Cyprus banks reopen, cash restrictions cause anxiety

There were long lines of anxious people but no sign of trouble as banks in Cyprus opened Thursday for the first time in nearly two weeks, following an international bailout that sought to prevent the country from financial ruin.

'Let me tell you once again there will be no bank run.' —Loannis Kasoulides, foreign minister

The government has imposed a daily limit on how much people can withdraw to stop a run on its banks — the first such action in the 14-year history of the euro currency. Cypriots took the measure in their stride, aware that with their economy teetering on the edge of collapse, any undue panic would make the situation worse.

"Everything has been paralyzed. Besides my business being already low, now no one thinks of buying flowers," said flower shop owner Christos Papamichael who was among about 30 people waiting patiently for bank doors to open.

"People think of anything (else) besides flowers, they’ve got other priorities. But now there’s a half an hour delay and we’re just waiting here."

The limits on transactions, have been imposed initially for seven days and are being reviewed daily. According to Central Bank assessments, the restrictions are to be fully lifted in a month, Foreign Minister Loannis Kasoulides said.

"Gradually, probably in a period of a month, or something according again to the estimates of the Central Bank and according to the developments, the restrictions will be fully lifted," he said.

"If there (are) withdrawals from the banks, they may happen, but let me tell you once again there will be no bank run."

Financial woes

Guards from private security firms reinforced police outside some ATMs and banks in the capital, Nicosia, but no problems controlling crowds was reported. 

President Nicos Anastasiades expressed his "warm gratitude and deep appreciation towards the Cypriot people for the maturity and spirit of responsibility they have shown at a critical time for the stability of the Cypriot economy," a statement from his office said.

However, many Cypriots were left frustrated and confused by the closures and controls and concerned about the effect on their businesses and livelihoods. 

"No matter how much information there was, things were changing all the time," said Costas Kyprianides, a grocery supplier in Nicosia.

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

A deal was finally reached in Brussels with other euro countries and the International Monetary Fund early Monday. The country’s second-largest bank, Laiki, is to be split up, with its healthy assets being absorbed into the Bank of Cyprus. Savers with more €100,000 ($129,000) in either Bank of Cyprus and Laiki will face big losses. At Laiki, those could reach as much as 80 per cent of amounts above the 100,000 insured limit; those at Bank of Cyprus are expected to be much lower. 

The capital controls include limiting daily cash withdrawals to €300 ($383) per person and limiting payments abroad to €5,000 ($6,400). No checks can be cashed, although they can be deposited. 

Anyone leaving the country, whether Cypriot or a visitor, can only take up to €1,000 ($1,290) 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.

Worrisome future

Many Cypriots were working out exactly what they could and couldn’t do. Television talk shows hosted dial-ins with experts, with viewers’ queries ranging from which bank they would repay loans to if their lender was being wound down, how they could pay tuition fees for children studying abroad and handle check payments. People wondered whether they would be able to access their salaries, many of which were due this week. 

Some analysts are concerned that, if kept in place long, Cyprus’s measures will go against the fundamental principle of the single currency: Free and easy movement of money around the euro’s 17 members.

In a statement Thursday, The European Commission said EU member states could restrict financial transactions "in certain circumstances and under strict conditions on grounds of public policy or public security" but added that "the free movement of capital should be reinstated as soon as possible".

Not every account in Laiki and Bank of Cyprus will be hit with big losses. Deposits held by the central government, local authorities such as municipalities, universities and development projects being co-funded by the European Union will not face a so-called haircut. Constantinos Petrides, undersecretary to the president, said the measure was agreed between the Cypriot government and a delegation from the IMF, European Central Bank and European Commission. 

Government welfare and pension fund accounts in Laiki will be treated in the same way as those in the Bank of Cyprus, "thereby ensuring most of the deposits," Petrides added.

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

According to ECB figures, deposits in Cyprus’ banks slipped 2.2 per cent last month, to €46.36 billion ($59.36 billion), the lowest figure since May 2010 and down from a peak of €50.5 billion ($64.67 billion) 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."

The stock market, which has been closed since March 15, stayed shut. It will remain closed on Friday and Monday, when most of Europe is closed for the Easter celebrations. Cyprus follows the Orthodox calendar and does not celebrate Easter until May this year.