Cyprus deposit rates rise as consumer borrowing costs ease in June

Corporate lending drives sharp rise in new loans during JuneThe Central Bank of Cyprus (CBC) on Monday reported that deposit interest rates increased while consumer borrowing costs eased in June 2026, with the value of pure new lending also recording a sharp monthly rise driven by large corporate loans. The data showed that the interest rate on household deposits with an agreed maturity of up to one year climbed to 1.42 per cent in June from 1.25 per cent in May. The corresponding rate for deposits from non-financial corporations also increased, rising to 1.41 per cent from 1.31 per cent a month earlier. On the lending side, the interest rate on consumer credit declined to 6.50 per cent in June, down from 6.95 per cent in May. The interest rate on housing loans also edged lower, slipping to 4.04 per cent from 4.06 per cent in the previous month. The CBC explained that the weighted average interest rate on housing loans can fluctuate from month to month because the portfolio contains different categories of lending, including loans for primary residences and holiday homes, each carrying different levels of risk and interest rates. As a result, changes in the composition of new housing lending can affect the average rate independently of banks raising or lowering their lending rates. Meanwhile, the interest rate on loans of up to €1 million to non-financial corporations increased to 4.32 per cent, compared with 4.27 per cent in May. For corporate loans exceeding €1m, the average interest rate rose more noticeably to 4.07 per cent from 3.85 per cent. The central bank also reported a significant increase in pure new lending, which reached €626.20m in June, up from €361.90m in May. Including renegotiated loans, total new lending amounted to €831.30m in June, compared with €594.50m a month earlier. New consumer lending increased modestly, with pure new consumer loans rising to €25.10m from €23.90m in May. Including renegotiated lending, total new consumer loans reached €29.60m, compared with €25.60m in the previous month. Pure new housing loans also increased, reaching €152.10m from €145.50m in May. Total new housing lending, including renegotiations, rose to €201.10m, compared with €197.20m in the previous month. In contrast, pure new corporate loans of up to €1m declined to €54.50m, down from €63.40m in May. Including renegotiated lending, total loans in this category fell to €77.30m from €75.70m. The strongest increase came from pure new corporate loans exceeding €1m, which surged to €387.50m from €121.50m in May. Total lending in this category, including renegotiated loans, climbed to €512.50m, compared with €282.90m a month earlier. The CBC also compared Cyprus’ interest rate environment with that of the wider euro area, concluding that loan interest rates are broadly aligned with eurozone averages, while deposit rates remain among the lowest in the monetary union. Regarding outstanding loans, the central bank said interest rates for households were identical to the eurozone median, with a spread of zero per cent. For non-financial corporations, the spread stood at 0.4 per cent above the eurozone median. The CBC also found that the way interest rates in Cyprus responded to the European Central Bank’s (ECB) monetary tightening and subsequent easing cycles broadly matched patterns seen elsewhere in the euro area for outstanding loans to both households and businesses. Specifically, it examined the relationship between the fall in lending rates during the monetary easing period between June 2024 and June 2026 and the increases recorded during the monetary tightening period from June 2022 to December 2023, concluding that Cyprus compared favourably with other eurozone countries. For new lending, the CBC said Cyprus also remained close to the eurozone median. The weighted average interest rate on new housing loans was 0.2 percentage points below the eurozone median. For new loans to non-financial corporations, the spread was 0.3 percentage points above the eurozone median. The central bank said the transmission of monetary policy through new housing loans in Cyprus was broadly in line with the rest of the euro area. However, the transmission of changes in policy rates to new corporate lending appeared weaker during both the tightening and easing phases. The report also highlighted that across the eurozone, the average transmission of higher interest rates during the tightening cycle exceeded that recorded during the easing cycle by 32.9 per cent for housing loans and 17.3 per cent for corporate lending. In Cyprus, the difference was far smaller for households, where transmission during the tightening period exceeded that of the easing period by just 0.8 per cent. For non-financial corporations in Cyprus, transmission during the tightening phase was 12.6 per cent lower than during the easing period. The CBC said deposit interest rates on outstanding balances remain a notable exception within the eurozone, with Cyprus continuing to record some of the lowest deposit rates. According to the central bank, this reflects the very high liquidity levels held by Cypriot credit institutions, as well as the relatively small size of the domestic banking sector. It pointed out that the Liquidity Coverage Ratio (LCR) in Cyprus stood at 310 per cent in June 2026, compared with a European Union median of 189 per cent and a mean of 158 per cent, based on the latest available data from March 2026. The CBC said interest rates on new deposits were also close to those on outstanding deposits because the same structural factors continued to influence pricing. It added that the transmission of both rising and falling interest rates to deposits in Cyprus remained weaker than in almost every other eurozone country for both households and non-financial corporations. Across the eurozone, the average transmission rate during the tightening cycle was 3.6 per cent higher than during the easing cycle for household deposits. For corporate deposits, the eurozone average transmission rate during the tightening cycle was 14.2 per cent lower than during the easing phase. In Cyprus, the corresponding difference was 0.7 per cent higher for household deposits during the tightening period than during the easing cycle. For corporate deposits, the transmission rate during the tightening period was 11.8 per cent lower than during the easing period. The report also highlighted a continuing shift in the structure of housing lending, with borrowers increasingly opting for fixed-rate products. The share of new housing loans carrying variable interest rates has fallen dramatically from almost 100 per cent at the beginning of 2022 to 10.9 per cent in June 2026, placing Cyprus below the eurozone median. The CBC said this trend may partly reflect borrowers choosing loans with fixed interest rates for the first three to five years before switching to floating rates. It added that the development points to changing borrower attitudes towards interest rate risk, something banks should incorporate into their risk management policies. A similar trend has emerged across the broader lending market, the central bank reported. The share of new household and corporate loans carrying floating interest rates has dropped from almost 100 per cent at the beginning of 2022 to 69.1 per cent. The CBC said this figure is now equal to the eurozone median, adding that the continued shift towards fixed-rate borrowing should also be reflected in banks’ risk management frameworks.