The Cypriot banking sector closed the third quarter of 2025 with record-strong financial results. According to data from the Central Bank of Cyprus, the island’s credit institutions remain well capitalized, demonstrate high liquidity, and continue to improve asset quality, strengthening confidence among regulators, depositors, and investors alike.
Compared with the same period last year, banks’ financial resilience has increased significantly. Profit growth in recent years has enabled the sector to build a substantial capital buffer, making it particularly resilient to external economic shocks and potential crises in the European financial market.
Capital and solvency at historic highs
A key indicator of financial stability—the Common Equity Tier 1 (CET1) ratio—reached 26.1%, one of the highest levels on record. This shows that Cypriot banks have a strong safety cushion and are well positioned to meet their obligations even in an unstable macroeconomic environment. At the same time, leverage ratios remain stable, confirming a balanced capital structure and prudent lending policies.
Asset quality and a sharp decline in non-performing loans
Regulators continue to pay close attention to problem loans, which in the past placed significant pressure on Cyprus’s banking system. In the third quarter of 2025, the share of non-performing loans fell to 4.5%—its lowest level since 2014. Under the broader European methodology, which includes interbank operations and funds placed with central banks, the ratio was even lower and continued to decline compared with mid-year levels.
At the same time, the proportion of higher-risk loans that have not yet become overdue has also decreased. This indicator has fallen below the EU average, pointing to a healthier loan portfolio than in many other European financial systems. A significant increase in provisions for potential losses further strengthens the sector’s ability to absorb future risks.
Profitability amid declining interest rates
Despite an overall reduction in key interest rates across the euro area, Cypriot banks continue to generate profits, mainly through interest income from lending, investments in debt instruments, and funds placed with the European Central Bank. Compared with the previous year, however, profitability has declined somewhat, affecting margins and return on equity.
This decline is not viewed as a negative signal but rather as a consequence of a more accommodative interest-rate policy aimed at stimulating economic activity and improving access to credit for businesses and households. At the same time, rising capital levels enhance banks’ stability and reduce their vulnerability to future economic fluctuations.
Liquidity and depositor confidence
Liquidity levels in Cypriot banks remain very high and significantly exceed EU regulatory minimums. This means that financial institutions have sufficient resources to meet client obligations even in the event of a sharp increase in cash demand or lending activity.
Bank balance sheets show that the bulk of assets are concentrated in loans, cash, and debt investments, while liabilities are dominated by deposits and equity. This structure reflects strong depositor confidence and a stable funding base.
What this means for clients and the Cypriot economy
A strong and stable banking system is a cornerstone of economic growth, business development, and the protection of household savings. High capitalization, a low share of non-performing loans, and solid financial positions make Cypriot banks among the most reliable in the region. Even amid falling interest rates, they remain sufficiently profitable, continuing to actively finance the economy and support investment activity.
By the end of the third quarter of 2025, the Cypriot banking sector had convincingly confirmed its status as financially resilient and competitive, enhancing its appeal to depositors, entrepreneurs, and foreign investors alike.