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Lending rates go down

04/03/2010 06:48
The interest rates of the housing and business loans fell slightly in January but they still are among the highest in the euro area. The latest Central Bank data also show that the deposit rates stabilized to high euro area levels and this will be an obstacle for the bank leaders in their effort to maintain their interest rate margins in 2010.

According to new ECB figures, the domestic banks kept the average rate in bills of up to one year stable. The interest rate showed a marginal increase from 4.13% in December to 4.15% in January.

At the same time, the banks cut the interest rates of the business loans from 6.05% in December to 5.84% in January, being optimistic for the increase in business investments. The interest rate of the business loans is the lowest since there are available data.

The slight drop in interest rates follows the issue of three-year bonds by the government in December. The bonds of €2.3 billion, used by the banks for the absorbance of liquidity by the ECB with a rate of 1%, raised expectations for a drop in rates by 1-2%.

Despite the marginal decline in January, the interest rates of the business loans are still among the highest in the euro area. The business credit in Cyprus is 241 base points higher than in the euro area. This means that the Cypriot businessmen have higher cost of borrowing.

Housing loans fell too. Their interest rates dropped to 4.64% in January from 4.82% in December 2009 but they are still the highest in the euro area after those of Slovakia, Greece and the Netherlands.

The housing credit in Cyprus is 84 base points more expensive than in the euro area.

The publication of the figures followed the strong criticisms against the banks for keeping their lending rates high, despite the absorbance of cheap liquidity.