Russia alarmed over Cyprus deposit confiscation.

By bne IntelliNews March 19, 2013
President VladimirPutin held an extraordinary meeting with the cabinet over a one-time 10% tax that might be imposed by Cyprus on large deposits and is to be voted for by the Cypriot government on Tuesday. Russian officials were very direct in the critique of such measures, Putin calling it "unjust, unprofessional, and dangerous", and PM Dmitry Medvedev seeing it was "simply a confiscation". FinMin Anton Siluanov notes that despite previous agreement with EU to coordinate support policies to Cyprus, EC did not consult Russia on the deposit tax, and in this light the readiness to refinance Russia's EUR 2.5bn credit to Cyprus is going to be revised. Following the announcement of possible adoption of the deposit tax, MICEX index declined by 2.26%, RTS index by 3.39%. Russian deposit holders might lose up to USD 2bn out of about USD 20bn worth of deposits on the one-time 10% deposit tax, Interfax reported this week citing Anatoly Aksakov of the Russian association of regional banks. Forbes estimated that deposits of Russian banks and businesses amount from USD 8bn to USD 35bn. Last week Moody's Investors Service issued a special report in which it warned that Russian banks might suffer moderate credit losses if they have material exposures to Cypriot companies of Russian origin or Cypriot banks. Moody's sees Russian banks exposed to risks through loans to Cyprus-based companies of Russian origin, bank and corporate deposits, investments in Cypriot banks, and Russian subsidiaries in Cypriot banks. Moody's estimates that USD30bn-USD 40bn worth of loans were issued to Cyprus-based Russian companies by Russian banks as of end of 2012, accounting for about 15%-20% of the capital base, as well as USD 12bn worth of deposits and investment in Cypriot banks (predominantly Russian banks' subsidiaries in Cyprus). Although Moody's base scenario does not include a sovereign default or a moratorium on external payments in Cyrpus this year, the agency believes that the size of the debt burden might compel the authorities to pursue private sector losses as means for debt reduction. This might results in credit risks for Russian banks with links to Cyprus, but not substantial enough to cause negative credit action given the relative size of such exposures, Moody's added.

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