Europe News

Russians bitten but not completely shy of Cyprus

Is the Cypriot recovery working?

You could forgive wealthy Russians for steering clear of Cypriot banks given that many Russians with large deposits in the country were hit hard by a "bail-in" of bank deposits when the financial crisis hit in 2013.

As well as imposing strict capital controls on account holders, the Cyprus government had to wind down the Cyprus Popular Bank and recapitalize another — the Bank of Cyprus — with measures including the seizing of depositors' uninsured savings above 100,000 euros ($120,000).

That unprecedented measure saw many foreigners hit and many of the accounts with larger deposits were Russian owned. The island's financial system had been particularly popular with Russian investors and businesses, prompting accusations that it was a place for money laundering at worst and tax avoidance at best.

Up to 40 percent of Cypriot bank deposits were estimated to belong to Russian businesses and individuals worth around $32 billion, according to analysis by Moody's ratings agency at the time.

Nicosia, Cyprus
Staton R. Winter | Bloomberg | Getty Images

But John Hourican, the chief executive of the Bank of Cyprus, told CNBC on Thursday that following an economic recovery in Cyprus (it has just exited its bailout early and with money to spare) Russians and Ukrainians were still depositing money in the country's financial system.

"It's a country in transition, the business services and wealth preservation engines that exist in Cyprus are still there," he told CNBC in Nicosia. Although the level of Russian money in the country had "gone down significantly", he said.

"If we look at international business about a third of those who are with us are Ukrainian and Russian in terms of genesis but if you look at those businesses they are real trading businesses. The wealth preservation angle is a lot less of an issue today than it was in the past."

Hourican said that Cyprus' banking system was well on its way to recovery although there were still issues to iron out.

"We have to work our way through some of the issues that still exist; non-performing loans are high in the economy but starting to come down. We've been reducing our level of delinquency by about 700 million euros a quarter -- which to put into context is close to 4 percent of GDP per quarter. We are seeing construction starting…We're seeing consumer spending and new car registrations and property prices stabilize."

"I think there are enough positives that are real for us to believe the recovery is underway," he said.

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