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17 July, 2024
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Former Central Bank Governor reflects on achievements and future plans

In an exclusive interview, Constantinos Herodotou discusses challenges, avoidance of deposit haircuts, and contemplates next steps


In an exclusive interview with Andreas Kimitris of Kathimerini, former Cyprus Central Bank Governor Constantinos Herodotou delved into various aspects of his tenure and the hurdles encountered during his term. You can read the full interview in Greek in Kathimerini's printed Sunday edition.  Here's a breakdown of the key points discussed:

Achievements and challenges

During the interview, Herodotou elaborated on three pivotal instances where potential deposit haircuts were averted through timely interventions.

Herodotou underscored significant accomplishments achieved during his tenure, notably the adept management of crises and the fortification of the banking sector to safeguard both deposits and the overall economy. He emphasized the implementation of new services at the Central Bank and a comprehensive reorganization following an agreement with the SDC. Despite these milestones, Herodotou expressed a keen desire for reappointment to sustain the progress made over the past five years.

Avoidance of deposit haircuts

During the interview, Herodotou elaborated on three pivotal instances where potential deposit haircuts were averted through timely interventions. These cases involved RCB, nine Lebanese branches, and another credit institution. He attributed the avoidance of potential losses to proactive measures implemented by the Central Bank, which ultimately ensured stability within the banking sector.

Future plans and challenges

Herodotou shared insights into his future endeavors, expressing a need for rest followed by contemplation of his next steps. He acknowledged persistent challenges, including the reduction of non-performing loans (NPLs), identification of strategic defaulters, and the prospect of bank takeovers. Herodotou stressed the imperative of sustained vigilance to mitigate risks such as money laundering. However, he remained optimistic about the future, hinting at potential opportunities beyond his tenure.

Interest Rate Policies

The timing of lending rate cuts was a focal point of discussion, with Herodotou suggesting a potential commencement in June pending Eurozone wage data. He elucidated on the intricate relationship between wages, inflation, and interest rate decisions, emphasizing the delicate balance required to stave off inflationary pressures.

Banking sector stability

Addressing concerns surrounding the disparity between lending and deposit rates, Herodotou indicated that reductions in lending rates by the European Central Bank (ECB) would likely narrow this gap. He emphasized the importance of safeguarding bank profitability while simultaneously benefiting prudent borrowers and upholding financial stability.

Taxation of bank profits

Touching upon the taxation of excess bank profits, Herodotou referenced the ECB's cautious stance against additional profit taxation, citing potential adverse effects on financial stability and lending activities. He underscored the significance of prudent financial management in bolstering economic growth.

Overall, Herodotou provided valuable insights into the achievements and challenges encountered within Cyprus's banking sector, along with strategies aimed at ensuring sustained stability and fostering economic prosperity. Additionally, his contemplation of future plans added a personal dimension to the interview, hinting at a period of reflection and potential new endeavors beyond his tenure as Central Bank Governor.

Cyprus  |  banks  |  economy

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