Cypriot banks slash Eurosystem funding by €2.6 billion

Cypriot banks have almost zeroed funding from the Eurosystem via the Targeted Long-Term Refinancing Operations (TLTRO), with the latest data by the Central Bank of Cyprus (CBC) showing repayments amounting to €2.6 billion.

According to the CBC monthly balance sheet data analysed by CNA, the balance of funding via the TLTRO declined to just €0.1 billion in the end of June, from €2.7 billion in the end of the previous month. In March 2024, the banks repaid funding from the Eurosystem amounting to €1.8 billion.

In June Hellenic Bank and Bank of Cyprus repaid funding via TLTRO III amounting to €2.3 billion and €0.3 billion respectively, repaying the balance of the TLRO funding they got since the COVID-19 pandemic.

The remaining amount is owed by Astrobank which according to its financial results had €100 million of TLTRO funding to its balance sheet. TLROS are repaid on a quarterly basis.

The TLTRO began in 2014 as a tool by the Eurosystem to provide banks long-term funding at attractive conditions. They preserve favourable borrowing conditions for banks and stimulate bank lending to the real economy.

The third TLTRO programme consists of a series of ten targeted longer-term refinancing operations, each with a maturity of three years, starting in September 2019 at a quarterly frequency. Since the pandemic, the ECB has set TLTRO interest rate to the average rate of its deposit facility, prompting the banks to repay this funding, as part of the efforts to reduce liquidity in the system.

The Cypriot banks’ balance sheets are characterized by extremely high liquidity in spite of the ECB funding. Bank of Cyprus’ the island’s largest lender announced in its financial results for the second half of this year that its liquidity amounted to €7.3 billion despite repaying the TLTRO in full, whereas Hellenic Bank reported in the end of March liquidity amounting to €5.1 billion excluding its TLTRO. In 2021 TLTRO funding in the Cypriot banking system peaked to €6.51 billion, the majority of which was held by the island’s two largest banks.