PLAYING HIDE AND SEEK WITH THE BUYER The Cypriot Guinea pig breeding in Romania

The Central Bank of Cyprus (CBC) yesterday approved the transfer of the deposits, the liquidity and of part of the loans to the Romanian branch of Bank of Cyprus (BoC) to Marfin Bank, the local branch of Cyprus Popular Bank (Laiki Bank), which will be partially absorbed by the BoC, an operation which BURSA announced as likely two days ago. Last week, the press was reporting that the bids submitted by Banca Transilvania and Raiffeisen Bank for acquiring Bank of Cyprus were rejected by the CBC, because they were deemed too small compared to the evaluation of the Committee for the restructuring of the Cypriot banking system.

Given these circumstances, the National Bank of Cyprus sought alternatives for transferring the deposits of the Romanian branch of Bank of Cyprus. On Tuesday, the advisor to the Governor of the National Bank of Romania (NBR), Adrian Vasilescu, was saying that a solution in that regard has been found, and starting with April 25th, the deposits of BoC România would fall under the local legislation. At the time, sources from the banking market told us that it was possible that Marfin Bank România would take over the deposits and part of the loans from the local branch of Bank of Cyprus.

Marfin Bank România is the Romanian branch of Cypriot bank Cyprus Popular Bank, which is set to be divided into a "good" part and "bad" part. The "good" part will be absorbed by Bank of Cyprus, whereas according to the agreement between the Cypriot government and the international financial institutions, the "bad" will be dissolved in time. One month ago, the director of the supervision department of the NBR, Nicolae Cinteză, told us that if Marfin Bank Romania would be included among the "good" assets of Cyprus Popular Bank, Bank of Cyprus would become its new majority shareholder would become. In such a situation, a likely scenario would probably involve the transformation of the Romanian branch of Bank of Cyprus into an entity subordinated to Marfin Bank România, because the latter is a Romanian legal entity, he told us, and he added that the legislation allows BoC to hold a branch as well as a subsidiary in Romania.

The deal approved by the Central Bank of Cyprus also involves the transfer of the loans which BoC România has granted to small and medium enterprises (SMEs).

Over half of the deposits opened with the local branch of the Cypriot bank, of approximately 90 million Euros, were covered with cash, and the rest with loans.

The agreement also stipulates the recapitalization of Marfin România with 20 million Euros, by the authorities in Nicosia.

The assets recorded in Romania amount to approximately 450 million Euros, of which over 350 million Euros represent loans. The loans in Romania which will not be transferred to Marfin, including the financing granted to "ONT Carpaţi", which controls the Marriott hotel in Bucharest, will be managed by the parent bank in Cyprus.

A similar action took place in the beginning of this month, in Great Britain, where Cyprus Popular Bank (CPB) had a branch, and Bank of Cyprus controls a subsidiary. In this case, all the deposits opened with CPB Great Britain have been transferred to the local subsidiary of BoC, while the loans entered the portfolio of the Cyprus office of Bank of Cyprus. The British Sucusala britanică a Cyprus Popular Bank was shut down.

Had the negotiations for the transfer of the deposits of BoC România to Marfin failed, they would have fallen under the jurisdiction of the law for the restructuring of the banking system in Cyprus, which would have led to the use of up to 60% of the amounts which exceed the guarantee threshold of 100,000 Euros, for the recapitalization of the Cypriot lender. The guarantee threshold applies for the deposits of the population, of small and medium enterprises and microenterprises.

• Marfin Bank, one of the two banks with a majority Cypriot stake in Romania

Marfin Bank has been present in Romania since 2000, when it entered the market under the name Egnatia Bank Româ-nia. In May 2008, the lender changed its name to Marfin Bank România, due to the Greek parent bank being acquired by Marfin Investment Group. MIG is a Greek asset management company in which the largest investor, with a stake of almost 25%, is Dubai Group, held by the sheik Mohammed bin Rashid Al Maktoum, the leader of the emirate of Dubai. In 2006, Marfin Investment Group bought the controlling stake of Cyprus Popular Bank, which had changed its name to Laiki Bank, changing its name to Marfin Popular Bank. The operations in Greece were consolidated under a single entity, Marfin Egnatia Bank, turned into a subsidiary of Marfin Popular Bank. In 2001, Marfin Popular Bank reverted to the name of Cyprus Popular Bank. In June 2012, the government of Cyprus recapitalized the lender, thus coming to own 84% of the shares.

Marfin Bank România ended last year with a balance sheet of 2.6 billion lei, down 7.6% compared to 2011, of which 1.6 billion lei represented loans. At the end of 2012, deposits amounted to almost 1 billion lei. The bank has a network of 33 units and a number of 340 employees. The solvency rate of Marfin Bank stood at over 12% at the end of last year. The assets of the lender represent approximately 0.6% of the total banking assets in Romania.

Marfin Bank România is a branch, which means it is under the supervision of the NBR. The subsidiaries of foreign banks, which include Bank of Cyprus Româ-nia, do not report their solvency, the size of their own equity and the classification of their loans.

The deposits of the population, small and medium enterprises and SMEs, with a total value of at most 100,000 Euros, opened with the lenders which have a Romanian legal personality, are guaranteed by the Fund for the Guarantee of Bank Deposits in the Romanian Banking System (FGDB) in Romania, whereas the similar deposits in the subsidiaries of foreign banks are guaranteed by the schemes of the countries of origin of the parent banks.

In Romania there are approximately 40 Romanian banks and 9 subsidiaries of foreign banks. The latter are controlled by lenders from Holland, (ING), Italy (Banca Italo-Romena), Cyprus (Bank of Cyprus), Belgium (Fortis Bank), Spain (Caixabank), France (Blom Bank France - a subsidiary of the Lebanese bank Blom Bank), Portugal (Finicredito-Instituicao Financeira de Credito), Ireland (Citibank Europe - a subsidiary of American bank Citibank) and Bulgaria (TBI Bank EAD - the Bulgarian division of the Dutch financial institution TBI Financial Services BV, owned by the Israeli group Kardan).

At the end of last month, Cyprus concluded a financial aid agreement with the international financial institutions, which will result in the restructuring of Bank of Cyprus, the largest bank of Cyprus, and Cyprus Popular Bank (Laiki Bank), the second largest bank in terms of size, being divided, with the "good" part to be absorbed by Bank of Cyprus, whereas the "bad" part will be closed.

The package for the bailout of the country is 23 billion Euros, and the contribution of the European Union and the International Monetary Fund will amount to 10 billion Euros, with the rest to be covered by the government of Nicosia, out of the amounts which it hopes to collect by taxing the deposits which exceed 100,000 Euros opened at the two lenders.