Gloomy Economic Horizon Cypriot Banks Reopen amid Calm and Fear

Many had feared that Cyprus would experience a bank run once financial institutions were reopened. That did not happen on Thursday, but frustration levels are high, as are fears for the country's economic future.


By in Nicosia

At 11:59 a.m., one minute early, the branch of Bank of Cyprus on Makarios Avenue, a large shopping street near the city center of Nicosia, opened its doors. Elena was the first to walk in. A student of economics, she has had enough of her country and is planning to move to England to join her sister as soon as possible. She says she has some €14,000 in her account, and plans to withdraw all of it.

But the teller shakes her head. According to rules established by the Cypriot Central Bank, clients are currently only allowed to withdraw €300 per day.

Such scenes took place across Cyprus on Thursday. After 12 days during which banks remained closed, they are now back in business. Lines began forming in front of many branches in the late morning. But the run on the banks that many had feared in the run-up to Thursday's grand re-opening failed to materialize. Most lines were modest, rarely larger than 20 or 30 people. Some were anxious, others frustrated. But inside the banks, it was largely business as usual.

The Bank of Cyprus branch was well prepared. "We opened seven counters today," one employee noted. "On normal days we just have four." But the extra capacity wasn't strictly necessary. After just two hours, the crowds of customers dissipated and the bank was able to close the extra counters.

There had been concerns that the situation on Thursday would be much worse. The initial bailout package for Cyprus, agreed to on March 16 in Brussels with the agreement of Cypriot President Nicos Anastasiades, called for a one-time levy on all savings accounts held with Cypriot banks. Even though that deal was ultimately revised to eliminate the tax for accounts under €100,000, trust in the banking system took a serious blow. Many worried that Cypriots would try to empty their accounts the first chance they got.

Calm and Composed

Instead, Cypriots proved composed, with many electing to forego a bank visit on Thursday altogether, partially in response to a request from the country's central bank. "Transactions that don't have to be made today can be taken care of tomorrow as well," a central bank spokesperson emphasized in a statement on Cypriot television.

In addition, the Cypriot private banking system is well prepared for a day such as Thursday, with banks possessing large numbers of branches. The Bank of Cyprus, the country's largest, has 72 branches in Nicosia alone, with more than 100 others elsewhere in the country. Laiki, the bank which is soon to be broken up, has 35 branches in the capital with a countrywide total of 88.

Withdrawal limits were not the only special rules in effect as the Cypriot banking industry went back into operation on Thursday. Security personnel on Makarios street were distributing pamphlets in both Greek and English explaining the new decrees governing the movement of capital. Monthly payments made by credit card are not to exceed €5,000. Daily business transfers beyond €5,000 are not allowed. Holders of fixed deposit accounts have only limited access to their funds.

Some in Cyprus are infuriated by the rules. Andreas, for example, is a self-employed electrician who has been waiting for two weeks to cash a €510 check so that he can pay back a friend who loaned him money. But the bank teller refused to give him the cash, explaining that the amount must first be transferred to his account in accordance with the central bank decrees. That will take three to four working days, the teller informs him. "Then you will be able to withdraw it over the course of two days," she says. Andreas is not impressed. "Such an inconvenience for just €510," he says. "That is absurd."

Still, the transaction limits imposed from on high are not the biggest problem facing people like Andreas. Their biggest fear is an economic collapse, a concern substantiated by economists, who forecast a long recession for Cyprus. The unemployment rate on the island, currently 14 percent, is likely to climb noticeably.

Feeling the Effects

The banking crisis is also likely to hit the country's small and mid-sized companies hard. It's not just rich Russians who deposited large sums of money with Laiki Bank. Local business people also held accounts there: Those with €500,000 in a Laiki account will likely see €400,000 of it move into a bad bank, where they will not have access to it for years. And in the end, account holders will likely only get a fraction of it back.

"It is primarily normal people who will feel the effects," says Charis, who runs a small shop in the city center and who found her way into a line in front of a Laiki Bank branch. "The chaos in Brussels has ruined our country. We will suffer for years."

On Thursday, eighty-year-old Elias made sure to put on his nicest clothes in the morning -- suit, tie, sweater-vest -- and headed to a Laiki Bank branch in the pedestrian zone of Nicosia. He was the first to arrive at 10:30 a.m. and he was immediately set upon by camera teams from Australia and France. "I want to withdraw money for my sick son," he said, patiently repeating himself to each journalist who asked. "I intend to withdraw €3,000 to give him."

A reporter asks him if he is aware that he is only allowed to withdraw €300 each day. "That's what they say," Elias responds. "But I will only believe it when they send me away without money."

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