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Bank of Cyprus releases $1.3 billion of bail-in deposits to clients

A man walks past a branch of Bank of Cyprus in Nicosia March 31, 2013. REUTERS/Yorgos Karahalis

NICOSIA (Reuters) - Cypriot lender Bank of Cyprus will release 950 million euros (787.0 million pounds) in time deposits frozen under a recapitalisation arrangement last year which bailed-in its own depositors, it said on Thursday.

It is the first major release of funds since the Cypriot bank seized 47.5 percent of uninsured deposits exceeding 100,000 euros and converted them into equity, giving its clients, including many wealthy Russians, a stake in the bank.

Part of the remaining amounts were placed in 6-, 9- and 12-month time deposits, with the bank maintaining the right to renew them automatically. The six-month time deposits mature on January 31.

An "improving liquidity position" and "stabilising signs of its deposit base" were the decisive reasons that deposits were released, the bank said.

Bank of Cyprus is to date the only bank in the euro zone which used its own clients' savings to recapitalise, instead of burdening the taxpayer. The process, known as a "bail-in", was a condition for Cyprus to receive 10 billion euros in aid from international lenders, along with the closure of another loss-making major bank.

The released funds will be subject to capital controls applicable in Cyprus, enforced last year to prevent money fleeing the island in the wake of the bailout.

(Reporting by Michele Kambas, editing by David Evans)