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27/03/2013

Cypus Crisis

A political agreement has been reached at the Eurogroup summit, regarding the aid package to Cyprus and the recapitalization of the Cyprus banking sector.

The basic terms of the new deal are as follows:

  1. All deposits in all banks operating in Cyprus, with the exception of deposits in Cyprus Popular Bank and Bank of Cyprus are secure.
  2. The second largest bank of Cyprus, Cyprus Popular Bank, also known as Laiki and previously as Marfin Laiki Bank, will proceed with an immediate resolution, with the full participation of its shareholders, bondholders and non guaranteed depositors.
  3. Laiki will be split into a "good bank" and a "bad bank". The bad bank wil be in run off and eventually close. The bad bank will contain unsecure deposits (all above 100,000 Euro) as well as non performing loans. Any funds to be returned to the depositors will arise out of the resolution but this no likely to occur for some time.
  4. The good bank will be absorbed/ merged into the Bank of Cyprus, the largest banking institution of Cyprus.
  5. Laiki's Emergency Liquidity Assistance Balance ("ELA") with the European Central Bank ("ECB"), essentially an amount owing to the ECB of the oder of 9 billion Euros, will be transferred to the Bank of Cyprus and all deposits above 100,000 in the Bank of Cyprus will remain frozen until the bank's recapitalization procedure has been completed.
  6. The ECB will provide liquidity to the Bank of Cyprus based on relevant EU Regulations.
  7. The Bank of Cyprus will be recapitalized via a compulsory "hair cut" on unsecured deposits, i.e. ones with a credit balance of 100,000 Euros. The unofficial indication is that this will be of the order of 30% -40%. Although not yet clear, it is expected that all depositors who will suffer losses as a result of the haircut, will be provided with newly issued shares/ financial instruments in the Bank of Cyprus.
  8. All deposits under 100,000 Euros wil be fully secured in accordance with relevant EU regulations.
  9. Funds totalling 10 billion Euros in an aid package by the EU to Cyprus have been agreed, in the form of a loan but these funds will not be used for the recapitalization of the banking Sector.
  10. Inspite the great challenges presently faced by the Cyprus economy and the banking sector, Cyprus remains a business centrer having in place one of the most favourable tax regimes in the European Union.