All we are saying … is give BOC a chance
* Time to put the money back in Bank of Cyprus
By Fiona Mullen, Director, Sapienta Economics Ltd
Advent for the Western Church starts on 1 December. In the Orthodox Church, the fasting season is already upon us. Time, then, to think about what charitable works we might do for Christmas.
At the end of this extraordinary year for Cyprus, I have a suggestion.
I was shocked to hear from a well known and respected businessman the other week that there are still some people who visit the bank ATMs every day to take out their maximum allowance of EUR 300.
Maybe it is a reflection of the poor state of my finances. But just a few days after 15 March, I had already emptied my personal current account.
For my business account, I have been doing the reverse: skipping my own salaries, drawing down on my personal notice account, even bringing in money from abroad, just so that I can keep up enough cashflow to pay the bills.
Thank God that the UN Special Advisor, Alexander Downer, studied economics in his early life. He has asked for lots of updates, and since the UN insists on paying me personally, rather than Sapienta, that is how I have survived.
Otherwise I might have had to resort to cleaning people’s toilets.
Yes, all those media interviews, conference speeches and people who want you to brief them for free might be good long-term investment in the company brand. But alas they do not pay the bills.
I guess my personal experience is closer to the 92% of small business with fewer than 10 employees in Cyprus than to those who can afford to empty the ATM every day.
Are there 3,000 people still empyting the tills every day?
Since the capital controls make it rather difficult to convert savings into current accounts, anyone who has been able to withdraw money for 260 days on the trot must have had a lot of cash stashed in their current accounts before the crisis started.
Let’s do a quick calculation.
EUR 300 every day for 260 days (16 March to 30 November) is EUR 78,000.
In July to September (once things had settled down in relative terms), the average capital flight each month was EUR 800 mln.
If all of that EUR 800 mln comes from ATM withdrawals, then that would mean over 10,000 people doing this every day.
But this is unlikely to be the case. So let’s say that 80% of that money represents individuals and small businesses like me, drawing on savings to keep afloat or making ordinary withdrawals, while 20% represents those draining all that cash stashed in liquid accounts.
With that ratio, EUR 160 mln of the capital flight comes from what I’ll call extraordinary ATM withdrawals. EUR 160 mln divided by EUR 300 divided by 260 days is around 3,300 people.
So perhaps there are 3,300 cash-rich individuals, or about 0.7% of the population, who are wealthy enough to drain their current accounts every day.
Time to put the money back in
I would like to make a Christmas appeal to these people. Please help your country, put your hand in your pocket/ your safe/ your account abroad, and stick some back in Bank of Cyprus.
Bank of Cyprus has passed its first tough test. Despite losses of EUR 1.8 bln and soaring non-performing loans (NPLs), it still remained very comfortably capitalised as of the end of June, with a Core Tier 1 ratio of 10.5%.
I personally thought it would be sailing much closer to 9%. So even if NPLs continue to rise, it still has some wiggle room.
And don’t get distracted by questions about how it went from a preliminary 13% on 17 May to 10.5% on 30 June. That is comparing apples and pears. The 13% was explicitly done before a final valuation exercise. They knew there were more provisions to come and that this would bring the ratio down.
Back in June I was so worried that the European Central Bank would allow BOC to fail that I penned this article [http://www.financialmirror.com/blog-details.php?nid=1094] and spammed as many troika officials as I could find with it.
Five and a half months later, I am much more confident in asserting that BOC is on the road to recovery.
Yes, it has to deal with the NPLs. But it now has a proper board and a proper plan.
The main thing standing between BOC and rude health today is liquidity.
So to continue the Christmas appeal theme, BOC cannot fully recover without your help, your cash, your deposits.
BOC’s June results are unquestionably good news, so I’ll end by mixing up some John Lennon songs.
And so this is Christmas. And what have you done? All we are saying is give BOC a chance.