Bank deposits in Cyprus saw a notable increase of 239 million euros in May, yet new lending grew by only 173 million euros, underlining a widening gap between available liquidity and loan issuance. Central Bank figures highlight that loans, especially to businesses and housing, are not keeping pace with deposit growth, leading to a loan-to-deposit ratio around 50%, significantly below the EU average of over 100%.

The IMF's latest report attributes this cautious lending environment to the large stock of non-performing loans (NPLs) held outside banks’ balance sheets and a sluggish judicial system that hampers the resolution of these loans. Delays in court proceedings, limited specialisation, and inadequate digital infrastructure all contribute to difficulties in enforcing collateral and insolvency procedures, discouraging banks from extending credit more freely.

Finance Minister Makis Keravnos underscored the necessity for better financing products and improved loan portfolios to support economic sectors. Despite a strengthening of credit expansion to the private sector earlier in 2026, lending slowed in March amid geopolitical uncertainty, with new lending to businesses decreasing while household lending, particularly housing loans, showed moderate growth.