12° Nicosia,
21 July, 2024

CBC urges banks to embrace transformation for sustainablefuture

Governor Herodotou emphasizes the need for proactive measures and collaboration to tackle challenges in the banking sector

Newsroom / CNA

Constantinos Herodotou, Governor of the Central Bank of Cyprus, emphasized the need for Cypriot banks to seize the current favorable circumstances and address impending challenges during his speech at the 2023 ICPAC Mediterranean Finance Summit held in Limassol on Thursday.

In his address, Herodotou highlighted several challenges facing the banking sector, including digital transformation, cybersecurity, the green transition, and ESG considerations, according to a press release from the Central Bank of Cyprus.

"These challenges require substantial upfront investment, cultural change, and collaboration among various stakeholders before reaping the benefits. The time is now for Cyprus banks," Herodotou stated.

He emphasized that banks must leverage their strong capital position, ample liquidity, and significantly increased profitability to promptly transform their business models into sustainable and competitive ones that can effectively tackle the forthcoming challenges.

"Complacency based on short-term profits is not a viable option. The way forward lies in sustainability through transformation. The CBC will continue to advocate for and support these efforts," Herodotou stressed.

Referring to the recent shocks experienced by regional banks in the US, such as SVB, Herodotou praised the Eurozone's mandatory supervisory restrictions as best practice for risk management. These regulations ensure ongoing management of concentration risks on assets and financing.

"The substantial liquidity of Cyprus banks, coupled with the CBC's preventive measures in 2021 to manage concentration risks, has strengthened their diversification efforts, making them more resilient and capable of withstanding similar events," he noted.

However, Herodotou cautioned against complacency, citing elevated levels of inflation and increasing interest rates that could reduce net household income, thereby affecting borrowers' repayment abilities.

"As a result, loan portfolios carry heightened risks that must be effectively managed," he emphasized.

Furthermore, Herodotou stressed the significance of the ongoing de-risking process in Cypriot banks. He acknowledged the varying progress made by different banks, with smaller banks lagging behind in reducing non-performing loans on their balance sheets.

To address this issue, the CBC has enlisted a consortium of internationally reputable companies to develop a potential solution for the long-standing problem of unresolved non-performing loans in several banks.

"The aim is to enhance the resilience of banks against future shocks while allowing bank management to focus on their core banking business, improve their services, and cater to their client's needs," Herodotou explained.

The Governor concluded by reiterating the Central Bank of Cyprus's commitment to driving transformative efforts and supporting the banking sector's transition toward a sustainable and competitive future.

Cyprus  |  banks

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