Cyprus which has some 750 bank employees per 100,000 citizens – the highest number within Eurozone – is also challenged with the need to improve indicators.
This is what the European Banking Authority’s recently-released ‘Basel III Reforms: Impact Study and key recommendations macroeconomic assessment, credit valuation adjustment and market risk’ shows.
The study’s general conclusion is that there is an improvement in most indicators, but some remain the same and this should concern the administrations of banks. The overall picture is that non-performing loans (NPLs) ratios have improved significantly, and so has profitability, but operational costs remain high, particularly when it comes to payroll.
As for the size of the Cypriot banking sector in relation to the number of employees, it remains at a high level and this seems to be their biggest challenge over the coming years.
Overall data on euro area countries shows that the quality of banks’ assets has improved compared to previous years. This is because non-performing loans (NPLs) decreased to 3.6% by end of June 2018 while these stood at 3% by end of June 2019. As we are all aware, NPLs ratio in Cyprus remains high, around 30%, despite a significant decline in recent years.
The Cypriot economy has experienced the largest NPLs decline – 13%, to be specific – within the euro area in recent months. However, about 55% of the total percentage of NPLs have expired for longer than five years. In addition, their coverage rate is around 50%.
In terms of sector-specific lending, this varies from one Eurozone country to another, according to the EBA study. In the case of Cyprus, the loans were approximately equal by sector by end of 2019.
Secure capital for Cyprus stands at 3% as is the minimum level set by European authorities, while the majority of deposits come from households (75%) and a 20% from businesses.
The profitability of the Cypriot banking system showed a significant improvement, indicating that other sub-indexes are also improving. In particular, the average return on Equity was almost 7% for Eurozone countries, while the average for Cyprus was approximately 11%.
Regarding cost-to-income ratio, it remained at 64.1% in the Eurozone by end of June 2019. In Cyprus, it is at approximately the same level as in the Eurozone, according to the EBA. A significant proportion of operational costs (50%) covers employees’ payroll while about 40% of expenses are absorbed at management level.
By George Pyrishis