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Minister urges banks to absorb interest rate hikes

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Finance Minister Makis Keravnos

Pledging to support vulnerable groups where needed while maintaining an ardent fiscal policy, Finance Minister Makis Keravnos on Tuesday said he expected more action from banks to absorb increasing interest rates.

In an interview with the Cyprus News Agency touching on the topics plaguing his portfolio, Keravnos stressed that with foreclosures being discussed for the past 10 years, it was high time the matter was taken seriously.

“We are a very serious government that wants to seriously study things and not throw out slogans. The issue of NPLs and foreclosures is a story going back at least a decade without being addressed in depth.”

The finance minister said he had made a “constructive intervention” in the banking sector, illustrating to banks and the banking association “the corporate social responsibility they have as large institutions to absorb part of the costs arising from the increase in interest rates.

“I have seen some positive developments by the banks which I certainly applaud, but I must say that they are not satisfactory and I expect all banks to continue this positive approach and absorb even more of the costs of the interest rate increase, but at the same time we need to see some diversification in deposit rates as well,” he added.

Commenting on an observation by DBRS Morningstar ratings agency revealing that Cypriot banks show the lowest rate of pass-through of the rise in interest rates to depositors, the minister said he understands the conditions that exist in the banking sector with excess liquidity.

“I see a reluctance to pay interest rates to increase deposits but lending rates cannot keep increasing while remaining at the position where deposit rates were. I expect to see action soon before it becomes necessary to speak to the banks again,” he said.

Asked if there were any challenges in creating a special jurisdiction in district courts for non-performing loans (NPLs) given the delay in Cabinet approving the relevant bill, Keravnos rejected the notion.

With credit rating agencies and EU eyes watching developments closely, every step taken must be carefully thought out, he added.

Keravnos was also asked to comment on reduced tax on fuel and electricity bill subsidies which are about to expire, reiterating lowered fuel prices no longer warranted the policy.

Nonetheless, Cabinet is set to discuss policies to help vulnerable groups in its next meeting, with the aim of having targeted measures, he stressed.

Asked whether given the increase in public spending with the submission of two supplementary budgets, the two per cent target of fiscal surplus by the end of the year will be achieved, Keravnos said the plan is now being drawn up for a four-year horizon, as is the EU requirement, and noted that the submission of supplementary budgets is provided for by law.

He explained that in the recent supplementary budget of €361 million, the sum of €60m relates to the increase in the cost of living allowance (CoLA) offered. Additionally, there is €25m allocated for a decision by the previous government to purchase a building to house the labour ministry, while €116m relates to inter-governmental transactions.

“There should be no concern that public expenses are out of hand.”

Keravnos added it was also high time to implement a tax reform, moving towards the green economy, green taxation and digitisation.

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