A RANGE OF existing loans from the Bank of Cyprus (BoC) will be cheaper by between 0.75 per cent and 1.25 per cent at no extra cost from August 17, the bank announced yesterday.
With effect from that date, the bank’s base mortgage rate will be cut from 4.25 per cent to 3.50 per cent. This latest cut follows a full 1.0 per cent reduction announced in mid-May. Existing private borrowers who are permanent residents and are paying total interest of over 4.75 per cent will now have the option of switching to the new rate.
“Our aim is to ensure that no permanent resident of Cyprus who is our customer should pay more than 4.75 per cent for his or her mortgage”, said Vassos Shiarli, BoC’s Group General Manager Domestic Banking.
A new basic rate of 4.25 per cent specifically for business loans will also be introduced, designed to replace current business loans structured on BoC’s base rate of 5.25 per cent. Shiarli said that business customers will now have the option of restructuring their loans in a way that will realise “an expected saving of up to 1.0 per cent, and in some cases much more”, depending on the profile of their existing loan.
Finally, BoC has decided to reduce the base rate for personal loans and car finance by a full 1.25 per cent, to 2.50 per cent.
Shiarli was adamant that there will be no hidden costs for switching existing loans to the new rates. “The transfer of a loan from one basic interest rate to another does not presuppose any additional cost to the customer”, he said. He added that all customers need only complete a single “very simple” form to apply for a rate transfer, which would then be processed by the bank without the need for further paperwork.
Customers of other banks who find BoC’s new lending rates attractive will be treated as new customers, Shiarli said, adding: “Our new mortgage loans – with an APR of 3.60 per cent – are as cheap as you’ll find anywhere in Europe.”
General Manager for Risk Management Nicolas Karidas said that the lending rate cuts were made possible by the extra liquidity generated for the Group in Greece via the securitisation of around €1 billion in mortgage loans in May.
Securitisation is a structured finance process that involves the pooling and repackaging of cash-flow-producing financial assets into securities, which are then sold to investors. Once converted into negotiable instruments, the original loan portfolio can then be used as security for ECB loans.
Karidas said that BoC is preparing a second securitisation of €500-600 million, and expressed the hope that the government goes ahead promptly in September with its commitment to enact legislation allowing for covered bonds in Cyprus, which would allow BoC to raise fresh liquidity using its Cypriot mortgage loan portfolio as security.
Shiarli said that if at a later stage the government also legislates for securitisation of loans in Cyprus, then “this will lead with mathematical precision to a further reduction in lending rates”.
In any case, “to the extent that deposit interest rates continue to fall, then the possibility will be created for further rate cuts”, Siarli added.
