UPDATE 3-Russia wants future involvement on Cyprus after 'dangerous' levy

Mon Mar 18, 2013 10:32am EDT

* Russian president calls levy "unfair, unprofessional"

* Russia says EU decided without consulting Moscow, may impact loan

* Russia has close financial ties to Cyprus

By Lidia Kelly and Alexei Anishchuk

MOSCOW, March 18 (Reuters) - A lack of coordination with Russia in future on Cyprus could affect a decision by Moscow on restructuring its 2.5 billion euro ($3.3 billion) loan to the island, the Russian finance minister said on Monday.

Russian President Vladimir Putin branded as "dangerous" a weekend decision by the European Union to impose a levy on Cypriot bank accounts as part of a 10 billion euro bailout.

The EU agreed the move without involving Russia which has strong financial ties with the country.

Russians account for much of the billions of euros held in Cypriot banks by foreign depositors and its banks are heavily exposed to the island.

As part of a package of support for Cyprus, EU officials expect Russia to extend its existing loan by five years and refinance terms.

But Moscow was frustrated that it was not consulted on the levy proposal.

"We had an agreement with colleagues from the euro zone that we'd coordinate our actions (on Cyprus)," Finance Minister Anton Siluanov told Reuters.

"So, we will consider the issue of restructuring of the loan

taking into account our (future) participation in the coordinated actions with the European Union to help Cyprus."

With a vote by the Cyprus parliament on the measure now delayed until Tuesday, the government in Nicosia was working on a plan to soften the blow for smaller savers.

There are almost 70 billion euros in deposits held in Cyprus. A little less than half that is held by non-residents, most believed to be Russian, prompting the strong comments from the Kremlin.

"While assessing the proposed additional levy on bank accounts in Cyprus, (President) Putin said that such a decision, should it be made, would be unfair, unprofessional and dangerous," Kremlin spokesman Dmitry Peskov told journalists.

Putin called a special Kremlin meeting on Monday to discuss developments.

Cyprus' Finance Minister Michael Sarris will visit Moscow on Wednesday for meetings to try to pin down new loan terms, a government Russian government source said.

Officials have also said Russian investors are interested in buying a majority stake in Cyprus Popular Bank and increasing their holdings in Bank of Cyprus - the two biggest banks on the Mediterranean island.

"SOVIET PRACTICE"

Cyprus is a favoured offshore centre for Russian big business, thanks to its low taxes and light regulation. It ranks as the largest source of foreign direct investment into Russia - money that is largely Russian in origin.

Prime Minister Dmitry Medvedev said the euro zone decision seemed to be aimed at confiscating someone else's property.

"This practice, unfortunately, was well known and familiar in the Soviet period," Medvedev was quoted as saying by Russian media.

Although Russia has never imposed an official levy on deposits in the post-Soviet history, during its 1998 crisis it had imposed a moratorium on exchanging hard currency bank deposits, which hit bank deposits hard.

At the end of last year, Russian banks had around $12 billion on deposits with Cypriot banks and corporate deposits accounted for another $19 billion, according to Moody's credit-rating agency.

That figure is more than twice the size of the bailout, which had been repeatedly delayed amid concerns from other EU states that the close business and banking ties with Russia made Cyprus a conduit for money-laundering.

Most of Russia's largest banks have some credit exposure to Cyprus. VTB, Russia's second-largest bank by assets, had $13.8 billion in assets and $374 million through its Cypriot subsidiary, Russian Commercial Bank, at the end of 2011.

A trader in a large foreign bank operating in Russia said VTB's Cyprus deposits amount to several billions through its Cyprus subsidiary RCB.

"Assuming $3 billion in deposits and 8 percent tax hit, VTB's clients would lose around $240 million, but no exposure to the bank itself," the trader said.

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