The liquidity of Cypriot banks has surpassed €28 billion, according to the latest data from the Central Bank of Cyprus. As of July, deposits exceeded loans by €28.4 billion, marking the highest level since 2008. Deposits in the system reached €53.4 billion, the highest since May 2013, while loans stood at €25 billion, the highest since March 2024. Cyprus now holds the fourth-highest liquidity coverage ratio in the Eurozone, reflecting a significant improvement compared to the last financial crisis. As recently announced, the liquidity surplus for the Bank of Cyprus stands at €7.5 billion, with a liquidity coverage ratio of 304%. Meanwhile, Hellenic Bank's liquidity surplus is €7.2 billion, with an impressive liquidity coverage ratio of 580%.
Unlike during the last financial crisis, Cypriot banks now boast some of the highest liquidity ratios in Europe. The substantial liquidity in the system is further highlighted by data from the Single Supervisory Mechanism, which shows that Cyprus has the fourth-highest liquidity coverage ratio in the Eurozone.
Deposit rates
Despite holding one of the highest deposit-to-loan ratios in Europe, Cypriot banks offer some of the lowest deposit interest rates in the EU. This situation arises from a cautious strategy focused on maintaining high liquidity and financial stability, rather than attracting deposits with higher interest rates. The low rates may discourage depositors looking for competitive returns, but they also reflect the banks' conservative approach to managing risks and ensuring a solid financial footing. This strategy positions the banks to weather potential economic fluctuations, but it also creates a challenging environment for savers seeking better yields on their deposits.
Cypriot banks' preference for liquidity over offering competitive deposit rates is influenced by the broader economic context, where stability is prioritized following past financial crises. While this conservative approach strengthens the banks' resilience, it may lead to frustrations among depositors who see limited growth in their savings compared to other European markets. This dynamic underscores the balance that banks must strike between safeguarding financial stability and providing attractive options for their customers.
The lack of attractive alternative investment options is a significant factor contributing to why many Cypriots keep their money in local banks, despite low deposit interest rates. While the stock market or real estate might offer higher returns, these options often come with greater risks and require more financial knowledge. In contrast, bank deposits are seen as safe, accessible, and straightforward, especially in a market where other low-risk, high-yield options are limited. This gap in the market highlights the need for more diverse and appealing investment opportunities for Cypriot savers.
