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Cyprus’ banking sector: Facts & Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

Two years after the successful conclusion of the economic adjustment programme, economic recovery has been concluded and the economy is in an increased growth phase.  Real GDP growth reached 3.9% in 2017, up from 3.4% in 2016, exhibiting one of the best performances in Europe. Growth has been broad-based across nearly all economic sectors, while many leading indicators of economic activity (e.g. credit card use, economic sentiment, property transactions, a new record in tourist arrivals) point to a continuation of expansion at a solid pace (projected to be 3.6%) in 2018.

Unemployment in Cyprus, although still above the euro area average, has continued to decline to 11.1% in 2017, and fell below 10% in early 2018. In the first quarter of 2018 the number of registered unemployed has declined at a faster pace than in previous quarters, while the continuation of growth is expected to be reflected in further improvements in labour market conditions.

During this period, banks have contributed towards Cyprus’s successful performance after the conclusion of the economic adjustment programme, having managed to restore, gradually, credibility, restructure operations and procedures, and overcome challenges to finance new viable projects and investment opportunities. At the same time, banks have had to comply with an ever-increasing number of supervisory and regulatory requirements.

The banking sector in Cyprus comprises domestic banks and international banks with Cyprus-based subsidiaries or branches. Beyond the traditional deposit and lending services, banks in Cyprus operate under the universal banking model as they offer a diverse range of products and services. Deposits from customers have traditionally been the main source of funding for banks and that element remains stable for the local banking sector.

There are 36 authorised credit institutions in Cyprus, consisting of eight local authorized credit institutions, three subsidiaries of foreign banks from EU Member States, two subsidiaries of foreign banks from non-EU countries, six branches of banks from EU Member States, 15 branches of banks from non-EU Member States and two representative offices.

Within the framework of the European Banking Union, since November 2014, the Bank of Cyprus, Cyprus Cooperative Bank, Hellenic Bank and RCB Bank, were among the European credit institutions that came under the direct supervision of the ECB, as part of the Single Supervisory Mechanism (SSM) provisions, whereas the subsidiaries of Greek banks are supervised by the SSM as their parent banks are systemic in their home country.

All banks are adhering to the SEPA direct debits’ scheme, administered by JCC Payment Systems (a national card acquirer).

A law transposing the revised Payment Services Directive (PSD2) was enacted in April 2018.  The banking sector, through the Association, has been undertaking preparations for the past two years in order to deal with payment innovations that will be brought by open Banking and instant payments as well as with the necessary increased payment safety.

As at the end of 2017, there were 458 branches in Cyprus (compared to 542 in 2016) and banks employed a total of 10,627 employees. Banks provide a widespread ATM network as well as mobile solutions, contactless transactions and smart device applications to customers, while they continuously upgrade their online banking sites.

During 2017, aggregate bank deposits slightly increased by €400 million (a 0.8% increase), as confidence gradually returned. Bank deleveraging is continuing at a slower pace compared to previous years. Total outstanding loans were reduced by €4 billion throughout 2017 (a 7.2% decrease from the end of 2016). At the same time, the high level of NPLs remains the greatest challenge faced by the banking sector and towards this goal, great efforts are directed to restructure and clean up banks’ balance sheets.

The financial education programme “More than Money”, launched during 2016 in primary schools across Cyprus, was further expanded into more schools and students in the country in 2017. The project is run as an initiative of the Association and its member banks and is aimed at familiarising primary school pupils with concepts related to money management. The programme is implemented by the organization “Junior Achievement” (Cyprus) and is under the auspices of the Ministry of Education and Culture

Contributor: Andreas Costouris a.costouris@acb.com.cy

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