Financial Stability Programme for Cyprus
Contributed by Fiducenter (Cyprus) Ltd
04 April, 2013
Contributed by Fiducenter (Cyprus) Ltd [www.fiducenter.com.cy]
Please find below relevant announcements issued by our office with regards to the above mentioned matter. We will be back with more information soon.
A third Decree has been published by the Central Bank of Cyprus (CBC) with some modifications to the temporary restrictive measures on transactions. The CBC closely monitors developments and proceeds with appropriate adjustments as necessary to ensure the stability of the financial sector.
In this context the following modifications have been announced to the initial restrictive measures (see special newsletter below dated 28/03/2013):
- Payments through cheques to accounts held in other credit institutions are allowed for up to €9.000 per month per natural person in each credit institution.
- The amount for payments to other credit institutions for transactions that fall within the normal business activity of the customer that are not subject to any restrictive measures has increased from €5.000 to €25.000 per day per account.
- There is no restriction for the payment of tuition fees of a person studying in educational institutions in Cyprus.
- Fixed term deposits can be terminated in order to create one or more fixed term deposits for the total amount which is equal to the initial deposit and for a term at least equal to the initial term of the terminated deposit.
1. Following extensive negotiations between the Troika and the Cyprus government, a final draft of the Memorandum has been agreed yesterday. The €10 billion loan will be disbursed quarterly starting from May 2013 until May 2016.
In brief, some important facts about the Memorandum are as follows:
As it was expected, the Corporation Tax rate will increase from 10 to 12.5%
Special Contribution for Defence (SCD) on passive interest income has been set at 30% (currently at 15%) but the rate on dividend income (when not exempt) has been kept at 20%
The term of the measures has been extended by 2 years, from 2016 to 2018, which makes the burden of the implementation of the programme a bit lighter
- Although, as originally envisaged that the Memorandum will be directly linked with future revenue from hydrocarbons (i.e. a rate of 25% from the income to be generated from exploitation of natural gas to be devoted in the repayment of the loan), a very important last minute change provides that the Troika will have no saying at all on operational aspects concerning the exploitation.
2. Further to our previous newsletter that 40% of the unsecured deposits in Bank of Cyprus was temporarily ‘frozen’ for liquidity purposes, the Central Bank of Cyprus, as the Resolution Authority, sent written instructions to the Special Administrator of the Bank of Cyprus for the unfreezing of 10% of uninsured deposits over €100,000. In this respect, only 30% of the part of deposits in excess of €100.000 remains ‘frozen’ for liquidity purposes.
3. Finally, the Minister of Finance of the Cyprus government, Mr. Michalis Sarris, has resigned yesterday from his office in order to put himself at the disposal of the independent commission which was appointed by the President of the Republic with a task of finding the reasons which lead to the demise of the economy and identify any wrongdoers. Mr. Harris Georgiades has been appointed as the new Finance Minister.
Clarifications on the implementation of decrees reorganizing Bank of Cyprus and the absorption of good operations of Laiki Bank have been given by the Central Bank of Cyprus (CBC).
Specifically, for the better understanding of the resolution measures implemented under the Resolution of Credit and Other Institutions Law, 2013 at the Bank of Cyprus and Laiki Bank, following the agreement of the Eurogroup with the Cyprus Government on 25 March 2013, the CBC would like to clarify the following points:
1. Laiki Bank
The resolution measures already adopted are:
(a) The sale of Laiki Bank’s branches in Greece to Piraeus Bank in Greece
(b) The sale of Laiki Bank’s business in Cyprus (excluding the bank’s subsidiaries and branches abroad) to the Bank of Cyprus.
As a result of the above, all contracts are transferred to either the Bank of Cyprus or Piraeus Bank.
Furthermore, all branches of Laiki Bank will resume as normal on Tuesday, 2 April 2013 together with their staff, but under the ownership of the Bank of Cyprus.
Moreover, the following points are clarified:
All insured deposits (individuals and legal entities) up to €100.000 have, as of 26 March 2013, been transferred from Laiki Bank to the Bank of Cyprus. In addition, the entire amount of deposits belonging to financial institutions, the government, municipalities, municipal councils and other public entities, insurance companies, charities, schools, educational institutions, and deposits belonging to JCC Payment Systems Ltd have been transferred to the Bank of Cyprus.
All other deposits exceeding €100.000 remain in the 'bad' Laiki Bank.
- All loans and credit facilities to Laiki Bank customers are transferred to the Bank of Cyprus, apart from the amount which is attributed to the deposits that remained in the 'bad' Laiki Bank, as mentioned above. In other words, there will be a set off between loans and deposits.
