“Uncertainty seems to be the new normal, at a time when the financial sector is not just evolving, but transforming at a pace of disruptive change,” said the Governor of the Central Bank of Cyprus, Christodoulos Patsalides, in his keynote speech at the 13th Banking, Payments & Fintech Forum and Expo presented by Logicom.
Patsalides analysed international and European developments, Cyprus’ position in the new financial environment, as well as the challenges and opportunities shaping the future of banking.
As he pointed out, the international environment is characterised by “changing geopolitical dynamics that blur the horizon”, which makes the operating framework of financial institutions increasingly complex. As he noted, the Eurozone environment is affected by “increased geopolitical tensions, ongoing conflicts, trade fragmentation, increased risks to financial stability and challenges arising from the rapid development of new technologies”.
Referring to the European Central Bank’s November 2025 Financial Stability Report, he stressed that “risks to financial stability remain elevated, although broadly contained.” As he explained, the main vulnerabilities are linked to “geopolitical shocks, the challenging fiscal outlook in some advanced economies, the interconnectedness of the non-bank financial sector with the banking system, and the possibility of sharp repricing in financial markets.” He also made particular reference to valuations around artificial intelligence, noting that “they are high and concentrated, amplifying risks when narratives change.”
Despite the challenges, the CBC Governor underlined that the European economy has demonstrated resilience. As he stated, “real GDP growth in the Eurozone is hovering just above 1% and is expected to increase moderately in the coming years, inflation continues its gradual convergence towards the ECB’s medium-term target of 2%, while unemployment remains close to historically low levels, just above 6%. At the same time, he noted that Eurozone banks “have also demonstrated resilience to recent shocks, with strong profitability and adequate capital and liquidity buffers.”
Patsalides referred at length to the profound transformation of the European banking sector, noting that “structural trends – social, demographic, geopolitical, climatic, geoeconomic and technological – are reshaping traditional banking and redefining the competitive landscape.” As he emphasised, “technology is the main driver of change,” with digital banks gaining market share and innovation transforming the payments sector.
In this context, he described the introduction of the digital euro as an “important strategic response”, underlining that its aim is “to maintain public access to central bank money in digital form, support Europe’s monetary sovereignty, strengthen the resilience of retail payments and promote innovation, with high standards of privacy and security”. He clarified that “the digital euro is designed to complement and not replace cash and private payment solutions”.
Focusing on Cyprus, the CBC Governor noted that the domestic economy “continues to perform strongly”, with a growth rate of “around 3.5%, significantly higher than the Eurozone average”, supported by services, tourism and professional activities. As he stated, “public debt is on a downward path, while the labor market remains favorable and close to full employment”.
Referring to the banking sector of Cyprus, he described it as "a pillar of resilience and a lever for growth", noting that the Common Equity Tier 1 ratio "is approximately ten percentage points above the Eurozone average", while liquidity is "among the strongest in Europe".
He also made special mention of the role of artificial intelligence, underlining that “more than 70% of financial institutions worldwide are already using, testing or exploring artificial intelligence applications.” He warned that despite the significant benefits, “these technologies challenge existing business models and introduce new operational and modeling risks.”
In closing, Christodoulos Patsalides underlined that "innovation must be embraced, but always with a foundation of prudent risk management, strong governance and a clear commitment to financial stability", assuring that the Central Bank of Cyprus "remains fully committed to maintaining confidence in money and financial institutions".
(Source: InBusinessNews)
