Merger activity accelerates among Cyprus’s largest banks

Merger initiatives have accelerated in Cyprus, according to Aristidis Vourakis, president of the Association of Cyprus Banks and CEO of AstroBank, who also revealed that Deutsche Bank is considering a return to the island.

Speaking during his address at the annual general assembly of the Association of Cyprus Banks, Vourakis stated that two major mergers among the five largest banks in Cyprus are nearing completion.

He said these mergers will create powerful banking groups with European access, offering new avenues for Cypriot businesses and individuals.

Vourakis described 2024 as a second consecutive record year for European banks in terms of profitability and shareholder returns.

Moreover, he explained that by September 2024, restrictive monetary policy had largely continued, with interest rates remaining at their highest levels in recent years.

As a result, he said, the European banking sector posted strong profitability for a second year, enabling systematic strengthening of capital reserves, improved asset quality, and increased shareholder returns through dividends and share buybacks.

“The year 2024 leaves us with inflation under control and interest rates reduced by fifty per cent following the latest European Central Bank cut, and with stronger banks,” he said.

He also mentioned that the improved operating environment inspired a wave of mergers and acquisitions, led by countries such as Italy, Spain, and Germany.

At the same time, he pointed out that there is a continued increase in supervisory requirements and operating costs, alongside competition from Fintech start-ups that are often more flexible and less tightly regulated.

Vourakis stressed that this is further complicated by an unstable geopolitical environment, which requires vigilance and constant rationalisation.

Cypriot banks, he said, have closely followed European trends, pointing out that the domestic banking sector also posted profitability for a second consecutive year.

Consolidated profits for the sector once again exceeded €1 billion. In addition, the Core Tier 1 capital adequacy ratio reached 24.5 per cent, which compares favourably with the European average of 16 per cent.

He also said that the non-performing loans (NPL) ratio fell to 6.2 per cent, which remains worse than the European average, but reminded the audience not to forget the financial crisis Cyprus experienced in 2013.

He explained that despite the strong progress over the past two years, the effects of the 2013 crisis are still visible in the banking sector and in society.

The association president stressed that the profits recorded in 2023 and 2024 have yet to offset the losses suffered during the crisis.

Specifically, he explained that losses from 2014 to 2022, even excluding 2013, still far exceed the profits recorded in 2023 and 2024.

“There is also a significant volume of non-performing loans that remain under the ownership of specialised non-banking entities,” he said.

“As a result, thousands of our fellow citizens remain trapped in potential foreclosure procedures,” he added.

He said the government’s initiatives, particularly those by the Finance Ministry regarding the rent-to-mortgage scheme, are absolutely helpful in this direction. He stated that accelerating and expanding such efforts is welcomed.

Vourakis also hailed the Cypriot parliament’s decision to avoid imposing an extraordinary tax on banks.

“It strengthens the stability of the business environment, the confidence of investors, who, let us not forget, rate the Republic of Cyprus at the A grade and have invested significant capital, and allows banks to operate smoothly, supporting businesses, home ownership, and infrastructure projects with billions in new loans each year,” he said.

According to Vourakis, 2024 was also another year in which Cypriot banks contributed to pan-European initiatives with a strong commitment to sanctions enforcement, enhanced control systems, and compliance.

This was confirmed, he said, by the 2024 Moneyval report, as well as by initiatives aligned with the Presidency of the Republic aimed at improving Cyprus’s international image.

Importantly, he said that Deutsche Bank, the most active European bank in international payments, is considering returning to Cyprus following efforts by the association. Deutsche Bank had exited the Cypriot market in 2016.

What is more, he mentioned that progress has also been made on the ESG agenda. Most Cypriot banks, he said, have announced clear goals and are ready for the initial reporting requirements due in 2025.

The association’s affiliated company, Artemis, already provides ESG compliance reporting services to Cypriot businesses.

The year 2025 will bring new challenges, he continued. While the energy crisis triggered in 2022 has been avoided, the need for investment in networks and the upgrading of outdated infrastructure is growing more urgent, as recent events in other European countries, such as the blackout in Spain, have shown.

Vourakis stressed that 2025 will also bring additional requirements for redirecting supply chains and securing autonomy over critical systems and supplies.

He said Cypriot and European banks possess the liquidity and capital to support this transition and can already activate investment programmes ahead of the implementation of the Capital Markets Union and Banking Union.

However, he stressed that clear and consistent policy direction, along with regulatory support, is needed to facilitate this shift.