Cyprus to increase loans used for ECB Collateral

Cyprus Finance Minister Charilaos Stavrakis said on Friday the Finance Ministry and the Central Bank of Cyprus have drafted a plan so that government guaranteed loans conducted by local authorities and semi-governmental organizations could be used by Cypriot commercial and cooperative banks for financing from the European Central Bank.

Speaking to the press, after a meeting with Cyprus Central Bank officials, the CEO's of the Cypriot commercial Banks and the General Director of the Central Cooperative Bank, Stavrakis said that with this decision, an additional liquidity of 1 billion euro will be injected to the economy.

He added that that this move, which is additional to the government deposit exceeding 1 billion euro to the Cypriot Banks is expected to create the conditions for lower borrowing rates.

According to Stavrakis, the plan drafted in cooperation with the Central Bank concerns older loans conducted by the local authorities and semi-governmental organizations with commercial banks guaranteed by the government.

''These loans, according to ECB's new guidelines on temporary changes to the rules relating to eligibility of collateral, can be used by the commercial banks or the cooperative foundations as collateral to secure additional liquidity with a 2% rate by the ECB,'' Stavrakis said.

Noting that they will redraft the loan contracts, Stavrakis added that ''the banks and the cooperative foundations have shown enthusiasm on this new policy.''

''This is a very important new move of approximately 1 billion euro of new liquidity in the system with a rate of 2%. Therefore, this new initiative will speed up the downward pressure to the borrowing rates,'' Stavrakis said.

The Finance Minister noted that this new move as well as the government loan of 1.4 billion euro conducted with the Cypriot Banks early this year will not affect the public.

''I feel that the public debt will remain below 50% even if we grant the 200 million euros to the Social Securities Fund as was the President of the Republic's commitment,'' he concluded.