We documented the initial deposit flight from Cypriot banks after the country’s rescue package. The central bank of Cyprus released today data on deposits in Cypriot banks by non-banks at the end of May. These declined by 1.4 bn EUR from a month earlier, i.e. by 2.5 %. This brings the cumulated decline February–May to 17.1 %. In this post we examine the evolution of the balance sheet of Cypriot banks a bit more thoroughly, by inspecting also the evolution of assets and other liabilities than deposits. We also attempt to clear some of the issues with Cypriot data.
Figure 1 and Table 1 break down the decline in deposits based on residency. Foreigners have drawn a considerably larger share of their funds than domestic residents. Many outlets publish figures on Cypriot deposit flight based on ECB data, which does not include deposits from outside the euro area. This gives a misleading picture in the case of Cyprus because its banks had substantial extra-euro area deposits, in particular from Russia.
Figure 1: Total deposits in Cypriot banks by residence (bn EUR) and monthly variation (%) (06/2012–05/2013).
Table 1: Change in amount of deposits outstanding in Cypriot banks.
The decline in March–April is influenced by the 2.8bn haircut on unsecured deposits in the Bank of Cyprus. Therefore the drop does not represent only withdrawals. Accounting for this, the haircut-corrected decline in March–April was 5.6 %. On the other hand, the 19th of May bail-in of Laiki depositors, is not yet reflected in the numbers.
Unfortunately, there is no data on the incidence of the haircut by residency of depositors although it probably touched relatively more foreigners. In principle it should be possible to disentangle the effects of the haircut by studying the difference in changes in outstanding amounts and net transactions. However, this does not work with the Cypriot data because the haircut seems to have been classified as transactions[1].
Deposits by Cypriot households decreased less in relative terms than overall deposits in February–May (5.8 % vs. 17.1 %). On the other hand, deposits by other euro area households (21.8 %) and extra-euro area households (21.7 %) decreased significantly faster. To some degree this probably reflects the higher incidence of haircuts on foreign deposits. Nevertheless, the decline in domestic household deposits is still smaller than the haircut-corrected decline in total deposits (13 %).
Examining more broadly the development of total liabilities and assets indicates whether deposit withdrawals have resulted in deleveraging of the banking system or whether Cypriot banks have managed to substitute deposits with other types of funding. Table 2 presents the evolution of total liabilities of the banking system. These have declined from 126bn to 111bn February–May, a fall of 12 %. Unfortunately, data is available only on a non-consolidated basis. This skews the results because it is not straightforward to attribute the decline in the balance sheet into a drop in intra-banking system liabilities and a decrease in liabilities to non-banks.
Table 2: Total liabilities (EUR bn) of the Cypriot banking system (non-consolidated).
Domestic bank deposits
Other EA bank deposits
EA res. deposits
EA gov. deposits
Debt securities
Capital and res.
Extra-EA liab.
Other liab.
Total
2-13
14.8
10.6
46.4
0.1
1.7
15.2
35.1
2.5
126.4
3-13
15.6
4.0
44.6
0.1
1.8
13.9
34.4
2.6
117.0
4-13
17.0
3.9
41.3
0.1
1.3
17.4
29.8
2.0
112.8
5-13
16.9
3.7
40.5
0.2
1.3
18.6
28.3
1.9
111.3
Source: Datastream.
A partial correction can be done by taking int
We documented the initial deposit flight from Cypriot banks after the country’s rescue package. The central bank of Cyprus released today data on deposits in Cypriot banks by non-banks at the end of May. These declined by 1.4 bn EUR from a month earlier, i.e. by 2.5 %. This brings the cumulated decline February–May to 17.1 %. In this post we examine the evolution of the balance sheet of Cypriot banks a bit more thoroughly, by inspecting also the evolution of assets and other liabilities than deposits. We also attempt to clear some of the issues with Cypriot data.
