Cyprus new lending drops sharply while deposit rates stay low

The Central Bank of Cyprus (CBC) on Friday reported a sharp decline in total net new loans in January 2026.

Specifically, the figures showed that total net new loans fell by €377.7 million compared with the previous month, while net new housing loans decreased by €39.7 million.

At the same time, the central bank reported that interest rates on both consumer loans and housing loans declined during the month.

According to the CBC, net new loans reached €247.3 million in January 2026, from total new lending of €495.9 million.

This compares with €625.0 million in net new loans recorded in December 2025, which came from total new lending of €986.9 million.

Data from the central bank also showed that net new consumer loans increased slightly to €18.9 million, from €17.2 million in the previous month.

These loans were issued from total new consumer lending of €20.1 million, compared with €18.2 million in December.

By contrast, net new housing loans declined to €95.7 million, down from €135.4 million in the previous month.

The total value of new housing loans stood at €138.1 million in January, compared with €178.1 million recorded in December.

The central bank also reported that net new loans to non financial corporations for amounts up to €1 million decreased to €40.1 million, from €60.3 million the previous month.

Total lending in this category amounted to €53.1 million in January, compared with €92.5 million in December.

In addition, net new loans to non financial corporations for amounts exceeding €1 million declined sharply to €88.1 million, compared with €406.4 million in the previous month.

Total lending in this category reached €277.2 million in January, down from €685.0 million recorded in December.

The central bank also provided data on deposit rates, reporting that the interest rate on household term deposits with a maturity of up to one year remained unchanged at 1.20 per cent compared with the previous month.

By contrast, the corresponding interest rate for deposits from non financial corporations increased to 1.34 per cent, up from 1.27 per cent in December.

In relation to lending rates, the CBC reported that the interest rate on consumer loans declined to 7.20 per cent, compared with 7.22 per cent in the previous month.

At the same time, the interest rate on housing loans decreased to 3.70 per cent, from 3.78 per cent in December.

The central bank explained that the mortgage loan portfolio of Cyprus’ monetary financial institutions consists of different types of housing loans, including loans for primary residences and holiday homes, which carry varying levels of risk and interest rates.

It added that the composition of this portfolio changes from month to month, meaning that the weighted average interest rate can be influenced by these shifts regardless of increases or decreases in banks’ lending rates.

According to the CBC data, the interest rate on loans to non financial corporations for amounts up to €1 million remained unchanged at 4.32 per cent compared with the previous month.

Meanwhile, the interest rate on loans to non financial corporations exceeding €1 million declined to 4.34 per cent, from 4.42 per cent in December.

The central bank also placed Cyprus’ interest rate environment within a wider European context.

According to the CBC, lending rates on outstanding loan balances in Cyprus are approaching the eurozone median, with the margin standing at zero per cent for households and 0.4 per cent for non financial corporations.

The bank added that the transmission of monetary easing and tightening in Cyprus is aligned with other eurozone countries when it comes to existing loans for both households and non financial corporations.

More specifically, the CBC said that the relationship between the decline in lending rates during the monetary easing period between June 2024 and January 2026 and the increase during the monetary tightening period between June 2022 and December 2023 compares favourably with other eurozone countries.

Regarding new lending activity, the central bank said that interest rates on new loans in Cyprus are broadly comparable with the eurozone median.

The margin for the weighted average interest rate on new housing loans to households stands at minus 0.3 per cent, meaning it is lower than the eurozone median.

For non financial corporations the corresponding margin stands at 0.5 per cent, according to the central bank.

The CBC also said that the pass through of monetary easing and tightening in Cyprus is aligned with other eurozone countries for new housing loans to households.

However, the bank added that the transmission mechanism appears weaker in Cyprus for new loans to non financial corporations, both during periods of monetary tightening when interest rates increase and monetary easing when rates decline.

Nevertheless, the CBC observed that the average pass through rate in the eurozone during the tightening period was higher than during the easing period.

Specifically, the eurozone pass through rate during monetary tightening was higher by 29 per cent for new housing loans and by 14 per cent for loans to non financial corporations compared with the easing period.

In Cyprus, however, the pass through rate during monetary tightening exceeded that of monetary easing by only 2.6 per cent for households, while for non financial corporations it was lower by 2 per cent.

Turning to deposit rates, the CBC said that deposit interest rates in Cyprus remain an outlier in the eurozone and stand at the lowest levels in the currency bloc.

The central bank said this may be partly due to the high liquidity levels of Cypriot banks, which rank among the highest in the eurozone.

As an example, the liquidity coverage ratio in Cyprus stood at 319 per cent in December 2025, compared with a eurozone median of 192 per cent and an EU average of 161 per cent recorded in September 2025.

The central bank also said that the relatively small size of Cyprus’ banking market may contribute to the lower deposit rates.

In relation to new deposits, the CBC said that interest rates on new deposits are at similar levels to those on existing deposits, which may also reflect the high liquidity of Cypriot banks.

The central bank added that the pass through of interest rate increases and decreases to new deposits in Cyprus is weak compared with almost all other eurozone countries, for both households and non financial corporations.

According to the CBC, the average eurozone pass through rate during the monetary tightening period was lower than during the easing period by 3 per cent for household deposits and by 8 per cent for deposits from non financial corporations.

In Cyprus, the corresponding differences are slightly higher, reaching 4 per cent for households and 9 per cent for non financial corporations.

The central bank also highlighted changes in borrowing behaviour among households.

According to the CBC, the share of new housing loans issued with a variable interest rate is lower in Cyprus than in the eurozone.

The central bank said that this share has followed a sharply declining trend in recent years.

It explained that the proportion has fallen from almost 100 per cent at the beginning of 2022 to 11.6 per cent today, which is below the eurozone median.

“This may partly be influenced by the choice of fixed rate lending during the initial years, for example three to five years, and their subsequent conversion to variable interest rates,” the CBC said.

As a result, the central bank said there are signs of a shift in borrower behaviour regarding interest rate risk.

“This is a factor that should be taken into account in banks’ risk management policies,” the CBC said.

The central bank also reported that the share of new loans to households and non financial corporations issued with variable interest rates compares favourably with the eurozone.

According to the CBC, this share has also followed a downward trend in recent years.

It explained that the proportion has declined from almost 100 per cent at the beginning of 2022 to 64 per cent today, which is below the eurozone median.

“This may partly be influenced by the factor mentioned above and should be taken into account in banks’ risk management policies,” the CBC said.