Cyprus' Banks Face Continuing Economic Turmoil

On Jan. 30, the Bank of Cyprus announced it would release a 900 million-euro ($1.2 billion) tranche of frozen deposits. Two days earlier, Cypriot President Nicos Anastasiades returned from a visit to Qatar during which he said the capital controls in place would likely be lifted in the near future. The capital controls, which were implemented in March 2013, have been gradually loosened over the past year, and a further relaxation of certain restrictions is likely over the coming months.

However, considering the poor state of the Cypriot economy and financial sector, it is unlikely that the restrictions will be completely lifted, and the high number of nonperforming loans will cause greater distress. As a result of weak Cypriot banks there will be little credit growth, and the debate over how to deal with nonperforming loans is likely to lead to political and social instability.