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Taxation On Windfall Profits Would Harm The Economy, CBC Governor Says

New Governor of the Central Bank of Cyprus (CBC), Christodoulos Patsalides, said he was against the imposition of taxation on windfall profits, explaining that such a move would not help the economy. Still, it would be harmful since it would disrupt the fiscal predictability necessary for attracting foreign investors to a small open economy like Cyprus.

The Governor, who gave his first press conference since the assumption of his duties, spoke about the need for the CBC to be transformed and added that broad responsibilities will be given to the executive members of the bank’s Board of Directors.

Regarding interest rates in Cyprus, Patsalides said that following the first reduction of key interest rates by the European Central Bank, the gap between lending and deposit rates is moving in the right direction, but at a slow pace.

Asked about the acquisition of the Hellenic Bank by the Greek Eurobank, the Governor said that this is positive, noting that it will strengthen competition. 

The Cypriot economy, Patsalides said, records “very good growth rates” and highlighted the big fiscal surpluses, but also the downward trend of the public debt, which, as he stressed, is very important for Cyprus and this will become more evident with time when in many other EU countries they are still making efforts to converge with the Maastricht criteria.

Asked about proposals to tax the windfall profits of banks, the Central Bank Governor said that he had a meeting with the parliamentary party AKEL which handed over such a proposal. He noted that it was a serious proposal, adding however that such a tax “would not help the economy, but would rather hurt it.”

“The unwanted gap between deposit and lending rates should be managed, not through taxation but through measures which will help mitigate the problem,” he said.

Such ad hoc taxes cause side effects on the economy without offering solutions, he noted, adding that any tax reform should be predictable since the Cypriot economy depends on investments and in particular on foreign investments which would also help with reducing the deficit of the current account balance. 

At the same time, he noted that in other countries where this tax has been imposed consumers had to pay the extra cost as banks passed it on. 

Patsalides said that banks are performing very well and have high capital ratios, large return on equity ratios, high liquidity and a significant improvement in assets.

He added that non-performing loan ratios, however, are above the European average.

Meanwhile, when asked about applications for granting a banking license to financial technology companies (fintechs), the Governor confirmed that there are indeed such applications. 

“New banks in Cyprus, if and as long as there is interest and it concerns serious banks, which will comply with the supervisory criteria and provided they have a sustainable plan, then they are welcome,” he said, pointing out though that Cyprus is too small to attract a large number of banks.

Digital Transactions: A Green Approach To Finance In Cyprus

As Cyprus increasingly embraces digital transactions, the environmental benefits of this shift are becoming evident. A recent report highlights that digital payments significantly reduce the carbon footprint associated with traditional banking operations. By decreasing the reliance on physical branches, paper-based processes, and the transportation of cash, digital transactions are contributing to a more sustainable financial ecosystem. This transition is in line with global initiatives to combat climate change and underscores Cyprus’ commitment to promoting a cleaner, more efficient financial landscape.

Digital transactions are not only more convenient and efficient but also significantly less resource-intensive. Traditional banking often involves extensive paperwork, the use of physical infrastructure, and the transportation of money, all of which contribute to higher carbon emissions. In contrast, digital transactions streamline these processes, resulting in lower energy consumption and reduced waste.

The environmental advantages of digital transactions are complemented by their economic benefits. By lowering operational costs and enhancing transaction speed and security, digital payments provide a compelling case for broader adoption. This shift supports sustainable development goals and aligns with the global push towards greener, more resilient economies.

Furthermore, the widespread adoption of digital transactions in Cyprus is expected to drive innovation within the financial sector. With the integration of advanced technologies such as blockchain and artificial intelligence, the digital financial landscape is set to become even more efficient and secure. These innovations not only enhance user experience but also contribute to environmental sustainability by further reducing the need for physical resources.

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