Cyprus loan rates align with euro area median, CBC says

Cyprus borrowing rates were broadly in line with the euro area median in July, while deposit rates remained the lowest in the euro area, according to the Central Bank of Cyprus (CBC).

The central bank said the divergence in deposit rates could be linked to the high liquidity of Cyprus banks, as well as the relatively small size of the domestic banking market.

The interest rate on new housing loans fell to 3.78 per cent in July, from 4.04 per cent in June, while the rate on household deposits with an agreed maturity of up to one year declined to 1.27 per cent from 1.42 per cent.

By contrast, the rate on deposits from non-financial corporations rose to 1.56 per cent from 1.41 per cent.

The rate on consumer loans increased to 6.94 per cent, from 6.50 per cent a month earlier.

For non-financial companies, the rate on loans of up to €1 million rose to 4.47 per cent from 4.32 per cent, while the rate on loans above €1 million increased to 4.29 per cent from 4.07 per cent.

For existing loan balances, Cyprus rates were close to the euro area median, with the margin standing at 0.1 percentage points below the median for households and 0.3 percentage points above it for non-financial companies.

The CBC said the transmission of both monetary tightening and easing to existing loans was broadly aligned with other euro area countries.

For new housing loans, the weighted average rate was 0.2 percentage points below the euro area median, while the corresponding margin for non-financial companies was 0.3 percentage points above it.

The CBC said transmission to new corporate loans appeared weaker in Cyprus during both monetary tightening and easing.

Across the euro area, the average pass-through during tightening was 35.1 per cent higher for new housing loans and 17.3 per cent higher for new corporate loans than during easing.

In Cyprus, the corresponding tightening pass-through was only 1.3 per cent higher for households and 12.6 per cent lower for non-financial companies.

The CBC said deposit rates in Cyprus represented an outlier, potentially reflecting bank liquidity, with the country’s liquidity coverage ratio reaching 319 per cent in July 2026.

This compared with a median of 189 per cent and an EU average of 158 per cent in March 2026, the latest available EU figures.

The central bank also said pass-through to new deposits was weak compared with almost all other euro area countries, falling by 8.7 per cent for households and 11.8 per cent for non-financial companies when comparing tightening with easing periods.

The share of new household housing loans carrying variable rates has also fallen sharply, from almost 100 per cent in early 2022 to 12.1 per cent in July 2026, below the euro area median.

The CBC said this could partly reflect loans initially offered at fixed rates for three to five years before subsequently switching to variable rates, suggesting a change in borrowers’ approach to interest-rate risk that banks should consider in their risk management policies.

The share of new loans to households and non-financial companies with variable rates fell from almost 100 per cent in early 2022 to 56.1 per cent in July, also below the euro area median.

Meanwhile, net new lending fell sharply to €415.0 million in July, from €626.2 million in June.

Total new lending stood at €686.1 million in July, compared with €831.3 million in June.

Net new consumer lending fell to €23.9 million from €25.1 million, while net new housing loans declined to €149.5 million from €152.1 million.

Net new corporate lending of up to €1 million fell to €52.3 million from €54.5 million, while lending above €1 million plunged to €162.3 million from €387.5 million.