The banking sector is facing multiple challenges ranging from the large percentage of non-performing loans (NPLs) to climate change, despite progress made over the past years, speakers at the Annual General Meeting of the Association of Cyprus Banks that took place on Wednesday, underlined.
Finance Minister Constantinos Petrides said that despite the fact that the pandemic isn’t over yet, the progress of the Cypriot banking sector is already remarkable and is steadily moving towards sustainability. Nevertheless, Petrides noted, “the challenges for the banking sector remain”, noting that the size of Non-Performing Loans is still large both relative to the size of the economy and the relevant European index.
Petrides assured the bankers that the Government would continue its efforts to facilitate the management of NPLs, to significantly improve the banks’ prospects.
Governor of the Central Bank of Cyprus Constantinos Herodotou also noted the progress made by banks in most areas in recent years, but emphasized that they need to continue on their positive path and adapt in time to meet new challenges.
Further adjustments are needed to remain competitive both in Cyprus and in Europe and to effectively fulfill their main purpose to support real economy by granting new loans, he said.
The banks, he pointed out, should be especially careful in managing risks arising from the pandemic by properly adapting their policies and procedures. In particular, he said, following the end of the loan repayment moratorium, the banks must focus their attention on the evolution of the quality of their loan portfolios. “After about eight months, the picture is encouraging, but there is a significant amount of credit facilities whose repayment, due to restructuring, is yet to begin. There should be no complacency”, he said.
He also said that banking institutions should intensify their efforts to provide sustainable restructuring, improve their procedures for swift and more efficient communication with borrowers in order to support businesses and in turn, economic activity.
Herodotou said the banks should also intensify their deleveraging efforts.
Banks, he went on, need to timely calculate and manage the risks posed by climate change. According to the Governor, the European Central Bank will carry out the first emergency simulation exercises for these risks in 2022. Therefore, he noted, all credit institutions should plan and implement their policies in this area.
“Although the situation is slightly improved, there is no room for complacency. The effects of the pandemic on the banking sector as well as on the economy as a whole are obvious and ongoing”, Chairman of the Association, Panicos Nicolaou said.
He said that the decision to suspend foreclosures initially until June 18 and thereafter until August 31, and the decision to suspend primary residence foreclosures in the first quarter of 2021 pushed the banking sector to its limits.
Director General of the Cyprus Banks Association Michalis Kammas said that during the pandemic the sector supported the borrowers, the State and the economy. According to Kammas, in 2020 banks provided new loans totalling 2.4 billion euros and 1.3 billion euros in the first half of 2021. “The new lending significantly strengthens the recovery of the Cypriot economy in a particularly difficult period”, he noted.
Head of the European Banking Federation, Wim Mijs, identified four challenges for European banks. First, the capital needs and in particular full compliance with Basel III requirements, second, the transition of economies and societies - at European level - to the era of sustainable development, digital transformation and implementation of the Green Agenda, third, the intensifying supervisory framework, which demands close cooperation between banks and governments and fourth, strengthening digital services along with security and efficiency of transactions.