Bank of Cyprus waits for SSM approval to lower mortgage rates

The Bank of Cyprus has prepared a proposal aimed at reducing lending rates, which has been submitted to the Central Bank of Cyprus, according to the group’s CEO Panicos Nicolaou.

Nicolaou further stated that the Central Bank of Cyprus is currently seeking approval from the Single Supervisory Mechanism (SSM).

“I hope that in a few days, we will have the green light so that we can announce it,” Nicolaou said during a press conference on the bank’s financial results for the first quarter of 2023.

He noted that the specific portfolio of first home mortgages is “quite large” and “the largest in the market”.

“We have at least €1.5 billion in mortgages, which will be affected,” he said, adding that the reduction in lending rates “will affect borrowers who have a mortgage for their first home,” which is serviceable.

In addition, Nicolaou said that “we intend to reward borrowers who are up to date with their payments” and “those who will remain up to date,” adding that “we are following the right process”.

“Those who are affected by the interest rate increases will be rewarded, because not everyone is affected,” Nicolaou said, noting that this includes those “who have not received any other form of relief”.

“We will wait to see what we get and from there we will judge how we will act and what risk we will take,” he stated.

Nicolaou explained that the bank offers “solutions to those who may have temporary problems either by reducing the interest rate or by restructuring”.

In addition, the CEO said that the bank has €3.6 billion in mortgages to 40,000 borrowers with an average loan repayment of 18 years where “if you reduce the interest rate by 1 per cent” the instalment will be reduced by €50.

In relation to existing borrowers whose loan rate is linked to Euribor, which has increased during this period of time, the bank will offer a form of a cash reward.

Regarding the timing of any reduction in lending rates, Nicolaou said that “we expected there to be a stabilisation” in the increase in interest rates so that the bank would then come up with a plan to reduce interest rates.

He added that “at the beginning of January 2023, the interest rate was 2 per cent and now it is 3.25 per cent.”

“You can’t change the interest rate too often,” he noted.

Sanctions against Russia

When asked whether the bank’s response to the handling of the sanctions was coordinated with the Cypriot government, Nicolaou responded negatively. He emphasised that the bank independently enforces the sanctions and does not receive instructions from any external entity.

Furthermore, Nicolaou mentioned that individuals impacted by the sanctions have the right to seek exemptions through a designated process.

He stressed that the person subject to sanctions can personally request exemptions for “the payment of wages” to their employees, clarifying that neither the bank nor the government would make such requests on their behalf.

However, Nicolaou raised the question of who the person under sanctions would collaborate with or provide services to in order to ensure the continuity of their operations and the employment of their staff.

He also said that “what the President of the Republic said, that this is an opportunity to solve the problem once and for all, is quite apt”.

Responding to the closure of the bank’s customer accounts, Nicolaou said that this was done within the framework of the bank’s customer acceptance policy, which is constantly renewed and was decided before the imposition of sanctions against Russia.

He further stated that the occurrence was unrelated to the sanctions but happened to coincide with their imposition, leading to an association between the two actions by people outside of Cyprus.

Furthermore, Nicolaou mentioned that at present, Russian nationals account for merely 1 per cent of the bank’s deposits and virtually none in terms of loans.

Meanwhile, Marios Skandalis, the Director of Compliance for the group, indicated that the sanctions were imposed on April 12, 2023.

However, the bank had already made a decision, approved by the Board of Directors on March 30, to modify its customer acceptance policy.

This policy change entailed the closure of accounts belonging to around 4,000 individuals who held only a Russian passport and resided in Russia.

Lastly, Skandalis emphasised that while the bank had substantial legal grounds to act as it did, it also had legal responsibilities that it had to adhere to.