panicos demetriades : the pros and cons of having a separate and independently managed asset management and development bank welcome remarks by mr panicos demetriades, governor of the central bank of cyprus, at the institute of directors ( iod ) open panel discussion, nicosia, 27 august 2013. * * * good evening ladies and gentlemen. i think tonight ’ s panel discussion is very important. the bank of cyprus is our largest bank and it will shortly hold its annual general meeting. at the agm shareholders will choose the board that will run the bank. the strategy that the new board approves will need to be aggressively pursued. the bank of cyprus in the future will have a greater focus on its core cypriot business, serving personal, sme and corporate customers. it will also have to deal with the legacy of historic expansion and growth in non - performing loans. the central bank of cyprus does not have a fixed view as to whether the bank of cyprus should be split into two or not. this is a decision for shareholders and the board. the question is whether separating certain assets is the right answer today. opinion is divided – some say that this would be damaging to borrowers, others that it is the only way to manage the assets and restore the bank to health. i believe that we need to confront this issue and the bank should investigate all options. any decision should be based on the facts and merits. in all options, the bank of cyprus will need to create an organisation to manage nonperforming loans. the bank is already moving in this direction, and should it remain as a single entity it is likely that there will still be a dedicated focus on managing the workout of troubled loans. splitting the bank of cyprus into a commercial bank and an asset management / development bank would create a legal and management separation. this – as any other option – has a number of merits and challenges. two institutions would provide specialisation. the asset management / development bank could focus on maximising value through the restructuring of the loan book with no immediate time pressures. it could also act as a specialist bank focussed on real estate and development related activities. the remaining commercial bank could focus on serving the domestic economy. however, a split could be operationally disruptive in the immediate term, even if it was beneficial over time. substantial progress in the restructuring of the banking system has been made. this has not been easy, and market conditions remain fragile. in determining the way

another reason that makes monetary policy decisions more difficult is the rising trend of new forms of protectionism. when russia invaded ukraine, businesses throughout the world attempted to untangle their supply chains from the warring countries, and governments were hard - pressed to act as gas and food constraints became a reality. many nations selected'protectionism'measures to shore up their trade and economy, prioritizing domestic resources to meet domestic requirements, frequently through export restrictions. temporary protectionism provides security during a crisis, but its widespread adoption, with no clear end point, can distort trade and shut off important suppliers from the global supply chain. as a trend, it is a cause for concern : because, while food and oil are popular targets for protection programs, this list is expanding. as the pace of global economic integration slows, the downward pressure that globalisation has had on inflation diminishes. we can therefore expect higher inflationary pressures and volatility in the medium term and this situation will make the objectives of monetary policy even more complex to be achieved. developments in the cyprus economy and the cyprus banking sector let me now turn on the developments in cyprus. domestic economy 3 / 6 bis - central bankers'speeches the cyprus economy, continued to record noteworthy gdp growth despite the outbreak of the russian - ukrainian war. real gdp growth in cyprus expanded by about 6 percent over 2022h1, mainly driven by a faster than expected recovery in tourismrelated activities and, to a lesser extent, by growth in information and communication activities and in professional services. at the same time, weakness in the cyprus gdp performance could be expected to become visible over 2022h2 and 2023, primarily owing to the anticipated worsening in the international environment outlook. more specifically, the impact of the war is expected to be channelled directly, via the disruption in trade of services and the rise in commodity prices, in particular oil and wheat, as well as indirectly, via the impact on business and consumer confidence. our exposure to russia via the export of services side is the most significant vulnerability, with the most important exposure relating to financial and other business services and, to a lesser extent, tourism, transport as well as telecommunications, computer and information services. at the same time, it is important to mention significant adaptation effects for example in the area of tourism, losses from the russian market have been covered to a large extent by other markets such as the uk, poland, germany, israel and scandinavian countries. the labour