Cyprus and the UK on Thursday signed an updated agreement on double taxation avoidance on income and capital, which will contribute to further develop commercial and financial relations between the two countries.

The agreement, signed in Nicosia by Finance Minister Harris Georgiades and British High Commissioner Matthew Kidd, is based on the OECD model convention for the avoidance of double taxation on income and capital, a ministry statement said.

The agreement updates the one signed by the two countries in June 1974 and came into effect in March 1975.

It includes the minimum standards of actions on base erosion and profit shifting regarding bilateral treaties — treaty abuse, and making dispute resolution mechanisms more effective.

It also provides for the exchange of bank and other information in line with the same model.

“Updating, maintaining, and extending the current network of treaties to eliminate double taxation, which are of utmost economic and political importance, aims at further boosting and attracting foreign investment and promoting Cyprus as an international business centre,” the statement said.

Source: CyprusMail

The Housing Finance Corporation (HFC) is expanding its low-interest lending activities to household goods, overdrafts, student and medical loans, it announced on Wednesday.

The corporation, which has traditionally issued only housing loans for low-income groups, said it was expanding its role and that a public information campaign would be launched shortly.

In a statement to CNA, HFC director-general Andreas Georgiou said that apart from its existing activities, which include mortgages for housing and land, and renovation loans, a new plan had also been put in place for young couples.

The overdraft facilities it plans to offer would be a first for the HFC, he added.

“With that, we are completing the range of products we promised last year,” said Georgiou, adding that HFC credit cards might also be in the offing by the end of the year, or by early 2019.

The interest rate on the mortgage scheme for young couples, Georgiou said, would be 1.9 per cent for the first five years, rising to 2.5 per cent thereafter.

The student loan would be 1.7 per cent for the first five years, going up to 2.7 per cent, healthcare between 3 per cent and 3.5 per cent and for household goods, 3.3 per cent to 3.5 per cent. The overdraft rate will be 3.7 per cent to 3.9 per cent depending on whether someone has their salary paid into the HFC.

With a wage remittance an account-holder could have their overdraft fixed at €15,000 while for other account holders the overdraft ceiling would be set at €4,000.

Source: CyprusMail

Cyprus’ Natural Gas Public Company (DEFA) will launch two separate tenders for the import of liquefied natural gas (LNG) this year to facilitate the use of LNG for electricity generation by January 1 2020, DEFA executive Chairman Symeon Kassianides told a parliamentary committee on Tuesday.

The LNG import is promoted in a bid to enable Cyprus to meet the January 1, 2020 deadline and to avoid penalties on emissions by the EU.

The first tender concerning LNG supply will be launched in the following month, while the second tender regarding the infrastructure will be launched in June, he said.

“The timeframes are tight but after discussing with potential suppliers, the timeframes are achievable,” he said.

Several efforts made by Cyprus in the past to import LNG for electricity generation were unsuccessful due to steep prices.

“There will be two separate contracts, one for LNG supply and the other for the infrastructure. The fact that both projects were coupled together is one of the reasons our efforts so far (to import LNG) were unsuccessful,” Kassianides told the parliamentary committee on Energy, Trade, Industry and Tourism.

The infrastructure, he added, includes a Floating Storage and Regasification Unit, a jetty borne gas pipeline, that would transfer natural gas to the electricity production units of the Electricity Authority of Cyprus in Vasilicos.

He added the estimated cost is €250 million, of which 40% or €101 million will provided by the EU, while the EAC will participate in the joint venture with an up to 30% stake. Kassianides added that the European Investment Bank has expressed interest to finance part of the project, while contacts will me made with domestic banks to participate in the financing.

DEFA Chairman said the Company cannot rely on Cypriot natural reserves which are not expected to be extracted by January 2020. Aphrodite, located in block 12 of the Cypriot EEZ, holds 4.5 trillion cubic feet of natural gas believed to be sufficient to cover Cyprus’ electricity generation for many decades, while a new exploratory well carried out by Italian ENI in block six revealed a “promising” natural gas discovery.

“We spoke with the operators (of the blocks) and they need more time,” he added.

Kassianides said he cannot elaborate on the price or the duration of the contract for LNG supply, as these issues will be discussed in due time.

On his part, Andreas Marangos, Chairman of the EAC, the main user of the LNG, said following a ministerial decision the EAC will participate with a 30% stake in the infrastructure project.

