Filenews 9 October 2025
The Cypriot banking system has the greatest liquidity in the Eurozone and is far from the second, which is the Greek one, while there is a gap in distance from the Finnish banking system.
If banks do not make sufficient use of their liquidity to give generous loans to the market, their profitability ratios will fall, while with low interest rates they have opportunities to give new loans to increase their revenues even if their margins are reduced, contributing to the growth of the economy.
Based on the latest official ECB statistics (second quarter 2025), Cypriot banks have the lowest loan-to-deposit ratio in Europe, at 50.3%, followed by the Greek bank with 60.4%.
The interesting thing is that Cypriot banks have cheap financing from Cypriot households, since most of their deposits are lower interest rates than the smallest ones in the Eurozone.
To make it easier to understand, the loan-to-deposit ratio shows the percentage of deposits that a bank converts into loans. It expresses the bank's dependence on external financing for lending activity, where a higher ratio means greater reliance on non-deposit funding sources, while a lower ratio indicates a stronger deposit base to cover its loans.
If the loan-to-deposit ratio is at 100%, it means that a bank lent one euro to its customers for every euro it received as deposits. This means that the bank will not have significant liquidity reserves to deal with expected or unexpected problems. In the Eurozone, the average of the index is at 94%.
Let's look at the indicators in the European banking systems: In Cyprus the index is only 50.3% (the lowest), followed by the Greek banking system with 60.4%. It is followed by Latvia, with the loan-to-deposit ratio at 63.7%, Slovenia 64.7%, Lithuania 66.1%, Malta 72.1%, Croatia 73.3%, Belgium 76.6%, Italy 77.4%, Portugal 77.8%, Ireland 79.4%, Spain 85.4%, Estonia 89.7%, Luxembourg 94%, Germany 94.9%, Netherlands 99.5%, Austria 106.1, France 107.8%, Slovakia 113%, Finland 152.3%.
Another important element that counts in particular is the Liquidity Coverage Ratio, which essentially shows the ability of a credit institution to cover net liquidity outflows over a period of 30 days, under conditions of intense financial pressure, using high-quality liquid assets (HighQuality Liquid Assets). It is a key supervisory indicator established as part of the Basel III reforms, with the aim of strengthening banks' short-term resilience to liquidity crises.
A liquidity coverage ratio greater than or equal to 100% (supervisory minimum) indicates that the bank has sufficient liquidity to fully cover the estimated 30-day outflows, enhancing the confidence of depositors and supervisors in the financial system. The liquidity coverage ratio of the Cypriot banking sector stands at 335% in June 2025.
