Sapienta Cyprus Selection, 13 Mar 2023
Regular Cyprus-relevant links
It has been a while since I have done this kind of selection, so here we go.
Cyprus banks. On 15 March this week we have the anniversary of the Cyprus “Ides of March”: the date that the Eurogroup group of finance ministers met and decided, in the early hours of 16 March, in favour of a small haircut initially on all depositors in all Cypriot banks. On 24 March they switched to haircutting only deposits over €100,000 at the now defunct Laiki as well as a significant proportion of deposits over €100,000 Bank of Cyprus. Relevance to Cyprus: Banks in Cyprus are under much greater regulatory scrutiny than in the past and are forced to be far better capitalized. At the same time, these regulations raise running costs when you are small, and therefore makes takeovers to reduce overhead costs more likely. Eurobank is said to be edging towards a takeover bid for Hellenic Bank according to the Financial Mirror: https://www.financialmirror.com/2023/03/07/eurobank-eyes-hellenic-prize/.
US startups and banks. In an echo of the Cyprus crisis, customers with deposits at the US-based, startup-focused Silicon Valley Bank are at risk of losing anything above $250,000 following the collapse of the bank last Friday, 10 March. Underlying reason: it was insolvent but was sort of able to cope (because of US accounting rules), as long as it still had deposits. Good explainer by Frances Coppola here:
Immediate reason: the bank suffered a run on deposits after its technical insolvency was pointed out in a newsletter:
Possible future scenario: the explainer here is a bit technical but this banking-sector specialist is cautiously optimistic:
Relevance to Cyprus: some are saying that this is another “Lehman moment”, which led to the 2008 global financial crisis, which ultimately led to the Cyprus crisis in 2013. We shall not know the extent of any contagion on the US economy (and therefore the rest of the world) for a couple of weeks. But one possible positive side-effect for those with mortgages is lower interest rates, or at least an end to rising interest rates.
Interest rates. In the short term, however, eurozone interest rates, and therefore borrowing costs, are set to rise again on Thursday this week. https://www.rte.ie/news/business/2023/0306/1360508-ecb-to-increase-rates-again-after-march-meeting-lane/. Relevance to Cyprus: another rise in borrowing costs could have a negative impact on household consumption, which accounts for two-thirds of Cyprus’ GDP.
Cyprus property. Rising interest rates are indeed squeezing household budgets. Article from the Financial Mirror: https://www.financialmirror.com/2023/03/05/high-interest-rates-threaten-property-sales/. Relevance to Cyprus: the article says that interest rates have already had an impact on property demand.
Israel and gas. Israel’s prime minister Benjamin Netanyahu has expressed interest in selling natural gas to Italy. Article from Euronews: https://www.euronews.com/2023/03/11/prime-minister-netayahu-says-israel-wants-to-increase-gas-exports-to-italy-and-europe . Relevance to Cyprus. This is part of the plan signed among Israel, Egypt and the European Commission in June 2022 to sell gas from Israel and Egypt to the EU. Cyprus was excluded from this agreement. My assumption is that it was excluded because of unresolved maritime boundary issues with Turkey. The gas from Israel to Italy is more likely to be sent as LNG than via the East Med pipeline that is supposed to transport gas from Israel via Cyprus to Greece and potentially Italy. Why? Because, unlike the East Med pipeline, there is actual investment going into pursuing Israeli FLNG plants. This all means that Cyprus looks set to remain at the back of the queue for gas exports from the region.