Businesses urge banks to raise deposit rates
Business leaders are concerned over banks swiftly sending loan rates higher but not doing the same for savings.
In a statement, the Cyprus Chamber of Commerce and Industry (CCCI) voiced its “extreme concern” over commercial banks’ interest rate policy following a domino of hikes the European Central Bank decided.
The CCCI said: “While it is understandable to everyone that the increase in interest rates cannot be avoided, due to the relevant decisions of the European Central Bank to contain inflation; however, the way banks have managed the situation begs many questions”.
It asked the banks to justify their policy of insisting on keeping interest rates on deposits low.
“Why have banks, while increasing lending rates, not adopted a corresponding increase in deposit rates when they benefit from the increase of deposit rates with the ECB?
“Obviously, insisting on not increasing deposit rates has an inflationary effect and therefore goes against the objective of increasing interest rates”.
Following the ECB’s latest decision, the interest on refinancing operations stood at 3.5% and for deposits at 3%.
The average mortgage rate in July was 2.5%, and the maximum could reach 3%.
As the Association for the Protection of Borrowers reported, Cypriot banks are following an upward trend in interest rates on loans, charging between 3.50% and 6.50%.
ECB data highlights the banks’ unwillingness to raise deposit rates, as the EU average to households for up to 1 year is 1.85%, while in Cyprus, it’s 0.59%.
As the CCCI notes, bank policy is squeezing households who see their monthly instalments inflate while laying the ground for another non-performing loan crisis.