Cyprus' largest bank took a significant step towards its goal of repaying all its emergency lending by the end of 2017.
The Bank of Cyprus – one of the two major commercial banks in the country – cancelled €1bn of government guarantees issued on its behalf as part of a EU funded bail-out.
"The Cypriot financial system has been paying down ELA consistently since the third quarter of 2013 at an average rate of €200 million per month.
"The latest announcement of the bond cancellation is a natural consequence of this trend, and should help restore confidence in the country's financial system," said PwC economist Barret Kupelian.
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Emergency Liquidity Assistance (ELA) – funding provided by EU central banks to member states' commercial institutions – was provided to Cypriot banks during their own banking crisis that came to a head in 2013.
Bank assets were required to be posted as collateral by the Bank of Cyprus in exchange for the ELA support.
But when these ran out, the Cypriot government stepped in by issuing bond guarantees to the Bank of Cyprus that could be posted instead. If the Bank of Cyprus defaulted on ELA repayments then the state guaranteed bonds could be called in by the providers of the ELA.
"The latest data shows that the stock of ELA now stands at around 10 per cent of Cypriot GDP, down from around 60 per cent," said Kupelian.
The Bank of Cyprus said that it now has €2.0bn of ELA funding remaining having repaid €9.3bn since April 2013.