NICOSIA, June 18 (Reuters) - Cyprus' finance minister on Tuesday urged banks to take "drastic action" to reduce lending rates, saying the high level was crimping demand and could stifle the island's growth potential.

Earlier overtures to commercial banks to lower their charges had had a slight impact but they should get the ball rolling now the ECB has started to lower rates, Makis Keravnos said.

"I must convey in the most vehement manner the cries of distress from households and businesses about borrowing rates which is a key factor inhibiting growth, and in dealing with social issues like housing," Keravnos said in an address to a meeting of the Association of Commercial Banks.

The European Central Bank cut its policy rate to 3.75% from 4.0% on June 6. Base rates in Cyprus' commercial banks range from around 5.80% for a mortgage to over 8% for a consumer loan. Their rates typically move in line with ECB moves.

Keravnos said banks should reduce the gap between deposit and lending rates, as well as refrain from further increases on lending rates.

"I'm addressing the credit institutions, and I expect that we will see drastic steps in this direction in the immediate term," he said.

Net demand for business, household and consumer loans fell in the first quarter of 2024, according to Cyprus central bank data. (Writing by Michele Kambas; Editing by Alison Williams)