The Cypriot banking sector has undergone immense change within a very short period of time. Occurring so quickly, in fact, that we may have awoken to its changes without having understood what attributed to its collapse. As the banking sector (and more generally the country) rebuilds, we reflect on the events which contributed to its current state.
September 2011 – Laiki Bank, the second largest bank in Cyprus, draws emergency liquidity assistance (ELA) from the European Central Bank.
October 2011 – The Greek government writes off Greek sovereign bonds, costing Cyprus’ banks an estimated loss of €4.5bn.
May 2012 – Depositors line the banks in Greece, withdrawing an estimated €3bn in just 10 days, amidst prospects of Greece leaving the Eurozone and inconclusive elections.
Laiki Bank receives a €1.8bn bailout from the state, giving the Cyprus government an 84 per cent stake in the bank.
June 2012 – Cypriot banks are locked out of the international financial markets after being downgraded by credit rating agencies.
The Cypriot government submits a request for stability support from the European Support Mechanism.
November 2012 – After months of negotiations, a preliminary Memorandum of Understanding between Troika and Cyprus has been signed.
March 2013 – The Cypriot Parliament unanimously rejects the Eurogroup’s initial political bail-in agreement, which threatened to affect all deposits held with credit institutions in Cyprus.
The Troika and the Eurogroup finalise a €10bn bailout deal conditional on:
- Laiki Bank being immediately entered into a resolution process and restructured into a ‘good’ bank/‘bad’ bank, with only balances up to €100,000 being secured.
- Bank of Cyprus customer balances up to €100,000 remaining secured, with excess amounts being subject to a partial share conversion.
27 March 2013 marks the first day of the imposition of capital controls mechanisms – including daily cash withdrawal limits of €300 and prohibitions on cashing cheques.
Its importance to the layman
You read reports on the radically downsizing GDP closer reflecting the EU average of 3.5 times the country’s GDP. You have sifted through the volumes of reports on its impact on the European market, or perhaps the UK marketplace more specifically. Conversely, you may not have read a single thing, but noted that your accounts suddenly had all these restrictions. I hope to shed some light on a micro level – over a year has passed, how does this (still) affect you?
Sure, there are no longer any reports on daily demonstrations in the streets of Nicosia; Parliament is no longer bombarded with journalists reporting live from BBC; the queues at ATMs are once again bearable. But, can the current status of the economy be described as the calm after the storm?
Businesses are (still) sceptical to invest. Households are (still) consuming at a minimum. The unemployment rate is (still) under a watchful eye. For some, the only good thing going for them is that they have survived thus far.
Families situated outside Cyprus are still very much feeling the restrictions on transfers out of the country. Each month, this involves the sending of a hard copy of their transfer request, and sums are subjected to bank fees, unfavourable exchange rates and currency dealer fees.
What of these Bank of Cyprus shares received? To some, it is some form of consolation. To others, it is a piece of paper which offers no short-time relief.
On behalf of all involved, it is best to say the Cypriot populace is not out of the woods yet, but it is getting there.