The latest report from the Central Bank of Cyprus (CBC) highlights a decrease in bank profits even as non-performing loans (NPLs) show significant improvement.
- The latest report from the Central Bank of Cyprus (CBC) highlights a decrease in bank profits even as non-performing loans (NPLs) show significant improvement.
As of June 30, 2025, the non-performing loans ratio within the Cypriot banking sector fell to 5.6 per cent, down from 6.1 per cent recorded in March 2025. This decline reflects a positive shift attributed to various factors, including currency fluctuations, repayments, positive migrations into performing categories, and write-offs.
Non-performing loans: Provisions and Restructured Loans
In a further positive development, the coverage ratio of non-performing loans with provisions increased to 62 per cent by the end of June 2025, up from 60.5 per cent in March 2025. This indicates a stronger financial position regarding potential loan defaults. However, the total restructured loans at the end of June stood at €1.2 billion, of which €0.6 billion remained classified as non-performing.
Profitability Challenges in the Banking Sector
While the reduction in NPLs is encouraging, the profitability of Cypriot banks faced challenges in the first half of 2025. The CBC reported a decline in profitability, which fell by €25 million from €603 million in June 2024 to €578 million a year later. This reduction was primarily linked to a drop in net interest income, indicating pressures on banks’ earnings.
Growth in Banking Assets
Despite the profitability decline, the banking sector’s total assets witnessed a growth of €950 million in the second quarter of 2025, marking a 1.4 per cent increase. This rise brought the total assets to €66.97 billion, up from €66.02 billion in March 2025. This growth is largely attributed to an increase in loans and advances, suggesting that lending activities remain robust even amid profitability challenges.
Improvement in Capital Adequacy Ratios
The Common Equity Tier 1 (CET1) ratio also showed improvement, rising by 0.4 percentage points to reach 26.3 per cent by the end of June 2025, up from 25.9 per cent in March. This increase reflects an expansion of Common Equity Tier 1 capital that outpaced the rise in total risk exposure, further indicating a solid capital position for the sector.
