EUROPEAN COMMISSION
DIRECTORATE GENERAL
ECONOMIC AND FINANCIAL AFFAIRS

Brussels, 12 April 2013

Assessment of the actual or potential financing needs of Cyprus

In compliance with Article 13 of the ESM Treaty, this note has been prepared by the European
Commission in liaison with the ECB.

Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.

1. Total financing needs
At its meeting of 16 March 2013, the Eurogroup agreed to provide financial assistance to Cyprus – in
principle – for a total amount of up to EUR 10bn, i.e. the remaining financing needs over the threeyear programme period stretching from 2Q2013 until 1Q2016 after inclusion of proceeds from
burden-sharing measures adopted by the Cypriot government. This programme envelope has been
reconfirmed in the Eurogroup meeting of 25 March 2013.
An overview of estimated quarterly financing needs to be covered by official lenders during the
programme period is provided in Annex 1, an annual overview up to 2020 in Annex 2.
a. Financial sector
The annex to the Eurogroup statement of 25 March 2013 emphasises that external
financial assistance shall not be granted for the resolution and restructuring of Cyprus
Popular Bank and Bank of Cyprus using the recently adopted resolution law in
Cyprus. Hence, the European Commission, in liaison with the ECB, estimates
that total needs for the recapitalisation of the remainder of the restructured
banking sector amount to around EUR 2.5bn.
This amount also includes a buffer to cover for worse macro-economic developments,
in particular an increase in non-performing loans (NPLs), and recapitalisation needs
of Hellenic Bank in case this cannot be achieved fully via private sources. The buffer
also reflects the as yet unknown results of the requested due diligence on the
cooperative banks which were not covered by the PIMCO exercise.
The EUR 1.9bn bond issued by the government to recapitalise Cyprus Popular Bank
in June 2012 is not foreseen to be replaced by an ESM bond and thus does not figure
in the financing envelope.
b. Medium- and long-term debt redemption
Over the programme period, around EUR 4.1bn are required for the
redemption of medium- and long-term debt maturing over the programme
period and the amortisation of government loans, taking into account the rollover of marketable debt held by domestic investors.
Regarding the redemption of bonds a distinction needs to be made between foreignlaw bonds (so-called Euro Medium Term Notes, EMTNs) and domestic-law bonds
(so-called Government Registered Development Stocks, GRDS).
Over the programme period EMTNs worth about EUR 3bn mature. Almost half of
this amount needs to be provided in June 2013 as an EMTN worth EUR 1.4bn will
have to be redeemed. Two EMTNs worth a total of EUR 0.6bn will mature in June
and July 2014, EUR 0.9bn in November 2015 and EUR 0.2bn during the first quarter
of 2016.
Regarding GRDS, the redemption profile is more evenly spread over the programme
period, with a total of EUR 0.7bn maturing in July 2013, EUR 0.4bn in 2014 (of
which around 80% during the first quarter), EUR 0.4bn in 2015, and about EUR

Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.

0.2bn during the first quarter of 2016. It is foreseen that out of total GRDS
redemptions of EUR 1.7bn only EUR 0.7bn are covered by official lenders. The
Cypriot authorities intend to roll-over the remainder with the domestic investors
holding these bonds.
Loan amortisations amount to a total of around EUR 0.4bn, with on average EUR
0.1bn per year in 2013, 2014 and 2015 and only very small payments during the first
quarter of 2016.
c. Fiscal needs
Over the programme period up to EUR 3.4bn are required to cover fiscal needs.
Based on the underlying macro-fiscal assumptions deficit financing needs over the
programme horizon are estimated at around EUR 3.5bn. This amount also includes a
one-off payment of EUR 0.4bn in 2013 to compensate all pension funds for part of
their losses on deposits in Cyprus Popular Bank and put them at par with pension
funds that held deposits in Bank of Cyprus.
Cumulative below-the-line transactions reduce financing needs by around EUR 0.1bn
as privatisation proceeds of about (EUR 0.6bn) and the envisaged use of the
allocation of future central bank profits (EUR 0.4bn) – subject to the principle of
central bank independence and provided such profit allocation is in line with CBC
rules and does not undermine the CBC duties under the Treaties and the Statute –
offset a buffer included to cover currently unforeseen expenditures, e.g. state
guarantees for local-government and state-owned enterprises' loans (up to EUR
0.5bn), capitalised interest on the CPB bond (around EUR 0.3bn)1 and capital
contributions to the ESM and EIB (around EUR 0.1bn).

