Central Bank of Cyprus (CBC) governor Christodoulos Patsalides on Thursday used his address at the 4th ICPAC Mediterranean Finance Summit to underline the importance of resilience in the face of global economic uncertainties.

At the event, Patsalides highlighted the necessity for strategic reforms and robust regulatory frameworks to ensure financial stability and sustainable growth.

“We meet at a time when resilience is no longer an abstract goal but a daily necessity,” he stated.

“The global environment remains deeply uncertain — shaped by geopolitical tensions, trade disputes, economic fragmentation, rapid technological change, and the accelerating impacts of climate change.”

European economic Landscape

Governor Patsalides discussed the recent decision by the European Central Bank (ECB) to lower key interest rates by 25 basis points in April 2025, reflecting a cautious approach amid ongoing economic uncertainties.

“The disinflation process has continued to progress well, strengthening confidence that inflation will sustainably return to the 2 per cent target in the medium-term horizon,” he said.

However, he cautioned that monetary policy decisions are being made with extra caution, adhering to a data-dependent, meeting-by-meeting approach.

“Under the exceptionally uncertain economic conditions, monetary policy decisions are calibrated with extra caution without any pre-commitment to a predetermined path,” he explained.

The broader euro area outlook remains fragile, with real GDP growth reaching 0.9 per cent in 2024. While the labour market shows resilience, risks such as trade disputes and geopolitical instability continue to weigh on confidence and investment.

Inflation stood at 2.2 per cent in April 2025, with underlying measures pointing towards sustained convergence with the ECB’s target.

“Lower energy prices and a tempering of wage growth pressures have all contributed to this positive development,” he added.

Moreover, Patsalides emphasised the need for strategic reforms to complete Europe’s financial architecture.

He highlighted the importance of addressing the persistent fragmentation of the Single Market, underdevelopment of capital markets, and the necessity for a fully mutualised Deposit Guarantee Scheme (DGS).

“To build a financial ecosystem that is not only resilient in the face of crisis but also conducive to long-term prosperity, we must complete the long-standing project of deepening Europe’s financial architecture,” he stated.

He also stressed the importance of scaling up Europe’s venture capital ecosystem to support innovation and technological advancement.

“A stronger, more integrated European venture capital market would help address these issues,” he said.

“Building such an ecosystem is vital not only for economic competitiveness but also for achieving Europe’s strategic autonomy in key technologies,” he added.

Regulation, operational resilience, and Cypriot economy

The CBC governor also highlighted the significance of regulation and operational resilience in building trust and enabling innovation in an increasingly digital and interconnected financial system.

He pointed to the implementation of the Digital Operational Resilience Act (DORA) and the Corporate Sustainability Reporting Directive (CSRD) as steps towards enhancing the digital resilience of financial institutions and improving transparency.

“Together, these reforms reflect a forward-looking regulatory agenda aimed at future-proofing the financial system—ensuring stability, improving risk management, and aligning financial sector operations with broader societal and environmental goals,” he explained.

Turning to Cyprus, Patsalides acknowledged the country’s notable strength and adaptability in recent years.

“Despite a persistently volatile international backdrop, the Cypriot economy has continued to deliver solid results,” he stated.

“In 2024, Cyprus recorded one of the highest growth rates in the euro area, supported by resilient private consumption, growing investment in housing and infrastructure, and an exceptionally strong tourism season,” he added.

Furthermore, he mentioned that services exports, including ICT, shipping, trade, and professional and financial services, continued to diversify and reinforce the country’s economic base.

“These developments reflect a deeper structural transformation, which has made the Cypriot economy more agile and better able to absorb external shocks,” he said.

The labour market remains strong, with unemployment declining near full employment levels, and inflation has moderated considerably.

“This disinflation process is helping to restore purchasing power and support business and consumer confidence,” he added.

Fiscal indicators have also improved substantially, with Cyprus achieving a significant reduction in public debt in recent years.

“The country’s performance has been positively recognised by all major credit rating agencies, which now place Cyprus firmly in the ‘A’ category,” he noted.

Looking ahead, growth is projected to remain steady, though global uncertainties present clear downside risks.

“While Cyprus has limited direct exposure to global goods trade disruptions, we remain highly interconnected through services and financial channels and must therefore stay alert to second-round effects,” he cautioned.

Enhancing supervisory frameworks

Governor Patsalides also discussed the progress achieved in the banking sector, noting that banks today are better capitalised, more profitable, and more efficient.

“Core indicators — including capital adequacy, liquidity, and return on equity — are well above the EU average,” he stated. “This provides a strong buffer against volatility and supports financial stability under a range of scenarios.”

He highlighted the continued improvement in credit quality, with non-performing loans steadily declining.

“While still elevated compared to EU norms, the trend is encouraging and reflects the sector’s ongoing efforts to address legacy risks,” he said.

He added that “it is vital that this progress continues, with particular attention paid to less significant institutions and to maintaining strong risk management practices across the board.”

He mentioned that the Central Bank of Cyprus has introduced targeted enhancements to its supervisory frameworks, including the establishment of a comprehensive licensing and supervisory strategy for electronic money institutions (EMIs) and payment service providers (PIs).

“As part of our organisational restructuring, a dedicated Directorate was created to oversee these institutions, enabling more specialised and effective supervision,” he explained.

Other key supervisory enhancements include the adoption of more risk-sensitive supervisory methodologies and the integration of climate considerations into institutional strategy and governance.

“We have also raised the counter-cyclical capital buffer to reinforce resilience against rising systemic risks — a measure that reflects our commitment to proactive macroprudential policy,” he added.

As part of the sustainability agenda, the Central Bank has established a Sustainability Committee at Board level, a dedicated Sustainability Team, and an independent Office of Climate Change.

“These structures support our broader effort to align supervisory expectations with evolving EU standards, and to ensure that supervised institutions take meaningful steps to manage climate-related financial risks,” he said.

The CBC governor also emphasised the importance of digital preparedness in the banking sector.

“Cybersecurity, digital transformation, and operational resilience are now at the core of prudential discussions — not merely auxiliary concerns,” he stated.

He added that “the safe adoption of technological innovation must go hand-in-hand with robust governance, risk management, and appropriate regulatory oversight.”

Importance of agile, ethical leadership

Patsalides also underscored the critical role of financial leaders in navigating the uncertain global economic environment.

“Leadership today requires more than financial acumen. It demands agility, foresight, and a commitment to ethical governance,” he said.

“It means preparing institutions not only to withstand volatility, but to adapt early and strategically to emerging risks — whether geopolitical, technological, or environmental,” he added.

Furthermore, he highlighted the potential for smaller economies like Cyprus to lead by example. “Small countries, such as ours, often have the potential to act more nimbly than big ones,” he said.

“In this sense, they can be ‘incubators’ of new ideas or new business models within the EU that challenge the rigidities of some of the bigger countries,” he added.

Additionally, Patsalides reaffirmed the Central Bank of Cyprus’ commitment to supporting a resilient, forward-looking financial ecosystem.

“Through sound monetary policy, effective supervision, and proactive regulatory engagement, we will continue working closely with all stakeholders — in Cyprus and across Europe — to promote financial stability, foster innovation and build the foundations for long-term prosperity,” he concluded.