The Central Bank of Northern Cyprus removes the last problematic banks from the country’s banking system. The Central Bank has announced that management and control of Continental Bank and Yeşilada Bank were seized. The bank has also halted the banking and deposit-collecting permit of Denizbank
Turkey’s strong banking system has provided the country with the strength to endure the global economic crisis. Northern Cyprus, which is undergoing a little banking crisis of its own, has not been so lucky.
The government seized two banks in northern Cyprus. Five others were seized earlier when the country received a heavy blow from Turkey’s 2001 “banking crisis.”
The Central Bank of Northern Cyprus said the management and control of Continental Bank and Yeşilada Bank were seized. The Central Bank has been monitoring the banks for a while now. The move increased the number of banks under the Cyprus Savings Deposit Insurance and Financial Stability Fund to nine.
The Central Bank also halted the banking and deposit-collecting permit of Denizbank for three months. Denizbank, which was founded by businesswoman Sıdıka Atalay 16 years ago, was sold to a consortium formed by 11 businessmen in 2007. As of Dec. 31, 2008, the bank’s equity capital dropped below $2 million and failed to meet the necessary equity capital in cash until the end of April. The size of Denizbank assets total 4 million liras.
The banks are small-scale and the move is not expected to shake the system. However, following the move, shares of the Turkish banks operating in northern Cyprus are expected to rise. The Central Bank of Northern Cyprus said this final move removed the last remaining problematic banks from the system.
Northern Cyprus’ banking sector, whose assets totaled 7.6 billion Turkish Liras as of the end of September, has a total deposit volume of 6.28 billion liras and a loan volume of 3.65 billon liras.
Warnings of no use
The size of the assets of the two confiscated banks total 87.1 million liras. The necessary warnings were made to the shareholders of Continental Bank and Yeşilada Bank, which have been experiencing problems in capital and equity capital for the last few years, the Central Bank said. Still, the measures taken by bank owners proved inadequate, it added.
The shareholders of Continental Bank and Yeşilada Bank, which have been experiencing problems, were warned ahead of time and urged to eliminate these troubles, said the Central Bank. However, measures taken to overcome problems fell short, it said.
“First the banks’ transactions were limited. However, then as the inspectors’ report determined there was no possibility for the improvement of the banks’ current situations, the decision was made to transfer these banks to Cyprus Savings Deposit Insurance and Financial Stability Fund,” said the country’s central bank.
The deterioration of both banks’ financial structure stemmed from the fact that their structures were not supported via capital increases, rather than global crisis conditions, the Central Bank said. This, in turn, has resulted in equity capital inadequacy, it said.
Continental Bank and Yeşilada Bank will continue regular operations under the roof and assurance of the Savings Deposit Insurance and Financial Stability Fund through the boards appointed by the fund, the bank said. “Within this context, all banking transactions will continue to be implemented by the banks’ employees. The transfer of the two banks has secured the healthy structure of the banking sector, and as of today, there is no bank displaying financial structure weakness.”
