Cyprus Bailout Terms Create Space for New Lenders, Ancoria Says

A requirement that Cyprus shrink its financial industry as part of an international loan program has created an opportunity for new lenders to enter the market, according to Dinos Christofides of Ancoria Holdings Ltd., which made the first bid for a new banking license since the bailout.

Ancoria Holdings, a fully owned unit of Swedish-founded, Cyprus-headquartered Ancoria Insurance Public Ltd., applied for the license last week as the company believes “now is the right time for a new player to enter the banking sector,” Christofides, project leader for the new lender, said in an Oct. 16 interview.

Cyprus won the 10-billion euro ($13.7 billion) lifeline in March in return for pledging to tighten its budget, force losses on uninsured depositors at the country’s two largest banks and impose the euro area’s first capital controls. Under the agreement Bank of Cyprus, the country’s biggest bank, absorbed the second-biggest lender, Cyprus Popular Bank.

Bank of Cyprus’s net loss widened to 2.21 billion euros in 2012 from a 1.36 billion-euro loss in 2011. Provisions climbed to 2.3 billion euros from 426 million euros.

Given higher provisioning and weak capital positions, established Cypriot banks can’t provide liquidity at “reasonable and affordable terms,” Christofides said. This “opens the door for new entrants with solid capital bases and willingness to operate by adopting banking terms and conditions comparable to northern Europe.”

Ancoria’s new bank will concentrate on commercial-banking products and services for small and medium-sized enterprises that are the “backbone” of the Cypriot economy, Christofides said. These customers may be open to shifting to new lenders.

Changed Attitudes

“Since the events of March, the banking sector is in the process of a major transformation,” Christofides said. “Attitudes of individuals and companies toward established banks have changed.”

Ancoria Insurance, which was established in Cyprus 27 years ago, is confident the country’s economy will recover and return to growth in 2015, Christofides said. A fall in the rate of deposit outflows could be a signal that capital controls will be gradually lifted in 2014, he said.

Cypriot gross domestic product is set to shrink a cumulative 13 percent in 2013 and 2014 under the weight of budget measures and as the financial industry contracts, according to the European Union and the International Monetary Fund.

Cyprus remains an attractive option for international companies that want to relocate or establish bases in the region, the executive said, noting the island’s safe-haven status as an EU and euro-area member in a politically uncertain area.

Company Moves

International companies “haven’t abandoned Cyprus even after the events of March and we are now seeing some baby steps in the interest of such companies to move to Cyprus,” Christofides said.

Cyprus’s recent cooperation with Greece and Israel in natural gas exploration and exploitation and in electricity production and distribution “opens enormous prospects for significant investments in Cyprus and in the region which will result in a much faster recovery,” Christofides said.

To contact the reporter on this story: Paul Tugwell in Athens at ptugwell1@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net

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