Chronicle

2012-20132013The financial crisis in Cyprus at a glanceThe banks in Cyprus have been affected negatively by the financial crisis in many European economies andin particular by their exposure to Greece. At this point we must emphasise that many of the financial andeconomic problems in Cyprus are home grown and relate to overexpansion in the housing market as a consequenceof the poor risk management practices by many of the Cypriot banks, and gaps in the bankingsupervisory framework.It is important to note that banks could have done a lot more to limit their exposure to Greece and theiroverseas expansion. Banks in Cyprus could have managed domestic loan portfolios more effectively. Theycould, have in fact, done more to reduce their exposure to the local housing market.If an economy invests almost over 100% of its capital into a single financial instrument, in the case ofCyprus Greek bonds, this instrument is considered to be a low risk instrument, which is an indication ofpoor risk management. If, on the other hand, markets consider this instrument highly risky, then thispractice is considered a gamble. Furthermore when bankers do the same with investor money then theirbonuses are linked to short-term income, while their losses are underwritten by the taxpayers and is definedas ‘Poker banking’. Boards of banking directors which fail to control such silly behaviour by bankexecutives fail to exercise proper oversight. The Greek PSI alone cost ‘our’ banks nearly 25% of the GDP ofCyprus.The taxpayers in Cyprus are now facing a bank bailout package that could be as high as €10 billion. At thispoint someone must emphasise that this amount of money is equivalent to over 50% of the GDP of Cyprus.All the important points and facts stated and discussed above necessitated the presence of a much stricterregulatory and legal framework for banks and a much more serious role within this framework for the CentralBank of Cyprus.Panayiota LoizidouEleni SavvaAndreas Gregoras5IB.49