Finance minister meets banks over interest rates

Finance Minister Makis Keravnos on Tuesday met the bosses of commercial banks in a crunch meeting aimed at getting lenders to provide some relief to customers to compensate for rising interest rates and mortgage payments.

The meeting, bringing the leadership of the banks association face to face with Keravnos, took place after the president himself weighed in, calling on lenders to help financially distressed households.

But as reconfirmed during a prior discussion in parliament, Cyprus has little to no leeway to tamper with interest rates, which are set by the European Central Bank.

Tuesday’s meeting was also being held under the ‘threat’ of a one-off windfall gains tax on banks, which finance ministry officials have recently been making noises about.

The finance ministry believes that banks can take any number of steps to give people some relief – such as reducing their various administrative fees and rewarding borrowers who are consistent with their payments.

In an interview with Phileleftheros published over the weekend, President Nikos Christodoulides urged banks to do something. But he added that he does “not view banks as adversaries.”

For his part, Keravnos earlier commented that he would not be the finance minister who would “disrupt the stability of the banking system.” However, he opined that banks can absorb a part of the increased lending rates they charge borrowers.

According to Phileleftheros, at the meeting with Keravnos the bankers were set to explain that they have already announced various schemes benefiting borrowers – with a total estimated benefit of €10 million.

The lenders consider the criticism against them unfair.

Regarding the margin between lending rates and deposit rates, the banks argue that in fact between January and June deposit rates for households and corporations in Cyprus rose considerably – 404 per cent up for the former, 165 per cent up for the latter.

On the flipside, deposit rates in Cyprus were among the lowest in the eurozone to begin with.

The bankers are also said to be adamantly against the imposition of a windfall tax. They argue that for years they have been paying a special tax of 0.15 per cent on deposits, including during times of low or negative interest rates when lenders posted losses or very meager profits.