Cyprus eases controls on banks as probe launched

NICOSIA - Cyprus eased capital controls imposed to avoid a run on banks as the government launched a judicial probe on Tuesday into how the island was pushed to the verge of bankruptcy before having to agree a crippling eurozone bailout.
After talks in Nicosia with international creditors, the central bank announced that it was raising the limit on business transactions from 5,000 euros to 25,000 and was allowing people to issue cheques of up to 9,000 euros.
Central bank official Yiangos Demetriou told state radio that savers in the island’s largest lender Bank of Cyprus would also be able to access 10 per cent of their deposits over 100,000 euros.
But he added that the representatives of the troika—the European Central Bank, the European Union and the International Monetary Fund—had asked for more information before agreeing to the release of the full 40 per cent of deposits over that threshold that savers can be sure of retaining.
“Today, we will release 10 per cent of the funds tied to the Bank of Cyprus,” Demetriou told the radio. “We are committed to give some information to representatives of the troika, to attempt to release the remaining amount,” he added.
Larger depositors could lose all of the remaining 60 per cent of their balances over 100,000 euros depending on the costs of winding up and merging second largest lender Laiki. Savers in that bank will have to wait years to see any of their cash over 100,000 euros.
Cypriot banks have been operating under stringent capital controls since they reopened on Thursday, after a near two-week lockdown prompted by fears of a run on deposits. Central Bank of Cyprus governor Panicos Demetriades said in an interview with the Financial Times published on Tuesday that the remaining controls would be eased in stages.
“I can’t really tell you if it will be seven or 14 days before capital controls end,” Demetriades said. “We have to lift them gradually.”
Given the scale of the shock being dealt to the island’s economy, the troika has indicated readiness to give Cyprus more time to bring its budget into surplus, according to a draft loan agreement obtained by AFP.
The draft sets 2017 instead of 2016 as the target year for Cyprus to achieve a four per cent primary budget surplus.
But it stressed that the reduction in government revenues and increase in social spending likely to result from the sharp recession gripping the island should not be allowed to get in the way of consolidating public finances.
“In the event of underperformance of revenues or higher social spending needs due to adverse macroeconomic effects, the government should stand ready to take additional measures to preserve the programme objectives, including by reducing discretionary spending,” it said.
With public anger mounting, the government set up a judicial inquiry on Tuesday into the banking collapse.
President Nicos Anastasiades called on the three-judge commission—George Pikkis, Panayiotis Kallis and Yiannakis Constantinides—to investigate himself and his family members as a “matter of priority” and with “extra vigour”.
This is seen as a move to counter unsubstantiated allegations that his family members used privileged information to get money out of the country before deposits were locked down.
Accusations have also been made against other leading politicians and business figures that they took advantage of their position to protect their assets from a hit on bank deposits imposed by European Union-led creditors last month.
Anastasiades said nobody was immune from the inquiry not even his extended family or the law firm in which he was a partner until recently.
“The current plight of the economy and our people is without a doubt the result of a synergy of factors both external and internal,” Anastasiades said at the swearing-in ceremony.
“A series of acts or omissions from those authorised to manage the economy or the banking system led the country to the brink of bankruptcy, the dissolution of one its largest banks and the loss of billions from an impairment of deposits,” he added.
The massive losses suffered by savers in the island’s two largest banks in the first eurozone rescue package to punish larger depositors has sparked huge resentment against anybody seen as having taken unfair advantage to shirk their share of the burden.

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