Euro area deposit rates rise as Cyprus savers remain among lowest paid

Cyprus’ depositors continued to receive some of the lowest savings returns in the eurozone in September 2026, while borrowing costs remained broadly comparable with European levels, according to figures published by the Central Bank of Cyprus (CBC) and the European Central Bank (ECB). The latest data point to a persistent gap between the returns banks offer savers and the interest rates charged to borrowers, despite an improvement in deposit rates and lower costs for some categories of new lending. The CBC’s analysis, published earlier this week, found that Cyprus’ banking sector continued to benefit from substantial excess liquidity, which has not translated into competitive returns for depositors. The ECB’s euro area figures, published on November 2, meanwhile, showed that the composite cost of borrowing for businesses increased to 3.90 per cent in September, up 13 basis points, while the corresponding indicator for households taking out housing loans remained broadly unchanged at 3.62 per cent. In Cyprus, the average interest rate on new household deposits with an agreed maturity of up to one year rose to 1.62 per cent in September, from 1.35 per cent in August. For non-financial corporations, the corresponding rate increased to 1.70 per cent, from 1.56 per cent. However, the CBC said rates on both outstanding and newly opened deposits remained among the lowest in the eurozone, with the weak transmission of market interest rate changes affecting households and businesses alike. The central bank attributed this partly to excess liquidity among Cypriot credit institutions, which is among the highest in the eurozone, and the relatively short maturity profile of the banking sector. Cyprus’ Liquidity Coverage Ratio (LCR) stood at 305 per cent in September 2026, compared with an EU median of 182 per cent and an average of 158 per cent in June, the latest available figures for the bloc. The CBC found that the transmission of monetary policy changes to outstanding loans in Cyprus was broadly in line with other eurozone countries. It also said the reduction in lending rates during the monetary easing period between June 2024 and August 2026 compared favourably with the increases recorded during the tightening period from June 2022 to December 2023. For new business lending, the transmission of rate reductions was stronger in Cyprus than the transmission of increases during the earlier tightening period. Borrowing costs diverge by loan type The ECB’s September figures showed that new housing loans across the euro area carried an average rate of 3.62 per cent, while Cyprus recorded a decline in its average rate on new housing loans to 3.88 per cent, from 4.16 per cent in August. The CBC said Cyprus’ new housing loan rate was 0.2 percentage points below the eurozone median, while the rate on outstanding household loans was 0.1 percentage points lower. For outstanding loans to non-financial corporations, Cyprus’ rate was 0.3 percentage points above the eurozone median, with the corresponding difference for new business lending also standing at 0.3 percentage points. Consumer lending rates in Cyprus fell to 6.45 per cent in September, from 7.12 per cent in August. Across the euro area, the ECB reported that new consumer loans carried an average rate of 7.82 per cent, down 12 basis points, with the decline driven by both interest rate and weight effects. Business borrowing in Cyprus became more expensive during the month. The average rate on new loans to non-financial corporations of up to €1 million increased to 4.76 per cent, from 4.45 per cent, while loans exceeding €1 million carried an average rate of 4.40 per cent, up from 3.67 per cent. At euro area level, the composite rate on new corporate loans rose by 13 basis points to 3.90 per cent. For loans exceeding €1 million with floating rates and an initial fixation period of up to three months, the rate increased by 17 basis points to 3.51 per cent. The rate on loans of the same size fixed for more than three months and up to one year rose by 18 basis points to 3.96 per cent, while loans fixed for more than ten years increased by seven basis points to 3.81 per cent. For new loans of up to €250,000 with floating rates and an initial fixation period of up to three months, the average rate rose by eight basis points to 4.01 per cent. Rates on loans to sole proprietors and unincorporated partnerships remained broadly unchanged at 4.36 per cent. Deposit rates rise across euro area The ECB reported increases in euro area deposit rates in September, with new corporate deposits with agreed maturity rising to 2.48 per cent, up 23 basis points, and household deposits with agreed maturity increasing to 2.37 per cent, up 19 basis points. Overnight deposit rates remained considerably lower, at 0.68 per cent for businesses, up seven basis points, and 0.30 per cent for households, broadly unchanged. For deposits with a maturity of up to one year, corporate rates rose by 22 basis points to 2.46 per cent, while household rates increased by 20 basis points to 2.33 per cent. Household deposits redeemable at three months’ notice remained almost unchanged at 1.26 per cent. The figures underline the contrast with Cyprus, where deposit returns remain comparatively weak despite September’s increases. Lending activity and changing borrower behaviour The CBC also reported a substantial increase in new lending during September, with pure new loans reaching €596.2 million, compared with €251.4 million in August. The total, including other categories, rose to €896.8 million from €390.1 million. Pure new consumer loans increased to €32.2 million from €19.3 million, while the total including other categories reached €33.7 million, compared with €20.7 million. Pure new housing loans rose to €135.1 million from €114.4 million, with the corresponding total increasing to €163.7 million from €141.9 million. Business lending also increased, with pure new loans of up to €1 million reaching €45.4 million, compared with €35.5 million in August. The total for that category rose to €56.6 million from €42.8 million. For loans exceeding €1 million, pure new lending climbed to €376.7 million from €77 million, while the total increased to €635.7 million from €178.1 million. The CBC also highlighted a significant shift in borrowers’ approach to interest rate risk. The proportion of new housing loans carrying variable interest rates fell from almost 100 per cent in early 2022 to 9.8 per cent in September 2026, below the eurozone median. The central bank said this could partly reflect borrowers initially opting for fixed-rate arrangements lasting three to five years, which subsequently convert into floating rates. It said banks should take these changing borrower preferences into account when developing their risk management policies. Across new lending to households and non-financial corporations more generally, the share of loans carrying floating rates also declined substantially, falling from almost 100 per cent at the beginning of 2022 to 73.8 per cent in September. However, this remained slightly above the eurozone median. The CBC said the same factors could partly explain the shift and should be considered in banks’ risk management. The findings suggest that Cyprus’ main divergence from the eurozone lies in deposit returns rather than borrowing costs, with savers continuing to receive comparatively limited benefits from changes in market interest rates.