NICOSIA, Cyprus--Cyprus's government Thursday extended capital
controls imposed last month, but eased certain restrictions in a
move senior government officials described as being the first
essential step to restore normality to the country's banking
system.
The move to extend the controls and gradually unwind them for
Cypriot lenders was expected, but a second decree also states
foreign customers at foreign banks will have restrictions lifted if
certain conditions are first met.
Since the restrictions were first imposed late last month to
forestall a run on the island's banks, the government has taken
several small steps to relax them, though it has also signaled the
controls will remain in place for several weeks at the very
least.
In a sign fears of a bank run were steadily receding, the
finance ministry said in a decree it would allow businesses on the
island to transfer up to 500,000 euros ($650,000) abroad without
prior approval from monetary authorities. The previous limit had
been EUR300,000.
At the same time, businesses can transfer up to EUR300,000 for
domestic transactions without approval or certification, though
certification is needed for amounts above EUR300,000.
"This is the first essential step in unfreezing the domestic
[banking] market," a senior finance ministry official said.
The amount of cash travelers can take out of the country has
been increased to EUR3,000 per trip from EUR2,000, while
individuals can send EUR5,000 a month out of the country, up from
EUR2,000 a month previously. Also, there is no cap on credit-card
transactions, compared with a previous limit of EUR5,000 per month
per credit card.
The daily withdrawal limit from cash machines on the island
remains capped at EUR300.
A second decree says there are no restrictions on deposits that
belong to foreign depositors at foreign banks in Cyprus, though the
foreign banks have to first submit a catalog of their foreign
depositors and they need approval from Cyprus's central bank.
In late March, Cyprus became the first euro-zone country to
impose capital controls to prevent a collapse of its banking sector
as it sought to secure a EUR10 billion bailout from its euro-zone
peers and the International Monetary Fund. The capital controls
were imposed following a nearly two-week-long emergency bank
holiday on the island while the negotiations were taking place.
Since then, Cyprus has agreed to undertake some EUR13 billion
euros of austerity measures to fix its public finances as well as a
sweeping restructuring of its banking sector. The island's
second-biggest bank, Cyprus Popular Bank PCL (CPB.CP), will be shut
down and its healthy assets will be merged with Bank of Cyprus PCL
(BOCY.CP), the biggest. Uninsured deposit holders, those with more
than EUR100,000 in their accounts, face steep losses of up to 60%
at Bank of Cyprus, and at least 80% at Cyprus Popular, also known
as Laiki.
The impacts of the protracted bank holiday, the overhauls in the
financial sector, and the austerity measures are expected to push
Cyprus deep into recession and fuel unemployment. A troika of
international inspectors, from the European Commission, the IMF and
the European Central Bank, predict Cyprus's economy could contract
by 8.7% this year, but private-sector forecasters say output may
shrink by a double-digit percentage.
-- Nektaria Stamouli in Athens contributed to this article.
Write to Philip Pangalos at philip.pangalos@dowjones.com and
Nektaria Stamouli at nektaria.stamouli@dowjones.com
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