Cyprus loans vulnerable to rate shifts
Half of the loans in Cyprus are vulnerable to shifts in the Euribor and the European Central Bank’s (ECB) key rates, though no further increases are expected in 2024 and 2025, but rather possible decreases, according to the latest Financial Stability Report for 2022 by the Central Bank of Cyprus.
The report states that the loan portfolio of Cypriot credit institutions is mainly characterized by long-term lending to the private sector. At end-2022, lending to households and non-financial corporations accounted for 44% and 50% of the loan portfolio to the private sector, respectively.
The majority of these loans (83% of the combined amount) have variable interest rates, with 50% of the loan amount linked to the ECB’s base rates and the Euribor rate.
This portion of the portfolio is directly affected by changes in borrowing costs, due to recent increases in key ECB rates in the second half of 2022 and the first quarter of 2023.
On the other hand, only 33% of the total loan portfolio is linked to the key rates of credit institutions, and the survey shows that it does not seem to have been significantly affected by the increases in ECB rates.
