After seven years of losses and a period of recovery from the financial crisis, Cypriot banks have made some notable gains: According to data from the Central Bank, profits in the first three months of 2018 amount to €153.51 million. The Cyprus Co-operative Bank was excluded from the data collection, since it has not made any announcements since one concerning the first nine months of 2017.
The interest rate environment affected the profitability of banks. However, the main reason for their significant losses were supervisory pressures resulting in measures to deal with the non-performing loans that weighed on their balance sheets.
In 2011, bank losses reached € 4.99 billion, in 2012 the losses amounted to €4.47 billion and in 2013 to €4 billion. In 2014 balance sheets started improving with the losses are considerably reduced and limited to € 473 million. In 2015 the losses amounted to €464 million, in 2016 to € 214 million and in 2017 to € 708.55 million. Capital controls have been eliminated and there was an significant inflow of new deposits from domestic and foreign depositors.
Cypriot banks participate this year in the stress tests of the Single Supervisory Mechanism, the results of which are expected to be announced this Autumn. The stress tests will include several crisis scenarios including one in which here is a significant decline in the value of real estate. The fact that the House has voted on the non-performing loans bills is a positive development which will be taken into account by the European Central Bank. According to the ECB, there will be no capital limits for the stress test scenarios and these will be defined in the framework of the supervisory dialogue.
The weak link, once again, was proven to be the Co-operative Bank, which was confronted with the management of non-performing loans in the framework of supervisory supervision. This has resulted in the need for an increase in provisions of €800 million and capital requirements of €600 million.