Cyprus is considering a new cooperative bank that aims to promote ethical banking, emphasising the need for financial institutions that prioritise borrowers alongside profits. Marios Clerides, a member of the fiscal council, highlighted the importance of banks that assess the repayment capacity of clients rather than relying solely on collateral.
Ethical banking: Challenges of Cooperative Governance
Despite the potential benefits, Clerides expressed concerns about the governance of cooperative banks. He pointed out that the principle of ‘one member, one vote’ can expose weaknesses in the political system, particularly when political parties attempt to influence the bank’s internal structure. “Each political party wants to put its own people on the inside,” he noted, suggesting that this could undermine the bank’s effectiveness.
Equity in Voting Rights
Clerides raised an important question regarding the fairness of voting rights within the cooperative structure. He questioned whether it is just for an investor who contributes €100,000 to have the same voting power as someone who invests merely €100. This disparity could lead to governance issues if not addressed properly.
Need for Non-Political Governance
To ensure the success of the new cooperative bank, Clerides stressed the necessity for a board of directors free from political agendas. This approach is essential for fostering ethical banking practices and ensuring the organisation focuses on the needs of its members and borrowers.
Licensing Feasibility and European Examples
When questioned about the feasibility of obtaining a banking licence from the Central Bank of Cyprus and the European Central Bank, Clerides expressed that they should make the attempt. He cited successful examples of cooperative banks in other European nations, such as the Netherlands’ Rabobank, France’s Crédit Agricole, and Austria’s Raiffeisen Banking Group, highlighting that these institutions have thrived under cooperative models.
New Cooperative Bank Structure
The Cyprus Cooperative Holdings and Promotion Company Ltd has recently received authorisation from the Cyprus Securities and Exchange Commission (CySEC) to commence selling shares, starting Wednesday. This company is set to own 60% of the new Cyprus Cooperative Bank, while the remaining 40% will be allocated to legal entities and companies within the cooperative sector.
Share Details and Investment Opportunities
The shares will be priced at a nominal fee of €1, with a total of 42 million shares available to the public. A minimum purchase requirement of 100 shares has been established, making it accessible for a range of investors interested in supporting ethical banking initiatives in Cyprus.
Regulatory Considerations for Licensing
The European Central Bank has outlined four main areas it assesses when a bank applies for a licence. These include the quality and origin of the bank’s capital, the proposed business plan, and the managerial fitness of those running the bank. Such regulatory frameworks are crucial for ensuring that new institutions maintain high standards and contribute positively to the financial landscape.
The Legacy of Cyprus’ Banking System
Cyprus’ banking history is marred by the collapse of its original cooperative banking system due to non-performing loans following the financial crisis of the early 2010s. The government intervened with a €1.7 billion bailout, but the legacy of that crisis still looms over the financial sector. In 2018, the performing assets of the cooperative banks were sold to Hellenic Bank, which later evolved into Eurobank.
Vision for the Future of Banking in Cyprus
As discussions progress regarding the establishment of the new cooperative bank, there is a palpable sense of urgency to address the governance and operational challenges highlighted by Clerides. The push for ethical banking reflects a broader desire among Cypriots for a financial system that serves the community’s best interests rather than merely pursuing profits. The success of this initiative may hinge on the ability to implement robust governance structures and foster a culture of ethical responsibility within the banking sector.
