IN CYPRUS, THE MOST BANK BRANCHES HAVE CLOSED - Filenews 11/2 by Theano Thiopoulou
A pan-European record was set in Cyprus in the closure of bank branches in the Eurozone, with the result that the number of branches per 100,000 inhabitants in the Eurozone has decreased from 55.4 in 2002 to 29.6 in 2024.
In Cyprus, the rationalization was even more pronounced, as this index decreased from 137.3 in 2002 to 19.4 in 2024, i.e. levels below the Eurozone average. The study on "Competition in the banking sector in the euro area: country analysis and special reference to Cyprus" prepared by Aris Avgoustis and Stephanie Michael was published on the Central Bank's website in March 2026 and examines the structure of banking markets in the euro area, the relationship between competition and monetary policy transmission and the dynamics of market power in the banking system of Cyprus.
In the section "Structure of the banking sector in the euro area and measuring competition", the authors of the study state "respectively, the geographical density of branches per square kilometre of artificial land decreased in the Eurozone from 1.4 in 2012 to 0.8 in 2022, while in Cyprus it decreased from 1.7 to 0.3 during the same period. These developments reflect the shift towards digital banking, cost savings and network centralization."
The significant changes, the study suggests, in the structure of the banking sector in the Eurozone countries in recent years are reflected in various indicators. To begin with, the number of banking institutions has been steadily decreasing over the last 15 years in almost all countries. Over the last five years, the number of credit institutions has decreased by 4% in the euro area and by 36% in Cyprus. At the same time, the share of Significant Institutions in Cyprus has declined over the last five years, while in the Eurozone it has remained stable. The share of domestic banks in Cyprus has also decreased significantly in the last five years compared to foreign-owned banks." In addition to the reduction in bank branches, employment in the banking sector also declined, from around 2.2 million jobs at the end of 2008 (1.8% of total employment in the euro area) to around 1.8 million today (1.2% of total employment).
Another interesting element of the study is the degree of concentration of banks. Some countries have traditionally had an extremely high concentration, such as Estonia, with a concentration ratio of the five largest banks (CR5) close to or above 90%, while the same is true for the other Baltic countries. The study notes that the Herfindahl-Hirschman concentration ratio in relation to the population for these countries is significantly lower today compared to Cyprus (0.19-0.22 for the Baltic countries compared to 0.31 for Cyprus), which shows that the market shares of the five largest banks in these countries are more equal compared to the corresponding shares in Cyprus.
In the study based on the findings, some key policy messages emerge: promoting a more competitive banking environment in the euro area, and in Cyprus in particular, can improve the transmission of monetary policy, narrow spreads between loan and deposit rates, and enhance access to finance for firms and households, particularly in highly concentrated markets. The potential increase in the presence of European banks, including digital banks, is expected to intensify competition for domestic banks. Maintaining the competitiveness and continuous adaptation of domestic banks are important to maintain the resilience of the system and, overall, financial stability.
Too strong competition can lead to excessive risk-taking, especially by new market participants (fintechs, neobanks, payment platforms) and in particular when they are not subject to equivalent regulatory and supervisory rules as traditional banks. It is also appropriate to systematically monitor developments in the profit margins and market power of banks in Cyprus, in particular following the recent acquisitions of large banking institutions, with a view to continuously assessing how the merger affects the degree of competition and the transmission of monetary policy.
