Cyprus’s limited competitive capabilities affect all industries and products, Central Bank Governor Christodoulos Patsalides told the Parliamentary Finance Committee during yesterday’s discussion of the 2025 state budget.
Addressing MPs’ concerns about potential oligopoly in the banking sector following the Hellenic Bank and Eurobank Cyprus deal, Patsalides said two large banks are financially sound and better positioned to absorb shocks and align with European Central Bank (ECB) and European Banking Authority supervisory regulations.
He clarified that whilst the Central Bank is not responsible for competition matters, the merger would create a well-capitalised bank capable of investing in technology, emphasising the importance of having large banking institutions.
Responding to questions about AKEL’s proposal to tax excess bank profits, Patsalides cautioned that even temporary taxation could have long-term consequences and discourage foreign investment in Cyprus due to unpredictable tax frameworks.
He pointed out that current bank profitability is circumstantial, with first-half profits reaching €600 million and liquidity ratio at 328 percent – the highest in the Eurozone.
This excess liquidity stems from non-performing loan sales, bond issuances for capital strengthening, and high ECB interest rates.
Regarding the interest rate spread between deposits and loans, Patsalides acknowledged the central bank’s dissatisfaction but noted its limited supervisory powers beyond publishing banks’ interest rates.
He expressed optimism about potential interest rate cuts at the ECB‘s December 12 meeting, advocating for gradual reductions to avoid economic disruption.
On the 2025 budget, Patsalides endorsed its direction towards fiscal discipline and structural reforms but warned about managing rigid expenditure during uncertain times.
“During periods of prosperity like now, it is essential to build buffer reserves across all economic sectors, ensuring our resilience against future challenges”, he said.
The governor also addressed cryptocurrency concerns, expressing scepticism about market size data and price determination mechanisms. He noted that Cypriot banks do not offer such products, unlike some foreign institutions.
A new directive on reputational risk management for credit institutions came into effect on November 29, aimed at strengthening regulations and providing clear guidance on risk assessment and management strategies.
