The local banking sector is pivoting from cash reserves to active investing. Driven by a series of European Central Bank interest rate cuts, banks in Cyprus saw their excess liquidity fall to €17.4 billion in 2025 as they increasingly moved parked capital into household loans and government bonds.

Cyprus' banks excess liquidity dropped in to €17.4 billion as at end‑2025, down from €18.5 billion in 2024, according to data published by the Central Bank of Cyprus on Thursday, in the Monetary Policy implementation report for 2025. According to the executive summary of the report, the CBC's balance sheet remained broadly stable in 2025, with total assets increasing marginally from €28.6 billion at end‑2024 to €28.7 billion at end‑2025. Assets continued to consist primarily of Intra‑Eurosystem claims in TARGET and monetary‑policy portfolios. Assets associated with the implementation of monetary policy comprise the monetary policy portfolios, which declined from €6.5 billion to €5.7 billion during 2025, as well as refinancing operations to Cypriot monetary policy counterparties, which remained unused over the period under review. On the liabilities side, bank deposits/liquidity declined from €19.2 billion to €18.6 billion over the same period. According to the report, structurally, liquidity developments were driven mainly by movements in Intra‑Eurosystem claims, autonomous factors, and the reduction in the value of monetary‑policy portfolios, which fell by €0.77 billion in 2025. Despite this decline, overall liquidity in the banking system remained ample throughout the year.

In 2025, the ECB Governing Council implemented a series of reductions in the deposit facility rate, lowering it from 3% at the end of 2024 to 2% by June 2025. These adjustments were carried out through four successive rate cuts (in February, March, April, and June of 2025) in line with the Governing Council’s assessment that a more accommodative monetary‑policy stance was required as inflationary pressures eased and financing conditions normalised. The successive reductions in the deposit facility rate during 2025 reduced the facility’s attractiveness for banks to place their excess liquidity (€17.4 billion as at end‑2025, down from €18.5 billion in 2024) with the CBC. Consequently, banks increasingly turned to alternative investment options, including bond holdings and lending.

According to the report, within the banking sector, the most significant asset categories in 2025 were loans, debt securities, deposits and cash equivalents. Loans rose from €27.6 billion at end-2024 to €31.7 billion at end-2025, while deposits and cash equivalents declined from €20.4 billion to €19.8 billion. Total banking-sector liabilities increased from €59.4 billion to €63.1 billion over 2025, driven mainly by higher deposits from households and non-financial corporations. The minimum required reserves of the monetary-policy-eligible counterparties in Cyprus increased from €527 million at the end of the final maintenance period of 2024 to €553 million at the end of the corresponding period in 2025. Mobilised collateral placed with the CBC in 2025 consisted primarily of additional credit claims, covered bonds, and government bonds.

Source: CNA(ΚΥΠΕ)