Cyprus eliminates all domestic capital controls, some limits on money transfers abroad remain

NICOSIA, Cyprus – Cyprus on Friday formally eliminated all domestic restrictions on money transfers, a watershed for the bailed-out country’s recovering banking system.

The Finance Ministry said the ban on opening new bank accounts, which had been the last domestic capital control, is now lifted.

It is still not possible to freely transfer money abroad without at least some central bank vetting. But Cypriot authorities are aiming to allow that by the end of this year.

The development comes a little over 14 months after Cyprus received a 10 billion-euro ($13.61 billion) financial rescue from other eurozone countries and the International Monetary Fund.

The bailout plan required uninsured deposits from the country’s two biggest banks to be seized in order to help save the Bank of Cyprus from collapse, crushing confidence and prompting authorities to impose the controls to head off a run.

The Finance Ministry said international creditors’ four consecutive positive reviews of Cyprus’ rescue program, combined with trust returning to the battered banking system, contributed to its decision to abolish all domestic controls.

On Wednedsay, Central Bank figures showed that bank deposits in April marked their first monthly increase since Dec. 2012.

In other good news, the Bank of Cyprus, the country’s largest, posted its first quarterly profit in two years, thanks to the lender’s ongoing downsizing drive and dumping of risky overseas businesses.

The bank posted an after-tax profit of 31 million euros ($42.18 million) in the first quarter of 2014, after seven consecutive quarters of losses.

Bank of Cyprus CEO John Hourican cautioned against reading too much into the modest return to profit. But the signs are that the bank is again earning people’s trust, he added.

The bank, which was at the epicenter of the rescue’s banking system shake-up, still faces a mountain of bad loans amounting to 55 per cent. But Hourican said loans that haven’t been serviced for more than 90 days have declined in the first quarter of 2014 after 16 consecutive quarterly increases.