The past few years have been quite challenging for the Cyprus economy in general and its banking sector in particular.
The global crisis that began in 2008 and the local financial crisis that followed in 2012-2013 hit the country hard. During 2018-2019, the banking system of Cyprus managed to recover, but not completely. 2020 dealt another crushing blow.
Against the backdrop of the coronavirus pandemic and protracted quarantine, confidence in the banks in Cyprus has sharply decreased again.
A survey conducted by StockWatch in April 2021 showed that many residents of the country prefer not to contact local financial institutions at all.
During the survey, respondents were asked two questions: how much they trust Cypriot banks, and how willing they are to recommend to others one or another bank operating in Cyprus. For the assessment, a scale from 0 (do not trust / do not recommend) to 10 (fully trust / actively recommend) was used. We must admit that this survey has been conducted since 2013, when the banking crisis broke out in Cyprus.
The survey covers the entire country, including urban and rural areas, men and women aged 18 and over. The methodology used for the survey is a random multistage stratified sample.
Places in the ranking of financial institutions in Cyprus in April 2021 were distributed as follows:
- Bank of Cyprus received the highest score of 5.75. However, this figure has dropped from 5.90 points since the previous poll in December 2020. In general, it is this bank that has been the leader in this study since the beginning of 2017.
- Hellenic Bank is the second most trusted bank by the island's residents. He scored 5.55 points, up from 5.70 in December 2020. After the bank acquired part of the assets of the Cooperative Bank, the level of trust in it from customers at the end of 2020 returned to the values of 2017. However, already in April 2021, these indicators dropped sharply.
- RCB Bank scored 4.70 points, compared to 5.10 in December 2020.
- AlphaBank 4.55 points, 4.85 in December 2020.
- Eurobank - 4.60 points, 4.90 in December 2020.
- Astrobank - 4.30 points, 4.8 in December 2020.
- CDB Bank - 3.95 points, 4.25 in December 2020.
- Ancoria Bank - 4.1 points, 4.50 in December 2020.
By the way, during the time of a decrease in interest income and in the overall level of profitability, the banks of Cyprus are constantly looking for new sources of profit, thus they charge fees for services that were previously free. For example, for servicing accounts. This, in turn, plays an important role in the issue of customer confidence.
Why did the banks choose this method of making a profit?
The reason is simple: banks cannot provide enough new productive loans with adequate repayment capacity in an unstable economy, where there are not many people who are still considered creditworthy, and where, partly as a result, there is only weak domestic demand that would open up new investment opportunities.
During the backdrop of excessive private debt in Cyprus, there is now a very small number of potential borrowers who are creditworthy to provide new loans. Moreover, since a significant part of the income is channeled to repayment, domestic demand suffers, which in turn limits investment opportunities.
According to experts, the very rapid growth of private debt in Cyprus and the increasingly wasteful use of financial resources have played an important role in the disastrous events, the most recent of which was the financial crisis of 2012-13 and the related recession. Many studies for advanced economies show that rapid growth in private debt ultimately leads to a strong slowdown in economic growth.
It turns out that today many banks in Cyprus have become more like Western Union and MoneyGram than classic banks, since their main income is customer payments, and in order to increase income, banks simply increase the rates for payments and other banking services.