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Only €190 mln in Cyprus market after release of 3mo depos

31 January, 2014

 * BOCY releases fixed depos, 20% cash cap subject to controls *

The Bank of Cyprus will release only 190 mln of the 950mln euros blocked in 6-month deposits that expire Friday, with customers allowed to withdraw up to 20% of this amount per month, until all capital controls are finally lifted, probably by the end of March.
This is one of three products that were created last July after the haircut imposed on uninsured deposits of over 100,000 euros in order to prop up the bank’s liquidity.
The bail-in of about 4.8 bln euros in the deposits-for-equity plan saw savers now controlling 81% of the BOCY Group shares. Former shareholders saw their stakes watered down to 1% of what they were before the crisis and ‘Laiki Legacy’ holders now control 18% of the bank’s shares.
The amount reaped from the depositors were frozen or subject to a near 40% write-down, with the resolution authority only allowing 12% to be released last July. The remaining 47.5% were blocked in 6-month, 9-month and 12-month deposits, with the bank maintaining the right to roll-over all three if it feared a bank-run and a subsequent depletion of its depositor base.
This could push the critical Core Tier 1 ratio below the 10.2-10.4% of its capital that CEO John Hourican announced in early December, with chairman Christis Hasapis reiterating that the outflow seems to have stopped and non-performing loans are being partly recovered, helping the bank’s liquidity.
The Core Tier 1 ratio for all banks in the Eurozone is 9% with Bank of Cyprus executives believing they can maintain this thin cushion of safety.
The sale of its Ukraine subsidiary for 250 mln euros will also help boost the bank’s capital adequacy ratios, as will the sale of other non-core assets later in the year.
The balance from the 6-month deposits freed on Friday will be available to customers as of Monday and will remain in 1-month deposits with a 50bp premium, up from the 1% for ordinary 30-day fixed deposits to 1.50% for bailed-in depositors.
Customers may withdraw up to 20% of the freed amount each month without any penalty and have a further 15 days to inform the bank on further instructions. In the absence of any instructions, the 30-day deposits will be automatically renewed each month and the interest compounded on the initial amount.
Special circumstances may also allow depositors to withdraw the full amount, but these are subject to thorough checks by the Central Bank.
The Citizens’ Alliance movement, headed by businessman and former cabinet minister Yiorgos Lillikas, said the release of the 6-month deposits was “a positive development.”
However, it warned that there was an urgent need to inject fresh capital into the local economy and that the Central Bank ought be very careful as the majority of the deposits are held by foreigners and there is a risk of capital flight from Cyprus, using bloated invoices.
It also called on the government to demand that the European Central Bank to provide unlimited liquidity to the Cypriot banks in order to help reduce interest rates and to assist small to medium-sixed enterprises (SMEs).