Borrowers are set to miss out on further loan payment reductions, while banks are expected to benefit from the anticipated stabilisation of European Central Bank intervention rates, at least until October.
Most economists anticipate monetary policy will remain unchanged during the ECB governing council meetings on 11 September and 30 October, with central bankers expected to cut eurozone rates by 25 basis points only at their final 2025 meeting in December.
The ECB’s deposit facility rate has remained unchanged at 2% since June, following eight consecutive reductions. Analysts expect it to fall to 1.75% in December and remain stable for several months, possibly throughout 2026.
Banking sector implications
Rate stabilisation strengthens rather than changes bank business plans. Banks continue through the second half of 2025 with unchanged ECB rates, which supports their interest income, representing the largest portion of organic profitability.
Banks now enter a more demanding period where maintaining profitability will depend on organic growth, digital upgrades and business model resilience.
Net interest margins remain strong but slightly declining, with banks turning to alternative revenue sources including commissions and insurance products.
Increased commission income and enhanced new credit expansion, particularly in strategic sectors such as green development, create a more balanced pillar of profitability alongside general credit expansion growth.
Credit expansion targets
Eurobank Group targets organic loan growth in Cyprus of €1.7 billion over 2025-2027 from the current €8.7 billion combined loan portfolio of Eurobank Cyprus and Hellenic Bank. Bank of Cyprus, given strong loan volume increases in the first half of 2025, expects to exceed its 2025 target of approximately 4% loan portfolio growth.
Bank of Cyprus performance
Bank of Cyprus provided insight into first-half banking system performance through its interim results. Net interest income for the first half of 2025 reached €368 million, down from €420 million in the first half of 2024 (12% decline year-on-year).
The annual change mainly reflects reference rate reductions, partially offset by hedging activities, continued liquidity increases from deposit growth, and loan portfolio expansion.
Despite lower estimated market rates compared to February 2025 projections, Bank of Cyprus expects its 2025 target of under €700 million net interest income to be positively affected, supported by deposit and loan volume increases.
For 2026, the net interest income target remains, with the group expecting stabilisation above €650 million. Non-interest income reached €141 million in the first half of 2025, up 10% year-on-year, covering nearly 80% of total operating expenses.
Market dynamics
The stabilisation indicates banks are transitioning from a period of rising rates that boosted profitability to one requiring operational efficiency and diversified revenue streams. Borrowers, meanwhile, face extended periods without the relief that rate cuts typically provide to variable-rate loans.