MOST banks in Cyprus are to re-open today after a last-minute deal with international lenders on a €10 billion (£8.5bn) rescue plan to avoid economic meltdown which will inflict heavy losses on big depositors.

The agreement came after fraught negotiations between President Nicos Anastasiades and heads of the European Union, European Central Bank and the International Monetary Fund.

Without a deal, Cyprus's banking system would have collapsed and the country could have become the first to crash out of the European single currency.

The plan will spare the Mediterranean island a financial catastrophe by winding down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shifting deposits below €100,000 to the Bank of Cyprus.

A Cyprus Central Bank source said most banks would reopen today, apart from the Bank of Cyprus and Popular Bank, which will reopen on Thursday.

The raid on uninsured Laiki depositors is expected to raise €4.2bn, eurogroup chairman Jeroen Dijssebloem said.

The bank will close, with thousands of job losses. Officials said senior bondholders in Laiki would be wiped out and those in Bank of Cyprus would have to make a contribution.

An EU spokesman said no across-the-board levy or tax would be imposed on deposits in Cypriot banks, although the hit on large account holders in the two biggest banks is likely to be far greater than initially planned. A first attempt at a deal last week collapsed when the Cypriot parliament rejected a proposed levy on all deposits.

Government spokesman Christos Stylianides said: "We averted a disorderly bankruptcy which would have led to an exit of Cyprus from the eurozone."

Asked about the level of losses on uninsured depositors in Bank of Cyprus, he said: "The assessment is it will be around 30%."

Russia signalled it would back the bailout even though it would impose big losses on Russian depositors, who have billions in Cyprus banks. President Vladimir Putin ordered officials to restructure a loan Moscow granted to Cyprus in 2011 – having rejected Nicosia's request for easier terms in crisis talks last week.

German Chancellor Angela Merkel said the deal ensured those who had contributed to the crisis were required to pay towards its resolution. She added: "I am very pleased we have been able to avoid an insolvency."

Lefteris Christoforou, of the ruling Democratic Rally party, said: "It is a bad deal, but the extreme scenario we had to contend with was worse."

Diplomats said President Anastasiades had fought hard to preserve the country's business model as an offshore financial centre drawing huge sums from wealthy Russians and Britons but had lost.

The EU and IMF required that Cyprus raise €5.8bn from its banks towards its own rescue in return for €10bn in international loans. Cyprus should receive the first emergency funds in May.