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The Central Bank of Cyprus (CBC) wishes to clarify that the sale of the branches of the three Cypriot banks in Greece had been set by the Troika as a condition for the approval of Cyprus’s financial support programme. If the Cypriot government had not agreed to this sale, the negotiations with the Troika for the finalisation of the Memorandum of Understanding would have been terminated, with the consequent disorderly collapse of the financial system and of the country itself.
In the main text of the Eurogroup’s decision on 25 March 2013, the following is stated:
‘The Eurogroup urges the immediate implementation of the agreement between Cyprus and Greece on the Greek branches of the Cypriot banks, which protects the stability of both the Greek and Cypriot banking systems.’
As a result of the above political mandate, which was agreed with the government of Cyprus at the Eurogroup on 26 March 2013, a relevant agreement was reached. Following this, the CBC, serving as the Resolution Authority, took into account the opinion of the Minister of Finance and issued a Decree on the same day, through which the operations of the branches of Laiki Bank and Bank of Cyprus in Greece would be sold to Piraeus Bank in Greece. It should be noted that the agreement also involved Hellenic Bank and, therefore, the operations of Hellenic’s branches in Greece were also sold to Piraeus Bank in Greece. The total value of assets transferred amounted to €16,4 billion and the total liabilities €15 billion. The total sale price received was calculated based on the methodology agreed by the Eurogroup on 25 March 2013 and amounts to €0,5 billion.
Upon completion of the above sale, a significant deleveraging and contraction of the Cypriot banking sector was achieved. In addition, the risks arising from the loan portfolios of Cypriot banks in Greece were completely eliminated. It should be recalled that under the policy decision of the Eurogroup on 25 March 2013, the domestic banking sector is required to be reduced in size and reach the EU average by 2018. The current average is estimated to be 300% of GDP. Moreover, with the transfer of €15 billion of deposits in the branches of Cypriot banks in Greece, the Cyprus Deposit Protection Scheme has been exempted from this coverage, thus reducing the amount of potential liability for Cyprus. Considering all the above factors, the sale agreement is, under the circumstances, satisfactory for maintaining financial stability.