2. Financing sources
a. ESM
The ESM is expected to provide EUR 9bn of external financial assistance, subject to
IMF’s contribution. This amount should allow to fully cover needs identified for the
recapitalisation of the banking sector (EUR 2.5bn) in a cashless transaction and EUR
6.5bn for debt redemption and fiscal purposes. An indicative break down of total
quarterly financing needs which will have to be covered by official funds is provided
in Annex 1.

b. IMF
1

The statistical treatment of the CPB recapitalisation bond is currently subject to assessment by Eurostat in context of
Cyprus' April 2013 fiscal notification.

Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.

The Eurogroup statement invites the IMF to contribute to the financing of the
programme. The IMF has signalled its willingness to participate in the programme
financing (except for financial sector recapitalisations) under the "normal access"
procedure. This would imply an IMF contribution of up to EUR 1bn.
The IMF contribution is expected to take the form of a 3-year extended fund facility
(EFF).

3. Burden sharing
a. Following the Eurogroup decision of 25 March, the Cypriot authorities have
committed to take the following additional steps: Additional bail in of creditors in
Laiki bank and Bank of Cyprus
The bail in of uninsured depositors of Laiki and Bank of Cyprus will provide an
estimated contribution to recapitalization of EUR 8.3bn. 2.

b. Gold sales
It is envisaged to use the allocation of future central bank profits of approximately
EUR 0.4bn, subject to the principle of central bank independence and provided such
profit allocation is in line with CBC rules and does not undermine the CBC duties
under the Treaties and the Statute.
c. Roll-over of marketable debt held by domestic investors
Cypriot authorities will encourage domestic investors (banks, insurance companies
and state-owned enterprises) to roll over up to EUR 1.0bn of GRDS that arrive at
maturity over the programme horizon, thus reducing external financial assistance for
debt redemption by the same amount.
d. Privatisations
Cypriot authorities will launch a privatisation programme, estimated to yield proceeds
of EUR 0.5bn until end-2015, another EUR 0.5bn in the course of 2016 and an
additional EUR 0.4bn thereafter.
e. Change of terms on the outstanding loan from the Russian Federation3

2

This is a maximum estimate. The final amount will depend inter alia on the conversion under the debt for equity swap in
Bank of Cyprus and the recoveries of Laiki Bank.

3

Under the current loan agreement between Cyprus and the Russian Federation, repayment of the loan falls outside the
programme period. Hence, the change of the repayment period of the loan does not have an impact on the financing needs
under the adjustment programme, but rather improves the maturity profile of Cyprus's public debt shortly after the end of
the programme.

Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.

Cypriot authorities will endeavour to change the terms on the outstanding EUR 2.5bn
loan from the Russian Federation, i.e. repayment in five instalments of EUR 0.5bn
between 2018 and 2022 and possibly a reduction of the current interest rate of 4.5% .
A reduction of the interest rate could yield up to EUR 0.1bn.
Moreover, it is foreseen that Cyprus will roll-over the outstanding stock of Treasury Bills (around
EUR 1bn) on the market, i.e. without ESM / IMF support. This is in line with the working assumption
of other euro area macroeconomic adjustment programmes.

4. Conclusion
The European Commission, in liaison with the ECB, estimates that Cyprus's net financing needs
amount to EUR 10bn over the three-year programme horizon, i.e. 2Q2013-1Q2016. This includes
needs for the recapitalisation of the banking sector, the redemption of maturing medium- and longterm debt including loans, and fiscal needs after taking into account the extensive burden sharing
measures adopted by the Cypriot authorities.
This programme envelope, which rests on plausible growth and fiscal assumptions, includes buffers in
case of worse than expected macroeconomic and financial sector outcomes.

Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.

Annex 1: Overview of estimated financing needs to be covered by ESM/IMF over the programme period
programme period
2014
Q3
Q4
year
560.1
93.7
792.2
500.0
55.3
964.3
52.5
30.7
97.3
0.9
30.7
45.7
0.0
0.0
0.0
51.5
0.0
51.5
5.0
5.0
20.0
2.7
2.7
10.7
0.0
0.0 -300.0

mln EUR, negative = surplus / revenue
Amortisation of existing market debt excl. short-term
medium & long-term bonds
loans
foreign loans - excluding Russia
foreign loans - Russia
domestic loans
local government loans
saving certificates
bond roll-over by domestic investors

