THE CENTRAL Bank of Cyprus released a circular to commercial banks giving advice on how to approach applications by Turkish Cypriots to open up bank accounts in the government-controlled areas.
The circular advises banks to apply the same principles and requirements for opening a savings account for Turkish Cypriots as they would for Greek Cypriots. But the authority failed to cover crucial issues like what happens when a Turkish Cypriot company wants to open an account or an individual Turkish Cypriot wishes to take out a loan.
The commercial banks have asked the Central Bank to give its opinion on the issue of savings accounts after a number of Turkish Cypriots made applications to open an account following the partial lifting of travel restrictions in April.
The Central Bank stipulated that any Turkish Cypriot wishing to open an account had to go through the same procedures as Greek Cypriots. First, they must prove they are citizens of the Republic of Cyprus by presenting a legitimate identification card. The next step is to verify the money to be deposited comes from a “regular, legitimate business” – especially for large sums of money.
One Central Bank official told the Cyprus Mail this was standard procedure for all Cypriot citizens. “The same procedure will apply for Turkish Cypriots too. However, it is up to each bank to decide and evaluate the evidence provided,” he said.
The official pointed out that the circular applied to “opening an account and other banking related services”. It did not deal with how to handle requests for individual loans or deposits by Turkish Cypriot businesses as legal entities themselves.
“We only tried to deal with the issue of how Turkish Cypriots should be handled as individuals or legal entities. If they want to deposit money as businesses, that is a different issue. Their businesses are not registered. What constitutes a ‘legitimate business’ for these purposes?” he asked.
Turkish Cypriot businesses are not registered in the Republic of Cyprus while an added complication arises with the issue of Greek Cypriot property ownership in the north.
“This becomes a political question which cannot really be discussed by the Central Bank. It is, however, a crucial issue with a very political dimension,” he added.
Regarding savings accounts, the official highlighted that large deposits would create complications because the bank would start to wonder where that money came from.
“The question of whether the individual has a ‘legitimate business activity’ has to be verified on a continuous basis as part of standard procedure, otherwise the account should not be opened.”
“There are many banks in the north and there is an issue of money laundering; we don’t want that to spread on this side,” said the Central Bank source.
Asked whether Turkish Cypriots were effectively limited to depositing money in the free areas, he replied: “The problem with loaning is, how do you secure that you will get the money back at the end of the day? Hypothetically speaking, will a bank accept collateral in the north?”
“The Central Bank has not mentioned loans in the circular; it is up to the banks to decide. In practice the banks need to verify the questions they have. They need minimum verification of a legitimate business activity in order to provide ‘other banking services’. Personally, I don’t think a bank is crazy enough to give loans to anyone without securing collateral first,” he said.
But, the official did not rule out the possibility of loans. “If a Turkish Cypriot deposits £10,000, for example, and asks for a loan facility using the money as collateral deposit, maybe they will grant an overdraft facility because it is secure collateral,” he added.
