Pursuant to Cyprus’ application to the European Stability Mechanism in the summer of 2012, on Monday 25th March 2013 the Eurogroup and the Cypriot authorities reached an agreement setting out a programme of macroeconomic adjustment for the island.
The key features of the programme are:
- Laiki Bank will be ‘resolved’ immediately with the full contribution of equity shareholders, bond holders and uninsured depositors. Laiki Bank will be split into a good bank and a bad bank. The bad bank will be run down over time, while Bank of Cyprus will absorb the good bank. However, Bank of Cyprus will also take on the Euro 9,000,000,000.00 (Nine Billion) of ELA debt that Laiki Bank has accumulated.
- The Governing Council of the European Central Bank will provide liquidity to the Bank of Cyprus in line with applicable rules.
- Bank of Cyprus will be recapitalised through the conversion of a percentage of uninsured deposits into shares. The conversion will be such that a capital ratio of 9% (Nine Percent) is secured by the end of the programme.
- Only uninsured deposits in Bank of Cyprus will remain frozen until recapitalisation has been effected, and may subsequently be subject to appropriate conditions.
- All insured depositors in all banks will be fully protected in accordance with the relevant EU legislation.
- Euro 10,000,000,000.00 (Ten Billion) will be made available to Cyprus as financial assistance. This amount will not be used to recapitalise Laiki Bank or BoC.
Cypriot authorities are expected to supplement the above measures with further measures aimed at fiscal consolidation, structural reform and privatization. Cyprus’ corporate tax rate will thus be increased from 10% to 12.5%.
Local banks have been closed since March 15th 2013 pursuant to orders/directives declaring the past few days as bank holidays. Banks are expected to reopen today, Thursday March 28th 2013, though certain temporary restrictions will be imposed on bank transactions.
The complete Eurogroup statement on the agreement can be accessed here.
