Source: CNA
Cyprus Finance Minister Makis Keravnos has urged banks to restructure loans, maintain low lending rates and bank charges, and increase deposit rates in light of continued basic rate hikes by Central Banks. He warned that otherwise the government "would think differently of their intentions."
In his first appearance to the Parliamentary Finance and Budgetary Committee on Monday, Keravnos said he raised the issue of rising interest rates in letters he sent to the Governor of the Central Bank of Cyprus (CBC) as well as to the management of commercial banks.
"Banks as large corporations have a social corporate responsibility to society and people who at the time of crisis have paid a great price to support the banking sector,"
"I have discussed this issue with the CBC Governor and I had sent letters to the CBC Governor and commercial banks and credit acquiring companies with clear suggestions over timely restructurings, reduction of lending rates and mainly to draft a list with strategic defaulters," he said. He pointed out that not all borrowers can be dealt with in the same way.
Keravnos said he will hold meetings with the CEOs of Cypriot banks to discuss the issue.
"Banks as large corporations have a social corporate responsibility to society and people who at the time of crisis have paid a great price to support the banking sector," he said, referring to the financial crisis in 2013.
MPs expressed concerns that rising lending rates may lead to new non-performing loans (NPLs) and voiced objections to the extremely low rates paid by banks to depositors.
"I agree that deposit rates are low and we have pointed this out to banks. At least from our first communications, there will be a positive response. I hope that soon we will see results so we will not have to make other thoughts," he said.
Keravnos also said the government could consider expanding the mandate of the Financial Ombudsman and increasing its staff.
He however pointed out that continued suspension of foreclosures is no solution to NPLs "because it only inflates the problem," while Cyprus is monitored by rating agencies and the European Commission.
"This must stop," he said, adding that new solutions should be considered.
With regard to a proposal over the establishment of a special court for non-performing borrowers, Keravnos said he would absolutely agree with this "provided that it would examine cases quickly and it would not take five or ten years."
"Otherwise, we will preserve the current situation," he added.
With regard to increased prices in energy, Keravnos did not rule out the renewal of government schemes to support households and businesses depending on developments of inflation and price increases.
The Finance Minister recalled schemes to reduce the excised duty on fuel and scaled subsidy on electricity bills due to high international oil prices which expire in May and April respectively with a total cost of €84 million.
"The Ministry is ready to reconsider these schemes and will act accordingly," he said.
He also said the government could reconsider schemes for interest rate subsidies to housing loans and corporate loans. "These plans could be reintroduced depending on developments," he said.
Furthermore, Keravnos said the government is proceeding with tax reform which among other things includes raising the tax-free income threshold, and increasing disposable income, especially for low-wage earners.
"This is something we are considering. Previous tax reform was made in 2008. We believe it is necessary to proceed with new tax reform," he said, adding reform will be fiscally neutral.
"Aim is an additional mechanism for a better, fairer distribution of income," Keravnos added.
The current tax-free income threshold in Cyprus stands at €19,500.
Moreover, Keravnos also reiterated his aim to preserve fiscal discipline and financial stability and recalled that the EU's Stability and Growth Pact's escape clause will be terminated at end of 2023 which means euro area member-states should draft four-year plans aiming at convergence with Maastricht criteria including public debt ratio of 60% of GDP.
"To achieve this, we must operate in a strict fiscal framework and get there we should maintain a primary surplus (excluding debt-servicing costs) of over 2%," he said.
