Banks intend to issue 1.3 billion euros to help businesses and households

On Monday, March 16, the Central Bank of Cyprus (CBC) announced that local lenders could release about 1.3 billion euros in total capital reserves. With the help of this money, the bank is going to help enterprises and individuals in the conditions of economic recession due to coronavirus.

The statement from the Central Bank says that the CBC governor Constandinos Herodotou attended a meeting of the Board of Governors of the European Central Bank, where it was decided to take a number of measures in case of unforeseen circumstances related to the situation with COVID-19. The temporary release of 1.3 billion euros of capital reserves in Cypriot banks was one of them. At this meeting, the European Central Bank decided to immediately provide additional liquidity to provide banking services to small and medium-sized businesses.

“The CBC anticipates that banks shall make use of these reserves, demonstrating the necessary flexibility in supporting both businesses and households expected to be adversely affected by the spread of Covid-19,” the statement said.

Thus, banks are allowed to reduce the assigned minimum capital reserves or their percentage that they hold in reserve to offset the credit risk. According to the Central Bank of Cyprus, financial support includes:

  • short-term restructuring of current loans

  • issuing new short-term loans to finance working capital needs

Sources at the Bank of Cyprus called the ECB measures "extremely significant."

“Generally speaking, Frankfurt [the ECB] and Brussels are sending a strong message that, whereas in 2008-2013 banks and sovereign debt were part of the problem, in today’s crisis they will be a big part of the solution.”

But the same sources added:

“Discussions are ongoing. Based on the current state of play, analyses and scenarios are being formulated around the clock on ways to support the economy. But the banks on their own cannot ‘lock-in’ the measures until Frankfurt clears up certain matters.”