Finance Minister defends bank’s decision to raise interest rates - Cyprus Profile

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Articles | 07 August 2019

Finance Minister defends bank’s decision to raise interest rates

Finance Minister Harris Georgiades recently defended a decision by Hellenic Bank to start charging large depositors 0.4%, arguing that it was a consequence of the failure to fully collect the loans that were given.

The matter emerged a few days ago when the electricity company, EAC, reacted to the lender’s intention and said it was now contemplating pulling millions out.

“We must understand that a deposit has a cost for the bank, and the bank must regain this cost through loan repayments,” the minister said. “When a substantial share of loans is not being collected, neither the principal, nor the interest, then there is a cost for the bank that leads to lower (deposit) rates.”

“I don’t think this concerns the average depositor,” he said.

Georgiades said the Cypriot banking system was not yet fully consolidated but such issues would not arise when it was.

“Apparently, however, we are in a low interest rate environment. When borrowing rates have gone down, then deposit rates will also go down,” he said. “But we must all understand that bank deposits have a cost that will be recovered only when the loans are paid. Otherwise, the bank will not be able to pay interest on the deposit.”

Quoting an unnamed source, the press reported a few days ago that the EAC was not willing to accept the new state of affairs and would be withdrawing its cash from Hellenic. Currently, the interest rate is zero.

The Cyprus Mail has learned that Hellenic has sent letters to several large organisations, mainly semi-government organisations, informing them it would be charging them 0.4% on their deposits starting October.

The bank said it is currently being charged the same rate by the European Central Bank to park over €2 billion.

Source: Cyprus Mail

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