Central Bank Governor Konstantinos Herodotou said on Friday that banks need to find a new business model to adapt to the new era.
Mr. Herodotus, speaking during the 8th Banking Forum & FinTech Expo, which took place online, referred to the measures taken by the European Central Bank to limit the impact of the banking pandemic Eurozone system, measures taken at national level and prospects and challenges for banks.
Referring to the Cypriot banks, he said that our banks “continue to face challenges”, adding that these can be seen as structural and cyclical challenges.
The structural changes, said Mr. Herodotus, are related to low profitability. Banks, he noted, “need to have better cost-effectiveness and technological adaptation.” Financial technology (FinTech) is a big challenge and big technology companies (BigTech) must also be considered.
Referring to the cyclical challenges, the Governor of Central said that they have to do with low interest rates which for the time being are not going to change and the expected deterioration of asset quality.
“In general, I believe that banks should try to find a new business model to adapt to the new era,” he said.
In his speech, Herodotus referred to the large difference between the global financial crisis of 2008 and the Covid-19 crisis, noting that two of the three pillars of the eurozone banking union have now been completed, which means that the same rules exist. on the supervision of the banking sector in the euro area.
A key result of this is that the banking sector as a whole is much better prepared to deal with the Covid crisis than when it had to deal with the global financial crisis of 2008, he said.
“We need to make sure that the banks are part of the solution, that they are not affected by the effects of the pandemic so that they can play their part as part of the solution,” he said.
Regarding how Covid affected the eurozone banking system, he said there are two perspectives.
The common challenges for the whole of the euro area and all banks focus mainly on increasing the credit risk for banks, the impact and the challenge caused by the already low profitability of banks in the euro area, which results in banks in the euro area being in unfavorable position in relation to other jurisdictions.
If one looks at the banks themselves and their ability to respond to these challenges, he said, I think we will see differences. These, he said, relate first and foremost to the size of the banks. “Larger banks are better able to meet these challenges than small or medium-sized banks,” he said.
The level of readiness of banks' balance sheets, the degree to which they have been streamlined by the global financial crisis, is another factor of differentiation that affects their ability to access new funds, he added.
He also referred to the level of adoption of new technologies, “given that all of us, whether as bank customers or as consumers in general, have been faced with the need to use technology more and more in our daily lives.”
Regarding the role played by the ECB, Mr. Herodotus said that she was the first to react with the advent of the pandemic, noting that “regulatory flexibility was shown from the beginning”. He referred to the monetary policy measures taken.
“The effects of these measures were evident in the markets from the beginning,” he added.
The financial markets, he said, were in turmoil when Covid appeared and before those measures were taken. The yields on national bonds were very high, which made it difficult for Member States to borrow to implement their fiscal policies.
When the ECB's emergency pandemic bond market (PEPP) program was announced, he said, markets calmed down and the yield difference was substantial.
To this he gave the example of the yield of the Cypriot ten-year bond in relation to the corresponding German, which before the emergency program was 2.2% and yesterday, as he said, was 0.2%.
All these regulatory measures, he continued, were designed to enable banks to absorb losses and contribute to resolving the pandemic.
Mr. Herodotus also referred to the measures taken at national level.
Philenews / ΚΥΠΕ