* Cypriot c.banker says didn't expect bail-in on deposits
* Chides banks on hoarding Greek bonds
* Cyprus became first euro zone member to adopt bail-in
NICOSIA, Aug 13 The head of Cyprus's central
bank said on Tuesday the upheaval of an international bailout in
March could have been avoided if the island nation had
petitioned for aid earlier.
Panicos Demetriades also chided bankers for accumulating
large amounts of Greek government bonds, whose EU-approved
restructuring in late 2011 proved to be deeply harmful for
Cyprus took the unprecedented step of winding down a major
bank and forcing losses on large depositors at a second bank to
qualify for 10 billion euros in aid earlier this year.
The banks had been heavily exposed to Greek sovereign debt
and suffered huge losses on holdings when that country's debt
was restructured in another rescue package by the EU and IMF.
Demetriades, who took over the helm at the Cypriot central
bank in May 2012, said Cyprus could have petitioned for aid just
after Greece's debt writedown was agreed by EU leaders in late
"If we had gone (for aid), possibly immediately after the
Greek public sector involvement, we could have got better
terms," Demetriades told a judicial inquiry in response to a
Demetriades, who also sits on the ECB's Governing Council,
said a preliminary memorandum of understanding with lenders in
late 2012 had earmarked a bailout amount which would have taken
into account recapitalisation needs of the two banks, Laiki and
Bank of Cyprus.
Instead, he said, there was a rapid deterioration with the
banking sector bleeding deposits, and the sector came under
sudden scrutiny on allegations of money laundering - a charge
Cyprus has consistently denied.
"Nobody expected it, what happened was unprecedented,
particularly with regard to deposits. Nor did we expect the
assault against our banking sector from the media, in one
country in particular," he said. Concerns about money laundering
in its banking network first appeared in German media.
Demetriades said Cyprus had been experiencing the financial
strain from its banking sector's exposure to Greece for some
time, as well as a rapid expansion abroad and a "huge"
investment in Greek government bonds.
"For me, that was a catastrophic investment which shouldn't
have been allowed to proceed," he said.
The government-appointed judicial probe continues in late
August with testimony from Demetriades's predecessor, Athanasios
Orphanides, and Nicos Anastasiades and Demetris Christofias, the
present and former presidents.
(Writing by Michele Kambas; editing by Stephen Nisbet)