Cyprus and its international lenders on Monday reached a last-minute rescue deal to resolve the country's financial crisis.
The proposal includes a levy on uninsured deposits over 100,000 euros in the Popular Bank of Cyprus, known as Laiki, the country's second biggest bank, which is set to be wound down. The deal is expected to contribute around 4.2 billion euros (US$5.5 billion) towards the Cyprus rescue package, Jeroen Dijsselbloem, president of the Eurogroup said.
Deposits below 100,000 euros in Laiki will be protected and moved to the Bank of Cyprus, the country's largest bank.
Depositors in Bank of Cyprus stand to lose 30 percent on their holdings over and above 100,000 euros, the chairman of Cyprus' parliamentary finance committee told Irish radio on Monday. "I haven't heard a formal announcement about the haircut, but this is the figure I heard," Reuters cited Nicholas Papadopoulos as saying.
The agency added that the haircut for large depositors in the island's second biggest bank, Laiki, had not yet been disclosed but was expected to be higher.
The plan to secure a 10 billion euro ($13 billion) lifeline from international lenders, the European Union, the European Central Bank and International Monetary Fund, came just hours before a deadline to avert a collapse of the Cypriot banking system.
The proposal, approved by euro zone finance ministers, will involve setting up a "good bank" and a "bad bank."
"I would like to emphasize that none of these measures will affect deposits below 100,000 euros there should be no doubts about that," Dijsselbloem said at a press conference in Brussels. "We reaffirm that importance of fully guaranteeing these deposits in the European Union."
Cyprus's parliament last week rejected a bank levy on small and large deposits, a term of the initial bailout agreement to raise 5.8 billion euros in return for the 10 billion euro bailout.
Asked by CNBC's Julia Chatterley about whether Cyprus' lenders still expected this 5.8 billion euros to be raised, Dijsselbloem said: "I suggest we forget the 5.8 billion figure now as we're not using it anymore. We're pretty confident that we can do what's necessary with the (Cypriot) government with the 10 billion euro bailout."
"What's necessary to restructure the banks will have to come with the restructuring. So we can't say if it will be 5.8 billion euros or more or less, that will have to be calculated after the restructuring has been worked out," he added.
Most Cyprus banks will reopen on Tuesday but the Bank of Cyprus and Popular Bank will reopen on Thursday, a Central Bank source said.
Banks in Cyprus have been closed for the past week and the country's central bank has imposed a 100-euros per day limit on withdrawals from cash machines to prevent a run on banks.
"We have avoided a disastrous exit from the euro zone," Sarris said at a news conference.
"We have achieved the best possible outcome under the circumstances and today's decision by the Eurogroup puts an end to the uncertainty that has been affecting the Cyprus economy for the past three years and creates the chances of a new beginning," he said.
The agreement is expected to inflict heavy losses on uninsured depositors, including wealthy Russians. "I think the Russians were understandably disappointed with this turn of events," Sarris told CNBC.
Twenty percent of total deposits of the Cypriot banking system are held by Russians and many Russian businesses are registered in Cyprus.
German Finance Minister Wolfgang Schaeuble said the Cypriot parliament would not need to vote on the new deal because it had already enacted a law setting procedures for a bank resolution.
"It does look like an acceptable deal but we can't put the political issues aside given the demonstrations we've seen in Cyprus," Gary Dugan, CIO Asia & Middle East at Coutts told CNBC Asia's "Squawk Box."
While Cyprus is the third smallest economy in the euro zone, the way in which the financial crisis is resolved sets an important example for the rest of the currency bloc, analysts said.
Cyprus accounts for just 0.2 percent of the euro zone's economic output.
"Cyprus is not systemically important but it can set an example. If it left the euro zone that would show that leaving the euro zone is not a taboo," Richard Iley, chief economist at BNP Paribas said.
Despite reaching an agreement, concerns over bankruptcy in the island nation remain.
Ratings agency Moody's, for example, said the country is still at risk of default even if the current crisis is resolved, adding that the situation is still "credit negative" for all euro sovereign ratings, Reuters reported.
- Reuters contributed to this report.