Within a relatively short period of time, the Cypriot economy has made an astonishing recovery, demonstrated by the mounting number and variety of investment opportunities in the country, as well as its growing fund industry.
The situation is not all positive, however, and as the financial crisis reverberated around Europe, and indeed the world, it soon transpired that no country was safe – not even those with robust economies and strong financial markets. Unfortunately, this was in fact the case for Cyprus, which had suffered a blow to its enviable banking sector, thus instigating a series of wider economic consequences for the entire population.
One bank that stands out for its resilience and continued development both throughout and after the financial crisis is Eurobank Cyprus. Indeed, in spite of a challenging environment in recent years, Eurobank Cyprus has experienced dynamic growth that is demonstrated in its strong capital base, substantial level of liquidity and recurring solid financial results. At this interesting time in the country’s banking history and in particular that of Eurobank Cyprus, World Finance had the chance to speak with Antonis Antoniou, General Manager of Wealth Management at Eurobank Cyprus, about the country’s extraordinary recovery and what’s in store for the future.
What impact did the European debt crisis have on Cyprus?
The debt crisis that emerged across Europe had a considerable impact on Cyprus, and the island’s own crisis was in fact one of the most complex in the eurozone. The Achilles heel for Cyprus turned out to be the confluence of sovereign debt and the banking crisis at the same time; this was partly due to the inherent exposure to neighbouring Greece, which was undergoing its own spiralling economic crisis.
Various events that took place in 2013 had led to this situation, starting with the Cyprus bailout from the European Commission, the European Central Bank and the International Monetary Fund – otherwise known as Troika. As banking deposits were a source of readily available funds at the time, one of the two most prominent banks in Cyprus put forward a resolution that involved unsecured depositors losing their deposits. The other leading bank in Cyprus was then forced to implement a special regime with its own deposit haircuts.
Eurobank Cyprus seeks long-term relationships with customers that are based on professionalism, discreteness and trustworthiness
Subsequently, the country’s two biggest banks merged, which inevitably caused the banking sector to shrink. This situation caused a domino effect of negative consequences, including the imposition of capital controls, the deflation of the financial industry and the shrinking of the economy. Large external debt also ensued, together with an influx of non-performing loans (NPLs) and the burst of Cyprus’ property bubble. The effect on two of the country’s most significant sectors, banking and construction, was substantial, which ultimately led to a rise in unemployment and a sharp decline in wages.
As per the conditions of the economic bailout, strong austerity measures were introduced, including cuts on social benefits, allowances and pensions, as well as increases in taxation. Unsurprisingly, the Cypriot Government’s bond credit rating was also downgraded as a result.
How did the country’s banking industry react to the unexpected haircut?
The brutality of the decision was unprecedented in both its conception and scale. It had a chilling effect on the deposits of thousands of accounts and on the overall credibility of the Cypriot banking system. Naturally, this caused an injection of risk in what were previously considered to be perfectly safe deposits. As such, the haircut addressed the need for recapitalisation and the resolution of the NPLs issue.
How did Eurobank Cyprus specifically respond to the Cypriot financial crisis?
Throughout its years of operations in Cyprus, Eurobank Cyprus has had a strong capital adequacy ratio, with an excess in liquidity that was placed chiefly with prime international banks and debt issuers. The bank also has a low rate of NPLs (seven percent in accordance with the new European Banking Authority rules), which is a sound indicator of its performance that can be attributed to the adequate provisions it has in place for NPLs.
Furthermore, the bank also has a low operational cost, which proved to be extremely helpful during the financial crisis. I’d also like to add that, as a whole, our organisation’s commitment to excellence, accountability and transparency has helped to carry us through and even thrive in such a difficult climate.
Following severe economic damage, Cyprus has made a rapid recovery – what can that be attributed to?
Unfortunately, there is no magic button – however, there are positives that came out of the financial crisis. For example, it led to more prudent and far-sighted governance. Frankly, we dealt with the painful consequences and implemented the structural reforms that were crucial.
We also began the process of selective privatisations, which in turn helped us to increase our efficiency and competitiveness within the market. Fortunately, we then reached the point where we could begin deleveraging the austerity that had hit the country and so we could help to reboot the economy.
Soon enough, the country’s pivotal markets – namely, services, tourism and shipping – buoyed economic growth. Confidence was gradually restored and the trust that had been lost in the economic crisis began to recover. Cypriots are by nature disciplined and optimistic, as also evidenced by the similarly speedy recovery that was observed following the Turkish invasion of 1974.
Following this recovery, how is the investment landscape now looking in Cyprus?
The investment landscape in Cyprus is advantageous due to the island’s well-qualified labour force, its attractive taxation rates, and a transport and telecommunications system that is both reliable and efficient. Moreover, and significantly, Cyprus is a modern, free market and a service-based economy with an effective and transparent regulatory and legal framework in place. This environment offers a great deal of confidence to businesses and international investors to invest, grow and prosper in the country.
In your opinion, why is the fund industry doing particularly well?
At present, Cyprus is modernising its regulatory framework through the country’s regulatory body, the Cyprus Securities and Exchange Commission. In addition, Cyprus offers both EU-regulated undertakings of collective investment in transferable securities and alternative investment funds. Funds and asset management frameworks are actually on par with other international jurisdictions, thus growth in this sector has been driven by the country’s tax treaty network. This is supported further by the country’s large pool of world-class auditors, tax advisors and lawyers.
Furthermore, also present in the country are cost-effective economies of scale, back-office support, administration, and other specialised services, which all offer huge support to the development of the industry. As such, there is a great level of confidence that Cyprus will make significant progress in attracting fund managers in the foreseeable future, which in turn will facilitate its global ambitions.
What strategy does Eurobank Cyprus have in place to continue this level of growth?
Eurobank Cyprus has a wholesale four-pillar strategy in place that is focused on the premium banking income streams in the country. We also have a deep commitment to excellence and customer care, as demonstrated by the fact that we were named Best Banking Group, Cyprus by World Finance this year.
Healthy profitability has been maintained since the bank’s establishment in Cyprus in 2007, and we are already witnessing a similar trend taking place in 2016.
We depend on everyone at Eurobank Cyprus to deliver the highest standard of excellence to all of our customers. We have a team of high-quality professionals with local and international experience that have been recruited on a purely meritocratic basis. This kind of talent is instrumental for the success of any organisation, so we place great value in their expertise and put considerable emphasis on their welfare and training.
As a bank, we place huge importance on fostering strong ethical values and a positive team spirit that rewards commitment and initiative. By committing to excellence, accountability and transparency, we ensure that we can best serve our valued customers efficiently and competitively. To this end, Eurobank Cyprus seeks long-term relationships with customers that are based on professionalism, discreteness and trustworthiness, and we always strive to exceed every customer’s unique expectations.