Cyprus government has decided to lift the last remaining capital controls it imposed on the country’s banking system during the financial crisis of 2013.
Cyprus was the only crisis-hit eurozone country to restrict capital transfers, as it faced a run on the banks.
The controls were eased in January.
There will no longer be a monthly cap of €20,000 ($22,000) on transfers by individuals to foreign banks, or of €10,000 for travelers moving money out of the country.
Cyprus received a €10 billionn bailout from the EU and International Monetary Fund (IMF) after its biggest banks nearly collapsed in March 2013 because of huge losses on their Greek investments.
The island’s second-biggest lender, Cyprus Popular Bank (also known as Laiki Bank), was wound up and deposits worth more than €100,000 in the largest bank, Bank of Cyprus, were seized.
Those measures were part of the deal to ensure that Cyprus funded part of the €10 billion bailout.
Speaking on April 3, Cyprus President Nicos Anastasiades voiced confidence that the country was recovering well, despite three years of recession
Lifting capital controls, Nicos Anastasiades said, was “a vote of confidence in our banking system which, now fully independent of Greek banking institutions, can move forward”.
The Greek debt crisis had a severe impact on Cypriot banks, which lost about €4.5 billion worth of Greek sovereign bonds – equivalent to 25% of Cypriot gross domestic product, Reuters news agency reports.
President Nicos Anastasiades has urged eurozone leaders to revise the terms of Cyprus’ bank bailout, in a highly critical letter.
Nicos Anastasiades said the “haircut” imposed on large deposits under the 10 billion-euro bailout had significantly eroded the capital kept by businesses in banks.
Losses were imposed on big deposits in Bank of Cyprus (BoC) and Laiki Bank. BoC is now in trouble, the letter said.
The letter to Cyprus’s creditors, sent last week, was leaked on Wednesday.
“I urge you to support a long-term solution to Bank of Cyprus’ thin liquidity position,” Nicos Anastasiades said.
Laiki Bank is being wound up and its safe assets transferred to BoC.
For large depositors at both banks the first 100,000 euros is protected, but the government can tap up to 40% of their remaining deposits, to contribute billions towards the bailout.
President Nicos Anastasiades has urged eurozone leaders to revise the terms of Cyprus’ bank bailout, in a highly critical letter
But Nicos Anastasiades complained that “no distinction was made between long-term deposits earning high returns and money flowing through current accounts, such as firms’ working capital”.
“This amounted to a significant loss of working capital for businesses.”
The rescue was agreed in March with the troika of international lenders – the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF).
Capital restrictions imposed to prevent a run on Cypriot banks have been eased, but remain in place. The president said such “artificial” measures “will only aggravate the depositors the longer they persist”.
“Rather than creating confidence in the banking system they are eroding it by the day,” Nicos Anastasiades warned.
The text of his letter appeared on the Open Europe think tank’s blog on Wednesday. His complaints about the bailout were also reported by the Financial Times.
Unnamed eurozone officials quoted by Reuters news agency say there are no plans to alter the terms of the bailout for Cyprus or to supply more funds.
Eurozone finance ministers will discuss the letter at a meeting in Luxembourg on Thursday, Reuters reports.
Cyprus has started receiving installments of the bailout package from international creditors.
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%”.
Eurogroup have agreed a deal on a 10 billion-euro bailout for Cyprus to prevent its banking system collapsing and keep the country in the eurozone.
Laiki (Popular) Bank – Cyprus’ second-biggest – will be wound down and holders of deposits of more than 100,000 euros will face big losses.
However, all deposits under 100,000 euros will be “fully guaranteed”.
The European Central Bank (ECB) had set a deadline of Monday for a deal.
Laiki will be split into “good” and “bad” banks, with its good assets eventually merged into Bank of Cyprus.
The president of the Eurogroup of eurozone finance ministers, Jeroen Dijsselbloem, told a press conference in Brussels the deal had “put an end to the uncertainty” around Cyprus’s economy.
Jeroen Dijsselbloem added he was “convinced” the new deal was better for the Cypriot people than the broader measure rejected by the Cypriot parliament last week, as it focused on two problem banks rather than the entire sector.
Laiki Bank, Cyprus’ second-biggest, will be wound down and holders of deposits of more than 100,000 euros will face big losses after Eurogroup agreed on bailout
The deal is good news for Cyprus’s small account holders.
All deposits under 100,000 euros will be secured. But for those with deposits of more than that amount in the country’s two biggest banks – Laiki and Bank of Cyprus – the deal will come as a bitter blow.
The percentage to be levied on large deposits in the Bank of Cyprus will be resolved in the coming weeks, Jeroen Dijsselbloem said.
One key element of the deposit tax, demanded by the IMF, is that it not require a parliamentary vote.
EU Commissioner for Economic Affairs Olli Rehn said that the “depth of the financial crisis in Cyprus means that the near future will be difficult for the country and its people”.
Asian financial markets rose in early trading on news of the deal.
The deal came after hours of tense negotiations between Cypriot President Nicos Anastasiades and the “troika” of EU, ECB and IMF leaders.
Nicos Anastasiades had reportedly asked the heads of the troika if they wanted him to quit.
“Do you want to force me to resign?” Cyprus News Agency quoted him as saying, citing sources at the presidential palace.
“I am giving you one proposal, and you do not accept it. I give you another and it’s the same. What else do you want me to do?” Nicos Anastasiades was quoted as saying.
In another development on Sunday, Bank of Cyprus – the island’s biggest lender – further limited cash machine withdrawals to 120 euros a day.
With queues growing outside cash machines across the island, the second biggest lender, Laiki, also lowered its daily limit to 100 euros, Cyprus News Agency reported. The bank’s previous limit had been 260 euros per day.
Banks have been closed since Monday and many businesses are only taking payment in cash.
Jeroen Dijsselbloem said that the details of the re-opening of Cyprus’ banks would be discussed on Monday by the Cypriot government and the troika.
There is concern on Cyprus that a levy on large-scale foreign investors, many of whom are Russian, will damage its financial sector.