Cyprus’s banks ended May 2026 with a record €58 billion in deposits, even as the country’s loan book stood at just €28.1 billion. That gap puts Cyprus at half the EU’s average loan-to-deposit ratio, according to May 2026 deposit and lending data for Cyprus.
Net new deposits reached €343.8 million over the month, reversing a €123.1 million decline in April, and the year-on-year deposit growth rate climbed to 5.1 percent from 4.5 percent. Loans rose €260.3 million on the month, with the year-on-year lending growth rate at 12.6 percent. Of the May lending to Cyprus residents, household borrowing made up €52.7 million, of which €48.8 million went to housing, and non-financial corporations took €63 million.
A 50% Loan-to-Deposit Ratio Against an EU Average of 100%
An IMF mission that ran from April 22 to May 4, 2026, led by mission chief Alex Pienkowski, put a sharper frame around the gap in the 2026 Article IV concluding statement. The mission found the Cypriot banking sector resilient, with capital and liquidity buffers among the highest in the EU, supported by strong profitability, and asset quality improving through a steady reduction in non-performing loans.
It also flagged a striking imbalance. The sector’s loan-to-deposit ratio is only 50 percent, the IMF said, against more than 100 percent across the EU on average. Cypriot banks also hold the highest liquidity ratio in the eurozone at 319 percent, according to March 2026 record Cyprus deposits and lending growth data from the Central Bank of Cyprus.
| Indicator | Cyprus | EU average |
|---|---|---|
| Loan-to-deposit ratio | 50% | Over 100% |
| Liquidity ratio | 319% (eurozone highest) | Median below Cyprus |
| Asset quality trend | Improving (NPLs falling) | Variable across bloc |
Why, with that much liquidity, do banks not lend more? The IMF cited four causes: frictions in resolving non-performing loans outside the banking sector, structural constraints tied to market size and concentration, scarring from the 2014 banking crisis, and frictions inside the EU banking union.
Where the New Loans Are Going
Of the €173.7 million lent to Cyprus residents in May, household borrowing made up €52.7 million, of which €48.8 million went to housing loans. Non-financial corporations took €63 million. The remaining €58 million flowed to other domestic sectors, including small businesses and sole traders. The split shows where the credit squeeze is tightest.
On the deposit side, households added €171.3 million in May and non-financial corporations added €194 million. Other domestic sectors, including non-residents, withdrew a combined €126.2 million.
The longer arc points the same way. Household deposits held by Cyprus residents stood at €30.12 billion at the end of March 2026, the highest level on record, while non-financial corporations had built a liquidity buffer of €12.26 billion. Saving is outrunning borrowing by a wide margin.
| May 2026 (Cyprus residents) | Deposits | Loans |
|---|---|---|
| Households | +€171.3M | +€52.7M |
| Non-financial corporations | +€194.0M | +€63.0M |
| Other domestic sectors | -€126.2M | +€58.0M |
| Total Cyprus residents | +€239.0M | +€173.7M |
The Non-Performing Loans That Sit Outside the Banks
The IMF tied the caution to legacy debt that has migrated off bank balance sheets. Credit acquisition companies now hold large stocks of non-performing loans, and these portfolios are harder to resolve because the buyers do not benefit from the same recovery infrastructure as the banks themselves. The IMF recommended avoiding loosening the foreclosure framework. It also called for stepping up efforts to reduce non-performing loans outside the banking sector.
Avoid loosening the foreclosure framework and step up efforts to reduce non-performing loans outside of the banking sector.
That advice, delivered in the IMF mission’s concluding statement on May 4, 2026, landed alongside a separate warning about legislative drift. Some recently proposed legislative changes would significantly slow resolution and increase administrative costs, the IMF said. Such a shift could undermine borrower incentives, increase credit risk, and reduce access to finance.
