Overhaul of Cyprus’s banking sector set to begin

The Central Bank of Cyprus has prepared a decree, leaked to the media on Friday night, that foresees a 37.5 percent haircut for uninsured depositors at Bank of Cyprus and which paves the way for the resolution of Cyprus Popular Bank (Laiki) to begin.

Deposits under 100,000 euros at Laiki are to be put in a “good bank” that will be merged with Bank of Cyprus, the island’s largest lender, as part of the overhaul of the financial sector that President Nicos Anastasiades agreed to in order to clinch a deal with the eurozone and the International Monetary Fund for a 10-billion-euro bailout.

Laiki customers with savings of more than 100,000 euros, which are not guaranteed by the Cypriot state, face even greater losses than uninsured Bank of Cyprus customers who will receive equity as part of the haircut. The Central Bank of Cyprus also said on Friday that capital controls on the island would be extended for another five days.

Anastasiades insisted that he has no intention of examining a possible euro exit for Cyprus. “There is no question of us experimenting with the future of our country,” he told a civil servants’ conference, during which he decried the Eurogroup’s stance on Cyprus.

The Cypriot leader also said that he would ensure there is a thorough investigation into the management of the country’s banks over recent years. His pledge came as a local website, 24h, published a list of politicians and their relatives whose loans had allegedly been written off by local banks in the last few years.

The list features the names of politicians from all parties except the Movement for Social Democracy (EDEK) and the Social Ecology Movement (KKO) and indicates that loans from 11,000 to 2.8 million euros have been waived by banks. Attorney General Petros Clerides said he would investigate the allegations.

It was also revealed on Friday that Russian Foreign Minister Sergey Lavrov extended an invitation to his Cypriot counterpart Ioannis Kasoulides to visit Moscow. Cyprus failed in a last-ditch attempt earlier this month to convince Russia to invest further in the island’s economy. Moscow extended a 2.5-billion-euro loan to Nicosia in 2011. It is set to improve the terms of this loan to ease the burden on Cyprus.

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