31 Mar 2013

Big Cyprus depositors could lose 60% of savings

10:17 am on 31 March 2013

Bank of Cyprus depositors with more than €100,000 could lose up to 60% of their savings as part of a bailout restructuring move, according to officials.

The central bank says 37.5% of holdings over €100,000 will become shares.

Up to 22.5% will go into a fund attracting no interest and may be subject to further write-offs. The other 40% will attract interest - but this will not be paid unless the bank performs well.

It was known that the wealthiest savers at the Bank of Cyprus would take a large hit from the bailout deal - but not to this extent, the BBC reports.

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.

The concern is that once the unprecedented capital controls - which are in place of an indefinite time - are lifted, the wealthiest will rush to move their deposits abroad.

The BBC reports the larger than expected loss could also have devastating consequences for large depositors such as schools and universities. And it could spread fear in other indebted eurozone countries that Cyprus might set a precedent.

Cyprus needs to raise €5.8 billion to qualify for the €10 billion bailout from the European Union and International Monetary Fund. It 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.

President Nicos Anastasiades has said the financial situation has been "contained" following the deal.