Tuesday

5th Mar 2024

Capital flight continues as savers flee Cyprus banks

  • Savers are stilling fleeing Cyprus (Photo: truthpaint)

Savers are continuing to desert Cypriot banks, according to monthly data published by the European Central Bank (ECB) on Wednesday (29 May).

Private bank deposits in Cypriot banks fell by 7.3 percent in April to €41.3 billion, on top of a 4 percent fall in March.

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The continued flight of capital from Cyprus in April came in the aftermath of a clumsily agreed bailout in March which initially threatened to impose levies on almost all bank savings.

The first bailout package agreed by eurozone finance ministers in the Eurogroup would have imposed a 6.75 percent levy on all deposits worth between €20,000 and €100,000 - a clear breach of existing EU law which protects savings worth up to €100,000.

Although the first proposal was rejected by the Cypriot parliament, the rescue package eventually agreed upon, targeted wealthy investors in the island's two biggest banks, Bank of Cyprus and Laiki bank.

The Cypriot government then imposed strict capital controls, including limits on cash withdrawals and transfers in and out of Cyprus, in a desperate attempt to prevent bank runs as savers sought to take their money elsewhere.

The eurozone's other struggling countries also saw a decline in bank deposits.

Greece saw private deposits fall by €2.8 billion to €164.1 billion euros in April, 1.6 percent on the month.

Spain saw a 1.5 percent fall, taking bank savings to their lowest level since October, while Portugal, Ireland and Italy saw 0.5 percent, 0.1 percent and 0.3 declines, respectively.

However, there was better news for banks in France, Germany, Belgium, Austria, Estonia and Slovakia, all of which saw an increase in overall deposits.

The publication of the new data coincided with a plea from the influential Paris-based think tank, the Organisation for Economic Co-operation and Development (OECD), urging the European central bank to take the unusual step of cutting the interest rate it pays banks for depositing money with it to below zero.

The move would force banks to increase business lending rather than hoard money at a profit.

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