**Cyprus Bank Deposit Rates Lag Behind Euro Area Averages**
Cyprus's banking sector continues to show a significant divergence in deposit rates compared to the broader euro area, according to a recent report from the Central Bank of Cyprus (CBC). While borrowing rates in Cyprus have aligned closely with the euro area median, deposit rates remain the lowest within the region.
In July, the interest rate on new housing loans in Cyprus decreased to 3.78%, down from 4.04% in June. Conversely, the rate for household deposits with an agreed maturity of up to one year fell to 1.27%, down from 1.42%. In contrast, the interest rate on deposits from non-financial corporations saw a slight increase to 1.56%, up from 1.41% in the previous month.
Consumer loan rates also experienced an uptick, rising to 6.94% from 6.50% in June. For non-financial companies, the rate on loans of up to €1 million increased to 4.47%, while loans exceeding €1 million saw a rise to 4.29%. The CBC noted that existing loan rates in Cyprus are generally in line with the euro area median, with household rates being 0.1 percentage points below the median and non-financial company rates 0.3 percentage points above it.
The CBC highlighted that the transmission of monetary policy changes to existing loans in Cyprus is comparable to other euro area countries. However, the pass-through effect for new loans appears weaker in Cyprus. For new housing loans, the weighted average rate was 0.2 percentage points below the euro area median, while the margin for non-financial companies was 0.3 percentage points above the median.
One of the key factors contributing to the low deposit rates in Cyprus is the high liquidity of the banks in the country. As of July 2026, the liquidity coverage ratio for Cypriot banks was reported at 319%, significantly higher than the euro area median of 189% and the EU average of 158%. This high liquidity may reduce the need for banks to offer competitive interest rates on deposits.
The CBC also pointed out that the pass-through to new deposits in Cyprus has been weak compared to other euro area nations. For households, the pass-through fell by 8.7% during periods of monetary tightening, while for non-financial companies, it dropped by 11.8%. This indicates that banks in Cyprus are less responsive to changes in monetary policy when adjusting deposit rates.
Additionally, there has been a notable decline in the share of new household housing loans with variable rates, which dropped from nearly 100% in early 2022 to 12.1% in July 2026, falling below the euro area median. This trend suggests a shift in borrower preferences, with many loans initially offered at fixed rates for three to five years before transitioning to variable rates. The CBC noted that this change in borrower behavior should be considered by banks in their risk management strategies.
The overall lending landscape in Cyprus has also seen a decline, with net new lending falling sharply to €415 million in July, down from €626.2 million in June. Total new lending for the month stood at €686.1 million, compared to €831.3 million in the previous month. Specifically, net new consumer lending decreased to €23.9 million from €25.1 million, and net new housing loans dropped to €149.5 million from €152.1 million. Corporate lending also experienced a downturn, with net new lending of up to €1 million falling to €52.3 million, and lending above €1 million plummeting to €162.3 million from €387.5 million.
In summary, while Cyprus's borrowing rates are aligning with euro area averages, the persistent low deposit rates highlight a significant disparity within the banking sector. Factors such as high bank liquidity and a relatively small domestic market appear to be influencing these trends, posing challenges for depositors seeking better returns on their savings.