Deposit Haircut: Two years after
Two years after the unprecedented decision of deposit’s haircut, which has been adopted in similar situations, Cyprus has undergone significant amelioration regarding its economic revamp. It has to be said that Cyprus’ salvation program was one of the most vitriolic and was implemented in several phases before taking its final form.
The initial scenario for Cyprus’ rescue had been agreed to 17dis euro or 103% of GDP. This plan would raise the debt at 136% of GDP in 2016 and to 119% in 2020. The first proposal included bail-in of several bond holders that had a peak of the amount of 1.2dis euro.
Then, the decisions of the first Eurogroup of March of 2013 were preceded, where it was agreed the implementation of a rate of 6.75% in insured deposits and 9.90% in unsecured. At the same time, all the Cypriot bank departments was sold in Greek banks and thus, a fee assessment scenario was rejected by the Parliament.
On March 25 a second Eurogroup was held, which brought up bitter decisions for the country. It has been decided that the amount of 9.1dis needed by the banks could not be covered by the money offered by the salvation program. As a result, Laiki Bank was dissolved and the Bank of Cyprus join in a management regime. Further restrictive measures were imposed on funds’ transactions.
The decisions of March 25 have been concluded with a study conducted on behalf of KPMG in August 2013. Taking the study into consideration, 47.5% of deposits were converted into shares. As a result, the depositors have contributed a total 7.8dis to the recapitalization of the banks and an extra 1.3dis euro derived from the bonds into shares convention procedure.
Since then, cordial steps have been taken to exit the crisis despite the encounter of random obstacles. The restrictive measures on trade are minimized, the country managed to re-emerge in markets and planned a new output within the forthcoming months. The banks have passed the stress tests. Without the last changes concerning Russia in 2015 it would certainly be a year of growth for Cyprus. However, the impact on tourism and professional services is still early to evaluate.
Non- performing loans, which derived from the culminated private depth, are still a black hole for Cypriot economy.
Source: In Business News