Banks at odds with Finance Minister over interest rate increases (updated)

The spokesperson of the Association of Cyprus Banks Andreas Costouris on Wednesday stated that the association does not agree with how Finance Minister Makis Keravnos is presenting the situation surrounding the cost of higher interest rates.

This comes a day after the Finance Minister stressed the need for banks to absorb a portion of the cost resulting from the consecutive interest rate increases.

In a recent letter addressed to Cypriot banks, Keravnos underscored the importance for banks to absorb a part of the increases in order to close the gap between lending and deposit interest rates.

However, he pointed out that the banks’ response was disappointing, as they were unable to take specific actions.

The Finance Minister had also mentioned that Cyprus is the only country where taxation is imposed on bank deposits, and he noted that at the appropriate time, the government will take certain decisions pertaining to this issue.

Speaking to Trito on Wednesday, Costouris said that the minister’s reference to no actions being taken in favour of borrowers, in the form of an absorption of a part of the cost from the increase in lending interest rates, is surprising.

As he mentioned, loan renegotiations, amounting to €2 billion, took place during the first half of the year.

He also expressed disagreement with the mooted proposal of taxing profits, arguing that it would send the wrong message to foreign investors, labelling such a decision to be the result of political pressure.

He clarified, however, that no relevant proposal has been submitted by the minister, with whom the association will meet in the coming days to present its positions.

“We look forward to the meeting with the Finance Minister and we are confident that we will address the concerns or questions that exist regarding the measures implemented by the banks, prompted by the minister himself over the past few months and following our previous meeting with him last April,” said  Costouris, responding to a request from the Cyprus News Agency (CNA).

Moreover, Costouris stated that the association always engages in constructive, substantive, and productive discussions with the Minister, whether face-to-face or through other means, and expressed certainty that “this time too, our meeting will be in the same vein.”

“During the meeting with the minister, we will find common ground and assess his policy stance,” he added.

Furthermore, Costouris mentioned that when further details about the banks’ actions on the matter are explained, including the extent, the beneficiaries, and the economic impact, he believes that the Finance Minister will be more satisfied rather than disappointed, without implying that he won’t make any requests from his side.

Asked about the scheduled meeting, Costouris said that they are considering a date when both sides do not have other commitments, “to hold a meeting as soon as possible, within the next few days.”

Regarding the continuous increase in lending interest rates, Costouris said that there were actions taken by the banks “before the measures were announced,” and as an example, he mentioned the data provided by the governor of the Central Bank in relation to the increase in loan renegotiations and loan restructurings.

“We are in regular communication with customers, when something is not going well, to find a solution that will alleviate their difficult situation,” he explained.

He also referred to the package of measures worth about €10 million introduced by each bank holding a portfolio of loans with floating interest rates affected by the increase in rates.

He added that the package includes either direct refunds by a bank, debt relief for a specific period, or a combination of both measures.

“We acknowledge that this is a situation that creates pressure on the economy, and for this reason, the banks are evaluating the data available to them, alongside the borrowers,” he stated.

Asked to comment on the possibility of imposing an extraordinary tax on bank windfall profits, Costouris told CNA that “banks pay a series of taxes and their increased profits also mean increased revenues for the state”.

He also mentioned the special tax (0.15 per cent) on deposits that banks pay based on the amount of deposits they hold, which has been in place for more than 10 years.

What is more, Costouris said that “the consistent position of the association is that this special tax should not exist,” before noting that “this tax exists in years of bank losses, in years of high Non-Performing Loans, and in years when banks were supposed to increase their capital adequacy”.

“So, we consider the possibility of a new special tax being imposed this year to be both misguided and unjust, stemming from decisions on monetary policy rather than interest rate-related bank policy,” he concluded.