Businesses urge banks to raise deposit rates

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Business leaders are concerned over banks swiftly sending loan rates higher but not doing the same for savings.

In a statement, the Cyprus Chamber of Commerce and Industry (CCCI) voiced its “extreme concern” over commercial banks’ interest rate policy following a domino of hikes decided by the European Central Bank.

The CCCI said: “While it is understandable to everyone that the increase in interest rates cannot be avoided, due to the relevant decisions of the European Central Bank to contain inflation; however, the way banks have managed the situation begs several questions”.

It asked the banks to justify their policy of insisting on keeping interest rates on deposits low.

“Why have banks, while increasing lending rates, not adopted a corresponding increase in deposit rates when they benefit from the increase of deposit rates with the ECB?

“Obviously, insisting on not increasing deposit rates has an inflationary effect and therefore goes against the objective of increasing interest rates”.

Following the ECB’s latest decision, the interest on refinancing operations stood at 3.5% and for deposits at 3%.

The average mortgage rate in July was 2.5%, and the maximum could reach 3%.

As reported by the Association for the Protection of Borrowers, Cypriot banks are following an upward trend in interest rates on loans, charging between 3.50% and 6.50%.

ECB data highlights the banks’ unwillingness to raise deposit rates, as the EU average to households for up to 1 year is 1.85%, while in Cyprus, it’s 0.59%.

As the CCCI notes, bank policy is squeezing households who see their monthly instalments inflate while laying the ground for another non-performing loan crisis.

It argues that interest rate policy puts pressure on new investments, as the cost of borrowing has increased, affecting vital sectors of the economy, such as real estate and tourism.

“With a full understanding of the importance of safeguarding the viability and stability of the banking system, the CCCI calls on banks to demonstrate the necessary support and assistance to depositors and to reward consistent borrowers”.

The CCCI urged banks to act in the long-term interest of the economy and not short-term profitability.

Finance Minister Makis Keravnos called on Cypriot banks to absorb part of the increase in mortgages while raising interest rates on deposits.