Yeah, I also agree that the player's repentance firstly gives him experience and apparently in the future game he will not try to cheat like that anymore. On the other hand, the forgiveness of the player who has cheated by the casino gives this action of the casino administration a human character, aimed at a friendly attitude towards the casino's clients. Including this is an example of a good attitude towards the players.
So the right solution to the issue would really be as you suggest here.
Yes, that's what the casino owner should do in order to gain respect, a player's deposit won't make a casino rich but if they show empathy and give the OP another chance by just allowing him to withdraw his own deposit then that would really create a good and positive picture of the casino in the eyes of players.
Those casinos often get more success but doing such kindness acts instead of doing anything that most players don't want them to do. One such thing is seizing of funds because OP has broken their rules and that's why they might seize his funds but that's not going to be helpful for them in long term, and many of the players might leave that casino.