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live Deposits under 20,000 euro in Cyprus will not be cut

19 March 2013 / 14:03:30  GRReporter
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On the first working day of this week (Tuesday), Cypriot banks in the country and abroad have remained closed. Their clients are lining up outside ATMs to withdraw their savings. At the same time, the Cypriot National Assembly continues to delay the ratification of the agreement of the bailout from Europe, which would legalize the cuts in bank deposits as part of the fiscal measures for the recovery of the Cypriot economy.

The government has announced in the middle of the day the plan, which it is going to submit for voting. It stipulates that deposits under 20,000 euro in Cypriot banks will not be subject to the extra tax. Deposits amounting to between 20,000 and 100,000 euro will be cut by 6.75%, whereas the rate for deposits exceeding 100,000 euro will be 9.9%. Financial observers in Greece and abroad indicate that the plan to impose the tax on deposits could change, because it will bring 400 million euro less than the goals set by Brussels, which the deputy editor of Kathimerini English Nick Malkoutzis also notes.

After long negotiations, euro zone finance ministers have agreed that the deposits in branches of Cypriot banks in Greece should not be affected by the upcoming poll tax on bank accounts. The branches of three Cypriot banks, namely the Bank of Cyprus, Cyprus Popular Bank (former Marfin Popular Bank) and Hellenic Bank, hold a total of 13 billion euro in deposits in Greece. According to information announced by capital.gr, the Greek Post Bank (TT) will take over the branches of two of the three Cypriot banks in Greece. According to Naftemporiki, the National Bank of Greece (NBG) and Alpha Bank are also interested in taking over the Greek branch of the Bank of Cyprus, and Piraeus Bank is interested in the branches of the three Cypriot financial institutions.

On the Greek side, banks are willing to take over the Cypriot branches upon approval by the supervising authority but Cyprus is holding up the game. According to Finance Minister Yiannis Stournaras, the process will not burden the recovery programme of the Greek financial sector. The additional recapitalization needs that are coming with the transfer of the assets and liabilities of the Cyprus branches to the Greek financial system will increase to 1.5 billion euro from the originally planned 1.1 billion euro. The additional recapitalization needs that are coming with the transfer of the assets and liabilities of the Cyprus branches to the Greek financial system will increase to 1.5 billion euro from the originally planned 1.1 billion euro. The Greek Financial Stability Fund will be able to provide the difference of 400 million euro for the recapitalization of these branches.

Another issue of concern is what will happen to the Greeks’ deposits in Cyprus, which amount to 2.5 billion euro. Significant amounts of local capitals have found protection in Cyprus due to the worsening financial conditions in Greece in recent years. The total amount of deposits of euro zone citizens in Cypriot banks is 4.7 billion euro. Their value significantly increased to a record 6.6 billion euro in June last year, when the sense of uncertainty in Greece had significantly intensified. Deposits of third countries outside the European Union in Cypriot banks amount to 21 billion euro, the main player being the Russian capital.
 
The deposits of Greek banks in Cyprus amount to 7.5 billion euro. The branches of Alpha Bank hold 2.5 billion euro in deposits of individuals and companies, Eurobank has three billion euro in deposits, Piraeus - one billion euro, and the National Bank of Greece (NBG) holds approximately 890 million euro. The smallest amount of deposits, namely about 200 million euro, is held by Emporiki. These are this year’s January data of the Central Bank cited by Naftemporiki, which show that the total deposits concentrated in the Cypriot banking system were 68.4 billion euro or eight times the value of GDP. This means that the share of Greek banks in the Cypriot market is relevantly small. Alpha Bank holds only 3.7% of deposits in the Cypriot banking system, Eurobank – 4.4%, Piraeus - 1.5% and NBG – 1.3%.

The government decision to seize part of the deposits of the citizens in order to fill the holes in the fiscal balance or to repay government obligations would be a precedent with very bad consequences as pointed out by financial experts. The head of the Institute of International Finance in France Tim Adams shared the same view before Reuters, "The next time there is a crisis in any one of the countries (of the euro zone), depositors are going to ask themselves, why am I going to stick around to see if the same set of rules is applied or not? I do think it is an incredibly dangerous precedent, without question," says the specialist.

 

Tags: EconomyMarketsBanksCrisisGreeceCyprus
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