Interest rates should be cut, says Central Bank (2)

Interest rates should be cut, says Central Bank (2)

Central Bank of Cyprus Governor Chrystalla Georghadji told MPs on Tuesday that the Bank`s Board of Directors has decided that interest rates should be cut.

Addressing the Ethics Parliamentary Committee Georghadji said that there will be a press release on the matter within the next fifteen days.

She also announced that the Central Bank will link each banks goals on loan restructuring with its capital needs. “It should be painful for them when they don’t go ahead with restructuring loans”, she said.

At the same time, according to the data presented to MPs, 25% of the total loans portfolio is not covered by collateral.

Specifically, €14.76 billion or 24.7% of total loans of €59.73 billion as of September 2014 is not covered by existing collateral.

According to the figures, performing loans of the order of €4.99 billion are not covered by collateral while from the total €29.19 billion of non performing loans €9.77 billion are without collateral.

The €29 billion of non performing loans constitute 48.8% of total loans.

Georghadji, noted however that provisions made by the banks come to €10.77 billion.

“We are slightly relieved that the forecasts cover the amount for which there are no guarantees,” she said.

On their part, MPs questioned whether the value of collateral represents actual value today and pressed to find out whether banks are going ahead with re-evaluations of properties used as collateral.

Both Georghadji and Minister of Finance Harris Georgiades pointed out that just because there is collateral, this does not mean that guarantors should be off the hook or that loans should be written off.

Minister of Finance expressed reservations about possible writing off of loans and exemption of guarantors. He pointed out that there can be no such possibility in a more generalized manner.

“If this happens, then we will resort again either to the taxpayers or to the shareholders or depositors,” he warned.

The House of Representatives suspended in its final plenary session of 2014 the implementation of the foreclosures law until the 30th of January, 2015. It also asked the Government to submit all five bills of the insolvency framework, which was scheduled to be put into force on January 1 to set up a safety net to protect vulnerable groups from foreclosure of mortgaged property.

The Troika has indicated that it will not conduct a full review mission for Cyprus` adjustment programme until the foreclosures controversy is over.

Cyprus agreed on March 2013 with its international lenders collectively known as the Troika (EC, ECB, IMF) a €10 billion bailout.