Cyprus, troika agree on bank supervision, capital ratio

ATHENS Sat Nov 17, 2012 9:25pm GMT

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ATHENS (Reuters) - International lenders negotiating a bailout with the Cypriot government have agreed on a key capital ratio for banks and a system for the sector's supervision, officials said on Saturday, signalling some progress in the talks.

Cyprus has been holding talks with European Union and International Monetary Fund to get financial aid after its banks were battered by its exposure to debt-crippled Greece.

The lenders, who were due to leave Cyprus on Sunday but are now expected to leave next week, agreed during talks on Saturday that both commercial banks and cooperatives would be overseen by the Central Bank, Finance Ministry and Central Bank officials said. Cooperatives were previously overseen by a separate authority.

They also set a core Tier 1 ratio - a measure of financial strength - of 9 percent by the end of 2013 for banks, which could then rise to 10 percent in 2014, the Finance Ministry and Central Bank sources said. They had previously been discussing setting the ratio at 8 percent.

But the two sides remain at odds over the amount needed to recapitalise banks, as well as over the lenders' demands for privatising assets and cutting wages and pensions.

The size of the potential bailout - speculated to be anything between 11 and 16 billion euros and the bulk of it for banks - will be huge in proportion to the 17.9 billion euro economy, the third smallest in the euro zone.

(Reporting by Constantinos Tsindas; Writing by Deepa Babington; Editing by Alison Williams)

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