Deposits in Cyprus’ beleaguered banks shrank by more than 10 billion euros (US$13 billion) since the country agreed with international rescue creditors in March to raid savings in its two biggest lenders, new figures showed on Friday.
Deposits dropped by 6.34 billion euros in April, much more than the 3.75 billion euros lost the previous month, the central bank said.
April’s losses, however, include 2.8 billion euros of deposits in Cyprus’ largest lender, Bank of Cyprus, which had to be converted into bank shares as part of the country’s bailout deal.
The losses brought total deposits to 57.4 billion euros at the end of April, a steep drop from the 72 billion euros stacked in Cypriot bank accounts — much from Russian and other foreign clients — at their peak in May last year.
Cyprus Central Bank spokeswoman Aliki Stylianou denied the outflows were a matter of concern, arguing they are part of normal transactions, mainly by foreign banks active in Cyprus.
Confidence in Cyprus’ banks tanked when Cypriot authorities agreed with their euro partners and the IMF to force depositors with more than 100,000 euros in the country’s top two banks to take major losses. Cyprus was asked to do so to help raise 13 billion euros, a condition for receiving a 10 billion euro loan.
In order to prevent a full-blown bank run, Cypriot authorities put restrictions on money withdrawals and transfers, such as a 300 euro daily withdrawal cap, which have gradually been relaxed. However, while the controls have avoided a run, Friday’s figures suggest that depositors used the means available to keep pulling money out.
Cyprus’ limits on money flows are the first to be imposed on banks in the euro currency’s 14-year history. Cypriot officials say they will be fully lifted once trust in the banks is restored.
Cyprus’ economy nosedived after its two biggest banks — Bank of Cyprus and Laiki Bank — lost billions on bad Greek debt and loans. Unable to borrow from international markets since mid-2011, Cyprus was on the verge of bankruptcy when its euro area partners agreed on the loan.
Besides raiding bank deposits, the government will also raise money by selling state-owned companies and cutting spending.
Cypriot Minister of Finance Harris Georgiades told the state-run Cyprus Agency on Friday that the economy could shrink by more than the projected 8.7 percent this year and that deeper government salary cuts may be necessary.
Loans in April decreased by 1.46 billion euros, less than the 1.97 billion euro drop in March, according to the Cyprus Central Bank. Total loans at the end of April stood at 68.4 billion euros.
The Cypriot Ministry of Finance said in a statement on Friday that the government has deposited 75 million euros in the country’s commercial and cooperative banks as a gesture of confidence in the banking system. The ministry said the money comes from government accounts and that more deposits will be made.
Also on Friday, Cypriot authorities lifted restrictions on money withdrawals and transfers for international clients of Beirut-based BankMed.