Cyprus allows limited bank-to-bank money transfers

AP News
Posted: Apr 05, 2013 4:21 PM

NICOSIA, Cyprus (AP) — Cyprus' finance ministry further loosened restrictions on access to accounts in the debt-ridden country's two biggest lenders on Friday by allowing limited, bank-to-bank money transfers.

The ministry issued a new decree stating that individuals can transfer up to 2,000 euros ($2,588) from one bank to another each month. Business can transfer as much as 10,000 ($12,944) euros from bank to bank per month.

The new decree will remain in force for another seven days.

Other restrictions still in place — the first-ever imposed in the 17 member group of countries that use the euro — include a daily cash withdrawal limit of 300 euros and a cap of 1,000 euros in cash for people leaving the country.

Cypriot officials said the limits will be lifted gradually over the next weeks to allow confidence to return in the country's decimated banking sector, but local businesses are feeling the pinch from the liquidity crunch.

Cyprus imposed the limits last month to head off a potential bank run. Lenders were shut for nearly two weeks to allow the country to finalize a 10 billion euro ($12.94 billion) bailout with its eurozone partners and the International Monetary Fund.

The bailout forces savers in the country's two biggest banks, Bank of Cyprus and Laiki, to take hefty losses in exchange for rescue money.

Second-largest lender Laiki, which was most damaged from its exposure to toxic Greek debt, will be broken up and folded into the Bank of Cyprus. Laiki depositors with more than 100,000 euros ($129,440) will take major losses, while savers with more than 100,000 euros at the Bank of Cyprus could face losses of up to 60 percent.

Cyprus faces hard times ahead as its economy is projected to shrink this year by more than 9 percent of gross domestic product, more than double an earlier forecast of a contraction of 3.5 percent of GDP. Unemployment now stands at around 15 percent, but that's sure to rise as hundreds are expected to be laid off from a shrinking banking sector that was as the heart of the country's once-strong financial services industry.

The country will must achieve a budget surplus of 4 percent of its annual GDP by the target date of 2018 through a combination of tax increases, spending cuts and privatizations of state-owned companies.