“Cyprus: from crisis to growth”

Interview with George Ioannou, Member of the Supervisory Board of the ECB and Director of Supervision of Credit Institutions at the Central Bank of Cyprus, Supervision Newsletter

11 February 2026

More than a decade ago, Cyprus experienced a big financial crisis. Since then, asset quality has improved, non-performing loans have gone down significantly, and Cypriot banks seem well off. What’s been at the heart of this progress?

The Cyprus banking sector’s remarkable recovery from the 2013 crisis reflects the coherent and consistent functioning of two essential pillars: banks’ commitment to act and supervisors’ firm oversight.

The road to recovery was anything but smooth. Towards the end of 2013, while still mitigating the effects of the crisis, the largest European banks were engaged in the comprehensive exercise – the Asset Quality Review – conducted at the onset of the Single Supervisory Mechanism. From that point onwards, the focus sharpened on addressing legacy issues and strengthening those institutions’ balance sheets.

Cypriot SIs responded decisively to the push of the supervisors. They undertook large-scale disposals of non-performing loan (NPL) portfolios, implemented viable restructurings, enhanced their internal governance arrangements and refined their business models.

These steps were not just technical adjustments – they were instrumental. They helped stabilise the system, restore confidence, and ultimately reposition the Cypriot banking sector on far firmer ground. Without the consistency and discipline of banks, paired with the rigorous and effective supervision of the Central Bank of Cyprus and ECB Banking Supervision, this progress would simply not have been achieved.

The Cypriot economy continues to grow, yet banks are keeping their credit underwriting standards tight. Are banks still heeding the lessons from the 2012-2013 crisis?

Indeed, the discipline embedded in banks’ underwriting standards since the 2013 crisis is evident. Central Bank of Cyprus introduced a series of directives and measures that became the foundation of a more prudent underwriting framework.

This framework hasn’t faded with time; it has become part of the DNA of local banks. And more importantly, it has worked! We’ve seen record‑high new lending activity in 2025, while loan quality is solid.

In short, banks have not only learned the lessons of the past – they’ve institutionalised them. The result is a more resilient, stable banking system that can support growth without compromising on prudence.

Non-performing loans may resurface with growing geopolitical tensions. The ECB has recently extended its expected provisioning to smaller banks and simplified the framework for larger banks. Are you already seeing a response to these changes?

Despite heightened geopolitical tensions, the asset quality of the Cypriot banking sector remains robust. We are not observing any signs of distress; on the contrary, NPLs are continuing their downward trend.

That said, Cypriot less significant institutions (LSIs) face higher levels of NPLs compared with larger peers as their resolution takes longer owing to structural challenges, greater complexity, the smaller size of portfolios and resource constraints.

In this context, 2025 marked an important milestone for Central Bank of Cyprus. It became the first national supervisor to implement the provisioning calendar for LSIs. The framework mirrors that applied to larger banks, setting provisioning requirements on long standing NPLs, with full provision coverage expected to be achieved by 2027, earlier than the 2028 final target set by the recently introduced ECB Guideline on coverage of non-performing exposures at LSIs.

As far as the larger banks are concerned, the substantial progress achieved in recent years means the sector is no longer constrained by the NPL legacy pressures that once dominated the supervisory agenda. This creates space for the introduction of a simplified framework. While NPLs will always remain an important area, this progress allows us to shift part of our attention towards new and emerging priorities.

It is also important to stress that such steps form part of a wider simplification effort by European supervisors. Nevertheless, the Supervisory Board has taken great care to ensure that prudence remains at the core of the framework, without compromising the quality of supervision. In other words, simplification does not equate to deregulation.

In the past few years, cross-border activity in the region has increased, including mergers and acquisitions. What is your view on cross-border cooperation?

Cross‑border mergers and acquisitions are not unique to Cyprus. Instead, there is a broader euro area trend, as banks strive to strengthen their competitiveness, scale their operations and deliver greater value to shareholders. What is notable, though, is how effectively Cyprus has positioned itself within this landscape, with two large-scale transactions completed in the past year.

Cyprus is increasingly viewed as a gateway for European banking activity, leveraging on regulatory rigour, solid macroeconomic fundamentals and strong international connectivity. Subsequently, the Cypriot banking system exhibits healthy financial standing, with high solvency and liquidity ratios – among the highest in the euro area – which naturally attracts foreign interest and reinforces trust in the system.

At the same time, being an open economy Cyprus must remain vigilant and proactive – especially in an environment of heightened geopolitical uncertainty. While increased cross‑border activity strengthens integration, it also requires robust supervision and continued focus on safeguarding financial stability both at European and national level.

In this context, cross‑border cooperation is not just beneficial – it is essential. Consolidation boosts competitiveness, operational efficiency and market depth. To fully unlock these benefits though, it is essential for Europe to complete the banking union.

Having spent a decade as part of the broader network of European banking supervisors, what do you consider to be the most significant benefits and challenges that have emerged during this period?

Being part of the SSM family for over a decade, we have experienced major challenges which have made us grow wiser and more resilient. Harmonised supervision and a level playing field have ensured the consistent application of prudential standards. This has materially strengthened and improved banks’ resilience.

We also benefit from cooperation with the ECB, as it gives national supervisors access to advanced methodologies, technical expertise and supervisory tools. This has accelerated knowledge transfer, fostered a more robust risk culture and reduced regulatory arbitrage – ultimately promoting healthy competition and deeper integration across the European banking sector.

Yet, challenges remain. Local specificities must be taken into account, while resource constraints continue to pose an ongoing concern. At the same time, effective coordination between the ECB, national supervisors and local institutions requires strong communication and continuous alignment of supervisory actions.

Looking ahead, enhancing the supervisory culture and promoting greater integration remain pivotal to achieving the objectives set by European banking supervision. These priorities are also at the heart of the Supervisory Board’s comprehensive agenda, which aims to make European banking supervision more efficient, effective and risk-based. Nevertheless, while the progress achieved over the past decade has been remarkable, there is still room for further refinement. Focus areas such as ensuring consistent and clear communication across European supervision, promoting common behaviours and training, and facilitating staff exchanges between the ECB and national supervisors to strengthen collaboration are all key and represent important steps towards building a stronger and better European supervision.