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Time to raise deposit rates

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Instructions from Central, Ministry of Finance and legislative authority to follow even a little the increase in lending

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After the last increase in interest rates, the deposit acceptance rate reached 3% and the main refinancing rate reached 3.5%.

Bank profits, already realized or expected in the near future due to continuous interest rate hikes by the European Central Bank (ECB) in an effort to “tame” inflation, have given the impetus to domestic authorities to push for the start of the banks to also give deposit interest rates. It was expected after the statements of the directors of the Cypriot banks about profits of millions coming due to the environment of positive interest rates. Borrowers who see their loan installments have risen if the borrowing they have contracted is linked to the European Central Bank's base rate and to a floating Euribor rate, do not see correspondingly receive any return on their deposits. Thus, we increasingly see the domestic authorities and institutions pushing the Cypriot banks in this direction, i.e. to proceed as quickly as possible with an evaluation of their data regarding the level of their deposit rates.

The decision-makers from the bank side and answering the relevant question during the presentation of their financial results are limited to “the issue of deposits in banks is also being considered to proceed”. The statements of the CEOs of the two major banks in Cyprus are also indicative. On the one hand, Mr. Panikos Nikolaou of the Bank of Cyprus stated during the presentation of the bank's results for 2022 that, within 2023 there is a provision for a further increase in deposit rates. The statement of the CEO of Hellenic Bank, Oliver Gatschke, when commenting on the bank's financial results for 2022, was similar. Regarding deposit rates, Mr. Gatschke had commented that Hellenic will slowly proceed with increases in fixed-term deposits .

KEDIPES is proceeding with an interest subsidy for restructured credit facilities. Banks and credit acquisition companies can, if they wish, proceed with similar decisions.

The Central Bank of Cyprus, however, “raised the gauntlet” regarding deposit rates with official statements. Ten days ago, the governor of the Central Bank of Cyprus, Mr. Konstantinos Herodotou, who had met with the managements of the licensed Cypriot credit institutions and discussed critical issues of the Cypriot banking system, such as the timely provision of sustainable restructuring and the level of deposits, urged the banks to proceed as quickly as possible with an evaluation of their data regarding the amount of their deposit interest rates.

With less “tact”, but in the same style, the Minister of Finance, Makis Keravnos, also made statements about deposits. In the context of his first appearance at the Finance Committee, Mr. Keravnos stated that he has made suggestions to the banks and to the knowledge of the governor of the Central Bank to increase their deposit rates. “I agree that deposits are low, that is what we have indicated to the banks and I think there will be a positive response. The commander of the Central agrees, he has already made his suggestions, I hope we will soon see results so that we don't have to think about anything else”, he commented in the Parliament. Because in his “maiden” appearance at the Finance Department, Mr. Keravnos gave “special weight” to the interest rate environment, one day later the Ministry of Finance made an official announcement, stressing that it does not have the power to intervene in such decisions. “In relation to the continuous increase in lending rates, the Ministry of Finance notes that the Government cannot get involved in the interest rate policy of credit institutions and in the responsibilities of the European Central Bank (ECB) and the Central Bank of Cyprus”, he noted characteristically.

The continuous increases in interest rates by the ECB also occupied the Trade Committee of the Parliament, in addition to the discussion opened one day before by the Minister of Finance in the Parliamentary Department of Finance and ten days ago by the governor of the Central Bank after the meetings he had with the heads of the Cypriot banks. Obviously, there was no “result” from the discussion and it was decided to make a new “appointment” in a joint session with the Finance Committee. What was “held” from the session of the Chamber of Commerce, is the position of the Financial Commissioner, Pavlos Ioannou, who said that it is contradictory not to increase deposit rates when there is a monetary policy aimed at fighting inflation. As Mr. Ioannou said, social policy cannot be left at the mercy of interest rates, since new increases are expected in the near future.

Amid nervousness

The truth is that there are discussions about increases in deposit rates amid nervousness in the markets. In America, small banks “fall” and are taken over, on European soil a huge Bank also “fell” and was bought by another giant. All European banking stocks fell sharply last week, with Deutsche Bank the biggest loser. It is now clear that the interest rate environment has brought a strange climate to the banks, even to banks as strong as Frankfurt. The investment community is clear that they do not trust banks. Banks in Cyprus, however, because they are isolated in many ways, are considered safe. At least that's what their administrations say. Decisions on yields and deposit rates certainly should not differ from decisions in relation to lending, however, what they announce should be considered. The same applies to the issue of dividends, as they have announced that they will proceed with dividend policy decisions, but they should have calculated all the aspects that exist in the environment.

< strong>The social person

In an interest subsidy for restructured credit facilities as a reward for borrowers who adhere to the repayment schedule of their credit facilities for the year 2023, KEDIPES decided. The interest subsidy on the accounts will be such that the total interest rate charged during each capitalization, for the year 2023, is equal to 3.5% for housing loans and 4% for credit facilities for other purposes. Banks and credit acquisition companies can, if they wish, proceed with similar decisions.

The Ministry of Finance welcomed the announcement by KEDIPES of the Interest Subsidy Plan, which is aimed at debtors who do not show delays in repayment of their loans and whose loan agreements carry a base rate linked to the ECB's main refinancing rate, which has increased by a total of 3.5% compared to June 2022.

After and last rate hike by the ECB on March 16, the deposit rate reached 3%, the marginal financing facility stood at 2.5% and the main refinancing operations rate reached 3.5%. It is the ECB's sixth consecutive increase in key interest rates since July 2022. The ECB's aim is to achieve a timely return of inflation to its medium-term target of 2%.

Source: www.kathimerini.com.cy

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