‘Interest rates hike may lead to chaos’

BUSINESSES could go to the wall and individuals struggling to pay off loans might be driven to crime and even suicide after some TRNC banks moved to increase interest rates on debts.

This was the stark warning, as business and consumer representatives urged the government to act to prevent financial institutions “taking advantage of legal loopholes” to hike rates amid the ongoing financial difficulties gripping the country.

Banks were criticised for increasing interest on existing loans, even while the currency crisis meant they had become “more profitable”, it was claimed.

Voicing unease in the business sector, Mahmut Kanber, president of the Cyprus Turkish Chamber of Shopkeepers and Artisans, said his members were “disturbed” because the banks had put up rates even though there had been no such hike in state-provided loans and credits.

He said he had got nowhere in talks with the banks, who told him the move had come about “in order to meet their own expenses” and called on the government and political parties to find a comprehensive settlement to the “inequality” by which some were now paying extra interest and others not.

Chamber of Industry head Candan Avunduk described the banks’ decision as “grossly wrong and destructive in the long run”, saying it could mean even firms which were healthy under normal conditions might be dragged into bankruptcy in the face of economic crisis, surging costs and plummeting purchasing power.

He also criticised the banks for “putting their own profits first” under present circumstances and not taking into account the difficulties of their clients, commenting: “Banks should be on their customers’ side in hard times as well as good times.”

Restaurateur Mehmet Eziç, a member of the Cyprus Turkish Chamber of Commerce assembly, said the banks were wrong to increase rates on existing loans, and called on them to “compromise” on their profit margins instead of pushing people into additional economic difficulty.

Kazım Ant, coordinator of an association for people affected by debt and interest rates, branded the banks as guilty of “usury and robbery” and said the hike, at the current time of crisis, would drive more people into defaulting on loans.

He warned of a “social explosion” — with people driven to counterfeiting to pay off loans, or to suicide when they could not — and slammed the government for failing to intervene.

Economist Okan Şafaklı said the TL devaluation since June had benefited banks, meaning interest could have been offset against increased profitability, and said that while the decision was not illegal, it “would lead to very serious problems”.

He called for a change in the law on interest and for the Central Bank to regulate commercial banks so that consumers were protected. The Central Bank should anticipate the risks and take action “before the fire is started”.

Prominent lawyer Barış Mamalı pointed to failure to enact new legislation on the issue since a previous law was repealed in 1987 and urged those affected by the rate rise to “stand up for their rights”, since it could drive even the “best intentioned” to “huge destruction”.