Cypriot banks are considering introducing negative interest rates for private depositors.
As it turns out, the policy that already applies to most corporate deposits is just a matter of time.
According to the Central Bank of Cyprus, by the end of 2021, local financial institutions will offer their clients the placement of deposits at negative rates - minus 0.5% per annum. This is how much banks pay for keeping funds in accounts with the ECB. If the banks have too many deposits, their service becomes more expensive.
As you may know, the ECB first introduced negative rates in 2014. Until recently, Cypriot banks tried to cover their costs at the expense of corporate clients, as well as by increasing commissions.
However, during the pandemic, customer spending, partly because of the lockdowns, decreased, and after the introduction of assistance programs, the amount of deposits in banks increased. In 2021, the excess liquidity of banking institutions in Cyprus exceeded 17 billion euros.
By the way, if earlier the demand for loans was unusually high, and the processing of applications was faster, liquidity was the most important requirement for banks. However, today, with new covenants and safeguards introduced, lending institutions argue that it is difficult for them to find creditworthy clients to cover liquidity, as a large percentage of applicants already have non-performing loans. The prolonged recession has impacted the profitability and viability of many businesses.
At the same time, it should be noted that the era of zero or negative interest rates has already touched clients of local banks. The average interest rate for annual deposits for the population is only 0.07%. Deposits for a period of up to three months already have a negative interest rate, with an average purchasing power of -0.01%, and for more than three months they hold at the level of 0.12%.
It is expected that the introduced negative rate by the banks of Cyprus will be valid for deposits over 100 thousand euros.
This means that residents of the island and foreign clients are likely to start investing their savings in Cyprus property even more actively.
Buying a home for rent has always been one of the priority investments, and with the introduction of new conditions for deposits, it will become even more urgent. Since it makes no sense to keep your savings in deposits anymore. Real estate rarely loses in value, and therefore it is a completely reliable option for preserving your financial resources, as well as a good tool for making a profit.
In addition, the banks do not hide the fact that they intend to reorient their clients to alternative forms of investment / savings so that they can make a profit. According to financial institutions, money should come from the bank treasury and be invested in real estate, bonds or investment / insurance funds. In this context, bank consultants will maintain constant contact with depositors and offer them alternatives.
The problem of negative rates is relevant not only for Cyprus, but also for many EU countries.
So, earlier the central banks of Denmark, Germany, Sweden and Switzerland decided to take a decisive step in the fight against the debt and economic crisis - to lower the key rates below zero. It was intended to be a short-term emergency measure. But, rates remain negative today.