Bank of Cyprus, Cyprus biggest bank, will apply a 30% tax on deposits over €100,000, according to the financial aid agreement approved by Eurogroup, announced on Monday a spokesman for the Cypriot government, cited by AFP. Bank deposits are guaranteed up to €100,000.
Eurozone finance ministers have ratified on Sunday night an agreement that provides support for Cyprus in a foreign loan package of €10 billion, on condition that a Cyprus will restructure the banking sector.
Cyprus must close the second largest bank in the country, Cyprus Popular Bank (Laiki). Deposits under €100,000 will be taken over by Bank of Cyprus, the largest credit institution in the country. Bank of Cyprus will take over from Cyprus Popular Bank a debt of €9 billion to the emergency liquidity mechanism of the European Central Bank. Deposits over €100,000 from Cyprus Popular Bank will be placed together with nonperforming assets in a “toxic” bank, where losses are expected. Unsecured deposits from the Bank of Cyprus will remain blocked until the bank recapitalization.
Cyprus crisis worsened last week after Parliament on Tuesday rejected the initial version of a bank levy, which aimed at all deposits in Cypriot banks, including those under €100,000. The tax was a condition for the release of a €10 billion euro loan for the Cypriot state.
Cyprus decision to tax unsecured bank deposits is equivalent to stealing, said Russian Prime Minister Dmitry Medvedev after Nicosia accepted the request from foreign creditors to restructure the banking sector, by closing a credit institution and tax deposits over €100,100.
“They’re continuing, I think, to plunder the loot,” said Medvedev, quoted by Bloomberg. Russia is analyzing implications of the Eurogroup agreement announced Monday, he added. According to estimates from international media, Russian citizens and companies have in Cypriot banks tens of billions of dollars in deposits.
Cyprus Finance Minister Michael Sarris tried last week for several days to persuade Moscow to give Cyprus a financial help, but the Russian government refused to improve the terms of the €2.5 billion loan granted to Cyprus in 2011 and provide a new loan.
Sarris told reporters in Brussels that Cyprus’ relationship with Russia is not over, although Moscow is disappointed with financial sector reform measures, which will cause losses to Russian investors. Medvedev said Saturday that Russia has not “closed the door” on a future financial aid for Cyprus.
European governments, led by Germany, have insisted that Russia should bear part of the cost of saving Cyprus, stating that the island’s banking system has been used by Russian businesses for money laundering.
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