MOSCOW, June 19 (RIA Novosti) – Cyprus plans to give shares of the island nation’s largest bank, Bank of Cyprus, to Russian depositors as compensation for recent deposit “haircuts” imposed under a €10 billion ($13 billion) bailout agreement to pull the economy out of financial crisis, Cyprus’ president said Wednesday.
Cyprus recently agreed to overhaul its banking sector and introduce “haircuts,” or trimmings of acccount value, for bondholders and depositors with accounts of more than €100,000 in the country’s two biggest banks, in return for the much-needed bailout from the European Union, the European Central Bank and the International Monetary Fund.
Before the trimmings, Russians had about $19 billion in deposits in Cyprus mainly through companies they established there. By the end of last year, Russian banks had about $12 billion placed with Cypriot banks and had loaned about $40 billion to Cypriot firms, according to estimates by the international rating agency Moody’s.
“The deposits of Russian citizens who suffered will be compensated with Bank of Cyprus shares. In fact, Russian citizens will get a fairly large share of the bank’s capital and, correspondingly, get some control of the Bank of Cyprus,” Cypriot President Nicos Anastasiades said in an interview with Russian business television channel RBC TV.
The Cypriot government will do everything possible to minimize Russian citizens’ losses on their deposits with Cypriot banks, the president added.
Many Russian businesspeople have long perferred to place their savings offshore, partly in a bid to avoid political instability and corruption in Russia. Until recently, Cyprus offered them low taxes and lax business regulations, along with political stability.
Under the bailout deal, Laiki Bank, the country’s second-largest lender, is to be broken up and its deposits of less than €100,000 are to be moved into the Bank of Cyprus, which will be restructured. Laiki’s deposits of over €100,000 are to be frozen and used to resolve its debts, while depositors with more than €100,000 at the Bank of Cyprus face losing up to 60 percent on their savings.
In late April, the Bank of Cyprus said it had completed swapping a part of deposits for shares under the bailout deal. The bank said 37.5 percent of the deposits exceeding €100,000 as of March 26 this year had been converted into Class A shares and another 22.5 percent were held for possible conversion into securities as well. Another 30 percent of such deposits were frozen.