by Johnson&Johnson » Fri Jun 27, 2008 2:08 pm
mass defaults on debts coming soon ?
---------
Coops sound the alarm for bad debts
First Published: 26/06/2008 13:23:15
Financial Mirror
In an announcement released today, the Pancyprian Cooperative Confederation warned that the acceleration of inflation and the sharp increase in the interest rates will push the banks’ bad debts up.
“The expensive price of goods and services and the increase in the cost of money will affect the citizens, who will be unable to meet their loan obligations”, the announcement said.
The Coops, which hold ¼ of the lending and depository market, are highly concerned about the way that the competent authorities and the banks handle the system’s risks, as well as the sharp increase in the depository interest rates.
The cost of borrowing increased by 100 base points compared to March and is expected to increase further if the European Central Bank increases its rates next week. This is attributable to the increased depository rates offered by the banks so as to avoid the flight of their deposits to new smaller banks that are active in Cyprus lately. In certain cases, the depository rates reach 200 base points above the base rate.
At the current stage, the Coops did not follow the banks in the rate increase. “We are forced to work with lower margins between 0.5% and 1.5% because we cannot pass through the cost of money to our members. Besides, our members participate in the committees that decide on the loans. But the Coops don’t have shares in the CSE and there is no problem if it shows lower profits or losses for some years”, a Coop representative told StockWatch.
To avert the flight of deposits, the Coops make “silent” negotiations with the depositors offering similar terms to those of the banks.
Certain Coop members are also concerned about the impacts from the interest rate increase, since they believe that many people will not be able to pay their installments.
“There is an imprudent increase in the cost of money that will hit the households, the businesses and the economy in general”, they said.
The confederation urged the state to undertake the responsibility for the risk management in the banks. It accepts that the phenomenon of profiteering is partly external but it notes that it is attributable to the banks’ wish to increase their profits and win economic advantages in the market.
