Finance Minister Makis Keravnos’ efforts to convince banks to absorb shockwaves triggered by a hike in interest rates seem to be paying off, as banks agree to alleviate pressure on households.
According to local media, banks have agreed to draw up their own action plan by reducing the interest rate on mortgages, increasing deposit rates, or a mixture of both.
Technocrats have already taken to the drawing board to develop a formula by mid-May.
The latest development comes after Finance Minister Makis Keravnos met bankers on Tuesday.
Quoted by Stockwatch, Keravnos described the meeting as “Constructive with sides reaching an understanding that we as a society should deal with the effects of successive interest rate increases on households”.
Stockwatch said the island’s two largest lenders, Bank of Cyprus and Hellenic Bank and another seven members of the Association of Cyprus Banks were on board.
Keravnos acknowledged the validity of bank concerns, noting he has a first-hand experience of the pressures banking institutions are under, as he served as CEO of Hellenic.
“The final decision remains with the banks.
“Nobody can impose how banks will structure their pricing policy,” Keravnos was quoted by Stockwatch, adding that the banking system was always “present” during the country’s crucial moments.
Keravnos is optimistic that banks will be doing their part to alleviate the cost-of-living squeeze on households.
He believes banks understand the gravity of the situation, noting they have taken his calls seriously.
Keravnos had urged the banks to lower mortgages with floating interest rates and increase rates for deposits.
He appealed to the banks to stabilise interest on “serviced housing loans with a maximum value of €350,000 at today’s market prices.”
Based on data presented by the banks, the total value of mortgages for a main residence with a maximum value of €350,000 is approximately €1.8 bln.
Following the ECB’s latest decision in mid-March, 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 (Syprodat), Cypriot banks are following an upward trend on mortgages, charging between 3.50% and 6.50%.
Meanwhile, indications from the ECB point to another increase of 25 to 50 base points in the coming weeks.
ECB data has highlighted Cyprus banks’ unwillingness to raise deposit rates, as the EU average for up to 1 year is 1.85%, while in Cyprus, it’s 0.59%.