Q1
7.7
0.0
0.0
0.0
0.0
0.0
5.0
2.7
0.0

Q2
1438.2
1416.9
13.7
13.7
0.0
0.0
5.0
2.7
0.0

2013
Q3
346.3
714.6
24.1
0.9
0.0
23.2
5.0
2.7
-400.0

Amortisation new market debt

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0

0.0

1400.0

200.0

1600.0

125.0

125.0

0.0
0.0
0.0

0.0 11500.0
0.0 -10300.0
0.0
200.0

0.0 11500.0
0.0 -10300.0
200.0
400.0

0.0
0.0
125.0

Amortisation of offical lenders
ESM
IMF
Financial sector recapitalisation
of which:
total recapitalisation estimate
debt-equity swap for unisured BoC deposits and CPV resolution
contingency buffer
Fiscal financing needs
headline deficit (including one-offs)
of which one-off measures /1

Q1
17.6
209.9
0.0
0.0
0.0
0.0
5.0
2.7
-200.0

Q2
49.7
127.7
14.3
14.3
0.0
0.0
5.0
2.7
-100.0

2015
Q3
146.4
85.4
53.3
0.9
0.0
52.4
5.0
2.7
0.0

Q4
927.6
888.6
31.3
31.3
0.0
0.0
5.0
2.7
0.0

year
1141.3
1311.7
98.9
46.5
0.0
52.4
20.0
10.7
-300.0

Q1
363.1
358.0
0.0
0.0
0.0
0.0
5.0
0.0
0.0

Q2
64.2
42.6
16.6
16.6
0.0
0.0
5.0
0.0
0.0

2016
Q3
161.9
102.5
54.4
1.1
0.0
53.3
5.0
0.0
0.0

Q4
99.6
58.2
36.4
36.4
0.0
0.0
5.0
0.0
0.0

year
688.8
561.4
107.4
54.2
0.0
53.3
20.0
0.0
0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

125.0

125.0

500.0

100.0

100.0

100.0

100.0

400.0

0.0

0.0

0.0

0.0

0.0

0.0
0.0
125.0

0.0
0.0
125.0

0.0
0.0
125.0

0.0
0.0
500.0

0.0
0.0
100.0

0.0
0.0
100.0

0.0
0.0
100.0

0.0
0.0
100.0

0.0
0.0
400.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

Q4
38.6
1.0
30.0
30.0
0.0
0.0
5.0
2.7
0.0

year
1830.8
2132.4
67.8
44.6
0.0
23.2
20.0
10.7
-400.0

Q1
26.7
319.0
0.0
0.0
0.0
0.0
5.0
2.7
-300.0

Q2
111.7
90.0
14.0
14.0
0.0
0.0
5.0
2.7
0.0

251.2
245.6
0.0

343.2
219.1
0.0

810.2
700.2
400.0

366.3
224.9
0.0

1770.9
1389.8
400.0

-1.7
340.5
0.0

447.9
264.0
0.0

384.3
329.3
0.0

366.1
311.1
0.0

1196.5
1244.9
0.0

168.5
265.7
0.0

195.6
193.1
0.0

134.6
234.6
0.0

140.1
240.1
0.0

638.7
933.4
0.0

17.3
142.3
0.0

56.6
73.8
0.0

-12.6
112.4
0.0

-40.8
84.2
0.0

20.5
412.8
0.0

primary balance
interest

98.5
147.1

98.5
120.6

98.5
201.7

98.5
126.3

394.1
595.8

169.6
170.9

169.6
94.4

169.6
159.8

169.6
141.5

678.3
566.6

86.0
179.7

86.0
107.1

86.0
148.6

86.0
154.1

343.9
589.5

-50.9
193.2

-50.9
124.8

-50.9
163.3

-50.9
135.2

-203.8
616.5

privatisations of SOEs
ESM & EIB capital contributions
called guarantees
future central bank profits
capitalised interest on CPB bond /2

0.0
5.6
0.0
0.0
0.0
258.9

0.0
31.4
0.0
0.0
92.7
1781.5

0.0
0.0
110.0
0.0
0.0
2556.5

0.0
31.4
110.0
0.0
0.0
604.9

0.0
68.4
220.0
0.0
92.7
5201.8

0.0
2.8
55.0
-400.0
0.0
150.0

0.0
31.4
55.0
0.0
97.5
684.5

0.0
0.0
55.0
0.0
0.0
1069.5

0.0
0.0
55.0
0.0
0.0
584.8

0.0
34.2
220.0
-400.0
97.5
2488.8

-125.0
2.8
25.0
0.0
0.0
286.1

-125.0
0.0
25.0
0.0
102.5
345.2

-125.0
0.0
25.0
0.0
0.0
381.0

-125.0
0.0
25.0
0.0
0.0
1167.7

-500.0
2.8
100.0
0.0
102.5
2180.0

-125.0
0.0
0.0
0.0
0.0
380.4

-125.0
0.0
0.0
0.0
107.8
120.8

-125.0
0.0
0.0
0.0
0.0
149.3

-125.0
0.0
0.0
0.0
0.0
58.9

-500.0
0.0
0.0
0.0
107.8
709.3

of which:

