Insider Business ECB’s lower interest rate on deposits may not be that bad...

ECB’s lower interest rate on deposits may not be that bad for Cyprus banks

The European Central Bank’s recent decision to decrease the interest rate on the deposit facility by 10 basis points to -0.50% may not be as bad for banks with excess liquidity such as those in Cyprus.

Because ECB has decreased the interest rate from -0.4% to -0.5%, but, at the same time it has introduced a new system for reserve remuneration, insiders told Phileleftheros.

The new system provides that part of banks’ holdings of excess liquidity will be exempt from the negative deposit facility rate.

Each bank’s exempted liquidity from the negative interest rate will be determined on the basis of a common multiplier for all euro area banks. The exemption will be determined on the basis of balances in the bank stock accounts per calendar day and for a specific period. The exempted amount will be at the rate of 0% and this system will come into implementation as from October 30.

In the meantime, Central Bank of Cyprus Governor Constantinos Herodotou has sent the message that the  ECB’s decision to decrease the interest rate from -0.4% to -0.5% does not mean that banks should decrease further their rates on deposits. Even though each bank’s state of play will be considered on its own merits, it seems that the relevant cost will be lower than the one in effect today.

An indication of the very high liquidity Cypriot banks currently have is the fact that CBC’s balance sheet exceeded €20 billion euros for the first time ever.

The ECB has pushed interest rates further into negative territory in order to support the region’s flagging economy. Negative rates penalise banks for holding cash rather than lending it out.

And what this means for Cyprus is that its banking system has to prudently manage a very high liquidity which is up to €14 billion.

 

Read more:

https://in-cyprus.com/cyprus-banks-challenged-with-ecbs-negative-rates-on-deposits-call/

Top Stories

Greece records over 2 thousand new covid cases in tragic peak-135 in ICUs (update)

  Greece recorded a new surge in new covid-cases, going over two thousand daily tally for the first time since the start of the pandemic. 2,056...

Cyprus records Covid death, raising number to 33, five critical-149 new cases

  A ninety one year old woman with underlying illnesses, succumbed to Covid-19 today at the Famagusta General raising the number of positive cases who...

Greek Orthodox priest shot in Lyon, France; assailant flees (update 2)

  A Greek Orthodox priest was shot and injured at a church in the French city of Lyon by an assailant who then fled. The priest...

Tala fire under control

  A massive blaze between the Tala, Koili and Kissonerga communities was placed under control late this afternoon, after more than two hours. It destroyed trees,...

The first 007 dies at 90-So long Sean Connery

  Scottish movie legend Sean Connery, who shot to international stardom as the suave, sexy and sophisticated British agent James Bond and went on to...

Taste

Squash soup

Ingredients: 1 kg pumpkin, cut into small cubes, approximately 5 cups 2 medium (400g) sweet potatoes, cut into cubes, approximately 2 ½ cups 1 chopped leek, only...

Mezedes

No visit to Cyprus is complete without enjoying the traditional meal of many small dishes known as ‘meze’. This large feast, which has been a...

Prawns with fried cheese, barley shaped pasta

Put the barley shaped pasta into a small pan with salted water, bring to a boil and when tender, drain. Peal the prawns leaving...

Salmon and shrimp sheftalies

Mix all ingredients for tabbouli in a bowl and keep to one side so flavours can combine. Prepare the sheftalies: wash and soak the casing...