No plans for 3-year bonds
A fast-track passage of a bill for covered bonds should ease banks’ access to ECB liquidity facilities and help unlock up to EUR 5 bln in new funding for Cyprus’ banks, Finance Minister Charilaos Stavrakis said.
In an exclusive interview with the Financial Mirror, Stavrakis said the Central Bank of Cyprus (CBC), having received the comments from the Finance Ministry, is working on the final details of the bill, which should be ready to be tabled soon.
“The minute the draft bill comes, I shall table it before the Cabinet and then rush it to the House,” said Stavrakis, expressing his optimism that the bill could be voted through before the year-end.
Stavrakis dismissed criticism levied against him from Central Bank and banking sources for not proceeding with the issue of 3-year bonds to help lower interest rates.
“The 3-year bond plan is a disastrous suggestion that will have very bad consequences, both for state finances but also on the reputation of Cyprus and our banking system.”
Stavrakis explained that the 3-year bond plan would increase public debt and would need House approval and discussion of the sensitive issue of what kind of collateral banks would pledge. “Equally damaging, it would require that Cyprus apply to the European Commission seeking permission to unveil such a scheme, which would send the wrong message that Cyprus banking was in distress and needed assistance, scaring away foreign depositors,” he said.
Russian nationals are believed to have deposited some EUR 17 bln with Cyprus banks.
Stavrakis said even if he agreed to the 3-year bond suggestion, it would only generate EUR 800 mln in new liquidity for the banks. His calculations are based on the EUR 8 bln that Greece received permission from the EC to proceed with the scheme.
MARGINS
Stavrakis said the covered bonds bill is the best solution that can bring long term benefits and drive down interest rates. In the meantime and until the bill is passed, he insists that the government is doing everything it can to force rates lower, but he believes that the reason why lending rates are exceptionally high is because banks want to boost margins.
“We are conducting weekly auctions and banks are bidding only 1% for short term money, in contrast to 7% last October. This confirms that banks have ample liquidity and the reason why borrowing rates are high is because banks want to boost their profits.
