Lenders urged to be less aggressive

Banks will have to cut interest rates paid on deposits in order to improve lending conditions and pave the way for a reduction in the cost of money, according to Bank of Greece Governor Giorgos Provo-poulos. The head of the country’s central bank met with bankers yesterday to discuss slowing credit expansion and operations in Southeastern Europe. «You need to limit aggressive tactics used to attract deposits so that the cost of lending drops and rates further decelerate for the benefit of households and businesses,» he was cited by sources as telling bankers. Provopoulos is believed to have threatened commercial lenders with fines if they do not take his advice. Banks had upped interest rates to raise cash after borrowing on the interbank market began to dry up and become more expensive due to the credit crunch. Since then, deposit interest rates have started to drop, in line with rate cuts by the European Central Bank, but are still too high, according to Provopoulos. Greece’s credit expansion slowed in January to the slowest pace in more than three years, despite lenders pumping money into key sectors such as shipping. Data indicate that total new loans issued in January rose by 15.1 percent to 250.2 billion euros. The figure slowed from 16.4 percent in December and 18.2 percent in November. Central bank officials have said they want the pace of credit expansion to remain above 10 percent this year. However, some industry sources admit this is unlikely to happen as the economy slows under the weight of the global crisis. Senior bank officials blamed the slowdown in credit expansion yesterday on households and businesses scared off by the downturn, rather than their more stringent lending criteria. They also highlighted the importance of supporting Greek businesses and economies in Southeastern Europe, sources added.

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