By Elias Hazou
HELLENIC Bank said on Tuesday it was lowering its interest rates on certain categories of loans, a day after Bank of Cyprus and Alpha Bank announced similar plans.
In a statement, Hellenic – now the island’s second largest lender after Laiki’s demise – said it was revising downwards its base rate from 5.50 per cent to 5.25 per cent. Loan rates to businesses would be lowered from 4.50 per cent to 4.25 per cent.
In addition, it would be cutting rates on two types of home loans, from 4.15 per cent to 3.65 per cent and from 5.00 per cent to 4.50 per cent, respectively.
The new rates apply as of November 13. The bank said it was considering “additional measures and reductions” which it would be announcing soon.
Last week Hellenic successfully completed its recapitalisation through private funds after three major investors poured in €100m, taking 75 per cent of the share capital.
Cyprus-based online game developer and publisher Wargaming Net and U.S. hedge fund Third Point got a 30 per cent stake each by putting in €40m apiece. Cypriot investment company Demetra received 15 per cent with €20m.
Despite the banks’ move, politicians continued making noises about the need to regulate interest rates via legislation.
But a planned discussion of such bills at the House finance committee was postponed Tuesday, because officials from the finance ministry and the Central Bank – expected to attend – were otherwise engaged in meetings with the troika.
Nonetheless committee chairman Nicholas Papadopoulos (DIKO) fired this warning shot: “We must convey the message to the banks that our patience is running out…steps must be take to lower interest rates, otherwise parliament will step in to legislate.”
His sentiments were echoed by MPs from almost all the other parties, despite the fact the troika made it very clear to deputies that it is against a law regulating interest rates.
Following a meeting between a troika team and the finance committee, Papadopoulos said Cyprus’ international lenders agree that the cost of borrowing is too high. But at the same time, he said, the troika believes that what needs to be addressed is the underlying cause – the current uncertainty in the banking sector – and not the symptom.
DISY’s Prodromos Prodromou said the banks’ non-performing loans (NPLs) are tied to the issue of interest rates, adding that developments on the former would impact the latter.
But given that the market is not functioning, neither the troika nor the European Central Bank can prohibit a legislative regulation of interest rates, he said.
“Parliament will take responsibility for any such decision,” Prodromou pointed out.
The MP noted that the troika appeared to be sympathetic to the plight of indebted households and that it is opposed to a ‘disorderly divestment’ of homes held as collateral against loans.
Reports indicate that total NPLs are in the region of €15.5bn.
Bankers and analysts alike warn that mandating lower interest rates by law would create market distortions and could actually backfire. Banks – short on credit – could react by limiting even further the issuing of new loans.
Politicians across the spectrum insist however that banks are ‘suffocating’ the economy and discouraging new investment.