New loans granted by banking institutions in Cyprus reached their highest level in the past decade during January-June 2025, totalling €1.42bn, with a significant surge in June when new lending reached €672m.
Last year’s first-half new loans totalled €785m according to Central Bank data, meaning lending has doubled in one year.
The annual growth rate of total loans reached 6.8%, compared to 5.1% in May 2025. The total loan balance in June 2025 reached €26.3bn, with loans to Cyprus residents increasing by €471.1m.
Specifically, loans to households and non-financial companies increased by €110.1m and €216.9m, respectively. The balance of housing loans at end-June was €86.7m, up from €20.9m the previous month and €72.3m a year ago.
Loans to other domestic sectors showed a combined increase of €144.1m.
The lending climate began to shift from late 2024 as banks sought to increase credit expansion and thus interest income, whilst demand became more intense.
Banks feel more secure in granting new loans, particularly mortgages, by adopting stricter loan-to-value ratios, which provide significant margins for absorbing future losses for credit institutions.
As the Central Bank explains in its financial stability report, alongside strengthening new lending, general improvement in household financing conditions is reflected in the quality of new lending, as shown by the debt service-to-income ratio (DSTI) for new loans secured by residential property.
The weighted average DSTI ratio for such new loans decreased to around 31% in 2024 compared to around 36% in 2023. This means that for new borrowers, expenditure for repaying loan obligations relative to annual income has decreased, supported by lower lending rates.
The reduction in this ratio reflects banks’ intention to maintain strict lending criteria whilst also showing improved household financial positions, with new lending granted to a greater extent to households with healthier financial characteristics.
Maintaining lower DSTI ratios provides a significant safety net for the banking system, strengthening balance sheet resilience and partially limiting the risk of creating new non-performing loans, even if macroeconomic conditions deteriorate due to geopolitical risks.
In the latest bank lending survey published by the Central Bank, net demand for business loans increased in the first quarter of 2025 for the first time since the fourth quarter of 2021, supported by general interest rate levels and increased demand for fixed investment financing.
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