Cypriot banks made significant repayments on loans from the European Central Bank’s (ECB) Targeted Longer-Term Refinancing Operations (TLTROs) in March of this year, according to data released on Monday by the Central Bank of Cyprus (CBC).

According to the CBC’s balance sheet, a total of €1.8 billion in TLTROs were repaid in March. The Bank of Cyprus repaid €1.7 billion, while Astrobank repaid €100 million, as indicated in the financial statements of the two banks.

As a result, the outstanding TLTRO balance on the CBC’s balance sheet fell to €2.7 billion at the end of March from €4.5 billion at the end of February.

According to the banks’ financial statements, Hellenic Bank holds €2.4 billion of this amount, the Bank of Cyprus holds €310 million, and Astrobank holds €100 million.

TLTROs are three-year loans that banks can partially or fully repay on a quarterly basis.

The TLTRO programme began in June 2014, and aimed at providing long-term liquidity to commercial banks under favourable lending conditions to promote lending to the real economy, especially during periods of prolonged deflationary pressures.

These tools were targeted, as the amount of lending to banks was linked to the loans they granted to businesses and households.

A significant change occurred with TLTRO III, when, after the outbreak of the Covid-19 pandemic, banks borrowed from the Eurosystem at a negative interest rate of 1 per cent, benefiting by 0.5 percentage points, while depositing their liquidity with the Eurosystem at a negative interest rate of 0.5 per cent.

These interest rates remained in effect until June 2022. From November 2022, the cost of borrowing equalled the average cost of accepting deposits, indirectly encouraging banks to make early repayments of these amounts.

It should be noted that after the start of the war in Ukraine and the surge in inflation, the ECB entered an unprecedented restrictive monetary policy to control rising prices.

What is more, the balance sheets of Cypriot banks are characterised by excess liquidity, with banks using this tool due to the favourable financing terms during the Covid-19 period.

For example, as Hellenic Bank’s latest results show, its liquidity in March 2024 was €5.1 billion excluding TLTRO borrowing, while the Bank of Cyprus reported that its “net” liquidity (excluding TLTROs) stood at €7.3 billion at the end of March 2024.

It is noteworthy that the amount of borrowing through TLTROs peaked in October 2021, reaching €6.5 billion, and has been gradually decreasing since then.

Finally, based on the banks’ data, this amount will be fully repaid by June 2024, marking the end of TLTRO III on their balance sheets.