Deposit rates in Cyprus fell to the lowest level in the euro area in July, while interest rates on new loans remained broadly comparable with the euro area median, the Central Bank of Cyprus (CBC) said, pointing to the high liquidity of Cypriot banks as a possible explanation for the divergence.
The interest rate on household term deposits with an agreed maturity of up to one year fell to 1.27% in July from 1.42% in June, while the rate on deposits by non-financial corporations rose to 1.56% from 1.41%.
The CBC said deposit rates in Cyprus constitute an outlier and are at the lowest level in the euro area. This may reflect the high liquidity of Cypriot banks, which is among the highest in the euro area, as well as the relatively small size of the domestic banking market.
The Liquidity Coverage Ratio (LCR) of Cypriot banks stood at 319% in July 2026, compared with a euro area median of 189% and an EU average of 158% in March 2026, the latest available figures cited by the CBC.
By contrast, new lending rates in Cyprus were broadly in line with the euro area median. The weighted average rate on new housing loans to households fell to 3.78% from 4.04% in June. The margin against the euro area median stood at -0.2 percentage points.
The rate on consumer credit increased to 6.94% from 6.50%, while rates on corporate loans rose to 4.47% from 4.32% for amounts of up to €1 million and to 4.29% from 4.07% for loans above €1 million.
For existing loan balances, the CBC said rates were also close to the euro area median, with the margin at -0.1 percentage points for households and 0.3 percentage points for non-financial corporations.
The central bank noted that the transmission of monetary easing and tightening to existing loans in Cyprus was broadly aligned with other euro area countries. However, pass-through to new corporate loans appeared weaker in Cyprus during both monetary tightening and easing.
The CBC also highlighted a significant shift towards fixed-rate borrowing. The share of new household housing loans carrying a variable rate has fallen from almost 100% in early 2022 to 12.1% in July 2026, below the euro area median. Across new loans to households and non-financial corporations, the variable-rate share has declined to 56.1%, also below the euro area median.
The CBC said the shift may partly reflect borrowers taking fixed rates for the first three to five years before subsequently moving to variable rates, indicating a change in borrowers' approach to interest-rate risk that banks should take into account in their risk-management policies.
Meanwhile, net new lending fell sharply to €415.0 million in July from €626.2 million in June. Net new housing loans declined to €149.5 million from €152.1 million, while net new loans to companies of more than €1 million dropped to €162.3 million from €387.5 million.
(Source: CNA)
