Cyprus banks enjoying record levels of liquidity

Liquidity of Cyprus banks has reached an all-time high as they now possess €15.1 bln more in deposits than loans, a long way from the dark days of 2013.

According to the latest Central Bank data, as of December 2019 deposits in the country’s banks exceeded loans by €15.1 bln, remaining at the highest levels since at least 2008, when such information was recorded.

According to the EU’s Single Supervisory Mechanism (SSM), Cyprus has the second-highest liquidity coverage ratio in the euro area.

The liquidity coverage ratio of the Cypriot banking system in the third quarter of 2019 stood at 331.02%, exceeding by far the Eurozone average of 145.16%, while it’s more than double the 100% target set by the European Commission Directive known as Basel III.

The debt-to-deposit rate of Cyprus banks has changed dramatically since 2013 when loans were by €17 bln higher than deposits.

Meanwhile, banks are said to be intensifying their efforts to find new customers to channel some of their cash while also considering investing part of it.

At the same time, the Bank of Cyprus and Hellenic Bank have adopted negative interest rate policies to offset the costs incurred by the European Central Bank’s (ECB) deposit retention charges.

For the moment, negative interest rates on large deposits do not seem to have changed the structure of the banking system, as smaller banks are set to follow suit.

Bank of Cyprus is to impose negative interest rates of 0.5% as of March this year on large deposits excluding educational and charitable institutions.

Hellenic Bank will also impose negative interest rates of 0.6% on large deposits over €100,000 from March.

Recently, Hellenic’s CEO Ioannis Matsis said that his bank is seeking to invest part of its excess liquidity in order to avoid negative interest rates.