Competition in banking sector “is limited", CBC Governor says

Competition in the banking sector “is limited, closer to oligopoly than perfect competition”, Central Bank Governor, Christos Patsalides, has said, adding that the law does not allow the Central Bank of Cyprus (CBC) to supervise interest rates or bank charges.

“Cyprus is a small economy and it is natural for interest rate adjustments to be delayed,” the CBC Governor told Parliament on 27 February.

Patsalides said that the CBC has no say and “there is nothing in the legislation that allows the bank (CBC) to supervise interest rates or bank charges.”

He also said that the European Central Bank (ECB) sets interest rates which, through the market they are transferred to the Eurozone economies.

Patsalides said that Cyprus is a small economy and less competitive than other economies and “in many sectors prices do not change as they do in Germany”, as a result of which interest rates move at a slower pace.

“We do not have the right to impose interest rates on banks”, he said, adding that the CBC does not have any competence over bank charges, noting that this is the job of the Consumer Protection Service of the Ministry of Commerce.

In relation to banks’ liquidity, the CBC Governor said that banks in Cyprus have the largest surplus liquidity in the Eurozone noting that in 2013, before the crisis, “we had the largest liquidity deficit (in the banking system) in the Eurozone and now we have the largest surplus in the Eurozone.”

He noted that the ECB has imposed very strict restrictions on lending and therefore it is not easy for banks to lend “to anyone, at any time” as there must be proof that the loan can be repaid.

He also said that in 2013 non-performing loans were at 50% while today they are below 6%.

Regarding lending rates, Patsalides said that Cyprus banks have much higher lending rates than the Eurozone average because competition in Cyprus is limited compared to the average competition in Europe.

He also said that new loans, “despite the fact that we want them to move at a more moderate pace for the purposes of containing inflation, but also for a healthy economy” were increasing every year, reaching 4.5 billion euros in 2024.

He also referred to a Central Bank circular, in which they inform banks that they cannot ignore the environment in which they operate and urge them when they make decisions about their pricing policy, to also include reputational risk in their risk assessment.

(Source: CNA)