Bank of Cyprus Clients May Lose Up to 60% on Deposits

Cyprus may impose losses of as much as 60 percent on Bank of Cyprus Plc accounts exceeding 100,000 euros ($128,000) as part of an aid deal to stop the country from going bankrupt.

Customers will have 37.5 percent of their deposits above this amount converted into shares with full voting rights and access to any future Bank of Cyprus dividend, the Nicosia-based central bank said in an e-mailed statement. A further 22.5 percent will be temporarily withheld to ensure the lender meets the terms of its recapitalization, as agreed under Cyprus’s loan agreement with international creditors, the central bank said.

President Nicos Anastasiades agreed March 25 to impose losses on Bank of Cyprus’s larger depositors in exchange for a 10 billion-euro bailout after failing to get financial aid from Russia, one of the nation’s biggest investors. The agreement also shuttered Cyprus Popular Bank Pcl, the country’s second-largest lender.

The deposit-loss plan “will make things worse as small and medium-sized companies will run out of liquidity,” Marios Mavrides, a lawmaker for the ruling Disy party, said in a phone interview from Nicosia. The move “does not help to gain back people’s trust, deposits should be free in order to gain that trust.”

Deal Rejected

An earlier deal with the European Union, International Monetary Fund and European Central Bank that would have forced losses on all depositors was rejected by the Cypriot parliament amid concern it would irreparably damage trust in the nation’s banking industry.

The Central Bank of Cyprus will appoint an independent valuer for the commercial lender and all or part of the 22.5 percent additional haircut may also be converted into shares within 90 days of that process being completed, according to the statement. Any remaining amount will be returned to customers with interest, the central bank said.

The so-called bail-in won’t apply to Bank of Cyprus account holders whose debts to the lender bring their net balance below the 100,000-euro threshold, according to the statement. Holders of accounts at other banks on the Mediterranean island aren’t being touched.

The remaining 40 percent of Bank of Cyprus deposits above 100,000 euros that aren’t subject to the bail-in will be temporarily frozen to ensure the lender’s liquidity. This money, which won’t be used to recapitalize the lender, will receive interest at current levels plus an additional 10 basis points and be released “within a short timeframe,” the central bank said.

Cyprus Popular Bank will be divided into “good” and “bad” banks, according to the statement. Deposits of less than 100,000 euros will be absorbed by Bank of Cyprus and those above that level will be placed in the bad bank.

Cyprus Popular Bank will operate normally from April 2 with all staff and branches passing to the control of Bank of Cyprus, according to the statement.

Cypriot President Nicos Anastasiades vowed yesterday to keep his country in the euro as citizens adapted to restrictions on their use of the common currency to prevent a financial collapse.

(Corrects eighth paragraph of March 30 story to show additional 10 basis points.)
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