Bank Base Rates Definition

 

Formalisation of the definition of the Bank’s Base rates

In an effort to provide the highest possible transparency to its customers, Bank of Cyprus (the Bank) is proceeding with the formalisation of the definition of the Bank’s Base rates.

For credit facilities entered into on or after the 1 January 2008:

  • Subject to the Adjustment period discussed below, each of the Bank’s Base rates will be linked to the average interest rate paid on euro-denominated household deposits in the Republic of Cyprus (outstanding amounts) by euro area residents with agreed maturities of up to 2 years as published on the website of the Central Bank of Cyprus on a monthly basis[1] (‘the CBC benchmark rate’).

 

  • The Base rates will be revised on a quarterly basis on 15 March, 15 June, 15 September and 15 December of each year (‘Adjustment Dates’)[2] and the latest available CBC benchmark rate will be used.

For credit facilities entered into before 1 January 2008:

 

  • The Bank’s Base rate is linked to the interest rate determined by the Governing Council of the European Central Bank (ECB) at which ECB main refinancing operations are carried out through a weekly fixed-rate tender procedure (the ‘ECB Base rate’).

 

A.      Definition of the Bank’s Base rates

For credit facilities entered into on or after the 1 January 2008, the Bank’s Base rates are defined as follows:

 

Bank Base rate (BBR):                                    CBC benchmark rate + 2.24%

Bank Business Base rate (BBBR):               CBC benchmark rate + 1.24%

Bank Housing Base rate (BHBR):                CBC benchmark rate + 0.49%

 

As of 30 April 2015 given the latest available CBC benchmark rate which stood at 2.76% for the month of February 2015, the Bank’s Base rates would have been the following:

 

Bank Base rate (BBR):                                                    5%

Bank Business Base rate (BBBR):                               4%

Bank Housing Base rate (BHBR):                                3.25%

 

However, following the Central Bank of Cyprus’ (CBC) decision to reduce by 1% the maximum deposit rate limit above which Pillar 2 specific own funds capital requirements arise[3], the Bank proceeded with a corresponding reduction in all of its Base rates by 1%. This has resulted in the following rates (effective 1 March 2015):

 

Bank Base rate (BBR):                                                    4%

Bank Business Base rate (BBBR):                               3%

Bank Housing Base rate (BHBR):                                2.25%

 

For credit facilities entered into before 1 January 2008, the Bank’s Base rate is defined as follows:

 

        Bank Base rate (BBR):                                    ECB Base rate

 

As of 30 April 2015 the ECB Base rate was at 0.05%.

 

B.      Adjustment period

As mentioned above, following the CBC’s decision to reduce by 1% the maximum deposit rate limit above which Pillar 2 specific own funds capital requirements arise, credit institutions in the Republic of Cyprus have proceeded with reducing their deposit rates. These reductions will be reflected in the CBC benchmark rate gradually over time as fixed rate deposits reprice at the lower rates. As the Bank has pre-emptively reduced all of its Base rates for credit facilities entered into on or after 1 January 2008 in anticipation of the subsequent reduction in the CBC benchmark rate, the Bank shall maintain the current reduced level of Base rates while the CBC benchmark rate adjusts accordingly. Each of the Bank’s Base rates (for credit facilities entered into on or after 1 January 2008) will resume tracking the CBC benchmark rate once the current reduction in deposit rates has been reflected in the CBC benchmark rate.

C.      Conditions and Parameters which may contribute to changes in the methodology of calculating the Bank’s Base rates

The Bank may at a future date:

  • Include the cost of wholesale funding in the calculation methodology of any of the Bank’s Base rates at a later stage, if applicable.
  • Amend the methodology so as to link each of the Bank’s Base rates to another benchmark rate. In case the benchmark rate changes, the respective spread over that benchmark rate may change accordingly.
  • Amend the methodology of calculating any of the Bank’s Base rates if deemed appropriate due to potential changes in the regulatory framework, changes in market conditions or potential unavailability of the index used for the benchmark rate.

 

In the case of any change in the methodology of calculating any of the Bank’s Base rates, all customers will be notified.

 

 



[1] Published under Monetary and Financial Statistics (‘MFI interest rates on euro-denominated deposits (outstanding amounts) by euro area residents’) at www.centralbank.gov.cy

[2] Or the next working day if not a business day

[3] On 17 February 2015 the Central Bank of Cyprus issued an amendment to the Directive on the capital requirement arising from the offering of deposit rates above a certain interest rate limit.

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