Cyprus-Forum.com

[Svetlana]

From the Cyprus Mail:
“Cyprus is perhaps the only country in the EU where a bailout plan has been unnecessary,” said Andreas Vgenopoulos, vice-chairman of Marfin Popular Bank, the island’s second largest financial institution.

He was speaking to reporters a day before Marfin released its third-quarter results.

A number of factors had shielded Cyprus from the credit squeeze, said Vgenopoulos. The “conservatism” of the Central Bank was one such reason, as was the fact Cypriot banks did not put all their eggs in one basket.

A lending to borrowing ratio of around 90 per cent was yet more evidence that Cypriot bankers had sound business sense, he added.

Calling the island a “haven” amid the maelstrom of the global financial crisis, the Greek financier predicted, however, that the economy would not come out totally unscathed.

This was inevitable, he added, but in any case the consequences on the economy would be far from devastating.

The increase in foreign deposits is expected to slow down, and real estate prices, though not in freefall, are dropping. And demand for second residences, such as holiday homes, is slackening.

“Fears of a violent drop in real estate prices are not justified, at least not at the moment. It’s true that many people are holding back, so that they can then buy as low as possible.

“But at some point the market will sort itself out as prices stabilise,” noted Vgenopoulos.

Combating the crunch required as broad a consensus as possible between business leaders and the government, he said.

“It should be handled with a cool head… and we should avoid populism at all costs. We should behave as if this were an Olympic truce.”

Speaking about his bank, Vgenopoulos said Marfin Popular had a lending portfolio of €8.4 billion and a lending (or profit) margin of 2.01 per cent.

He said the margin could drop by a further 0.40 per cent due to bad debt, and even by as much as 0.80 per cent were the financial crisis to persist and more borrowers defaulted on their loans.

In this worst-case scenario, the bank would be left with a profit margin of just 1.20 per cent, compared to 2.5 per cent a year ago. This meant Marfin would be operating on the “threshold”, Vgenopoulos said, answering criticism that banks were not easing interest rates for cash-strapped households.

“People, especially in Greece, accuse banks of making super-profits. What super-profits? If you’re making a profit of €300 million, but your working capital is, say, €3 billion, that works out to just 10 per cent. But people hear ‘€300 million’ and they go nuts.”

Commenting on the sharp drop in the value of bank stocks, Vgenopoulos said Marfin has asked the Securities & Exchange Commission to abolish the closed trading period.

This would allow local investors to protect their shares against foreign speculators, he said.

“Under the present circumstances, it is irrational that major shareholders and members of the board of directors should be prevented from backing up their assets and those of common shareholders,” said Vgenopoulos.

He also revealed that Marfin Investment Group (MIG), the bank’s parent company, had asked permission to increase its stake in Marfin Popular from 10 to 30 per cent.


That's all well and good, but their share price has dropped 80% in the last 12 months - in most other countries that would be considered a crisis.

Lana

[coremax]

Lana, the share price is an indicator, true. But it shouldn't be taken as the sole indicator, where you have many important ratios to consider for a bank (liquidity, activity, leverage (coverage) and profitability - even return ratios).

There are many factors affecting the current stock markets, where Oil prices are one of the most affecting hidden one. Frankly a 90% lending/borrowing ratio is awesome, and if debts are also paid back on time with a similar ratio, it may even be the time to buy some shares. ('may' as I'd be fortune telling otherwise, one has to see the trial balance, cash flow, income statement, balance sheet and assets)

[Svetlana]

I am no economist but borrowing €1.4b from the Banks and then depositing €.7b, all seems to be playing with numbers than a real boost to the economy/Banking sector.

But I thought we had been told the Banks are 'fine'?


State to raise €1.4 billion in bid to ease bank liquidity
By Elias Hazou

THE government announced yesterday it would be issuing €1.4 billion in treasury notes in a bid to boost the banking sector’s liquidity – but it remains to be seen whether the benefits will trickle down to the consumer.

Under the move, the state will be borrowing the €1.4 billion from commercial banks, who will then get their money back by taking out a loan for the same amount from the European Central Bank (ECB) but at a significantly lower interest rate, at 2.5 per cent, the ECB’s reference interest rate.

Commercial banks will be able to use the notes as collateral with the ECB. The nominal borrowing rate they will charging the government is 3.5 per cent.

“This is the lowest borrowing rate the government has secured over the last years for such a large amount,” said Stavrakis.

The treasury notes will be issued on January 2, 2009, meaning the scheme would not affect the government’s main economic indices for this year. The government is to repay the loan in 39 weeks – which falls around October 2009.