2. Bank of Cyprus
The resolution measures are:
(a) The sale of Bank of Cyprus’s branches in Greece to Piraeus Bank in Greece.
(b) Adopting a bail-in rescue plan.
For the purposes of the above measure, if the aggregated deposits a customer (individual or entity) held on 26 March 2013 at the Bank of Cyprus exceed €100.000, then for the amount higher than €100.000 the following apply:
Total loans and credit facilities of the customer on 26 March 2013 at the Bank of Cyprus are deducted from the deposits exceeding €100.000. If the sum of the balances of loans and credit facilities is greater than or equal to the amount of deposits exceeding €100.000, then the resolution measures are not applicable to this client. If the sum of the balances of loans and credit facilities is less than the deposits exceeding €100.000, then the following apply:
37,5% of this difference is automatically converted into Class A’ shares of the Bank of Cyprus, with voting rights and dividends.
22,5% of this difference is temporarily ‘frozen’ and possibly part or the whole of it, will be converted into Class A’ shares of the Bank of Cyprus with voting rights and dividends for the purposes of the bank’s resolution. In that regard, an independent valuer will be appointed for the valuation purposes of the Bank of Cyprus. Not later than 90 days from the completion of the valuation, all or part of that percentage might be converted into shares and the remainder returned to the depositor. To the extent that the 22,5% will be re-deposited, the interest will be calculated retrospectively together with a small increment.
The remaining 40% of the difference is temporarily ‘frozen’ for liquidity purposes. However, the interest continues to be calculated for this deposit based on the existing interest rate, plus an increment of 10 basis points. This amount will be ‘unfrozen’ in a short period of time and will not be used for resolution purposes.*
- * It is very likely that this measure will be lifted wholly or partly. In this respect, a new decree is expected to be issued by the CBC within the day.
- 37,5% of this difference is automatically converted into Class A’ shares of the Bank of Cyprus, with voting rights and dividends.
- Total loans and credit facilities of the customer on 26 March 2013 at the Bank of Cyprus are deducted from the deposits exceeding €100.000. If the sum of the balances of loans and credit facilities is greater than or equal to the amount of deposits exceeding €100.000, then the resolution measures are not applicable to this client. If the sum of the balances of loans and credit facilities is less than the deposits exceeding €100.000, then the following apply:
- The current capital of the Bank of Cyprus (shares, securities convertible into shares, bonds) is converted into new shares as explained below:
The existing ordinary shares are converted into new shares of Class D'.
The existing securities which are convertible into shares are converted into new shares of Class C '.
- Existing bonds are converted into new shares of Class B '.
Voting rights and dividends for the above-mentioned new classes of shares (B’, C’, D’) may be exercised only if the total dividends to be given to holders of Class A’ shares reach the original contribution plus interest at an annual rate of EURIBOR-3 months plus 10%. Class A’ shares have full voting rights and dividends.
As a result of these resolution measures, the Bank of Cyprus has essentially absorbed the largest part of the operations of Laiki Bank in Cyprus and continues to provide services to the customers of both banks, through the branches of the Bank of Cyprus and the branches of the former Laiki Bank.
Customers are encouraged to continue using the branches with which they previously conducted their business until the extended network is able to serve all customers from all points.
It is important to note that the above resolution measures do not apply to the former customers of Laiki Bank and do not apply to any amounts deposited with the Bank of Cyprus, either by a client of the Bank of Cyprus or by a client of the former Laiki Bank, after 26 March 2013.
The Central Bank of Cyprus in consultation with the Ministry of Finance have announced the restrictive measures on bank transactions. The decree shall apply for a seven day period starting from the day of its publication in the Official Gazette of the Republic.
The decree provides for the following:
- 1. The maximum amount of cash withdrawal shall not exceed €300 daily or its equivalent in foreign currency, per person in each credit institution. All cash withdrawals (namely withdrawals via debit and or prepaid cards, withdrawals from the credit institution’s tellers and withdrawals via credit cards against a sight/current account’s balance) are computed per person consolidating all accounts held by the said person in each credit institution. Any part of the maximum cash withdrawal allowed daily which is not withdrawn by the beneficiary during the day in which the limit applies, may be withdrawn at any time afterwards.
- 2. The cashing of cheques is prohibited.
3. Cashless payments or transfers of deposits/funds to accounts held abroad or in other credit institutions are prohibited, with the exception of:
Payments for transactions that fall within the normal business activity of the customer upon presentation of justifying documents as follows:
- Payment of up to €5.000 per day per account is not subject to any restrictive measure,
- Payment from €5.001 to €200.000 is subject to the approval of the Committee (established by virtue of section 9 of the Law). A list of the requests for payments falling within this category shall be submitted to the Committee by the relevant credit institution on a daily basis and shall mention the amount of each payment, the total amount of all payments as well as the number of payments falling within this category. The Committee for its decision, which shall be taken within 24 hours, shall take into account the liquidity buffer situation of the credit institution.
