COMMERCIAL banks yesterday brushed aside mounting calls for them to slash stifling interest rates on housing and business loans. Their hands are tied, they say, because right now they can’t afford to lend cash with impunity.
According to yesterday’s Politis, Cypriot banks charge the second highest lending fee among euro zone countries when it comes to both floating and fixed rates, though they also have higher rates for deposits.
But the banks yesterday defended their high lending rates, ahead of a meeting today with the Finance Minister, at which they are expected to come under pressure to ease the pain on consumers.
Michalis Kammas, president of the commercial banks’ association, said it was “not feasible” at this time to slash the cost of borrowing.
“At a time when banks are offering high deposit rates, they must also raise borrowing rates to cover the cost they are incurring,” said Kammas.
This was the main method of boosting liquidity in the market, he explained.
“It is very difficult for banks to cut rates for loans. We want to help the situation, but it’s simply not possible with the current situation of the market.”
On CyBC radio, Kammas was taken to task over the banks’ promise that, once the ECB reduced rates, they would slash the cost of borrowing for loans taken out before January 1 of this year (Cyprus’ entry into the euro zone).
“The base rate is one thing, and the margin is another. The latter has to do with the contract signed between the bank and the customer.”
According to Kammas, when in early November the ECB cut the base interest rate to 3.25 per cent, at the same time the Euribor (Euro Interbank Offered Rated), which is based on the average interest rates at which a panel of more than 50 European Banks borrow funds from one another, went up by 1.5 per cent.
“So at the end of the day, the cost to the client is 3.25 plus 1.5, which is 4.75 per cent. But if the yield on deposits is between 6.5 and 7 per cent, who will incur this cost?” asked Kammas, implying the banks would.
Yet the banks have been unable to shake their “bad guy” image, with politicians from across the spectrum pouncing on them.
DISY no.2 Averoff Neophytou said the banks’ practices were strangling consumers, and placed the blame squarely on the government, accusing it of being too timid.
“When you want to solve a problem, first you need to analyse it. You can’t solve it by making a diagnosis on-air or by appealing to someone’s conscience. What the government needs to do is figure out the root cause of the liquidity squeeze,” he said.
And according to Neophytou, the biggest concern was not that banks were charging high interest rates; rather, that in the near future banks would have no more cash to lend to households.
AKEL deputy Stavros Evagorou agreed. He said already a lot of people were getting letters from their banks notifying them that the rate on their loan had gone up.
“Soon, people will get letters telling them that their application for a housing loan has been rejected,” he warned.
There was very little, if anything, the government could do, so the onus was on the banks themselves. One way of improving liquidity, suggested Evagorou, was for banks to quit moving depositors’ cash to operations abroad and keep this money on the island for investment purposes.
It was OK if the banks had to suffer a temporary and slight drop in profits, the communist politician asserted.
The government has so far been reluctant to cajole banks into easing interest rates, and likewise the Central Bank is taking a very low-key attitude.
So the baton has been taken up by political parties: the governor of the Central Bank has been invited to a session of the House Finance Committee today that will assess the credit crunch and try to find ways of alleviating consumers.
Citing data released by the European Central Bank for September, the Politis survey said tjay on average banks in Cyprus were charging up to 7.43 per cent on overdrafts, 7.75 per cent on consumer loans and 6.40 per cent on housing loans.
The cheapest place to get a housing loan was in Luxembourg, with an interest rate of 5.17 per cent, followed by France at 5.35 per cent.
Slovenians had it the toughest, with banks there charging customers 7.05 per cent for housing loans – and this after the ECB cut interest rates.
At the same time, though, Cypriots had it better than the average EU citizen when it came to consumer deposits. The yield on one-year fixed deposits was 5.60 per cent, compared to the euro zone average of 4.65 per cent. For three-month deposit (notice) accounts, the picture changes somewhat, with Cypriot banks offering around 3.35 per cent, compared to the euro zone average of 2.97 per cent.
