By Elias Hazou
BANK of Cyprus (BoC) plans to release within the month some €900m held in fixed-term deposits that were frozen following the lender’s recapitalisation last year.
The €900m concerns the six-month time deposits that mature on January 31. Following a 47.5 per cent write-down – or haircut – on uninsured deposits to recapitalise the bank, the remaining 52.5 per cent was ordered frozen by the Central Bank of Cyprus (CBC).
In a joint statement with the ministry of finance at the end of July last year, the CBC said that 12 per cent of remaining depositor funds which were frozen under the bail-in deal would be unblocked. The balance was split evenly into three separate time deposits of six, nine and twelve months.
These six-month time deposits – accounting for one-third of the frozen funds – mature at the end of this month, and the bank intends to unblock them in a bid to ease liquidity in the cash-starved market.
BoC retained the right to renew the time deposits once more following their respective expiry dates. In the event the bank decides against releasing the funds now, the specific time deposits will be renewed for another six months and – all other things being equal – should be unblocked in July.
Although so far BoC has made no official announcement, sources confirmed the lender’s intention to release the funds.
The soon-to-be unblocked amounts will be subject to the same capital controls applying to all other funds, they said.
However, the final decision would be taken in consultation with the Central Bank, the government and the ‘troika’ of international lenders.
Cyprus’ international creditors are visiting the island towards the end of the month for their third review mission of the bailout programme. The outcome of the consultations would determine whether the bank releases all or a fraction of the earmarked €900m, the same sources told the Mail.
An announcement, if any, on the release of frozen time deposits would therefore most likely occur during the troika’s stay here.
An indication of the bank’s intentions was perhaps hinted at last week by its chairman Christis Hassapis, who said the bank expected to announce “some good news soon”.
Following the seizure of uninsured deposits (€100,000 and over) to recapitalise the bank, BoC achieved a core capital ratio of 10.2 per cent, according to figures for September 2013. New banking rules mandate a 9 per cent minimum core tier 1 ratio.
Unblocking the frozen deposits may have something to do with the fact that the outflow of deposits of domestic residents – which began January 2013 and accelerated throughout the year – has been halted and even reversed.
According to data posted by the Central Bank, in November 2013 deposits of domestic residents in all financial institutions increased by around €350m compared to the previous month.
Meanwhile, parliament yesterday gave the green light for the government to issue guarantees worth €2.9 billion for bonds expected to be issued by BoC to draw cash.
BoC will use the issue to bolster its precautionary liquidity by freeing assets currently used as collateral to borrow from the Emergency Liquidity Assistance.
Those assets could be used in the future if necessary.
The €2.9 billion are part of €6 billion in government funding guarantees approved in November 2012 to support banks.
Some €2 billion were used at the time to prop up the now defunct Laiki Bank.