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Rising Motor Vehicle Costs and Wholesale Trade Growth in Cyprus

The automotive sector in Cyprus is witnessing a marked increase in both sales and service costs, according to recent data. This trend reflects broader economic shifts impacting the country, as well as a resurgence in wholesale trade, driven by changing consumer demand and global economic conditions.

Sales of motor vehicles have continued to climb throughout 2024, with higher demand leading to increased prices for both new and used cars. Several factors contribute to this surge, including persistent inflation, rising production costs, and global supply chain disruptions. These challenges, compounded by the limited availability of certain vehicle models, have resulted in higher prices, putting pressure on consumers.

Vehicle servicing costs have also seen a notable uptick, further burdening car owners. The rise in maintenance expenses can be attributed to the increasing cost of spare parts, many of which are imported and affected by supply chain issues. Additionally, the global shortage of semiconductors—vital components in modern vehicles—has significantly driven up repair costs for electronic systems, which now play a critical role in most automobiles. This has made routine services, as well as more complex repairs, more expensive than in previous years.

The automotive industry’s inflationary pressures are not limited to Cyprus; these trends mirror global challenges, where many countries are facing similar cost increases. The international market volatility, exacerbated by the ongoing war in Ukraine, has led to fluctuations in fuel prices, further impacting vehicle ownership and operational costs.

In parallel, Cyprus is also seeing a rise in wholesale trade activity, which has recorded significant growth in recent months. The wholesale trade sector, benefiting from an increase in consumer demand across various industries, is playing a crucial role in supporting the country’s economic recovery. The expansion of wholesale trade is closely linked to sectors like retail, construction, and agriculture, which are seeing renewed investment and growth. As supply chain disruptions gradually ease and inventories stabilise, businesses are looking to wholesale traders to provide the necessary goods to meet rising consumer needs.

The strengthening of the wholesale trade sector suggests a broader positive trajectory for the Cypriot economy. However, challenges remain, particularly for industries that rely heavily on imports, as they continue to face higher input costs. Businesses are increasingly having to navigate these rising costs while trying to keep prices competitive, a delicate balancing act that requires strategic planning and efficiency improvements.

Bank of Cyprus Upgrade Signals Fresh Optimism For Greek And Cypriot Banks

Regional Banks Enter A More Favorable Cycle

Bank of Cyprus and Eurobank are well positioned to benefit from a renewed re-rating of Greek and Cypriot bank stocks, according to Cyprus-based investment firm Roemer Capital, which upgraded Bank of Cyprus to a buy rating and reaffirmed its positive view on Eurobank.

The firm cited easing geopolitical tensions, resilient economic growth in Greece and Cyprus, lower funding costs and Greece’s expected transition to developed-market status as the main factors supporting the sector.

Roemer Capital also lowered its cost of equity assumptions, updated its forecasts following first-quarter 2026 results and extended its valuation horizon to the end of 2027, raising target prices across its banking coverage.

Bank Of Cyprus Gets The Largest Upgrade

Bank of Cyprus received the biggest revision, with Roemer Capital upgrading the stock from hold to buy and setting a target price of €11.10, implying potential total upside of 27%.

The firm highlighted the bank’s strong capital generation, profitability and projected 100% dividend payout, describing it as the strongest capital-return story among the banks under coverage. Roemer Capital maintained its buy rating on Eurobank, assigning a target price of €4.90 and forecasting potential upside of 28%. The report said the bank is well placed to benefit from loan growth, improving operating performance and merger-and-acquisition synergies.

National Bank of Greece and Piraeus Bank also retained buy ratings, with expected returns ranging from 25% to 36%. Optima Bank was upgraded to buy, while Alpha Bank remained at hold on valuation grounds.

Why Growth Still Sets The Region Apart

According to Roemer Capital, Greek and Cypriot banks continue to benefit from stronger economic fundamentals than many western European peers. The report pointed to faster economic growth, healthier balance sheets, low levels of non-performing exposures, capital ratios approaching 20% and strong customer deposit bases.

Analysts expect performing loans across the sector to grow at a compound annual rate of 6% to 8% through 2028, supported by private investment, digitalisation, green manufacturing, supply-chain expansion and a gradual recovery in household lending.

The report also said the conclusion of lending under the EU Recovery and Resilience Facility is unlikely to materially affect credit growth, as banks have already shifted back towards traditional commercial lending. Roemer Capital expects Euribor to remain between 2.2% and 2.5%, a level it believes should support both lending activity and net interest margins.

Geopolitics, Valuation And Market Structure Support The Case

The report said improving geopolitical conditions have strengthened the investment outlook, noting that Brent crude prices have largely returned to pre-war levels while Greek government bond yields have stabilised at around 3.5%. Although geopolitical risks remain, Roemer Capital believes the likelihood of a major inflationary shock or significant pressure on bank profitability has eased.

Another important catalyst identified by the firm is Greece’s expected promotion to developed-market status by FTSE Russell, STOXX and MSCI over the coming months.

According to the report, the reclassification should improve liquidity and attract a broader base of international investors. Roemer Capital also said Euronext’s acquisition of the Athens Exchange is expected to strengthen market infrastructure and increase international visibility, particularly for Bank of Cyprus and Optima Bank.

The firm noted that Bank of Cyprus has already benefited from its Athens listing, with average daily trading value increasing from less than €400,000 before its September 2024 move to nearly €6 million afterwards.

Economic Momentum Remains A Core Tailwind

Roemer Capital said both Greece and Cyprus have moved beyond post-crisis recovery and are now supported by private-sector-led growth. For Cyprus, the report highlighted recent tax reform and efforts to simplify the legal and regulatory framework, while also noting that limited foreign banking competition continues to support domestic lenders.

Overall, Roemer Capital expects Greek and Cypriot banks to remain well-positioned for profitable loan growth over the coming years.

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