NICOSIA, Cyprus -- Big depositors at Cyprus' largest bank may be forced to accept losses of up to 60 percent, far more than initially estimated under the European rescue package to save the country from bankruptcy, officials said Saturday.
Deposits of more than 100,000 euros ($128,000) at the Bank of Cyprus will lose 37.5 percent in money that will be converted into bank shares, according to a central bank statement. In a second raid on these accounts, depositors also could lose up to 22.5 percent more, depending on what experts determine is needed to prop up the bank's reserves. The experts will have 90 days to figure that out.
The remaining 40 percent of big deposits at the Bank of Cyprus will be "temporarily frozen for liquidity reasons," but continue to accrue existing levels of interest plus another 10 percent, the central bank said.
The savings converted to bank shares would theoretically allow depositors to eventually recover their losses. But the shares now hold little value and it's uncertain when -- if ever -- the shares will regain a value equal to the depositors' losses.
Emergency laws passed earlier this month empower Cypriot authorities to take these actions.
Cyprus' Finance Minister Michalis Sarris said the measures were taken to put the Bank of Cyprus on a solid footing.
Analysts said Saturday that imposing bigger losses on Bank of Cyprus customers could further squeeze already crippled businesses as Cyprus tries to rebuild its banking sector in exchange for the international rescue package.
Europe has demanded that big depositors in Cyprus' two largest banks -- Bank of Cyprus and Laiki Bank -- accept across-the-board losses in order to pay for the nation's 16 billion euro ($20.5 billion) bailout. All deposits of up to 100,000 are safe, meaning that a saver with 500,000 euros in the bank will only suffer losses on the remaining 400,000 euros.
Cypriot officials had previously said that large savers at Laiki -- which will be absorbed in to the Bank of Cyprus -- could lose as much as 80 percent. But they had said large accounts at the Bank of Cyprus would lose only 30 percent to 40 percent.
There's also concern that large depositors -- including many wealthy Russians -- will take their money and run once capital restrictions that Cypriot authorities have imposed on bank transactions to prevent such a possibility are lifted in about a month.world