Bank of Cyprus & the Cypriot Financial Crisis – Republic of Cyprus
Essay Preview: Bank of Cyprus & the Cypriot Financial Crisis – Republic of Cyprus
Report this essay
Steve Manzi
Bank Of Cyprus & The Cypriot Financial Crisis
Republic of Cyprus
The Republic of Cyprus is an island nation located in the east of the Mediterranean Sea. Initially, the country was settled by Mycenaean Greeks in the second millennium BC. Its strategic positioning in the Mediterranean Sea has made it a desirable location for conquerors. The island has been occupied by over ten major powers, before gaining its independence from Britain in 1960.

In 1974, Greek-Cypriots, representing 77% of the population, began a movement known as “Enosis”, with the goal of integrating Cyprus with Greece. However, the Turkish-Cypriots, comprising 18% of the population, resisted. Currently, Cyprus is split into two segments: 59% of the area is governed by the Republic, and 36% of the area in the north refers to itself as the “Turkish Republic of Northern Cyprus”. Today, Greece remains Cyprus biggest trade partner (22% of imports and 27% of exports).

In 2004, Cyprus joined the European Union, and it adopted the Euro currency in 2008. Currently, Cyprus contains a population of 1.1 million people, a nominal GDP of $24 billion ($28,000 per capita), and has recorded a healthy, high Human Development Index (0.848). The republic is an attractive market for offshore business because of its evolved infrastructure. The three largest sectors of its economy include shipping, tourism, and financial services. Recent economic opportunities for Cyprus involve a vast discovery of natural gas along its southern coast, and an increase in capital growth of property values attributed to a boom in tourism. However, in 2012, the economy began to experience devastating economic setbacks due to a financial crisis.

Bank of Cyprus
In 1899, a few Cypriot entrepreneurs established the Nicosia Savings Bank. When the bank went public in 1912, its name was changed to the Bank of Cyprus. In 1984, the bank created the “Bank of Cyprus Cultural Foundation” to help restore the nations heritage that was threatened by the occupation of Turkish forces. In 1991, the bank opened its first branch in Greece, and by 2007, it had more branches in Greece than in Cyprus. Also, the bank presently has a heavier presence in Russia (199 branches), than it does at home (137 branches).

Today, the Bank of Cyprus offers a wider range of financial services, and is the nations largest bank. It currently holds 27% of Cyprus total deposits, and 22.5% of its loans. In 2012, recessions in both Greece and Cyprus, forced the bank to begin closing many of its Greek branches. Additionally, the European Union enacted deposit levies to fund a bailout plan, causing Bank of Cyprus customers to incur small percentage losses on their accounts. On March 26-27, 2013, Piraeus Bank purchased all of their Greek branches, and the Bank of Cyprus replaced its CEO and board of directors.

2012-2013 Cypriot Financial Crisis
Between 2007 and 2008, the subprime mortgage crisis in the United States triggered a chain reaction of economic downturns throughout international markets, especially the European Union. Therefore, the Debt Crisis in Greece began to fester, while Cyprus dependent, offshore banking industry was exposed. Cyprus held $29 billion in Greek private debt, while its nominal GDP was only $24 billion. Additionally, $60 billion of its $120 billion in bank deposits was from wealthy, Russian depositors who used Cyprus banking for its tax incentives.

In 2009, sharp declines in tourism and shipping caused rising unemployment, and the Cypriot economy shrank by 1.7%. In 2011, commercial property realized a 30% deduction in value, non-performing loans reached 6.1%, and yields on long-term bonds exceeded 12%. Also, Cyprus liabilities grew to 8 times its GDP, compared to the Eurozone average of 3.5 times GDP. The nation became unable to refund its expenses from foreign markets, and its government was unwilling to restructure the financial sector.

In 2012, Cyprus received some relief to refinance and shrink its budget deficit, in the form of a E2.5 billion emergency loan from Russia. The loan was issued at a 4.5% interest rate, with maturity of 4.5 years, and without a penalty for late repayment. However, Cyprus would need more bailout funds to recapitalize its financial industry. Moodys downgraded Cyprus credit rating to “junk status”, and Fitch downgraded their bonds to BB+, making the bonds ineligible as collateral for deals with the European Central

Get Your Essay

Cite this page

Bank Of Cyprus And Cypriot Financial Crisis. (July 6, 2021). Retrieved from https://www.freeessays.education/bank-of-cyprus-and-cypriot-financial-crisis-essay/