He added that the authority is also preparing for the event Cyprus will not use LNG for electricity generation by January 1 2020.

The EAC is preparing to instal technology to remove sulphur oxides from its electricity generation units in bid to avoid EU penalties on emissions, which will cost in the region of €30 to €40 million.

Angelos Votsis the Committee chairman said the Committee will monitor the issue.

The import of LNG for electricity generation will lead to reduced costs and the avoidance of emissions penalties, he said.

Source: Stockwatch

The co-op bank on Monday opened a virtual data room that will be used by potential investors to securely exchange data and analyses, as the lender seeks to reduce the state’s share.

The procedure launched by the bank has two parts, one offering the choice of acquiring the bank as a licensed entity, or part or all of its assets and liabilities

Other Cypriot commercial banks can take part in the second option.

The process will close on March 29 at 12pm. It will be handled by Citygroup global markets.

After that, potential investors will be given time to submit binding offers.

An unnamed co-op official cited by the Cyprus News Agency said the aim was to find an investor by this summer.

The same source said the process kicked off after the meetings the bank and Citygroup had with potential investors last December.

“All the components for a transaction are in place,” the source said. “We have an external loan management servicer (Altamira), which acts as an additional incentive for acquiring loans, and we have a single entity after the merger of different co-ops.”

The co-op bank was recapitalised with almost €1.7bn in taxpayers’ money in 2014 and 2015, but it is struggling with some €6bn of non-performing loans, accounting for more than half of its loan portfolio.

Its portfolio is full of primary residencies, which the current foreclosures and insolvency laws make it very difficult to move against thus exacerbating the problem.

In 2017, co-ops extended the collateral recovery period to seven years, a move that cost €150m in provisions.

Source: CyprusMail

The decision to bail in depositors at Bank of Cyprus and Cyprus Popular Bank, widely known as Laiki, wiped out €8bn in deposits held at the island’s largest lenders. For many it meant a disaster. For some, it was merely a scary adventure that had a largely fortunate outcome.

The bail-in meant for depositors at Bank of Cyprus the loss of 47.5 per cent of their deposits in excess of €100,000 which was converted into equity and loss of all uninsured deposits for Laiki depositors. Even worse, it also meant that poorly managed provident funds, mainly belonging to members of bank workers union Etyk, lost every single penny of the €763m in total deposited with the two lenders.

Or so one may have initially thought, because the bailout agreement provided for losses for pension funds and also included funds for a partial compensation for their losses. By as early as the summer of 2013, the government had paid €300m to the pension funds to cover half of their losses.

But little did the taxpayers know as workers continued to lose their jobs and companies went out of business, that the bank workers would get it their way and demonstrate that being tough on the taxpayer always pays off.

The government may have felt compelled to partially compensate the pension funds. After all, they repeatedly ignored supervisory advice to avoid risk concentration. They had parked a significant amount of their assets in their bank accounts, a result of a loophole in regulations, which allowed joint management of the pension funds by both representatives of the employees and the employers.

The latter had little incentive to follow their customers’ example who had started withdrawing money more than a year before the bail-in, when the first cracks in the wall of the Cypriot banking system became visible. The bank bosses vetoed the recommendations of the supervisor who as early as 2010 had warned the pension funds’ managing committees of the risks they were taking.

In April 2016, President Nicos Anastasiades announced that his government was ready to compensate pension funds for up to 75 per cent of their losses. In July last year, the council of ministers decided to pledge €166m for this purpose. It also set a cap of €100,000 in the compensation of beneficiaries, to avoid putting them better off than depositors.

The decision to limit the losses of pension funds to just 25 per cent prompted the European Commission, which together with the International Monetary Fund and the European Central Bank supervised Cyprus’ bailout, to warn that it would create a precedent for other groups to raise similar demands. But that 25 per cent loss also angered Etyk.

Finance minister Harris Georgiades initially dismissed the union’s demand for further compensation on the grounds that giving in and removing the cap in the compensation, would require an additional €88m which would entirely flow to just 1,900 bank workers.

However, after the bank workers’ union took to the streets to protest what it perceived as injustice, Etyk’s protests paid off. In December, Georgiades announced the allocation of an additional €20m which would allow compensation of up to €250,000 per retired worker. The scheme would disadvantage only 300 senior bank officers whose benefits exceeded that amount.

