Banks sit on liquidity but keep lending scarce

Economy bankseconomyTop News Banks sit on liquidity but keep lending scarce Daneio Id 858069 Relevant News Banks sit on liquidity but keep lending scarce 6 July 2026 Cyprus ranks fourth worldwide for attracting millionaires 6 July 2026 Isolated storms expected as temperatures reach 35 degrees 6 July 2026 Theano Thiopoulou 6 July 2026 FacebookXWhatsAppEmailPrintViber Bank deposits in Cyprus continue to rise, but new lending is not growing at the same pace, according to Central Bank data for May. The Central Bank’s figures show that lending by the banking system is not keeping up with the liquidity available in the financial system. Deposits by Cyprus residents rose by 239 million euros in May, while loans increased by only 173 million euros, of which 48.8 million euros went to housing loans and 63 million euros to businesses. This policy has also been flagged in the IMF’s latest report, which found that the Cypriot banking sector is among the best capitalised in Europe, with high liquidity, but is weighed down by a serious lack of dynamism. The IMF said the main reason the sector lacks momentum is the large number of non-performing loans held outside banks’ balance sheets, combined with a justice system that continues to act as a brake on resolving them. The loan-to-deposit ratio stands at around 50%, compared with more than 100% on average across the EU, indicating that banks are lending far less than their liquidity would allow. The IMF said the large backlog of non-performing loans and slow justice system are among the main reasons Cyprus’s banking market remains cautious about lending to households and businesses. Lengthy case durations, major delays, limited court specialisation and inadequate digitisation make it difficult to enforce collateral, carry out insolvency procedures and, ultimately, resolve non-performing loans on time. This makes it harder for businesses and households to secure loans. Credit acquisition companies struggle to manage the non-performing loans they hold, and banks know that enforcement procedures for recovering collateral, and the courts, are slow and uncertain. As a result, banks remain far more cautious about issuing new loans, particularly to households and small and medium-sized enterprises. According to the IMF, this largely explains why the loan-to-deposit ratio remains low, despite the system’s strong capital position. Finance Minister Makis Keravnos, addressing the banks’ annual general meeting, stressed the need to create more suitable financing products for businesses and to improve the loan portfolios held by banks across economic sectors. The Central Bank’s Economic Bulletin says credit expansion to the domestic private sector strengthened during 2025 and in early 2026, though its momentum eased in March 2026 amid heightened geopolitical uncertainty. The annual rate of change in net lending to the domestic private sector peaked, albeit from a low base, at 7.4% in February 2026, before easing to 6.4% in March 2026. This slowdown was mainly attributed to a pullback in lending to non-financial corporations, whose annual rate of change stood at 6.3% in March 2026, down from 7.5% in December 2025, after peaking, albeit from a low base, at 8.2% in February 2026, the highest rate since 2010. By contrast, household lending continued to strengthen gradually, with its annual rate of change rising to 4.8% in March 2026, up from 3.8% in December 2025. The Central Bank said new lending to the domestic private sector was limited to 1.1 billion euros in the first quarter of 2026, down from 1.2 billion euros in the same period of 2025, reflecting mainly a decline in lending to businesses. This was partly offset by continued growth in new lending to households, particularly for housing loans. Overall, credit expansion remains resilient despite the environment of heightened uncertainty. Read more: Home ownership slips further out of reach for young buyers in Cyprus Subscribe to our Newsletter Latest News Cyprus ranks fourth worldwide for attracting millionaires Isolated storms expected as temperatures reach 35 degrees Cyprus sends two firefighting aircraft to aid France with wildfires Kremlin claims complete capture of Kostiantynivka as Kyiv rejects reports Turkish Cypriot man critical after group attack in Ayia Napa Bus collides with two vehicles in Ayia Napa road accident Recent violence reignites debate on femicide and gun control in Cyprus Follow en.philenews on Google News and be the first to know all the news about Cyprus and the world.