NICOSIA – Envoys from Cyprus’ international lenders were back in the capital on July 15 to review the government’s progress on implementing reforms demanded in return for a 10 billion euro ($13.6 billion) bailout.
President Nicos Anastasiades said he will adhere to tough conditions, that included confiscating 47.5 percent of bank deposits over 100,000 euros ($136,000) no matter how unpopular they are and even though he campaigned against them but accepted them the moment he took office.
The representatives from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) were said to be looking at the problem of soaring bad loans with people unable to pay mortgages, credit cards and other obligations, Agence France Presse reported.
Some 45 percent of all loans at Cypriot banks are classified as non-performing – 27.1 billion euros ($36.86 billion) from total lending of 60 billion euros, according to Cyprus Central Bank figures and similar to Greece, where harsh austerity measures were also imposed by the government on Troika orders in return for bailouts.
Non-performing loans (NPLs) represent 43 percent of bank loans and 51.7 percent of loans in cooperative banking.
The International Monetary Fund said earlier this month that the level of NPLs in Cyprus is the highest in Europe at almost 140 percent of GDP, curbing credit to the economy and stunting growth.
Cyprus has successfully completed four similar reviews from the Troika and this examination will focus on bank reform, a proposed national health scheme and how to deal with NPLs and home repossessions.
In previous reviews, Cyprus has been praised for sticking to a harsh bailout adjustment program to which it agreed last year despite angry public protests over wage cuts and big tax hikes to bail out banks for making bad loans to Greek businesses and heavy exposure to Greek bonds that were devalued 74 percent.
No banker has been held to account for any wrongdoing despite Anastasiades’ promise to investigate how the crisis happened, which led to the closure of the second-largest financial institution on the island, Laiki Bank.
Cyprus needs to pass this assessment to receive its next installment. It has already received five billion euros so far but needs the rest to keep the economy from going under.
International lenders do not expect Cyprus – suffering record 17 percent unemployment and a credit squeeze – to exit its recession until 2015, although most capital controls put in place to prevent a run on the banks are being lifted.
The European Commission estimates that the economy will contract 4.2 percent in 2014 – lower than the initial 4.8 percent forecast – but will grow only 0.4 percent next year instead of 0.9 percent.