The Cypriot economy is showing steady growth, and the banking system is recovering. According to the Central Bank's June bulletin, net lending to the private sector increased 1.8% year-over-year in March 2025. For comparison, the figure was negative (-0.1%) a year earlier. This turnaround indicates a gradual recovery in financial activity that began in April 2024. The mortgage lending segment is growing particularly quickly, confirming the stable interest of local buyers in housing for personal use and investment.
Households increased their borrowing activity by 2.3%, and housing loans grew by 2.8% compared to the same period last year. The business sector is returning to positive growth. From -2.2% in March 2024, the indicator rose to +0.3% in March 2025. This suggests that the volume of new loans has begun to surpass the volume of repayments, indicating economic recovery and growing confidence in the banking system.
Private sector resilience and record levels of new corporate lending
The report emphasizes the growth in lending to non-financial companies. In 2024, new lending reached a record €3.9 billion, and this trend continued in the first quarter of 2025. At the same time, banks remain cautious, maintaining strict lending standards and moderate conditions. According to the latest survey, banks do not plan to ease their requirements in the second quarter of 2025.
Meanwhile, overall private debt is declining steadily. By the end of 2024, non-financial private sector debt had reached 180% of GDP, nearly half of the 349% historical peak in 2015. Excluding special purpose entities, the figure is close to the European average. Households are maintaining manageable debt levels thanks to their high propensity to save and culture of financial stability.
Non-performing loans remain the Achilles heel of the system
Despite the positive dynamics, non-performing loans are still a major issue. As of February 2025, they accounted for 6.2% of banks' loan portfolios, significantly higher than the Eurozone average of 1.9%. This situation continues to pose risks to financial stability despite progress in debt write-offs and restructuring.
The Central Bank of Cyprus emphasizes the need for debt buyback companies to participate more actively in the "recovery" process, as these companies currently own a significant share of such assets. Their actions directly affect the overall level of private debt and therefore the speed at which structural tensions in the banking system are resolved.
The regulator also cautions against excessive caution in refinancing and lending policies because this could impede the recovery of vulnerable banks' balance sheets and negatively impact businesses' access to financing.
The big picture: growth with an eye on vulnerabilities
Against the backdrop of a general recovery in the banking sector, Cyprus continues to demonstrate high resilience to external shocks and internal challenges. Increased lending, declining private debt, and growing demand for investment point to a strong economic foundation. However, the continuing level of non-performing loans requires decisive action. A comprehensive strategy is needed that includes supervisory tools and initiatives to encourage restructuring. Only under these conditions can we talk about fully stabilizing the banking system and promoting further economic development.