Cyprus government has set up a committee to mitigate the consequences of the haircut imposed in the context of the €10 billion bailout it obtained last March by its international lenders (the European Commission, the European Central Banka and the IMF).

With a decision of the Council of Ministers on October 3, the Ministry of Finance has set up a committee to deal with the mitigation of the problems arising from the impairment of deposits and fall within sensitive humanitarian problems, Deputy Government Spokesman Victoras Papadopoulos said in statements following a Council of Ministers meeting.

As part of the bailout, a total of 47.5% of uninsured deposits in Bank of Cyprus has been converted into capital in a bid to recapitalize the distressed bank which requested state aid due to mammoth losses due to the Greek sovereign haircut and soaring non-performing loan. Furthermore, Cyprus Popular Bank, the islands second largest lender, will be wound down with its good part folded in Bank of Cyprus. An estimated 80% of uninsured deposits were wiped out.

According to IMF figures, the haircut imposed in the two banks reached 7.8 billion, excluding subordinated and senior debt impairment. As a result many corporations in Cyprus saw there working capital being wiped out, resulting in a deep recession estimated to reach 8.7% of GDP.

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