Banks know that recovery of collateral through the courts is slow and uncertain. The result is a credit policy skewed toward caution, particularly for households and small and medium-sized enterprises that depend on faster turnaround.
A Court System That Holds the Whole Chain Back
Underneath the lending gap sits a judicial bottleneck. The IMF’s mission identified four specific frictions in the Cypriot court system, from the filing of a case to the enforcement of a ruling.
- Lengthy case durations
- Major delays in scheduling and rulings
- Limited court specialisation
- Inadequate digitisation
These frictions make it hard to enforce collateral, carry out insolvency procedures, and resolve non-performing loans on time. The IMF called for faster case resolution, greater specialisation, adequate staffing, and stronger digitalisation, the kind of plumbing that lets banks recover their money when borrowers default.
Without that plumbing, banks price in execution risk and price out marginal borrowers. The cost lands on the household looking for a first mortgage. It lands on the small business owner needing working capital, and on developers refinancing stalled projects.
Government Pushes Banks to Deploy Their Liquidity
At the banks’ annual general meeting, Finance Minister Makis Keravnos pressed the sector to act. He stressed the need to create more suitable financing products for businesses and to improve loan portfolios held by banks across economic sectors.
The Central Bank’s Economic Bulletin shows the trend running in the right direction, if unevenly. The annual rate of change in net lending to the domestic private sector peaked at 7.4 percent in February 2026, then eased to 6.4 percent in March 2026. New lending to the domestic private sector reached €1.1 billion in the first quarter of 2026, down from €1.2 billion in the same period of 2025.
Within that flow, the split is telling. The annual rate of change in lending to non-financial corporations fell to 6.3 percent in March 2026 from 7.5 percent in December 2025, after peaking at 8.2 percent in February 2026, the highest rate since 2010. Household lending kept strengthening, with its annual rate rising to 4.8 percent in March 2026 from 3.8 percent in December 2025.
Resisting Loosening of the Foreclosure Framework
Beyond the NPL call, the IMF pointed to a wider agenda. It encouraged Cyprus to capitalise on its recent EU Council presidency to push reforms on banking and capital markets integration, energy interconnection, and non-tariff trade barriers.
On the foreclosure question, the IMF was explicit. Changes that slow the resolution process should be resisted, it said. After years of compromise, the existing framework broadly strikes the right balance between debtors and creditors to support debt resolution.
For Cyprus’s borrowers, the warning is direct. The IMF said loosening the foreclosure framework would make access to finance for first-time homebuyers and small businesses harder, exactly the segment that needs more credit, not less.
Frequently Asked Questions
How large is Cyprus’s bank deposit base?
Total deposits reached €58 billion at the end of May 2026, the highest on record. Resident deposits grew by €239 million during May, with households contributing €171.3 million and non-financial corporations adding €194 million.
What is Cyprus’s loan-to-deposit ratio?
The IMF’s 2026 Article IV mission puts Cyprus at 50 percent, against an EU average of more than 100 percent. The Central Bank also reports a eurozone-high liquidity ratio of 319 percent. The gap between deposits and lending is one of the widest in the bloc.
Why are Cyprus’s banks not lending more?
The IMF cites frictions in resolving non-performing loans outside the banking sector, a slow court system, the legacy of the 2014 banking crisis, and structural constraints from market size and concentration. Each friction raises the cost of credit and pushes banks toward caution.
What does the IMF recommend?
Resist loosening the foreclosure framework and step up efforts to reduce non-performing loans held outside the banks. The IMF also urges judicial reform through faster case resolution, greater specialisation, adequate staffing, and stronger digitalisation, alongside deeper integration into EU banking and capital markets.
Is lending still growing?
Yes, but unevenly. Total loans rose €260.3 million in May 2026, and the year-on-year growth rate climbed to 12.6 percent. Net lending to the domestic private sector grew 7.4 percent year-on-year in February 2026 before easing to 6.4 percent in March 2026, with corporate lending slipping and household lending strengthening.
