The turnaround in the country’s fortunes provides compelling evidence that a rapid and radical restructuring of the financial sector, combined with other reforms, can enable a country to grow its way out of austerity and back to stability and prosperity.
“Cyprus had to get back on its feet quickly after the bailout of 2013 to survive,” says John Hourican, the Chief Executive Officer of Bank of Cyprus, the country’s largest bank. “The government listened to the financial and business community, maintained the support of the Cypriot people, and acted swiftly to get the country out of danger. There’s not the same sense of urgency in some larger European countries, which could learn a lot from how Cyprus is fixing its economy.”
“We are very focused on implementing change and on investing in the future.”
Irena Georgiadou, Chairwoman, Hellenic Bank
In March 2013, following the bursting of a bubble in credit and housing, Cyprus became the fifth European Union member state to receive a bailout from the EU and the International Monetary Fund. The government was signed up to an ambitious program of economic reform and recapitalized the banking system, in return for financial support of €10 billion from the IMF and European partners.
“The President, the government and senior levels of management in the banking system in Cyprus were all very well lined up together,” Hourican says. “We were in a worse position than Greece, with a broken banking system and with customers unable to access their deposits. But in Cyprus there was more determination from policy makers in all areas of the economy to resolve the crisis. We had a simple mantra, which was to get it done.”
Right: Irena Georgiadou, Chairwoman, Hellenic Bank
At the island’s third largest bank, Hellenic Bank, Chairwoman Irena Georgiadou says the key to the country’s turnaround has been the willingness of policymakers and financial institutions to think the unthinkable and to open a new chapter in the island’s economic development.
“We wouldn’t have been able to achieve what we have done simply by going on with business as usual,” she says. “At Hellenic Bank, the pace of change has been continuous. We have altered our practices in nearly all our business areas, and we have brought in completely new shareholders, management and board of directors. The leadership of Cyprus and of the banks all share the same conviction that change is the only way forward to sustainable development.”
Since Cyprus signed up to the bailout program, the rapid pace of reform has helped to eliminate the country’s fiscal deficit, restore the banking sector to health and attract record levels of foreign investment. Cyprus re-accessed international capital markets in 2014 and abolished its last remaining capital controls last year. Unemployment is heading down, and the economy returned to growth in 2015 after three years of recession.
“We have to provide the conditions for the next generation to show us how to think differently.”
John Hourican, CEO, Bank of Cyprus
The restoration of confidence in the banking system has played a critical part in steering the economy back on to a track of sustained growth. “We have seen an increase in deposits month upon month since the lifting of capital controls, because people are now confident that the bank and the country are on the road to repair,” Hourican says. Meanwhile, the Bank of Cyprus has sold most of its international operations and is normalizing its funding arrangements. “We have repatriated surplus liquidity and capital outside Cyprus and we are shrinking to strength in our home market,” Hourican says.
Stronger balance sheets and higher deposits are setting the stage for financial institutions to step up their lending activities; the island’s banks are now focused on reducing the amount of non-performing loans and on putting their capital to work in the wider economy. The Bank of Cyprus in particular is looking to finance new businesses and entrepreneurs, and last year set up its IDEA Program for supporting innovative start-ups. “It is our responsibility as a bank to contribute to changing the country’s economy for the next generation,” Hourican says.
At Hellenic Bank, Georgiadou says the institution is now the largest source of finance for new projects in sectors that are strategic to the country’s economic future, such as energy, education and health.
As the country looks towards building a prosperous, sustainable future, it is the consensus that has been forged between bankers, policymakers and the ordinary people of Cyprus that may be the island’s greatest asset, she says. “Everyone is working together and is committed to making Cyprus a place where people want to come to live, work and invest.”
