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Delay to Cyprus bank levy risks sales of Greek units -bankers
* Greek banks to take over local units of Cypriot lenders
* Smooth, quick transfer key to avoid depositor concerns in Greece
* Alpha, Piraeus Bank have expressed interest -source
* Fears return of deposits to Greek banks will be halted
By Harry Papachristou and George Georgiopoulos
ATHENS, March 18 (Reuters) - Delays in approving a Cypriot bank levy risk derailing a plan for Greek banks to take over the local units of Cypriot lenders before a three-day weekend ends on Tuesday, bankers said.
Athens has been sounding out interest among local banks in taking over the Greek units of their Cypriot peers since the island's bailout deal, of which the proposed tax on deposits is a part, was announced on Saturday.
But Nicosia's second postponement of a vote on the levy until Tuesday means a deal may not be finalised quickly.
"A transfer might be impossible as long as Cyprus has not approved the deal," a senior Greek banker involved in the takeover talks told Reuters on Monday.
Greece has rushed to reassure its citizens they will not lose any money from the Cypriot levy. But bankers fear it could reverse the trend of deposits trickling back to Greek banks after fears eased that Greece would have to exit the euro.
Leaders of Greece's three-party ruling coalition will meet on Tuesday to discuss the debt-laden country's own bailout, but officials said Cyprus would also be high on the agenda.
Greek units of Cypriot banks account for about a tenth of the country's banking market. Eurogroup finance ministers excluded them from the controversial levy imposed as part of Cyprus's international bailout, on condition that they would be transferred to other lenders.
The deposit tax has exacerbated wider fears of a flight from the Greek banking system if confidence evaporates among savers. Failure to sell the Cypriot banks quickly could trigger such concerns.
"The last thing we need is TV showing queues outside a closed Cypriot bank on Tuesday," a second senior Greek banker said.
Large withdrawals at a branch or online are practically impossible during Monday's bank holiday in Greece. Senior bankers said they had not received any alerts from the central bank on deposits due to the Cypriot levy plan.
Cyprus's three top lenders, Bank of Cyprus, Popular Bank and Hellenic Bank have all branches in Greece. Greek operations accounted for more than a quarter of total group operating income at the Bank of Cyprus and 10 percent at Popular, according to their nine-month 2012 results.
A third senior banker involved in the talks said Greece's Piraeus Bank and Alpha Bank have expressed interest in purchasing at least some of the assets on sale. Piraeus or Alpha were not available for comment.
Hellenic Postbank, a small lender controlled by the country's bank bailout fund Hellenic Financial Stability Fund, stands ready to jump in if interest by other lenders is deemed unsatisfactory, the banker added.
A source at the fund confirmed Greek banks other than Postbank had expressed interest in the Greek units of Cypriot banks, but that the outcome depended on what happens in Nicosia.
"It's not clear if a decision will be taken today, it will depend on developments in Cyprus," the source said.
NIP CONFIDENCE IN THE BUD
Greek banks are already tottering due to the country's own debt crisis and are being recapitalised with a large chunk of 50 billion euros of EU/IMF bailout funds unlocked in December. Their recapitalisation has not yet been completed.
Greek households and companies withdrew almost 90 billion euros of bank deposits - almost a third of the total - between December 2009 and mid-June 2012, when the election of a pro-bailout government eased fears of a Greek bankruptcy.
Much of this money was shipped abroad, including to Cyprus, or stashed in safety deposit boxes and other hiding places.
Up to 17 billion euros have since returned to banks, after the election and a new bailout deal later last year assuaged concerns that the country might drop out of the euro.
But bankers now fear the Cyprus levy could abruptly end that return in confidence.
"It will certainly have an adverse effect on the return of deposits in the Greek banking system," a fourth senior banker said. "How big the impact will be remains to be seen."
Finance Minister Yannis Stournaras and central bank governor George Provopoulos made a rare joint live television appearance late on Saturday to assure Greek depositors of Cypriot banks that they would not be affected by the levy and that there was no risk to the overall stability of Greece's banks.
But the assurances have failed to convince many Greeks used to a string of broken promises and repeated austerity measures imposed on them by their political leaders.
"I pulled my money out of the bank a long time ago and put it into a safe box," said Georgia Draminou, 51, a municipal employee. "After what they did to Cyprus, I will never put it back into a bank account again," she added.
But wealthier Greeks with some money left in the bank may be tempted to move quickly to ship their cash abroad, bankers said.
"The levy in Cyprus is a bad measure, it will spark flight to safer destinations," a private banking executive said.
"How can one be sure there will not be another bail-in down the line?"
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