Panayiotis Rougalas
As interest rates continue their downward trend, and with further cuts expected, borrowers are feeling more confident. This isn’t hearsay from bank insiders or coffee shop chatter; it’s backed by hard data. According to the financial results of Cyprus’ two major banks, over €1.2 billion in new loans were issued in the first quarter of 2025, bringing smiles to bankers' faces.
New lending has a multiplying effect. Once the money, granted by banks, not for free of course, enters the market, it tends to generate even more economic activity. It helps settle old debts and sparks new spending.
But it’s not all sunshine for the banks. Their risk assessment departments would do well not to get complacent. In fact, they should be extra cautious. While ratings agencies, government bodies, and institutions aren’t currently predicting major economic slowdowns in Cyprus, the real question is whether the average Cypriot borrower’s habits have truly changed. That remains impossible to measure.
Non-performing loans (NPLs) in Cyprus have finally reached low levels. Now, it’s the credit-acquiring companies that are grappling with how to recover the loans they’ve bought. But to be fair, they acquired those loans at such discounted rates that they have the luxury of both time and profit margins on their side.
According to the Central Bank, as of the end of February 2025, the NPL ratio in the banking sector had dipped slightly to 6.2% from 6.3% in January. This drop was mainly driven by repayments, loans moving into performing categories, write-offs, and exchange rate movements. Total provisions against NPLs currently stand at 58.9%, a strong coverage ratio. But banks should aim for similarly robust safeguards on this new wave of lending too.
The European Central Bank (ECB) has warned of rising uncertainty stemming from government policies, trade disruptions, and defense issues. These could become challenges to financial stability, according to its May 2025 Financial Stability Report.
For now, the situation in Cyprus remains stable. But history has shown us that Cyprus often reacts with a delay to global financial trends.
Just as banks were urged to “proceed with caution” during the uncertain early days of the pandemic, the same rule applies today. With challenges in global trade, economic downgrades in previously “AAA-rated” countries, and growing political instability worldwide, it’s wise for Cypriot banks to remain just as cautious.
After all, it wasn’t so long ago that they were “burned” badly enough to fear even ''touching the yogurt''.
*This op-ed was translated from its Greek original
