How would you assess the state of the Cyprus banking sector in 2023? 

Despite the challenges that the global and local economies are facing, we must recognise that the Cypriot banks are in good shape this year in many ways. Cyprus' banks have reached a profitable path that they have been seeking for years and have worked hard to gain. Furthermore, the banking sector remains the primary facilitator of the credit market, with new loans expected to be roughly at the same level as in the previous year, at around €3 billion. At the same time, banks are the country's most socially conscious organisations, with countless direct and indirect contributions to society and critical sectors such as health and education. It is also worth noting that, since the start of Russia's war in Ukraine, local banks have been the driving force behind sanctions enforcement in Cyprus, with their strict operational structure and taking prompt steps where necessary.

How is the banking sector doing based on key indicators?

The banking sector in Cyprus is adequately capitalised. More specifically, it is stated that the average capital adequacy of the local banking system is significantly higher than the average in the Eurozone, reaching 18.9% (core tier 1 capital ratio) in June 2023. At the same time, the average of non-performing loans (NPLs) in the Cypriot banking system is now limited to below 10%, although it should be noted that it is higher than the average in Europe. That is the reason why reducing NPLs is one of the banks' top priorities. However, the significant progress recorded in recent years is noted, since almost 10 years ago NPLs approached 50%.

What measures are the banks currently taking to ensure sustainability and healthy balance sheets given current global economic pressures and challenges?

Banks have been strengthening their operations, loan portfolios, and loan origination procedures for years in a continuing highly committed push to safeguard both the sustainability of their balance sheets and that of the economy. It is also worth noting that a considerable number of loans were restructured or renegotiated in an effort to assure the borrowers' sustainability while also protecting Cyprus' financial stability and economic growth. In addition, contrary to the belief that mortgages were the primary tool for loan origination, banks are relying on their thorough assessments of the repayment capabilities of the borrowers in extending a loan.

What have been the most significant developments or milestones in the Cyprus banking sector in 2023?

The upgrades from internationally recognised credit rating agencies are, of course, the most vital and favourable developments for banks this year. Furthermore, despite difficulties, the continued reduction of NPLs and an ongoing supply of new financing can be added to the list of significant improvements for the local banking sector in 2023. Simultaneously, mergers and acquisitions conversations have been in the spotlight for months, indicating the sector's attractiveness and bright future, which leads to investment opportunities and agreements that can be a driver for other industries as well.

What new opportunities and developments are you seeing in the banking sector, for example the introduction of new services and product lines, and are more mergers and acquisitions on the horizon for the local industry?

Let me start with the prospect of any new mergers and acquisitions. It is common practice in business, particularly in banking. The most important factor is to conduct those discussions during times when banks are profitable, have liquidity, and potential for fresh lending. Financial history is full of mergers and acquisitions to form new, larger, and more sustainable financial groups, which is also supported by the supervisory authorities of the EU. In the arena of new services, we observe local banks making a continual effort to improve digital trends and give the market high technology, digital solutions, safety, and simplicity for consumer and business transactions. This effort resulted into new bank web platforms, mobile apps, and a new digital banking landscape in the local market.

The regulatory burden has been growing on financial institutions in the last few years, is there any significant new regulation that has come into force in 2023 or is expected in 2024, that will have a big impact on Cyprus banks and/or their clients? 

The key challenge for the coming year, both for banks and the rest of the economy, is the transition from planning to implementation of new ESG criteria. This huge transition to a completely new framework which depends upon the three pillars on which ESG is founded – Environment, Social, and Governance – comes at a significant expense, effort, and careful preparation by all stakeholders. Of course, the enormous shift that ESG brings with it will influence the future of the world, economies, and society, and it is critical that we all embrace it. We must consider the work and expenditure as an investment in sustainability and the future generations. Banks, too, are always focused on the regulatory framework and compliance due to increased challenges and risks arising from the volatile global scene, mostly due to geopolitical developments.

How is the emergence of new financial technology and applications affecting larger and more traditional banks, what kind of challenges or opportunities are they creating?

We have always believed that competition is good and beneficial to consumers. In addition, for established organisations or institutions such as banks, competition acts as a motivator or accelerator for the introduction of new, digital solutions and technology advances, bringing services to market faster – and in some circumstances at a lower cost – than in the past. Nonetheless, we need to emphasise the importance of having the same regulatory standards for competing businesses like fintechs and big platforms as they are providing the market with the same or equivalent products or services.

What are your expectations for Cyprus and its banking sector in 2024?

The banking sector will continue to perform well, thereby supporting local economic activity and corporate demands. At the same time, I anticipate that profitability will increase further as the economy grows and develops. As a result, banks' capital bases are strengthened. Digitisation is also one of the top targets for local banks, and it is a path that they will continue to follow in the coming year.