cyprus banks — The latest report from the Central Bank of Cyprus reveals a significant improvement in loan quality across the banking sector, even as profitability has softened.
- cyprus banks — The latest report from the Central Bank of Cyprus reveals a significant improvement in loan quality across the banking sector, even as profitability has softened.
Cyprus banks: Decline in Non-Performing Loans
By the end of September 2025, the ratio of non-performing loans (NPLs) in the Cypriot banking sector dropped to 4.5 per cent, a marked decrease from 5.6 per cent recorded at the end of June 2025. This statistic excludes loans and advances to central banks and credit institutions.
European Banking Authority Metrics
When accounting for loans and advances to central banks and credit institutions, the NPL ratio improved further, falling to 2.3 per cent compared to 2.9 per cent three months prior, as reported using the European Banking Authority’s risk dashboard methodology.
Strengthening Provisions Amid Challenges
The Central Bank also noted a significant increase in provisions, with the coverage ratio for non-performing loans rising to 68.5 per cent at the end of September 2025, up from 62.0 per cent in June 2025. Despite this positive trend, total restructured loans reached €1 billion, with €0.5 billion still classified as non-performing, indicating ongoing issues within certain segments of the loan portfolio.
Profitability Takes a Hit
While the quality of loans is improving, the profitability of the banking sector has seen a decline in the first nine months of 2025, dropping by €237 million year-on-year. Bank profits fell from €953 million in September 2024 to €716 million in September 2025, primarily due to lower net interest income.
Continued Growth in Banking Sector Assets
Despite the reduction in profits, the balance sheet of the Cypriot banking sector continued to grow during the third quarter of 2025. Total banking sector assets increased by €835 million, or 1.2 per cent, rising from €66.97 billion in June 2025 to €67.81 billion by the end of September 2025. This growth was largely attributed to a rise in loans and advances, signalling continued credit activity within the economy.
Capital Adequacy Indicators Remain Strong
Capital adequacy indicators have also remained robust, although they experienced a slight decline during the quarter. The Common Equity Tier 1 (CET1) ratio decreased by 0.2 percentage points, moving from 26.3 per cent in June 2025 to 26.1 per cent by the end of September 2025. This change was primarily due to an increase in total risk exposure that outweighed the rise in CET1 capital.
In summary, the data from the Central Bank of Cyprus suggest an encouraging trend of improving asset quality within the banking sector, even as profitability experiences a downturn and capital ratios adjust in response to higher risk-weighted exposures.
