In anticipation of tomorrow’s parliamentary vote on AKEL’s proposal for an emergency tax on banks, political parties are awaiting moves from the banking sector. Concerns have been raised about potential risks if the DISY-DIKO counterproposal passes.
AKEL proposal and political maneuvering
The AKEL proposal for emergency taxation on banks has slim chances of being approved. However, its mere submission has acted as a catalyst, pressuring the banking sector to support borrowers and society. Smaller parties have publicly stated that their stance depends on the banks’ response to calls for reducing lending rates and narrowing the gap between loan and deposit interest rates.
DIPA MP Alekos Tryfonides noted his party’s position remains open, pending discussions with the President, Finance Minister, Central Bank Governor, and bank executives. The goal, he said, is to achieve meaningful changes in banking policies.
ELAM also commented on the proposal, stating they are evaluating the situation and expect banks to take actions to reward diligent borrowers who have suffered from rising interest rates and to foster healthy competition. ELAM will announce its position in tomorrow’s session, which is likely the last for the year, as next week’s focus will shift to the national budget.
Banks ready for rate reductions
The Cyprus Banking Association reminded stakeholders that the European Central Bank (ECB) is expected to decide on another rate reduction tomorrow. If implemented, it would mark the fourth cut since June, with a cumulative reduction of over 1%. This would provide relief to borrowers and businesses, with banks ready to adjust rates linked to the ECB’s base rate, lowering monthly loan payments.
Greek Bank has already announced a new housing loan with a fixed interest rate of 2.95% for the first three years or 3.10% for five years. Other banks may follow with similar products or targeted fee reductions.
DISY and DIKO concerns
Both DISY and DIKO have expressed reservations about AKEL’s proposal, making its approval unlikely. DISY reiterated its opposition, arguing that an emergency tax on banks would delay the gradual convergence of interest rates to the European average, potentially shifting the tax burden to borrowers and depositors.
DIKO MP Chryssis Pantelides cited a principle-based objection to the proposal, arguing that taxing a sector with increased profits due to external factors, such as ECB decisions, could harm an economy reliant on foreign investments and a strong banking and services sector. He warned of negative signals to investors and greater economic challenges.
Government and institutional stances
The Central Bank, Finance Ministry, and government oppose the proposal. AKEL, however, defended it, with MP Valentinos Fakontis accusing banks of exploitative behaviour. He argued that the rise in profits is due to high interest rates, not “their own ingenuity,” pointing out that housing loan rates have jumped from 2% in 2019 to 4.5% today.
Tomorrow’s parliamentary session will reveal the positions of parties supporting the proposal and its broader implications.
Also read: Beneficiaries of the approved housing loan interest subsidy scheme
Source: Economy today
