The Central Bank of Cyprus has reported a significant improvement in the quality of loan portfolios across the country’s banking sector. As of the end of September 2025, the share of non-performing loans (excluding loans and advances to central banks and credit institutions) fell to 4.5%, down from 5.6% at the end of June 2025. This trend indicates a steady reduction in credit risk and more effective debt management.
Using the European Banking Authority methodology, which includes loans and advances to central banks and financial institutions, the NPL ratio also declined, reaching 2.3% at the end of September 2025 compared with 2.9% three months earlier. At the same time, banks significantly strengthened their provisioning levels: the NPL coverage ratio increased to 68.5%, up from 62% at the end of June 2025.
Restructured Loans and Ongoing Challenges
Despite the overall improvement, vulnerable segments remain within Cypriot banks’ loan portfolios. The total volume of restructured loans reached €1 billion at the end of September 2025, of which €0.5 billion are still classified as non-performing. This highlights that some borrowers continue to face financial difficulties, requiring banks to maintain a cautious approach when managing these assets.
Economic uncertainty in Europe and the continued pressure of high interest rates make the performance of restructured loans a key factor for financial stability in the period ahead.
Profitability Under Pressure
Against the backdrop of improving asset quality, the profitability of Cyprus’s banking sector has declined. For the first nine months of 2025, total sector profits fell by €237 million year-on-year. While profits stood at €953 million in September 2024, they dropped to €716 million by September 2025.
The Central Bank of Cyprus attributes this decline primarily to lower net interest income. Banks have faced changing funding conditions, more cautious lending activity, and increased competition, all of which have weighed on financial performance.
Asset Growth and Strong Capital Adequacy
Despite the decline in profits, the balance sheets of the banking sector continue to expand. In the third quarter of 2025, total banking assets increased by €835 million, representing growth of 1.2%. Total assets rose from €66.97 billion in June 2025 to €67.81 billion by the end of September 2025. The main driver of this growth was an increase in loans and advances, indicating that credit activity in the economy remains intact.
Capital adequacy ratios remain strong, although they have edged slightly lower. The Common Equity Tier 1 (CET1) ratio declined by 0.2 percentage points, from 26.3% in June 2025 to 26.1% at the end of September 2025. The regulator explains this by growth in total risk-weighted assets, which outpaced the increase in Tier 1 capital.
Overall Picture of the Cypriot Banking Sector
Overall, the Central Bank of Cyprus data point to continued strengthening of asset quality and resilience within the country’s banking system. At the same time, the sector is adjusting to lower profitability and higher risk exposure. In 2025, key priorities for Cypriot banks remain the control of credit risk, capital management, and responsiveness to changes in the macroeconomic environment in the euro area.