FinMin welcomes banks decision not to compound interest during loan deferment period

Finance Minister Constantinos Petrides said on Friday that the decision of Cyprus’ banks not to compound interest during the nine-month loan deferment period announced by the government, was “expected and necessary”. 

“Banks will not charge compound interest at a time when the suspension of installments and interest has been legally imposed. What was expected and necessary was done,” Petrides said in a tweet after an announcement issued by the Association of Cyprus Bank’s (ACB).

He said the next step for the banks would be to allocate liquidity for businesses through cheap lending based on the loan scheme the government is proposing.

According to the ACB press release,  in addition to the suspension of capital and interest instalments, compound interest will not be applied to loans that fall under the provisions of the  Finance Minister’s decree for which there will be a suspension at the request of the borrower.

ACB points out that the Banks went ahead with the decision on the basis of legal and regulatory requirements, regulatory parameters and accounting standards.

It also notes that banks continue to look at every possible option and study the available tools in order to support businesses, self-employed and households with the main goal of reducing the economic impact of the Covid-19 pandemic on the Cypriot economy.

The government has unveiled two schemes to help workers keep their jobs and businesses to avoid bankruptcy amid the coronavirus pandemic. The first provides for a suspension of loan and interest payments for a period of nine months, or end of December 2020. The second provides government guarantees of up to two billion euros to banks to offer low-interest loans and to subsidize part of the interest rate.

The loan deferment covers businesses, natural persons and self-employed who were consistent with their obligations to both the banks and other credit institutions. For the implementation of the measure, a written request should be made to the financial institution.