Filenews 26 June 2023
Cypriot banks are expensive on loans and cheap on deposits amid efforts to raise deposit yields, mainly due to pressure from both government and supervisory.
Cyprus ranks among the countries with high lending rates in the euro area, and the spread between lending and deposit rates remains large despite recent increases in interest rates on new time deposits. The pricing of loans from ECB data, with April as the reference month, shows that the average interest rate on deposits from households with an agreed maturity of up to one year decreased to 0.41%, compared with 0.47% in the previous month.
In the Eurozone, the average deposit rates for households are 2.27% and highlights once again that Cypriot depositors are among the most disadvantaged with the difference being 1.86%. The top positions in the ECB ranking are occupied by Italy (3.11%), France (3.03%) and Belgium (2.65%). The weighted average interest rate in Greece stands at 1.22%. The corresponding interest rate on deposits from non-financial corporations decreased to 0,73%.
The average interest rate on business deposits in the eurozone is 2.79% and the difference with Cyprus is 2.06%. ECB data clearly show that Cypriot depositors are not remunerated for the money deposited in banks, while borrowers pay higher interest rates in the eurozone.
The average interest rate on loans for house purchase is 4.45% and in the Eurozone at 4.03%. This means that the spread between interest rates on mortgages and deposits is 3.62%, one of the widest in the eurozone.
In Greece the average housing interest rate is 4.06%, in Spain 3.47%, in France 2.99%, in Luxembourg 4.11%, in Malta 2.56%, in Austria 4.06%, in Slovakia 3.71% and in Finland 3.62%. Cypriot entrepreneurs borrow at high interest rates compared to entrepreneurs from other eurozone countries, resulting in 5.31% of Cypriot business when the eurozone average is 4.74%.
Opposite course in lending and deposit rates
In the Central Bank's annual report for 2022 published last week, reference is made to the large increase in lending rates and they are on a different path compared to deposits. "Amid the normalisation of the ECB's monetary policy, lending rates in Cyprus followed an upward path in 2022, with a greater extent in the second half of the year. Borrowing rates for households and businesses increased to 3,34% and 4,71% respectively at the end of 2022 compared to 2,21% and 3,25% at the end of 2021. Domestic deposit rates recorded a smaller increase of 29 and 59 basis points respectively since the beginning of the year, closing at 0.35% for households and 0.61% for businesses at the end of 2022.
They support households with cash
According to data from the European Banking Authority (EBA) presented by DBRS, Greece and Cyprus are at the top of the list in terms of the share of household deposits in their funding mix. Indicatively, Denmark is at the bottom of the ranking with about 10%, as the largest part (70%) of its financing comes from debt securities. In addition, European depositors are already reacting by transferring – at an increasing rate – deposit balances to off-balance-sheet products. Specifically, deposit outflows in April 2023 in the European Union in relation to the highest level reach -1.13%, with the largest percentage of losses recorded in Portugal (-3.85%), Spain (-3.79%), Finland (-3.32%), the Netherlands (-3.29%), Italy (-3.19%), while Greece follows with -1.69%
