Cyprus banks remain closed to prevent a run on deposits

Banks in Cyprus have been ordered to remain closed until Thursday 28^th March. From that point on, the banks will be then subject to strict capital controls to prevent a run on deposits and ensure the smooth functioning of the entire banking system in the country, according to Cyprus’ finance minister.

The banks have been closed since the 15^th March and it had been anticipated that the banks would be reopened immediately after Cyprus had agreed with the International Monetary Fund (IMF) and the European Union (EU) in Brussels on a €10 billion bailout.

Speaking in Brussels, Cyprus’s President, Nicos Anastasiades, announced: “The hours were difficult, at some moments dramatic. Cyprus found itself a breath away from economic collapse and the agreed plan with the international lenders was painful but essential.”

Anastasiades also announced that the country would introduce restrictions to prevent capital flight, but these controls would be a very temporary measure that they will gradually be relaxed.

Under the new agreement, Laiki, the second largest bank in Cyprus, will be closed down and any deposits under €100,000 guaranteed by the state under EU law will be transferred to the Bank of Cyprus. This, it has been stated, will create a so – called “good bank” needed to boost confidence within Cyprus.

It is expected that citizens and businesses, many of which are wealthy Russians with more than €100,000 in their accounts at Laiki, could face significant losses of up to 40%. Additionally, they will not be able to access accounts exceeding €100,000 until the restructuring of the banks is complete.

Analysts and banking authorities anticipate that dissolution of Laiki could yield €4.2 billion overall. The plan at the moment is that depositors’ losses will be converted into shares and any deposits above the guaranteed amount of €100,000 will be frozen and used to pay Laiki’s debts.  

Until the banking returns to normal a daily withdrawal limit of €100 (£85) has been imposed on the Bank of Cyprus and Laiki’s ATM’s across Cyprus.

Aastha Gill