Cyprus must turn fiscal stability into investment and growth, Central Bank governor says

Economy aibankstechnologyTop News Cyprus must turn fiscal stability into investment and growth, Central Bank governor says Christodoulos Patsalides Central Bank Governor Relevant News Cyprus must turn fiscal stability into investment and growth, Central Bank governor says 16 September 2026 Skyline Havens developers unveil construction progress to 350 guests at The Ellinikon 16 September 2026 Forbes Cyprus to debate Cyprus’s place in the new era of finance 16 September 2026 Theano Thiopoulou 16 September 2026 FacebookXWhatsAppEmailPrintViber A banking system that is now in the strongest position in its history, yet at the same time facing an environment where risks are shifting faster than ever — that’s how the governor of the Central Bank of Cyprus, Christodoulos Patsalides, describes it in an interview with Insider. At the same time, strong capital adequacy, high liquidity and a significant reduction in non-performing loans have created a solid safety net — but that, he says, is no reason for complacency. For the governor, the next major challenge isn’t only maintaining financial stability, but adapting the economy and the banking system to a new era. Geopolitical turbulence, climate change, cyber threats and artificial intelligence are adding new forms of risk, just as fintech firms and digital banks are reshaping the terms of competition and accelerating digital transformation. Fiscal discipline, the need to keep pushing reforms, boosting productivity, and the green and digital transition all feed into the same equation. As he points out, fiscal stability is necessary but not sufficient — it needs to become a springboard for investment and change that will strengthen the competitiveness and resilience of the Cypriot economy. The governor also discusses how resilient the Cypriot banking system is against these new risks, how quickly banks need to move in the digital era, the reforms Cyprus still needs, and the major challenges facing Europe. He also explains what the arrival of the digital euro will actually mean in practice, and addresses concerns over privacy and freedom in transactions. Geopolitical risks, climate change, the challenges of the green transition, cybersecurity and the rapid evolution of artificial intelligence aren’t just peripheral concerns any more — they’re critical factors in banking resilience and financial stability. How ready is the Cypriot banking system today to face these risks? The banking system is now being asked to operate within a web of emerging risks that are becoming increasingly significant. Geopolitical turbulence, climate change, the green transition, cybersecurity and artificial intelligence now make up an extremely complex macroeconomic environment, adding to the challenges facing both the banking sector and the economy more broadly. We know that resilience isn’t built at the moment a crisis breaks out — it’s built long before. That’s why the efforts of the Central Bank of Cyprus (CBC) in recent years have focused on shoring up the banking system through a series of wide-ranging, systematic initiatives. Today, the Cypriot banking sector shows the strongest fundamentals in its history. Capital adequacy, as reflected in the key CET1 ratio, places Cypriot banks at the top of the European Union. Liquidity is well above the European average, and profitability has recovered significantly. Non-performing loans have now come into line with the European average. As a result, the banking sector has become a genuine pillar of stability, fulfilling its role as the financier of the economy. Against a backdrop of escalating geopolitical tensions and other emerging threats and challenges, complacency and inaction simply aren’t an option. That’s why the CBC has further strengthened its capital buffers by applying the appropriate macroprudential measures. It’s also looking at expanding its toolkit to address systemic structural risks. On cybersecurity risk, it’s worth noting that the CBC has already launched targeted supervisory initiatives under the EU’s DORA regulation, further strengthening the operational resilience of credit institutions. In today’s climate of breakneck advances in artificial intelligence, constant vigilance and a stronger capacity for rapid response are essential. The Cypriot banking system is well prepared today to face current challenges — but there’s no room for complacency. Ongoing vigilance and timely adaptation remain essential to safeguarding financial stability. Digital transformation and competitiveness Banks need to be not just sustainable and resilient, but genuinely aligned with the financial ecosystem of the future. Are Cypriot banks’ management teams moving fast enough, or will they need to accelerate their digital transformation even further to stay competitive? Cypriot banks have made significant progress in recent years on digital transformation, investing systematically in digitising their services and operational processes. That said, banks’ business models need to keep evolving continuously, so they can meet the demands of businesses and households that increasingly operate in real time. This new digital ecosystem is fertile ground for fintech growth. Today, more than thirty fintech firms are active in the payments sector. Banks now have to compete in an environment of ever-increasing speed, sharper price competition, and an expanding range of services — including, for example, fintech firms moving into wealth management. Competition has intensified further with the arrival of digital banks focused on speed, automation and minimal fees. These banks operate either as subsidiaries of established international banking groups, or as standalone entities with an international presence. European digital banks can operate in Cyprus under the single EU passporting regime. The core activities of digital banks in Cyprus are broadly similar to those of fintech firms, but with the added ability to