Cyprus braces for Russian cash exodus

By Caroline Nelly

Russian investors were shocked by having to contribute heavily to the international bailout of Cyprus, the east Mediterranean island which now faces a tall order in restoring its allure.

Some participants who live in Russia and attended a Global Russia Business Meeting in the southern resort of Limassol suffered a major so-called «haircut» on deposits of more than 100,000 euros in the small country’s two largest banks.

Speaking to AFP on condition of anonymity, some said that they felt a sense of «betrayal».

Russians have billions of euros in deposits parked in Cyprus, with estimates ranging from 5-31 billion euros.

Some will take a hit of as much as 60 percent or more on bank deposits above the 100,000-euro mark.

Cypriot officials at the conference admitted there would be a large cash outflow as a consequence of the bailout terms.

“The money is going to leave, but I think the majority of the structures set up by international companies will remain in Cyprus,» said Christodoulos Angastiniotis, chairman of the Cyprus investment promotion agency.

Theo Parperis, president of the Institute of Certified Public Accountants of Cyprus, agreed: «There will be a very important outflow of money because… the Eurogroup decision has broken the trust in the Cypriot banking system.

“It is the end of Cyprus as a place for holding huge deposits, but our model is not just about deposits. The financial sector will still be one of the main sources of income,» Parperis said.

He said the draconian conditions imposed for the 10-billion-euro bailout by the lending «troika» of the European Central Bank, International Monetary Fund and European Union did not damage the country’s main asset.

“Cyprus still offers an attractive business package» of low taxes, double tax avoidance treaties with Russia and the quality of its UK- and US-trained lawyers and accountants, as well as quality of life and cultural ties.

According to Natalya Kaspersky, head of a Russian data management firm, such elements make Cyprus «very convenient in term of setting up a holding company,» even if it is now much less attractive following the hit on large deposits.

“If such measures were made possible, what will come next? The corporate tax was already increased from 10 percent to 12.5 percent, and we have no guarantee that other major changes are not imposed,» she said.

Because of this, her company has «started to work with consultants for changes of jurisdiction for the holdings.”

“We have hardly been affected so we are not reacting emotionally as some investors who want all their assets out of Cyprus,» Kaspersky said, «but we must assess the risks and alternatives.”

She said it was «not certain» that her business would pull out of the island.

Frank-Juergen Richter, one of the organisers of the Global Russia Business Meeting, sounded a note of hope that Russian businesses might stay.

“I feel Russia is still committed to Cyprus,» he told AFP in Limassol which is also home to many thousands of Russians.

“This crisis could be an opportunity for Cyprus by forcing it to broaden the spectrum of services it offers, for example by offering IPOs for Russian firms,» Richter said.

“It could thus develop into a real financial sector that is not just doing money management.”

The Cyprus government has wasted no time in launching a charm offensive targeting Russians who might be tempted to take their money out of the country.

Opening the conference on Monday, President Nicos Anastasiades said foreigners with bank deposits in Cyprus who lost at least 3 million euros ($3.9 million) under the EU bailout would be given passports.

He also pledged other measures «to mitigate… the damage the Russian business community has endured.”


Subscribe to our Newsletters

Enter your information below to receive our weekly newsletters with the latest insights, opinion pieces and current events straight to your inbox.

By signing up you are agreeing to our Terms of Service and Privacy Policy.