Cyprus banks pushed credit expansion to 10.5% in November, a reversal from the 0.2% contraction recorded two years earlier, as European Central Bank rate cuts unleashed pent-up lending demand.
The surge means lending now outpaces economic growth—credit hit 7.43% in the third quarter whilst the economy expanded 3.6%, Central Bank of Cyprus data shows. The gap widened in the second quarter too, with lending at 5.6% against growth of 3.3%.
That marks a sharp break from 2024 and 2023, when higher interest rates kept lending increases restrained and frequently pushed them into negative territory. November 2024 saw just 1.9% credit growth.
The turnaround began when the ECB started cutting rates in June 2024. Cyprus’s quarterly credit expansion climbed steadily—from 2.73% in the first quarter of 2025 to 5.6% in the second and 7.43% in the third. December figures haven’t been released yet.
But the ECB warns the eurozone recovery remains anaemic compared to previous cycles. Credit to the private non-financial sector across the currency bloc barely exceeds the pace seen after the 2008 financial crisis and sovereign debt crisis, according to the bank’s report.
Lending sits below its long-term trend and is recovering more slowly than in earlier periods spanning 1993, 2003, 2009, 2013 and 2020. All major financing sources for businesses—trade credits, bank loans, non-bank borrowing—remain subdued against historical patterns.
The ECB measured whether credit is keeping pace with economic needs by tracking the credit-to-GDP gap, which compares current lending to its long-term trend relative to the economy’s size. A negative gap means businesses are borrowing less than expected given current conditions.
Several factors are holding back lending. Banks face higher risk perceptions, rising funding costs and stricter supervision requirements. Survey indicators show the cumulative tightening of lending standards hasn’t fully unwound—terms and credit demand remain below pre-pandemic levels.
Businesses are also investing more in software and other intangible assets rather than machinery, which reduces the collateral available to secure bank loans. Demographic shifts that dampen demand for housing and durable goods are weighing on borrowing too.
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