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Panicked Cypriots queue at banks on new "haircut" rumours

Panicked Cypriots queued outside banks on Friday on rumours that a new levy would be imposed on deposits as part of a bailout, but the authorities moved quickly to assure them this was not the case.

NICOSIA: Panicked Cypriots queued outside banks on Friday on rumours that a new levy would be imposed on deposits as part of a bailout, but the authorities moved quickly to assure them this was not the case.

Cyprus wrapped up talks this week paving the way for the 10-billion-euro ($13-billion) bailout from EU-led lenders, but fears swirled that it was still well short of the 5.8 billion euros to fund its end of the deal.

As the speculation spread on Friday morning, customers formed long queues outside some of the larger branches of the Co-op bank, prompting the government to issue a denial of the reports as "unjustified" and "groundless".

"Such an issue was never tabled or discussed, therefore we categorically state that no such issue exists, not even as an intention," said the finance ministry.

"The memorandum has been agreed with the troika and it does not include any additional measure that leads to the need to implement any new haircut on deposits," it said, referring to the EU, European Central Bank and IMF.

The ministry said the measures agreed by the Eurogroup on March 25 for restructuring the Cypriot banking sector were being implemented and the system was "on track towards stabilisation and consolidation".

The central bank also denied reports of any plans to introduce a "general" haircut of deposits to pay for the conversion of uninsured deposits above 100,000 euros into shares in the island's biggest lender, the Bank of Cyprus (BoC).

"We refute this because such an action is not provided for in the policy decisions taken by the Eurogroup," it said in a statement.

The supervisory authority for the Co-op societies also warned anxious customers to ignore "slanderous rumours" being spread by text messages that a haircut on deposits was imminent.

Under the deal to downsize the banking sector, large BoC depositors could lose all of the remaining 60 percent of their balances of over 100,000 euros depending on the costs of winding up and merging second-largest lender Laiki.

Savers in that bank will have to wait for years to see any of their cash over 100,000 euros.

Banks have been operating under stringent capital controls since they reopened last week, after a near two-week lockdown prompted by fears of a run on deposits.