- Payment above €200.000 provided the prior approval of the Committee is obtained after taking into account the liquidity buffer situation of the credit institution.
- Payments for salaries of employees upon presentation of supporting documents.
- Living expenses up to €5.000 per quarter as well as tuition fees, of a person who is studying abroad and is a first degree relative of a Cyprus resident, on the basis of supporting documents.
- Payments for transactions that fall within the normal business activity of the customer upon presentation of justifying documents as follows:
- 4. Payments and or transfers outside the Republic, via debit and or credit and or prepaid cards, shall not be allowed to exceed €5.000 per month per person in each credit institution.
- 5. It is prohibited to terminate fixed term deposits prior to their maturity unless the funds are used to repay a loan within the same credit institution.
- 6. On the first maturity of fixed term deposits, the higher amount between €5.000 or 10% of the total amount of the deposit in question, shall, according to the choice of the depositor, either be transferred to a sight/current account or be deposited in a new fixed term deposit in the same credit institution. For the remaining amount the maturity shall be extended for one month.
- 7. Sums transferred from a fixed term deposit to a sight/current account shall be subject to the restrictive measures applicable to sight/current accounts.
- 8. Exports of euro notes and/or foreign currency notes are prohibited in excess of €1.000, or the equivalent in foreign currency, per natural person per journey abroad. The Director of Customs and Excise Department shall ensure the implementation of this measure.
- 9. Every financial transaction, payment and or transfer which has not been completed prior to the entry into force of this Decree shall be subject to the restrictive measures provided in this Decree.
- 10. Credit institutions shall not execute cashless transfers that facilitate the circumvention of the restrictive measures.
- 11. The restrictive measures apply to all accounts, payments and transfers regardless of the currency denomination.
Exempted from the restrictive measures are:
- All new funds transferred to the Republic from abroad
- Withdrawal of cash using credit and or debit and or prepaid card issued by foreign institutions on accounts abroad
- The cashing of cheques issued on accounts held with foreign institutions abroad
- Cash withdrawals from accounts of credit institutions with the Central Bank
- The Republic
- The Central Bank
- Diplomatic missions
- Payments that have been authorised by the Committee.
The Central Bank of Cyprus has announced that the banks and other financing institutions will remain closed both today and tomorrow (26th and 27th of March, 2013). This is in order have the necessary time to sort out their systems following the recent decisions/changes.
All credit institutions are expected to re-open on Thursday (28th of March, 2013).
This morning the Cyprus Government has reached an agreement with the Eurogroup on the key elements necessary for the future macroeconomic adjustment program. This agreement in conjunction with 3 of the 9 new bills and amendments to existing Laws as approved by the Cyprus Parliament last Friday, will form the basis for restoring the viability of the financial sector.
More specifically, the following 3 new bills have been approved last Friday by the Cyprus Parliament:
- Reform of credit and other institutions (attached a summary of the new Law)
- Bill to impose restrictive measures on transactions in case of emergency (attached a summary of the new Law)
- The establishment of a National Solidarity Fund. The resources of the Fund will come mainly from the exploitation of hydrocarbons and donations and/or contributions made to the Fund by any person.
The agreement reached with the Eurogroup provides in particular that all deposits below EUR100.000 are safeguarded in accordance with EU principles. There will be an appropriate downsizing of the financial sector, with the domestic banking sector reaching the EU average by 2018. The Cypriot authorities have reaffirmed their commitment to step up efforts in the areas of fiscal consolidation, structural reforms and privatisation. The Eurogroup has agreed to provide financial assistance to Cyprus for an amount of up to EUR10bln to safeguard the financial stability and the euro area as a whole. The agreement provides for the following:
- Laiki Bank will be resolved immediately - with full contribution of equity shareholders, bond holders and uninsured depositors - based on a decision by the Central Bank of Cyprus, using the newly adopted bill for the reform of credit and other institutions.
- Laiki will be split into a good bank and a bad bank. The bad bank will be run down over time.
- The good bank will be folded into Bank of Cyprus (BoC). Uninsured deposits (i.e. deposits in excess of EUR 100.000) in BoC will remain frozen until recapitalisation has been effected, and may subsequently be subject to appropriate conditions.
- The Governing Council of the ECB will provide liquidity to the BoC in line with applicable rules.
- BoC will be recapitalised through a deposit/equity conversion of uninsured deposits (i.e. deposits in excess of EUR 100.000) with full contribution of equity shareholders and bond holders.
