BEIRUT: Arab banks operating in Cyprus may abandon the island if the government does not revoke a proposal to impose taxes on depositors, the head of the World Union of Arab Bankers warned Monday.
“Cyprus is facing a historic challenge that cannot support any mistakes. The Cypriot parliament must reject this miserable plan which will not only lead to the migration of Arab and international deposits, but also deal a blow to Cyprus as an international financial hub in the region,” Joseph Torbey said.
In a strongly worded statement, Torbey warned Cyprus about the negative implications of implementing the “controversial European proposal,” which calls for imposing exceptional taxes on customer deposits in the banks operating on the island, which is the closest European territory to the Arab world.
Many Lebanese and Arab banks have branches in Cyprus to capitalize on the Mediterranean island’s tax-free deposit policy and its membership in the European Union.
Lebanese and Arab investors have billions of dollars deposited in Cyprus to benefit from the relatively high return on deposits as well as the tax free system in the small country.
The union groups 430 Arab banks.
“This measure could destroy Cyprus as a financial hub in the region,” Torbey said in the statement, noting that Cyprus was risking the credibility that has helped attract dozens of Arab and foreign banks as well as hundreds of thousands of depositors from all over the world.
Torbey, who is also the president of the Association of Banks in Lebanon, urged the Cypriot government not to apply “this harmful” plan on the funds that are deposited in the branches of Arab banks operating in the island.
“It is unfair to burden the Arab banks with the cost of increasing the capital of the troubled Cypriot banks. The customers of these banks should not pay the price of this decision,” Torbey explained.
He added that the Arab region was monitoring the behavior of the Cypriot authorities in these difficult hours, and described the European Union’s rescue plan as a collective punishment on all depositors on the island.