The Central Bank of Cyprus (CBC), under its mandate to safeguard financial stability, compiles and continuously monitors, among other things, a set of financial soundness indicators for the domestic banking sector. These indicators cover key aspects of the sector, such as capital adequacy, asset quality, profitability, liquidity, and banks’ balance sheet structure. These indicators serve as a key tool for monitoring and assessing systemic risks that may affect the country’s financial stability, and support the formulation of macroprudential policy.
As part of its ongoing commitment to provide transparent and reliable information to the public, the CBC publishes selected financial soundness indicators for the Cyprus banking sector on a quarterly basis.
Key developments – 2025 Q3
- Solvency: As at 2025 Q3, Cyprus credit institutions (“CIs”) continued to exhibit strong capital positions, further improving compared with 2024 Q3, with the Common Equity Tier 1 (“CET1”) ratio reaching 26,1%. This improvement reflects the sustained positive profitability observed across the Cyprus banking sector, which has reinforced the solvency position of Cyprus CIs over the past years. At the same time, the leverage ratio remained broadly stable, further underscoring the sector’s robust and resilient financial footing.
- Asset Quality: The quality of the banking sector’s assets improved significantly during 2025 Q3, with the Non-Performing Loans (“NPL”) ratio declining to below 5% - specifically, to 4,5%, the lowest level recorded since 2014. Furthermore, the NPL ratio, as per the methodology applied in the European Banking Authority’s (EBA) Risk Dashboard, i.e. including loans and advances to Central Banks and Credit Institutions, declined to 2,3% at the end of September 2025, compared with 2,9% at the end of June 2025. The decrease reflects the Cyprus CIs’ efforts to deleverage their balance sheets and strengthen their asset quality.
At the same time, loans classified as Stage 2 also improved in 2025 Q3 compared with 2024 Q3, falling to 5,8% of total loans, well below the EU average of 9,4% (June 2025). Finally, the high and increasing NPL coverage ratio demonstrates the sector’s capacity to absorb potential future credit losses.
- Profitability: The Cyprus banking sector continued to record positive profitability during 2025 Q3, mainly driven by net interest income. Interest income was generated from a range of interest-bearing assets, including loans and advances, investments in debt securities and cash held with the European Central Bank (“ECB”). It is noted, however, that interest income earned during the first nine months of 2025 was lower than the interest income of the equivalent period of 2024, reflecting the recent decline in the ECB’s interest rates. This development is also evident in the reduction of both the net interest margin (“NIM”) and net interest income (“NII”) indicators, as well the lower Return on Equity (“ROE”) which was impacted by the lower net profitability (numerator effect) and the improved solvency position of Cyprus credit institutions (denominator effect).
- Liquidity: The banking sector remains highly liquid, with liquidity ratios significantly exceeding both the minimum supervisory requirements (100%) and the EU average, despite the increased lending activity of the Cyprus banking sector over the last years.
- Balance Sheet Structure: The domestic banking sector assets are mainly concentrated in loans and advances, cash and cash balances with the ECB, as well as debt instruments. Equivalently, the domestic banking sector liabilities consist mostly of deposits and equity.
Overall, the financial soundness indicators confirm that, during 2025 Q3, the Cyprus banking sector maintained a strong capital position, high levels of liquidity, and improved asset quality, while profitability remained at satisfactory levels despite pressures stemming from the low-interest rate environment.
Other information
The current publication replaces the previous edition.
Relevant publications by other organisations:
- CBD: the Consolidated Banking Data (CBD) dataset, published by the European Central Bank (ECB) on a quarterly basis, aims to provide comparable and comprehensive information that allows for the integrated assessment of all risks that may affect the stability of the banking sector across the European Union.
- FSIs: the Financial Soundness Indicators (FSIs) dataset, published by the International Monetary Fund (IMF), aims to support macroprudential analysis and the assessment of risks that may affect the stability of the financial system.
It should be noted that any discrepancies may exist between the data published by the aforementioned organisations and those of the CBC, may be due to differences in definitions, calculation methodologies, and the respective data cut-off dates.