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Legacy banking not serving SMEs

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Ever since the financial crisis of 2011-2012 brought Cyprus banks to their knees, the owners and managers of legacy financial institutions have yet to learn from their mistakes.

Cyprus was shut out of markets when the island’s banks invested in toxic Greek government bonds that led to their downfall and a €10 bln bailout programme from the Troika of international lenders.

The undisciplined and unsecured lending spree also caused the downfall due to the incompetence and greed of many branch and senior managers, favouritism to relatives, friends, and political parties.

Hardly anyone has been blamed, yet many took home golden handshakes, tax-free bonuses, generous debt write-offs, and so many more benefits.

Yet, the only ones suffering are individuals who see their savings (or what’s left of them) remain static and small to medium-sized enterprises struggling to pay down their debts amid skyrocketing fees and fines.

Nowadays, one has to pay a bank to be allowed the privilege to deposit money, while well-concealed tools, such as monthly and annual fees, charges, and a shopping list of costs, make money worth less today than it was yesterday.

Interest rates have been rising, but only for credit and borrowing, not deposits, a bizarre situation that occurs only in Cyprus.

Businesses now work with cash-in-bank for fear of being strangled by additional charges, which makes hard work meaningless.

This is evident from the rise in bank earnings under non-interest income (NIIs), which simply means we, as consumers, are paying for bank employee salaries without the banks generating income from other sources.

They have told us that money is invested in going digital, yet some archaic procedures remain, and using paper remains the rule.

That is why many are now turning to alternative funding methods and moving away from legacy banks, opting instead for the electronic financial institutions (EFIs) gaining ground to the detriment of high street banks.

The Chamber of Commerce issued its ‘concerns’, saying, “While it is understandable that the increase in interest rates cannot be avoided, due to the relevant decisions of the European Central Bank to contain inflation, nevertheless the handling of the issue by the (local) banks raises questions for businesses and the public.”

And added, “Clearly, the insistence on not increasing deposit rates has an inflationary effect and therefore goes against the objective of increasing interest rates.”

Having tightened our belts a long while ago and learnt from no longer trusting banks and bankers, perhaps it’s about time the regulators – Central Bank of Cyprus and Finance Ministry – encourage alternative financing methods, utilising efficient, low-cost, and rapid services, especially now that ‘credit’ has become an anathema.

Only then will money maintain its value and return to the economy, helping real growth for the small and family business that needs to flourish again.