The Central Bank of Cyprus (CBC) has announced an increase in the countercyclical capital buffer (CCyB) requirement for licenced credit institutions from 1 per cent to 1.5 per cent.
The change, aimed at addressing heightened cyclical systemic risks, will take effect on January 14, 2026.
In its statement, the CBC explained that the current buffer level of 1 per cent was deemed insufficient, prompting the adjustment.
“The increase directs part of the banks’ profitability toward strengthening their resilience, creating a larger capital reserve to absorb losses during crises or extreme events, thus ensuring the uninterrupted flow of credit to the real economy,” the CBC said.
While Cyprus’ economic outlook remains positive, the CBC cautioned against rising global uncertainties that could impact the domestic macroeconomic environment and the banking sector.
“The likelihood of potentially severe adverse events in the global economy has increased, primarily due to geopolitical developments and disruptions,” it stated.
What is more, the CBC highlighted several key risks, including the potential escalation of the conflict in the Middle East, the further internationalisation of the war in Ukraine, and a growing trend toward protectionism.
“These factors,” it said, “could result in significant new trade restrictions, posing challenges to the macroeconomic environment and the Cypriot banking sector”.
Additionally, the CBC pointed to a rising risk of reputational damage within the financial sector.
Elsewhere, the central bank underscored that its decision aligns with broader concerns across the European Union (EU).
Both the European Systemic Risk Board (ESRB) and the European Central Bank (ECB) have identified increased financial stability risks within the EU in recent months.
In an announcement released on December 5, 2024, the ESRB’s general board called for the EU to reassess its financial resilience needs amidst a shifting environment, underscoring the importance of bolstering the financial system’s robustness.
Meanwhile, the ECB’s November 2024 Financial Stability Report echoed this sentiment, highlighting the need for greater resilience within the financial sector.
“Ensuring the robustness of the financial sector during periods of uncertainty and challenging economic conditions is critical,” the report stated, recommending enhanced capital buffers to absorb potential losses.
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