Most Lebanese banks operating in Cyprus said they were planning to either shut down or drastically reduce the scope of their operations  on the island as Cypriot and foreign depositors began withdrawing small portions of their deposits on Thursday.
“We opened our branch in Cyprus in 1984 so it could be a bridge for Byblos Bank to Europe and to serve our Lebanese and Syrian clients on the island. But I don’t see a reason why we should maintain our presence in Cyprus,” the chairman of Byblos Bank François Bassil told The Daily Star.
Bassil was one of several Lebanese bankers who showed deep concern about European Union pressure on Cyprus to impose taxes on customer deposits despite the Cypriot parliament’s rejection of such a move. 
Twelve Lebanese banks have branches or representative offices in Cyprus, but the economic stagnation and the huge budget deficit of the island country has caused deep alarm among Arab and foreign investors.
Lebanese banks have more than $127 billion in customer deposits, and as a result the lenders feel confident that the Cypriot crisis will not have any major negative impact on them.
Bassil said Byblos Bank’s branch in Nicosia only has $58 million in deposits and only seven staff, two of whom are Lebanese.
“The crisis in Cyprus has little or no impact on the Lebanese economy and our banking sector. But regardless there is no point in remaining in the Cypriot market i n light of the deep financial crisis in this country,” he added. He did not say when Byblos Bank intended to close its branch in Cyprus.
“Our two Lebanese employees in Cyprus will be brought back to Lebanon and may be transfered to other branches abroad,” he said.
Another banker, who spoke on condition of anonymity, said the management in Beirut was considering trimming the size of its branch in Cyprus.
“We definitely will not close our branch in Cyprus. But it is most probable that our operations on the island will be scaled down. We will keep monitoring the situation in Cyprus before taking the next step ,” the banker said.
He said the bank’s deposits in Cyprus did not exceed $60 million, adding that this amount represented a very small portion of the bank’s balance sheet.
Bankers told The Daily Star that many depositors in Cyprus wanted to withdraw most of their money, but they have been restricted to withdrawals of less than $5,000 a month.
“We are obliged to follow the instruction of the Cypriot central bank, which has placed a ceiling for the withdrawal of cash,” Makram Sader, the secretary-general of the Association of Lebanese Banks told The Daily Star.
He added that Lebanese Central Bank Governor Riad Salameh urged a delegation from ABL to follow the instruction of Cyprus’ central bank.
“Salameh did not tell any Lebanese bank to pull out from Cyprus and left such a decision to the bankers themselves,” Sader said.
But not all Lebanese banks want to abandon the Cypriot market.
“We will keep our presence in Cyprus, but of course we will monitor the situation closely. I believe Cyprus will eventually overcome its current problems,” another banker said.
He stressed that the deposits in Cyprus were so small it was not worth leaving this “promising market.” Bankers did not expect Lebanon to benefit from the Cypriot crisis in the short or medium term amid the absence of a new Cabinet. “We won’t be able to draw the deposits from Cyprus if politicians fail to form a Cabinet that would convey trust in our banking sector. We need to have a stable political and security situation to encourage investors to bring their money to Lebanon,” Bassil said.
He added that Lebanese banks were not accepting deposits from Russia and former Soviet republics because they were wary of attempts to launder money.
“We are cautious about any deposits coming from Russia to protect our banks. We have been following this policy for quite some time,” Bassil emphasized.