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Our View: Politicians should be advising loan delays only as last resort

Finance Minister Constantinos Petrides

It was inevitable that the suspension of loan repayments to banks for nine months would turn into an issue of political squabbling. Since the passing of the bill on Sunday, Akel has engaged in unrelenting criticism of it, because its proposed amendments that would supposedly burden the banks were not adopted.

One amendment – zero interest for the nine months of the suspended payments – had been rejected by the Single Supervisory Mechanism (SSM) of the ECB, while the second, which envisaged no interest capitalisation of the interest accrued during the suspension period, would have been of negligible benefit to borrowers. On a €100,000 loan the benefit of having no interest capitalisation would be less than €100 according to the Central Bank governor.

The latter amendment would have made very little difference, but Akel used its rejection by a majority in the legislature to claim that parties backing the government bill were serving the interests of the banks, which would profit out of the current situation. Akel chief Andros Kyprianou claimed that borrowers would gain nothing from this arrangement whereas banks would profit.

It was the kind of populism that Akel specialises in – the banks had to take some of the burden, especially after what happened in 2013, when the economy went into meltdown because of the banks. But if we penalised the banks, as Kyprianou is demanding, would it not ultimately be the economy that would suffer?

Kyprianou is right in questioning the suspension of loan repayments, but for the wrong reasons. The law passed on Sunday may offer temporary relief to individuals and businesses, but after the nine months things will be more difficult for borrowers as they would be at the mercy of banks, which could decide whether the repayment period would be extended or the monthly instalment increased. The law has no provision of what would happen after the nine months, leaving this entirely up to the bank.

How a bank acts would largely depend on what position it will be in after nine months of subdued business activity. Finance Minister Constantinos Petrides said on Tuesday that we were heading for a recession and that GDP would contract by at least 5 per cent, not exactly conditions favourable for any bank. If they are in trouble they will squeeze their customers and there will be nothing the parties or government can do about it. Unless they are happy to see another collapse of the banking sector.

What the politicians should be doing, rather than claiming the suspension of loan repayments is a major achievement, would be to advise people not to apply to the bank for a suspension unless it was absolutely necessary. This would be the responsible political approach that would actually protect people, because nobody can know what the situation of the economy and the banks will be in nine months.

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