Cyprus turns to Russia and China to save failing bank

A CYPRIOT official said yesterday the island state, exposed to Greece’s deepening financial crisis, would be forced to approach Russia and China to seek immediate relief for one of its failing banks.

Deputy Europe Minister Andreas Mavroyiannis said yesterday Cyprus needed ¤1,8bn to recapitalise one of its banks in the next few weeks and could seek up to ¤4bn in financial aid if it turned to the European Union for help.

He said during a visit to Ireland that no decision had yet been taken about how to bail out his country’s hard-hit banking system. But he said Cyprus could get help from either Russia and China or both, and that their aid might even be mixed with European funds.

“Everything is on the table,” he said. “It can be a combination (of bilateral and European money). Whatever it is it will have a part of European — money or conditionality. I don’t know if it will be Russia or China,” he said.

Euro-zone member Cyprus has been shut out of capital markets for more than a year, with many of its banks overexposed to the Greek debt crisis. It must find the equivalent of 10% of its gross domestic product by the end of this month to recapitalise Cyprus Popular Bank if no private investor is secured.

Mr Mavroyiannis said that borrowing money from the European Union (EU) carried baggage with it that bilateral loans did not.

“The problem with going through the (European bail-out) mechanism is that it received a very negative connotation because of what happened in Greece,” he said.

“Politically, when you say you are going into a mechanism people consider that there is something that is very negative. Politically, the government tries to avoid to have to bear this negative effect.”

He nonetheless said Cyprus would stick to its EU obligations. “The money can come from outside, but you need to operate within the framework of the union,” he said.

Mr Mavroyiannis said that were Cyprus to tap the EU bail-out fund, it might ask, as a safety buffer, for more than the ¤1,8bn it needs. “We are talking about ¤3bn or ¤4bn.”

In Greece yesterday, two bankers said deposit outflows at banks had accelerated before this weekend’s elections on concerns the country may move closer to abandoning the euro. Daily withdrawals had increased to the upper end of ¤100m to ¤500m this month. A second banker said withdrawals may have exceeded ¤700m on Tuesday.

The Bank of Greece, the central bank, declined to comment.

Greek banks are under strain after individuals and companies withdrew about ¤72bn since the country triggered a region-wide sovereign-debt crisis in October 2009. While lenders have access to European Central Bank funding, an exit from the euro would cut them off. Depositors are seeking to preserve their cash on concern Greece may adopt a new currency that would immediately drop in value. Bloomberg, Reuters