The minister had said that while the scheme would exempt pension fund members who were still working at Bank of Cyprus, the lender would negotiate a similar compensation scheme for its workers. Days before the runoff of the presidential elections, the bank’s chief executive John Hourican pledged that the bank would not link extending compensation to its staff for losses of their provident fund to any conditions.

The irony here is that had bank workers opposed their bosses for the way the latter chose to manage their employees’ pension funds –let alone those of their depositors and investors– they may have spared the taxpayers at least part of the €486m bill they are now asked to foot.

Source: CyprusMail

Standard & Poor’s has affirmed Cyprus’s BB+ sovereign credit rating and kept its outlook on positive citing the risks the economy faces from the banks’ non-performing loans whose reduction is not “discernible”.

“Cyprus’ economic recovery continues unabated, allowing for a reduction in general government debt,” the rating company said in a statement on its website on Friday. “The impaired banking system still remains an important vulnerability, however”.

While Cypriot banks, which are struggling with a €20bn mountain of bad debt, roughly two fifths of their loan portfolio, are making efforts to reduce them via loan write-offs and restructuring and outsourcing to debt servicing companies, the reduction was slow, Standard & Poor’s said. While resorting to debt-to-asset swaps also helps reduce problematic loans, they do not lead to immediate cash inflows and banks.

“With the increasing use of this method, banks now have about 4.5 per cent of their gross loans in real estate,” the rating company said. “If loans to the real estate sector are included, the exposure to the sector rises to nearly 25 per cent of gross loans.”

Standard & Poor’s, which upgraded Cyprus’s rating a year ago to a notch below investment grade, said that while it expects economic growth to slow down this year to 3.2 per cent from 3.9 per cent in 2017, and to an average of 2.8 per cent over the next three years, it could upgrade the rating in response to a reduction of its “unusually high” stock of non-performing loans allowing a convergence with credit and monetary conditions in the euro area.

Should “the economy’s external debt metrics improve further, particularly via a decline in its short-term debt burden,” and “the economic recovery and direction of macroeconomic policy provides impetus for further meaningful general government and private sector debt reduction,” it could also give Cyprus an investment grade rating.

“We could revise the outlook to stable if economic growth is significantly lower than we currently expect,” the rating company continued and added that it could do the same should fiscal relaxation made a reduction of the ratio of public debt to economic output doubtful over the next three years.

“We could also revise the outlook to stable if we saw risks emanating from greater economic concentration in certain sectors, for instance, construction or tourism, or if fresh concerns around financial stability emerge while the sector is still impaired,” Standard & Poor’s said.

Cyprus is rated non-investment grade by all major rating companies and is as a result ineligible to participate in the European Central Bank’s quantitative easing.

Source: CyprusMail

Strong economic growth – the highest growth rate since 2008 – is credit positive for Cypriot banks Moody’s ratings agency said on Thursday, noting however that despite the growth reduction of non-performing exposure will be slow.

According to Moody’s, Cyprus’ Statistical Service data showing that the country’s annual GDP growth rate had accelerated to 3.9 per cent in 2017 from 3.4 per cent in 2016 is positive for the banks because it supports asset values, improves the repayment capacity of a large number of defaulted households and businesses, and provides banks with increased lending opportunities, which will support their declining pre-provision profits.

The pick-up in economic activity strengthens businesses’ cashflows and improves labour market conditions for households — unemployment in Cyprus dropped to 9.8 per cent as in January 2018, from 10.3 per cent in December 2017, and 16.7 per cent in January 2015.

“Ultimately, the stronger GDP growth will enhance borrowers’ debt repayment capacity, facilitating loan restructurings, particularly in the small and midsize enterprise sector, which is more vulnerable to economic changes and benefits from an economic recovery”, the agency’s report said.

However, Moody’s noted the disconnect between the economy’s performance and the quality of retail loans, which has barely improved in the past three years of economic recovery.

This, according to Moody’s, suggests that a significant reduction in banks’ high stock of nonperforming exposures (NPEs), as defined by the European Banking Authority, will be particularly slow. Cyprus’ system-wide NPEs comprised 44 per cent of gross loans as of November 2017.

Cypriot banks will also benefit from stronger real estate prices, which will buttress collateral values, containing the need for additional provisions on existing NPEs.

The Bank of Cyprus will gain the most given that it has the largest direct exposure to domestic real estate.

