Russian citizens account for the majority of the billions of euros held in Cypriot banks by foreign depositors, and Russian banks are heavily exposed to the island as a favoured offshore centre for big business.
Russian President Vladimir Putin criticised on Monday a levy imposed by the European Union on bank deposits in Cyprus as unfair and setting a dangerous precedent.
"While assessing the proposed additional levy on bank accounts in Cyprus, Putin said that such a decision, should it be made, would be unfair, unprofessional and dangerous," Kremlin spokesman Dmitry Peskov told journalists.
Russian citizens account for the majority of the billions of euros held in Cypriot banks by foreign depositors, and Russian banks are heavily exposed to the island as a favoured offshore centre for big business.
The levy, imposed as part of a 10 billion euro bailout, sparked panic among Cypriots over the weekend and hit Russian and other European financial markets on Monday.
As the Cyprus parliament prepares to vote on the measure on Monday, the government in Nicosia was working on a plan to soften the blow for smaller savers.
Russian Deputy Finance Minister Sergei Shatalov earlier said the tax would be acceptable if it was levied only on interest earned by savers. There are almost 70 billion euros in deposits held in Cyprus.
A little less than half that is held by non-residents, most believed to be Russian. At the end of last year, Russian banks had around $12 billion on deposits with Cypriot banks and corporate deposits accounted for another $19 billion, according to Moody's credit-rating agency.
That figure is more than twice the size of the bailout, which had been repeatedly delayed amid concerns from other EU states that the close business and banking ties with Russia made Cyprus a conduit for money-laundering. It ranks as the largest source of foreign direct investment into Russia - money that is largely Russian in origin.
Russia has made no decision yet on whether to extend the duration or ease the terms of a sovereign loan to Cyprus, a government source told Reuters earlier on Monday. European Union officials have said they expect Russia to extend the 2.5 billion euro ($3.27 billion) loan by five years, until 2021, and refinance terms. Cyprus' Finance Minister Michael Sarris had planned to travel to Moscow on Monday for meetings to try to pin down new loan terms.
A second Russian government source said Sarris would now travel on Wednesday. The levy on savers, meanwhile, should not alter domestic capital flows, the news agency Prime quoted Deputy Economy Minister Andrei Klepach as saying.
Officials have also said Russian investors are interested in buying a majority stake in Cyprus Popular Bank and increasing their holdings in Bank of Cyprus — the two biggest banks on the Mediterranean island.
The involvement of any Russian investors - private or state - in recapitalisation of the island's struggling banks is still a matter for discussion, the first government source said. "There has been no decision yet," the source said.
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