Ethical Banking Needed as Cyprus Explores Launch of New Cooperative Bank, Says Clerides

Fiscal Council member Marios Clerides on Saturday called for the introduction of "ethical banking" in Cyprus as discussions continue over the establishment of a new cooperative bank on the island.

Clerides said Cyprus’ financial sector needs banks "which think not only about profits but also about the borrower", adding that such institutions should "take into account the repayment capacity of their customers and do not only rely on collateral".

At the same time, he acknowledged that the cooperative banking model presents significant governance challenges.

"However, the problem of cooperatives lies in their governance," he said.

He explained that the cooperative principle of "one member, one vote", while fundamental to the cooperative model, can create governance difficulties within Cyprus.

"With the principle of ‘one member, one vote’, which is a basic tenet of cooperatives, the weaknesses of the political system begin to appear, especially with each political party wanting to put its own people on the inside," he said.

Clerides also questioned whether the current voting structure is entirely equitable, expressing reservations about equal voting rights regardless of the size of an individual's financial contribution.

He said he was "concerned" over whether it is "fair" for "an investor who invested €100,000 to have the same voting rights as someone who invested €100".

According to Clerides, resolving governance concerns will be essential if a new cooperative bank is to succeed.

"They must handle governance issues and the board of directors which will lead this organisation must not have political agendas, and must implement ethical banking," he said.

When asked whether it would be feasible for both the Central Bank of Cyprus and the European Central Bank (ECB) to grant a banking licence to such an institution, Clerides expressed optimism.

"They should try," he said, noting that cooperative banking models continue to operate successfully in several European countries.

As an example, he pointed to the Netherlands’ Rabobank, while also referencing France’s Crédit Agricole and Austria’s Raiffeisen Banking Group as established cooperative banking institutions. He also clarified that Bulgaria’s Central Cooperative Bank, despite its name and its presence on Makarios Avenue in Nicosia, is not in fact a cooperative bank.

"The issue is how we can make it work in Cyprus," Clerides said.

Meanwhile, the Cyprus Cooperative Holdings and Promotion Company Ltd received authorisation from the Cyprus Securities and Exchange Commission (CySEC) on Friday to begin offering shares to the public. The company is scheduled to commence the share sale on Wednesday.

Under the proposed structure, the company will hold a 60 per cent stake in the new Cyprus Cooperative Bank, while the remaining 40 per cent will be owned by legal entities and organisations representing Cyprus’ cooperative sector.

Shares will be offered at a nominal price of €1 each, with 42 million shares available to the public. Investors will be required to purchase a minimum of 100 shares.

The European Central Bank has previously outlined the key criteria it considers when assessing applications for new banking licences.

According to the ECB, the licensing process focuses on "four main areas". These include "the amount, quality, origin, and composition of the applicant credit institution’s capital and other regulatory requirements", together with its "programme of activities, structural organisation, and business plan".

The ECB also evaluates "fit and proper assessments" of the proposed management team, as well as a "suitability assessment" of both direct and indirect shareholders. It noted that these assessments are carried out in close cooperation with the relevant national supervisory authorities.

Cyprus’ original cooperative banking network collapsed after being overwhelmed by non-performing loans following the financial crisis that struck the island during the first half of the previous decade. Although the sector received a €1.7 billion bailout, its performing assets were ultimately sold in 2018 to Hellenic Bank, which has since become Eurobank.

By fLEXI tEAM