Patsalides calls on Cyprus banks to stay vigilant amid global uncertainty

Central Bank of Cyprus (CBC) governor Christodoulos Patsalides on Thursday urged Cypriot banks to remain “vigilant and adaptive” in the face of mounting global uncertainty, stressing their role as “pillars of trust and economic stability”.

Speaking at the annual general meeting of the Association of Cyprus Banks (ACB), held at the Hilton Nicosia, Patsalides outlined key priorities for monetary policy, financial supervision, and the broader strategic direction of the eurozone and Cyprus.

The event is considered a cornerstone for the domestic banking sector and was also attended by Finance Minister Makis Keravnos and European Banking Federation CEO Wim Mijs, who is currently in Cyprus for consultations with stakeholders from the financial and business community.

Opening his address, Patsalides expressed his appreciation for the ACB’s contribution in helping to shape “a resilient, transparent and future-oriented banking system”.

“We are meeting at a time marked by geopolitical tensions, rising protectionism, rapid technological shifts and climate challenges,” the CBC chief said.

“In such a context, banks are called to play an enhanced role, not only as financial intermediaries, but also as key institutional anchors,” he added.

Touching on recent decisions in eurozone monetary policy, the governor mentioned that “last Thursday, the governing council of the European Central Bank decided to reduce key interest rates by 25 basis points“.

“This”, he continued, “was based on our updated assessment of inflation prospects and the strength of monetary policy transmission”.

He mentioned that inflation is currently aligned with the medium-term target of 2 per cent.

Moreover, according to the June 2025 projections, it is expected to average 2.0 per cent in 2025, fall to 1.6 per cent in 2026, and return to 2 per cent in 2027.

“Monetary policy normalisation has advanced significantly,” Patsalides said. “Our approach remains data-dependent, agile and cautious. Banks must continuously adjust both their funding strategies and risk management frameworks accordingly.”

The governor also called for urgent reforms at European level. “The recent crises have shown us that financial stability is not a given, it is a strategic choice,” he stated.

“We need to complete the Capital Markets Union and Banking Union, establish a common deposit insurance mechanism, and accelerate the legal groundwork for a potential digital euro,” he explained.

He also stated that “governments must also ensure the sustainability of public finances and prioritise structural reforms that support growth and strategic investment”.

“For small and open economies like Cyprus, these institutional developments are not abstract, they are vital,” he added.

On the domestic front, Patsalides painted a cautiously optimistic picture of the economy.

“Despite external shocks, the Cypriot economy remains resilient and flexible,” he said.

He pointed out that “private consumption, rising investment, export growth and the attraction of international companies offer a positive outlook”.

Patsalides also mentioned that “employment is on the rise and inflation is falling, enhancing real purchasing power”.

“Beyond macroeconomic indicators, what distinguishes our economy today is its transformation,” he added, saying that it is “more diversified, more outward-looking and more resilient”.

Turning to the performance of the local banking sector, Patsalides highlighted the progress achieved so far.

“Cypriot banks today demonstrate strong capital adequacy, ample liquidity and improved operational efficiency,” he said.

“We are also seeing steady progress in addressing non-performing exposures and cleaning up balance sheets,” he added.

He also touched on the CBC’s evolving supervisory strategy. “Our focus is on proactive, flexible, and effective supervision,” he said. “We aim not only to protect the system but to support long-term financial stability and growth.”

“Special attention is being paid to emerging risks such as climate change, cyber threats, and the implications of artificial intelligence,” he continued. “We are also strengthening oversight of electronic money institutions and payment firms, and we will intensify our scrutiny of governance across all supervised entities.”

What is more, Patsalides warned that “stability should never be taken for granted“.

“We are witnessing a shift in the tectonic plates of global geopolitics. These shifts will inevitably reshape the economic landscape, even for small countries like ours,” he said.

“The Central Bank of Cyprus remains vigilant,” he stressed. “We are investing in knowledge, transparency, technological transformation and effective supervision.”

We support innovation when it aligns with responsible risk management,” he continued. “We promote stability as a foundation for sustainable development and prosperity.”

“The progress achieved so far in the financial sector is significant,” Patsalides stated.

“Our shared responsibility now is to maintain this momentum and channel it into an even more reliable, strong and competitive banking system, one that serves the economy and reinforces public trust,” he concluded.