Economist and member of the National Economy Council Marios Zachariades proposes the protection of borrowers against unilateral loan interest rates hikes as opposed to putting a cap on loan interest rates.
In statements to CNA, on Tuesday, Zachariades, who clarifies that the positions he expresses are personal, notes that what he refers to is balancing the market rather than intervening.
He points out that a possible legislative intervention, which would impose a cap on loan interest rates could create “great problems”.
Our banks, he says, are faced with liquidity problems, and if we try to further restrict them they are likely to face even greater problems.
Replying to a question as to what problems might be created he says that it is not predictable how large a hit the banks would take by a possible legislative measure on the matter.
No one, he explains can know which is the highest interest rate which should be imposed, adding that this can only be regulated by the market.
Zachariades proposes that other measures are taken instead to protect the consumers, such as ensuring that a bank cannot unilaterally change its interest rate on a loan unless certain conditions are met such as an increase of the Euribor and an increase of deposit interest rates.
On his part centre-right DISY party MP Prodromos Prodromou notes that his party will give time to the Central Bank to find a solution in cooperation with the Troika.
He warns however that if that does not happen then “we will proceed with a legislative act”.
Left wing AKEL MP Stavros Evagorou expresses his party's determination to resolve the matter and proposes that it is discussed at the Parliamentary Committee on Financial and Budgetary Affairs with the Minister of Finance Harris Georgiades and Central Bank Governor Panicos Demetriades.
On his part Director General of the Association of Cyprus Banks Michael Kammas speaks of the need of an impact assessment to be undertaken, referring to a relevant European Central Bank opinion on the matter last June.
He also points out that banks are trying to take measures, noting however that the overall situation of the economy should be taken into consideration.
In statements he made, on Monday, before the Parliamentary Committee on Financial and Budgetary Affairs, the Central Bank Governor warned that a legislative cap on loan interest rates would be risky and might create sustainability problems to the banks.
We need to work in cooperation with the banks and the Troika in order to see how interest rates on loans can be reduced he said.
Minister of Finance Harris Georgiades agreed and spoke of the need to look into the matter further without discounting that some sort of legislative act might be needed, as long as there are no additional negative effects.
The Cypriot economy has been hampered by recession since the third quarter of 2011. Excluded from international markets since May 2011, Cyprus requested and received a €10 billion financial assistance package from the Troika (EC, ECB, IMF).
The package featured a sizeable reduction of the island`s banking sector, as well as bail-in of uninsured deposits, which hampered the services sector, one of the island`s main source of income.
Recent official data show that the Cypriot economy shrank by 5.9% year on year in the second quarter of 2013, marking its eighth consecutive quarterly GDP reduction. The Troika estimates that the country's GDP will shrink by 8.7% in 2013.
