x Abu Dhabi, UAEMonday 22 January 2018

Cyprus braces for a run on its banks

Guards will be deployed at banks to help police control queues as measures are put in place to stop money pouring out of the country. Michael Theodoulou reports from Nicosia

A woman walks past a boarded-up branch of the Bank of Cyprus in Nicosia. The banks are to reopen early today.
A woman walks past a boarded-up branch of the Bank of Cyprus in Nicosia. The banks are to reopen early today.

NICOSIA // Banks in Cyprus were due to reopen today after almost two weeks, amid heightened security measures to control the thousands of people expected to swarm branches demanding their money.

The island remains gripped by trepidation, anger and uncertainty over the ramifications of a bailout deal. Local transactions are unlikely to face restrictions, but there will be tight controls on money leaving the country.

The deal, clinched with Brussels on Monday, secured a €10bn (Dh47bn) bailout that saved the island from bankruptcy.

It spares any financial hardship to those with less than €100,000 in their accounts, who would have been hit under an initial plan angrily rejected by the Cypriot parliament last week.

But the Cypriot government acknowledged this week that big depositors in the two largest banks, many of them Russians, could suffer losses of up to 40 per cent.

Officials said "temporary" capital controls would be enforced to prevent cash leaving the country, including a temporary ban on cashing cheques.

The island's authorities yesterday were seeking to raise the daily withdrawal rate at cash machines from €100 to €300 and said payroll payments would be allowed to help businesses, which saw people drastically reduce their spending since the banks closed in the middle of this month.

"It's a terrible situation," said Sophie Steliou, 25, the manager of a small family business that rents electronic games machines to amusement arcades. "We're in the 21st century where everyone uses banks for transactions but we can't. How do we pay our employees or run our day-to-day affairs?"

A total of 180 unarmed guards from the British-based private security company G4S, will be deployed today at banks to help police control queues and prevent customers venting their anger at bank workers.

But John Argyrou, who heads the company's Cypriot operations, did not expect much trouble.

"There may be some isolated incidents, but it's in our culture to be civil and patient, so I don't expect anything serious," he said.

Bank officials reminded people yesterday that the crisis was not the fault of branch workers, who also face an uncertain future.

The normally placid holiday island of 850,000 people has been roiled in recent days by rowdy but peaceful protests by bank workers who fear losing their jobs.

High-school pupils, worried about the effect the bailout will have on savings intended for their university studies, have also demonstrated.

And the powerful opposition communist party, Akel, called for a demonstration last night against the deal struck by Nicos Anastasiades, a right-winger who was elected president only last month.

Under the bailout deal, the island's second-largest lender, Laiki Bank, will be wound down, with its good assets eventually merged into the Bank of Cyprus, the largest bank. The latter will pick up a €9bn bill from its bust rival, angering Bank of Cyprus (BoC) employees who fear the debt could bring down their bank as well. Officials on Tuesday rushed to ensure them this would not happen, insisting the Bank of Cyprus would emerge stronger from the deal.

Cypriot state media reported yesterday that the chief executive of the Bank of Cyprus, Yiannis Kypri, had been sacked at the behest of the country's international lenders - the EU, the European Central Bank and the International Monetary Fund.

Even Cypriots who will not directly lose money in the bailout said they still feared for their livelihoods.

"I don't have savings, only debts but a lot of Russians will now pull out of Cyprus and that will really hit my small business," said Antonis Nathanael, 36, a computer technician.

Mr Anastasiades has defended the bailout deal as "painful" but the best under the circumstances.

"Cyprus was a breath away from economic collapse," he said in a televised address on Monday night. He also promised an investigation to identify those responsible for the financial debacle.

The wealthy and influential Orthodox Church of Cyprus, the island's biggest landowner, said it stood to lose more than €100 million in the bailout.

"There will be many difficulties. Some will lose their jobs, the hungry will be multiplied and the church has to take care of people," said Archbishop Chrysostomos.

Cypriots were divided on who to blame for the financial disaster.

Many hold accountable the previous government of Demetris Christofias - who was the EU's only communist leader until he was replaced last month by Mr Anastasiades.

Others suspect that Germany, which took the toughest line on Cyprus, wanted to seize a large share of the island's Russian business.

And a common conspiracy theory is that the EU wanted to impoverish Cyprus to secure better terms on its huge untapped gas riches, which will come on stream in 2018.

"We would have been safer if we didn't have gas," said Andreas Stylianou, 62, who runs a souvenir shop in central Nicosia. "We should just stick to producing halloumi."


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