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Cyprus banks re-open; limits on transactions

By Menelaos Hadjicostis

Associated Press

Published: Thursday, March 28 2013 8:13 a.m. MDT

Cyprus' President Nicos Anastasiades center, takes part in a meeting with various party leaders and the governor of the Central Bank of Cyprus Panicos Demetriades, second right, at the Presidential Palace in Nicosia, Wednesday, March 20, 2013.

Petros Giannakouris, Associated Press

Enlarge photo»

NICOSIA, Cyprus — Banks in Cyprus reopened to customers for the first time in nearly two weeks Thursday with strict restrictions on transactions to stop people withdrawing all their savings and triggering further chaos in the country's financial system.

The limits on transactions, which include caps on withdrawals and money leaving the country, are a first in the 14-year history of the euro.

Across Cyprus, large lines had formed ahead of the opening of banks for six hours from noon, and guards from private security firms reinforced police outside some ATMs and banks in the capital, Nicosia.

In Nicosia, one 70 year-old pensioner who only gave his name as Ioannis arrived at the bank some two hours ahead of the scheduled opening time.

"I had to come this early, I came from my village 20 kilometers away, what do they want me to do, keep coming and going?" he said.

Banks have been shut since March 16 to prevent people draining their accounts as politicians scrambled to come up with a plan to allow Cyprus to qualify for 10 billion euros ($12.9 billion) in bailout loans for its stricken banking sector.

The deal was finally reached in Brussels early Monday, and imposes severe losses on deposits of over 100,000 euros in the country's two largest banks, Laiki and Bank of Cyprus. Laiki will be broken up, with its good assets being absorbed by Bank of Cyprus. The exact amounts of the losses have not yet been officially announced.

Some individuals and businesses, spotting that Cyprus's economy was in trouble and that a tax on deposits was being discussed, had managed to move their money out Cyprus well before the banks closed their doors last week.

According to European Central Bank figures, deposits in Cyprus's banks slipped 2.2 percent last month, to 46.359 billion euros, the lowest figure since May 2010 and down from a peak of 50.5 billion euros in May 2012. The figure excludes deposits from other banks and the central government.

"I anticipated, not this to happen, but I anticipated issues last year, when Greece had a question of whether it will remain in euro and the consequences of that," said Athos Angelides, who runs a business importing and distributing hair salon products. "So luckily we transferred money in the middle of last year over to the UK."

Although the banks have opened, customers are severely limited in access to their accounts. Capital controls, imposed to prevent worried savers and businesses rushing to withdraw all their money, include limiting cash withdrawals to 300 euros ($383) per day per person and limiting payments abroad to 5,000 euros.

No checks can be cashed, although they can be paid in, and people leaving the country can only take up to 1,000 euros, or the equivalent in foreign currency, with them in cash.

The country's general accounting office said pensions and other social security payments, together with salaries for government employees, will be in bank accounts next Tuesday and Wednesday.

"The Central Bank decided on some limitations, so we are sure that slowly, slowly we are going back to functioning of the banks without serious problems," the head of the parliament, Yiannakis Omirou, told AP.

"Some problems I'm sure will be created but our people are ready to overcome the difficult moments we are passing."

The restrictions will be reviewed daily and are initially in place for seven days until next Wednesday. Some analysts are concerned that, if the controls are kept in place for much longer than that, Cyprus's measures will go against the fundamental principle of the single currency: Free and easy movement of money around the euro group's 17 members.

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