EU Commission approves additional staid aid for the Coop sector

EU Commission approves additional staid aid for the Coop sector

The European Commission approved the additional state aid of €175 million to the Cooperative Central Bank and approved the new restructuring plan for the island`s cooperative sector.

“The Commission concluded in particular that the additional restructuring measures that the bank committed to implement will ensure that the bank becomes viable in the long-term whilst distortions of competition will be minimised,” a press release issued by the Commission notes.

EU Commissioner in charge of competition policy, Margrethe Vestager, pointed out however that “repeated state aid for a bank, while its competitors compete on their own merits by finding capital on the market, can create serious distortions of competition.”

“It is therefore crucial that Cooperative Central Bank restructures so that it in the future it can cover potential capital needs by raising money from private investors. It will then be in a position to contribute to the recovery of the Cypriot economy on a sustainable basis,” she noted.

The Cypriot government owns 99% of the CCB share capital as it injected €1.5 billion from its €10 billion bailout from the EU and the IMF to cover the sector`s capital shortfall.

However, the assessments carried out in 2015 by the European Central Bank (ECB) in its capacity as supervisor, identified that the bank did not make sufficient provisions compared to the size of its defaulted loans portfolio (a so-called “provisioning shortfall”).

The bank made the requested additional provisioning in its 3rd quarter 2015 account but, as a consequence, needs additional capital of €175 million to cover the shortfall identified by the ECB SREP test.

“Mainly due to its current complex structure and the resulting lengthy process to list its shares on the stock exchange, the Cooperative group is not in a position to raise the required additional amount from private investors within the short deadline set by the regulator,” the Commission adds.