THE GOVERNMENT is set to clampdown on profiteering by banks that increase their profits by raising interest rates and margins arbitrarily.
This profiteering has led to significant problems for borrowers – particularly those who took forex loans (predominantly Swiss France) to purchase property, many of whom can no longer afford their loan repayments.
According to the Cyprus News Agency, the Treasury is in consultation with the banks on the bill, which aims to prohibit unilateral increases in margins and interest rates on loans.
Currently borrowers sign loan agreements with the bank that state the interest rate, which is usually based on the Euro Interbank Offered Rate (Euribor), plus a profit margin for the bank. However, under current legislation, the bank may at any time change its profit margin without the consent of the borrower.
The new legislation aims to prevent this profiteering by ensuring that a bank’s profit margin remains the same throughout the duration of the loan agreement. However, it will not be retrospective and will only apply to new loans or restructured loans for which new loan agreements have been signed.
The Director General of the Association of Cyprus Banks, Dr Michael Kammas, has confirmed that the Association has received a draft bill from the Finance Ministry, which is being studied and evaluated to develop a common approach to be adopted by its members.
Editor’s comment
Hungary introduced a law last month forcing banks to compensate borrowers for “unfair” conditions in mainly forex loans – see Banks forced to compensate forex borrowers. This ‘initiative’ by the Cyprus Central Bank/Ministry of Finance falls short of the solution implemented by the Hungarian government.
This move may be linked to a judgement by the European Court of Justice of case C-26/13 in April this year.
At last some realisation as to why we have 50% NPL’s!! It is quite simple, combine a tripling of the banks ‘profit margin’ with a default Swiss Franc loan where the euro depreciates from 1.68 CHF/EURO(2008) – 1.05 (2011) (but now 1.22), and you have a Non Performing Loan. Property prices crash – and somehow it is all the fault of the hapless property buyer! The banks are so far let off (albeit they are not being paid), whereas the buyers are hounded by the bank’s debt collectors. Welcome to the Banana Republic!
If you acknowledge that there was malpractice then compensation for those affected should be part of this bill.
A bill aimed at preventing banks profiteering by increasing their profit margins arbitrarily is being prepared by the Ministry of Finance following a recommendation by the Cyprus Central Bank.
Why has it taken so long to denounce this immoral and virtually criminal practice. My margin that was agreed at 1.75% suddenly became 4.25% DAYLIGHT ROBBERY !! When the bill comes in, why should it not be applied retrospectively ??