Businesses in Cyprus say they are being pushed to the brink as rising interest rates are adding to their other problems of increased costs of raw materials.
Cypriot banks’ practice of keeping deposit rates close to zero, is affecting their working capital, while rising borrowing rates on businesses still trying to recover from the effects of COVID and lockdowns, has impacted their capability to service their medium to long term facilities.
In comments to news site StockWatch, the head of the Cyprus Chamber of Commerce and Industry, Christodoulos Angastiniotis, said “the increase in interest rates pushes business to their overdraft limit, asking for more credit from suppliers, increasing burdens on companies’ balance sheets”.
Angastiniotis said that businesses have also been burdened with the increase in contributions to the General Health System, hiking energy costs, and the consequences of the war in Ukraine.
“At the same time, we see banks thriving, as they have not increased interest rates on deposits,” he said.
The Chamber president added, however, that banks are not coming down hard on businesses that are facing difficulty paying off their loans.
Echoing Angastiniotis’ concerns, the general director of the Cyprus Employers and Industrialist Federation (OEB), Michalis Antoniou, warned of further risks.
Impact on tourism
He said that uncertainty prevailing internationally could have an impact on the tourism industry, which will cause a chain reaction within the island’s economy.
Antoniou pointed to financial difficulties prevailing in the UK market, the island’s largest pool for tourists, which could be hindered further by worldwide developments.
“If conditions of international recession or weak growth arise, all businesses in Cyprus will be affected as they are communicating vessels,” he said.
Regarding the ECB’s latest rise in interest rates by 0.5%, Antoniou said that the decision was a one-way street, since the European Central Bank had already preannounced the increase.
“In a different case, it would negatively affect the psychology of investors and depositors, possibly leading to a bank run,” he said.
Andreas Costouris of the Association of Cyprus Banks (ACB), said that banks are willing to find solutions on a one to one basis.
“Businesses with loans with a floating interest rate linked to the Euribor should contact their bank to seek a solution in case of difficulties in meeting their obligations,” he said.