Russia gets involved in Cyprus crisis, deposit tax rejected.

By bne IntelliNews March 20, 2013
Cyprus parliament rejected the proposal of EC to raise EUR 5.8bn by means of a one-time 10% on large deposits held in Cypriot banks, while according to early reports Cyprus FinMin Mihalis Serris resigned. To remind, possible decision on the deposit tax threatening over USD 2bn losses for Russian depositors infuriated Kremlin, with president VladimirPutin calling the measure "unjust, unprofessional, and dangerous", and PM Dmitry Medvedev seeing it was "simply a confiscation" (both of them failing to recall that Russia defaulted on over USD 40bn of debt in 1998). In the meantime Kremlin gets more involved in the crisis, despite Angela Merkel reportedly forbidding Cyprus president Nikos Anastasiades to negotiate with anyone outside the trio of international creditors (EC, IMF, and WB). President Anastasiades had a phone conversation with president Vladimir Putin and a delegation of Cypriot representatives might arrive to Russia in the coming days. Unofficial reports indicate that along with refinancing a EUR 2.5bn loan to Cyprus, Russia's third largest bank Gazprombank might participate in recapitalising Cypriot second largest bank Laiki Bank. At the same time sources of the Financial Times claim that the final say in the Cyprus crisis will remain with the European Central Bank, which will decide whether to refinance country's banking sector, currently frozen. 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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