Preserving a strong liquidity position and capital base within the banking sector constitutes a key priority for the Central Bank of Cyprus (CBC), in an environment with heightened uncertainty and a multidimensional, dynamically evolving web of risks, CBC's Governor, Christodoulos Patsalides has stated.
In an article published on CBC's website on Sunday, 5 March, the Governor suggests that the war in the Middle East represents a serious threat to the global economic system. "In an already fragile international environment, the continuation of the conflict may have cascading and long lasting effects on the global economy," he notes, adding that within this complex and rapidly changing environment, the banking sector in Cyprus is currently in a clearly stronger position compared to previous periods.
The Governor notes that banks in Cyprus benefited from the high deposit interest rates offered by the European Central Bank as part of its monetary policy, making use of their surplus liquidity that emerged during the period of balance sheet rationalization and the restoration of confidence.
Maintaining and further reinforcing the resilience and soundness of the banking system remains an unwavering and paramount priority for safeguarding financial stability, he highlighted, noting that this need is particularly important for Cyprus, given the structural characteristics of a small and open economy combined with a banking system that exhibits a relatively high degree of concentration and a significant size relative to the domestic economy, features that amplify sources of systemic risk.
Consequently, "Cypriot banks are required to maintain strong resilience and protection, holding higher capital buffers and higher liquidity reserves compared with their European peers operating in jurisdictions with lower systemic risks," he said, underlining that preserving a strong liquidity position and capital base within the banking sector constitutes a key priority for the Central Bank of Cyprus (CBC), acting as the country’s macroprudential authority.
According to the Governor, the high degree of concentration in the banking sector can lead to higher revenues and capital, making it easier to adopt stricter regulatory and macroprudential measures to ensure the uninterrupted flow of financing to the economy and to enhance the protection of depositors across all banks operating in Cyprus. Already in 2025, leveraging the high profitability of banks, the CBC strengthened the protective framework around the financial system by increasing, among other measures, the countercyclical capital buffer and the level of contributions to the Deposit Guarantee Scheme.
"As the authority responsible for safeguarding financial stability, the CBC has examined a series of calibrated measures and intends to activate additional macroprudential tools aimed at limiting the accumulation of systemic risks and further enhancing the resilience of the financial sector," he said.
Moreover, he added that banks are expected to continuously strengthen their risk management practices and adopt sustainable business models that support their long-term resilience and viability, in full compliance with the requirements of the Single Supervisory Mechanism. "It is therefore necessary to undertake a comprehensive assessment of how strategic objectives, business priorities, operational ambitions, and targeted returns are defined, moving toward a framework grounded in long-term strategic thinking," he added.
(Source: CNA)
