By the end of 2024, the level of non-performing loans (NPLs) in Cyprus had fallen to an impressive 6.2%, marking the lowest rate since the 2013 financial crisis. For comparison, in 2023, this figure was 7.9%.
Despite the positive trend, the Central Bank of Cyprus (CBC) continues to consider the issue of non-performing loans one of its key supervisory priorities.According to the regulator, Cyprus is among the countries with the highest NPL ratios in Europe, but there's plenty of room for improvement!
We're making great strides to reduce the volume of non-performing loans, and we're committed to continuing this progress! In addition, there is a real risk of a renewed increase in defaults, and progress remains uneven across financial institutions, particularly among less significant banks, where the situation requires additional measures.In this regard, the Central Bank has called on local financial institutions to pay increased attention to actively monitoring their loan portfolios, to more strictly assess solvency when granting new loans, and to restructure the debts of existing customers in a sustainable manner. The regulator has announced that the high level of non-performing loans continues to pose a significant threat to the stability of the banking system, requiring effective management within the existing institutional framework.Nevertheless, the Cypriot banking sector is showing impressive signs of resilience. In 2024, the Common Equity Tier 1 (CET1) ratio soared to an impressive 24.5%, far surpassing the EU average of 16.1%. Liquidity levels are through the roof! The liquidity ratio hit a staggering 333%, which is triple the regulatory minimum and way above the EU average of 163.4%.
The CBC report indicates that 2024 was marked by a number of external challenges.
These factors contributed to an atmosphere of uncertainty and exerted pressure on the economy and the banking sector. Although Cypriot banks had minimal exposure to countries directly impacted by recent global events, geopolitical risk remains a subject of ongoing monitoring and a primary supervisory priority for both the CBC and the European Central Bank.Climate risks are also a key area of concern, with the report characterizing them as "unprecedented, uncertain, and multidimensional." The central bank emphasizes the growing impact of climate change on the banking sector and calls on institutions to comply with European environmental directives and to integrate climate risks into their development strategies.Another challenge is digitalization and technological change.
The rapid introduction of new technologies has increased the efficiency of banks, but at the same time has increased their vulnerability to cyber threats. The BCBS emphasizes the necessity of ongoing investment in information security infrastructure and training for relevant personnel. According to the regulator, the modernization of IT systems and cyber security are two interrelated elements that determine the stability and trustworthiness of the financial system.Thus, Cypriot banks today face a wide range of risks, from financial to climatic, from geopolitical to technological. According to the CBC, this requires constant vigilance and a systematic approach to risk management, as well as the adaptation of strategies to changing conditions.Given the continuing macroeconomic and systemic risks, the Central Bank decided in January 2025 to increase the countercyclical capital buffer from 1.0% to 1.5%. This measure will take effect on January 14, 2026, and is aimed at strengthening banks' resilience to possible economic shocks in the future. The CBK maintains its role as a stabilizing force in a complex and volatile financial environment.