by KG/XINHUA Cypriot officials on Sunday hailed as a turning around for the economy the results of European Union (EU) bank stress test, just 18 months after the eastern Mediterranean island was pulled back from bankruptcy. "Today's results highlight and confirm the irrevocable stabilization, and the return of confidence in the banking system of Cyprus and also the positive prospects for the Cypriot economy," the Finance Ministry said in a statement. Three of the Cypriot banks, namely Bank of Cyprus, Cooperative Central Bank and Russian Commercial Bank, which were included in the European Central Bank (ECB) evaluation of 130 banks came out with flying colors. A fourth one, Hellenic Bank, was urged to increase its capital by a mere 105 million euros (about 133 million U.S. dollars). The Finance Ministry said the capital shortfall is absolutely manageable and the lender itself said it would raise over 200 million euros within weeks by issuing fresh capital for shareholders and converting bonds. Central Bank of Cyprus governor Chrystalla Georgadji said the results of the stress tests were the biggest achievement for the Cypriot economy since its devastation of 2013. Cyprus was bailed out in March, 2013, by the Eurogroup and the International Monetary Fund after it had been shut out of international markets for almost two years and its banking system suffered losses estimated at 4.5 billion euros when the Greek bonds were devalued by the EU by 75 percent in mid-2012. The terms of the bailout memorandum included the recapitalization of the island's primary lender, Bank of Cyprus, by seizing customers' deposits of over 100,000 euros. The Bank was also forced to take on another lender which collapsed under the burden of 9.1 billion euros in Emergency Liquidity Assistance by the ECB. Cypriot Finance Minister Haris Georgiades, in remarks to the state television, said the stress test results could help speed up abolishing the remaining capital controls, which were imposed as part of the restructuring of the banking system to stem a run on the banks. "It won't be tomorrow but the process of gradually and orderly lifting the last of restrictions will be set in motion," Georgiades said. Almost all restrictions on internal bank transactions have been waived but capital transfers abroad still require Central Bank approval. The most immediate outcome of the healthy state of the Cooperative Movement is the lowering of Cyprus's sovereign debt. Georgiades said 1 billion euros of bailout money earmarked for shoring up the Cooperative Credit Societies system will not be needed and would be set aside as a buffer. "That means that the projected public debt for 2015 will now be below 105 percent and closer to 103 percent of GDP," Georgiades said. The results of the test on the health of 130 EU banks were announced by the ECB of Sunday. They showed that 105 banks could survive the worst scenario of crises, but 25 failed. About a dozen of the 25 managed to close the gap in their capital by the time the test results were announced, but the rest have to raise a total of 15 billion euros to stay afloat. The ECB will assume direct control of all 130 banks as of Nov. 4, under an agreement between the EU member countries to establish a banking union.
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