Cyprus’ Parliament agreed on 30 March 2013 to a 10 billion euro bailout with the European Union and the International Monetary Fund (IMF), and fulfilled the required conditions to receive the first instalment of the bailout package in the amount of 2 billion euro, paid out on 13 May 2013.
What are conditions of the bailout?
Cyprus is to contribute approx. 7 billion euros for their part of the deal in the agreed upon bailout. The funds will be raised through an overhaul of the current banking structure as well as tax increases and privatisations.
Laiki Bank (Cyprus’ second largest bank) will be closed and all deposits fewer than €100,000 will be moved to Bank of Cyprus and all deposits above €100,000 will be moved to a “bad bank.” A soon to be significantly restructured Bank of Cyprus will then freeze all deposits above €100,000. The €100,000+ deposits will effectively be used to help fund the contribution on the part of Cyprus, though it is unclear exactly how much.
Are the capital controls still in effect?
The capital controls initially imposed have been relaxed slightly, but still remain in effect for the foreseeable future.
Below is a summary of restrictions and exceptions as applies to the use of credit and debit cards and other payment instruments, as per the latest decree released on 24 May 2013 (Enforcement of Restrictive Measures on Transactions in case of Emergency Law Thirteenth Decree of 2013):
The maximum amount of cash that may be withdrawn per day may not exceed €300 per natural person or €500 per legal person, in each credit institution.
The cashing of cheques is prohibited.
Exports of euro notes and/or foreign currency may not exceed €3,000 per trip, per natural person.
Opening of New Bank Accounts
The opening of new bank accounts in Cyprus is prohibited, but exceptions apply for any customer who is not an existing customer of the particular credit institution and may only be able to open a new bank account if:
(a) the account is funded with a transfer from abroad into Cyprus; or
(b) prior approval of the Committee is obtained.
- Cashless Payments and Transfer of Funds
The cashless payment or transfer of funds to accounts held in other credit institutions within Cyprus may not exceed €15,000 per month, per natural person in each credit institution.
The cashless payment or transfer of funds to accounts held in other credit institutions within Cyprus may not exceed €75,000 per month, per legal person in each credit institution.
A cashless payment or transfer of funds to accounts held in other credit institutions within Cyprus for the purchase of goods and or services may not exceed €300,000 per transaction; provided that the payment is not made from one credit institution to another into the person’s own account. The credit institution is authorized to request a justification for the transaction.
The cashless payment or transfer of funds to an account held in another credit institution within Cyprus for the purchase of goods and or services may exceed €300,000 per transaction; upon presentation of documents that justify such a transaction.
Cashless payments and/or transfers of funds to accounts held abroad are prohibited. Some exemptions apply.
The latest decree does allow for a number of exemptions to these restrictions. More details can be found in the link below.
http://www.centralbank.gov.cy/nqcontent.cfm?a_id=12809
What happened to the bank levy deal?
A largely unpopular bank levy was initially proposed in taxing all bank deposits to contribute to the funds Cyprus is required to raise.
After public outcry, the universal levy was quickly voted down by Parliament; and in place, a portion of deposits only in excess of €100,000 will be taxed instead.
As per a statement released by Cyprus Bank on 29 April 2013;
The conversion of deposits to equity, made in accordance with the provisions of the Decree, relates to 37,5% of the “Excess Amount” which is converted to Class A shares and which is described as the “Initial Deposit Contribution Amount”. It is noted that:
a) 22,5% of the “Excess Amount” remains temporarily blocked and is subject to total or partial conversion to Class A Shares and is described as the “Supplemental Deposit Contribution Amount”
b) The remaining 30% of the “Excess Amount” remains temporarily blocked and is subject to total or partial conversion to Deposits following a written notice by Resolution Authority.
What about Russia?
Russians are believed to hold approx. 20 billion euros in Cypriot bank accounts and their business is vitally important to Cyprus's banking sector. When the bank levy was proposed, the Russian government was unhappy that Russian customers would have to pay the levy, and that it was not involved in the bailout discussions.
Since then, Russia has agreed to extend a 2.5 billion euro loan it had already made to Cyprus by another 2 years, in addition to reducing the interest rate from 4.5 % down to 2.5%.
As per a statement made by President Vladimir Putin;
"At the request of the European Commission we decided to restructure this debt. By doing this we contribute to the solution of the Cypriot problem.”