Governor of the Central Bank of Cyprus (CBC) Constantinos Herodotou revealed that the markets are concerned that the problem with some European banks could evolve into something bigger.
But he said the European Central Bank (ECB) was reassuring about the health of the European banking system after the Credit Suisse saga.
Asked about concerns for some European banks and whether the problem could spread across Europe, Herodotou said there was concern in the markets and hoped it didn’t turn to panic.
“The ECB confirms at the European level the good health of the European banking system and its readiness to intervene with liquidity or other measures if and when needed,” added Herodotou, a member of the ECB Governing Council.
He made the comments after Wednesday’s meeting with AKEL party Secretary General Stephanos Stephanou to discuss the international developments in the banking sector and how it affects Cyprus.
Herodotou assured Stephanou of the healthy state of the Cypriot banking system, saying, “liquidity and capital of Cypriot banks are very satisfactory”.
“We also discussed the concerns we all have about both inflation and interest rates…lending rates are decisions of the Eurosystem and aim to limit inflation”.
Herodotou anticipated some increases in deposit rates from the banks.
In contrast, interest rates charged on loans by credit acquisition companies are “on the basis of the loan agreement that already exists.”
He has been holding one-on-one meetings with banks on the low deposit rates and met with the CEOs of all Cyprus banks, to whom he also raised this issue.
Αsked about non-compliance with the CBC’s code of conduct for non-performing loans by the banks, he said: “Unfortunately, we see this anywhere we do an audit”.
On lending rates, Herodotou said: “We would all like to have less cost in loans; this matter concerns what the European legislations and the Eurosystem allow to the member-states.
“It may be more feasible to take some social support measures for the vulnerable”.
He has called on the banks to carry out quick and immediate loan restructuring, which has increased.
“Now, unfortunately, that our society and borrowers are under pressure by both inflation and rising interest rates – which is the necessary medicine to reduce inflation – it is in the best interest of the banks to proceed with these restructurings.”
Herodotou also said that a CBC project on a mechanism to reduce NPLs in all Cyprus banks was proceeding, and soon the relevant analysis by international agencies would be completed.