Cyprus bailout exit: What does it mean for Forex brokers?

Cyprus Finance Minister Harris Georgiades made a long awaited presentation yesterday to Eurozone finance ministers in Brussels, setting the scene for Cyprus to formally exit its 2013 EU-led €10 billion bailout later this month. (Cyprus actually only made use of about €6.3 billion of the total available amount).

Cyprus’ exit now leaves Greece as the only country in the EU to remain in a financial rescue program. Ironically, it was Greece which landed Cyprus’ banking system in trouble in the first place. Cyprus banks had made large corporate and real estate loans into Greece during the early part of the 2000s, which went sour once real estate prices and finances generally went south after the 2008 financial crisis.

LeapRate readers will recall that Cyprus’ two largest banks, Bank of Cyprus and Laiki Bank, became insolvent in early 2013 sending the island country into a financial tailspin, requiring a bailout of both the government and the banking sector by the Eurozone.

The bailout has been largely a success, and forced what most Cypriots now agree was long-needed reform in several sectors of the country’s economy and finances. The Cypriot government budget deficit has been cut from 5.5% of GDP in 2013 to just 0.2%. Cyprus’ reconstituted banks are now viewed as healthy. Tourism has been booming, driven in part by lower airline fares thanks to low oil prices. One of the bailout’s toughest terms, capital controls in removing cash from the country, were already repealed in stages beginning in April of last year, and went fairly smoothly without a huge capital exodus.

Cyprus is one of the focal points of the global Forex sector, with leading brokers such as FxPro, IronFX and EXNESS (among many others) calling the island home. LeapRate readers will also recall that most of the country’s Forex brokerages escaped the 2013 banking crisis largely unscathed. The haircut to all bank accounts in the country above €100,000 did not really affect the Forex brokers. Many brokerages kept client money abroad, and even those who didn’t did not have many clients with individual balances above €100,000.

So what does the bailout exit mean for Cyprus’ Forex brokerages?

Short term, probably not a lot. Things might have gotten dicey had the country not successfully navigated its EU bailout terms, but it has been largely business as usual for Cypriot Forex brokers since the bailout happened, and that is unlikely to change.

Going forward, with Cyprus now officially back ‘in the fold’ in the EU we expect that Cyprus will grow even more as the destination of choice for Forex and Binary Options brokers looking for an EU beachhead.

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