By Hamza Hendawi
IN A MOVE likely to force others to emulate, Alpha Bank yesterday announced a cut of quarter of a per cent in its lending rate to business and corporate customers.
The rate, which will henceforth be known as the Prime Lending Rate, will stand at seven and three-quarter per cent and will not cover consumer loans. Deposit rates will stay unchanged in line with other banks at 6.5 per cent, leaving Alpha bank to absorb the cost of the reduction in the lending rate.
The lower rate, the bank said in a statement, would benefit the clients it classified as “prompt and correct in their obligations.”
Highly-placed sources at the bank, part of the Greek Alpha Credit Bank Group, said businesses on the island could benefit by as much as £10 million this year if all other commercial banks followed suit with identical cuts.
Alpha Bank, they added, was prepared to introduce a similar further cut in the future if it felt that such a move would bring benefits.
The cut in the lending rate, announced at a news conference by the bank’s chief executive Lefteris Ioannou, comes at a time when hopes are fast fading that a much-heralded bill to liberalise interest rates will become law this year. The bill also proposes to abolish a nine per cent ceiling on interest rates introduced in the early 1940s by British colonial authorities to combat usury.
It was submitted to the House late last year but, like several other draft laws related to the EU harmonisation process, is languishing in the 56-seat chamber pending agreement by political parties on economic and fiscal reforms.
“The introduction of the Prime Lending Rate is a milestone in the process of liberalisation which will see interest rates determined by market forces, ” Alpha Bank said in an announcement. “In a fully liberalised environment, interest rates will vary with the creditworthiness, the purpose, type, and duration of the facility, and the relationship of the customer with the bank.”
Bankers said yesterday’s move by Alpha Bank reflected its resolve to expand on its estimated five per cent share of the domestic market, but said the scope of it doing so remains severely limited.
“We are not going to let our best customers go to Alpha, and we shall match the discount if that is what it takes to keep them,” said a senior official from one of Alpha’s rival banks.
Alpha’s cut in the lending rate also comes at a time when the growth of deposits is not expected to match credit expansion by commercial banks, estimated to reach £500 million this year.
The Central Bank, which has invited commercial banks for a meeting tomorrow on “economic developments,” is said to be worried about banks exceeding by far the 10 per cent ceiling it had set for credit growth in 1999.
In tomorrow’s meeting, the Central Bank is expected to tell bank bosses to rein in lending in view of the negative climate created by fiscal and other imbalances.
