Nicosia, Cyprus. Central Bank of Cyprus Governor Christodoulos Patsalides said the bank is examining the activation of a systemic risk buffer, while warning that strong current performance should not lead to complacency amid growing risks. He made the remarks at the annual general meeting of the Association of Cyprus Banks.
Banking sector indicators improve
Patsalides said the Cypriot banking sector currently has the strongest fundamentals in its history, with capital adequacy, liquidity, profitability and asset quality all showing significant improvement.
He said Cypriot banks rank among the strongest in the European Union in terms of their Common Equity Tier 1 capital ratios, while liquidity levels remain substantially above both regulatory requirements and the European average.
He added that profitability has recovered strongly, largely reflecting the monetary policy environment created by the European Central Bank.
Non-performing loans decline
Patsalides said non-performing loans, once regarded as the banking sector’s chronic weakness, have fallen to levels aligned with those of Cyprus’ European partners.
Warning over concentrated banking system
Despite the sector’s current performance, the governor said unforeseen events can emerge suddenly and have disproportionate consequences.
“The black swans do not announce their arrival,” he said.
“They emerge precisely where we consider them structurally impossible and, when they appear, their consequences are unfortunately disproportionately enormous,” he added.
Patsalides said the high concentration of Cyprus’ banking sector, the highest in the eurozone according to the Herfindahl-Hirschman index published by the ECB, represents both a strength and a vulnerability.
He said concentration can bring economies of scale and investment attractiveness, but warned that shocks in such systems can be amplified.
