Banks offering lowest deposit rates despite backlash

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Despite pressure from local and European Union monetary authorities, Cypriot banks appear reluctant to substantially increase deposit rates, among the lowest in the bloc.

Reportedly, the island’s banks are ready to increase interest rates on deposits, but at a snail’s pace, to keep their profit margin (spread).

According to data from the European Central Bank, Cypriot depositors are still among the most disadvantaged in the Eurozone.

The data highlights the banks’ unwillingness to raise deposit rates, as the EU average rate to households for up to 1 year stood at 1.85%, while in Cyprus, it was 0.59%.

The lowest rate, 0.36%, is offered by banks in Slovenia, while Portugal offers an average rate of 0.56%.

At the other end of the spectrum, Italian banks offer an interest rate of 2.95%; French banks offer 2.58%, and banks in Slovakia 2.30%.

Not only are households at a disadvantage but businesses are also given low rates on their deposits while interest rates soar.

The average interest rate on deposits for businesses in the Eurozone is 2.28%; in Cyprus, its 0.69%.

Banks in France offer the highest rates to businesses (2.61%), followed by Finnish banks with 2.52%, and Belgian banks offer 2.35%. German banks offer 2.31%, and Luxembourg 2.24%.

The ECB has urged Cypriot banks to increase their deposit rate amid continuing inflationary pressures.

Last week, Central Banker Constantinos Herodotou also advised banks to push up deposit rates, as Cypriots banks offer the lowest rates in the Eurozone.

The call came following ECB’s decision to raise lending rates in mid-March for the sixth time since July.

It raised the three key ECB interest rates by 50 basis points, the interest rate on the main refinancing operations, and the interest rates on the marginal lending facility and the deposit facility increased to 3.50%, 3.75% and 3.00%, respectively.

‘Greedy’ banks

Cypriot banks came under fire, with some critics calling them greedy, as they were quick to raise interest rates on loans but did not exhibit the same haste for deposit rates.

In earlier comments to the Financial Mirror, a Finance Ministry source confirmed that “European monitoring authorities have been on Cypriot banks’ case, as it finds an imbalance when one looks at the interest rate, which is now 3%, they receive for keeping deposits with the ECB”.

“The ECB is dissatisfied with banks’ practice of handing out close to zero interest rates on people’s deposits,” said the source.

As the ministry source explained, over the past year, deposits in the banking system averaged between €42 and €43 bln while carrying a loan portfolio of around €28 bln.

Meanwhile, based on ECB data, the average mortgage interest rate in Cyprus in February was 3.42% and in the Eurozone, 3.66%.

Banks in Latvia have the highest rates at 4.73%, followed by Estonia at 4.63% and Germany at 4.16%.

French banks have the lowest interest rate at 2.31%, followed by Malta with 2.81%.

The interest rate for loans to non-financial companies for amounts up to €1 million is 4.85% in Cyprus and 4.27% in the Eurozone.

The interest rate regarding loans to non-financial companies for amounts over €1 million was 4.54% in Cyprus, and the average in the Eurozone was 3.66%.