In November 2012 the Cyprus parliament enacted two laws establishing a detailed framework for the granting of government guarantees to Cyprus credit institutions under the Law on the Management of Financial Crises, Law 200(I) of 2011, as amended by Law 40(I) of 2012.
The initial law, which was passed on 8 November, allowed the state to guarantee bonds and borrowings of up to €3 billion and stipulated that any single state guarantee exceeding €500 million must have the prior approval of the parliamentary Finance Committee. On 22 November a further amending law was passed doubling the aggregate limit of guarantees to €6 billion and the threshold for single guarantees requiring approval of the parliamentary Finance Committee to €1 billion.
The aim of the new scheme is to enhance credit institutions' access to liquidity and help them to overcome the impact of the economic crisis. Credit institutions requiring support must apply within six months from date the law entered into force. Government guarantees are to be granted for a term of between three months and five years. The scheme is open to all credit institutions incorporated in Cyprus, including cooperative credit institutions and subsidiaries of foreign banks. Institutions receiving support will be required to pay an appropriate commission and provide adequate collateral. The latter requirement may be waived in exceptional cases, on the recommendation of the Central Bank of Cyprus. Recipients will also be required to give undertakings not to abuse the benefits of state support, including accepting restrictions on expansion, marketing, staff remuneration and bonus payments.
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