Cyprus banking sector faces liquidity growth and lending stagnation

Central Bank of Cyprus data for May indicates a growing imbalance between liquidity and lending. While deposits from Cyprus residents increased by 239 million euros, new loans rose by only 173 million euros, specifically 48.8 million euros for housing and 63 million euros for businesses. The International Monetary Fund (IMF) highlighted that despite the sector being well-capitalized with high liquidity, it lacks dynamism. The loan-to-deposit ratio in Cyprus stands at approximately 50%, significantly lower than the EU average of over 100%. The IMF identified the primary causes for this caution as the large volume of non-performing loans held outside bank balance sheets and a slow judicial system. Challenges such as lengthy case durations, limited court specialization, and inadequate digitalization hinder the enforcement of collateral and the resolution of non-performing loans. Consequently, households and businesses face increased difficulty in securing credit as banks maintain strict lending policies.