Big depositors at Bank of Cyprus, the biggest lender of Cyprus, will have to contribute 47.5 percent of their deposits over 100,000 euros (133,000 U.S. dollars) towards the bank's recapitalization, officials said on Monday.
They added that the Cyprus government and technocrats of international lenders concluded marathon negotiations which started Saturday on fixing the final percentage of deposits in a bail-in of the bank decided by a Eurogroup meeting on March 25 in Brussels.
It was the condition for a 10-billion-euro bailout for the eastern Mediterranean island after the banking system suffered mammoth losses on account of the write-down of the Greek debt.
"An agreement has been locked on a percentage of 47.5 but an official announcement will be made when technicalities on what percentage will be converted into bank equity and what part will be turned into bonds," an official familiar with the negotiations said.
Depositors at the Bank of Cyprus will involuntarily become its new owners and bondholders and will elect a new board in September.
The new shareholders are mostly thousands of pension funds, with bank employees having the biggest share, as well as foreign depositors who saved their money in Cypriot banks offering high interest rates.
Their uninsured deposits were converted into shares right away at a percentage of 37.5, with a further 22.5 percent blocked until a decision on the final haircut was made.
Bank of Cyprus provisional president Sophocles Michaelides lent credibility to the reports about the 47.5-percent haircut on deposits, saying that "given the circumstances, it was a satisfactory result which will help the bank to restart its normal operations."
Michaelides said that by July 31, final arrangements will be in force regarding the bank's status.
The Cypriot government insisted on a 45-percent haircut and was still reported to have reservations on the final size of the haircut. However, the Central Bank of Cyprus, as resolution authority for Bank of Cyprus, has the final word on any decision.
International lenders -- the European Commission, the European Central Bank and the International Monetary Fund -- were also reported to demand a 47.5-percent haircut so as to give the bank a security buffer until the economy can pick up again.
Nobel prize laureate economist Christoforos Pissarides, who heads the National Economy Council, said after a meeting on Monday that the Cypriot economy is moving ahead again.
"We have overcome the initial shock and we go forward," said Pissarides.
He announced that controls on bank transactions will be considerably relaxed after Bank of Cyprus exits its resolution status but some of them, most notably transfer of capital abroad, will be lifted in stages over the next two years.
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