Bloomberg News

Cyprus’s Banks Open After Two Weeks as Controls Curb Panic

March 28, 2013

Cyprus’s banks opened for the first time in almost two weeks, with new rules curbing access to cash preventing an initial panic to withdraw deposits.

“We expected much more people,” said Argyros Eraclides, manager of a Bank of Cyprus branch in the Stavrou area of Nicosia. “Fortunately there are only some people who needed cash for the day, but customers reacted fantastically. We expected some people to be more aggravated.”

Banks opened at midday local time today, with lines of about 15 to 20 people waiting to enter branches in the Cypriot capital. The Central Bank of Cyprus’s money controls include a 300-euro ($383) daily limit on withdrawals and restrictions on transfers to accounts outside the country.

Cyprus’s lenders have been closed since March 16, when the European Union presented a proposal to force losses on all depositors in exchange for a 10 billion-euro bailout. That plan touched off protests and political upheaval on the island, and was rejected by the country’s parliament. A subsequent agreement shut Cyprus Popular Bank Pcl (CPB), the second-largest lender, and imposed larger losses on uninsured depositors.

Call for Calm

Banks will close today at 6 p.m., Yiangos Dimitriou, head of the central bank’s audit department, said yesterday in comments broadcast on state-run CyBC television.

The controls will be in force for seven days, according to a statement from the Finance Ministry. Dimitriou had said they would be in effect for four days. The European Commission said in a statement today the control on capital movements must remain “proportionate” and be lifted as soon as possible.

“Please, let’s all be calm and be careful not to create more problems,” Dimitriou said. “It will serve no purpose for us to run to banks and try to find ways to get money.”

Security guards at banks in Nicosia were allowing about eight or nine customers in branches at any one time today, with orderly lines forming after an initial push at the doors to get in. Many were older customers without cash-machine cards, while others were waiting to pay bills or deposit checks.

“I only bought a few small items during these days to survive,” said pensioner Kyriakos Hadjisophocleos, 65, waiting on a bench in front of a Bank of Cyprus branch in Nicosia since 7:30 a.m. to get money to pay part of his 380-euro rent. “I had many coins saved up so I was using them. If the banks didn’t open today I would have had to borrow from some friends.”

Markets Muted

Stocks and the euro fell, with the single currency extending this year’s declined against the U.S. dollar to 3.2 percent. It traded at $1.2773 at 11:04 a.m. in Frankfurt. Spanish bonds also slid, with the 10-year yield rising six basis points, or 0.06 percentage points, to 5.14 percent.

The Cyprus Parliament last week gave wide-ranging powers to the central bank governor, Panicos Demetriades, and Finance Minister Michael Sarris, who have spent the last days deciding which measures to implement.

Those chosen include bans on terminating time deposits and cashing checks. Customers can transfer abroad at most 5,000 euros per month from a given financial institution.

“People have organized their budget for the week through the ATM machines and the radio has been calling on people not to run to the banks today,” Maria Kyriacou, a Cypriot ruling-party lawmaker, told Bloomberg Television.

Chaos Fear

Scenes in front of bank branches in the Cypriot capital were largely quiet in the hours before lenders’ doors opened, with many savers heeding the government’s call for citizens not to rush to banks or bracing for potential chaos.

“I will not go to the bank today because I’m afraid that it will be chaos,” said Maria Charalambous, a grocery store owner. “You do not know who will be behind you in the line and you could end up getting robbed. I will wait and see.”

The restrictions aim to protect the country’s financial industry, while trying to uphold the principle of free movement of capital within the EU, Aliki Stylianou, a central bank spokeswoman, said yesterday before the measures were announced.

Cyprus in June became the fifth euro-area nation to request a rescue, after Greece’s debt restructuring trashed the financial health of lenders including Bank of Cyprus Plc, the nation’s biggest lender, and Cyprus Popular.

The 18 billion-euro economy is the third-smallest in the 17-nation euro area. Before the bailout, which was coupled with an austerity package, the European Commission predicted a contraction of 3.5 percent in 2013. Economists said afterward that the damage will be greater.

Ratings Cut

Moody’s Investors Service yesterday lowered the highest rating that can be assigned to a domestic debt issuer in Cyprus to Caa2, citing a growing risk that the country would exit the euro. The company said Cyprus’s Caa3 government bond rating and negative outlook remain unchanged.

Listed Greek companies reported the amounts of the deposits they held in Cypriot banks at the request of the Hellenic Capital Markets Commission. Jumbo SA (BELA), Greece’s biggest toy retailer, said it holds about 58 million euros at Bank of Cyprus and predicted sales in Cyprus would drop as much as 25 percent by the end of the current fiscal year.

Deposits at Alpha Bank SA’s Cypriot unit stood at 2.7 billion euros at the end of 2012, Chief Financial Officer Vassilios Psaltis said yesterday. Alpha, Greece’s third-largest lender and the one with the biggest presence in Cyprus, reported a 1.1 billion-euro loss for the year.

“I won’t go to the bank today because I have no money,” Antonis Evripidou, 53, a taxi driver in Nicosia, said today. “I owe money. Things will only get worse. This is only the start.”

To contact the reporters on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net; Maria Petrakis in Athens at mpetrakis@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Stephen Foxwell at sfoxwell@bloomberg.net


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