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Banking sector’s solvency ratio at 21.2%

01/02/2023 08:30

The Cyprus banking sector’s total solvency ratio rose to 21.2% in the third quarter of 2022, reaching the highest level in the Central Bank of Cyprus’ data on the banking sector’s key aggregate financial indicators.

According to the CBC, the total solvency ratio in the end of September of 2022 marked an increase of 60 basis points compared with the previous quarter, while compared with the third quarter of 2021 the index recorded an increase of 90 basis points.

The Cyprus banking sector CET1 ratio in the third quarter amounted to 18%, recording an increase of 50 basis points, while the annual rise amounted to 80 basis points, according to the CBC data.

The improvement in the Cyprus banking sector’s capital indices mainly reflects the de-risking in the bank’s balance sheet and the continued reduction in the non-performing loans.

However, according to the data, efficiency remains the banking sector’s main challenge as cost-to-income ratio continued its upward trajectory and peaked at 82.6% in the third quarter of 2022 compared with 71.7% in the previous quarter of 2022.

With regard to income, net interest income in the third quarter of 2022 amounted to 74.3% of total income compared with 70.3% in the previous quarter, an increase driven by the normalisation of the ECB’s monetary policy which began in July this year.

Furthermore, net fee and commission income amounted to 29% of total income in the third quarter of 2022, increased by 0.3% compared with the previous quarter but up by 4% year on year.

Cash balances and loans converge

On the asset side, the data show a gradual convergence of cash balances with total loans as a percentage of total assets, reflecting the banking sector’s continued deleveraging since the 2012 – 2013 financial crisis.

At the end of September 2022 total loans represented 41.2% of the banking sector’s total assets compared with 41.5% in the previous quarter. Cash and cash balances deposited at central banks amounted to 37.3% of total assets in the third quarter, compared with 36.9% in the previous quarter and 33.9 in September 2021.