It may be a small sovereign state compared with Italy and Spain, but fears that Cyprus may be the next EU member state to seek a bailout show no signs of diminishing.
If one of its financial institutions were to go to the wall, many IFAs and investment managers would find a large percentage of their international client-base running into trouble.
What has tipped Cyprus’ financial woes further towards crisis point is the recent munitions’ explosion which killed 13 people and destroyed the power plant that supplies half the island's electricity.
The damage is estimated at Cy£1.8bn, a sum which places a severe strain on the economy at a time when the banks already face a crisis over the extent of their holdings in Greek government bonds.
The Island’s new Finance Minister, Kikis Mazamias, stated last week that Cyprus was not in need of a bailout and was doing all it could to avoid one in the future.
However, such words have not allayed concerns over Cyprus’ financial woes, or prevented a series of ratings’ downgrades because of the chronic debt implications of such exposure to debt-burdened Greece.
EU Economic and Monetary Affairs Commissioner, Olli Rehn, has announced that the Island has “overall sound fundamentals” and confirmed that its banks hold sufficient capital to mitigate any losses from their exposure to Greece.
However, Rehn added that Cyprus should take care to accelerate the structural reforms included in the country’s reform programme.
IFAs and managers may want to alert any clients with deposits in Cyprus banks. Savers invested in a local bank that defaults would have to apply for compensation to the Cypriot Deposit Protection Scheme.
Depositors are covered up to new EU maximum of €100,000. Any balance over that sum held with one institution is not covered for compensation.
Ifmore than one bank were to fail and and the Cypriot government were unable to meet the claims, then savers would be forced to look to the European Central Bank to step in and refund depositors.
Savers who have deposits with a British branch of a Cypriot bank are not covered by the UK’s Financial Services Compensation Scheme.
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