Top banks may be wound up in rescue plans

Tim Wallace
Follow Tim
CYPRUS’ second largest bank is expected to be shut down, with the largest being considered for closure as part of the bailout deal.

Popular Bank – trading as Laiki – and the Bank of Cyprus could be wound down into a good and a bad bank with the state taking on and managing down the bad assets.

Creditors, including depositors, may then receive shares in the remaining good bank to compensate them for their losses.

Bank of Cyprus and third biggest Hellenic bank both were downgraded last week by credit ratings agency Moody’s.

Cyprus’ banking system holds €68bn in deposits, including €38bn in accounts of more than €100,000 – enormous sums for an island of just 1.1m people that could never sustain such a big financial system on its own. Just 10 per cent of Bank of Cyprus’s €27.8bn of deposits are in units outside the Eurozone. The Russian and UK units of Bank of Cyprus hold a roughly equal amount, at €1.2bn. It lost €1.6bn on Greek bonds in 2011. Provisions for bad loans more than doubled to €800m in the first nine months of 2012.