Nicosia: Cypriots use cards 1.3 times more frequently than their European peers, while the contactless card payments capture more than half of all card payments consistently since 2022, the Governor of the Central Bank of Cyprus, Christodoulos Patsalides, said in his speech at the 12th Banking Forum and Fintech Expo in Nicosia.
According to Cyprus News Agency, CBC’s key priorities include advancements in the digital economy, the evolving role of digital payments, the potential introduction of a digital euro, and the regulatory frameworks that ensure responsible governance and societal considerations in the financial systems. Patsalides noted that through these efforts, Cyprus aims to strengthen its position as a dynamic player within the European financial landscape.
The Governor highlighted that the Cypriot economy has demonstrated resilience and adaptability despite significant geopolitical challenges. In recent years, Cyprus has achieved a robust growth rate well above the EU average and maintained a strong fiscal position, consistently posting surpluses that have bolstered public finances. As a result, international rating agencies have upgraded their ratings well within the investment grade, highlighting sound economic management, fiscal discipline, and reforms in the banking sector.
The Cypriot banking sector has shown remarkable resilience and robustness despite a series of unprecedented and successive crises in recent years. The sector’s solvency, as indicated by the Common Equity Tier 1 (CET1) ratio, rose to 23.5% in the third quarter of 2024, surpassing the European average of 16%. Additionally, the Liquidity Coverage Ratio (LCR) reached 336% in September 2024, exceeding the regulatory minimum of 100% and standing well above the European average of 161.4%. The non-performing loan (NPL) ratio fell to 6.5% in the third quarter of 2024, marking its lowest level since 2014.
Patsalides emphasized that there is no room for complacency as macroeconomic uncertainty, geopolitical risks, and emerging threats like cyber and climate risks grow. He noted that banks must adapt quickly to identify and address these evolving challenges effectively. Technological advancements are creating a new landscape in which banks need to compete, and pursuing an appropriate business model is key.
In his speech, the Governor discussed innovative technologies used in financial services, including artificial intelligence, cloud computing, digital wallets, big data analytics, and biometrics. These technologies have been applied to improve customer service, automate payments, reengineer business processes, detect suspicious activity, and assist with customer profiling and digital onboarding. He mentioned that potential in new technologies such as distributed ledger technology (DLT), smart contracts, and tokenization is yet to be fully realized.
Patsalides also addressed the issue of cyber risk and data security, stating that they continue to be major drivers of operational risk for banks. The Central Bank of Cyprus has established an Innovation Hub to foster dialogue with fintech stakeholders and support domestic financial innovation.
The growing trend of digital payments in Cyprus captures around 96% of cashless payments, with a decline in preference for cash payments by 11% since 2022. E-commerce has expanded, with online purchases via cards almost doubling over six years to 28% of total card payments. Mobile phones used for online purchases have reached nearly one quarter of the total, outperforming the EU average of 16%.
Instant payments have become a reality for all banking participants since January, reducing transmission to within 10 seconds. E-money payments are gaining traction, driven by opportunities in fintech, e-commerce, and digital payments. The Central Bank of Cyprus now supervises 27 electronic money institutions and 11 payment institutions, with a strategy in place for prudent and sustainable growth in the sector.
Regarding the digital euro, the Eurosystem is progressing through the preparation phase, with the ECB selecting candidates and enhancing engagement with distributors for potential issuance.
Patsalides also touched on changes in the ESG regulatory landscape, emphasizing strong governance to enhance transparency, accountability, and ethical standards in financial institutions. He highlighted that social factors and climate considerations are vital for modern credit institutions, with the CBC actively engaging in assessments of institutions’ preparedness for climate risk.
The CBC has established a Sustainability Team to address climate change in line with its mandate, contributing to net-zero carbon emissions while maintaining financial stability and supporting the general economic policy of the State.