Bank of Cyprus big depositors could lose up to 60%

A man walks near a Bank of Cyprus branch in Nicosia. Photo: 28 March 2013 Banks in Cyprus opened on Thursday - for the first time in nearly two weeks

Bank of Cyprus depositors with more than 100,000 euros (£84,300; $128,200) could lose up to 60% of their savings as part of an EU-IMF bailout restructuring move, officials say.

The central bank says 37.5% of holdings over 100,000 euros will become shares.

Up to 22.5% will go into a fund attracting no interest and may be subject to further write-offs.

The other 40% will attract interest - but this will not be paid unless the bank performs well.

It was known that the wealthiest savers at the Bank of Cyprus would take a large hit from the bailout deal - but not to this extent, the BBC's Mark Lowen reports.

Cypriot officials have also said that big depositors at Laiki - the country's second largest bank - could face an even tougher "haircut". However, no details have been released.

The officials say that Laiki will eventually be absorbed into the Bank of Cyprus.

Analysis

Much of the recent focus has been on wealthy foreign savers - mainly Russians - who will lose a vast chunk in the bailout deal.

But there are plenty of Cypriot depositors, too, who will be hard hit and even more so now than previously thought.

Before leaving Cyprus, I visited the Junior and Senior School of Nicosia, which teaches the British system to 900 children.

School fees are paid into Laiki Bank, taking its deposits well over 100,000 euros. With huge losses, it will now struggle to pay staff salaries.

Those who recently invested proceeds from house sales will also suffer. There's talk of one university with a 6m-euro EU grant in its account.

The Bank of Cyprus holds about a third of all deposits in Cyprus. An enforced loss of up to 60% will have a dramatic impact.

And other indebted eurozone countries will fear this sets a precedent and that they might be next.

The fear is that once the unprecedented capital controls - which are in place for an indefinite time - are lifted, the wealthiest will rush to move their deposits abroad, our correspondent says.

He adds that the larger than expected loss could also have devastating consequences for large depositors such as schools and universities. And it could spread fear in other indebted eurozone countries that Cyprus might set a precedent.

'Loans written off'

Cyprus needs to raise 5.8bn euros to qualify for the bailout, and has become the first eurozone member country to bring in capital controls to prevent a torrent of money leaving the island and credit institutions collapsing.

The original 10bn-euro bailout deal was agreed in Brussels earlier this month. It placed a one-off tax on all customers of Cypriot banks, starting at 6.75% for the smallest deposits.

But this led to mass protests across Cyprus, and the deal was later voted down by the country's parliament. MPs later backed a revised deal.

Cypriot President Nicos Anastasiades has said the financial situation has been "contained" following the deal.

He has also stressed that Cyprus has no intention of leaving the euro, stressing that "in no way will we experiment with the future of our country".

Cyprus capital controls

  • Daily withdrawals limited to 300 euros
  • Cashing of cheques banned
  • Those travelling abroad can take no more than 1,000 euros out of the country
  • Payments and/or transfers outside Cyprus via debit and or credit cards permitted up to 5,000 euros per month
  • Businesses able to carry out transactions up to 5,000 euros per day
  • Special committee to review commercial transactions between 5,000 and 200,000 euros and approve all those over 200,000 euros on a case-by-case basis
  • No termination of fixed-term deposit accounts before maturity

On Thursday, banks in Cyprus opened for the first time in nearly two weeks. Queues formed of people trying to access their money, but the mood was generally calm.

By Friday, banks had returned to their normal working hours and there were no longer reports of big queues.

In a separate development, Cyprus launched an investigation after Greek media published the names of politicians who allegedly had loans forgiven by three Cypriot banks at the height of the crisis.

The Bank of Cyprus, Laiki and Hellenic Bank apparently wrote off loans of millions of euros to companies, local authorities, and politicians from some of the island's biggest parties.

The list has now been handed to the ethics committee of the Cypriot parliament.

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