Russian officials said on Tuesday a proposed levy on Cypriot bank accounts would not threaten the stability of Russia's banking system and might even have a silver lining.
President Vladimir Putin on Monday led fierce Russian criticism of the levy, agreed under a European Union bailout, because Russian banks, individuals and companies hold billions of euros in accounts on the eastern Mediterranean island.
But officials toned down the criticism on Tuesday and tried to ease concerns about Russia's exposure, although they made clear Moscow had not been consulted about the levy.
"It won't affect the stability of the Russian banking system,'' Alexey Simanovsky, first deputy chairman of the central bank, was quoted as saying by Prime news agency.
A senior member of the government said the levy, if approved by the Cypriot parliament, could even prove beneficial by making Russia's investment climate look more stable.
"It is a good chance for the Russian banking system to fight for new depositors, new clients. And demonstrate that our banking system is stable,'' First Deputy Prime Minister Igor Shuvalov told reporters in the central Russian city of Kazan.
"For Russia, in the mid-term perspective, this [opens] good opportunities ... Russia will gain more than it will lose. For Russia this is a chance to demonstrate its more predictable rules [for] treating investors.''
Later on Tuesday, Cypriot lawmakers overwhelmingly rejected the deeply unpopular tax on bank deposits, throwing into doubt the bailout deal for Cyprus needed to avert default and a banking collapse.
Cyprus is a favored offshore center 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.
In the first three quarters of 2012, direct investments from Russia to Cyprus reached $16.1 billion, Russian central bank data showed.
The Russian banking system's capital adequacy ratio - a liquidity cushion essential to absorb possible shocks - stood at 13.6 percent as of Feb. 1, above the 10 percent minimum required by the central bank.
Taking the Hit
Russian banks had $30 to $40 billion tied up in cross-border loans to Cypriot firms at the end of 2012 and some $12 billion on deposit with Cypriot banks, Moody's rating agency said.
Some of Russia's largest banks have credit exposure to Cyprus which, like Russia, is predominantly an Orthodox Christian country.
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, according to Moody's.
Other big banks such as Sberbank, Alfa Bank, Gazprombank or Nomos said they either have no banking deposits in Cyprus or see an insignificant impact on their operations if the tax is applied.
Shuvalov said it would be premature to give any estimates on the possible losses Russia could suffer because of the levy, saying they ranged ``from minimal to astronomical.''
Putin called the proposed levy "unfair, unprofessional and dangerous'' on Monday, expressing the overall mood across the Russian banking society.
But he also has something to gain indirectly if Russians take their money out of Cyprus because he has been trying to reduce capital flight.
Central bank chairman Sergei Ignatyev said last month the equivalent of about 2.5 percent of national income was illegally siphoned abroad last year.
The timing of the EU bailout at the weekend was, however, not a surprise for some in Russia who managed to withdraw funds before agreement on it was reached at the weekend.
"We saw problems with the Cyprus economy for quite a long period of time and took preventive measures - we terminated operations in this jurisdiction as much as we could,'' said Ekaterina Trofimova, first vice president of Gazprombank.
According to Thomas Keane, co-founder of Cyprus-based law firm Keane Vgenopoulou & Associates LLC, Russian depositors took about two billion euros out of Cyprus in the 10 days before the EU bailout was announced.
Gazprombank's Trofimova said that even if the levy was not implemented, the image of Cyprus was already harmed.
"Russian money will be leaving Cyprus,'' she said, adding that other countries in Europe and Asia now looked attractive.
Russian central bank data show that in the first three quarters of 2012, Russian direct investments to Latvia stood at $182 million. That was still tiny compared to Cyprus but more than twice as much as in 2007 and much more than for Azerbaijan or Armenia, other former Soviet republics with which Moscow has closer ties.