Cyprus Financial Stability Risks Remain Elevated Despite Economic Resilience – CBC Report 2025

The Central Bank of Cyprus (CBC) has released its 2025 Financial Stability Report, confirming that Cyprus’ financial system remains strong, resilient, and well-capitalised, supported by a healthy banking sector and a stable economic outlook.

Despite ongoing global uncertainties, the Cypriot economy continues to demonstrate solid performance. Economic growth remains robust, public finances have strengthened, and the country’s sovereign credit standing has been maintained. At the same time, the banking sector has further improved its resilience through stronger profitability, higher asset quality, a continued reduction in non-performing loans (NPLs), and solid capital and liquidity positions.

The report acknowledges that geopolitical developments, including the conflicts in the Middle East and the Russia–Ukraine war, continue to create uncertainty in the global economy. As an open economy, Cyprus remains attentive to external developments while continuing to reinforce the resilience of its financial system.

The CBC notes that maintaining stability in energy markets, global trade, and supply chains remains important for supporting sustainable growth and controlling inflation. It also highlights the importance of safeguarding household purchasing power, supporting business performance, and preserving the overall strength of the financial sector.

As digital transformation accelerates, the Central Bank places strong emphasis on enhancing cybersecurity capabilities. The report recognises that technological innovation, including the rapid advancement of artificial intelligence, presents both new opportunities and evolving challenges, reinforcing the need for continued investment in cyber resilience.

The report also reviews the recent amendments to Cyprus’ foreclosure framework. While these changes are designed to enhance borrower protection, the CBC emphasises the importance of maintaining a balanced approach that protects financial stability, preserves healthy lending practices, and ensures sustainable access to credit for households and businesses.

To further strengthen the resilience of the financial system, the Central Bank has introduced several forward-looking macroprudential measures, including:

• Increasing the Countercyclical Capital Buffer (CCyB) to 1.5%, effective from January 2026.
• Updating capital requirements for other systemically important institutions.
• Maintaining prudent lending standards and borrower-based measures.
• Further strengthening the Deposit Guarantee Fund.

Overall, the Central Bank concludes that Cyprus’ financial system remains stable, well-regulated, and well-positioned to navigate future challenges. Continued focus on strong capital and liquidity buffers, sound corporate governance, effective risk management, and prudent fiscal policies will help support the country’s long-term financial stability and sustainable economic growth.