Fitch Queries Branch Resolution Measures

23 August 2014

One of the world’s big three credit ratings agencies, Fitch Ratings, issued a report on 19 August 2014 questioning the ability of host supervisors, such as the Central Bank of Cyprus, to resolve problems of associated with the branches of foreign banks. Fitch quoted the example of FBME’s Cyprus branch in this regard. The agency also suggested that such independent action can hamper the orderly management of a difficult situation, which FBME’s shareholders wrote is exactly what the bank is currently experiencing.

In a reply sent to Fitch, FBME Limited spelt out the problems where the Central Bank of Cyprus, in taking measures without the cooperation and agreement of the Home Supervisor Bank of Tanzania, caused actions that will be potentially damaging.  They explained that it wasn’t until a month after the special resolution was invoked in the case of FBME’s Cyprus Branch that contact between Host and Home Supervisor took place – and only then at the prompting of the Bank of Tanzania and after several failed efforts.  “Such absence of cooperation is an abuse of supervisory standards and merely increases the risk of a disorderly process,” they wrote.
The views of Fitch Ratings are likely to have caused more international disquiet over the application of special resolution measures in Cyprus.
Click here for the full statement from Fitch Ratings Agency and here for the shareholder’s letter.