CYPRUS: Central Bank to prod banks to cut rates

The Central Bank of Cyprus is holding meetings on Thursday with the heads of the commercial banks to encourage them to lower lending rates, Governor Chrystalla Georghadji told the Employers and Industrialists Federation (OEV).

Rates in Cyprus are among the highest in the Eurozone, on average 2 percentage points above the rest, thus making the cost of money expensive, especially at a time when all sides are trying to revive the economy back to a path of growth.
The Bank of Cyprus, Hellenic Bank and the Cooperative Central Bank have all pledged to lower rates, some in general terms, and others focused on student or business micro-loans, but consumers would rather restructure existing loans, than acquire new ones.
After three and a half years of recession and an absence of a legal framework that would regulate foreclosures and insolvencies, while securing primary homes from repossession, the rate of non-performing loans (NPLs) represent about 50% of the banking system’s loans portfolio.
Georghadji told the employers group that one incentive would be to reward good borrowers who restructure loans and repay their instalments on time by lowering the rates retrospectively.
On his part, OEV General Director Michalis Pilikos said that the reduction of lending rates is a key priority for the business community to return to growth, especially in the absence of funding to borrowers, primarily to the small and medium-sized enterprise (SME) sector.
“Businesses urgently need credit to be able to start hiring again and hel;p reduce the unemployment level, and also help with operational costs that are hampered by the dried up cash-flow,” he concluded.
Cyprus GDP is estimated to have shrunk by about 25% and unemployment shot up to 17% ever since the Eurogroup of Eurozone finance ministers imposed a 10 bln euro bailout, closing one major bank and rescuing the other by bailing-in depositors.