ARTICLE
16 January 2013

Establishment Of Framework For Government Guarantees To Credit Institutions

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Elias Neocleous & Co LLC

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Elias Neocleous & Co LLC is the largest law firm in Cyprus and a leading firm in the South-East Mediterranean region, with a network of offices across Cyprus (Limassol, Nicosia, Paphos), Belgium (Brussels), Czech Republic (Prague), Romania (Budapest) and Ukraine (Kiev). A dynamic team of lawyers and legal experts deliver strategic legal solutions to clients operating in key industries across Europe, Asia, the Middle East, India, USA, South America, and China. The firm is renowned for its expertise and jurisdictional knowledge across a broad spectrum of practice areas, spanning all major transactional and market disciplines, while also managing the largest and most challenging cross-border assignments. It is a premier practice of choice for leading Cypriot banks and financial institutions, preeminent foreign commercial and development banks, multinational corporations, global technology firms, international law firms, private equity funds, credit agencies, and asset managers.
The new scheme provided by the Cyprus parliament which aims to enhance credit institutions' access to liquidity and help them to overcome the impact of the economic crisis.
Cyprus Government, Public Sector

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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