Cyprus 'on alert' over global crunch

Cyprus is taking steps to avoid being ravaged by the global credit crunch…

According to Governor Athanassios Orphanides, the Central Bank of Cyprus is “very close” to reissuing the strict measures in place before last July to prevent a crunch in the property market.

Orphanides explained: “The big drive of internal credit to just one sector, construction, was the reason for our preventive measures in property lending in July 2007. There is evidence to suggest that the acceleration of housing loans has stopped, with an indication that we could have a slow-down in the near future.”

“The Cyprus economy is not affected by the negative developments in the world financial markets because the fundamentals are still positive and the banking system remains robust and healthy.

Vigilance needed

Presenting the central bank’s annual report for 2007, Orphanides highlighted a further problem:  â€œThe central bank does not enjoy the full cooperation of the property developers to get quality data on the fluctuation of property prices in order to compare them with prices in other countries.

“Added to this problem is the uncertainty in the property market over the past few months about the expected VAT hike on property deals that will be charged the full 15% from July 1.

“Preventive measures have helped avoid a crisis in the banking sector, while the significant credit expansion in 2006 and 2007 has settled down. These have helped to protect the island’s banking sector from the sub-prime crisis that hit the U.S. and cut across Europe, where for example the U.K., Ireland and Spain have seen a rapid fall in property prices”

Orphanides called for ‘vigilance’ in monitoring the developments worldwide as the risks related to a robust banking sector last summer have been reduced, approaching a ‘normalisation’ of the market.