EBF chief calls for regulatory shift to spur EU investment

The Cypriot banking sector has undergone an impressive transformation since the 2013 financial crisis and has emerged stronger, more resilient, and better aligned with international standards, according to Wim Mijs, Director General of the European Banking Federation (EBF).

Speaking to the in an exclusive interview with the Cyprus News Agency (CNA), Mijs highlighted the substantial reduction of non-performing loans, the modernisation of Cyprus’ anti-money laundering framework, and the sector’s pivot toward digital transformation as key markers of progress.

At the same time, he cautioned that Cyprus, like the rest of Europe, must remain vigilant against growing cyber threats, ongoing geopolitical instability, and the competitive pressure from large technology firms.

Discussing the broader European context, he stressed the need for a shift in regulatory thinking to allow banks to support growth and investment more effectively.

He pointed out that Europe faces an investment gap of €800 billion annually, along with new fiscal demands in defence and security.

In this context, he called for concrete actions to advance the Capital Markets Union (CMU) and mobilise private capital for the EU’s green, digital, and defence ambitions.

“The transformation of the Cypriot banking sector since the 2013 crisis has been profound,” he said.

“Cypriot banks have become significantly stronger, more resilient, and better aligned with international best practices,” he added.

One of the core achievements, he said, is the reduction in non-performing loans from about 50 per cent at the peak of the crisis to below 9 per cent today.

He attributed this improvement to targeted restructurings, enhanced supervision, and strengthened risk management frameworks.

Another major success, he observed, is the upgrade of Cyprus’ anti-money laundering (AML) framework.

He mentioned that this progress has been recognised positively by international assessments, such as those by Moneyval, and is reflected in Cyprus’ improved position in the Basel AML Index.

“As a result, Cypriot banks now enjoy more correspondent banking relationships than ever,” he said.

The digital transformation has also redefined the sector, with the majority of banking services now delivered online.

“Today, the banking sector in Cyprus plays a key role in supporting financial stability and credit provision,” he said.

“It has contributed meaningfully to Cyprus’ steady economic growth in recent years, despite regional and global challenges,” he added.

However, he warned that significant challenges remain. He cited cyber threats as a growing risk requiring ongoing investment in systems security.

Mijs also stated that geopolitical and economic uncertainties in the wider region could impact financial stability.

“The growing competition from large technology companies, particularly in retail services and payments, also stands out as a strategic challenge,” he said.

On the uncertainty stemming from shifting trade policies in the United States, he stated that European banks must remain flexible and resilient in the face of external shocks.

“While markets appear to have responded maturely to the risks associated with recent global trade developments,” he said, “this shift contributes to a more uncertain global environment, with potential surprises and possible slowdowns in macroeconomic growth.”

Nonetheless, he praised the resilience shown by the European banking sector in recent years.

He cited crises such as the Covid-19 pandemic, the Russian invasion of Ukraine, and the banking turmoil of March 2023 as key stress tests.

“In this highly demanding environment, the European banking system maintained stability, provided meaningful solutions, and collaborated with policymakers to mitigate the impact on businesses and citizens,” he said.

He attributed this resilience to the EU’s post-crisis institutional architecture, highlighting the roles of the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM).

He explained that the EBF acts as the voice of the European banking sector, ensuring through cooperation with regulators and supervisors that strategic solutions are promoted to support growth and entrepreneurship.

“We do not focus solely on managing short-term shocks, but on how the banking sector can support Europe’s long-term recovery and strategic competitiveness,” he said.

Asked to comment on the current tightening of credit conditions in the euro area, even as inflation begins to decline and the European Central Bank lowers interest rates, he stated that the EU relies heavily on bank financing.

He further said that bank loans are the most important source of external funding for businesses in Europe.

However, he said that the existing regulatory framework in Europe is not structured to enable banks to fully fuel investment in the economy.

He said that while post-crisis regulatory reforms improved the resilience of banks, they also made the framework excessively complex.

In addition, he stated that they imposed substantial constraints on the sector’s profitability and its capacity to finance the economy.

