April 2, 2023

South Cyprus Banking Crisis

A TRNC Bank MD´s thoughts

 by Ralph Kratzer

FlagSouthCyprusRegarding the financial crisis in South Cyprus I asked five questions to a bank manager who served on the board of Turkish banks and is now managing director of a bank chain in Northern Cyprus.

How will the banking crisis in Southern Cyprus affect the banks in the KKTC and Turkey?

The banks in the South are so in trouble because for years they gave too generous commitments to their clients regarding mortgages and interests​​, also the origin of the money was not always clear … They had been very open-hearted and open-minded …

EuroFrom my point of view the banks there will need at least 10 years to recover from this blow, but the European, Northern Cypriot and Turkish banking industry will not have to suffer too much from this crisis because it is a local problem of South Cyprus.

Greek and Greek Cypriot banks, however, are intertwined.

In the contractual agreements between our two nations, the Cypriot banks are left out, so the TRNC is not directly affected by the crisis in the Republic of Cyprus.

However, investors who live here in the north, but have invested their money in the south are, unfortunately, affected.

Conservative forces in Southern Cyprus of course make the stalled political talks between North and South responsible for their own plight.

  • How secure is the credit of the investors in the KKTC and Turkish banks?

LiraBanks in Northern Cyprus are, due to the economic structure here, more or less free of risk capital. The vast majority of our customers are small and medium-sized private and commercial investors and borrowers, so the default risk is relatively low. In addition, the local banks are subject to a regular review of the Turkish supervision and would receive financial support in emergencies from Turkey by a special Fostering Fund.

Can we suffer from a similar banking crisis as in the South (or, as here in the North in the 1980s or beginning of this decade) in the near future?

The aforementioned crises in the 1980s and 2002, were then mastered very quickly, not least by the support of Turkey. Banks had not collapsed, the invested capital was safe, only the bank commitments regarding high interest rates could not be met in those days.

  • How stable is the economic situation in the TRNC and Turkey assessed by you?

Flagge TürkeiThe economic situation here and in Turkey is more stable and more promising than it has ever been. Foreign financial institutions now gladly cooperate with the Turkish banks and the Turkish central bank.

The inflation rate has largely stabilized. Regional economic weeknesses as e.g. in eastern Turkey cannot threaten the overall stability of the Turkish economy. A decline of this trend is not foreseeable.

  • In your opinion, after what is happening in the south, how does the government of the TRNC and Turkey now think about a future EU accession?

There is no relationship between the banking crisis in Southern Cyprus and Turkey’s accession negotiations with the EU. Anyhow a possible EU membership of Turkey would not change Turkey’s relations with Northern Cyprus.

Meanwhile, however, trends are noticeable, that the Turkish government and the people of Turkey no longer unreservedly face an EU accession.

Economically, Turkey is already intertwined with the European Union for a long time.

Germany as the major EU power shows no interest in Turkey’s accession.

I believe, now the Turkish ship is sailing to another port.

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