The Central Bank of Cyprus has denounced efforts by certain quarters to mislead the public about the problems the island`s banking sector is facing.

According to a CBC press release, “a small group tries to misinform the public portraying itself as the defenders of bankers of the past, projecting an unreal and misleading image that Cyprus` banking system until had no problems and that everything was rightly organized and with the right moves on all levels until the end of April 2012 and all of a sudden as of early May 2012 a plot started to unravel aiming at denigrating the good name of the banks by technically inflating the non-performing loans.”

The real situation of the country`s economy, it points out, has been repeatedly outlined in reports by international rating agencies and more recently by the Memorandum of Understanding agreed between the Cypriot authorities and the Troika (EC, ECB and IMF).

As Cyprus` two major banks, Bank of Cyprus (BOCY) and Cyprus Popular Bank (CPB), have requested state support in a bid to cover their capital shortfalls as a result of massive write downs of their Greek debt holdings and of non-performing loans, especially in Greece, Cyprus – which has been excluded from the international capital markets – applied for financial assistance support by the EU bailout mechanism. After strong criticism by the government and at the instructions of the CBC, under the new Governor Panicos Demetriades, the BOCY and CPB Board of Directors have undergone major restructuring with many long-serving board members resigning their posts.

Moreover, various politicians have argued that the CBC has accepted a different method to calculate non-performing loans, which inflated the banks` capital needs and in turn the size of the financial support which will render the Cyprus debt as non-sustainable.

“The banking sector should necessarily be consolidated, restructured and recapitalized, in order to regain its robustness and play once again its development role,” the CBC added, noting that in this effort, the CBC has consistently given special emphasis on issues of corporate governance, transparency and supervisory interventionist policy supervision to the benefit of the depositors, share holders and investors and of the Cypriot public in general.

The CBC also noted that it would make sure that mistakes of the past will be identified to avoid repetition, adding that in this context it has commissioned an independent probe into the circumstances that have led the two largest Cypriot banks to request state support by Alvarez & Marsal and an independent commission on the future of the banking system.

“It is obvious that some of the affected persons started to worry for the findings of the above inquiries and that is why they desperately are politicizing everything, particularly during the current election in an attempt to mislead the public,” the CBC concludes.