06 November 2012

State aid: Commission approves Cypriot bank guarantee scheme

The European Commission has authorised, under EU State aid rules, a Cypriot state guarantee scheme for credit institutions until 31 December 2012. The purpose of the scheme is to facilitate the access of eligible credit institutions to medium-term funding.

This will help maintain stability in the Cyprus financial sector without creating undue distortions of competition, in line with EU state aid rules.

In October 2012, Cyprus notified plans to introduce a public guarantee scheme for credit institutions. The guarantees will be covering, against remuneration and eligible collateral, new loans concluded and/or new bonds issued before 31 December 2012, with a maturity of up to five years.

The Commission found the scheme to be in line with its guidance on state aid to banks during the crisis and, in particular, with its rules on the pricing and conditions for state guarantees. The measure is targeted, proportionate and limited in time and scope. In particular, the scheme is open to all credit institutions incorporated in Cyprus, including subsidiaries of foreign banks and cooperative credit institutions. Beneficiaries have to pay a remuneration that is aligned with EU state aid rules.

Moreover, beneficiaries will be subject to behavioural commitments to avoid any abusive use of the state support. These include limitations on expansion and marketing and conditions for staff remuneration and bonus payments. Finally, Cyprus has committed to notify viability plans for companies making intensive use of the scheme.

The Commission has, therefore, concluded that the guarantee scheme is an appropriate means of remedying a serious disturbance in the Cyprus economy and is as such compatible with Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU).

Background

During the financial and economic crisis, the Commission has been authorising guarantee schemes on banks’ liabilities for periods of six months, in order to be able to monitor developments and adjust conditions accordingly, in line with its extraordinary crisis state aid rules. In line with other recent decisions, where these six months periods were defined as the first or second half of the calendar year, the Cyprus scheme is authorised until 31 December 2012.

Press release

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