has shown remarkable determination and success in rebuilding its banking system. Recent credit rating upgrades and positive first quarter bank results have marked an end to the prolonged uncertainty that had characterized the banking system for two years.

This article was published in the July-August 2015 issue of "Gold, The Business Magazine of Cyprus". For further information please contact Tonia Antoniou.