25/10/2007 08:49
The Cypriot banks decided to offer more attractive depository products in the past few weeks to deal with the strong competition in the sector. The recent opening of Eurobank and the upcoming opening of Piraeus Bank sounded the alarm to the big banks, which do not wish to see their shares shrinking. In the past few weeks, they launched depository products that offer interest rates of up to 40 base points above the basic. The bait of 4.9% is offered despite the upcoming cut of the base rate in the next two months due to the EMU accession.
Bank sources said that the war is attributable to the strong competition. “Due to the arrival of new players, the banks accept short term deposits of up to three months with annualized interest rates reaching 4.9%”, a high-ranking official of a commercial bank told StockWatch.
In view of the EMU entry and the cut of the domestic interest rates, the interest offered by the new depository products is cut in proportion of the duration. For a two-year deposit, for example, the banks grant an interest rate of 4.5%.
Until then, however, the interest will be less attractive due to the acceleration of inflation. According to the Finance Ministry, inflation in 2008 will climb to 3.3% from 2.5% in 2007. Some, therefore, believe that with the higher interest rate as a bait, the banks aim to lock certain deposits in a period that will be less attractive.
Despite the acceleration of inflation, deposits in the past few months have increased rapidly. The latest Central Bank monetary review shows that loan growth in September stood at 20.5% against 24.2% in August. From £18.16 billion in September 2006 they reached £21.89 billion this year. A commercial bank official said that the slowdown in September is seasonal, mostly due to the closing of the economic year in Russia and the withdrawal of money by the companies to grant dividends. “Things will improve in November and December, while there will be a drop in January due to seasonality”, he said.
On the question whether there will be a decline in loan growth in 2008 due to the acceleration of inflation, he was negative. “We don’t expect a drop if growth rate remains at 4% and the price of oil continues to increase”, they stressed.
Bank sources said that the war is attributable to the strong competition. “Due to the arrival of new players, the banks accept short term deposits of up to three months with annualized interest rates reaching 4.9%”, a high-ranking official of a commercial bank told StockWatch.
In view of the EMU entry and the cut of the domestic interest rates, the interest offered by the new depository products is cut in proportion of the duration. For a two-year deposit, for example, the banks grant an interest rate of 4.5%.
Until then, however, the interest will be less attractive due to the acceleration of inflation. According to the Finance Ministry, inflation in 2008 will climb to 3.3% from 2.5% in 2007. Some, therefore, believe that with the higher interest rate as a bait, the banks aim to lock certain deposits in a period that will be less attractive.
Despite the acceleration of inflation, deposits in the past few months have increased rapidly. The latest Central Bank monetary review shows that loan growth in September stood at 20.5% against 24.2% in August. From £18.16 billion in September 2006 they reached £21.89 billion this year. A commercial bank official said that the slowdown in September is seasonal, mostly due to the closing of the economic year in Russia and the withdrawal of money by the companies to grant dividends. “Things will improve in November and December, while there will be a drop in January due to seasonality”, he said.
On the question whether there will be a decline in loan growth in 2008 due to the acceleration of inflation, he was negative. “We don’t expect a drop if growth rate remains at 4% and the price of oil continues to increase”, they stressed.
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