Central Bank of Cyprus Reverses FBME Penalty

27 February 2015

On behalf of all associated with FBME Bank, this website give thanks to the Central Bank of Cyprus (CBC) and its Administrator for having stopped the levy of penalty charges on FBME for maintaining higher than the required sums in the CBC. In addition to stopping the penalties, the CBC also reversed charges paid in earlier months. So, well done there.

There is approximately EUR 160 million-worth of FBME Bank funds held by the CBC (the current figure). The central bank took unilateral action to acquire these funds from FBME’s liquid portfolio, consulting neither FBME Bank nor the Bank of Tanzania, the Bank’s Home Supervisor. The first order from the Arbitral Tribunal has been to stop this amassing of FBME funds.

The background is that all banks are required to maintain funds in their relevant central bank to the level of 1% per cent of deposits. In a ruling by the European Central Bank to which CBC adheres, there is a penalty for funds held with the supervisor above this level, which is designed to ensure that banks use their funds to help recovery in troubled euro zone economies. This penalty rate is 0.2%. It should never have been charged in the first place as FBME had no say in the matter. Now, this anomaly has been recognised by the CBC and the penalty reversed.

As seen in an earlier post on this website, the Arbitral Tribunal at the ICC has called upon the CBC to put on hold a range of potential actions against the Cyprus branch of FBME. As part of this, the Tribunal has strongly invited the CBC and Administrator to take no moves to sell the branch. It has been never explained by the CBC what the justification was for such a sale or whether it was even feasible.