Milder than expected final terms for Cyprus bail-in unveiled
The Cyprus government and central bank on Tuesday announced milder than expected final terms of a bail-in for uninsured depositors at Bank of Cyprus but signalled it could take years before their remaining funds are fully unfrozen.
Deposits above the guaranteed limit of €100,000 will face a 47.5 per cent haircut, while an additional 5 per cent of total deposits would be made available for withdrawal by account holders on top of the 10 per cent already returned in cash, according to a joint statement by the finance bank and the central bank.
“This development brings to an end an extended period of uncertainty,” the statement said.
Bank of Cyprus will have a core tier one capital ratio of 12.5 following the bail-in, compared to a minimum of nine required by international lenders when the three-year bailout programme comes to an end.
The unprecedented bail-in of depositors was agreed with the EU and International Monetary Fund as part of Cyprus’s €10bn emergency rescue in March.
At that time account holders feared they would lose as much as 60 per cent of their funds after the government announced a 37.5 per cent haircut of uninsured deposits and placed another 22.5 per cent in an escrow account to cover unspecified future needs.
Depositors will receive shares in a slimmed down Bank of Cyprus as part of the bail-in and will earn interest on funds still frozen, which will be placed in six-, nine and 12-month time deposits with the bank retaining the right to roll them over.
Christopher Pissarides, the Nobel Prize-winning Cypriot economist who is advising the government, said it could take up to two years before the eurozone’s first controls on capital movement, which were imposed in March, are fully lifted.
The bail-in would wipe out about €8bn of deposits while still leaving Bank of Cyprus as the island’s largest lender. Bank of Cyprus acquired some assets from Popular (Laiki) Bank, the second-largest, which was shut down as part of the bailout agreement.
Former depositors in Popular Bank would hold about 18 per cent of Bank of Cyprus, followed by Russian and Ukrainian companies represented by prominent Cypriot lawyers, among them President Nikos Anastasiades, with about 16 per cent, according to unofficial estimates.
Andreas Neocleous, a Limassol-based lawyer with a sizeable number of eastern European clients who kept funds in Bank of Cyprus, said: “They [the clients] felt bitter and angry at the way their money was seized . . . but can now look forward to making something back in the future if the bank’s share price goes up.”
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