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Over the past decade, Cypriot banks have paid over €500 million to the state through a special levy known as the "double tax." However, their financial burdens have been compounded by a looming third tax proposal worth an additional €50 million annually, introduced by the AKEL party. While the proposal was ultimately shelved, it fueled public and political debates that tarnished the banks’ reputations—a cost that, while not directly financial, has taken a toll on their operations and customer trust.
According to Panayiotis Rougalas in this Sunday's Kathimerini, the Central Bank of Cyprus (CBC) has formally recognized reputational risk as a critical factor affecting the stability of the banking sector. Speaking before Parliament a month ago, CBC Governor Christodoulos Patsalides emphasized the growing significance of reputational risk in the complex matrix of bank profits, interest rates, and taxation. This led to an amendment of the CBC’s Internal Governance Directive for Credit Institutions. The new provision, effective November 29, 2024, strengthens the framework for managing reputational risk, urging banks to assess and address it alongside other financial risks.
Finance Minister Makis Keravnos had earlier called for a reduction in the gap between deposit and lending rates, highlighting the burden on households and businesses.
Mounting Pressure Spurs Relief Measures
After the AKEL proposal failed to pass, Cypriot President Nikos Christodoulides urged the CEOs of the Bank of Cyprus and Hellenic Bank to introduce measures that would ease the financial strain on customers. On Friday, both banks announced initiatives aimed at supporting households and businesses.
The Bank of Cyprus unveiled plans including:
- Reduced interest rates.
- Rewards for punctual borrowers, now offered as cash incentives.
- Favorable terms for new mortgage and business loans.
- Tailored facilities for specific age groups.
Meanwhile, Hellenic Bank announced:
- Interest rate reductions.
- New ATM installations to improve access.
- The removal of certain charges for pensioners.
- Free accounts for young people and money transfer services.
- New products designed for housing needs.
These moves aim to address public dissatisfaction and reduce the reputational risks exacerbated by debates over high lending rates and additional taxes.
Background and Challenges
Since summer 2024, the government has been pressing banks to adjust their pricing policies. Finance Minister Makis Keravnos had earlier called for a reduction in the gap between deposit and lending rates, highlighting the burden on households and businesses. The measures announced by the two banks reflect a response to these pressures and a broader effort to mitigate social and economic challenges.
While it remains uncertain whether the new measures will fully satisfy customers and lawmakers, they represent a significant effort to rebuild trust and stabilize the sector. For now, the shelving of the AKEL tax proposal offers temporary relief, as banks continue to navigate a landscape of financial, social, and geopolitical risks.
*To read more of Panayiotis Rougalas' article and gain full access to in-depth reports (in Greek), subscribe now to Kathimerini's print edition and stay informed with comprehensive coverage on this and more!
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