offer deposit products. Banks therefore need to ensure their business model keeps pace with the demands of a fast-evolving digital era. Recent developments in artificial intelligence make that need even more pressing. Forbes Next Gen Banking & Fintech Summit How well informed is public opinion in Cyprus, and the business community, about the new realities being created by technological change across core areas of banking — and how much do conferences like the Forbes Next Gen Banking & Fintech Summit, on 13 October, where you’ll be taking part in a panel as Central Bank governor, help with that? Technological developments are fundamentally changing how citizens and businesses interact with the financial system. In Cyprus, we’re seeing significant progress in the adoption of digital banking services and new payment methods, which shows that society and the business community are gradually adapting to new technologies. However, as technological change accelerates — particularly in artificial intelligence, digital payments and financial technology — the need for continuous learning and a genuine understanding of both the opportunities and the risks involved becomes ever more pressing. That’s why the Central Bank doesn’t limit itself to its supervisory role — it’s also taking a lead role in promoting financial literacy in Cyprus, playing a decisive part in shaping and delivering the National Strategy for Financial Education. As part of that, it chairs the Cyprus Financial Literacy and Education Committee, running a wide range of educational and awareness initiatives aimed at young people and the public. Our goal is to strengthen the knowledge and skills of citizens and businesses so they can make informed financial decisions and respond effectively to the challenges of a constantly evolving digital environment. The recent launch of the digital portal moneypedia.cy serves exactly that purpose. At the same time, conferences like the Forbes Next Gen Banking & Fintech Summit matter a great deal, because they bring together supervisory authorities, banks, fintech companies and businesses, strengthening dialogue around the technological developments shaping the future of financial services. Initiatives like this make a real contribution to raising awareness, exchanging expertise, building networks, and preparing our country for the challenges and opportunities of digital transition. Pre-election campaign and economic stability Do you see any potential risks to the Cypriot economy and banking system from the extended pre-election period ahead of us, given that political campaigning has effectively started very early? Are you concerned fiscal discipline could be affected, or that necessary reforms could be delayed? I don’t think an extended pre-election period is, in itself, a systemic risk to the Cypriot economy or its banking system. That said, international experience shows that the more political rivalry intensifies, the greater the risk that economic decisions end up driven more by short-term political interests than by long-term goals of economic stability and growth. That challenge matters particularly at the moment, as Cyprus is operating in an environment of heightened global uncertainty, shaped by geopolitical tensions, fragmenting trade and other external risks. In conditions like these, consistency in economic policy and maintaining institutional credibility are essential to safeguarding economic stability. On the policy side, maintaining fiscal discipline is especially important. In recent years, Cyprus has significantly strengthened its public finances, which has increased the economy’s resilience to external shocks. It’s therefore important to protect that progress and avoid choices that could undermine fiscal sustainability. Beyond the banking sector’s strong performance, investor and market confidence remains a critical factor — and that confidence rests on the continuation of stable, predictable and responsible policies. Just as important is keeping up the country’s reform momentum. Pushing through reforms that boost productivity, competitiveness and institutional effectiveness in good time can improve the economy’s long-term prospects. Delays caused by the electoral cycle, on the other hand, could hurt the country’s growth prospects and limit its ability to respond to future challenges. You’ve said fiscal discipline alone isn’t enough, and that we need to invest in the green and digital transition and push reforms that boost productivity and long-term growth. How close or how far is Cyprus today from that direction? In short, fiscal discipline is a necessary condition for stability and sustainable growth, but it isn’t enough on its own. What’s genuinely needed is significant investment and key reforms that boost productivity and accelerate the green and digital transition. It’s worth noting that the services sector in the Cypriot economy has diversified considerably in recent years. While tourism remains an important industry, accounting for a 6% share of economic output in real terms in 2025, the share of non-tourism private services in the economy has grown from around 47% in 2000 to 63% in 2025. Key sectors contributing to growth include technology (around a 14% share), professional services (10%), financial and insurance activities (7%) and trade (12%). Education and health, together with the significant contribution of the public sector, are also major parts of the economy, accounting for around 11% of economic activity. To sustain and build on the economy’s growth momentum — with a focus on further broadening the productive base — reforms to boost productivity need to continue. I’m talking about modernising the public sector, speeding up the justice system, upgrading digital skills and AI readiness, driving forward digital transformation and innovation, and cutting energy costs through reforms and investment in energy infrastructure. These reforms, which are also flagged by ratings agencies and recommended by the IMF, are important