Ioannou on Cyprus's decade of banking recovery and future challenges

George Ioannou, Member of the Supervisory Board of the ECB, highlights Cyprus's banking sector recovery from the 2013 crisis, attributing it to strong bank commitment and firm supervisory oversight. He notes continued prudence, robust asset quality, and increased cross-border activity.

Two pillars of recovery

More than a decade after its major financial crisis in 2013, the Cyprus banking sector has achieved a remarkable recovery.

George Ioannou, Director of Supervision at the Central Bank of Cyprus, attributes this to two essential pillars: banks' commitment and supervisors' firm oversight.

The recovery path was challenging, involving a comprehensive Asset Quality Review at the Single Supervisory Mechanism's onset.

Cypriot significant institutions (SIs) responded decisively, undertaking large-scale disposals of non-performing loan (NPL) portfolios, implementing viable restructurings, enhancing internal governance, and refining business models.

These steps stabilized the system, restored confidence, and repositioned the sector.

Ioannou emphasizes that this progress required consistent discipline from banks, paired with rigorous supervision from the Central Bank of Cyprus and ECB Banking Supervision.

Prudence in a changing landscape

Cypriot banks maintain tight credit underwriting standards, a key lesson from the 2012-2013 crisis.

The Central Bank of Cyprus's prudent framework now underpins record-high new lending with solid loan quality.

Asset quality remains robust despite geopolitical tensions, with non-performing loans (NPLs) continuing their downward trend.

Less significant institutions (LSIs) face higher NPLs; the Central Bank of Cyprus was the first national supervisor to implement a provisioning calendar for them, targeting full coverage by 2027. For larger banks, NPL progress enables a simplified supervisory framework, shifting focus to new priorities.

Ioannou stresses that simplification does not equate to deregulation, ensuring prudence remains central.

A resilient recovery, but work remains

Cyprus's banking sector has achieved a remarkable turnaround, proving decisive action and robust supervision can overcome crises.

Yet, NPL challenges for smaller institutions and geopolitical uncertainties show vulnerabilities persist.

Completing the banking union and fostering deeper supervisory alignment are crucial for lasting stability.