Cypriot deposit leakage continued in June

The latest Cypriot deposit statistics seem to be out and there are some strange goings on.

We say seem to be, since there has been no press release but the July data release (which corresponds to June data) is up on the website in the usual place.

As the graphs below show, the outflow has continued, but there are some questions as to the extent of the outflow.

• Firstly, the headline stock figures show a further outflow of €5.3bn, this is shown in the top left graph. However, all the flow figures suggest an outflow of €1.5bn. This is similar to the amount seen last month (although this data has been updated and there seems to be some mismatch between the exact spread of outflows, which adds to the confusion).

• Tucked away in the chronology of the data packet is the following paragraph which explains the differences in figures:

"July 2013: The data for loans and deposits for June 2013 reflect the provisions of the “Sale of Certain Operations of Cyprus Popular Bank Public Co Ltd Decree of 2013”. As from June 2013 Cyprus Popular Bank Public Co Ltd is not considered a Monetary Financial Institution for statistical purposes and therefore, its remaining balances (which were not transferred to Bank of Cyprus Public Company Ltd) are excluded from the outstanding amounts. However, according to the statistical guidelines of the European Central Bank this should not be considered a financial transaction and therefore an adjustment to remove its impact is included under “reclassifications adjustments” with a negative sign."

• So, this round of data finally includes the merger of the good part of Cyprus Popular Bank (Laiki Bank) into the Bank of Cyprus and the hiving off of the bad bit. There is a big drop in the headline stock of deposits since the Laiki depositors which will be written down have been moved to the bad bank. This bad bank no longer exists as a financial institution. Therefore the money has exited the deposit base since it is no longer part of the financial system. This reduces the stock of deposits but doesn’t show up as a flow since it was simply reclassified.

• The total amount which has been moved to the bad bank and disappeared into the ether is €3.8bn (i.e. the difference between the headline €5.3bn change in deposit stock and the €1.5bn in monthly deposit outflows). A move which was expected but has been very poorly explained (we attempted to contact the Central Bank of Cyprus to confirm all of the above but it seems they close at 2.30pm during the summer!).

• All that aside, the outflows are pretty similar to last month in both size and breakdown (split between domestic residents and the rest of the world). Ultimately, money continues to leak out despite the capital controls or people continue to rapidly wind down their savings. Neither presents a pleasant prognosis for the future of the Cypriot economy.

As we have said before the real test will come when the capital controls are finally removed, although that does not seem to be on the horizon in the near future.