SSM Chair praises Cypriot banks’ capitalisation and NPL reduction

Cypriot banks are well-capitalised and have shown a remarkable reduction in non-performing loans (NPLs), stated Claudia Buch, the new Chair of the Single Supervisory Mechanism (SSM).

However, she urged caution as banks face “emerging risks” such as geopolitical crises, climate change, and cybersecurity, in addition to the risks from high interest rates.

In an interview with the Cyprus News Agency (CNA) during her visit to Cyprus for the SSM Board meeting, Buch praised the significant reduction in NPLs but emphasised that there is still progress to be made for the NPL ratio to align with the Eurozone average.

Elsewhere, she indicated that periodic financial penalties may be imposed on banks that fail to meet SSM expectations regarding climate change-related risks.

“I would like to say that the situation for the Cypriot banking sector is similar to many European banks,” she said.

“The situation is good; the banks are well-capitalised,” she added, noting that the distinctive feature of the Cypriot banking system is the significant reduction in NPLs from about 50 per cent of total loans to around 7 per cent in recent years.

“Thus, it is a very large reduction, but the NPL rate is still higher than the Eurozone average, so there is still some way to go, but it is a remarkable improvement,” she explained.

The SSM Chair acknowledged that banks are currently profitable “because we have higher interest rates, and that is good for banks’ earnings”.

When asked about the ongoing acquisition of Hellenic Bank by Greece’s Eurobank, Buch avoided commenting directly, stating that supervisors, namely the SSM along with the Central Bank of Cyprus, are examining the prudential impacts.

“Sometimes,” she mentioned, “we are neutral regarding the business decisions banks make about mergers, whether they proceed with domestic or cross-border mergers,” she said.

“Therefore, supervisors will examine the prudential impacts, which means assessing how well-capitalized the banks are, their liquidity status, governance, and business model,” she added.

It should be noted that Eurobank has acquired 55.3 per cent of Hellenic Bank’s share capital and, following supervisory approvals and according to the law, is expected to submit a public offer to acquire the remaining share capital.