if Cyprus is to make full use of its diversified economic base and achieve higher rates of sustainable growth in the years ahead. To sum up, Cyprus is moving in the right direction, building positive momentum through a prudent approach. The state’s strong fiscal position and falling public debt are creating the conditions for productive investment, while recent years have brought improved productivity and a growing presence of high-value-added sectors such as technology. The challenge, then, isn’t just maintaining fiscal stability — it’s turning that stability into a springboard for investment and reforms that will strengthen the competitiveness, productivity and resilience of the Cypriot economy in the years ahead. Europe: more productive, more resilient and stronger Europe needs to tackle its structural problem of low productivity, which — combined with an ageing population and geopolitical turbulence — is limiting its growth prospects. What needs to change for Europe to strengthen its economic resilience, achieve higher growth, boost productivity and secure a stronger international role? Boosting productivity is perhaps Europe’s most significant long-term challenge. According to the Draghi Report on European competitiveness, productivity growth in the EU has lagged well behind that of the United States for two decades now, particularly in digital technology, innovation and advanced technologies. An ageing population, higher energy costs and an increasingly demanding geopolitical environment are making the need to boost productivity and competitiveness even more pressing. The European Commission estimates that additional investment of around €750-800 billion a year — roughly 4.5% of EU GDP — is needed to meet the goals of the green and digital transition, strengthen European defence and preserve the international competitiveness of the European economy. That extra investment needs to go hand in hand with faster delivery of structural reforms, to boost Europe’s growth, resilience and international standing. At the same time, Europe needs to make full use of the single market’s potential by reducing existing fragmentation, particularly in services, digital technology and capital markets. According to IMF estimates, internal EU barriers in services are equivalent to a cost greater than a 100% tariff, significantly limiting the Union’s economic dynamism. Recent initiatives around the Savings and Investments Union also matter a great deal — the aim being to channel European savings more effectively into productive investment. Although EU households hold around €10 trillion in savings, a large share of that remains in low-yield deposits rather than financing investment in innovative businesses and strategic sectors. Much the same is true in Cyprus, where the volume of deposits is particularly high. In an environment of heightened geopolitical challenges, it’s also important to strengthen Europe’s strategic autonomy in critical areas such as energy, raw materials and defence — without losing the benefits of open trade and international cooperation. In that context, creating a European safe asset — in other words, issuing common European debt — isn’t just a financial initiative, but a significant step towards deeper European integration. It could help fund shared European public goods and strategic priorities, while also strengthening the Savings and Investments Union, Europe’s strategic autonomy and the international role of the euro. Digital euro and privacy The digital euro has moved a step closer to becoming reality. What will the practical difference be for Cypriot citizens, and what do you say to those who worry it could limit privacy or freedom in transactions? The biggest difference for citizens will be the ability to use a digital means of payment that is, in fact, central bank money — the digital form of the euro — in much the same way they use cash today, but adapted to the digital age. They’ll be able to make payments in shops, online or between individuals, anywhere in the euro area, regardless of which bank or payment provider they use. The digital euro is also designed to work both online and offline, offering a simple, straightforward user experience even in situations with limited connectivity. It’s also important to stress that the digital euro isn’t meant to replace cash, but to complement it. Citizens will still be able to choose between cash and digital payments, keeping the freedom to use whichever payment method suits them best. I should stress that cash will continue to be accepted in transactions — which is why the Eurosystem is in the process of choosing, through a vote by European citizens, the design of the next series of banknotes. On privacy, that’s one of the core principles the digital euro is being designed around. The Eurosystem won’t be able to identify citizens based on their payments, or directly link transactions to specific individuals. For offline payments in particular, transaction details will be known only to the payer and the payee — offering a level of privacy comparable to cash. So the digital euro isn’t being designed as a tool for surveillance or restricting citizens’ transactions. On the contrary, its goal is to offer a secure, European and trustworthy means of digital payment, with strong privacy safeguards and full respect for citizens’ freedom of choice. Subscribe to our Newsletter Latest News Skyline Havens developers unveil construction progress to 350 guests at The Ellinikon Forbes Cyprus to debate Cyprus’s place in the new era of finance Cyprus researchers detect microplastics in children’s urine for the first time Doctors linked to “suspicious” wellness clinics face checks, medical body warns European Parliament votes to accelerate defence investment and procurement Cabinet approves €11.16bn budget for 2027, surplus set to widen Police probe plasmapheresis machines at private Larnaca clinic Follow en.philenews on Google News and be the first to know all the news about Cyprus and the world.