Hellenic Bank, now the island’s second largest lender after Laiki’s demise, says it is revising downwards its base rate from 5.50% to 5.25% and that loan rates to businesseswould be lowered from 4.50% to 4.25%. The bank also said in its statement that it would be cutting rates on two types of home loans, from 4.15% to 3.65% and from 5.00% to 4.50% respectively.

The new rates apply as of November 13, 2013. The bank, which recently successfully completed its recapitalisation through private funds, said it was considering additional measures and reductions that are to be announced soon. Despite the bank's decision to slash its interest rates, Cypriot politicians have continued calling for the need to regulate interest rates via legislation. However, a planned debate on relevant legislation at the House Finance Committee was postponed this week, because officials from the Finance Ministry and the Central Bankwere engaged in meetings with the visiting Troika team. Committee chairman Nicholas Papadopoulos (DIKO) commented that patience was running out with the banks and said: "Steps must be take to lower interest rates, otherwise parliament will step in to legislate.”

Despite Troika making it clear to deputies that it is against the law regulating interest rates, the committee chairman's sentiments were shared by MPs across the board. Following a meeting between a Troika team and the finance committee, Papadopoulos said Cyprus’ international lenders agree that the cost of borrowing is too high, but simultaneously they believe that what needs to be addressed is the underlying cause – the current uncertainty in the banking sector – and not the symptom.

DISY’s Prodromos Prodromou said the banks’ non-performing loans (NPLs) are tied to the issue of interest rates, adding that developments on the former would impact the latter. But given that the market is not functioning, neither the troika nor the European Central Bank can prohibit a legislative regulation of interest rates, he said. “Parliament will take responsibility for any such decision,” Prodromou pointed out. The MP noted that the troika appeared to be sympathetic to the plight of indebted households and that it is opposed to a ‘disorderly divestment’ of homes held as collateral against loans. Reports indicate that total NPLs are in the region of €15.5bn.

Bankers and analysts alike warn that mandating lower interest rates by law would create market distortions and could actually backfire. Short on credit, the banks could react by limiting even further the issuing of new loans. Politicians across the spectrum insist however that banks are ‘suffocating’ the economy and discouraging new investment.