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Cyprus guarantees safety of Arab deposits
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Lebanese and Arab bankers are positive that Cyprus will not tap into deposits remaining in the troubled Mediterranean island. But key steps, reforms and more time are needed before trust is fully regained, according to experts.

Cypriot officials have met our demands [of Arab banks] when its Parliament did not agree on taxing deposits of nonresidents, said the head of the World Union of Arab Bankers, Joseph Torbey, Tuesday.

Torbey was speaking at a news conference which followed a visit by a delegation of the Union of Arab Banks and the World Union of Arab Bankers to Cyprus at the invitation of Finance Minister Harris Georgiades.

We asked for guarantees that the policy of safeguarding nonresident deposits will be maintained, and we have received what reassures us in this regard, he added.

The delegation met with Central Bank Governor Panicos Demetriades and other key Cypriot financial officials and the visit yielded in addition to guarantees a joint Arab-Cypriot banking conference dubbed Regaining Trust, to be organized within the next few months.

But regaining trust is still premature even though signs are positive.

In March, Cyprus secured a deal with the International Monetary Fund, the European Commission and the European Central Bank. But dodging bankruptcy came at a high cost for depositors, many of whom lost a sizable percentage of their savings to taxes imposed by the bailout.

The visit came at a time when the troika of lenders began reviewing Cyprus progress in a two-week process that started last week.

Among the questions being raised is why the Central Bank has delayed a decision on how many shares depositors in the Bank of Cyprus will receive in exchange for giving up their deposits.

The Cypriot government said Tuesday that the restructuring of the bailed-out countrys biggest bank has to be completed by the end of this month, according to the Associated Press.

The Bank of Cyprus had to absorb the countrys now-defunct second largest lender, Laiki, as part of a 23 billion euro ($30.3 billion) financial rescue deal.

As a condition for the bailout, the Cypriot government forced depositors in both banks to take huge losses on accounts bigger than 100,000 euros.

But until the restructuring process is completed and details about how depositors will be compensated made known, a complete trust in the Cypriot financial system cannot be guaranteed, said Joe Sarrouh, adviser to the chairman of Fransabank.

They will keep uncertainty in the market and uncertainty runs heavily on trust and covalence, he said.

Nevertheless, Sarrouh says the risk of default has receded for Cyprus and that it is improving. There is a good level of conviction about the governments ability to repay debt and this is a very good sign.

Secretary-General of the Union of Arab Banks Wissam Fattouh, who accompanied Torbey on the visit, told The Daily Star that the priority was to protect 10 Lebanese banks and many Arab banks that operate in Cyprus.

He said Cypriot decision-makers were keen to provide guarantees as they change the orientation of their financial sector from Europe to the Middle East in the future.

Cyprus is now looking to the Middle East instead of Europe, particularly after the Arab world managed to largely evade financial crises, he said. The region remains a major source of capital as Europe struggles with an ongoing crisis.

Fattouh said Lebanese banks in Cyprus were no longer looking to close their operations. While a big percentage of Lebanese deposits in Cyprus were initially withdrawn, some were restored as depositors grew more confident that Cyprus would not default.

It is in our interest that deposits and investments remain in Cyprus. Let us not forget that the island is the closest EU member to the region, he said.

Around $2 billion in deposits held by Lebanese banks in Cyprus was withdrawn back to Lebanon, Sarrouh estimated, after the islands Central Bank allowed foreigners to withdraw their money.

But Fattouh said that easing all restrictions on deposit transfers was the only policy that could restore trust in Cyprus financial system. In Lebanon this policy worked well and not only preserved deposits but attracted more.

source By Mohamad El Amin