Panayiotis Rougalas
Cypriot banks saw their profits shrink in 2025 compared with the previous year, largely due to a smaller contribution from net interest income. According to the Central Bank of Cyprus, banking sector profits totaled €1.02 billion last year, down from €1.18 billion in 2024, a drop of €165 million, or 13.9%.
By contrast, 2023 remains the strongest year for Cypriot banks in at least the past 15 years, with profits reaching €1.26 billion, €72 million higher than in 2024 and €237 million above 2025’s results.
Net interest income falls
Net interest income (NII) also contracted, standing at €1.56 billion in 2025, compared with €2.02 billion in 2024 and €1.91 billion in 2023. For context, in 2022, a year partly dominated by negative interest rates before they turned positive in the fall, NII totaled €976 million.
Despite these declines, the Central Bank decided to maintain the countercyclical capital buffer (CCyB) at 1.5% to safeguard banks against potential risks.
Banking sector grows, capital position strengthens
Total assets in the Cypriot banking sector rose by €4.3 billion, or 6.6%, reaching €69.9 billion at the end of 2025, up from €65.6 billion at the end of 2024. The growth was primarily driven by higher loans, advances, and debt securities. For comparison, total assets stood at €65.16 billion in 2023.
The Common Equity Tier 1 (CET1) capital ratio, a key measure of bank solvency, improved to 25.8% at the end of 2025, up from 24.7% a year earlier. The Central Bank attributed the improvement to higher CET1 capital and a reduction in total risk exposure.
Outlook: rates may rise again
According to the European Central Bank (ECB), key interest rates, including the deposit facility (2.00%), main refinancing operations (2.15%), and marginal lending facility (2.40%), remain unchanged. However, analysts warn that geopolitical tensions in the Middle East and rising oil prices could push rates higher, which would in turn support banks’ net interest income.
The ECB has highlighted ongoing economic uncertainty, citing global trade tensions and geopolitical risks, but also noted that the economy remains resilient thanks to low unemployment, strong private sector balance sheets, gradual public investment in defense and infrastructure, and supportive effects from prior rate cuts.
Future ECB rate decisions will weigh inflation prospects, incoming economic and financial data, and how underlying inflation responds to monetary policy.
Countercyclical buffer maintained
Under Cyprus’ macroprudential framework, the Central Bank decided to keep the CCyB at 1.5%, effective January 14, 2026. The bank said the decision reflects the ongoing risk of extreme global events, including the escalation of conflict in the Middle East, the internationalization of the war in Ukraine, and rising protectionist measures, which could impact the domestic economy and the banking sector.
In addition to these cyclical risks, the Central Bank noted a rising reputational risk for the sector, underscoring the need for continued prudence in bank supervision.