The bank had €1.6bln of foreclosed assets on its balance sheet as of December 31, 2017 and will be in a better position to sell them as a result of increased activity in the real estate market.

Additionally, Moody’s expects Cyprus’ improving economy to create new lending opportunities, which will soften the competition between banks to attract creditworthy borrowers by offering lower interest rates than competitors.

New lending opportunities will increase banks’ income-generating assets, supporting their net interest income, which declined 12 per cent in September from year-earlier levels, and their pre-provision profit.

“Notwithstanding the improving economic environment, it will take time for Cypriot banks to rehabilitate their balance sheets because of the long cure periods for restructured loans before they are reclassified as performing, and the substantial volume of distressed debt”, it said.

Moody’s added that the majority of NPEs are household loans that have improved little in recent years, despite economic growth which suggests that organic reduction of such NPEs will be particularly slow.

Consequently, excluding a national initiative currently being considered to support the restructuring of defaulted mortgages, the credit agency expects the Cyprus Cooperative Bank to have the most gradual improvement in its asset quality metrics because loans to households comprised 80 per cent of gross loans as of June 2017.

Source: CyprusMail

In the absence of tangible government action, main opposition Akel said on Wednesday it will be preparing two proposals designed to iron out kinks in a 2015 law that sought to sort out the title deed mess, offering relief to so-called trapped buyers.

The law sought to resolve the problems for homeowners who had paid for their properties but were not issued with their title deeds either because it was mortgaged by the developer, or the state could not go ahead with the transfer because of outstanding taxes.

Since developers’ land and buildings were counted as assets that need to be offset against their debt to banks, this gave lenders a claim on people’s properties that had been mortgaged by developers.

However, following a string of court decisions in cases where banks objected to the law, the government had said it would seek ways to plug any loopholes.

Akel MP Aristos Damianou said the matter was revisited by parliament in July 2017, after decisions, mainly by courts in Paphos and Limassol, that found the law unconstitutional.

It had been decided at the time that government departments would look into the matter together with the Legal Service, in a bid to make corrections and secure the rights of trapped buyers.

“We waited for over six months. We had warned at the time that in the absence of government initiative parliament would not remain idle,” Damianou said.

On Wednesday, the party’s parliamentary group decided to prepare and submit next week, two proposals that will be jointly tabled with all parties aiming at tackling “this huge social problem”.

Damianou said government departments will be invited in due course to offer their views but parties could no longer wait for the executive to act.

The Akel MP said the proposals will seek to safeguard buyers who have paid the full amount of their purchase and were not at fault. Encumbrances will be taken into account but the proposals will weigh the wider public interest.

“In our understanding, the wider public interest is to cover all those people who have paid off the price as per sales contract, but they cannot get a deed because the businessman has outstanding issues with the banks,” Damianou said.

He said banks will have a say in the matter but they will not be able to veto decisions.

Some of the court cases have been won by the banks, largely on the grounds that the buyer’s claim on the property infringed on the contract between the bank and the developer.

But in September, the Larnaca district court upheld the 2015 law, allowing trapped property buyers to obtain their title deeds irrespective of the developers’ own commitments to banks.

The attorney-general had instructed the departments involved to continue implementing the law while appeals were filed at the supreme court, which will have the final say on the matter.

Earlier this year, Interior Minister Constantinos Petrides said that despite the matter not being resolved, the ministry had prepared a bill which it sent to the Legal Service for processing last October.

“As it transpired from the differing district court decisions, it is a complicated legal issue and due to this an in-depth study is required,” the minister said.

Damianou said parliament knew about the problems but it could not remain idle any longer.

“Inaction on this matter cannot be justified in any way.”

Source: CyprusMail

Energy Minister Yiorgos Lakkotrypis said Royal Dutch Shell has showed interest in buying Cypriot and Israeli gas over the next 10 years.

Lakkotrypis, who was speaking on state radio CyBC, confirmed a Bloomberg report saying Shell was interested in buying 10bn cubic metres of Cypriot and Israeli natural gas over the next 10 years for $25bn (€20.3bn).

The minister said Cyprus was “close to a deal,” relating to talks to sell gas to one of the two liquefaction plants on Egypt’s Mediterranean coast via pipeline, without revealing additional details.

“I don’t want to specify if it is the terminal in Idku managed by Shell to which the Bloomberg report was referring to.”

