Bank of Cyprus may need further recapitalization

Bank of Cyprus, the largest bank of Cyprus, may need further recapitalization, Central Bank governor Panicos Demetriades said here on Thursday. In a statement posted on the bank's website, Demetriades said the amount needed to ensure a core tier 1 ratio of 9 percent for Bank of Cyprus would be decided following a fair value assessment to be carried out by BlackRock investment management corporation. The report has to be ready by the end of June, under terms set by international lenders. Cyprus struck a 10-billion-euro (13 billion U.S. dollars) rescue deal with Eurogroup and the International Monetary Fund on the condition that it would restructure its ailing banking system. Bank of Cyprus depositors have contributed 37.5 percent of their deposits of over 100,000 euros towards the bank's rescue. It will soon be decided to what extent a further 22.5 percent share of their deposits will be affected after the BlackRock assessment. Reports said Michael Kolakides, a Greek Cypriot senior director of Greek lender Eurobank, could become the new CEO of the Bank of Cyprus. A team of troika technocrats is expected to conclude a survey of the Cypriot banking system on Thursday as part of its assessment of measures in the bailout memorandum ratified at the end of April. Demetriades said lifting restrictions on bank transactions and the winding down of the second largest lender, Cyprus Popular Bank, should be done carefully to prevent triggering disruptive capital outflows and liquidity problems. "There are concerns that recession could prove to be deeper than anticipated, with negative feedback loops on public finances, including government debt," Demetriades said. The troika representing the European Commission, the European Central Bank and the International Monetary Fund had estimated an 8.7-percent contraction of the Cypriot economy this year. Demetriades added that the banking sector risks remained high including funding liquidity pressures, rising non-performing loans and the consequences of premature lifting of bank restrictions. On the up side, Demetriades said as soon as the banking system stabilized, confidence could return, allowing for the earlier removal of controls and a faster recovery of economic activity.