Cypriot banks are expected to prioritise new lending in 2025 and beyond, as they seek to offset the impact of lower interest rates and capitalise on a historically low loan-to-deposit ratio.
The banking sector in Cyprus saw strong performance in 2024, benefiting from high net interest margins and a stable economic environment.
Data from the Central Bank of Cyprus (CBC) shows net interest income for the sector reached €1.54 billion in the first nine months of the year, while net fee income amounted to €264.8 million.
Pre-provision profits stood at €1.22 billion, with net earnings from continuing operations totalling €952.5 million.
The Bank of Cyprus reported net profits of €401 million for the first nine months of 2024, a 15 per cent increase year-on-year, while Hellenic Bank posted €284 million in net earnings, up 28 per cent.
Despite these robust results, the coming year presents new challenges, particularly the expected narrowing of net interest margins due to the European Central Bank’s (ECB) monetary policy shift.
The first interest rate cut of the year, a 25-basis-point reduction, took place on January 30, setting the stage for further adjustments.
With lending emerging as a top priority, the loan-to-deposit ratio in Cyprus stood at just 45.4 per cent at the end of 2024, with total loans at €25.4 billion and deposits reaching €55.9 billion.
Beyond boosting lending, banks are also looking to expand non-interest income streams, including insurance and asset management services.
The structure of the Cypriot banking market is also set for significant change, with the planned merger of Hellenic Bank and Eurobank Cyprus expected in the third quarter of this year.
This consolidation will create a market dominated by two major players, the Bank of Cyprus and the newly merged entity, each holding around 40 per cent market share.
The combined Hellenic Bank-Eurobank group will control 42 per cent of deposits and 36 per cent of loans.
Meanwhile, Alpha Bank Cyprus, set to become the third-largest lender with a five per cent market share, aims to double in size over time by focusing on corporate lending and wealth management.
What is more, the overall economic environment in Cyprus is providing strong support for banking growth.
The country recorded a 3.7 per cent GDP growth rate and an unemployment rate below 5 per cent in 2024.
With a primary budget surplus close to 5 per cent of GDP, public debt is forecast to fall below 60 per cent by 2026.
Additionally, Cyprus’ credit rating now stands at ‘A’ across all major international agencies, reflecting increased investor confidence.
Looking ahead, banks expect further economic expansion, driven by key sectors such as technology, start-ups, healthcare, education, defence, renewable energy, and infrastructure.
Cyprus’ strong ties with international markets, including India, Egypt, Israel, the UAE, Jordan, and Lebanon, are also contributing to growing opportunities in international banking.
With these factors in play, Cypriot banks are positioning themselves to sustain growth despite an evolving interest rate environment.
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