The latest news from “Cypriot front”

29.07.2013

As a result of negotiations in Nicosia between the representatives of the Ministry of Finance, the Central Bank of Cyprus and the three creditors, one of the largest banks in Cyprus, namely, Bank of Cyprus, will debit 47,5% from the uninsured part of the deposits (which is above 100 000 euro).

Previously, according to the agreement between the creditors and the Bank, uninsured deposits (before it was supposed to debit 37.5%) were converted into bank’s shares. In this case, 22.5% as a part of 37.5% remained in reserve for further essential funding.

Now it is implied that 10% of the deposits will be converted: 5% will be converted into shares and 5% in convertible bonds.

Based on:

http://www.cyprus.gov.cy/portal/portal.nsf/citizen_gr?OpenForm&access=0&SectionId=citizen&CategoryId=none&SelectionId=home&print=0&lang=el

Expert’s opinion

The European Union has a system of deposit insurance to a maximum of 100,000 euros. Thus, in the event of a bank failure, depositors received their guaranteed amount of 100,000. All amounts which are above of this insurable sum will be recognized as uninsured.

The same system is operating in the case of Cyprus: all contributions which are below the amount of 100,000 euros can be received fully. As for the big assets, they will be debited nearly 50%. At the same time, some part will be converted into bank’s shares. Thus the Cyprus government tries to regain the lost trust to the island.

Of course, in practice, the bank's shares will be worth nothingб currently. It is difficult to sell them, and to keep such shares as hard as the suitcase without a handle.

Irina Lomakina ( Director of Moscow office of “Honest&Bright” Company)