By Elias Hazou
IN A likely pre-emptive manoeuvre, two banks – BoC and Alpha Bank – yesterday said they were slashing their interest rates on home and business loans.
The news came just as parliamentarians were mulling legislation that would force banks to lower their interest rates. Via its chairman, Bank of Cyprus (BoC) revealed that it was set to lower its interest rates on certain categories of loans.
The island’s largest lender intends to cut interest on housing loans for ‘financially vulnerable’ groups by as much as 1.0 per cent, student loans by 1.0 per cent, while the interest rate on loans on credit card would be lowered by about 2.0 per cent.
The new rates would be applied sometime in the next few days, BoC board chairman Christis Hasapis told reporters.
His comments came after briefing House Speaker Yiannakis Omirou on the state of the bank.
The decreases would alleviate pressure on households, Hasapis said, adding that the bank planned further similar adjustments in the near future, though he did not elaborate.
Noting that BoC – which in March underwent a shakeup through a massive write-down, or haircut, of deposits – is moving on the right track, Hasapis said a long-term restructuring plan for the lender has been completed and handed over to the Central Bank.
The banking regulator was expected to approve the restructuring plan in a few days time, he added.
In addition, said Hasapis, the bank now has a new leadership to guide it through the rough times. The bank’s new CEO, John Hourican – formerly with the Royal Bank of Scotland – officially assumed his duties on Monday.
Hot on the heels of BoC, Alpha Bank said that it too was reducing the cost of borrowing.
In a statement, the lender announced an up to 1.7 per cent drop in interest on new consumer loans and on new loans for small and large businesses. New home loans would be reduced by up to 1.0 per cent.
The bank was also lowering its rate of interest on arrears on all loans, which overall would amount to decreasing the Annual Percentage Rate of Charge (A.P.R) from 3.0 per cent to 1.8 per cent.
All the new rates are applicable as of November 25, and are consequent to revisions the lender is making to its Bank Base Rate, the Housing Loan Base Rate and the Consumer Loan Base Rate as these are linked to the Euro Interbank Offered Rate (Euribor) on that date.
In cases where a court ruling has been issued against a debtor, Alpha Bank said it would not charge more than 9.5 per cent. The bank promised also to publish its base rates every three months.
It had been reported that yesterday the House finance committee was due to discuss a bill regulating interest rates.
But with the banks’ announcement, lawmakers appeared to temporarily back off.
Earlier in the day, finance committee chairman Nicholas Papadopoulos (DIKO) conceded that legislating bank rates might not be the “ideal solution.”
Bankers and analysts alike warned that such a move would create market distortions and actually backfire. They say lack of credit – with new loans slowing to a trickle – is currently not conducive to lowering loan rates.
Citing the memorandum of understanding concluded with international lenders, Papadopoulos went on to lambast authorities for a lopsided implementation of that agreement.
“Why is it that when it comes to protecting the banks, we are more loyal than the king, meeting all the deadlines, but we are falling behind with regard to measures designed to protect borrowers?” the MP asked.
The April 2013 Memorandum of Understanding on Specific Economic Policy Conditionality states: “Measures will be taken to deal with troubled borrowers following the implementation of the resolution and recapitalization of weak banks. A framework for targeted private sector debt restructuring will be established to facilitate new lending, and diminish credit constraints.”
Papadopoulos warned that the absence of borrower-friendly measures would lead to ever-skyrocketing bad loans and home foreclosures.
The latest statistics released by the Central Bank indicate that housing loans in Cyprus remain the most expensive in the eurozone. In September, housing loans with a one-year fixed rate (and variable subsequently), the average interest stood at 5.44 per cent, up from 5.33 per cent in August, not including administration fees. By contrast, the eurozone average was 2.82 per cent.
Loans to businesses (up to €1m) also became pricier, rising to 6.63 per cent in September from 6.03 the previous month. But consumer loans did drop to 6.90 per cent in September from 7.04 per cent in August.
On the other end, interest on households’ deposits went up marginally. One-year deposits rose to 2.20 per cent from 2.18 per cent, while interest on deposits with an agreed maturity (up to two years) climbed to 3.58 from 3.52 per cent in August.
Interest paid on businesses’ deposits with an agreed maturity (up to one year) tapered to 1.90 per cent from 1.96 per cent previously.