NICOSIA, Cyprus (AP) — Cyprus’ finance ministry is allowing savers to open new accounts at the country’s banks for the first time since it was bailed out in March.
The move to allow new accounts is seen as a bid by authorities to woo savers into putting their money back into the banks. Cyprus’ bank accounts have been under strict controls since March when the country negotiated an international bailout.
Many Cypriots have steadily withdrawn their cash from the island’s commercial banks and cooperative institutions amid the uncertainty that has lingered over the banking system.
The ministry said in a statement Friday that the new, fixed-term accounts must be opened with at least 5,000 euros ($6,618) cash and can’t be closed for three months. Also, the new current accounts can only be used to pay off loans at any Cypriot bank.
The restrictions on the country’s accounts, which include a daily cash withdrawal limit of €300 euros, were originally imposed in March to prevent a bank run after Cyprus agreed on a rescue package with its euro area partners and the International Monetary Fund.
In order for Cyprus to qualify for a 10 billion euro ($13.2 billion) loan, depositors in the country’s two biggest banks had to take steep losses on their savings over 100,000 euros. The deposit raid — a so-called bail-in —was used to boost the capital buffers of the larger Bank of Cyprus.
Some of the initial restrictions have steadily been removed but most will remain in place for at least several more months until confidence in the banks is restored. Christopher Pissarides, a senior economic advisor to Cyprus’ president, indicated that restrictions may not be fully lifted for another two years.
However, Cyprus authorities claimed one important step in restoring confidence was taken this week. Following the bail-in, the Bank of Cyprus’ key capital ratio — a measure of its ability to withstand further financial shocks— now stands at around 12 percent, well above the minimum 9 percent.
This improved ratio now means that the bank has access to more collateral that it can use to get emergency loans from the European Central Bank.
The country’s second largest bank, Laiki, is being wound down and merged with Bank of Cyprus. Laiki is currently the largest single shareholder in Bank of Cyprus with 18 percent of shares. The shares will eventually be sold off to pay the bank’s creditors and uninsured depositors who lost most all of their savings.
The Bank of Cyprus is now expected to return to private hands after its first shareholders’ meeting in the first half of September. That will allow the lender to get back to business as usual, a crucial step to turning the country’s moribund economy around by lending to cash-starved businesses.
Cyprus President Nicos Anastasiades said Friday that he expects the economy — which is projected to contract by 13 percent over the next 18 months — to start rebounding “after the end of 2014.”
A first post-bailout assessment by Cyprus’ international creditors found that the country is making good progress in meeting its program targets, but urged authorities not to let up amid high uncertainly over the economic outlook.