Cypriot Finance Minister Michalis Sarris said on Saturday that the restructured Bank of Cyprus (BoC) the largest bank of the island, is ready to fulfill its role in the economy.

He further expressed the point of view that Cyprus’ financial centre which was a base for international companies, will shrink.

At the same time Sarris denied strongly that any general significant reduction in public servants payroll was under discussion, explaining that what is being discussed is employees’ contributions in certain areas in order to save jobs.

At the same time he clarified that an offsetting of loans with deposits will be implemented on deposits above €100,000. Deposits under that amount are “guaranteed and do not figure into any calculations”, he noted, adding that the Ministry of Finance has asked to be kept informed of a possible outflow of capital abroad.

Asked to say whether cuts of the order of 20 to 30% is under discussion, Sarris denied strongly that such figures are on the table, noting that the only discussion taking place is in areas when there is a choice of saving jobs. He gave the example of high school teachers, saying that all teachers would have to make a contribution in order to save 400 of their colleagues.

This, he explained, has already been implemented in many companies around the world on the basis of the axiom that “if things are not going well then everyone will either work together and receive less or a number of people will have to leave”.

Replying to another question he pointed out that as far as Bank of Cyprus is concerned an initial estimate shows that a 37.5% of deposits above €100,000 should be turned to stocks, adding that a further 22.5% has been set in reserve until the final account of the capital needed is tallied.

This way, he continued, 40% of a deposit is being freed up for those who have deposits of over €100,000, whereas deposits under that amount are absolutely free.

Sarris also pointed out the significance of the fact that a principle of setting off loans against deposits is being used. So, as he explained, if someone had a loan of €300,000 and deposits of €200,000, his deposit will be subject to a ‘haircut’.

He replied positively to a question as to whether the entire amount of a deposit will be used to repay a possible debt, adding that before a decision was taken what everyone, whether individual or company owes to the same bank, was looked into.

Replying to another question, Sarris said that setting off loans with deposits concerns deposits of over €100,000 as amounts under are “guaranteed and do not enter into any of these calculations”.

Asked whether the Bank of Cyprus will follow in the footsteps of Cyprus Popular Bank, the 2nd largest bank in the island which is under a process of resolution, he said that the aim of all the measures taken is for the Bank of Cyprus to be on a solid foundation.

The fact that deposits are turned into stocks is being done so that there is enough capital, he said, adding that a significant portion of Cyprus Popular Bank has been integrated into the Bank of Cyprus.

“The message which needs to go out is that we have undoubtedly suffered a serious blow, a non voluntary conversion of deposits to stocks took place, but now we have a banking institution which is restructured and is ready to play its role in the Cyprus economy”, he pointed out.

Sarris also said that gradually all branches of Cypriot banks abroad will have to be sold. There are branches in Russia, the Ukraine, Romania, Serbia and in other countries.

Our financial system where Cyprus was an international business centre will shrink, he said.

Sarris also noted that gradually Cyprus will move on to new markets such as China and Arabic countries.   He further said that despite Russian bitterness over recent events, relations have remained good.

He also added that the government will find a way so that there is not a significant amount of dismissals from the banks. He gave the example of voluntary exits through the clever use of provident and pension funds.

Asked to say what Cyprus’ future will be as a financial centre as well as of all those Cypriots who have been trained to serve a financial centre, Sarris said that an adjustment will be made.  Growth in audit and law firms that have to do with the financial centre have taken a great blow, he noted, pointing out at the same time that quite a few foreign businesses and maybe new ones will return when these trying times are over.

Last Monday morning euro zone Finance Ministers and the IMF agreed on a 10 billion financial assistance package after the Cypriot authorities agreed to wind down Cyprus Popular Bank (CPB), the island’s second largest lender, and the restructuring of Bank of Cyprus (BOCY), Cyprus’ biggest bank, after imposing losses on deposits above €100,000. This will shrink the island’s large banking sector, resulting in deeper recession.

Banks in Cyprus that remained closed for more than a week, reopened on Thursday. The Central Bank of Cyprus announced on Wednesday that temporary measures will be applied to regulate the flow of capital in Cyprus, aiming to safeguard the stability of the system.

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