Capital flight from Cyprus banks surged ahead of deposits haircut in March
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E-mail Xinhua, April 27, 2013
Capital flight out of Cypriot banks increased at a marked pace in March, ahead of a haircut on deposits imposed as part of a bailout for the eastern Mediterranean island, according to statistics made available at the Central Bank of Cyprus (CBC) on Saturday.
A CBC statement said deposits in Cypriot banks in March this year fell by 3.7 billion euros to 63.7 billion euros relative to February, marking a 5.56 percent drop on a month-to-month basis.
Deposits decreased from 70.7 billion euros in March, 2012, marking a drop of 9.9 percent on a yearly basis.
Banks in Cyprus remained closed from March 16, when a Eurogroup ministerial meeting made a sudden decision for a scaled haircut on all deposits at banks operating in Cyprus. This decision was rejected by the Cypriot parliament but the Eurogroup came back with a new decision on March 25 imposing a loss on major deposits at the Bank of Cyprus and merging it with the Cyprus Popular Bank, now in the process of being wound down.
ECB statistics did not say whether the capital outflow took place before March 15 or whether the flight of deposits continued even as the banks were closed.
It did, however, say that the decrease in bank deposits was the result of the outflow of money from Cypriot monetary and financial institutions.
Deposits owned by Cypriots decreased by 1.3 billion euros and those owned by thrid-country nationals and euro nationals went down by 1.9 billion euros and 500 euros respectively.
Capital flight in January was 1.7 billion euros, but in February decreased to 0.9 billion euros.
Third-country nationals deposits in Cypriot banks in March stood at 19.03 billion euros and local deposits at 41.2 billion euros.
It is believed that the outflow of capital was the result of statements by European politicians ahead of the conclusion of a bailout for Cyprus that a loss on bank deposits would be part of the deal.
Both the International Monetary Fund and Eurogroup countries actively involved in the bailout negotiations with Cyprus, most notable Germany, Finland and Holland, argued that the Cypriot banking system was too big, about eight times the size of the island's 17.9 billion euro annual economy and should be downsized.
Cyprus President Nicos Anastasiades has accused unnamed Eurogroup partners of the island of hypocrisy, saying that they actually were targeting Russian deposits in Cypriot banks, on which their financial institutions were trying to prey even though they were alleged to consist of laundered money.
The shrinking of the Cypriot banking system, which involves shedding off all operations in several countries, including Greece, Russia, Ukraine, Romania and Britain is part of the 10-billion euro bailout deal.d Endi
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