UPDATE 1-Delay to Cyprus bank levy scuppers quick sale of Greek units
* 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
By Harry Papachristou and George Georgiopoulos
ATHENS, March 18 (Reuters) - Delays in approving a Cypriot bank levy scuppered a plan for Greek banks to take over their local units before a three-day weekend ends on Tuesday.
Athens had been hoping to sell Cypriot banks' units in Greece quickly to a local lender, to squash any concerns among their depositors and prevent them from spreading to other Greek lenders.
Greece has been sounding out interest among local banks in taking over the local units of their Cypriot peers since the island's bailout deal on Saturday, of which the proposed tax on deposits is a part.
Greek units of Cypriot banks account for about a tenth of Greece'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 Greek lenders.
But Nicosia's second postponement of a parliamentary vote on the levy until Tuesday delayed a deal. "The transfer can't be completed before Cypriot parliament has approved the deal," a senior finance ministry official told reporters.
Instead, Greece announced that the local branches of Bank of Cyprus, Cyprus Popular and Hellenic Bank would be closed on Tuesday and Wednesday, in line with their shutdown in Cyprus itself.
The shares of Bank of Cyprus and Cyprus Popular, which are also listed in Athens, would not trade those two days, an Athens bourse regulator added.
Greek bankers had expressed the hope that the three lenders' Greek units would be transferred by late Monday, to squash any risk of contagion in the Greek banking system.
"The last thing we need is TV showing queues outside a closed Cypriot bank on Tuesday," a senior Greek banker said.
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 second, senior banker involved in the takeover 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 second banker added.
The finance ministry confirmed that a number of Greek banks had expressed interest but it did not elaborate.
NIP CONFIDENCE IN THE BUD
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 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," another 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.
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