The finance ministry on Thursday published a roadmap agreed with international lenders for the gradual removal of capital controls, imposed in March to prevent a bank run following the European Union’s decision to grant Cyprus financial assistance.
The ministry said a strategy based on the roadmap had been agreed during a recent visit by international lenders “for the gradual and prudent relaxation” of the measures.
Capital controls were imposed following a €10 billion bailout agreed late March that entailed closing Laiki Bank and forcing losses on deposits over €100,000 to pay for the recapitalization of Bank of Cyprus (BoC).
Although restrictions have been eased since, there are still limits on cash withdrawals, cheque transactions and on large cash movements.
“The restrictive measures were enforced on grounds of public interest and to ensure the stability of the financial system and to safeguard public order,” the finance ministry said. “The Cypriot authorities are committed in removing the restrictive measures and ensuring free movement of capital, as soon as conditions allow.”
Authorities said the plan was to first lift controls on transactions within the Republic and then abolish restrictions on cross border movement of capital.
Lifting controls hinges on specific milestones related to the recapitalization and restructuring of the banking sector “as these are instrumental in rebuilding depositors’ confidence,” the ministry said.
Measures linked to the particular stage will be removed in a step by step process, taking into account the prevailing level of confidence in the banking system and to financial stability related indicators, including the liquidity situation of credit institutions.
“Removal of the restrictive measures could also be accelerated if conditions allow,” the ministry said.
Roadmap for the Gradual Relaxation of the Restrictive Measures
STAGE 1: Target: Reduction of the risks emanating from the large sums of cash currently held by households and businesses, reduction of the administrative burden.
Milestones: Completion of the recapitalisation and resolution of Bank of Cyprus, completion of the co-ops recapitalisation and restructuring strategy.
Relaxation steps: Allowing the opening of fixed term deposit account, for non existing customer created with funds from cash (already implemented), allowing the opening of current account linked to new credit facilities granted to non existing customer (already implemented), abolition of the requirement for the presentation of justifying documents for cashless payments or transfers of funds to accounts held in other credit institutions within the Republic, for an amount over €300.000 per transaction, for the purchase of goods and or services. The credit institution may request justifying documents, if it is deemed necessary, increasing the limit for transfers abroad from €500.000 to €1.000.000, for every transaction within the normal business activity of the customer and upon presentation of justifying documents to the credit institution
STAGE 2: Target: Increased accessibility of funds, re-establishment of the free transferability of funds within the Cypriot banking system
Milestones: Disbursement of funds under the macroeconomic adjustment program, for the recapitalisation of the co-ops, submission of the co-ops restructuring plan to the European Commission, recapitalisation of Hellenic Bank, approval of Bank of Cyprus’ restructuring plan by the Central Bank of Cyprus
Relaxation Steps: abolition of the restrictive measures relating to fixed term deposits, abolition of the current limit related to transfers within the Republic, regardless of the purpose (currently €15.000 per month per natural person and €75.000 per month per legal person).
STAGE 3: Target: Re-establishment of free movement of capital within the Republic.
Milestones: Completion of the co-ops mergers, tangible progress in the implementation of Bank of Cyprus’ restructuring plan
Relaxation steps: Abolition of the restrictive measures relating to cash withdrawals and the cashing of cheques, abolition of the restrictive measures prohibiting the opening of new accounts
STAGE 4: Target: Re-establishment of the cross border free movement of capital.
Milestones: Progress in implementation the macroeconomic adjustment programme, restitution of depositors’ confidence in the Cyprus banking system
Relaxation Steps: Abolition of all restrictive measures relating to the transfer of funds outside the Republic, abolition of the restrictive measures imposed on international banks, included in the catalogue of the relevant Decree for international banks