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Bailed-out Cyprus lifted all controls on banks on Monday, two years after becoming the first eurozone member to impose restrictions on capital flows. euros
Cyprus introduced controls to prevent a run on its banks after it was forced by its Eurogroup partners and the International Monetary Fund to close down a bank and recapitalize its primary lender by seizing 47.5 percent of deposits over 100,000 euros (about 110,000 U.S. dollars).
Banks did not report any unusual capital flow activity after restrictions were left to expire by not renewing a decree issued in intervals of one month.
But Cypriot banks operating in Cyprus saw their deposits gradually draining down from a peak of over 92 billion euros in early 2013 to just 46.5 billion euros in March 2015.
Measures to trim down the size of the Cypriot banking system were a deliberate move as its expansion to Greece, Russia and Ukraine had resulted in being more than seven times larger than the island’s annual economy of 17.5 billion euros.
A large part of impaired deposits belonged to foreign depositors, largely Russian clients.
Capital flow restrictions were incrementally relaxed each month starting in August 2013, six months after Cyprus was pulled back from bankruptcy in a 10-billion-euro deal.
The last decree, issued by the Minister of Finance a month ago, allowed transfer of funds of up to 1 million euros without approval by the Central Bank and permitted travelers to physically carry 10,000 euros per trip abroad.
Announcing the scrapping of restrictions on Friday, Cypriot President Nicos Anastasiades said the Cypriot economy, including the banking system, was no more exposed to the effects of the Greek economic crisis, which was the source of most of the woes of Cypriot banks.
Cypriot lenders lost an estimated 4.3 billion euros when the Greek debt was written down by almost 75 percent in 2012 and were subsequently forced to shed off their Greek operations, amounting for about 50 percent of their turnover.
Anastasiades said the complete lifting of capital restrictions was a vote of confidence in the Cypriot banks.
He added that though he did not expect a Greek exit from the euro, Cyprus has made contingency plans as a matter of precaution.
The full lifting of restrictions was seen by economic analysts as a calculated move to fully shelter the Cypriot economy from any upheaval of the Greek economy.
Sofronis Clerides, an Associate Professor of Economics at the state University of Cyprus, said the lifting of restrictions was a move in the right direction.
“The government’s move is a calculated gamble aimed at reducing the possibility of adverse influences by a possible deterioration of the Greek economy,” he said in a radio interview.
Cypriot lenders though recapitalized fully and pronounced healthy by the European Central Bank after stress tests in October 2014, are still faced with a large proportion of red loans.
Non-performing loans are estimated at about half of the portfolios of the banks representing 27.2 billion euros. (1 euro = 1.10 U.S. dollars) Enditem

Source: Xinhua

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