The Banking System of Cyprus: Past, Present and Future

169 Pages·1995·13.653 MB·English

by  Kate Phylaktis (auth.)

THE BANKING SYSTEM OF CYPRUS
Also by Kate Phylaktis
FINANCIAL DATA OF BANKS AND OTHER FINANCIAL INSTITUTIONS
INTERNATIONAL FINANCE AND THE LESS DEVELOPED COUNTRIES
(editor with M. Pradhan)
The Banking System
of Cyprus
Past, Present and Future
Kate Phylaktis
Reader in International Finance
Director of the Research Centre in Financial Development
City University Business School
London
palgrave
macmillan
© Kate Phylaktis 1995
Softcover reprint of the hardcover 1s t edition 1995
All rights reserved. No reproduction, copy or transmission of
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country of origin.
First published 1995 by
MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 2XS
and London
Companies and representatives
throughout the world
ISBN 978-1-349-12870-9 ISBN 978-1-349-12868-6 (eBook)
DOI 10.1007/978-1-349-12868-6
A catalogue record for this book is available
from the British Library.
\0 9 8 7 6 5 4 3 2 I
04 03 02 01 00 99 98 97 96 95
To my family
Contents
Preface xi
PART I THE PAST
1 The Origins of Modern Banking in Cyprus 5
1 The Establishment of the First Bank 5
2 The Development of Local Banking Institutions 8
3 A Comparison of Banking Strategies of Local and Foreign
Banks 10
4 The Stability of the Banking System 15
5 In the Aftermath of the Banking Crisis 16
6 The Decline of the Foreign Banks 18
2 The Financing of Agriculture 23
1 The Farmers and their Produce 23
2 The Financing Requirements of Farmers 24
3 Financing Agriculture at the End of the Nineteenth
Century and Early Twentieth century 26
4 The Development of the Co-operative Movement 29
5 The Establishment of the Agricultural Bank 31
6 The Establishment of the Central Co-operative Bank 35
7 Some Remarks on the Development of Co-operation 37
3 Banking without a Central Bank 42
1 The Monetary and Banking System 42
2 Performance of Central Banking Functions 44
3 Cyprus Banking, a Satellite of the English Banking System 45
PART II THE PRESENT
4 The Central Bank of Cyprus 53
1 Reasons for Establishing the Central Bank of Cyprus 53
2 The Establishment of the Bank 58
vii
viii Contents
3 The Relation Between the Central Bank and the Money Banks 59
4 Monetary Policy in the Early Years 62
5 Monetary Policy: 1974-80 65
6 Monetary Policy: 1981 to the Present 67
7 Central Bank Performance 71
5 The Banking System during Independence 76
1 Introduction 76
2 The Growth of the Commercial Banking Sector 76
2.1 Liabilities 77
2.2 Assets 83
2.3 Factors which contributed to the expansion of the
commercial banking sector 84
3 The Commercial Banks 85
3.1 The Bank of Cyprus 85
3.2 The Cyprus Popular Bank 87
3.3 The Hellenic Bank 88
3.4 Barclays Bank 88
3.5 The National Bank of Greece 88
3.6 The Arab Bank 89
3.7 Lombard Natwest Bank 89
3.8 Relative size and performance 89
3.9 Developments in banking structure 93
4 Other Financial Institutions 95
4.1 The Cyprus Development Bank 99
4.2 The Mortgage Bank of Cyprus 102
4.3 Housing Finance Corporation 102
6 Co-operative Societies: Growth and Crisis 105
1 Introduction 105
2 The Growth of the Co-operative Movement 105
3 The Central Co-operative Bank III
3.1 Developments: 1963 to 1979 III
3.2 The legal structure governing the co-operative
movement 112
3.3 The crisis 114
4 Final remarks 117
Contents ix
PART ill THE FUTURE
7 Cyprus: An Emerging Offshore Banking and Financial
Centre 125
1 Characteristics of Cyprus as an Offshore Banking and
Financial Centre 125
2 A Comparison of the Experience of Cyprus and Bahrain
as Offshore Banking Centres 128
2.1 Developments in offshore banking activities in
Cyprus 128
2.2 Bahrain as an offshore banking centre 129
3 Prospects for Offshore Banking Business in Cyprus 130
4 Some Final Remarks 132
8 The Existing Regulatory Framework of the Banking
System and Prospective Changes 134
1 Existing Prudential Regulations and Legal Framework 134
2 The EC Banking Directives 137
2.1 The second Banking Co-ordinate Directive 137
2.2 Directive on the annual accounts and consolidated
accounts of banks and other financial institutions 138
2.3 Commission's recommendation on monitoring and
controlling large exposures of credit institutions 139
2.4 Directive on a solvency ratio for credit institutions 139
2.5 Directive on own funds 140
2.6 Directive concerning the reorganisation and the
winding-up of credit institutions and deposit-guarantee
schemes 141
3 Comparison of EC Directives with the Proposed Cyprus
Banking Bill 141
3.1 Limitations on credit facilities 141
3.2 Limitations on shareholding 142
3.3 Regulations on minimum capital 142
3.4 Regulations on capital adequacy 142
3.5 Liquidity requirements 142
3.6 Publications of accounts 142
3.7 Deposit guarantee schemes 143
4 Further Comments on the Proposed Cyprus Banking Bill 143
x Contents
9 Banking in Cyprus in the 1990s 145
Main Characteristics of the Current Banking Industry 145
l.1 Private ownership 145
1.2 A substantial semi-informal sector 146
1.3 A highly concentrated commercial banking sector 146
1.4 A saturated banking sector 147
1.5 A profitable commercial banking sector 147
1.6 Substantial conduct regulation 147
2 Effects of Domestic Deregulation 148
3 Effects of Adopting the EC Banking Directives 151
4 Abolition of Foreign Exchange Controls 153
5 Final Remarks 153
Index 159