The need to safeguard Cyprus’ financial stability and economic resilience amid significant geopolitical and domestic challenges was highlighted on Tuesday, during the Annual General Meeting of the Association of Cyprus Banks, held in Nicosia, in the presence of the Finance Minister and the Central Bank Governor.
Speakers at the meeting underscored the country’s positive economic indicators, including GDP growth of 3.8% in 2025 and the strong capital position of the banking sector, while also sending clear messages about the need for long-term strategic thinking over short-term gains.
At the same time, a recurring theme throughout the event was the concern over legislative interventions relating to foreclosures, with several speakers referring to the recent opinion issued by the European Central Bank (ECB), which warned of fiscal risks and a potential erosion of the payment culture.
Addressing the meeting on behalf of the President of the Republic, Minister of Finance Makis Keravnos stressed that the banking sector remains strong and well-capitalised, with the Common Equity Tier 1 (CET1) ratio standing at 25.1% in March 2026. He noted that although profitability declined compared to 2024 due to changes in interest rates, banking sector profits still reached approximately €1 billion in 2025.
“As the Ministry of Finance,” Keravnos said, “we would prefer bank profitability to stem more from healthy lending to businesses operating in productive sectors of the economy and less from interest rate differentials resulting from European Central Bank monetary policy.”
In a message read by Democratic Rally MP Savia Orphanidou, on behalf of House President Annita Demetriou, she stated that Cyprus’ banking sector has demonstrated remarkable resilience in recent years, a high degree of responsiveness to challenges and an impressive ability to adapt to increasingly demanding European and international regulations.
“The recent positive results, both in terms of financial stability and profitability, strengthen confidence not only in the banks themselves but, consequently, in the Cypriot economy as a whole,” Orphanidou said.
Governor of the Central Bank of Cyprus Christodoulos Patsalides noted that geopolitical risk, climate change, the challenges of the green transition, cybersecurity threats and the rapid development of Artificial Intelligence are no longer peripheral concerns but critical determinants of banking resilience and financial stability.
“These risks interact with one another, amplifying existing vulnerabilities and potentially affecting asset quality, operational continuity, business models and ultimately eroding the liquidity position and/or capital adequacy of credit institutions,” he said.
According to Patsalides, the challenge for banks is not only to manage visible risks but also to prioritise long-term resilience over short-term gains. He stressed that profit distribution policies, capital decisions and resource allocation must take into account not only current profitability but also the need for continuous investment in technological infrastructure, operational resilience, human capital and strategic adaptability.
“Banks that remain sustainable and competitive will not necessarily be those that maximised short-term gains, but those that chose in a timely manner to invest in their ability to withstand shocks, adapt and evolve,” he concluded.
Cyprus Banks Association Chairman Panicos Nicolaou stressed that the stability of the financial system is often taken for granted, when in reality it is anything but guaranteed.
He recalled the major economic, geopolitical, social and technological challenges faced by the banking sector in recent years and noted that banks succeeded in managing and limiting their impact.
“This was achieved because the decisions we took over previous years, the discipline we demonstrated, the sacrifices that were made, including by staff, and the timely investments in technology created a banking system that is far more resilient, mature and better prepared to deal with difficult conditions,” he said.
Nicolaou added that many people simplistically argue that banks merely benefited from higher interest rates, as if the negative interest rates that prevailed for several years were somehow normal.
The Association’s Director General Marios Skandalis noted that, beyond external challenges, Cyprus has also faced serious domestic crises.
He referred to the devastating wildfire in mountainous Limassol, which affected the environment, local communities and businesses, as well as the outbreak of foot-and-mouth disease affecting the primary sector, describing both as stark reminders that natural risks remain real and carry direct economic consequences.
“In these crises, banks did not stand idle. They stood by the economy, their customers, society and the affected local communities in a practical and humane manner,” Skandalis said.
Foreclosures: Risks to financial stability and payment culture
Minister of Finance Makis Keravnos, Central Bank Governor Christodoulos Patsalides and Cyprus Banks Association Chairman Panicos Nicolaou all made specific reference to the issue of non-performing loans, legislative initiatives relating to foreclosures and the recent European Central Bank’s opinion on proposed amendments.
Keravnos stated that “to address this phenomenon, the government has promoted legislation and regulations that ensure a stable and effective management framework.”
Borrowers, he added, “have additional tools at their disposal, while the institutional safety net has been strengthened. At the same time, opportunities for debt restructuring and settlement have been enhanced. Significant additional powers have also been granted to the Financial Ombudsman.”
The Finance Minister also noted the approval by Parliament of legislative proposals “despite the expressed views of the Ministry of Finance, the Central Bank and the Legal Service that they may contain constitutional and other legal and institutional issues.”
He noted that this led the President of the Republic to refer the legislation back to Parliament and subsequently to the Supreme Court, while an opinion was also sought from the European Central Bank regarding the suspension of foreclosures and the restructuring of loans and guarantees.
According to Keravnos, the ECB “expresses serious concerns about the extension of financial risks that could evolve into fiscal risks, as well as the possibility of worsening borrowers’ problems rather than resolving them.”
Central Bank Governor Christodoulos Patsalides stated that the state should not underestimate the risks arising from legislative measures affecting the banking sector.
Referring to the ECB opinion issued on 12 June 2026, he said it is fully aligned with the Central Bank’s position.
“The recent amendments to the foreclosure framework may erode financial discipline and undermine payment culture, financial stability and public finances, while also leading to stricter lending criteria and higher mortgage interest rates. While the amendments aim to protect borrowers, they may ultimately produce outcomes contrary to their stated objective,” Patsalides said.
On his part, Cyprus Banks Association Chairman Panicos Nicolaou stressed the importance of maintaining a stable and predictable institutional framework, strongly criticising populist proposals calling for the suspension of foreclosure procedures.
Also referring to the ECB’s recent opinion, Nicolaou noted that “Frankfurt clearly underlines that horizontal interventions without impact assessments, as well as populist proposals to suspend procedures, not only fail to protect genuinely vulnerable borrowers, but undermine financial stability, reward strategic defaulters and ultimately penalise the overwhelming majority of responsible citizens by increasing borrowing costs and depriving the Cypriot market of much-needed liquidity.”
Nicolaou further warned that non-performing loans outside the banking system currently amount to €18.2 billion and continue to weigh heavily on the economy.
“Our view, more than 13 years after the crisis, is that the majority of borrowers face sustainability issues. My appeal to all stakeholders is that we approach the matter from this perspective rather than allowing it to end up in courtrooms years later, when outstanding loan balances will certainly be much higher,” the Cyprus Banks Association Chairman concluded.
(Source: CNA)
