Cyprus central bank boss says threats to his independence damage confidence

NICOSIA Fri Sep 20, 2013 5:43am EDT

A man cycles pass the Central Bank of Cyprus on the island's capital Nicosia, April 18, 2013. REUTERS/Andreas Manolis

A man cycles pass the Central Bank of Cyprus on the island's capital Nicosia, April 18, 2013.

Credit: Reuters/Andreas Manolis

NICOSIA (Reuters) - The head of Cyprus's central bank, accused by the government of incompetence, warned his critics on Friday that threats to his independence were harming the country's recovery from crisis.

Central bank governor Panicos Demetriades has faced a fierce onslaught over his performance in the fallout of a messy bail-out for the Mediterranean island brokered with international lenders in March.

It culminated this week with Cypriot President Nicos Anastasiades disclosing he would consider legal recourse to have Demetriades removed.

Demetriades said the central bank had successfully handled the restructuring of the island's banking sector, earning plaudits from lenders.

"I consider the criticism from the president unjustified," Demetriades told the semi-official Cyprus News Agency. "Political intervention in the supervisory role of the central bank ... is not conducive to the restoration of confidence in the banking sector."

Cyprus was forced to wind down a major bank and convert sizeable deposits in a second bank to equity to qualify for 10 billion euros in aid from the European Union and the IMF.

Demetriades, a member of the governing council of the European Central Bank, was appointed by a communist government which lost elections to right-wing Anastasiades in February.

As an independent official, the only way to dislodge him is by the Supreme Court, on the grounds of incompetence or serious misconduct.

Government officials have not concealed their distain for the central banker, who taught economics at a British university before his return to Cyprus upon his appointment last year.

The latest twist in long-running shadowboxing was triggered by perceived delays in the central bank approving a new board of directors for Bank of Cyprus BOC.CY, a delay Demetriades said was beyond the control of the central bank.

Under terms of Cyprus's bailout, large depositors in the bank had savings converted to equity to recapitalize the institution.

Central bank vetting and approval is required for the 16 board members, which includes six Russians. Demetriades said the process, mandatory under European Banking Authority rules, had now been virtually competed.

(Reporting By Michele Kambas)