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The triptych of ECB concerns for banks

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Faithful implementation of the AML, to keep strict the criteria for new loans and not to change the laws

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Although Cypriot banks have shown great progress in the last decade, foreign supervisors have reservations and summarize their concerns in three axes. According to opinions conveyed by high-ranking figures of the European Central Bank (ECB) in meetings they had with officials of the Cypriot banks, there are positive prospects, but there are also three thorns, one of which is timeless. As relayed to Cypriot bank officials who had meetings abroad with ECB supervisors, Cypriot banks should firstly strictly implement anti-money laundering (AML) rules, secondly maintain the strict practice of criteria for granting new loans and thirdly , to make the legal system stable and the laws that are passed do not change at regular intervals. The third point is the “perennial” problem of Cyprus, which also affects the operation of Cypriot banks.

As explained to “K” by the receivers of the concerns of the high-ranking officials of the ECB on the subject of the implementation of the AML rules, it is also the permanent position of the officials of the European Union. As is the official EU line, the risks associated with money laundering and terrorist financing are a source of serious concern for the EU financial system. and the safety of its citizens. AML rules, as recorded by the EU, make it harder to hide illegal funds through shell companies and tighter controls on high-risk third countries. The role of financial supervisory authorities is also strengthened and access to and exchange of information is improved. In Cyprus, the fifth anti-money laundering directive has been adopted. It is also recalled that the role of the European Banking Authority (EBA) has been expanded and its supervisory authorities have the legal duty to contribute to preventing the use of the financial system for the purposes of money laundering and terrorist financing.

As far as the application of the AML rules is concerned, it is also the permanent position of the officials of the European Union.

To be kept strictly

Foreign supervisors draw attention to Cypriot banks being strict with the criteria for granting loans. This point probably falls under the popular saying “he who burns the porridge, also blows the yogurt”. From the beginning of 2003 until 2012, i.e. a decade when the banks granted loans wanting to shake off the excessive deposits, it is also the big cause of the banking crisis. Probably seeing that the Cypriot banks have a respectable amount of deposits again, there is a fear that they will start to “relax” the criteria for granting loans. The truth is that the Cypriot banks have considerably tightened the criteria for granting loans, an action for which they are now being blamed in society (that is, internally). Foreign supervisors, however, appear to be siding with the banks at this point and want to continue to be strict.

However, the figures of the Central Bank of Cyprus prove that the banks are strict. The January 2023 Bank Lending Survey records stricter granting criteria for all loan categories. According to the CBC survey, in the fourth quarter of 2022 the criteria for granting loans to both businesses and all categories of loans to households became stricter for the third consecutive quarter , while due to continued high uncertainty, banks' perception of increased risk continues to contribute to the tightening of their lending criteria. As he explains in the research, the introduction of stricter criteria for granting business and housing loans, in the fourth quarter of 2022, was also contributed by the banks' reduced tolerance for risk. The banks' assessment of increased risk in relation to business loans related to the general economic situation and outlook, the solvency of borrowers and the required collateral, while the increased risk for loans to households was related to the deterioration of the situation and prospects of economy.. In the same quarter, the overall terms and conditions for granting loans to households for mortgages and, more so, for consumer and other loans, became stricter. Specifically, for all categories of loans to households, the tightening concerned the banks' margin both for normal loans and for higher-risk loans (margin increase), as well as other terms and conditions such as the duration and size of the loan.< /p>

“Achilles heel”

Perhaps the biggest problem-concern that should be regulated so that foreign supervisors can be sure of the good course of Cypriot banks, is the stability of the laws that affect the stability of the financial system. As conveyed to the officials of Cypriot banks by the high-ranking figures of the ECB, the continuous effort to change the laws that also affect credit institutions is a perennial problem for Cyprus. They gave a typical example in the attempts to change the divestment framework in Cyprus, but also in the postponement of the divestment procedures. It is the “Achilles heel” of Cyprus the change of laws – as it was transferred – which affects the investment community in general and is not only based on the banks. As the Cyprus Banks Association has previously reported on the attempted changes in the context of divestments, the European supervisory authorities (European Central Bank, European Banking Authority and the Single Supervisory Mechanism) have announced that the continuous amendments to the legislation, and especially to the timetables that regarding collateral liquidation procedures, increases the credit risk with significant consequences for credit institutions. The uncertainty in relation to the stability of the Cypriot legal framework, they have summarized as generally damaging to the Cypriot economy.

Source: www.kathimerini.com.cy

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