Kammas hails impressive transformation of Cyprus banks

Finance Minister Makis Keravnos on Thursday called on the Cypriot banking sector to step up lending, support innovation and startups, and embrace cultural change through digital transformation.

“The challenges facing the banking sector are significant and require continuous adaptation, innovation and investment,” he said during the annual general meeting of the Association of Cyprus Banks.

“Banks are called upon to invest further in modern technologies, from developing mobile banking applications to harnessing artificial intelligence, while also ensuring cybersecurity and full compliance with new regulatory frameworks,” he stated.

Moreover, the minister emphasised that digital transformation is not merely technological but also demands cultural change and continuous training of human capital.

“An equally critical challenge, but also an opportunity, is the promotion of financing for startups and innovative projects,” he stressed.

Keravnos said that Cyprus’ dynamic startup ecosystem needs access to capital in order to flourish.

“While traditional banking practices may not always favour high-risk ventures, we are called to develop flexible financing tools, explore partnerships with venture capital funds, as we have already done with the Cyprus Equity Fund, and leverage European programmes to bridge this financing gap,” he explained.

“Supporting innovation is an investment in the future of our economy and, by extension, in the future of the banking sector,” he added.

Keravnos also underlined the importance of investing in green and sustainable growth, calling it an urgent necessity and a strategic choice.

“The integration of Environmental, Social and Governance (ESG) criteria in financing and investments is no longer just a trend, but a regulatory obligation and a social responsibility,” he said.

“Even as the European framework evolves, with discussions on simplifying some reporting requirements, the essence of the green transition and the integration of climate-related risks remain top priorities,” he stated.

“Banks are expected to develop green financing products, assess climate-related risks and actively contribute to the green transition of the Cypriot economy,” he added. “This requires expertise, new assessment models and a deep commitment to a sustainable future.”

“Looking ahead, the government has set clear goals and priorities for the banking sector, fully aligned with our national development objectives,” he said.

On the broader economy, Keravnos said Cyprus has demonstrated remarkable resilience and adaptability over the past two years, achieving one of the highest growth rates in the Eurozone.

He attributed this to responsible fiscal policies that have produced tangible results, such as full employment conditions, strong budget surpluses and a continued reduction in public debt.

In 2024, the economy grew by 3.4 per cent. Inflation declined to 2.3 per cent and unemployment fell below 5 per cent, its lowest level in a decade.

Cyprus is now among the best-performing countries in the European Union in terms of public finances, he said.

“With sound fiscal management, we are achieving high primary surpluses, allowing us to accelerate the significant reduction of public debt,” he stated.

Public debt as a percentage of GDP is expected to fall below 60 per cent by 2026, “further enhancing our country’s credibility and creditworthiness,” he added.

The minister also described the European Commission’s recent decision to remove Cyprus from the list of countries with macroeconomic imbalances as a clear recognition of the “success of the government’s policies“.

“The overall progress in the economy, fiscal discipline and enhanced international credibility create the right environment for attracting new foreign investments, which are becoming one of the strongest drivers of economic growth,” he said.

“Cyprus has become an attractive and safe destination for international investors, something confirmed by impressive figures,” he stated.

In 2023, Cyprus recorded the highest increase in foreign direct investment in Europe, with an annual increase of 129 per cent and total inflows of approximately €3.2 billion, creating thousands of new jobs.

“This positive momentum continued in 2024, with ongoing capital inflows and corporate relocations,” the minister said .

“It is especially important that this inflow of capital is helping reduce our economy’s dependence on traditional sectors and is leading to the emergence of new, dynamic growth pillars,” he added.

He pointed to the high-tech sector (ICT) as a leading force, with significant growth also seen in investment funds, green and sustainable development, and professional and financial services.

What is more, Keravnos said financial stability is essential for maintaining a consistent and sustainable economic policy, underlining the critical role of the banking system in this effort.

He stated that Cyprus’ banking sector has returned to a healthy path and is now a reliable and stable pillar, ready to support the country’s development efforts.

“This solid picture enables banks to perform their crucial and multifaceted role in the Cypriot economy with even greater effectiveness,” he said.

“Banking has meaning when it serves as the lifeblood of the real economy, the lifeblood of households and, above all, businesses, particularly Small and Medium Enterprises (SMEs), which form the backbone of Cypriot entrepreneurship,” he said.

Although the Cypriot banking system has shown remarkable resilience and progress, he warned that it continues to face a constantly evolving and demanding environment.

Keravnos said the primary goal is to further enhance the competitiveness of the banking sector.

This includes maintaining strong capital ratios and high liquidity while unlocking greater potential for increased lending activity to the real economy.

“We support, at the European level, the ongoing discussion on simplifying procedures and introducing regulations without excesses to reduce bureaucracy that hampers competitiveness,” he explained.

“Our expectation is for banks to intensify financing to SMEs, green projects and innovative initiatives while ensuring the quality of their loan portfolios,” he said.

“It is also important for banks to show greater flexibility in financing terms, offering more competitive interest rates to improve access to capital for both businesses and households,” he stated.

Ongoing investment in digital transformation, targeted international outreach, and the development of modern products and services are also essential for the sector to remain at the forefront of developments.

Keravnos acknowledged the urgent need to upgrade financial education and awareness among both citizens and businesses.

“Most importantly,” he said, “is preparing for future challenges and opportunities.”

“The global landscape is evolving rapidly, and the green and digital transitions are twin challenges – but also the greatest opportunities – for creating new markets, products and services,” he said.

He also stated that banks must incorporate climate-related risks into their policies and play a leading role in financing the transition to a sustainable economy.

“Adapting to constantly evolving regulatory requirements and managing geopolitical disruptions effectively are also necessary to maintain the resilience and long-term stability of the banking system,” he said.

On his part, director general of the Association of Cyprus Banks Michalis Kammas, who concluded a decades-long journey with the organisation at the same event, shared an optimistic outlook.

“The transformation of the banking sector over recent decades has been impressive, from local, traditional operations to dynamic institutions integrated into the global financial system,” he stated.

“Today, banks in Cyprus are better capitalised, technologically advanced, and more sensitive to the needs of society and the environment than ever before,” he added.

Finally, he said that the banking sector remains on a steady course, serving the key goals of economic development, financial stability and social cohesion despite today’s challenges.