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Cyprus 'to impose weekly limits on cash withdrawals' as UK government stops all pension payments into island's banks
- Ministers also considering euro export limit and ban on cashing cheques
- Dept for Work and Pensions keeping 'watching brief' on bail-out crisis
- Up to 12,000 British expats are thought to be affected by the freeze
- Pensions minister says cash can be paid into account of 'trusted friend'
PUBLISHED:08:42 EST, 26 March 2013| UPDATED:12:18 EST, 26 March 2013
Bank account holders in Cyprus could be subjected to a weekly limit on cash withdrawals, it emerged today.
Cypriot finance ministers have drafted a series of capital controls that also include export limits on euros, a ban on cashing cheques.
Fixed-term deposits may also have to be held until maturity.
Cash crisis: Cypriot finance ministers are considering weekly limits on withdrawals to curb a run on deposits
Earlier, the Central Bank governor said measures to avert a run on deposits after a painful EU rescue plan will be 'loose' but would apply to all banks on the island.
Panicos Demetriades said they would be 'temporary' but would not say how long they would last.
He said authorities were doing 'all they could' to ensure banks reopen on Thursday as announced late yesterday.
The two banks at the centre of the financial crisis - Bank of Cyprus and Cyprus Popular Bank - are currently limiting ATM withdrawals to 100 euros a day.
News of the limits on cash withdrawals, revealed by the BBC, came after the Department for Work and Pensions (DWP) announced British pensions would not be paid into Cypriot bank accounts for the foreseeable future and advised expats to open UK accounts.
'Watching brief': Pensions Minister Steve Webb (pictured) is advising British expats to either switch their payments to a UK account or open a new one after the Cyprus bailout targeted savings
Chancellor George Osborne also revealed the Treasury is working on a solution for the 13,000 UK customers of Cyprus Popular Bank, part of Laiki Bank, who could lose up to 40 per cent of their savings above the 100,000 euros (£85,000) cut-off limit.
A spokeswoman for the DWP said a 'watching brief' is in place on the situation but payments into Cypriot bank accounts will not resume when banks on the island reopen - currently planned for Thursday.
In a statement to MPs, Pensions Minister Steve Webb said the Government is advising people to either switch their payments to a British account they already have or to open a new one.
About 6,000 of the 18,133 British expats on Cyprus use a British bank account already and so are not affected by the freeze.
Mr Webb said: 'We are advising customers to change the bank account into which payments are made, for example by nominating an alternative bank account or the account of a 'trusted friend' which is permissible under our current rules on benefit payment.
'This is a practical measure to ensure that payments reach our customers promptly, and we are not advising these customers to close their Cypriot bank accounts.
'Customers who do not currently have another bank account may wish to open one.
'HM Treasury have also worked with Barclays to put in place a process so that individuals can open a bank account quickly if they wish to do so.'
The freeze on benefit payments into Cypriot bank accounts was announced by Treasury Minister Greg Clark last week amid reports that the government in Cyprus was planning a levy on all accounts to fund a bailout.
The plan was rejected by the Cypriot parliament, but banks have been closed since in a bid to avoid a run on the island's banks after a new deal which will use savings over £85,000 to pay off struggling lenders.
Run dry: A cleaner mops the forecourt of the empty laiki bank which is being wound down as part of bailout deal to use savings to pay off its debts
The rescue package will wind down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shift deposits below 100,000 euros to the Bank of Cyprus to create a 'good bank'.
Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki's debts and recapitalise Bank of Cyprus through a deposit/equity conversion.
Banks have been closed since March 16 to avert a run on deposits as the country's politicians struggled to come up with a plan that would raise enough funds to qualify for an international bailout.
All except the country's two largest lenders had been due to open today after the country clinched an 11th-hour deal with the 17-nation eurozone and the International Monetary Fund.
Hard times ahead: Cypriot students shout slogans during a protest against the bailout package outside the presidential palace in capital Nicosia
But last night the Central Bank said that 'for the smooth functioning of the entire banking system, the finance minister has decided, after a recommendation by the governor of the Central Bank, that all banks remain shut up to and including Wednesday'.
ATMs have been functioning, but many run quickly out of cash, and a daily withdrawal limit of 100 euros (£85) was imposed on the two largest lenders, Bank of Cyprus and Laiki.
Mr Clark said the goal was to ensure that payments reached their intended recipients.
Mr Webb said the Government will continue to monitor the situation closely and aims to minimise disruption for those affected.
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