EU Commission clears Cyprus banks' guarantee scheme to end-2012

BRUSSELS Tue Nov 6, 2012 5:53am EST

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BRUSSELS Nov 6 (Reuters) - Cyprus secured EU regulatory approval on Tuesday for a guarantee scheme for its banks on condition that lenders that get help limit their expansion and provide viability plans to ensure they do not have an unfair advantage over rivals.

The two largest banks in Cyprus suffered huge losses due to writedowns of Greek debt and they turned to the government for aid in recapitalising. The government is itself now in talks with international lenders on a possible sovereign bailout expected to total 10 billion euros.

The European Commission said Cyprus notified regulators of its proposed bank guarantee scheme which will cover new loans agreed and new bonds issued before Dec. 31, with a maturity of up to five years.

The executive Commission said the scheme complied with EU state aid rules, but it laid out some conditions for applicants to the plan.

"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," it said in a statement.

"Finally, Cyprus has committed to notify viability plans for companies making intensive use of the scheme."

The Commission has approved similar plans for a raft of countries in the 27-European Union bloc in the last three years. (Reporting by Foo Yun Chee; editing by Rex Merrifield)

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