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“Gnawing” of deposits – Negative interest rates affect the state

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Adapting banks and their customers to the environment of negative interest rates – with banks passing on the cost of the ECB's loose monetary policy to their customers – also affects the public sector.

The policy of negative interest rates and charges for keeping bank accounts does not exclude semi-governmental organizations and public bodies that hold deposits in private banks.

This new reality also creates practical problems for public bodies that receive state sponsorship for the execution of a specific project or to cover operating costs. With the charges, the amount of the sponsorship is not enough -even marginally- for the payment of the expenses that the sponsorship is called to cover.

A typical case is the organizations under the Ministry of Education, and in particular the school ephorates. The ministry disburses a total of 50m euros in two tranches to meet the needs of the schools. The expenses, however, are not paid twice a year and the balance remaining in the bank account will necessarily be charged with a negative interest rate.

The Minister of Education, Prodromos Prodromou, convened a meeting next Wednesday, February 5, in which the possibility of influencing the operation of public law bodies and school boards by the decision of some credit institutions to impose negative interest rates on deposit accounts will be considered.

The Legal Service of the Republic, the Ministry of Finance, the Central Bank, the Audit Office and the General Accounting Office of the Republic were invited to participate in the meeting.

Specifically, during the meeting will be discussed how the state sponsorships given to these organizations and the school ephorates are affected, in order to deal with negative consequences.

The general accountant Rea Georgiou, told “P” that there are concerns about the management of the situation and what can be done in practice.

The “Plan B”

“The transfer of their accounts to banks that do not impose charges is the alternative plan of the school boards. The cost for the amount of 50 million euros is 300,000 euros and if there is no cancellation of the charges we will move to other banks “, said to” P “the chairman of the Pancyprian Coordinating Committee of School Ephorates, Dinos Ellinas.

“There should be exceptions,” he added. The main argument of the school boards is that with the negative interest rates on their deposits the burden is passed on to the taxpayer.

And the state

It is worth noting that the central government, which maintains its liquid assets at the Central Bank, is also burdened with a negative interest rate.

The Central Bank of Cyprus, as a member of the Eurosystem, does not set the interest rates it imposes, but they are set by the European Central Bank (ECB) and are negative. According to recent data from the Central Bank, the total deposits of the general government at the end of 2019 were 1,052 billion euros, of which 553 million euros belong to the central government and 491.5 million euros to other categories of general government .

The charges

Bank of Cyprus has been imposing a negative interest rate of -0.40% since March on corporate clients, government and semi-governmental organizations, with the exception of universities and educational institutions, stock exchanges and fund managers.

Hellenic Bank has also been imposing a negative interest rate of -0.60% on its corporate clients since March, while in the summer it had announced negative interest rates on a small number of large depositors, including semi-government ones.

Billing decisions are a result of excess liquidity in the system, which is increasing…

Total deposits in December 2019 showed a net increase of 295.8 million euros, while the balance reached 48.7 billion euros.

On the contrary, the balance of total loans in December 2019 decreased by 0.5 billion euros and reached 33.7 billion euros, with excess liquidity amounting to 15 billion euros.

Source: politis.com.cy

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