Cyprus Mail

CBC governor says banks not expected to charge compound interest on deferred loans (updated)

Bank of Cyprus

The central bank (CBC) governor said on Tuesday he expected banks not to charge compound interest on the deferred interest accrued after parliament passed a bill enabling borrowers to stop paying their loans for nine months.

“Otherwise, it will not help support economic activity, something that will find the CBC in disagreement, while conveying the message that temporary supervision relaxation by the ECB and the CBC were unnecessary,” Constantinos Herodotou told banks in a circular.

Akel said the suspension would not benefit debtors at the end of the day as they would be charged compound interest on the deferred interest accrued for the nine months until the end of the year.

Akel had proposed that banks should charge zero interest for the duration of the suspension.

In a separate circular, the central bank said banks play a vital role in the operation of the real economy, and urged them to inject liquidity so that people could cover their current needs.

It urged banks to utilise the temporary relaxation in supervision decided by the European Central Bank to inject liquidity into the economy to cover current needs.

The circular applies to loan requests submitted by December 31, 2020.

The central bank said the aim was to pump cash into the market and avoid a credit crunch. Thus, it is important for banks to put swift evaluation and approval procedures in place, the central bank said.

It suggested that charges and expenses relating to the loan agreement should take into account the gravity of the situation and the need to channel cash to the real economy with favourable conditions.

Consequently, the central bank recommended that lenders should not burden applicants with expenses.

The central bank had announced earlier this month it was relaxing loan origination rules in a move to encourage banks to continue giving loans and adopt a more flexible stance towards businesses and households affected by the coronavirus.

It also freed capital reserves of €100m taking the total capital freed up to €1.4bn.


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