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Mar 30, 2013, 02.03 PM IST | Source: Reuters

Big depositors in Cyprus to lose far more than feared

Big depositors in Cyprus's largest bank stand to lose far more than initially feared under a European Union rescue package to save the island from bankruptcy, a source with direct knowledge of the terms said on Friday.

Big depositors in Cyprus's largest bank stand to lose far more than initially feared under a European Union rescue package to save the island from bankruptcy, a source with direct knowledge of the terms said on Friday.

Under conditions expected to be announced on Saturday, depositors in Bank of Cyprus will get shares in the bank worth 37.5 percent of their deposits over 100,000 euros, the source told Reuters, while the rest of their deposits may never be paid back.

The toughening of the terms will send a clear signal that the bailout means the end of Cyprus as a hub for offshore finance and could accelerate economic decline on the island and bring steeper job losses.

Officials had previously spoken of a loss to big depositors of 30 to 40 percent.

Cypriot President Nicos Anastasiades on Friday defended the 10-billion euro (USD 13 billion) bailout deal agreed with the EU five days ago, saying it had contained the risk of national bankruptcy.

"We have no intention of leaving the euro," the conservative leader told a conference of civil servants in the capital, Nicosia.

"In no way will we experiment with the future of our country," he said.

Cypriots, however, are angry at the price attached to the rescue - the winding down of the island's second-largest bank, Cyprus Popular Bank, also known as Laiki, and an unprecedented raid on deposits over 100,000 euros.

Under the terms of the deal, the assets of Laiki bank will be transferred to Bank of Cyprus.

At Bank of Cyprus, about 22.5 percent of deposits over 100,000 euros will attract no interest, the source said. The remaining 40 percent will continue to attract interest, but will not be repaid unless the bank does well.

Those with deposits under 100,000 euros will continue to be protected under the state's deposit guarantee.

Cyprus's difficulties have sent jitters around the fragile single European currency zone, and led to the imposition of capital controls in Cyprus to prevent a run on banks by worried Cypriots and wealthy foreign depositors.

"Cyprus Euro"

Banks reopened on Thursday after an almost two-week shutdown as Cyprus negotiated the rescue package. In the end, the reopening was largely quiet, with Cypriots queuing calmly for the 300 euros they were permitted to withdraw daily.

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