Cypriot banks have nearly eliminated their borrowing from the Eurosystem through Targeted Longer-Term Refinancing Operations (TLTROs), with the latest data from the Central Bank of Cyprus (CBC) showing repayments totalling €2.6 billion.
According to the CBC’s monthly balance sheets, the remaining borrowing through TLTROs dropped to €100 million by the end of June, down from €2.7 billion at the end of May. This follows repayments of €1.8 billion in March 2024.
In June, both Hellenic Bank and the Bank of Cyprus made TLTRO repayments of €2.3 billion and €0.3 billion respectively, effectively zeroing their borrowing from central banks.
Moreover, Astrobank, in its financial results, reported that its funding from central banks stood at €100 million as of June 30, following a repayment of €100 million in March 2024.
TLTROs were launched in June 2014 to provide long-term liquidity to commercial banks under favourable lending conditions. Their aim was to stimulate lending to the real economy, particularly during the deflationary pressures of that period.
These instruments were targeted, as the borrowing amount available to banks was linked to the loans they extended to businesses and households.
A significant shift occurred with TLTRO III, introduced after the outbreak of the Covid-19 pandemic, allowing banks to borrow from the Eurosystem at a negative interest rate of 1 per cent, effectively gaining a 0.5 percentage point advantage, as they deposited their liquidity with the Eurosystem at a negative interest rate of 0.5 per cent.
These interest rates remained in effect until June 2022. However, from November 2022, the cost of borrowing was aligned with the average cost of accepting deposits, indirectly prompting banks to proceed with early repayments of these amounts.
Following the onset of the war in Ukraine and the surge in inflation, the European Central Bank (ECB) adopted an unprecedentedly restrictive monetary policy to control rising prices.
This included steps to reduce its balance sheet, thereby restricting liquidity in the market.
It is important to note that the balance sheets of Cypriot banks are characterised by exceptionally high excess liquidity.
The banks had utilised this tool due to the favourable financing terms during the peak of the Covid-19 pandemic.
According to its latest financial results, the Bank of Cyprus reported liquidity of €7.3 billion at the end of June, following the repayment of TLTROs.
Hellenic Bank, in its first-quarter results, reported liquidity of €5.1 billion, excluding borrowing through TLTROs.
As an indication of the scale of repayment that has taken place, borrowing through TLTROs peaked at €6.5 billion in October 2021 but has gradually decreased since, with the majority concentrated in Cyprus’ two largest banks.
