FT: Cyprus bank chief seeks to allay fears

01 April 2013

The head of Cyprus's central bank has sought to deflect blame for the chaos that has engulfed the island's financial system, but has promised a steady lifting of capital controls, and played down the risk of a flight of deposits from the country once controls are suspended.

Panicos Demetriades, governor of the Central Bank of Cyprus, was seeking to restore calm after another spike of nervousness over the weekend when it was revealed that depositors in Bank of Cyprus, the country’s biggest lender, would be subjected to a further likely “haircut” of the value of their deposits.

In his first interview since the crisis escalated last month, he denied that there would be a run on deposits once capital controls were eventually relaxed. “Once people realise how well capitalised the banks are there is little reason why there will be deposit flight”, he insisted.

It was announced on Saturday that depositors with more than €100,000 in Bank of Cyprus will get shares in the bank in exchange for 37.5 per cent of their uninsured deposits, while a further 22.5 per cent of their deposits will be put into a special fund attracting no interest and could see further write-offs.

Amid worries that the losses would jump to 60 per cent – more than the 40 per cent expected – Mr Demetriades said the 22.5 per cent frozen deposit allocation would provide a “very substantial buffer”. “I do not expect [the buffer] to be needed”, he said. “[The 22.5 per cent] was a number agreed with the troika that reassured all parties concerned that we would not need anything after that. The money will be kept frozen until a valuation is carried out of the assets that are moving from [number two bank] Laiki to the Bank of Cyprus.”

The governor, who has been lambasted in the local press and by local politicians, attempted to distance himself from terms of the agreed €10 billion European bailout and deflect blame on to politicians at home and abroad.

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