Banking’s future is digital, green & social

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The future of the Cyprus banking sector is digital, green, and social, said experts during the online FMW Conference on the financial system.

The conference also highlighted the contrast between taming inflation by raising interest rates and supporting vulnerable groups to avoid social unrest.

FMW moderator Iosif Iosif said that profitability has returned to the banks as the management of the “wounds of the past” began to bear fruit.

He noted, however, that several issues remain open, such as the difficulty of providing credit, NPLs, digital transformation, internal restructuring, and modernisation.

The Finance Ministry’s Avgi Lapathiotis said progress in the banking system is remarkable.

“We are satisfied with the enhanced ability of Cypriot banks to offer financing…new loans are given after a proper assessment of the borrower.

“I applaud the rapid transition to the new digital era and the training programs banks offer citizens”.

Financial Commissioner, Pavlos Ioannou, argued that prudent economic policy and rational public debt management “allow us to be optimistic about dealing with the current crisis”.

He said digitalisation led to a reduction in bank staff, and technology is likely to be accelerated by geopolitical crises; due to the need to monitor sanctions, digital banking is likely to become mandatory.

Regarding the increase in interest rates, he said it is a profitability opportunity for the banks and to improve the cost-to-income ratio.

This ratio stood at 76% in June, higher than the EU average of 63%.

“With the increase in interest rates, it is likely that many loans will become non-performing, while recently restructured loans will not be serviced anymore due to inflation, since the real income of households decreases.

“In some cases, the increase in instalments could reach 14-17%.”

However, the situation is not expected to create immediate strategic problems because the increase in profitability creates opportunities to absorb the loss of revenue from NPLs.

“It is not the banks’ responsibility to exercise social policy, but the risk of social unrest is systemic, and therefore it is the banks’ responsibility to address it.”

Senior Director of the Banking Association Michalis Kronides said the banking sector must become viable and profitable to support customers and the Cypriot economy.

“Stable profitability allows banks to organically build the required capital that will enable them to support households and businesses, maintain jobs and finance economic activity.”

He said that banks should expand their sources of income and reduce reliance on interest income.

And banks are adequately capitalised, and there is optimism that they will continue to be a factor of stability and a driver of growth.