NICOSIA, Cyprus – Cypriot businesses were under increasing strain to keep running on Tuesday after financial authorities stretched the country’s bank closure into a second week in a harried attempt to stop depositors rushing to drain their accounts.
Cyprus’s central bank governor, Panicos Demetriades, said “superhuman efforts are being made” to open banks on Thursday.
“Temporary” restrictions will be imposed on financial transactions once the banks do, he said, but would not specify what they would be or how long they would be in place for.
“We have to restore the public’s trust in banks,” he said.
Finance Minister Michalis Sarris told The Associated Press the restrictions would help stem any mass deposit withdrawal that is “bound to happen” and that they would be removed in a “relatively short period of time.”
“I think every day (banks) are not open creates more uncertainty and more difficulties for people, so we would like to do our utmost to make sure that this new goal that we have set will work,” he said.
Under the deal for a $12.9 billion rescue clinched in Brussels early Monday, Cyprus agreed to slash its oversized banking sector and inflict hefty losses on large depositors in troubled banks. Sarris said authorities hope to limit job losses to a “small number.”
“We are looking to a much smaller banking system over time and more concentrated on its core business, which is Cyprus and the international business units in Cyprus,” he said.
The bulk of the bailout funds will be raised by forcing losses on accounts of more than $129,000 in the country’s second-largest lender, Laiki, with the remainder coming from tax increases and privatizations.
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 euros 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.
Businesses have already been feeling the brunt of the cash crunch, unable to pay salaries and suppliers. Cypriots have slashed spending during the uncertainty.
The banks’ closure has been felt in the country’s important shipping industry, which contributes about 5 percent, or $1 billion, to the economy. Cyprus ranks 10th in the world in terms of the number of ocean-going vessels flying its flag, and it is in the top five countries with the largest number of ship management companies.
“This is destructive for us,” said an official with Cyprus-based shipping company EDT Offshore, who spoke on condition of anonymity because his company did not authorize him to speak to the media.
“We have to pay our crews’ salaries and that’s $500,000, while we have to pay as much for our office staff by March 28 and we don’t have access to our bank accounts,” he said.
“These are people who need to pay their bills, have obligations to meet.”