Despite the fact that since the banking crisis in Cyprus, which occurred in 2015, the country’s economy has been growing for the past three years, and the unemployment rate in the country is decreasing; the financial sector is still under threat. This is due to the fact that banks are continuing to issue a huge number of problem loans and suffer losses as a result.
In its report on financial stability, the Central Bank of Cyprus appealed to banks in order to develop holistic and sustainable strategies aimed at reducing the number of problem loans. According to the Central Bank, the sector’s representatives should also shift their attention to the need of increasing the profitability by seeking alternative sources of income and further reducing operating expenses.
The Central Bank Supervisor said that today ‘the poor quality of portfolios of credit institutions is due to their excessive propensity to issue unreliable loans.’ In his opinion, this is the main source of risk for the system, and this problem still remains relevant for the entire banking sector.
In order to reassure investors who fear for their savings, the government issued 2.4 billion euros of bonds in April of this year and deposited 2.5 billion euros in Cyprus Cooperative Bank against the backdrop of the next wave of increase in the cash withdrawal.