Measures to support Co-ops if interest rates rise

FINANCE Minster Charilaos Stavrakis met yesterday with Co-Op bank leaders who are concerned about a possible flight of deposits if Europe increases interest rates this week.

The Co-Ops, which hold 25 per cent of the banking market, are also concerned that inflation will result in people being unable to meet their loan payments.

This would up the Co-Ops’ bad debts toll, they said.

Speaking after yesterday’s meeting with members of the Co-Op Central Bank and members of the Monitoring Committee for Co-Ops, Stavrakis said some measures had been agreed but that he would not be revealing what they were.

He said the government supported the Co-Ops, and that an exchange of views of a practical nature had taken place at the meeting.

“I would not want to reveal the measures which we have discussed but rest assured they are in line with Cypriot, and also European, legislation,” he said.

The Co-Ops have been concerned because unlike the commercial banks they have to strive to keep their interest rates as low as possible.

They said they work on lower margins of between 0.5 per cent and 1.5 per cent because they cannot pass on the cost of money to members.

A prospective interest-rate increase by the European Central Bank, which will make borrowing more expensive, will increase the cost of money and hit households already under financial pressures.

General Director of Co-Op Central Bank Erotokritos Chlorakiotis said the Co-Ops were compelled to give the interest-rates prevailing in the market depending on the conditions.

He said the aim was to stem any flow of deposits to higher-paying financial institutions while at the same time ensuring that lending rates were not unbearable for borrowers.

“We want to assure the Cypriot population that with the policies that we apply we will continue playing the role that we have always played, a role that involves the least possible cost for the Cypriot population,” he said.

The number of Co-Ops on the island has dropped from 359 in May 2004, to 124 this year due to a large number of mergers.

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