“As a result, banks in Europe operate under extremely high capital requirements and face a labyrinth of rules and regulations,” he said.

To strike the right balance between risk management and economic support, he called for a policy shift.

“To allow banks to fuel the European economy through loans and investments, we need a change in regulatory mindset, from an overly defensive posture to a more proactive approach that promotes growth, sound risk-taking, and investment as essential components of prosperity,” he said.

He explained that this shift requires two immediate actions.

First, a reduction of overly conservative capital buffers that hinder lending and long-term investment.

Second, a revival of the European securitisation market to free up more capital.

Mijs also pointed to the need for simpler regulatory design. He said that the current environment has become increasingly fragmented, particularly in areas such as retail banking, digital finance, and cybersecurity.

Furthermore, he pointed out that simplifying these frameworks is essential if European banks are to support businesses, especially small and medium-sized enterprises, and advance the EU’s transition to a more resilient and competitive economy.

As the EU intensifies efforts to promote the Capital Markets Union and mobilise private capital for defence, digital transformation, and green development, he urged policymakers to turn intentions into tangible results.

He acknowledged that recent proposals by Mario Draghi and Enrico Letta mark a positive direction for enhancing Europe’s competitiveness.

Mijs described Letta’s vision for a Union of Savings and Investment, which includes the CMU, as a vital step toward boosting economic growth, raising competitiveness, and channelling private capital into strategic sectors, including defence.

However, he cautioned that regulatory ambition alone is not enough. “We need real incentives that make investment attractive,” he said.

He argued that Europe must create an ecosystem where investment, especially for long-term goals, is both appealing and accessible to ordinary citizens.

The EBF, he said, supports leveraging proven national models, such as Sweden’s pension and capital market system, which effectively channels household savings into productive investment.

Mijs added that revitalising the European securitisation market is also a key priority for the EBF.

He said that doing so would not only enhance banks’ lending capacity but also provide institutional investors with broader and safer options for portfolio diversification and risk management.

What is more, he mentioned that Europe’s regulatory framework has become increasingly complex, making it more difficult for banks – particularly in smaller countries like Cyprus – to operate and support economic growth.

He stated that the EU regulatory environment lacks the flexibility and navigability needed to rejuvenate the European economy.

Mijs pointed out that during the last European Commission term, there was an increase in both horizontal and sector-specific digital policies, adding layers of complexity for the financial sector.

To address the risk that excessive regulation poses to innovation and growth, the European Commission has prioritised reducing regulatory burdens and improving competitiveness during this legislative cycle.

Mijs said that this includes the introduction of “Omnibus packages” aimed at simplifying existing rules and reducing administrative overhead.

The goal is to ensure consistent application of EU rules across all member states.

These initiatives, he says, are welcome, “especially those that seek to align regulation with competitiveness and sustainability objectives”.

However, he stressed that “the next step should involve reducing complexity in digital regulation as well”.

The EBF, he added, “is focused on ensuring that new regulations and the “Omnibus packages” are designed with parameters appropriate for the entire European banking sector”.

Mijs also pointed to the adoption of the Digital Operational Resilience Act (DORA) as a positive step, as it consolidated previously fragmented regulatory requirements into a single framework.

However, shortly after DORA was adopted, the European Commission proposed the Cyber Resilience Act (CRA), aiming to strengthen the security of digital products.

Moreover, Mijs explained that the CRA does not exempt the financial sector, even though many of the products it covers are already regulated under DORA.

This has resulted in additional regulatory burdens for banks, particularly smaller institutions, creating overlapping obligations that may undermine the original goal of regulatory clarity and efficiency.

On sustainable finance, Mijs stated that banks are closely tied to the broader economy and understand that many of their clients, especially small and medium-sized enterprises (SMEs), often face data gaps and limited compliance capabilities.

While certain information is necessary to identify and manage material risks, SMEs should not fear exclusion from financing, including sustainable finance.

Finally, he stated that efforts are underway at the EU level to make sustainability reporting more accessible for SMEs.