The large gap between lending-deposit interest rates, the large concentration of the banking sector in Cyprus, non performing loans (NPLs) and the need for a green and digital transition were among the challenges of the banking sector that were mentioned by experts at the 4th banking conference organised by FMW on Tuesday in Nicosia entitled "Banking System: new challenges and opportunities."

Finance professor at the University of Cyprus, Andreas Milidonis, noted that Cypriot banks operate in an environment with the lowest level of trust in Europe, with the third lowest transparency score in Europe and with the least competition, as four major banks have been "removed" in the last decade.

Comparing the amount of lending and deposit interest rates in Cyprus with countries of similar size and conditions in Europe, Milidonis noted that Cyprus has greater flexibility in lending interest rate increases and greater rigidity in deposit rate increases. As a result, deposit interest rates in Cyprus are among the lowest in the eurozone, while the lending rates are among the highest in Europe.

Onisiforos Iordanous, Associate Professor of Economics and Finance at the European University, disagreed with the proposal to tax banks' profits, as this would jeopardize the country's assessment by credit rating agencies and the brand of Cyprus as an investment destination.

Cyprus Chamber of Commerce and Industry (CCCI) President, Christodoulos Angastiniotis, referred to the necessity of reducing the cost of money for businesses and households, asking the state to take relevant measures. Referring to the recent bank merging trends, Angastiniotis said that CCCI is in favour of mergers, but against oligopolies, especially in sensitive sectors, such as banking, while underlining the need to attract new banks from abroad to increase competition.

For his part, Michalis Kronides, Senior Director of the Cyprus Banks Association said that Cypriot banks are showing resilience, a result of the consolidation of balance sheets in previous years, noting the significant reduction of NPLs within the system to 8.7%, liquidity coverage above 300%, and the capital adequacy above the limit set by the regulations.

He noted that profitability shields the banking sector against current and future risks. Referring to plans to support borrowers, Kronides noted that banks are absorbing part of the cost of interest rate increases. Referring to foreclosures, he said that the 2019 framework should be allowed to work. He pointed out that in the first half of 2023, banks and credit acquisition companies carried out 2,112 real estate auctions of all categories, with a success rate of 11.2% (237 properties).

Banking institutions are expected to announce additional measures to support borrowers and depositors, said Antonis Frangoudis, Director of the Department of Finance and Administration of  Cyprus Employers & Industrialists Federation (OEB), noting that loan renegotiations in the first half of 2023 amounted to €2 billion, compared to €0.9 billion in the first half of 2022 and €1.7 billion for the whole of 2022.

Referring to Vision 2035, Takis Clerides, President of the Economy and Competitiveness Council said that the development and utilization of cutting-edge technology and environmental sustainability are key supporting parameters in the long-term economic strategy.

He noted that the banking sector is in a unique position to lead digitization, with the savings from the reduced operational costs passed on to customers to make financial services more accessible.

Regarding the green transition, he underlined that green finance is of great importance and banks can contribute by promoting financial assistance to businesses to transition to green energy and by promoting green policies. Clerides also noted that it is important to assess environmental risk in lending procedures.