The benefits are two-fold: on the one hand, the government will be able to service its debt at a lower cost (it would be more expensive for it to borrow from abroad); and on the other, banks get a good deal with the ECB that should help increase their liquidity.

Speaking to reporters yesterday, Finance Minister Charilaos Stavrakis passed the deal off as a win-win situation.

He said that 2008 would close with a 1 per cent fiscal surplus and an 11 per cent reduction in the public debt, from 60 to 49 per cent, which, he added, corresponds to savings amounting to two billion euros.

Stavrakis said the timing of the move was just right: a huge decrease in the public debt, a budget surplus and a high rate of growth of the economy (projected at 3 per cent).

“We want to take advantage of the robustness of the economy to borrow at the right time,” Stavrakis said, explaining the motives behind the move.

Bank liquidity would be boosted by some €700 million, since the government would deposit about half of the €1.4 billion back into the banks.

“An indirect result of this improved liquidity will be to allow banks to offer better credit facilities to businesses,” noted Stavrakis.

Experts aren’t so sure. Economic analyst Dr. Stelios Platis told the Mail that though this was “definitely a smart move” as far as the government was concerned, he was sceptical whether consumers would get anything out of it – particularly in the form of more attractive loans.

“Is it a stimulus package, or just a scheme supporting the banks? I think more the latter,” said Platis. “My view is that this will not reach the consumer.”

“For one, what are the commitments of the banks toward their customers? In other words, what will they do with the €700 million they get to keep? Also, what interest rate will the government be offered for the €700 million they will deposit into the banks?

“There are too many unknowns,” said Platis.

Last year, commercial banks lent a total some €5 billion to the economy overall; by comparison, €700 million seems little.

And the duration of the debt issue was too short to qualify as a bonus to common people.

“It sounds more like a short-term liquidity boost to banks,” said Platis.

If the goal had been to ease interest rates, proposed Platis, the government could have gone down a different path: guarantee the housing loans of people in need, and in particular the loans of small and medium enterprises.

The economist wondered also why banks needed an injection if it was true that their liquidity was fine – a claim made by both the Central Bank and the government just days ago.

This was something over which Stavrakis was taken to task yesterday. The minister danced around the question, offering:

“The banks do not have any immediate liquidity problems. It is just that they do not have any surplus liquidity that would enable them to undertake finance projects,” he said.



Copyright © Cyprus Mail 2008

[Paphitis]

Lana,

I am no economist either. But this fiscal downturn will turn to a fiscal upturn, which will result in a lot of heat, resulting in an overheated economy. Spending will be up, business will still be complaining, interest rates will rise and the "trnc" will still be broke. Banks will still make a shitload, Cypriots will still be working for crap wages, while still affording to purchase their Merc and 3 storey villa. Cypriots will still go to the Kafeneio, play Tavli and have a whinge on how tough life is whilst in the same sentence brag about how they are "paper millionaires" and then fantasise about how Cyprus will one day take over the whole world, even though in reality they couldn't organise a root in a brothel.

[CBBB]

The banks are all screwing us one way or another!

I know that Marfin/Laiki had 60 people for a 2 day seminar (piss up) in the Annabelle in Paphos a couple of weeks ago and one of the big Co-ops did the same thing at Pissouri Beach Hotel around the same time.

Hard times? Not for them!

[SSBubbles]

Lana,

I am no economist either. But this fiscal downturn will turn to a fiscal upturn, which will result in a lot of heat, resulting in an overheated economy. Spending will be up, business will still be complaining, interest rates will rise and the "trnc" will still be broke. Banks will still make a shitload, Cypriots will still be working for crap wages, while still affording to purchase their Merc and 3 storey villa. Cypriots will still go to the Kafeneio, play Tavli and have a whinge on how tough life is whilst in the same sentence brag about how they are "paper millionaires" and then fantasise about how Cyprus will one day take over the whole world, even though in reality they couldn't organise a root in a brothel.

I like your synopsis!

[miltiades]

Lana,

I am no economist either. But this fiscal downturn will turn to a fiscal upturn, which will result in a lot of heat, resulting in an overheated economy. Spending will be up, business will still be complaining, interest rates will rise and the "trnc" will still be broke. Banks will still make a shitload, Cypriots will still be working for crap wages, while still affording to purchase their Merc and 3 storey villa. Cypriots will still go to the Kafeneio, play Tavli and have a whinge on how tough life is whilst in the same sentence brag about how they are "paper millionaires" and then fantasise about how Cyprus will one day take over the whole world, even though in reality they couldn't organise a root in a brothel.
You left out two vital components mate , Souvla and Zivania !