European banks may have to offer higher interest rates to attract deposits because of the Cypriot financial crisis, costing the industry about 8 billion euros ($10.2 billion) a year, according to analysts at Barclays Plc.
The industry cost could increase to 15 billion euros or 11 percent of its annual profit, as nations bolster deposit guarantee plans and resolution funds, the analysts including Simon Samuels wrote in a note to clients today.
"Before Cyprus there was hardly any difference in interest rates offered for deposits above and below 100,000 euros," the Barclays analysts said. "That's now going to change, as uncovered depositors reassess risks."
Cyprus reached agreement with euro-area governments on March 25 to impose losses on uninsured deposits above 100,000 euros at the country's two biggest banks, Bank of Cyprus Plc and Cyprus Popular Bank in return for 10 billion euros of aid. The International Monetary Fund said yesterday it would contribute about 1 billion euros as part of a rescue program for the nation that seeks to stabilize its banks and cut public spending.
Intesa Sanpaolo SpA, Italy's second-biggest bank, has the highest uninsured deposits as a proportion of total European Union deposits at about 52 percent, the analysts said.
Cyprus is the fifth euro-region country to receive international aid in Europe's sovereign debt crisis, which has entangled the finances of banks and nations in a mutually destructive spiral. The Cypriot rescue is a joint effort of the IMF, the European Commission and the European Central Bank, the so-called troika that has handled euro-area bailouts. (Bloomberg)