According to senior investment specialist at Athros Capital Fanos Vladimilou, a significant portion of Cyprus’ wealth continues to be buried in low-interest bank deposits, despite alternative investment options.
He also blamed Cyprus’ persistently low bank deposit rates on excess bank liquidity, low competitiveness and a lack of financial literacy among the population.
“Cypriot banks have some of the highest liquidity ratios in Europe,” Vladimilou explained in a recently published analytical article.
“This means that the volume of deposits in the domestic banking system is quite large relative to the options available to banks to channel this liquidity,” he added.
“As a result, banks don’t need to raise new deposits as quickly, which is why they keep interest rates low, even at the risk of losing some of their existing deposits.”
Mr. Vladimirou also mentioned the impact of reduced competitiveness in the banking sector on deposit rates.
“The low level of competition in the Cyprus banking system plays an important role, he said.
He added: “With only a few banks holding a large share of the market, there is less pressure to offer higher interest rates to retain customers.”
“This allows us to keep deposit rates low without incurring significant outflows to our competitors,” he said.
Another important factor is the nature of deposits in Cyprus, many of which come from individuals.
Vladimirou noted that such deposits tend to be “sticky” and are less likely to be transferred from one bank to another.
“The reluctance to move deposits is even more pronounced in Cyprus due to low financial literacy,” he said.
“Many depositors are unaware of the alternatives available to them,” he added.
“Even those who are aware often face barriers, such as high fees charged by financial institutions and high minimum investment amounts, that prevent them from pursuing other options,” he explained.
Despite low interest rates, Cypriots continue to hold a significant portion of their wealth in bank deposits, he continued.
However, Vladimirou emphasized that there are alternative investment options available, especially in the current high interest rate environment, and pointed out that one such option is government bonds.
“Treasury bonds are one of the most popular and safest alternatives to bank deposits,” he said.
“These are short-term securities issued by countries such as Germany, France and Cyprus with maturities of up to 12 months,” he added.
These bonds are “widely considered one of the safest investment options,” he said.
“They currently offer attractive yields, often in excess of 3% per annum, and can be liquidated at any time before maturity,” he said.
To highlight the potential of national debt, Vladimirou drew attention to the situation in Greece.
“Bank deposit rates in Greece and Cyprus are similar,” he said, adding, “The recent three-month Greek government bond auction yielded 2.84%, while Cyprus government bonds yielded 3.4%. ” he pointed out.
He pointed out that despite Cyprus’ high credit rating and positive economic outlook, including a budget surplus and low debt-to-GDP ratio, Cyprus’ bonds have high yields.
“The reason for this disparity is the huge demand from Greek private investors for Greek government bonds, which is driving yields down,” Vladimirou said.
He said: “This demand is mainly due to increased awareness among Greek investors of their options compared to Cypriot investors and easier access to these financial products.” he added.
Furthermore, Vladimirou said that although there is a lack of awareness in Cyprus about these safe and profitable alternatives to bank deposits, change is on the horizon.
“The positive side is that we are gradually seeing a change in attitude in Cyprus,” he concluded.
