World Bank: Troubled Turkish Cypriot banks not peace burden

AP News
Posted: Sep 27, 2017 4:56 AM

NICOSIA, Cyprus (AP) — Integrating Turkish Cypriot financial institutions into a single banking system, in case the ethnically divided island is reunified, is unlikely to increase risks in the sector because of their relatively small size, the World Bank said.

The health of troubled Turkish Cypriot banks has been an important component of talks to reunify the island, which collapsed in July after more than two years of negotiations.

But the World Bank said in a statement to The Associated Press on Wednesday that total assets of the banking sector in the island's breakaway Turkish Cypriot north amount to 5 billion euros ($5.89 billion).

That's less than 6 percent of banking assets in the internationally recognized south, estimated at 95 billion euros ($112 billion).

The north's largest lender accounts for 20 percent of the Turkish Cypriot community's banking sector — less than 2 percent of the entire sector in the south.

A 1974 Turkish invasion in the immediate aftermath of a coup aimed at union with Greece cleaved Cyprus along ethnic lines. The island joined the European Union in 2004, but only the south enjoys full membership benefits.

During the talks, there was some speculation surrounding the cost of potentially bailing out Turkish Cypriot banks in case of a reunification deal, as well as the size of the bill to rebuild the homes of thousands of people who were displaced by the invasion.

The bank said it's unclear whether Turkish Cypriot banks would need to be recapitalized and by how much because no tests have been conducted.

Nicos Anastasiades, the island's Greek Cypriot president, said last month that Turkish Cypriot authorities had refused to permit U.S.-funded "stress tests" on the north's banks that aimed to gauge their soundness.

The World Bank said that the benefits of reunification would outweigh any costs. It said work to connect the island's separate, water, energy and transport systems would create 1.1 billion euros ($1.3 billion) worth of investment opportunities within 2-3 years after reunification.

"If reunification is well managed, the benefits of a larger economy, greater public and private investment, and increased domestic and international trade could create many jobs across the island," the World Bank said.