Cyprus banks see healthier loan portfolios, softer profitability

The Central Bank of Cyprus (CBC) on Tuesday reported a sharp improvement in loan quality across the Cypriot banking sector, alongside a decline in profitability, reflecting changing conditions across the domestic financial system.

The Central Bank of Cyprus said the non-performing loans ratio of the Cypriot banking sector, excluding loans and advances to central banks and credit institutions, fell to 4.5 per cent at the end of September 2025, down from 5.6 per cent at the end of June 2025.

Using the European Banking Authority’s risk dashboard methodology, which includes loans and advances to central banks and credit institutions, the NPL ratio declined to 2.3 per cent at the end of September 2025, compared with 2.9 per cent three months earlier.

The central bank also reported a marked strengthening in provisions, with the coverage ratio of non-performing loans rising to 68.5 per cent at the end of September 2025, up from 62.0 per cent at the end of June 2025.

Total restructured loans stood at €1 billion at the end of September 2025, of which €0.5 billion continued to be classified as non-performing, highlighting the remaining challenges within parts of bank loan portfolios.

At the same time, the CBC also reported that the profitability of the banking sector declined during the first nine months of 2025, falling by €237 million year-on-year.

Bank profits dropped from €953 mn in September 2024 to €716 mn in September 2025, with the reduction primarily driven by lower net interest income.

Despite weaker profitability, the balance sheet of the Cypriot banking sector continued to expand during the third quarter of 2025.

Total banking sector assets increased by €835 mn, a rise of 1.2 per cent, growing from €66.97 bn n June 2025 to €67.81 billion at the end of September 2025.

The central bank attributed this growth mainly to an increase in loans and advances, indicating continued credit activity in the economy.

What is more, capital adequacy indicators remained strong, although they edged slightly lower over the quarter.

The Common Equity Tier 1 ratio declined by 0.2 percentage points, easing from 26.3 per cent in June 2025 to 26.1 per cent at the end of September 2025.

According to the Central Bank of Cyprus, the reduction in the CET1 ratio was mainly due to an increase in total risk exposure, which outweighed the rise in CET1 capital.

Taken together, the data point to continued strengthening in asset quality within Cyprus’ banking sector, even as profitability moderates and capital ratios adjust amid higher risk-weighted exposures.