Cypriot businesses were under increasing strain to keep running on Tuesday after financial authorities stretched the country’s bank closure into a second week amid fears that depositors will rush to drain their accounts.

All but two of the country’s largest lenders had been due to reopen on Tuesday, after being shut since March 16 while politicians figured out how to raise the funds necessary for Cyprus to qualify for an international bailout.

Under the deal for a 10-billion euro ($12.9 billion) rescue clinched in Brussels early on Monday, Cyprus agreed to slash its oversized banking sector and inflict hefty losses on large depositors in troubled banks.

Surprise reversal

After initially saying most financial institutions would reopen on Tuesday, the country’s central bank made a surprise reversal just before midnight, announcing all banks would remain closed until Thursday.

The announcement followed a broadcast by the country’s President, Nicos Anastasiades, who told Cypriots that the central bank would impose some limits on financial transactions, but assured the public that restrictions would not be permanent. “It is a very temporary measure, which will gradually be relaxed,” Mr. Anastasiades said. A top European Central Bank official, Benoit Coeure, who sits on the bank’s six-member executive board, told France’s Europe 1 on Tuesday that the plan to keep the banks closed was sensible as “there is still a lot of work to do on the ground”.

“One bank must be shut, and the two big banks must be merged and to do that, the Cypriot central bank has considered it better to keep the banks closed.”

Nonetheless businesses have already been feeling the brunt of the cash crunch, unable to pay salaries and suppliers as Cypriots have slashed spending to keep as much money on them in light of all the uncertainty surrounding the banks.

The banks’ closure has been felt in the country’s important shipping industry, which contributes about 5 per cent or 800 million euro ($1 billion) to the economy.

Cyprus ranks 10th in the world in terms of the number if ocean-going vessels flying its flag, and it in the top five of countries with the largest number of ship management companies.

“This is destructive for us,” said an official with Cyprus-based shipping company EDT Offshore.

Other businesses have also been hammered by the bank closures as they find themselves unable to pay suppliers or fulfil orders.

“Cash is definitely a problem,” said Nicosia pharmacist Lucy Santourian, counting out euro bills to a supplier who had just brought in new supplies of baby formula and other products. “We normally pay 90 per cent of our suppliers on credit, once a month at the end of the month. Now most are asking for cash only.”

The retail market is sharply down too, shop owners say, with customers unwilling to spend on anything but the basics while they have limited access to cash.

“The continuation of this uncertainty is pushing the economy deeper into recession, some businesses could possibly lose their clients, but we’re hopeful once this situation is sorted out, the market can rebound quickly,” said Michalis Pilikos, head of the Cyprus Employers and Industrialists Federation.

Bank of Cyprus chairman resigns

Also on Tuesday, the chairman of the board of Bank of Cyprus, Andreas Artemis, tendered his resignation, a spokesperson for the bank said.

The board of directors was to decide on whether to accept the resignation later in the day, said the spokesperson, speaking on condition of anonymity because a decision had not yet been made.

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