DEPOSITS in Cyprus’ banking sector fell in March 0.6 per cent to 68.7 billion euros and 1.8 percent since December 31, the Central Bank has said.
The drop, the third in as many months, was mainly caused by a 3 per cent decline in foreign currency deposits, which fell to 20.9 billion euros from 21.6 billion euros the month before, according to a statement on the website of the Central Bank of Cyprus. Overall foreign currency deposits peaked at 22.7 billion euros in December.
The decline in foreign currency deposits was mainly a result of recent developments on the foreign exchange markets, according to the central bank.
“The strengthening of the euro towards the rest of major currencies in recent months contributed to the decline of the rate of increase in foreign exchange deposits, as a significant portion of domestic deposits are in foreign currency,” a Central Bank of Cyprus source told the Sunday Mail in a telephone interview.
The euro’s exchange rate to the dollar rose 6.3 per cent from December 31 to March 31, according to the European Central Bank. The value of dollar deposits at Cypriot banks, which make out roughly nine tenths of overall foreign currency deposits, fell 7 per cent to 18.3 billion euros, in the respective period. The difference of 0.7 per cent represents a net outflow of $288.8 million in deposits from Cyprus’ banking system, which may be related to Cyprus’ recent sovereign rating cuts.
“We hold client funds and our funds in rated banks and when we had the first downgrade, we shifted client funds from local banks to banks abroad,” George Xydas, director of international operations at FxPro Group Ltd told the Sunday Mail in an interview.
FxPro, an Ypsonas-based internationally operating foreign exchange broker, is one of Cyprus’s most prominent investment companies. It is main sponsor of the football clubs Aston Villa, Fulham and AS Monaco.
Earlier this month, David Rumsey, managing director of another investment firm, the Limassol-based 3D Global Ltd, told the Sunday Mail that the downgrade of Cypriot banks which followed the sovereign rating downgrade, forced his company to transfer a large portion of its deposits to higher rated banks abroad. The company did so in order to maintain a high capital adequacy level, according to Rumsey.
Moody’s Investors Service cut Cyprus’ rating by two notches to A2 in February citing concerns over Cyprus’ fiscal situation and the exposure of its banking sector to Greece. In March, Standard & Poor’s Ratings cut the country’s rating by one notch to A-, after it had downgraded Cyprus a further notch in November, citing the size of its banking sector.
