Created on Tuesday, 26 March 2013 Written by MENELAOS HADJICOSTIS,Associated Press
NICOSIA, Cyprus (AP) — Cypriot businesses were under increasing strain to keep running on Tuesday after financial authorities stretched the country's bank closure into a second week amid fears that depositors will rush to drain their accounts.
Cyrpus's central bank governor, Panicos Demetriades, said "superhuman efforts are being made" to open banks on Thursday.
"Temporary" restrictions will be imposed on financial transactions once the banks do, he said, but would not specify what those restrictions would be or how long they would be in place for.
"We have to restore the public's trust in banks," he said.
All but two of the country's largest lenders had been due to reopen Tuesday, after being shut since March 16 to stop savers from withdrawing all their money from the banks while politicians figured out how to raise the funds necessary for Cyprus to qualify for an international bailout.
However, the central bank made a surprise reversal just before midnight, announcing all banks would remain closed until Thursday.
The original idea had been not to impose restrictions if the banks opened Tuesday, Demetriades said, "but now we're obligated to do so" because as each day goes by, more people would want to pull their money out.
"We have to all understand that we live in very critical times, officials of the government and the central bank are working day and night," he said.
Under the deal for a 10 billion euro ($12.9 billion) rescue clinched in Brussels early Monday, Cyprus agreed to slash its oversized banking sector and inflict hefty losses on large depositors in troubled banks.
The bulk of the funds will be raised by forcing losses on accounts of more than 100,000 euros ($129,000) in the country's second- largest lender, Laiki, with the remainder coming from tax increases and privatizations.
The bank will be dissolved immediately into a so-called bad bank containing its uninsured deposits and toxic assets, with the guaranteed deposits being transferred to the nation's biggest lender, Bank of Cyprus.
Deposits at Bank of Cyprus above 100,000 euros will be frozen until it becomes clear whether or to what extent they will also be forced to take losses. Those funds will eventually be converted into bank shares.
A top European Central Bank official, Benoit Coeure, who sits on the bank's six-member executive board, told France's Europe 1 Tuesday that the plan to keep the banks closed was sensible as "there is still a lot of work to do on the ground".
"One bank must be shut, and the two big banks must be merged and to do that, the Cypriot central bank has considered it better to keep the banks closed."
Nonetheless businesses have already been feeling the brunt of the cash crunch, unable to pay salaries and suppliers as Cypriots has slashed spending to keep as much money on them in light of all the uncertainty surrounding the banks.
The banks' closure has been felt in the country's important shipping industry, which contributes about 5 percent or 800 million euros ($1 billion) to the economy.
Cyprus ranks 10th in the world in terms of the number if ocean-going vessels flying its flag, and it in the top five of countries with the largest number of ship management companies.
"This is destructive for us," said an official with Cyprus-based shipping company EDT Offshore, who spoke on condition of anonymity because his company did not authorize him to speak to the media.
"We have to pay our crews' salaries and that's $500,000, while we have to pay as much for our office staff by March 28 and we don't have access to our bank accounts," the official said. "These are people who need to pay their bills, have obligations to meet."
The official explained that authorities in the Greek port of Piraeus have prevented one of three EDT ships to leave until the company pays it port dues. That means the ship can't fulfill its contract with clients, meaning possible losses for the company which has a fleet of 18 vessels.
Other businesses have also been hammered by the bank closures as they find themselves unable to pay suppliers or fulfill orders.
"Cash is definitely a problem," said Nicosia pharmacist Lucy Santourian, counting out euro bills to a supplier who had just brought in new supplies of baby formula and other products. "We normally pay 90 percent of our suppliers on credit, once a month at the end of the month. Now most are asking for cash only."
The retail market is sharply down too, shop owners say, with customers unwilling to spend on anything but the basics while they have limited access to cash.
"The continuation of this uncertainty is pushing the economy deeper into recession, some businesses could possibly lose their clients, but we're hopeful once this situation is sorted out, the market can rebound quickly," said Michalis Pilikos, head of the Cyprus Employers and Industrialists Federation.
Also Tuesday, the chairman of the board of Bank of Cyprus, Andreas Artemis, tendered his resignation, a spokesperson for the bank said.
The board of directors was to decide on whether to accept the resignation later in the day, said the spokesperson, speaking on condition of anonymity because a decision had not yet been made.
Elena Becatoros in Nicosia and Juergen Baetz in Brussels contributed to this report.