“The CBC, having considered the governor’s prior consultations on this matter with representatives of the banks, is certain that credit institutions will proceed to commensurate reductions in lending rates promptly,” an announcement said.
The Central Bank left a window open for further measures to combat the problem of extremely high lending rates by Cypriot banks.
“The CBC will closely monitor the trajectory of lending rates and, if necessary, will consider adopting additional measures in future,” the statement warned.
The announcement came after a string of meetings Governor Chrystalla Georghadji had with the heads of major local banks – Bank of Cyprus (BoC) CEO John Patrick Hourican and Hellenic Bank director Bert Pijls – who pledged to support the CBC’s efforts to lower interest rates.
Indeed, minutes after the CBC’s statement, the Bank of Cyprus – the island’s largest lender – announced it was lowering its interest rates by 1% across the board.
“The Bank of Cyprus announces the lowering of all basic interest rates by one per cent, with no exceptions,” it said in a statement. “The benefit will relate to all active loans connected with the bank’s basic interest rate.”
The BoC said the move will impact 180,000 accounts belonging to 94,000 customers who will incur a total benefit of €5.7 million in the form of lower loan repayments.
Additionally, it said, non-performing loans being serviced will incur an additional benefit of 2%.
Last week, the Co-operative Central Bank announced a 1% reduction in serviced mortgages, a month after it had done the same with agricultural and student loans.
The issue of high lending rates – the cost of money – has been the object of heated political debate for months, as it had been considered a major barrier to restoring economic activity.
Last month, Georghadji told the House that rate reductions would be forthcoming “within two weeks”, but a CBC spokesman was on state radio the next day arguing that her remarks were misinterpreted, and that a committee of experts would prepare proposals for the CBC board within a fortnight.
This back-and-forth created some uncertainty, but Monday’s announcement – coupled with private conversations with bank heads – appear to have yielded the much-anticipated results.
Deputy government spokesman Victoras Papadopoulos welcomed the CBC’s move, saying the rate reduction was a government goal for 2015.
“The government feels that following the Co-operative Central Bank’s lowering of lending rates for agricultural, student, and housing loans, (Monday’s) decision is an initial positive step towards further reductions of interest rates in Cyprus, thus creating the conditions to expedite a return to growth, while easing the burden on households and businesses,” the deputy spokesman’s statement read.
Source: Cyprus Mail