Topic: Cyprus Bailout
Russian Banking Giant VTB Alarmed by Cyprus Deposit Tax© RIA Novosti. Ilona Golovina
Russian Banking Giant VTB Alarmed by Cyprus Deposit Tax© REUTERS/ Yorgos Karahalis
MOSCOW, March 20 (RIA Novosti) – State-run VTB Bank, Russia’s second largest lender by assets, said on Wednesday it was concerned at the possibility that Cyprus could resolve its economic woes at the expense of deposits held in local banks.
Cyprus’ parliament on Tuesday rejected a government bill that envisioned a levy of 6.75 percent on deposits of less than 100,000 euros ($128,950) and 9.9 percent on larger deposits. The levy is aimed at securing a bailout loan from the European Union and the International Monetary Fund.
“We are of course concerned about the situation in Cyprus. The possible solution that has been proposed could potentially impact our clients,” VTB said in a statement.
International creditors said on Saturday their 10 billion euro ($13 billion) rescue package for debt-laden Cyprus is contingent on a one-off deposit levy to yield an additional 5.8 billion euros ($7.5 billion) in revenues for the Cypriot budget.
If the levy proposal is accepted, VTB would have to revise its business strategy in Cyprus, the bank's statement said.
“The proposed solution on the deposit levy is unprofessional, dangerous and could threaten the financial stability of the European and the global economy. If this proposal is accepted, VTB would be forced to re-examine its business development strategy in Cyprus.”
Russian banks and companies have favored Cyprus since the 1990s, taking advantage of the island nation’s low taxes and easy business regulations. Russian banks held about $12 billion on deposit with Cypriot banks at the end of 2012 while Russian corporate deposits accounted for another $19 billion, according to estimates by the international rating agency Moody's.
VTB said, however, the bank’s losses even in the worst case scenario may amount to “just tens of millions of euros.”
VTB operates in Cyprus through its subsidiary, the Russian Commercial Bank, which holds about 2 billion euros worth of its client deposits, which is less than 2 percent of total deposits within VTB Group, while VTB’s accounts at its Cyprus subsidiary and other Cypriot banks total about 50 million euros.
Russian banks' are exposed to Cyprus risks through loans to Cyprus-based companies of Russian origin, bank and corporate deposits and investments in Cypriot banks, and Russian subsidiaries of Cypriot banks, according to Moody’s.
According to the agency’s estimates, Russian individuals and businesses may lose around $2 billion, if the Cypriot government goes ahead with the levy proposal. But if the island nation defaults on its obligations, Russian depositors risk losing over $50 billion, considering loans granted by Russian banks to Cyprus-registered companies.
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