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European Commission

Press release

Brussels, 24 February 2014

State aid: Commission approves restructuring of Cypriot cooperative banks

The European Commission has found recapitalisation and restructuring aid measures in favour of the Cooperatives Credit Institutions and their central body, the Cooperative Central Bank Ltd. (together "the cooperative banking sector") in Cyprus to be in line with EU state aid rules. In particular, the measures will enable the cooperative banking sector to become viable in the long term without continued state support, while limiting the distortions of competition created by the aid.

Commission Vice President in charge of competition policy Joaquín Almunia said: "The cooperative banking sector is heavily burdened by the poor quality of its loan book, due to past careless lending. The in-depth restructuring plan approved today lays the foundations to transform the cooperative banking sector into viable credit institutions servicing the Cypriot economy on a sustainable basis".

Due to a high proportion of non-performing loans, caused by the current recession and careless lending in the past, the Cypriot banking sector needs to rebuild a solid capital buffer through a recapitalisation of €1.5 billion.

The restructuring plan approved today represents a major overhaul of the structure and commercial practices of the group. The number of cooperative credit institutions will be reduced to 18 via mergers. They will be owned and controlled by the cooperative central body, which will in turn be owned by its new 99% shareholder, the State. Adequate risk management, loan underwriting and claim management policies will be developed. Managing actively the large amount of non-performing loans through a newly established specialised division is a key component of the plan. New management teams are in the process of being appointed, both at central and at credit institutions level.

This restructuring strategy for the cooperative banking sector has been developed in close coordination with the European Central Bank (ECB) and the International Monetary Fund (IMF) and is part of the assistance programme for Cyprus.

The Commission will closely monitor the correct and timely implementation of the plan. Given the challenge that the implementation of such an ambitious restructuring plan represents, it is encouraging that the authorities have started to implement its first key steps, such as the merger among the cooperative credit institutions. Such momentum will have to be maintained to ensure a successful implementation of the plan.


The cooperative banking sector is a key contributor to the financing of the Cypriot economy. It is focused on collecting domestic deposits and lending to residents. Until recently, there were close to one hundred cooperative credit institutions, which were not controlled by the cooperative central bank to which they were affiliated. Each institution was owned by its members, namely its customers. This decentralised structure and closeness with borrowers led to careless lending, with no serious verification of the ability of the borrowers to repay their loans, and to a culture of non-repayment. As a consequence and due to the deep current recession, over 40% of the loan book is now non-performing, i.e. not repaid by borrowers, and this percentage is increasing. The cooperative banking sector needs €1.5 billion to cover these loan losses.

The non-confidential version of the decision will be made available under the case number SA.35334 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

Contacts :

Antoine Colombani (+32 2 297 45 13)

Marisa Gonzalez Iglesias (+32 2 295 19 25)

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