Cyprus deposit and lending rates fall as new loan activity rises, CBC reports

The Central Bank of Cyprus (CBC) on Monday released its latest interest rate statistics for February 2026, showing declines in both deposit and lending rates alongside an increase in new loan activity.

It also reported that deposit rates in Cyprus remain among the lowest in the eurozone, primarily due to significant excess liquidity in the banking system.

The figures, published in the CBC’s March 2026 monetary and financial statistics report, cover average interest rates applied by monetary financial institutions on deposits and loans, as well as volumes of new euro-denominated lending to euro area residents.

The figures indicate a slight decrease in deposit rates for households, with the rate for deposits of up to one year falling to 1.19 per cent from 1.20 per cent in the previous month.

A more notable drop was recorded for non-financial corporations’ deposit rates, which declined to 1.19 per cent from 1.34 per cent.

On the lending side, the interest rate on consumer credit decreased to 7.12 per cent, compared with 7.20 per cent in January.

Similarly, the interest rate on housing loans fell to 3.45 per cent from 3.70 per cent, although the CBC pointed out that fluctuations in the composition of housing loan portfolios can affect weighted averages independently of rate changes.

Rates for loans to non-financial corporations also moved lower, with borrowing costs for amounts up to €1 million decreasing to 4.22 per cent from 4.32 per cent, while loans exceeding €1 million fell to 4.15 per cent from 4.34 per cent.

At the same time, the volume of pure new loans rose to €328.7 million in February 2026, compared with €247.3 million in the previous month.

New lending for consumer purposes increased to €20.1 million, up from €18.9 million in January, the CBC reported.

In addition, Lending for house purchases climbed to €115.1 million, compared with €95.7 million a month earlier.

At the same time, loans to non-financial corporations up to €1 million reached €47.5 million, rising from €40.1 million.

Meanwhile, larger corporate loans exceeding €1 million increased significantly to €137.3 million, compared with €88.1 million in the previous month.

In a broader European context, the CBC said that loan interest rates in Cyprus remain close to the eurozone median, with no spread for households and a marginal spread of 0.4 per cent for non-financial corporations.

The bank also highlighted that the transmission of monetary policy in Cyprus is broadly aligned with other eurozone countries, both during periods of monetary tightening and easing.

Specifically, the correlation between falling rates during the easing phase between June 2024 and January 2026 and rising rates during the tightening phase between June 2022 and December 2023 compares favourably with other eurozone economies.

For new lending, the CBC reported that interest rates are broadly comparable to eurozone levels, with housing loans for households standing 0.4 per cent below the eurozone median and corporate loans 0.3 per cent above it.

However, the pass-through of interest rate changes to corporate loans appears weaker in Cyprus, both during tightening and easing cycles.

The data shows that across the eurozone, the average pass-through during tightening exceeded that during easing by 29 per cent for housing loans and 11 per cent for corporate loans, while in Cyprus the pass-through for households remained unchanged and for corporations was 12 per cent lower during tightening.

In contrast to lending rates, the CBC reported that deposit interest rates in Cyprus remain among the lowest in the eurozone, describing them as an outlier.

This is attributed to excess liquidity in the Cypriot banking system, with the Liquidity Coverage Ratio reaching 319 per cent in December 2025, compared with a median of 192 per cent and an average of 161 per cent in the European Union.

The relatively small size of the domestic banking sector was also cited as a contributing factor to lower deposit returns.

Interest rates on new deposits remain aligned with those on outstanding deposits, reflecting the same structural conditions.

The CBC further observed that the pass-through of interest rate changes to deposits is weaker in Cyprus than in most eurozone countries, for both households and non-financial corporations.

Across the eurozone, the pass-through during tightening was lower than during easing by 2 per cent for households and 8 per cent for corporations, while in Cyprus the respective differences were higher at 5 per cent and 19 per cent.

The report also highlighted significant changes in the structure of housing loans in Cyprus, particularly regarding interest rate types.

The share of new housing loans with variable interest rates has dropped sharply, falling from nearly 100 per cent at the start of 2022 to 15.7 per cent, bringing it close to the eurozone median.

This shift is partly attributed to borrowers opting for fixed-rate loans in the initial years before transitioning to floating rates, reflecting a change in behaviour regarding interest rate risk.

A similar trend was observed across all lending categories, with the share of new loans with floating interest rates declining to 53.4 per cent, down from almost 100 per cent in early 2022 and below the eurozone median.

The CBC stressed that these developments should be taken into account in banks’ risk management policies, as they signal evolving borrower preferences and risk exposure.