The government and the Central Bank urged banks to reduce lending rates, citing concerns about affordability for businesses and households.
Finance Minister Makis Keravnos, in a pre-recorded message to the Association of Banks’ annual general meeting yesterday, acknowledged the Central Bank’s (CBC) independence but reiterated his recommendation for banks to reassess their interest rate policies.
He emphasised the need for a significant reduction in the spread between deposit and lending rates along with avoiding further interest rate hikes and pursuing a path of reduction, especially after the recent European Central Bank (ECB) rate cut.
Keravnos highlighted the economic and social impact of high lending rates, including hindering growth and social issues like housing affordability. He urged banks to collaborate with credit institutions “to achieve a vertical reduction in non-performing loans (NPLs),” benefiting the entire economy.
Central Bank echoes concerns
Central Bank Governor Christodoulos Patsalides stressed the risk to banks’ reputations from public dissatisfaction with pricing policies. He urged banks to incorporate “social sensitivity” into their practices and acknowledged the increased difficulty borrowers face due to rising interest rates.
However, Patsalides noted that the banking sector’s asset quality remains strong.
Banks respond
The new Chairman of the Association of Banks, Aristeidis Vourakis, committed to collaboration for “financial stability, economic growth, and social welfare.”
The outgoing Chairman, Panicos Nicolaou, pointed to the ECB’s rate cuts and faster potential reductions in Cyprus due to the prevalence of floating-rate loans. He also highlighted support provided to borrowers facing financial strain, with loan restructurings exceeding €4.5 billion between 2022 and 2023.
Additionally, Nicolaou mentioned nearly €3.3 billion in new loans granted in 2023 and €1.1 billion in the first four months of 2024.
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