The task of securing alternative profitable products besides lending is the biggest challenge for banks in small countries such as Cyprus, Central Bank Governor Constantinos Herodotou said on Friday.
Addressing an economic forum organized by main opposition party AKEL, Herodotou said that banks of smaller size enjoy have less opportunities to find new profitable products.
Herodotou stressed that lending remains the island’s main product, and urged banks to find new products in view of boosting profitability for proper risk management.
The CBC Governor also noted that Cyprus banks take too long to process legitimate transactions, and need to improve their enforcement of regulations through a more rigorous training of staff.
Herodotou added that the profitability of Cyprus banks is also significantly affected by the irrational behaviour that is sometimes exhibited by the banks toward customers.
"It is often heard as an excuse, that CBC regulations are to blame,” Herodotou said. “To state the obvious, the regulations are the same across the entire Eurozone, as they are decided upon by the European Central Bank (ECB) and are enforced in each country by its Central Bank, so in theory there should be no discrepancies in the processing of legitimate transactions among the Eurozone countries.”
Due to the uniformity of regulations, Herodotou said the problem therefore must stem from their implementation and from the level of training bank personnel receive.
As for Non-Performing Loans (NPLs), he said, smaller banks should put more emphasis on improving their balance sheets, if they wish to see progress to the likes of larger banks in the reduction of NPLs.
Herodotou noted that there is however no magical solution to getting rid of high levels of debt, but added that this debt can be reduced through economic growth and a subsequent fall in unemployment.
He also referred to the immense technological challenge being faced by Cyprus banks. Herodotou referred to the ease with which tech giants such as Google can enter the banking sector as a result of their accumulation of data on consumer habits and the level of trust shown by consumers toward them. Banks, Herodotou said, must engage with technology as soon as possible.