Bank of Cyprus depositors with more than 100,000 euros ($128,200) could lose up to 60% of their savings as part of the EU-IMF bailout restructuring move, officials say.
The central bank of Cyprus said 37.5% of holdings over 100,000 euros would become shares.
Up to 22.5% will go into a fund attracting no interest and may be subject to further write-offs.
Bank of Cyprus depositors with more than 100,000 euros could lose up to 60 percent of their savings as part of the EU-IMF bailout restructuring move
The other 40% will attract interest – but this will not be paid unless the bank performs well.
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.
Cyprus needs to raise 5.8 billion 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.
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.
Cyprus banks have reopened after a two-week closure sparked by the EU-IMF bailout negotiations, amid tension over possible large scale withdrawals.
Branches were replenished with cash overnight and police and private security guards deployed amid fears of a run on the banks by customers.
Banks customers face strict controls on the amount they can withdraw each day.
The restrictions on the free movement of capital represent a profound breach of an EU principle.
Cyprus banks have reopened after a two-week closure sparked by the EU-IMF bailout negotiations, amid tension over possible large scale withdrawals
However, the European Commission on Thursday justified the move, saying the “stability of financial markets and the banking system in Cyprus constitutes a matter of overriding public interest”.
Cyprus is the first eurozone member country to bring in capital controls.
Cyprus needs to raise 5.8 billion euros to qualify for a 10 billion-euro bailout from the EU, ECB and the IMF, the so-called troika.
As part of the bailout plan, depositors with more than 100,000 euros in Cypriot banks will see their savings taxed in exchange for bank shares.
An earlier plan to tax small depositors was vetoed by the Cypriot parliament last week.
Branches began to open at noon local time and will close at 18:00.
Some armed police have been deployed and hundreds of staff from the private security firm G4S are guarding bank branches and helping to transport money.
The stock exchange, shut since March 16, remains closed on Thursday and will not reopen until after Catholic Easter.
In a statement issued on Wednesday, the ministry of finance insisted the capital control measures were temporary and were needed to “safeguard the stability of the system”.
It read: “The Central Bank of Cyprus and the government of Cyprus will review them each day, with a view to progressive lifting of the measures as soon as circumstances allow.”
The severe new rules have been imposed to prevent a torrent of money leaving the island and credit institutions collapsing.
As well as the daily withdrawal limit, Cypriots may not cash cheques.
Payments and/or transfers outside Cyprus via debit and or credit cards are allowed up to 5,000 euros per person per month.
Transactions of 5,000-200,000 euros will be reviewed by a specially established committee, with applications for those over 200,000 euros needing individual approval.
Travellers leaving the country will only be allowed to take 1,000 euros with them.
On Wednesday night, hundreds of protesters rallied outside the presidential palace, chanting: “I’ll pay nothing; I owe nothing,” the Reuters news agency reported.
Many economists predict the controls could be in place for months.
The unprecedented restrictions represent a profound breach of an important principle of the EU that capital, as well as people and trade, should able be to move freely across internal borders.
However, the European Commission said member states could introduce capital controls “in certain circumstances and under strict conditions on grounds of public policy or public security”.
But it added that “the free movement of capital should be reinstated as soon as possible”.
All Cyprus banks will remain closed until Thursday, March 28, the central bank has announced.
Temporary measures will be placed on transactions when they reopen despite an EU/IMF bailout deal.
Earlier, the Cypriot authorities said all but the biggest two, Bank of Cyprus and Laiki Bank, would open on Tuesday, March 26.
The central bank now says all will remain closed to ensure the whole banking system functions “smoothly”.
The bailout deal will see larger depositors in the two biggest banks, Bank of Cyprus and Laiki, lose money.
All Cyprus banks will remain closed until Thursday, March 28, the central bank has announced
President Nicos Anastasiades said “very temporary restrictions” would be put on capital flows, but gave no details.
Controls to prevent money leaving the country are already in place.
Certain limits on the size of cash withdrawals are expected to continue.
Banks have not been open since March 15. Their reopening had been expected after Cyprus agreed a deal with the IMF and the EU that releases 10 billion euros in support.