additional financing needs / below the line

net financing needs

/1: One-off measures include compensation for provident and retirement funds in Cyprus Popular Bank to ensure equal treatment with such funds in Bank of Cyprus following the conversion of
deposits into equity. Given the social welfare nature of provident and retirement funds, the Cypriot authorities will use the necessary amount out of programme financing.
/2: The statistical treatment of the CPB recapitalisation bond is currently subject to assessment by Eurostat in context of Cyprus' April 2013 fiscal notification.

Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2) 299 11 11.

Provisional draft, x April 2013
Annex 2: Annual overview of estimated financing needs for the period 2013-2020
mln EUR, negative = surplus / revenue
Amortisation of existing market debt excl. short-term
medium & long-term bonds
loans
foreign loans - excluding Russia
foreign loans - Russia
domestic loans
local government loans
saving certificates
bond roll-over by domestic investors

2013
1 830.8
2 132.4
67.8
44.6
0.0
23.2
20.0
10.7
-400.0

2014
792.2
964.3
97.3
45.7
0.0
51.5
20.0
10.7
-300.0

2015
1 141.3
1 311.7
98.9
46.5
0.0
52.4
20.0
10.7
-300.0

2016
688.8
561.4
107.4
54.2
0.0
53.3
20.0
0.0
0.0

2017
417.9
287.4
110.5
56.4
0.0
54.2
20.0
0.0
0.0

2018
656.9
19.6
617.2
62.1
500.0
55.1
20.0
0.0
0.0

2019
655.0
10.9
624.1
68.0
500.0
56.1
20.0
0.0
0.0

2020
1 586.8
949.8
617.0
60.0
500.0
57.1
20.0
0.0
0.0

0.0

0.0

0.0

0.0

164.5

0.0

0.0

0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

3.6
0.0
3.6

50.0
0.0
50.0

114.3
0.0
114.3

167.8
0.0
167.8

1 600.0

500.0

400.0

0.0

0.0

0.0

0.0

0.0

11 500.0
-10 300.0
400.0

0.0
0.0
500.0

0.0
0.0
400.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

0.0
0.0
0.0

1 770.9
1 389.8
400.0

1 196.5
1 244.9
0.0

638.7
933.4
0.0

20.5
412.8
0.0

-185.4
101.3
0.0

30.7
-88.5
0.0

37.9
-87.4
0.0

85.1
-46.6
0.0

primary balance
interest

394.1
595.8

678.3
566.6

343.9
589.5

-203.8
616.5

-530.8
632.1

-736.8
648.3

-764.8
677.4

-793.8
747.2

privatisations of SOEs
ESM & EIB capital contributions
called guarantees
future central bank profits
capitalised interest on CPB bond /2

288.4
0.0
68.4
220.0
0.0
92.7
5 201.8

-145.8
0.0
34.2
220.0
-400.0
97.5
2 488.8

-397.2
-500.0
2.8
100.0
0.0
102.5
2 180.0

-500.0
-500.0
0.0
0.0
0.0
107.8
709.3

-400.0
-400.0
0.0
0.0
0.0
113.3
400.6

0.0
0.0
0.0
0.0
0.0
119.2
737.5

0.0
0.0
0.0
0.0
0.0
125.3
807.1

0.0
0.0
0.0
0.0
0.0
131.7
1 839.8

Amortisation new market debt
Amortisation of offical lenders
ESM
IMF
Financial sector recapitalisation
of which:
total recapitalisation estimate
debt-equity swap for unisured BoC deposits and CPV resolution
contingency buffer
Fiscal financing needs
headline deficit (including one-offs)
of which one-off measures /1
of which:

additional financing needs / below the line

net financing needs

/1: One-off measures include compensation for provident and retirement funds in Cyprus Popular Bank to ensure equal
treatment with such funds in Bank of Cyprus following the conversion of deposits into equity. Given the social welfare nature
of provident and retirement funds, the Cypriot authorities will use the necessary amount out of programme financing.
/2: The statistical treatment of the CPB recapitalisation bond is currently subject to assessment by Eurostat in context of
Cyprus' April 2013 fiscal notification.