The Cyprus Chamber of Commerce and Industry (Keve) on Tuesday called on Cypriot banks to reduce loan interest rates and associated charges, following recent developments in the financial sector.

Keve’s statement came in the wake of president Nikos Christodoulides’ meeting with senior bank executives on Monday, amid ongoing discussions about easing financial burdens for borrowers.

In this context, the chamber welcomed the parliament’s rejection of a proposed increase in the tax rate on banks, which it had also opposed, and used the occasion to underline its expectations of the banking sector.

“We anticipate that banks will take immediate action to reduce fees and loan interest rates,” the chamber stated.

The now-defeated bill sought to tax bank profits by 5 per cent. It was projected to generate €100 million over two years for vulnerable populations and borrowers.

While Akel presented the debate as a matter of prioritising either the public or banking interests, opponents argued this was a simplistic view of the issue.

Indeed, government spokesman Konstantinos Letymbiotis said at the time that the proposed measure wouldn’t have immediately benefited borrowers since the collected funds would have gone directly to the government.

He also warned that seemingly attractive short-term measures could be detrimental long-term, citing past examples of similar policies that disregarded economic fundamentals and led to repeated tax increases.

In today’s announcement, Keve underlined the importance of a robust banking system for economic growth.

“Ensuring the soundness and creditworthiness of the banking system is a crucial parameter that we must all strive to achieve,” the chamber siad.

“A healthy banking system not only guarantees funding for the domestic market but also supports efforts to attract foreign investments,” it added.

However, the chamber stressed that “the banks, having been supported by citizens and businesses during challenging times, now bear a responsibility to give back”.

“Banks must reciprocate by making significant reductions in their fees and narrowing the gap between deposit and lending rates to ease the borrowing and repayment costs for their customers,” Keve said.

The Keve announcement aligns with recent economic developments, including the European Central Bank’s (ECB) latest interest rate cut, which is expected to lower borrowing costs further across the eurozone.

Before the ECB announcement, the Association of Cyprus Banks said that Cypriot financial institutions were prepared to adjust their interest rates in line with the ECB’s decisions, benefiting thousands of borrowers with loans tied to the base rate.

This comes in the back of calls from both political parties and other organisations for Cypriot banks to lower interests rates.

For reference, the Central Bank of Cyprus (CBC) reported fluctuating local interest rates for the month of October, with mortgage loan rates rising in contrast to a decline in the eurozone.

Business loan rates, however, showed a downward trend locally and abroad.

“Banks must realise that their resilience is tied to the ability of businesses and households to finance and repay their investment and consumption decisions at reasonable and competitive borrowing costs,” the chamber stated.

“Otherwise, many of these decisions risk becoming unfeasible or even non-performing,” Keve added.

It should be noted that Cypriot banks have already moved forward with loan rate reductions.

On December 13, the Bank of Cyprus on Friday announced that it has “swiftly reacted to the European Central Bank’s (ECB) latest decision to cut interest rates,” announcing a reduction in the reference rate for loans linked to the ECB’s base rate.

According to the announcement, effective from December 18, 2024, the rate will decrease by 0.25 percentage points, dropping from 3.40 per cent to 3.15 per cent.

This reduction, the bank pointed out, is expected to provide relief to approximately 10,000 borrowers whose loans are tied to the ECB base rate.

“Their monthly repayments will see an immediate decrease,” the bank said.

“Since the ECB began lowering interest rates in June 2024, the cumulative reduction amounts to 1.35 percentage points, down from 4.50 per cent to 3.15 per cent,” it added.

Additionally, the bank highlighted that earlier interest rate reductions have already benefitted around 8,000 borrowers with mortgages linked to the Euribor rate.

The Euribor, which peaked at 4.14 per cent in October 2023, has gradually fallen to its current level of 2.64 per cent.

Moreover, the bank mentioned that “the downward trend in interest rates is expected to continue“.

“Recent ECB statistics reveal that interest rates on loans to households in Cyprus dropped by 0.69 percentage points between January and October 2024, a steeper decline compared to the EU average of just 0.32 percentage points over the same period,” it added.

This was followed by an announcement from Hellenic Bank on December 16, involving a reduction in its reference rate for loans linked to the European Central Bank’s (ECB) base rate.

Effective from December 18, 2024, the rate will decrease by 0.25 percentage points, moving from 3.40 per cent to 3.15 per cent.

“This reduction will also affect loans tied to Euribor interbank rates, benefiting over 6,000 borrowers,” the bank stated.

Last month, the bank also lowered its own base rate by 0.21 percentage points, bringing it down to 1.91 per cent.

“This earlier reduction positively impacted more than 90,000 borrowers, including individuals and businesses, helping them better manage their borrowing costs,” the bank stated.

In addition to rate adjustments, Hellenic Bank recently introduced a new fixed-rate mortgage product.

The bank stated that customers can now secure a fixed interest rate of 2.95 per cent for the first three years or 3.10 per cent for the first five years.