The chiefs of the island’s two largest lenders, Bank of Cyprus and Cyprus Popular Bank (Laiki) have made a dramatic appeal to parliament to approve a package of EU-imposed rescue measures that include a levy on savings that should prevent a banking sector default.
Deputies rejected the first table of the package on Tuesday that would have seen 5.8 bln euros raised from all depositors in local banks, in exchange for a 10 bln euro bailout from the European Commission, the European Central Bank and the IMF.
Rejecting the slightly altered package on Friday would spell the default of the banking sector that has been denied liquidity because of the losses compounded after a haircut on Greek government bonds two years ago.
"It should be understood by all, especially the 56 members of parliament, that from the minute it was obvious that there was no alternative, there should be no further delay in the ratification of the Eurogroup’s proposal on the introduction of whatever levy on banking deposits above 100,000 euros," said Bank of Cyprus Chairman Andreas Artemi.
The benchmark contribution affects local and foreign depositors, primarily Russian investors, who are upset that they have to carry the burden of a levy as high as 15% on their savings, considered by conservative eurozone leaders in Germany, Holland and Finland as dirty money laundered by oligarchs and gangsters.
MPs were debating a package of measures that include the establishment of a solidarity wealth fund that would mortgage future natural gas revenues that are not expected to flow until after 2018, as well as a ceiling on capital flight to prevent a bank run.
Artemi added that a potential collapse of the banking sector will lead to the total loss of all deposits over 100,000 euros, as well as the immediate liquidation of the collateral attached to non performing loans, resulting in the immediate closure of hundreds businesses and the loss of thousands of jobs not only in the banking sector.
Artemi also rejected the option of a Cyprus exit from the Euro area, noting that would lead to a vicious circle of devaluation and deflation.
The bank’s vice president, Evdokimos Xenophontos, urged politicians to reconsider their rejection, but this time to propose a levy only on native Cypriot depositors, so as to prevent a massive exodus of Russians, currently the second biggest market of tourists and a significant contributor to the island’s financial services sector.
“We should be ready to make sacrifices and I’m referring to Cypriot savers. We cannot do this to the foreign depositors who have trusted us. This would be robbery,” Xenophontos said, adding that “if the foreigners leave, they will never come back. But if we protect them, even if they leave, they will return.”
CEO Yiannis Kypri said earlier that it was better for the banking sector to suffer than the whole economy, suggesting that losing Russian depositors was a real concern.
“Let’s lose the battle, but not the war,” Kypri said.
Takis Phidia, CEO of the second biggest lender, Popular Laiki, made similar statement at parliament, saying that a haircut on deposits as suggested earlier in the week “would have been and would save both banks. Unfortunately we have become guinea pigs for a Eurogroup experiment.”
