The banking system witnessed a notable surge in deposit rates during June, marking the most substantial rise since the European Central Bank (ECB) initiated its interest rate hikes to counter escalating inflation across the Eurozone. Newly released data from the Central Bank of Cyprus (CBC) on Wednesday shed light on these changes.

During June, the interest rates for corporate deposits, subject to an agreed maturity of up to one year, experienced a 67 basis points increment, soaring to 1.86% from the preceding month's 1.19%.

Similarly, household deposit rates, also with an agreed maturity up to one year, displayed an increase of 42 basis points, reaching a notable 1.21% from the preceding month's 0.79%, as reported by the CBC.

Despite these noteworthy upticks, it is important to note that Cyprus still maintains comparatively low deposit rates within the broader Eurozone. This situation arises due to the pronounced liquidity within the Cyprus banking system.

The CBC's latest data reveals a dynamic shift in lending rates as well, albeit with differing trajectories. Consumer credit interest rates recorded a 26 basis point rise, reaching 5.23% in June from the previous month's 4.97%. Contrastingly, the interest rate on loans intended for house purchases experienced a decline, settling at 4.19% in June, as opposed to May's 4.21%.

Corporate loans, in this context, underwent more significant fluctuations. For loans granted to non-financial corporations, amounts up to €1 million saw a decline in the interest rate to 5.17% in comparison to the prior month's 5.37%. Meanwhile, loans exceeding €1 million marked a substantial reduction, with interest rates plummeting to 5.87% from May's 6.35%.

In addition, over the course of the first six months of this year, pure new credit experienced a gradual but steady annual rise of 1.26%. This uptick, however, takes on greater significance when contextualized by the backdrop of continued ECB rate hikes. These adjustments have cast a substantial shadow over housing loans, which encountered an alarming annual reduction of nearly 30%.

Pure new credit extended by Cypriot banks underwent a significant contraction in June, plummeting from €546 million in the preceding month to a comparatively modest €240 million. This striking decline in June's figures can be attributed to a noteworthy surge in new corporate loans surpassing the €1 million threshold. This spike in May, amounting to a staggering €351 million, was a pivotal driver of the elevated levels witnessed.

During the month of June, new lending targeted towards house purchases managed to capture the lion's share of total pure new credit, amounting to €84.4 million. This figure, however, experienced a decline from the previous month's robust €104.7 million.

In a contrasting narrative, loans tailored for non-financial corporations (NFCs) exceeding €1 million underwent a substantial retreat, dwindling from a significant €351 million in May to a markedly lower €61.2 million in June. Analysts attribute this pronounced drop to a backlog stemming from lending demand during the Easter holidays in April. The resultant processing delay led to a cascading effect, impacting the numbers reported for May.

Further dissecting the data, pure new loans directed at NFCs up to €1 million clocked in at €42.6 million in June, slightly down from May's €48.6 million. In a striking contrast, other forms of new lending surged to €30.1 million in June, marking a considerable increase from the comparatively modest €9.6 million observed in May.

Consumer credit, a significant barometer of economic sentiment and activity, remained relatively stable during June. The data reported by the CBC highlights that this category witnessed a marginal change, with figures standing at €21.5 million compared to the previous month's €22.7 million.

Meanwhile, the realm of new corporate credit exceeding €1 million experienced a notable 30.6% upswing during the first half of 2023. This robust growth, totaling €818.7 million, marks a substantial departure from the €626.1 million reported during the equivalent period the previous year. Conversely, loans extended to corporations up to €1 million demonstrated a slight 6.8% annual contraction. This category reported figures of €256 million in the period from January to June 2023, as compared to the €274.6 million recorded during the corresponding period in 2022.

Consumer credit showcased a contrasting narrative in the first half of 2023, with new loans amounting to €108 million. This impressive 23% year-on-year increase is a substantial leap from the €77.8 million reported during the same period the previous year.