The banking sector in Cyprus, alongside the rest of the world, has seen one of its most stressful and difficult periods during the past three years.
This took place while the supervisory authorities and governments had to make contradictory decisions about fiscal and monetary policy, as a result of the rapid succession of different crises and the consequent significant challenges that they confronted. Adding to that complex situation, these strategies have changed significantly from the beginning of the pandemic to the present, upsetting economies and society.
Due to the pandemic, credit easing was required
In order to boost economic activity at a time when there were enormous pressures on consumption, investment, work, and supply chains, a credit expansion was required to deal with the pandemic. As a result, during the pandemic’s early stages there was both easy access to cheap money, concurrently with shortages of supplies, raw materials and transportation. It can therefore be seen that the higher pricing for goods and services came about as a result of the actions made by regulators and policymakers and which were necessary at the time.
The role of banks
The banks in Cyprus continued to support the Cypriot economy and society by making it easier for people to access banking services, suspending loan payments and interest, suspending foreclosures for a period of almost six months, and, most importantly, by financing the economy through new lending as well as through financing plans developed in cooperation with the government. At the same time, banks supported society and vulnerable individuals through the provision of funds, equipment, manhours and the co-ordination of volunteers to help society in overcoming the pandemic’s effects.
The perfect storm
The global tsunami that followed the inflationary wave on the heels of the pandemic crisis, along with Russia’s war in Ukraine, created the perfect storm. Even now, the consequences of this situation are still unfolding.
Finding balances
Governments and regulators continue to take contradictory actions in an environment where the essential balance is sought between preserving economic activity and employment, managing inflation, and safeguarding financial stability. It is obvious that monetary or fiscal policy choices add to the instability of the socio-economic environment.
The banking sector in Cyprus has shown tremendous reservoirs of strength in this situation, as it has preserved its financial health, has continued the process of rationalization, and is perhaps the most important pillar of stability in a time defined by instability, uncertainty and frequent disruptions. Banks continue to invest in their digital infrastructure at the same time as they develop business plans for the green transition and the implementation of the ESG standards. In addition, they have demonstrated their dedication to good governance guidelines and the adoption of best practices in the fight against terrorist financing, money laundering and tax evasion, while effectively supporting the local economy, households, and enterprises.
In summary, banks have long understood that instability is the new normal within which they are evolving in order to maintain their key position in regard to the vital goal of economic growth and social well-being.
