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- Ελληνικά
26 September 2023
It is with great pleasure that I am here today to discuss the challenges and opportunities that arise in the banking sector in Cyprus. It is a fact that the banking system reflects the overall state of the economy and therefore its safe and efficient functioning is an absolute priority for the Ministry of Finance. The constant changes and challenges in the sector force policy makers and market participants to remain alert and ready.
Our economy has proven its resilience, effectively dealing with many difficulties and challenges. The global coronavirus pandemic and the ongoing war in Ukraine have presented our country with complex challenges, but stability and foresight in managing them have helped avoid worse consequences. With sound economic and financial measures we have managed to maintain growth and protect the well-being of our citizens, facing any problems with determination. That said, I want to be clear that we fully understand that challenges are still ahead of us.
The banking sector, having made remarkable progress in recent years, with a strong capital base and liquidity, has played a decisive and productive role in this collective effort and is expected to continue to do so. However, there are visible challenges and risks that need to be addressed.
One of the main challenges facing the banking sector is the series of repeated interest rate hikes by the European Central Bank, which is pursuing perhaps the most decisive cycle of restrictive monetary policy in the last 40 years. These successive interest rate hikes have significant and multifaceted effects on the economy, as they increase the cost of borrowing for housing, education and other necessary financing, limiting household disposable income.
Understanding the serious implications that arise, banks have adopted some positive measures in terms of absorbing the increased costs of rising interest rates, as well as in terms of setting deposit rates.
Understanding the serious implications that arise, banks have adopted some positive measures in terms of absorbing the increased costs of rising interest rates, and also in terms of setting deposit rates. But I am sure that banks, assuming their social share of responsibility, will continue to monitor these developments closely and I hope that further positive measures will be taken by all banks.
Of course, I could not fail to mention the current situation of non-performing loans (NPLs), which for many years has been an obstacle to economic recovery and the stability of the banking sector. Today, the level of NPLs has significantly decreased and is a positive development for the Cypriot economy, as it demonstrates that efforts to manage NPLs and the recovery of the banking sector have started to bear fruit.
Indicative are the conclusions of the progress report on the evolution of NPLs in relation to specific targets set within the framework of the Resilience and Recovery Plan, which was recently submitted and approved by the Council of Ministers. The two quantitative targets of the Plan related to NPLs have been met and the implementation of the target will contribute to the disbursement of the next tranche from the Recovery and Resilience Fund.
The outlook for tomorrow is highly encouraging as the government has taken significant steps and continues to elaborate measures to address the problems related to NPLs. The passage of bills to strengthen the legal framework for the management of the NPL secondary market is another important step towards financial stability and strengthening the banking sector.
In addition, the shift of banks towards electronic banking is a positive development that reflects the need for the financial sector to adapt to the digital era. Banks are realising that the availability of digital products is the solution to boost their revenues as customers become familiar with the convenience and efficiency of digital. Digital transformation is not only about customer service, but also about improving banks' internal operations, enabling them to be more efficient and agile. This shift is inevitable for banks to remain competitive in the digital world of the economy and the emergence of financial technology.
It is a fact that the banking map in Cyprus has changed radically over the last decade. Four banks have left the country's banking system with rearrangements in the share capital of those banks that remained in the domestic market. The banking system is endogenous, with a focus on the domestic market, and its size relative to the country's GDP is average in the European Union. The Ministry of Finance views any mergers and acquisitions as an indication of a healthy sector and the operation of free market rules
Structural changes, either through acquisitions or technological upgrades, are expected to help enhance competition and improve financial services for consumers in Cyprus.
Positive ratings from international rating agencies are an important sign of confidence, making it obvious that we are on the right path to economic recovery, and
(NΓ/EXP)
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