Herodotou: CBC initiatives to combat banking sector challenges
12:34 - 09 May 2023
The Central Bank of Cyprus (CBC) has undertaken initiatives towards helping Cyprus' transition into the future and the creation of an even more resilient economy.
Addressing the 13th Nicosia Economic Congress on 9 May, Central Bank Governor Constantinos Herodotou said the CBC's initiatives were related to efforts to transform the country into an innovation hub. The systemic solution for Non-Performing Loans (NPLs) and digital onboarding for the banking system are further issues that the CBC will focus on, he added
In his address, Herodotou also discussed the state of the Cypriot economy and the financial sector in Cyprus.
He began by speaking about the resilient Cypriot economy, with annual GDP growth of 5.6% in 2022, slowing to 2.6% in 2023. Subsequently, the Governor of the Central Bank said that according to estimates there will be an increase in GDP of 3. 1% in 2024 and 2025.
The significant rise in inflation in 2022 and its anticipated easing in the medium term was also a topic that Herodotou addressed, noting that while inflation in April stood at 3.8% and structural inflation stood at 4.0% in the same month, structural inflation was forecast to reach 3.6%, 2.5% and 2.3% in 2023, 2024 and 2025, respectively.
The CBC on the transition to the future
Regarding the Central Bank’s initiatives, the Governor elaborated that in the context of its independent supervisory role, and to ensure the stability of the banking system, it has entered into an agreement with a consortium of companies made up of experienced international houses. This action aims at forming a systemic solution which, together with the existing tools, will be able to contribute to the further reduction of NPLs in the Cypriot banking system, thus also helping small and medium-sized banks.
The Central Bank has also created a digital onboarding project for the banking sector for faster, more flexible and efficient banking services, for which a tender has already been announced. This initiative has been undertaken despite the fact that it is not a direct remit of the CBC, Herodotou said, adding that it was still carried out because the Central Bank recognised the multiple benefits it would bring both to banks and to households and businesses. This tender process is ongoing.
In addition to the above, and with the aim of encouraging, promoting and supporting domestic financial innovation, the CBC announced, last December, the operation of an Innovation Hub. The Innovation Hub aspires to be an official communication platform between the CBC, as a Supervisory/Regulatory Authority, and companies or startups in the Financial Technology (Fintech) sectors, i.e. that combine innovative technological elements with financial services.
Therefore, the Innovation Hub constitutes a decisive step in the broader context of the supervisory objectives and priorities of the CBC, which concern issues of innovation, digital business resilience, digital transformation and cyber security, Herodotou said.
Earlier, he referred to the strengthening of the resilience of the banking system in 2022 based on the liquidity coverage ratios and common equity tier 1 capital.
The challenges faced by banks
As for the medium-term challenges for the banking system, according to the Governor, there are a total of three and they concern NPL management, digitisation and climate change.
Concluding, Herodotou said: "The capital and liquidity ratios of the Cypriot banks are satisfactory, which provides the guarantees to take the necessary measures to transform the banks with the aim of a more sustainable and competitive future. CBC will support this effort. I am sure that with methodical handling and dedication we can achieve our goals".
The Congress is presented by Pancyprian Insurance, Hellenic Life and ECOMMBX.