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Cyprus’ banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

Having successfully implemented a three-year austerity programme under the continuing supervision of the international lenders, Cyprus is now in a position permitting optimistic projections for the near future.

Real GDP growth reached 3.9% in 2018, exhibiting one of the best performances in Europe. Unemployment in Cyprus has been declining steadily and reached 8.4% in 2018, close to the euro area average.

During this period, banks have contributed towards Cyprus’s successful performance after the conclusion of the economic adjustment programme, having managed, gradually, to restore 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 34 authorised credit institutions in Cyprus, consisting of seven local authorised credit institutions, three subsidiaries of foreign banks from EU Member States, two subsidiaries of foreign banks from non-EU countries, five 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, 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 debit 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 of Cyprus Banks (ACB), has been undertaking preparations 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.

In 2018, consolidation took place in the banking sector as there were acquisitions of institutions as well as a reduction in branches.  As of the end of 2018, there were 384 branches in Cyprus (compared to 458 in 2016) and banks had a total of 8,940 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 2018, aggregate bank deposits remained fairly steady at €48 billion, as confidence gradually returned. Bank deleveraging is continuing, and total outstanding loans were reduced by €12.2 billion throughout 2018 (a 23.7% decrease from the end of 2017) as banks maintained their efforts to reduce non-performing loans (NPLs). However, during the year a total of €3.1 billion of new lending was given to firms and households.

The banking sector is making significant progress in addressing the high level of NPLs.  Cyprus recorded the largest decrease among EU countries in NPLs between June 2017 and June 2018, according to a report by the European Banking Authority (EBA).  It is notable that in 2018, NPLs declined by €10.3 billion, a reduction of 50%. This downward trend can be attributed to the transfer of the NPL portfolio of the Cyprus Cooperative Bank to the Cyprus Asset Management Company (CAMC), the sale of loans, the reclassification of loans as debt instruments held for sale as well as loans which have been successfully restructured and reclassified as performing at the end of the probation period, loan write-offs, loan repayments and debt-to-asset swaps.

In the area of financial education, the ACB and its member banks launched during 2016 an initiative named “More than Money”.  The project is aimed at familiarising primary school pupils with concepts related to money management and it was extended to more schools and students in the country in 2019. It is implemented by the organisation “Junior Achievement” (Cyprus) and is under the auspices of the Ministry of Education and Culture.  Within 2019, a new programme will be introduced to secondary school students.

Contributor: Christina Antoniou Pierides c.pierides@acb.com.cy

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