Financial leaders monitor Cyprus bailout

Tue, Mar 26th 2013, 11:44 AM

Two financial experts said The Bahamas won't be impacted by Cyprus' financial crisis, but the country should monitor the situation closely. Eurozone finance ministers agreed yesterday to a $10 billion euro bailout for Cyprus in an effort to prevent the collapse of its banking system and keep the country in the Eurozone. The country's second largest bank, Laiki (Popular), will reportedly be wound down and deposit holders with more than $100,000 euros or $130,000 U.S. will face big losses. However, all deposits under 100,000 euros will be "fully guaranteed".

While Cyprus' situation is expected to have a rippling effect on Europe, Philip Galanis, managing partner at HLB Galanis, said The Bahamas is not likely to share this fate because of the country's strict lending policies to foreign countries. "I'm not too concerned about that happening in The Bahamas, because as a general rule, we don't lend money to foreign countries because we have very rigid exchange control laws on our citizens and more importantly on foreigners," he explained. "The Central Bank has done a reasonably good job of ensuring that happens. The banks, as we know in our country, are highly collateralized.

We lend money out to people who have hard assets: cash, land, things that are very convertible into cash in the event of foreclosure. So I'm not too concerned about that kind of scenario taking place in The Bahamas." Former Minister of State for Finance James Smith believes The Bahamas should use Cyprus' economic crisis as a cautionary tale. "It goes to show you what Europe would do to offshore centers. If they can impose a tax on savings, penalizing savers on their own, then you can imagine what they would do to non-European Union (EU) members in offshore centers like The Bahamas.

So we might want to take a lesson from that and be careful of Europe," Smith said. Like Galanis, Smith agreed that it will have little or no effect on the western banking system because it is severely impacting a small portion of the global playing field. "It's likely to suppress Cyprus' economy for a number of years. I think the situation in Cyprus is just an extension of what's happening in Europe. As I see it, the money from the Cyprus banks was loaned to Greece and those loans weren't repaid.

They are taxing the depositors in those banks, which are also Russian. So it seems to me like the Russians are getting hit twice," according to Smith. Meantime, both Galanis and Smith shared with Guardian Business they will be watching Cyprus' situation very closely. "In fact, I see some opportunities for Bahamians at this juncture. Again, in Cyprus, a lot of the money has been deposited in banks from developing countries like Russia and they will be looking for safe havens into which to transfer those funds. We have to wait and see how things pan out," Galanis added.

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