KIEV, March 19 – Ukrainian companies will be affected by a possible bank-deposit levy in Cyprus, but the impact will be much smaller than on Russian companies, Prime Minister Mykola Azarov said Tuesday.

Many Ukrainian companies, like their Russian counterparts, frequently use companies and bank accounts registered in Cyprus. Now, the practice will be tested as Cyprus is seeking to impose a tax – up to 9.9% - on bank deposits to finance the country’s financial bailout.

Russian President Vladimir Putin on Monday sharply criticized the plan, while Cyprus’s Parliament rejected the plan on Tuesday, leaving the question open of how to fund the bailout.

Azarov said that Ukrainian capital and investments in Cyprus are a fraction of those invested by Russian companies, indicating that potential losses would be smaller.

“Given the volume of transactions, we can say that it will be of a lesser magnitude compared with the Russian losses,” Azarov said. “That’s why Russia has so reacted to this decision. For us, it will not have such serious consequences that would have for the Russian capital.”

System Capital Management, a holding company owned by Rinat Akhmetov, the wealthiest Ukrainian, in a statement on Monday denied having any problems with the levy.

“SCM states that such decision of Cyprus Parliament would not affect the financial standing of the SCM Group in any way,” the company said.

Ukrainian investors that keep their money in Cyprus for tax purposes frequently reinvest it back in Ukraine, technically making Cyprus one of the largest foreign investors in the Ukrainian economy.

Ukrainian investors may be holding $12 billion in Cyprus, according to Oleksandr Savchenko, a former deputy governor of the National Bank of Ukraine.

Oleksandr Soltys, also a former deputy governor of the NBU, estimated the Ukrainian money at $25 billion in Cyprus, according to Radio Liberty.

“Last year some $3.9 billion has come to Ukraine from Cyprus,” Savchenko said, according to Radio Liberty report. “So, this year there will be at least 10% less,” he said pointing to the plan to impose the 9.9% tax.

Azarov used the chance to highlight the fact that his government had never resorted to confiscation as a way out of the financial crisis, and said the investors should have been keeping their money in Ukraine.

"But there are some positive things in what is generally a negative decision at first glance,” Azarov said. “Our companies will now carefully look at their doubts about the reliability of our banking system.”

“We have shown for these three years that we have never resorted to confiscation. You can not blame the government in any decision of this kind,” he said. “It is safer to save money in Ukraine.”

Cyprus President Nicos Anastasiades on Tuesday failed to secure Parliament’s support for imposing losses on depositors, a key demand of European officials in return for rescue funds.

The Mediterranean island nation’s banks and stock exchange will remain closed at least through Wednesday as the new Cypriot president seeks backing for the 5.8 billion-euro ($7.5 billion) levy on bank deposits, a measure needed to win 10 billion euros in international aid.

Azarov said that whatever Cyprus decides to do, it should do it quickly to prevent a domino effect as lengthy debate would escalate the problems.

"I imagine myself perfectly how hard it was to approve decision like that, but they had no alternative,” Azarov said. “They had an ultimatum of either default or confiscation.”

"And God help them to solve the matter quickly,” Azarov said. “The longer the debate the shakier the situation. The decision should be finally approved as soon as possible. Despite the fact that it has negative consequences, it would put an end to this serious crisis." (tl/ez)