Constantinos Herodotou, Governor of the Central Bank of Cyprus said now is the time for Cypriot banks to exploit the favourable juncture to tackle the challenges that are lying ahead, stressing that “complacency emanating from short term profits is not a viable option.”

Addressing the 2023 ICPAC Mediterranean Finance Summit held in Limassol on Thursday, Herodotou referred to the challenges facing the banks which emerge such digital transformation, cybersecurity, the green transition and ESG, a Central Bank of Cyprus press release says.

“The challenges I mentioned, require significant upfront investment, cultural change and contribution from different stakeholders before reaping the benefits. And the time for Cyprus banks is now,” he said.

Herodotou pointed out that the banks’ “strong capital position, ample liquidity and materially increased profitability can and must drive, without delay, their transformation towards a sustainable and competitive business model to address the challenges ahead.”

“Complacency emanating from short term profits is not a viable option. Sustainability through transformation is the way forward. The CBC will continue pushing for this and will support this effort,” he stressed.

Referring to the shocks that emerged in regional banks in the US such as SVB, Herodotou said that the Eurozone mandatory supervisory restrictions with regards to the banks’ continuous management of concentration risks on assets as well as financing, has proved to be once again best practice for risk management purposes.

“The ample liquidity of Cyprus banks in conjunction with CBC’s preventive measures in 2021 to manage concentration risks, reinforced the banks’ actions towards diversification making them stronger and capable to face any similar events,” he said.

But Herodotou pointed out that “there is no room for complacency,” as the elevated levels of inflation, in combination with the increasing interest rates, are expected to reduce net household income, hampering borrowers’ repayment ability. 

“Consequently, loan portfolios bear elevated risks that need to be properly managed,” he stressed.

Furthermore, Herodou said that continuing de-risking process in Cypriot bank is of prime importance because the progress in de-risking the banks’ balance sheets by reducing the amount of non-performing loans in each bank, has been heterogeneous across banks with smaller banks lagging behind.

In this context, he noted that the CBC has mandated a consortium of experts, comprised of international, well reputable companies, to carry out a project aiming to provide a possible solution also for the long-standing problem of the non-resolved non-performing loans that are still present at a number of banks.

“The aim is to make them more resilient for future shocks but also free the time of banks’ management and enable them to focus on their core banking business and improve their banking offer and service to their clients,” he said.