Cypriot banks continue to strengthen their shielding against credit risk, according to data from the International Monetary Fund, which records a significant increase in the coverage ratio of non-performing loans with provisions.
Despite the fact that banks, from 2013 onwards, apply strict credit criteria and thus reduce the risk of re-forming a large portfolio of non-performing loans, they nevertheless strengthen their buffers with provisions for bad debts.
In particular, the "Provisions to NPLs" ratio stands at 77.5% in 2025, from 64.2% in 2024, which means that for every €100 of non-performing loans, banks have formed accounting provisions of €77.5 to cover potential losses. This means that the increase in the coverage ratio to 77.5% is considered particularly significant, as it suggests that most of the potential losses from the remaining non-performing loans have already been accounted for, strengthening the resilience of the banking sector in the face of potential economic turbulence.
According to the IMF table, the non-performing loans ratio as a percentage of total gross loans declines from 6.2% in 2024 to just 3.2% in 2025. This course is a continuation of the spectacular de-escalation that has been recorded in the last decade, as the corresponding percentage amounted to 46.4% in 2016. At the same time, the IMF records a further strengthening of banks' capital adequacy. The Total Capital Ratio increases to 29.5% in 2025, from 28.2% in 2024, while the Tier I Capital Ratio stands at 27.4%. The data paint a significantly improved picture for the Cypriot banking system, with the continuous reduction of non-performing loans, the strengthening of capital and the increase in provisions limiting banks' exposure to future credit risks.
In the area of profitability, the return on equity (ROE), although falling from an extremely high 19.7% in 2024 to 11.6% in 2025, remains in double digits, an indication that banks continue to generate strong profits. Accordingly, the return on assets (ROA) stands at 1.4%, compared to 1.8% in the previous year.
The mild slowdown in profitability is mainly linked to the expected de-escalation of interest rates. The Net Interest Margin decreases to 2.4% from 3.2% in 2024, while net interest income continues to be the main source of revenue, accounting for 78.5% of total income. At the same time, commission and royalty revenues increase their share of total income, reaching 16.1%, compared to 14.3% in 2024, which indicates a greater diversification of revenue sources.
Liquidity
The picture of liquidity also remains strong. Cash, marketable assets and securities available for sale account for 29.5% of total assets. Although the figure is lower than 2024's 31.6%, it still indicates significant liquidity buffers.
At the same time, loans accounted for 44.4% of total assets, compared to 42.4% in the previous year, indicating a gradual strengthening of credit activity. Customer deposits continue to be the main source of funding for banks, accounting for 81.6% of assets, confirming the system's stable deposit base.
While the data do not inspire concern, the Governor of the Central Bank, Christodoulos Patsalides, speaking at the annual meeting of the banks, expressed the intention of the Central Bank to consider the activation of the Systemic Risk Buffer, in the context of further strengthening the resilience of the banking system. He also reminded that the Central Bank has already strengthened both the countercyclical capital buffer and the contributions to the Deposit Guarantee Scheme. According to him, all these interventions are based on the fact that resilience is not built in the midst of a crisis but during the periods of validity and profitability of the system.
