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Cyprus banking sector resilient amidst challenges

Central bank governor Constantinos Herodotou

The Cypriot banking sector managed to bolster its resilience in 2023, despite recent economic and geopolitical events, according to Constantinos Herodotou, the governor of the Central Bank of Cyprus.

Speaking at the TechIsland conference in Limassol, Governor Herodotou noted that Cyprus’ banking sector has maintained a high level of liquidity, with a liquidity coverage ratio of 318 per cent as of March 2023, compared to the European Union’s average of 162.8 per cent for the same month.

He also highlighted that the Common Equity Tier 1 (CET1) ratio stood at 18.9 per cent at the end of the second quarter of 2023, demonstrating the Cypriot banking sector’s robustness in absorbing future shocks. Moreover, non-performing loans in the banking sector have significantly decreased, with the ratio dropping from 44 per cent in 2017 to 8.7 per cent in June 2023.

Governor Herodotou acknowledged that, despite the successful management of recent uncertainties through regulatory measures, the uncertain economic environment does not permit complacency.

He underlined that banks should continue to improve their balance sheets and adapt to the evolving environment, with digital progress at the core of this adjustment.

He mentioned that the Central Bank of Cyprus has taken initiatives to create a bridge for promoting technological advancement in the banking and payment sectors. Furthermore, the Central Bank has established an Innovation Hub to encourage, promote, and support domestic financial innovation, serving as an official platform for communication between the Central Bank, as the regulatory authority, and businesses or startups operating in the fintech sector.

Governor Herodotou stressed that innovation in the financial sector has become a necessity, enabling contactless banking transactions, remote work for financial services employees, and providing effective customer-oriented products.

While technological progress undoubtedly brings opportunities, Governor Herodotou emphasised that it also presents challenges and risks.

He also stressed the importance of effectively addressing and regulating these risks to ensure that participants in the financial sector and their customers can reap the benefits of such technological advancements.

“I want to assure you of the Central Bank of Cyprus’s support for all efforts towards technological progress,” he concluded.

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