CYPRUS plans to issue €3 billion in three-year bonds to domestic banks to assist them in getting cheaper funding from the European Central Bank, the Finance Minister said yesterday.
Commercial lenders which will be allocated the bonds will be legally obliged to pass cheaper interest rates on to consumers, said Charilaos Stavrakis.
He said the government bonds would be offered to local commercial banks and co-operative credit institutions to help them get cheap liquidity from the eurosystem, a move that would lead to the reduction by at least one per cent of lending rates.
Stavrakis was speaking to reporters following a meeting at the Finance Ministry, during which he handed over to representatives of the financial institutions the draft bill concerning the issuing of the government bonds.
He said: “The government will issue these bonds which banks and co-ops can use as a source of drawing cheap liquidity from the eurosystem. It is anticipated this measure will reduce domestic bank lending rates.”
Because the move requires parliamentary approval Stavrakis will submit the bill to the House Finance Committee for discussion no later than October 8 and then on to the plenum for approval.
“So that €3 billion of cheap liquidity is channelled to the banking system by the end of the year, which is an important date for the liquidity of banks and cooperative institutions,” he said.
Stavrakis explained that the banks would use the money to draw cheap liquidity from the European Central Bank at one per cent interest rate. The financial institutions would then be legally obliged to pass on the cheaper lending in their pricing structure, he said.
“With this proposal we satisfy all demands expressed by the banks, which will then bear the responsibility, under the control of the parliament and the government, to offer cheaper lending rates to the Cypriot consumers,” he said.
Stavrakis pointed out that the issuing of the government bonds had the approval of the European Commission.
He said the bonds would be allocated to banks based, in part, on their market share. The issue is scheduled before the end of 2010.
