Cyprus government makes deposit in Co-op Bank ahead of sale

MarketsAssociated Press

The Cyprus government deposited Tuesday 2.5 billion euros ($3.1 billion) into the island-nation's troubled Cooperative Bank in an attempt to dispel any uncertainty over its future.

Government Spokesman Prodromos Prodromou said he hoped the deposit, mainly in the form of a bond issue, aimed to protect savers and quash any "irresponsible rumors" about the bank's prospects.

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The sale of a majority stake in the bank is expected to be completed within a month, he added.

The bank is 77-percent state-owned and is the number one bank for domestic deposits. But it's weighed down by bad loans, representing nearly 60 percent of the total loan book.

The country's finance ministry said that as a result of the deal to shore up the bank it will receive as collateral all of the bank's bad loans, stock in private companies as well as real estate, amounting overall to almost 10 billion euros ($12.3 billion).

As part of the injection, the government issued 2.35 billion euros ($2.9 billion) worth of bonds to the bank — the bonds have a maturity of 15 to 20 years though there is a right for early repayment. The rest of the deposit was in the form of a cash payment to the bank.

"Existing deposits in the Cooperative Bank, meaning all savers who by overwhelming majority are Cypriots, are fully protected against any theoretical danger," the ministry said.

It added that by bolstering its balance sheet, the bank is in a better position to select from interested investors.

An announcement last month that the bank had appointed Citigroup Global market to look for investors set depositors on edge about the lender's viability.

Jitters were compounded by unsubstantiated rumors that savings were at risk, reviving memories of a 2013 banking crisis that forced Cyprus to accept a rescue deal that included a seizure of unsecured deposits in the country's two largest lenders.

The government moved quickly to reassure depositors, some of whom withdrew their savings.