The Central Bank of Cyprus (CBC) announced on Turesday that the Cyprus banking sector remained strongly capitalised, highly liquid and continued to improve its asset quality in the third quarter of 2025, according to newly published financial soundness indicators.
The central bank said that as of the third quarter of 2025, Cyprus credit institutions continued to display strong capital positions, with further improvement compared with the same period in 2024.
The Common Equity Tier 1 ratio reached 26.1 per cent, reflecting sustained positive profitability across the banking sector, which has reinforced solvency over recent years.
At the same time, the leverage ratio remained broadly stable, underlining the sector’s robust and resilient financial footing.
Asset quality showed marked improvement during the third quarter of 2025, with the non-performing loans ratio declining to 4.5 per cent, the lowest level recorded since 2014.
Using the methodology applied in the European Banking Authority Risk Dashboard, which includes loans and advances to central banks and credit institutions, the NPL ratio fell to 2.3 per cent at the end of September 2025, from 2.9 per cent at the end of June 2025.
The central bank attributed the decline to ongoing efforts by Cyprus credit institutions to deleverage their balance sheets and strengthen asset quality.
What is more, loans classified as Stage 2 (meaning that credit risk has increased but the borrower has not defaulted yet) also improved during the third quarter of 2025 compared with a year earlier, falling to 5.8 per cent of total loans.
This level was well below the EU average of 9.4 per cent recorded in June 2025.
The central bank added that the high and rising coverage ratio for non-performing loans demonstrates the sector’s capacity to absorb potential future credit losses.
What is more, profitability across the Cyprus banking sector remained positive during the third quarter of 2025, mainly driven by net interest income.
Interest income continued to be generated from a broad range of interest-bearing assets, including loans and advances, investments in debt securities and cash held with the European Central Bank.
However, interest income during the first nine months of 2025 was lower than in the corresponding period of 2024, reflecting the recent decline in ECB interest rates.
This trend was also reflected in reductions in both the net interest margin and net interest income indicators, as well as a lower return on equity.
The central bank explained that the decline in return on equity was influenced by lower net profitability and the improved solvency position of Cyprus credit institutions.
Furthermore, liquidity conditions remained strong, with the banking sector continuing to post liquidity ratios well above the minimum supervisory requirement of 100 per cent and above the EU average.
This performance was maintained despite increased lending activity by the Cyprus banking sector over recent years.
In terms of balance sheet structure, domestic banking sector assets were mainly concentrated in loans and advances, cash and balances held with the ECB, as well as debt instruments.
On the liabilities side, deposits and equity continued to account for the largest share.
Overall, the central bank said the indicators confirm that during the third quarter of 2025 the Cyprus banking sector maintained a strong capital base, high liquidity and improved asset quality.
Profitability, it added, remained at satisfactory levels despite pressures linked to the lower interest rate environment.
