Large depositors at Cyprus’s largest bank may be forced to accept losses of up to 60 per cent, far more than initially feared under the European rescue package to save the country from bankruptcy, officials said today.
Deposits of more than €100,000 at the Bank of Cyprus would lose 37.5 per cent in money which would be converted into bank shares, according to a finance ministry decree obtained by The Associated Press.
In a second raid on these accounts, depositors also could lose up to 22.5 per cent more, depending on what experts determine is needed to prop up the bank’s reserves.
Deposits that are converted to bank shares would theoretically allow depositors to eventually recover their losses. But the shares now hold little value and it is uncertain when — if ever — the shares will regain a value equal to the depositors’ losses.
Europe has demanded that large depositors in the country’s two largest banks — Bank of Cyprus and Laiki Bank — accept across-the-board losses in order to pay for the €16 billion bailout.
But officials had previously spoken of a loss to big depositors of 30 per cent to 40 per cent.
Analysts said today that imposing bigger losses on major depositors could further squeeze already crippled businesses as Cyprus tries to rebuild its banking sector in exchange for the international rescue package.
“Most of the damage will be done to businesses which had their money in the bank” to pay suppliers and employees, said University of Cyprus economics Professor Sofronis Clerides.
“There’s quite a difference between a 30 per cent loss and a 60 per cent loss.”
“With businesses shrinking, the country could be dragged down into an even deeper recession,” he said.
There is also concern that large depositors — including many wealthy Russians — would take their money and run once capital restrictions that Cypriot authorities have imposed on bank transactions to prevent such a possibility are lifted in about a month.
On Monday, Cyprus agreed to make bank depositors with accounts holding more than €100,000 to contribute to a financial rescue in order to secure €10 billion in loans from the eurozone and the International Monetary Fund. Cyprus needed to scrounge up €5.8 billion on its own in order to clinch the larger package, and banks had remained shut for nearly two weeks until politicians hammered out a deal, opening again on Thursday.
German finance minister Wolfgang Schäuble insisted today savings accounts in the euro zone are safe, adding that Cyprus is a "special case" and not a template for future rescues.
In an interview with Bild newspaper published today, Mr Schäuble distanced himself from comments on Monday by Eurogroup chairman Jeroen Dijsselbloem, who said the rescue programme agreed for Cyprus - the first to impose a levy on bank deposits - would serve as a model for future crises.
"Cyprus is and will remain a special one-off case," Mr Schäuble said. "The savings accounts in Europe are safe."
Mr Schäuble said the problem in Cyprus was that two large banks in Cyprus were in effect no longer solvent and the Cyprus government did not have enough money to guarantee savings.
