NICOSIA The former head of bailed-out Bank of Cyprus accused Cypriot authorities on Monday of making the bank a scapegoat to cover their own shortcomings in running the island's economy.
Cyprus became the fourth euro zone member to require an international bailout when it secured a 10-billion-euro rescue package in March. But as part of the aid deal, the island agreed to seize the cash of big depositors at Bank of Cyprus, the island's biggest bank, and wound down second-biggest lender Laiki Bank with Bank of Cyprus assuming some of its assets.
"If the government had acted to restore fiscal imbalances, even in the first quarter of 2012, the measures would be infinitely less painful then they are today," said Andreas Eliades, who was chief executive officer at Bank of Cyprus from 2005 until mid-2012.
Cypriot banks lost vast amounts of money when their Greek government bond holdings were virtually wiped out in an EU-sanctioned writedown in early 2012, a move agreed by all European Union member states including the Cypriot government.
Bank of Cyprus lost 1.8 billion euros in Greek bond holdings.
"We couldn't predict there would be an 80 percent writedown in bonds," Eliades told a judicial inquiry looking into causes of the Cypriot crisis.
He said the decision to purchase Greek bonds wasn't his, but sovereign debt had always been considered a safe-haven asset.
Eliades, who resigned under pressure from the Cypriot central bank, said Cyprus would not have needed any external help if it had controlled runaway deficits. The island was shut out of international capital markets in May 2011.
He said that having failed to arrest a fiscal slide, authorities decided to shift blame onto banks for being heavily exposed to Greece.
"Some people wanted to prove that the banks and the bankers were to blame for the financial crisis," he said.
In a written deposition to the committee overseeing the judicial inquiry, he also claimed the central bank was instrumental in scuppering the Bank of Cyprus's sale of its insurance divisions in June 2012 to raise requisite capital.
(Reporting By Michele Kambas; Editing by Susan Fenton)