It was conditional on Cyprus itself raising 5.8 billion euros, most of which looks likely to come from depositors with more than 100,000 euros in Bank of Cyprus and Laiki or Popular Bank.
The banks remained closed after the country’s first money-raising solution, which would have hit smaller deposit holders as well as larger holdings, was rejected by parliament.
The new deal for Cyprus, unlike previous agreements, does not require parliamentary approval. It will also include austerity measures and tax increases.
Laiki will be shut down, and deposits under 100,000 euros, which are guaranteed by the state under EU law, will move into the Bank of Cyprus to create a “good bank”.
Deposits above that insured amount will be frozen and used to pay Laiki’s debts and recapitalize the Bank of Cyprus, with depositor losses eventually converted into shares.
Major depositors, many of whom are wealthy Russians, will not be able to access accounts exceeding the 100,000-euro limit until the restructuring of the banks is complete.
A government spokesman said the losses on uninsured depositors would be “under or around 30%”.
Cyprus officials have announced the country’s banks, which were closed to prevent mass withdrawals, will remain shut until at least Tuesday, March 26th.
The Cypriot government began an emergency meeting this afternoon to discuss alternatives to the EU-IMF bailout deal rejected by parliament on Tuesday.
Reports say the cabinet is considering imposing capital controls when banks are reopened.
Meanwhile, Cyprus’ finance minister is in Moscow to seek help from Russia.
Russia holds multi-billion dollar investments in Cyprus.
Finance Minister Michalis Sarris said after talks with Russian Finance Minister Anton Siluanov: “There were no offers, nothing concrete.”
Talks are expected to continue in Moscow on Thursday.
The banks will remain shut on Thursday and Friday this week and Monday March 25 is a scheduled bank holiday. The stock exchange also remains closed.
Germany has said banks in Cyprus may never reopen if a bailout is not agreed.
Earlier, Cypriot President Nicos Anastasiades met party leaders and the central bank governor in Nicosia to hammer out a Plan B, after a one-off tax on savings failed to get the support of any MPs.
Nicos Anastasiades has also been talking to the European Union, European Central Bank and IMF.
Bank mergers, a bond issue and more Russian funding have all been mentioned as ways to help the country out of the crisis.
The establishment of a “bad bank” which would take on risky assets held by Cypriot banks has also been mentioned by officials.
Cyprus’ banks are still giving out cash through machines – although with limits, and some are running low.
Some businesses are now refusing credit card payments.
Cyprus banks, which were closed to prevent mass withdrawals, will remain shut until at least March 26th
On Wednesday, German Chancellor Angela Merkel said she regretted but respected the Cypriot vote.
Angela Merkel said the eurozone had a duty to find a solution for Cyprus, but added that the country’s current banking system was “not sustainable”.
Cyprus’ banks were left exposed following the debt crisis in Greece and there are fears Cyprus could go bankrupt if they fail.
German Finance Minister Wolfgang Schaeuble warned Cyprus that its banks might never be able to reopen if it rejected the bailout.
The controversial levy had been proposed as the condition for the 10 billion-euro ($13 billion) EU and IMF bailout. Cyprus was expected to raise 5.8 billion euros through the one-off tax on bank savings.
The plan was altered on Tuesday to exempt savers with less than 20,000 euros, but a 6.75% charge on deposits of 20,000-100,000 euros and a 9.9% charge for those above 100,000 euros remained.
However, parliament rejected the deal, with 36 MPs voting against it, 19 abstaining and none in favour.
Protesters outside parliament reacted with joy at the decision.
Cyprus has attracted money through its lower taxes, with Russians holding between a third and half of all Cypriot deposits.
Russian private and corporate deposits are believed to total about $30 billion.
Russian President Vladimir Putin had called the bailout deal “unfair, unprofessional and dangerous”.
Analysts say Russia may provide more funding in return for interests in Cyprus’ offshore energy fields.
One offer of help has come from Cyprus’ Orthodox Church, which is a major shareholder in the third-largest domestic lender, the Hellenic Bank.
Archbishop Chrysostomos I said on Wednesday the Church was willing to mortgage its assets to invest in government bonds.