Cyprus’ banking sector recorded one of the highest profitability and capital adequacy levels in the European Union at the end of 2024, according to the European Central Bank (ECB).

The figures revealed that Cypriot banks recorded the third-highest return on equity (RoE) across the EU at the end of December 2024, reaching 17.7 per cent.

This marked a notable rise from 14.7 per cent at the close of the third quarter of 2024, though slightly below the 21.9 per cent achieved at the end of 2023.

Romania led the profitability rankings, with its banking sector posting a 21.9 per cent RoE, up from 18 per cent the previous quarter and 17.2 per cent a year earlier.

Hungary secured second place, reporting a return on equity of 19.7 per cent, compared to 15.9 per cent in the third quarter of 2024 and matching Romania’s 21.9 per cent at the end of 2023.

Across the entire EU, banks averaged a return on equity of 9.3 per cent by the end of 2024, up from 7.6 per cent in the previous quarter and 9.2 per cent a year earlier.

The euro area, specifically, saw its average RoE reach 8.9 per cent, improving from 7.3 per cent the previous quarter and 8.7 per cent at the end of 2023.

The return on equity indicator serves as a key measure of a financial institution’s efficiency in generating profits from shareholders’ capital.

Investors typically regard a high and steadily rising RoE as a sign of robust financial health and efficient management.

In neighbouring Greece, banks reported an RoE of 11.7 per cent at the end of 2024, reflecting an increase from 9.4 per cent the prior quarter but a modest decline compared to 12 per cent recorded a year earlier.

In addition to profitability, Cypriot banks continue to exhibit strong capital buffers.

The common equity tier 1 (CET1) ratio, which reflects a bank’s core capital strength relative to its risk-weighted assets, stood at 20.1 per cent at year-end 2024, securing Cyprus the fifth-highest position among EU member states.

This marked a slight decline from 22 per cent recorded in the third quarter of 2024.

By comparison, the EU-wide average CET1 ratio was 16.3 per cent at the same reporting date.

Non-performing loans (NPLs), once a major vulnerability for Cyprus following its 2013 financial crisis, have continued their steady decline.

As of December 2024, Cyprus’ NPL ratio had fallen to 1.6 per cent. In contrast, the EU’s overall NPL ratio edged up slightly on an annual basis to 1.97 per cent by December 2024, though it remains historically low.

Commenting recently on the resilience of the Cypriot banking sector, Wim Mijs, Director General of the European Banking Federation (EBF), recently said that the island’s financial institutions have undergone a remarkable transformation since the crisis more than a decade ago.

“The transformation of the Cypriot banking sector since the 2013 crisis has been profound,” he stated.

“Cypriot banks have become significantly stronger, more resilient, and better aligned with international best practices,” he added.

One of the core achievements, he said, is the reduction in non-performing loans from about 50 per cent at the peak of the crisis to below 9 per cent today.

He attributed this improvement to targeted restructurings, enhanced supervision, and strengthened risk management frameworks.

Meanwhile, the latest ECB data, covering more than 1,000 euro area banks under its supervisory umbrella, confirm broader trends supporting the resilience of the euro area banking sector.

The report showed strong profitability and solid capital positions, supported by higher interest income and contained credit risks.

Average NPL ratios across significant euro area banks remained below 2 per cent, despite mild increases in some segments.

The ECB also mentioned that many euro area banks remain cautious about future economic headwinds, including possible credit quality deterioration linked to slower economic growth, elevated geopolitical uncertainties, and shifts in monetary policy expectations.

For Cyprus, the continued strong performance of its banks is widely seen as a testament to reforms undertaken since 2013 and the successful adaptation to a highly competitive European financial landscape.