The current Central Bank Governor has been tried and tested
08:22 - 13 February 2024
Looking back at the recent course of the Cypriot economy within the Euro zone, one will definitely not find a period during which there was greater stability but also greater prospects for the Cypriot banking system.
Prospects that were actually created in the midst of unprecedented conditions such as the pandemic, geopolitical conflicts, and inflation.
The main feature that has distinguished the banking system in the last five years has been stability. A word unknown for conditions in Cyprus until a few years ago.
A stability that has been recognised by both the rating agencies with the upgrades of the economy and systemic banks, as well as Frankfurt itself, since there have been not a few members of the European Central Bank who have praised the enormous progress achieved.
From the President of the ECB, Christine Lagarde, to the Vice-President, Luis de Guindos and many members of the Governing Council, who even visited Cyprus, have publicly acknowledged the enormous progress that has been achieved in recent years, but also the contribution of the current Governor Constantinos Herodotou in the whole effort.
They also repeatedly emphasised that his contribution has been huge in the critical decisions of the ECB’s Governing Council.
Undoubtedly, and also having as a measure of comparison the previous Governors of the CBC, Herodotou is the exception to a sad rule, that is, with the Governors of the CBC, almost nothing goes right. Herodotou, however, is not only good at ‘talking the talk’ but he also proved himself through his actions.
There have been more than a few difficult cases that he has been called upon to manage during his tenure. From the smooth termination of the banking operations of RCB Bank, where, through his own personal intervention to the Unified Supervisory Mechanism, the implementation of a solution that included the reduction of deposits was avoided, to the timely identification of the risks arising from the transfer of deposits to Lebanese branches in Cyprus.
If timely measures had not been imposed at the specific branches, in all probability today the deposit guarantee system would have to pay out money and we might be confronted with a mini-haircut.
He also took immediate action during the pandemic. Not only for the successful implementation of the moratorium programme but also with capital relaxations given to non-systemic banks (supervised directly by the CBC) to enable favourable restructurings and general relaxations through which short-term liquidity was provided by banks to businesses and households.
Regarding the biggest problem of the Cypriot economy, Non-Performing Loans, the progress recorded after 2019 is self-evident from the numbers.
From 27.7% of the total in 2019, they decreased to 8.7% in June 2023. The CBC's interventions also had a significant effect on the restructuring issue. In the four-year period 2020-2023, loan restructurings exceeded 3 billion euros.
Not included in Cyprus Confidential and negative publications
Important work was done in the last five years also in relation to the prevention of money laundering, after following instructions from the CBC, banks terminated business relations with 42,728 shell companies and closed 125,872 bank accounts.
The progress is again self-evident since many international banks now offer correspondent services to Cypriots as a result of the above as well as an international communication campaign led by Herodotou.
At some stage the Cypriot banks were left with only one foreign bank to provide them with correspondent services and the risk of its withdrawal and the Cypriot economy being literally cut off from the rest of the world was clearly visible.
It is also indicative of the fact that despite the many negative publications of the last few weeks in the international press about Cyprus, the references to the Cypriot banking system were negligible.
Projects in progress
In addition to the supervisory role stemming from the competencies of the CBC, the Authority has also undertaken more targeted initiatives. One of them also concerns the formulation of a specific proposal for the management of NPLs, through the recommendation of specialised consulting firms. The project is at a fairly advanced stage and will help reduce NPLs in smaller banks as well.
The process of digital onboarding is also at an advanced stage, i.e. a digital system for remote identification and updating of banking customer details with the aim of better and faster service to citizens and businesses. Although the specific project did not fall under the competence or responsibility of the CBC, it was an initiative of the Governor in order to simplify an important process for all bank customers.
Considering the approximately one year that Nikos Christodoulides has been in power, and the failures that occurred with various other appointments to key positions, our opinion is that there is no need for him to take any risks when it comes to such a crucially important position as the Governor of the CBC at a time when he has before him a very difficult choice.
After all, he has stated countless times that we do not play games with the economy. Given that the most basic and now systemic pillar of the Cypriot economy are the banks (as has been proven recently), let's avoid taking any risk.
Both the European institutions and the Cypriot business are clearly advocating in the same direction, which the last thing needed at this time is another reason to feel insecure.
We clarify that the specific text does not in any way concern other people who may be interested or approached for the specific position, but is purely an evaluation of a tried and tested solution that the President of the Republic has before him.