Nicosia, Cyprus. The Central Bank of Cyprus said a stronger move towards longer-term fixed-rate loans, particularly mortgages, has reshaped bank lending and brought domestic financing conditions closer to those across the eurozone.
The change reduced new borrowers’ exposure to interest-rate movements, narrowed the difference between lending and deposit rates and affected the transmission of monetary policy in Cyprus.
Changes in lending structure
The findings were published on Friday in an Economic Brief prepared by the CBC’s Economic Analysis and Monetary Policy Division.
The report examined the effects of the European Central Bank’s recent monetary policy cycle, including tightening between July 2022 and September 2023 and easing from June 2024 to June 2025.
According to the CBC, new lending increasingly shifted towards fixed-rate loans with an initial rate-fixation period exceeding one year, with housing loans showing the most significant change.
Mortgage market shift
Before 2022, most new mortgages in Cyprus carried variable rates or rates fixed for no more than one year, the central bank said.
It said the increased use of longer fixed-rate periods, alongside greater issuance of loans secured by deposits, contributed to lower lending rates and a closer alignment with eurozone financing conditions.
Interest-rate risk and policy transmission
The CBC said the developments indicate a broader redistribution of interest-rate risk between banks and borrowers.
The composition of new lending has become an important factor in assessing financing conditions and the monetary policy transmission mechanism, it said.
The growing proportion of loans with longer fixed-rate periods increasingly resembles eurozone lending structures and indicates that future monetary policy changes may be passed through to borrowing costs more gradually.
