‘Foreign investment reflects global confidence in Cyprus banks’

Foreign investment in Cyprus banks confirms global confidence in the island’s banking system and, by extension, in the dynamics and stability of the Cypriot economy, governor of the Central Bank of Cyprus Christodoulos Patsalides said on Sunday.

As some of the largest Cyprus banks have to an extent transferred into Greek hands, while rumours see the entry of other Greek banks, Patsalides said that the Cypriot banking system currently presents a strong and robust financial profile, with high solvency and liquidity ratios and satisfactory profitability.

“In this light, foreign investment is a tangible confirmation of confidence in the banking system,” he said.

He added that the shareholder composition of banks investing in Cyprus is largely characterised by the participation of institutional investors, who seek long-term value creation through strong internal governance practices and good administration, an approach that, as he said, contributes substantially to further strengthening the credibility and institutional maturity of the Cypriot banking system.

Asked about the moves of Cypriot banks to create business ties with non-EU countries, the governor said the creation of business ties with other countries, as long as it is carried out in the context of prudent risk management practices, can contribute substantially to the diversification of the income base and the improvement of the efficiency of banks.

Such moves, he added, should in any case be shaped on the basis of an appropriate perception of the sizes, the capabilities and limits of the Cypriot banking system, which will allow the development of balanced growth strategies, compatible with the non-negotiable goal of maintaining its robustness and resilience.

Asked about the level of interest rates offered by commercial banks, combined with the fact that Cyprus systematically has lower inflation than the Eurozone, Patsalides said that there is a noticeable de-escalation of lending rates in Cyprus, as a result of the gradual easing of the ECB’s monetary policy.

Speaking to Kathimerini, he added that interest rates on new mortgages fell to 3.0% and are 0.3% lower than the Eurozone median while new business loans amounted to 3.7%, almost in line with the corresponding median of 3.6%, while on the contrary, deposit rates amount to only 0.8% for households and 1.1% for businesses, the lowest in the Eurozone, reflecting the high liquidity of Cypriot banks and the limited size of the domestic banking market.

“Lending rates have now converged with the Eurozone median while deposit rates remain at very low levels,” he said.

Asked how the large rise in real estate prices in recent years affects banks’ balance sheets, he said the direct exposure of banks to the risk of a decrease in real estate prices is limited.