Cyprus economy and banks resilient, but vigilance still needed, says CBC Governor

Cyprus’ economy has shown remarkable resilience and adaptability despite repeated global shocks, while its banking sector continues on a path of stabilisation and strengthening, Central Bank Governor Christodoulos Patsalides has said.

Addressing the Annual General Meeting of the Association of Cyprus Banks, in Nicosia on 12 June, Patsalides praised the country’s economic transformation but warned that sustained progress depends on continued vigilance, domestic reform, and deeper European financial integration.

“Today’s environment requires composure, alertness, sound judgment, collective action and alignment with society’s needs,” he said, emphasizing that “international stability cannot be taken for granted.”

Patsalides stressed that “beyond macroeconomic indicators, what defines today’s Cypriot economy is its gradual transformation: more diversified, more outward-looking, and more resilient.”

On the banking sector, Patsalides noted that “the progress achieved in the financial sector is significant.” Banks now demonstrate high capital adequacy, improved liquidity, and greater operational efficiency. He also pointed out the steady progress in managing non-performing loans and cleaning up bank balance sheets.

“Our responsibility is to maintain this momentum and use it to build an even more reliable, strong, and competitive banking system, one that serves the economy and reinforces trust,” he said.

The Governor assured that the CBC continues to remain vigilant while investing in knowledge, transparency, technological transformation, and effective supervision.

The Bank, he added, applies a strategy of flexible, proactive, and effective supervision not only to protect the system but also to support long-term financial stability and growth.

Patsalides said the CBC supports “innovation when aligned with responsible risk management” and promotes “stability as a key pillar of sustainable growth and prosperity.” He stressed the importance of managing modern risks such as climate change, cyber threats, and challenges arising from artificial intelligence.

The CBC, he added, is strengthening supervisory mechanisms for electronic money and payment institutions, while placing particular emphasis on governance issues across all supervised entities.

ECB monetary policy

Regarding the ECB’s recent monetary policy decision, Patsalides noted that the central bank lowered key interest rates by 25 basis points, “based on our updated assessment of inflation prospects, underlying inflation dynamics, and the strength of monetary policy transmission.”

Inflation currently hovers near the ECB’s 2% medium-term target. According to the June 2025 forecasts, inflation is projected to an average of 2% in 2025, 1.6% in 2026, and a return to 2% in 2027.

“The approach we are adopting as a Governing Council is flexible and agile,” he added, stating that in the current environment of high uncertainty, decisions will continue to be data-driven at each meeting to determine the appropriate monetary policy direction.

On the urgent challenges faced by the EU as an institutional and economic entity, Patsalides said that recent years have clearly demonstrated “the need for deeper European integration.”

“We need full implementation of the Capital Markets Union and the completion of the Savings and Investment Union to strengthen Europe’s capacity to finance innovation and the green transition,” he emphasized.

He also called for supervisory coherence and the finalisation of the Banking Union with the creation of a common European Deposit Insurance Scheme. Additionally, he stressed the importance of swiftly establishing a legal framework to pave the way for the potential introduction of a digital euro.

Governments, Patsalides concluded, must ensure the sustainability of public finances in line with the EU’s economic governance framework, while prioritising meaningful structural reforms that foster growth and strategic investments.

“These institutional developments are particularly critical for small and open economies like Cyprus,” he said.

(Source: CNA)