2020 Cyprus Country Report

The unfolding
of Covid-19
into a global
pandemic
will inevitably
lead to
unprecedented changes to the
global economy which clearly
impacts the banking sector
worldwide. In this rapidly
evolving economic environment
the management of banks
had to adapt their strategy
accordingly in an effort to
mitigate risks and plan ahead
for the future. The fact that
the impact is asymmetric,
per sector, clearly leads to
new opportunities for growth
and changes in strategic
priorities. With the above in
mind, areas for growth for the
year ahead include: digitisation
drive, liquidity management
solutions, focus lending in
growth sectors, expansion of
disintermediation and drive
in wealth management.
Costas Argyrides
CEO
cdbbank
BALANCING THE REGULATORY BURDEN
In the past five years, EU banks have been faced
with an ever-increasing regulatory burden with
stricter ECB guidelines and compliance requirements
– forcing institutions to grapple with
finding a balance where financial stability can
be safeguarded without suppressing economic
growth.
The global challenges sparked by the Covid
pandemic have brought a welcome, but temporary,
respite as regulators have decided to postpone
deadlines, the enforcement of upcoming
regulations, and even provided some temporary
simplification of regulations to give flexibility to
capital markets and the banking sector. However,
the landscape remains complex in terms of
banking regulatory and supervisory standards,
with no comprehensive long-term initiative to
permanently reduce the regulatory burden by focusing
on better regulation, rather than just more
regulation.
Some key changes now under discussion
relate more to capital markets. Instructed by the
European Commission, the High-Level Forum
(HLF) published a report where it sets out a series
of clear recommendations aimed at moving the
EU’s capital markets union forward. This initiative
was welcomed by the European banking
sector as it will help remove regulatory obstacles
and would allow for market-based financing and
banking finance to work better together – rather
than being mutually exclusive – to meet the needs
of companies and investors, and to promote economic
growth in the EU.
DIGITAL SOLUTIONS THROUGH FINTECH
The regulatory pressures are a global challenge
for financial institutions, and part of the solution
is to invest in new tech to enhance efficiency,
profitability and prospects. A well-functioning
banking system is a precondition for
the sustainable development of every economy
and embracing a digital future with more transparency
will certainly help to achieve this goal.
The last decade has seen a surge in new tech,
solutions, tools and platforms coming into the
market, but in its wake have also come concerns
regarding transactional security and trust –
aspects that are increasingly crucial in the world
of financial technology (fintech) and achieving
healthy competition in banking for consumer
benefit.
Banks are currently working on new and
cost-effective services, while tackling various
other issues and challenges operating in a rigorous
regulatory, supervisory and legal framework.
Crucial to succeeding in this new reality
is better cooperation between the two main
channels of service provision, banks and tech
companies. This would bring the best solutions
for the clients, high-end digital platforms
and fully compliant procedures at every level of
payment or transaction – through tech such as
blockchain.
A silver lining of the pandemic has been that
the implementation of many digital strategies
have been accelerated in Cyprus due to the circumstances.
Almost every aspect of the economy
can be faster and more efficient with the use of
better tech solutions. These developments have
also opened up more interesting investment opportunities
and growth prospects for the Cyprus
economy, not only in banking but in key sectors
such as education, health and tourism, as well as
the start-up ecosystem and technology sector in
general.
FOCUS ON SUSTAINABILITY
The broad-based economic recovery of Cyprus
continued straight through to 2019, significantly
exceeding eurozone dynamics, and the country’s
banks had gone from strength to strength until
the pandemic hampered this strong performance
with widespread economic disruption and the
Cypriot economy expected to contract by around
7% in 2020, before returning to healthy growth
rates in 2021.
The reforms and firm steps to strengthen its financial
institutions in the past few years have not
been in vain and have bolstered the sector, and
multiple assessments have proved a high level
of compliance across the banking industry, with
some statutory requirements even more demanding
than in other EU member states. Despite the
current unpredictability of the global economy,
Cyprus banks remain stable and the country continues
to offer interesting investment opportunities
that can be tapped into, such as distressed
assets and loan portfolios, mergers and acquisitions,
private equity and venture capital projects,
as well as financing of infrastructure projects,
such as tourism development and oil and gas
projects.
Although there are challenges ahead, a fresh
focus on digital solutions and strong corporate
initiative, coupled with the supervisory authorities’
more accommodative policy to give banks
flexibility to support the economy, there is
ample reason to believe that sustainable growth
is possible in the banking sector in the next few
years. n
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Sector Profile
Country Report CYPRUS 2020 61