Trade hit as Cyprus banks stay shut

Banks across Cyprus remain firmly padlocked after financial authorities extended the country’s blanket closure, fearing worried depositors will rush to drain their accounts.

The shut-down is hammering businesses, which have been without access to their funds for more than a week.

All but the country’s two largest lenders had been due to reopen today, after being shut while politicians worked out how to raise the funds necessary for Cyprus to qualify for an international bailout. Under the deal for a €10bn rescue clinched in Brussels, Cyprus agreed to slash its oversized banking sector and inflict hefty losses on large depositors in troubled banks.

After initially saying most financial institutions would reopen the country’s Central Bank made a surprise reversal just before midnight, announcing all banks would remain closed until Thursday.

ATMs have been operating throughout the closure, but many have quickly run out of money. A daily withdrawal limit of €100 has been imposed by the two largest lenders, Bank of Cyprus and Laiki. An increasing number of businesses have stopped accepting credit or check payments, insisting on cash only.

Businesses have found themselves unable to pay suppliers or fulfil orders. The retail market is sharply down too, shop owners say, with customers unwilling to spend on anything but the basics while they have limited access to cash.

“The continuation of this uncertainty is pushing the economy deeper into recession, some businesses could possibly lose their clients, but we’re hopeful once this situation is sorted out, the market can rebound quickly,” said Michalis Pilikos, head of the Cyprus Employers and Industrialists Federation.

Scores of angry students from a left-wing student union gathered outside parliament, screaming “People, fight back, they’re sucking your blood.”

Under the new Cyprus bailout plan, the bulk of the funds will be raised by forcing losses on accounts of more than €100,000 in the country’s second-largest lender, Laiki, with the remainder coming from tax increases and privatisations.

The bank will be dissolved immediately into a so-called bad bank containing its uninsured deposits and toxic assets, with the guaranteed deposits being transferred to the nation’s biggest lender, Bank of Cyprus.

Deposits at Bank of Cyprus above €100,000 will be frozen until it becomes clear whether or to what extent they will also be forced to take losses. Those funds will eventually be converted into bank shares.

It is not yet clear how severe the losses will be to Laiki’s large bank deposit holders, but the euro finance ministers noted the restructure expected to yield €4.2bn overall. Analysts have estimated investors might lose up to 40% of their money.