Heat on banks to lower interest hikes

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Political parties are increasing the heat on banks to absorb part of the increased cost of borrowing from interest rate hikes burdening the economy and households.

As the European Central Bank prepares to announce a new increase, parliamentary parties have renewed their calls to banking institutions to do their bit while calling on the government to intervene.

The leader of the Democratic Rally (DISY), Annita Demetriou, suggested a series of measures to support lenders in a meeting with the Association of Cyprus Banks on Thursday.

Demetriou said her party supports “targeted reduction of interest rates for mortgages and small businesses, an increase in deposit rates, and proactive restructurings for reliable and responsible borrowers.”

“During these challenging times, influenced by international circumstances and the precision of ongoing interest rate hikes, banks should contribute more.

“We believe, based on the available data, that banks have the ability and the obligation to support the economy through targeted measures, offering relief, especially to consistent borrowers”.

DISY advocates the reduction of lending rates with a specific focus on housing loans and loans for small businesses, an increase in deposit rates and a reduction in banking fees.

Representing AKEL, the party on the left of the political spectrum, MP George Koukoumas repeated his party’s suggestion of a bank windfall tax on profits generated by the increase in interest rates.

Koukoumas argued that a similar tax has been introduced in several European Union member states, where the government redirects revenues to fund measures to fend off the burden of the increased cost of living on lower-income households.

“Will the government finally decide to tax bank windfall profits, or will they let them make millions off the backs of the people and the economy,” said Koukoumas.

“While the banks announce profits of hundreds of millions of euros, society is preparing to suffer the new increases that are coming in interest rates, fuel, and electricity”.

On July 27, the European Central Bank (ECB) raised the three key interest rates by 25 basis points.

Accordingly, the interest rate on the main refinancing operations, the marginal lending facility and the deposit facility increased to 4.25%, 4.50%, and 3.75%, respectively.

This was the ninth time the ECB increased interest rates since July 27, 2022, to ensure that hiking inflation promptly returns to its 2% medium-term target.

The hike in lending rates has shocked households and businesses amid a fragile economic environment, which the banking system seems to be taking into consideration.

Since April, almost all domestic banks have announced various schemes to increase the deposit rate and retention of mortgages, mainly for consistent borrowers.

However, the government and political parties demand further absorption by the banks of a greater part of the cost from the increase in interest rates.