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CYPRUS: Finance Ministry prepares bill against increase of banks profit margins

06 August, 2014

A bill prepared by the Ministry of Finance, upon recommendation of the Central Bank of Cyprus (CBC) aims to end unauthorized increase in the profit margin of banks in lending rates.

According to CNA sources, the Ministry of Finance is already in consultation with the banks on the bill, which provides for the prohibition of unilateral increase of the profit margin of the bank rates.

Under the current legislation, the bank may unilaterally change at any time its profit margin set at the signing of the contract without the consent of the borrower. With the new bill, while the base rate (such as euribor) which is not determined by the bank could be changed, the profit margin of the bank should remain the same throughout the duration of the contract.

With this bill, the Central Bank attempts to end the practice of banks to raise interest rates at will. The legislation being prepared is not retroactive but will apply to new loans or restructured loans for which the banks and the customers signed new contracts.

The Director General of the of Cyprus Banks Association Michalis Kammas confirmed to CNA that the Association has received the bill prepared by the Finance Ministry, which is under study and evaluation by the Association.