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28th March 2024
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Cyprus bank loans, deposits and liquidity

BETWEEN May 2008 and May 2009, the banks increased their credit portfolios by more that €10.2 billion, expanding the gap between loans and deposits to more than €6.6 billion.

Six months after government attempts to boost liquidity into the market by injecting €2 billion into the system, the problem is still apparent. Since May 2008, the banks have increased their credit portfolios by €10.2 billion, while taking less that €3.6 billion in new deposits.

The two largest banks, the Bank of Cyprus and the Marfin Popular Bank, are under the greatest liquidity pressure, although the Coops increased their liquidity cushion by €325 billion.

Source: Central Bank of Cyprus
Source: Central Bank of Cyprus

Bankers have emphasized that the government injections to date have been insufficient to resolve their liquidity problems, which emerged from the uncontrolled credit growth during 2008. They also stressed the need to regulate the deposit rates offered by the 113 Coops, which are exceptionally high with significant impacts on the cost of borrowing.

IMF statement on Cyprus

In the concluding statement of their report issued at the end of June, the International Monetary Fund (IMF) Mission in Cyprus said that:

The global crisis has started to affect Cyprus. After some years of credit-financed overheating, the economy is headed for a sharp slowdown which will put pressure on the private sector, banks and the public sector to adjust balance sheets. Cyprus has been relatively shielded from the crisis until now, largely because of a lesser reliance on exports, prudent fiscal policies in the past, euro adoption, and a resilient financial sector which has not needed public capital injections. However, the evaporation of growth in 2009-10 will worsen credit risk in the banking sector which will bear monitoring and make current fiscal policies unsustainable without a policy correction. Structural reforms will be needed to assist the recovery and boost growth potential.

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