WARNING FROM THE CANADIANS OF DBRS - MORE DIFFICULTIES FOR CYPRUS RE THE WAR, THAN GREECE - Filenews 31/3 by Theano Thiopoulou
The Canadian house DBRS clearly expresses its concern that geopolitical tensions in the Middle East increase the risks for the economies of Greece and Cyprus, mainly due to their heavy dependence on shipping and tourism.
Despite the resilience so far, especially of the Cypriot economy, developments are creating pressures on both economic activity and the banking system. Let's take a closer look at the case of Cyprus – and compared to Greece – what are the danger points, as presented in the report "Middle East Tensions Heighten Risks for Greek and Cypriot Banks' Shipping and Tourism Exposures", by DBRS.
Tourism and shipping play a much larger role in the economies of Cyprus and Greece than in most other EU economies, the report says. The great importance of tourism is evidenced by the comparatively large share of hotels and restaurants in the total gross value added (GVA) in both economies.
In Cyprus, the percentage is 6.6% and in Greece 7.3%, while the average in Europe is 2.9%. In addition to hotels and restaurants, tourism also affects several other service sectors, such as transport and entertainment, and has significant indirect effects on macroeconomic developments, especially in terms of private consumption, as it employs a large share of the domestic workforce, DBRS reports. In our view, the analysts say, banks in Greece and Cyprus have a higher than European average exposure to shipping and tourism, which increases credit risk in the event of a prolonged crisis.
More difficult for Cyprus
Greek banks show greater resilience, due to internationalized and secured shipping loans. Cypriot ones are more exposed to tourism, so more vulnerable to a drop in demand. Nevertheless, analysts say, both banking sectors maintain strong profitability and capital buffers, which will help their presence in a riskier operating environment.
"Any sustainable reduction in tourism flows will be transmitted through the performance of small and medium-sized enterprises, household disposal income and property prices, putting more direct pressure on asset quality for Cypriot banks. Early indications suggest that Cyprus is already facing a more pronounced decline in travel demand and higher cancellation rates, reflecting increased risk perception due to its geographical proximity to conflict areas in the Middle East.
In Greece, we expect the impact on banks from the slowdown in tourism to be more manageable in the short term, given their lower exposure."
In DBRS's view, "Greece may partially benefit from diverting demand away from conflict-affected destinations if inflation does not accelerate significantly and Greece remains uninvolved in the conflict."
The "profitability" factor
The authors of the report also note that both Greek and Cypriot banks maintained profitability above the EU average in Q4 2025. Capitalization was significantly stronger for Cypriot banks, while Greek banks' capital levels were broadly in line with the still strong EU average levels.
Asset quality has improved in both sectors in Greece and Cyprus in recent years and compares favourably with the European average. Non-performing loans ratios in transport and storage stood at close to 0% in 2025 in Greece and Cyprus, below the EU average of 2.3%, while the non-performing loans ratio in accommodation and catering activities was 2.1% in Greece and 0.7% in Cyprus, below the EU average of 5%.
According to data from the European Banking Authority, exposure to the transport and storage sector accounted for 19.8% and 11.2% of loans to non-financial corporations (NFCs) for Greek and Cypriot banks in 2025, respectively. A higher percentage than the European average of 5.5%.
At the same time, the exposures of the two banking sectors to accommodation and catering activities accounted for 11.1% and 21.2% of loans to non-financial corporations in the year 2025, respectively, above the European average of 2.6%.
