Cyprus to open banks, under strict restrictions

Students take part in an anti-Troika protest outside the Presidencial palace in Nicosia, in this March 26, 2013 filephoto. [Photo/Agencies]

NICOSIA - Cypriot banks will open on Thursday after a 10-day bank holiday decreed by the finance ministry but transactions will be subject to certain limits, a Central Bank official told the state broadcaster Wednesday night.

The controls aim at preventing panic outflow of deposits in the aftermath of a bailout deal for Cyprus involving a loss on deposits in its two main banks.

Yiangos Demetriou, head of internal audit at the Central Bank, said no check payments for any purpose will be allowed and account owners will not be able to withdraw more than 300 euros ($384) per day.

A decree imposing the limits will stay in force for four days but it can be amended depending on conditions and be extended for up to a month.

Demetriou said banks will be open for transactions between 12:00 noon (1000 GMT) and 18:00 local time, instead of the normal 08:30 to 13:00 bank hours, to give employees time to be briefed on the new arrangements and make adjustments to computer programs.

Credit card can be used for transactions of unlimited amounts but transfer of money between banks either locally or abroad will not be permitted except for commercial transactions up to 5,000 euros.

A special committee will be set up to examine applications for transactions of 5,000 to 200,000 euros, which will be submitted collectively by each bank. Applications for transaction of over 200,000 euros will be submitted and examined individually.

Demetriou said payment of salaries will be allowed for unlimited amounts provided that they do not involve transfer of money to other banks and payment of bills on the strength of standing orders to banks will be done normally.

Account owners will also be allowed to make electronic payment of bills or transfer money between accounts in the same bank.

Students abroad will be permitted an allowance of 3,000 euros per three months.

Demetriou said he was confident that people have come to understand the critical situation the country is facing and also that there is no point to withdraw money just to stash it somewhere in their house.

"It does not serve any purpose to withdraw their money from the banks ... and take them somewhere," Demetriou said.

When the banks open on Thursday, the banking landscape will be entirely different from what it was before the Eurogroup approved the bailout deal on Sunday and demanded radical restructuring of the banks.

The bailout amount equals almost two thirds of Cyprus's GDP of about 17.5 billion euros, which represents 0.2 of the eurozone total GDP.

Cyprus Popular (Laiki) Bank, the second largest lender which pushed Cyprus into the bailout deal by drawing 9.2 billion euros in emergency liquidity assistance from the European Central Bank in just 12 months, will cease to exist.

Its good part involving deposits of up to 100,000 euros and also the 9.2-billion-euro debt will be folded into the largest lender, Bank of Cyprus. Its bad section will be liquated after about seven years, according to Finance Minister Michael Sarris.

The merger of the two banks schemed by the Eurogroup will satisfy its dual demand for downsizing the Cypriot banking system from about seven to eight times the size of the GDP and also imposing a haircut on large Russian deposits.