- The conversion will be such that a capital ratio of 9% is secured by the end of the programme.
- All insured depositors in all banks will be fully protected in accordance with the relevant EU legislation.
- The programme money (up to 10bln Euros) will not be used to recapitalise Laiki and BoC.
Given the above, all deposits below EUR100.000 currently held with Laiki Bank will be shifted to the BoC in order to create a "good bank". Deposits in Laiki Bank above EUR100.000 will be shifted to the “bad bank” which will be liquidated.
BoC will be recapitalised mainly through a contribution from deposits in excess of EUR100.000. All deposits in excess of EUR100.000, which are not guaranteed under EU law, will be frozen until the exact percentage which will have to be contributed for the bank to achieve a capital ratio of 9% is determined. It is expected that the contribution will be in the range of 30%. For the part of deposits to be contributed for the recapitalisation of BoC, shares of the bank will be given as a counterweight.
During a session that has ended tonight at 8:20 pm, the members of the Cyprus Parliament have voted against the proposed bill for the stability levy. Parliament members rejected the bill, with 36 voting NO and 19 abstaining.
The final version of the bill that was put for voting, provided for a NIL levy on the first €20,000 of bank deposits, increasing to 6.75% on the next €80,000 and ending up to 9.99% on amounts in excess of €100,000.
The government is exploring other options to raise the necessary funds for the financial stability programme.
We will be keeping you posted with all new developments as soon as they arise.
Further to our earlier communication about this issue, we communicate with you again in order to update you about the recent developments.
The session of the Parliament for discussion about the draft bill for the stability levy has been postponed to today at 18:00.
In the meantime a lot of variations about the way the levy will apply have seen the lights of publicity, including scenarios for a levy of:
a) 3% on amounts up to EUR100,000, increasing to 10% on the next EUR400,000 and ending up to 15% on amounts above the level of EUR500,000 OR
b) exemption on the first EUR20,000, with the rates remaining the same as originally proposed and included in the bill thereafter, i.e. 6.75% up to EUR100,000 and 9.99% thereafter OR
c) exemption on the first EUR100,000 (something which is in line with the relevant local and EU legislation and which seems to be the option gaining momentum both locally and at EU levels) with any amounts beyond that level to be levied a percentage which it is not known so far.
We should stress, however, that no matter whichever scenario will be put for discussion and voting in the Parliament this afternoon, based on the information currently available the most probable (or even almost certain) outcome is that the bill will be rejected. The President of the Republic has already communicated with EU officials to inform them about the likely outcome of the forthcoming Parliamentary session and has asked for their support in finalising the financial programme without a stability levy, siding also the overall damage to the Euro and the Eurozone and the EU in general from such a measure, as indicated by the performance of the financial markets around the world yesterday (albeit the corrections that took place at the closing of the markets due to intervention by the European Central Bank).
The government is already examining alternatives which could produce an amount equal or even higher than the EUR5.8bln that the above measure is expected to generate.
The Central Bank of Cyprus has announced that the banks and other financing institutions will remain closed both today and tomorrow with the possibility of this bank holiday to be extended until next Tuesday (Monday is a public holiday in Cyprus) having very good chances of occurring.
Developments on this vital issue are running at full speed. We will try our best to keep you up to date without compromising the accuracy and completeness of the information provided.
Following a lengthy negotiation between the Cyprus Government and the Eurogroup on Friday the 15th of March, a political agreement was reached to ensure the stability of the financial sector in Cyprus.
Cyprus has agreed to carry out the required fiscal adjustments and structural reforms to support its competitiveness as well as sustainable and balanced growth, allowing for the unwinding of macroeconomic imbalances. This agreement is scheduled to be put before Parliament for approval on Monday, the 18th of March.
An unexpected measure as per the agreement provides for a one-off stability levy on all bank deposits in Cyprus. The levy has been announced at 6.75% on bank deposits of up to €100,000 and 9.99% on bank deposits in excess of €100,000. This measure is expected to raise €5.8bln, which together with €10bln financial support from the European Central Bank and the International Monetary Fund will cover the necessary funding requirements for Cyprus.
If the measure will pass through the Parliament (its ratification is doubtful given the different views expressed from a number of political parties) it will have immediate effect as from the first day the banks will reopen (considering that Monday the 18th is a public holiday in Cyprus and a decision to extend the holiday for banks for Tuesday, with the possibility for extending the holiday even further in order to ensure the stability of the banking system).
Unfortunately we can not provide further details before the relevant bill is discussed in the Parliament. We will be back with more information on Tuesday.
Thank you very much.
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