Despite the European Central Bank's (ECB) interest rate cut, the Cypriot banking sector is experiencing a financial boom.
For the second year in a row, lenders have posted record profits.
In 2023, for example, the banks' combined profits totalled more than €1.1 billion, which was already an impressive result. However, 2024 broke all records, approaching the €1.2 billion mark. The main reason for this growth was the rise in interest rates, which allowed banks to significantly increase their interest income.
The top earners in the Cypriot banking sector were:
- Bank of Cyprus - recorded a profit of €508m in 2024, up from €487m in 2023.The bank's net interest income rose to €822m (up 4% from €792m in 2023).The main drivers of this growth: the profitability of liquid assets and loans, as well as the bank's high liquidity.
- Hellenic Bank - earning €382.6 million in 2024, up significantly from €265.4 million in 2023, net interest income totals €598.9 million, an increase of 12%, the main reason for the success being the increase in interest income on loans and securities. However, higher deposit costs partially offset this effect.
- Eurobank Cyprus - Profit in 2024 was €210m, up 5.1% from €199.4m in 2023, but despite the growth, analysts note that the rate of revenue growth is starting to slow.
It is worth noting that some smaller lending organisations have also shown strong growth, but their financial results for 2024 are only known for the first half of the year:
- Astrobank - profit €19.5m (up from €11.1m in June 2023).
- Alpha Bank Cyprus - profit of €29.9m, but down from €38.2m a year earlier.
- Ancoria Bank - profit of €4.2m (down significantly from €8.3m in 2023).
As a reminder, the European Central Bank has been gradually reducing its key interest rate since June 2023 in order to ease credit conditions. However, relief has not yet arrived for borrowers in Cyprus. Loans remain expensive because:
- Despite the rate cut, previously high interest rates remain in place.
- Renewals of existing loans are often at higher rates, making loans less affordable.
- The ECB's monetary policy remains tight and banks remain reluctant to lend.
In turn, many experts predict a slowdown in bank profit growth as early as 2025 for a number of reasons:
- Further ECB rate cuts are expected, which will reduce banks' interest income.
- Competition in the sector will intensify, forcing lenders to rethink their strategy.
- The impact of global economic instability may affect credit volumes.
Despite current records, Cypriot banks are already preparing for new challenges. Only time will tell whether they will be able to adapt to the changing economic environment.