The debate over a law proposal from AKEL concerning the taxation of excess bank profits and the creation of a Social Solidarity and Borrower Support Fund continued yesterday in the Parliamentary Committee on Finance, receiving both support and opposition from various stakeholders.

Speaking after the session, Jenny Papacharalambous, Director of the Association for the Protection of Bank Borrowers, emphasized that the proposal would assist borrowers, vulnerable groups, and the middle class. She noted the “urgent need” to help these groups, as many loans have become non-performing due to inflation and rising interest rates.

On the other hand, the Cyprus Bankers Association expressed its opposition in a letter submitted to the Committee. It argued that from 2013 to 2023, banks suffered losses amounting to hundreds of millions due to non-performing loans, the need to make provisions for losses, and significant loan write-offs, which affected their profitability. The letter also mentioned that the recent increase in bank revenues is not entirely unexpected but is largely the result of management decisions, actions, and strategic planning.

The Association stressed that banks should further strengthen their primary capital through profits to safeguard the resilience and stability of the banking system, enabling them to absorb any potential future losses.

Additionally, the banks pointed out constitutional issues with the proposed law, such as retroactive taxation and unequal treatment between banks and other businesses, as the latter are taxed based on their profitability. They warned that the proposal could indirectly or directly increase government expenditures.

Christiana Erotokritou, Chair of the Committee and MP for DIKO, stated that the discussion was fruitful and emphasized the need to continue, as there is indeed a requirement for a broader social policy concerning vulnerable borrower groups. However, she stressed the importance of maintaining balance and avoiding any disruption or uncertainty in the financial system that could discourage investment and economic activity in Cyprus. She also highlighted that under no circumstances should any taxation be passed onto borrowers, who are already struggling to repay their loans with great difficulty.

From AKEL’s side, MP Andreas Kavkalias countered that many of the arguments raised regarding the constitutionality of the proposal, its impact on the financial system, and risks to the economy were “out of touch with reality.”

“For us, the critical question that needs to be answered is this: Is there or is there not an issue of social justice when, during a period of adverse economic conditions, we see unprecedented bank profits on the one hand, and excessive financial burdens on society, citizens, and businesses on the other?” he asked.

“If the government had shown even minimal political will, we would have reached a solution,” he added, noting that “the lack of government initiative led to the submission of this proposal.”