Impressive Profitability Figures

Cypriot banks have emerged as standout performers within the European Union, recording one of the nation’s highest profit margins and capital adequacy ratios by the end of 2024, according to the European Central Bank. At a return on equity (RoE) of 17.7%, Cyprus stands third in the EU – a notable increase from 14.7% in the third quarter of 2024, although slightly below the 21.9% reached at the end of 2023.

Comparative European Performance

The comparative landscape within the EU illustrates robust competition, with Romania topping the profitability charts at a RoE of 21.9%, rising from 18.0% the previous quarter. Hungary secured second place with a 19.7% return, reflecting significant improvements over the previous quarter. In contrast, the EU average hovered at 9.3%, while the euro area reported an average of 8.9% by year-end 2024.

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Capital Adequacy and Resilience

Beyond profitability, Cypriot banks have demonstrated considerable capital strength. The common equity tier 1 (CET1) ratio, a critical indicator of capitalization relative to risk-weighted assets, was reported at 20.1% at the close of 2024 – ranking Cyprus fifth among EU member states, and notably above the EU average of 16.3%. This robust capital buffer is a key safeguard against credit risks and reinforces investor confidence.

Declining Non-performing Loans

Once a glaring vulnerability post the 2013 financial crisis, non-performing loans (NPLs) in Cyprus have seen a marked decline, dropping to 1.6% by December 2024. This improvement, set against a modest increase in the broader EU NPL ratio, underscores the effectiveness of strategic restructurings, enhanced regulatory oversight, and improved risk management practices.

Sector Transformation and Future Outlook

Wim Mijs, Director General of the European Banking Federation, has highlighted the remarkable transformation of Cyprus’ financial institutions since the 2013 crisis. With banks now more resilient and aligned with global best practices, the sector is well-equipped to navigate future economic headwinds, notwithstanding global uncertainties such as geopolitical tensions and monetary policy adjustments. The positive trends reported by the ECB, encompassing over 1,000 euro area banks, reinforce the broader narrative of a resilient banking environment driven by higher interest income and controlled credit risks.

Conclusion

The impressive performance of Cypriot banks, evidenced by superior profitability, robust capital adequacy, and declining NPLs, represents a significant turnaround story. These developments not only validate the structural reforms implemented over the past decade but also position Cyprus as a model of resilience amidst the competitive European financial landscape.