The Cyprus banking crisis had serious consequences for the people of the country. As the economy collapsed, many people saw their source of income reduced. On top of that, their savings were put at risk.

GOVERNMENT INTERVENES IN CYPRUS BANKING CRISIS

During the banking crisis in 2013, the Cyprus government took a series of measures to support the banks. Let’s have a look at the timeline of events and their impact on savers and investors.

1. Loss of trust and confidence

The crisis caused a decrease in trust among depositors leading to a loss of confidence in the banking sector. This not only affected residents but also made foreign investors hesitant to keep their funds in Cypriot banks.

2. Bail in and haircut

In order to receive assistance from lenders Cyprus implemented a bail in program in 2013. Deposits exceeding €100,000 in the two banks, Bank of Cyprus and Laiki Bank underwent substantial haircuts or partial losses. This directly impacted individuals and businesses including foreign investors who had significant deposits in Cypriot banks.

3. Economic downturn

The banking crisis played a role in triggering an economic downturn in Cyprus. The country experienced shrinking GDP, levels of unemployment and decreased investment levels. The financial sector, which was previously a contributor to the economy witnessed reduced activity and job opportunities, within the banking industry.

4. Limitation on outflow

Capital controls were implemented in Cyprus to prevent a bank run and the outflow of funds. These controls limited the amount of money that individuals and businesses could withdraw or transfer outside the country. As a result access, to funds was restricted, which hindered activities and made it more challenging for businesses to function.

EFFECT OF THE CYPRUS BANKING CRISIS ON PEOPLE AND ECONOMY?

The economic downturn caused by the crisis resulted in an increase in poverty and social difficulties. The unemployment rate saw a rise peaking at 16%. Many businesses had no choice but to close down or downsize leading to job losses and reduced incomes for individuals and families.

Furthermore the crisis harmed Cyprus reputation as a hub and eroded business confidence in the country. International investors and companies became sceptical about the stability and reliability of Cyprus economy resulting in a decline in investment opportunities. Overall the Cyprus banking crisis had reaching consequences, on both the economy and its citizens. It caused losses, economic decline, heightened unemployment rates and increased social hardships.

It took years for Cyprus to recover from this crisis and restore some level of stability within its banking sector and economy.

CAN THIS CYPRUS BANKING CRISIS SCENARIO HAPPEN AGAIN?

Unfortunately, history shows that the past repeats itself. Governments have the power to roll out this scenario again. The probability is high that this will be repeated in your region. So let us learn from the past, apply risk management, add alternative investment strategies to your portfolio and be prepared for the next banking crisis.

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