Cypriot Banking Sector Sees Profitability Dip Despite Asset Growth and Stronger Capital Adequacy

The Cypriot banking sector experienced a drop in profitability during the first quarter of 2025, even as total assets expanded and capital adequacy strengthened further, according to a report released on Wednesday by the Central Bank of Cyprus (CBC).

Profitability in the sector fell by €82 million, declining from €346 million in March 2024 to €264 million in March 2025. “This decrease is mainly attributed to a reduction in net interest income,” the central bank said.

Despite the decline in profits, the sector's total assets recorded an increase of €422 million, representing a 0.6 per cent rise during the first three months of the year. Total assets grew from €65.60 billion in December 2024 to €66.02 billion by the end of March 2025. The CBC noted that the asset growth was primarily driven by “higher volumes of loans and advances, as well as debt securities.”

At the same time, the sector’s capital position improved, with the Common Equity Tier 1 (CET1) capital ratio rising by 1.3 percentage points, from 24.7 per cent at the end of 2024 to 26.0 per cent in March 2025. “This increase is mainly due to a reduction in total risk exposure, which offset a modest decline in the absolute amount of CET1 capital,” the CBC stated in its announcement.

These figures indicate that, despite a softening in profitability, the Cypriot banking sector continues to reinforce its balance sheet and maintain high levels of capital adequacy.

Meanwhile, the sector’s non-performing loans (NPL) ratio edged slightly lower to 6.1 per cent at the end of March 2025, down from 6.2 per cent in December 2024. According to the central bank, “the improvement was mainly due to repayments, positive migration of loans to performing status, write-offs, and foreign exchange movements.”

Alongside this, the coverage ratio of NPLs through credit loss provisions also strengthened. The coverage ratio rose to 60.5 per cent in March 2025, compared with 59.9 per cent at the end of 2024. The CBC explained that this increase “reflects a more robust provision buffer to absorb potential losses from bad loans.”

In terms of restructured loans, total exposures that had undergone restructuring reached €1.3 billion by the end of March 2025. Out of this total, €0.7 billion in loans remained classified as non-performing. The figures underscore the ongoing efforts within the sector to improve asset quality, maintain prudent loan provisioning, and enhance overall resilience of the financial system.

By fLEXI tEAM