articles | 03 July 2013

Doubts raised over reducing lending rates

The Association of Cyprus banks (ACB) expressed strong reservations on Monday about a proposed bill to reduce lending rates by providing disincentives for financial institutions that offer high deposit rates.

The bill was put forward by parties DISY, DIKO and EVROKO and was discussed at the House finance committee. The Central Bank representative told deputies that it has prepared a new directive on the management of overdue loans, which includes suggestions for reducing interest rates. Any financial institutions which offer deposit rates beyond 2.5 per cent will have penalties imposed, such as an additional fee of 0.6 per cent on deposits. Currently the rate of the marginal lending facility is 1.5 per cent with deposits receiving three per cent interest being subject to a higher tax rate.

ACB director-general Michalis Kammas told deputies that it is not appropriate to increase tax on banks at the same time as they are struggling to increase their capital. He added that with this new proposal no deposits would remain on the island and that during the recapitalisation of banks there can be no recovery or reduction in the value of money. According to the director-general, the proposal sends the message that the system is not stable and that it is Cypriots who are withdrawing €300 every day from the banks and sending €5,000 abroad every month.

Head of DISY Averof Neophytou said that whether parliament passes any bills or not, deposits will leave the island. Kammas retorted that banks have already gone ahead with reducing lending rates and legal interventions are not helping the situation.

According to the Central Bank representative, the bank has recently completed a new directive on the management of non-performing loans and among the suggestions proposed by the bank is the restructuring of loans by lowering lending rates.

Source: Cyprus Mail

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