NICOSIA, Cyprus — Shareholders of Cyprus' largest bank on Tuesday elected six Russians to sit on its new, 16-member board of directors, a consequence of the country's bailout agreement with international creditors.
The vote puts more foreign nationals on the board of the Bank of Cyprus than ever before.
The fact that they are all Russians – one of whom, Vladimir Strzhalkovskiy, was elected by other board members as vice chairman – reflects the large stake they had in Cyprus' banking system.
Russians kept billions in Cypriot bank accounts because of benefits such as low taxes and high interest rates, helping to swell the size of the financial sector at its peak to eight times the country's entire economy.
Cyprus turned for help to its euro area partners and the International Monetary Fund in June, 2012, to rescue its Greece-exposed banks and to stave off bankruptcy. But Cyprus' creditors sought a fundamental restructuring of the country's financial system which they saw as unsustainable.
According to the terms of Cyprus' rescue deal it agreed in March, depositors with over 100,000 euros in the Bank of Cyprus, and the second-largest lender Laiki, were forced to take huge losses on their savings in order for the country to qualify for a 10 billion euro ($13.2 billion) loan.
Money from the deposit grab – or `haircut' – was used to replenish Bank of Cyprus' capital buffers, while Laiki ceased to operate and large chunks of it were absorbed by the larger lender.
The haircut sapped trust in Cypriot banks, prompting authorities to impose restrictions on money transfers and withdrawals to prevent a run. Many restrictions have since been relaxed, but officials say it may take many months before they're fully lifted.
Some 47.5 percent of uninsured deposits in the Bank of Cyprus were converted into shares, turning large Russian depositors into big shareholders requiring representation on the board.
The Russian board members include Igor Lojevsky, who has worked at both the World Bank and Germany's Deutsche Bank. The board also elected Cypriot Christis Hassapis as its chairman.
Some 3.500 shareholders attended the banks' annual general meeting either in person or by proxy, representing 53.6 percent of the total share capital.
The meeting was a tumultuous affair as several old shareholders – who saw almost all of the value of their shares slashed under the bailout's conditions – loudly opposed the proceedings because they hadn't received the banks' post-bailout financial results. Some stormed out of the meeting, saying that they were being asked to legitimize "illegal" decisions made without their consent.
The new board replaces an interim one which had been tasked with stabilizing the bank in the bailout's aftermath and starting to downsize it after absorbing Laiki's operations. The bank still faces significant challenges, including how to deal with non-performing loans and restoring trust.
"Our goal is to fully restore faith in the banking system and to return to a trajectory of growth," the new board said in a statement.