“The talks involve both terminals and are at a quite advanced stage,” he said.

Lakkotrypis declined to say whether Noble Energy, the Houston-based gas company which together with Shell and Israel’s Delek Drilling, has the licence to develop the 4.5 trillion cubic feet (tcf) Aphrodite field in block 12 of Cyprus’s exclusive economic zone (EEZ), insisted on reducing the government’s share in the revenue from the project before going ahead.

“The only thing I can say is that we have difficulties with the prices,” he said in reference to the drop of the oil prices in 2014, which led to a reduction in the development of hydrocarbons worldwide.

Lakkotrypis added that Eni’s failed attempt to drill at Cuttlefish last month, as the target in block 3 is dubbed, after Turkey sent warships to the area to prevent the company from doing so, while it “was a bad development,” it was only a postponement.

Talks with Eni about its future exploratory programme are ongoing, Lakkotrypis said.

Eni has the hydrocarbon exploration and exploitation licence for several blocks in Cyprus’s EEZ, either on its own, as it is the case with block 8, or together with France’s Total (blocks 6 and 11) and South Korea’s KoGas (blocks 2, 3 and 13).

His comments were made as a vessel is about to begin surveys in block 10 owned by the consortium of ExxonMobil and Qatar Petroleum, ahead of an exploratory drilling in the second half of the year, likely in October, he said.

The Ocean Investigator, is scheduled to carry out an environmental survey, a precondition ahead of the submission of an environmental impact study ahead of the drilling.

A second vessel will carry out an archaeological survey to determine whether antiquities are located in the area.

Lakkotrypis said that while the two vessels will carry out operations which other companies did repeatedly in the past without attracting media attention, in their case, things are different after Turkey’s latest military action.

Source: CyprusMail

Finance Minister Harris Georgiades said the government is ready to provide information related to its controversial citizenship-by-investment scheme and have it scrutinised together with that of other member European Union member states, Politis reported on Tuesday.

The finance minister, commenting to the daily newspaper, also announced the publication of an independent study which will highlight the economic impact of the scheme and added that reports that the impact, while positive, was in the range of several billion euros were “wrong and misleading”.

The scheme allows foreign investors to acquire Cypriot citizenship within months by investing as little as €2m in assets or companies, including real estate. Until September 2016, when the cabinet modified the scheme relaxing its financial criteria, investors were required to invest as much as €5m or participate in a collective investment with a minimum of €2.5m per person totalling at least €12.5m.

According to official data, the scheme has allowed 1,685 foreign investors and 1,651 family members to acquire Cypriot citizenship from 2008 to 2018. According to press reports, the version of the scheme introduced in 2014 and subsequently repeatedly revised to exclude bank deposits or the acquisition of government bonds as criteria for eligibility generated an investment inflow of up to €4.8bn.

A week ago, a spokesperson for the European Commission said they were planning to carry out a study into these type of schemes, also implemented by several other member states of the EU, dubbed as Golden Visas. The decision came after reports on the websites of the Organised Crime and Corruption Reporting Project (OCCRP.org) and The Guardian, prompted anti-corruption watchdog Transparency International to warn that Golden Visas are vulnerable to abuse. They also undermine the fight against corruption and the increase the risk of money laundering.

In his interview to Politis, Georgiades defended the Cypriot scheme against criticism, which he said was unjustified. Total naturalisations of foreign citizens in Cyprus account for only 0.3 per cent of total naturalisations in the EU, while the Cypriot Golden Visa scheme accounts in turn for only 30 per cent of total naturalisations, he continued.

The minister added that investment (projects) in the real economy remain the focus of the scheme and that they continuously undergo an evaluation process.

On January 9 the council of ministers decided to introduced a “Supervision and Control Committee” comprised of officials from the ministries of interior, finance and from the Cyprus Investment Promotion Agency (CIPA), a government-sponsored body tasked with attracting investment to Cyprus.

The decision also provides for the setting up of a register of “Investors’ Naturalisation Scheme Service Providers” in which individuals and legal entities that offer related services will be registered after meeting certain “entry criteria”. The scheme will also ban advertising the visa programme.

Chairman of CIPA Michalis Michael said a week ago that the body was about to introduce stricter criteria and procedures governing the Cypriot Golden Visa programme, with the inclusion of a registry of related service providers, as instructed by the cabinet on January 9.

Source:CyprusMail