Cypriot banks are increasing interest rates and offering new products to lure depositors, in anticipation of the imminent relaxation of domestic capital controls.
The gradual normalization of the financial conditions and indications that the government will be able to lift restrictions on capital movement from one bank to another in March have changed the situation in the deposit market.
The banks are trying to protect their liquidity position and attract fresh money by offering high interest rates and locking long-term deposits.
Interest rates are much lower than those a year ago, since after intervening in April, the Central Bank helped lower deposit rates by 200 basis points.
Banks ads in the local press feature deposit schemes for 18-month and 15-month deposits with a rate of 3.2% and 3.3% respectively.
“We want the market to return to pre-crisis conditions,” General Manager of Hellenic Bank’s private management, Giorgos Karageorgis said.
The new deposit products are expected to lead to new moves by other banks.
“The competition in the market is stiff and the Bank of Cyprus will make more moves regarding deposits in March,” said Head of Retail Banking of Bank of Cyprus, Haris Puangare.
Although interest rates are still the benchmark of the new deposit products, senior bank officials believe that they are no longer the most important element of the deposit products offered by the banks.
General Manager of Piraeus Bank, Marios Savvides, said the differences in the deposit rates of banks are relatively small, especially if taking into account the tax of 30%.
“With everything that has happened, depositors now see more the risks than the yields; they take into account the risk profile of each bank”, he noted.
The upward pressure on domestic deposit rates is reflected in the European Central Bank data.
According to latest figures, the interest rate in Cyprus for absorption of deposits amounted to 2.23% in December from 2.20% in March.