Cyprus Banking Sector Capital Levels Reaches Historic High In End-2019

Cyprus Banking Sector Capital Levels Reaches Historic High In End-2019

Local Friday, 24 July, 2020

The banking sector’s capital levels reached a historic high in the end of 2019, placing the Cypriot banks on a better footing to face the crisis stemming from the coronavirus outbreak.

According to Key Aggregate Financial Indicators for the Cyprus Banking Sector for 2019Q4, released by the Central Bank of Cyprus (CBC) the Core Tier 1 Capital of the Cyprus banks amounted to 17% in the end of 2019 from 16.6% in the third quarter of 2019 and 15.1% in the end of 2018. This is the highest level of CET1 capital in the CBC’s time series that goes to Dec 2010.

Solvency ratio in end-2019 stood higher, amounting to 19.6% compared with 19% in Q3 2019 and 17.5% in Q4 2018, the CBC added.

The bank’s CET1 ratio is expected to be negatively affected as banks will record increased loan loss provisions due to the deteriorating macroeconomic climate as a result of the Covid-19 pandemic. However, the banks were given significant capital release by the European Central Bank to absorb losses and to support the real economy.

Furthermore, the debt repayment suspension implemented by the government until December 2020 will shield the banks from increased flow of non-performing exposures this year but will spark an estimated NPL increase in 2021 as the CBC said in its July economic bulletin.

According to the CBC data, liquidity in the Cyprus banking sector reached historic high levels, as deposits to Central Banks in end-2019 amounted to 24.7% of total assets from 22.9% in Q3 2019 and 23.2% in Q4 2018, reflecting the increase in the confidence to the banking system, as well as the limited new loan origination due to the high levels of private sector debt in Cyprus. Loans and advances continued their declining trend due to deleveraging and amounted to 53.8% of total assets in Q4 2019 from 54.6% in the previous quarter and 54.6% in December 2018.

Furthermore, total operating income amounted to 2.6% of total assets in end-2019, remaining broadly unchanged compared with 2.5% in the third quarter of the same year and 2.3% in the end of 2018, the CBC added. Net Interest Income, a basic index of a bank’s profitability, amounted to 68.6% of total income in Q4 2019, down from 70.9% in the previous quarter and 67.1% in end-2018.

According to the CBC, operating income to total assets declined to 0.7% in end-2019 from 0.9% in Q2 2019 and remained stable compared with Q4 2018.

However, the Cost-to-Income ratio, a key index for a bank’s efficiency, reached 72.3% in end-2019, marking an increase of over 6.4 percentage points compared with Q3 2019 and was up by 2.3% compared to Q4 2018. The Cyprus banking sector Cost-to-Income ratio was mainly affected by a voluntary retirement scheme carried out which took effect in the last quarter of 2019 by Bank of Cyprus, Cyprus’ largest lender.

Source: Gold News

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