In recent months, the Cypriot financial market has shown some interesting trends. While interest rates on loans have steadily risen to the European average, deposit yields remain the lowest in the eurozone. Fresh data released by the Central Bank of Cyprus helps to explain why it has become slightly easier for borrowers, while depositors continue to lose out by keeping their money in deposits.
Loans are almost at the European level
According to a report by Cyprus's main financial institution, interest rates on new loans to households are now almost identical to the eurozone average. The gap is only 0.09%, and for businesses it is 0.24%.
Experts say that fluctuations in rates for companies are linked to the peculiarities of Cyprus's small financial market and its high dependence on external factors. This means that even minor changes in the global economy or the European Central Bank's policy can quickly affect local lending conditions.
Deposits are the least profitable in the EU
While the situation looks optimistic for loans, it is much less positive for deposits. Interest rates on deposits in Cyprus remain the lowest in the eurozone.
This is due to the record liquidity of the banking system, with the liquidity coverage ratio (LCR) reaching 333% by the end of 2024 — almost double the EU average of 184%. With such a reserve of resources, banks are not interested in attracting expensive deposits, so deposit yields remain minimal.
Additionally, the Cypriot banking system is too small to stimulate fierce competition between banks for customers. Interest rates on 'old' and 'new' deposits are equally low, so there is no advantage to be gained by switching deposits.
Comparison with the Eurozone: a look through the median
To provide an objective analysis, the Central Bank of Cyprus used median indicators for EU countries, as these avoid distortions due to excessively high or low values in individual economies. This approach provides a more realistic picture of Cyprus's position within the wider European financial landscape.