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Association of Cyprus Banks Clashes with Finance Minister Over Interest Rates and Taxes

The Association of Cyprus Banks is at odds with Finance Minister Makis Keravnos over his stance on the cost of higher interest rates and potential taxation measures. The association's spokesperson, Andreas Costouris, has voiced disagreement with how the Finance Minister is presenting the situation, revealing tensions between the banking sector and government authorities in Cyprus.

Association of Cyprus Banks Clashes with Finance Minister Over Interest Rates and Taxes

The discord comes in the wake of Finance Minister Makis Keravnos's call for banks to absorb a portion of the cost resulting from consecutive interest rate increases. Keravnos emphasized the need for banks to take specific actions to close the gap between lending and deposit interest rates. In a letter directed to Cypriot banks, the Minister expressed disappointment in the banks' response, which he deemed inadequate in addressing the issue.

In the same letter, Keravnos drew attention to the unique situation in Cyprus where taxation is imposed on bank deposits. He hinted at potential government decisions to tackle this matter at an appropriate time. These statements set the stage for a clash with the Association of Cyprus Banks, which has taken a differing view on both the absorption of interest rate increases and the prospect of additional taxation.

Andreas Costouris, the spokesperson for the Association of Cyprus Banks, countered the Finance Minister's stance. He pointed out that Keravnos's reference to no actions being taken in favor of borrowers, specifically regarding the absorption of a part of the cost from the increase in lending interest rates, was surprising. Costouris highlighted that loan renegotiations amounting to €2 billion had taken place during the first half of the year, indicating that the banks had indeed undertaken actions to address the impact of interest rate increases.

In response to the proposed taxation on bank profits, Costouris expressed reservations. He argued that such a move could potentially send the wrong message to foreign investors and deter their participation in the Cyprus banking sector. However, he clarified that no official proposal had been submitted by the Finance Minister and that the association planned to present its positions in an upcoming meeting.

The spokesperson reiterated the association's commitment to engaging constructively with the Finance Minister. Costouris expressed confidence that the meeting would provide an opportunity to address concerns and questions about the measures implemented by the banks. He emphasized that the association aims to find common ground with the Finance Minister and assess the policy stance moving forward.

In the context of the ongoing increase in lending interest rates, Costouris shed light on the proactive steps taken by banks. He noted that these actions were initiated before the measures were officially announced. Costouris cited data provided by the governor of the Central Bank, which indicated an increase in loan renegotiations and loan restructurings. He further elaborated on the relief packages introduced by banks to counter the effects of rate increases, which include direct refunds, debt relief, or a combination of measures.

Costouris addressed the broader economic impact of the interest rate hikes. He acknowledged that the situation places pressure on the economy and that banks are closely evaluating available data in conjunction with borrowers' needs. The spokesperson highlighted the significance of maintaining regular communication with customers to find solutions that alleviate financial difficulties.

Regarding the prospect of imposing an extraordinary tax on bank windfall profits, Costouris offered a perspective on the issue. He noted that banks already contribute to the state's revenue through various taxes and questioned the necessity of introducing a new special tax. Costouris argued that such a decision could be perceived as stemming from monetary policy decisions rather than being directly linked to bank policy.

As the Association of Cyprus Banks engages in discussions with the Finance Minister, the banking sector seeks to ensure that its policies align with the broader economic goals of Cyprus. The evolving dynamics between the banks and the government in addressing interest rate challenges and potential taxation measures underscore the complexity of managing economic stability amidst changing financial circumstances.


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