Evidence shows that, apart from their medium-term effects, structural reforms may have significant favourable effects in the short term, in so far as their introduction may make agents more confident that the foundations for growth are being made more solid and flexible. Such an improvement in expectations may also help to bring forward certain spending decisions, such as investment projects aiming to exploit the new opportunities that these structural changes may give rise to in the future. Now is therefore the time to stress the essential role played by the institutional framework and policies that provide incentives to facilitate economic adjustment. In this respect, as I have already mentioned, obviously not all agents have the same degree of responsibility when facing a period of difficulty, the authorities being the main agents responsible for shaping this combination of positive incentives. Given that the decisions of the private sector (households and firms) depend significantly on the institutional framework and incentives, their role in the adjustment (especially that of households) is highly constrained by the framework in which they operate. This is perhaps the main thing that the authorities should take into account in their response to a period of economic difficulties, both when managing budgetary policy and when designing their regulatory and market-organisation policies. It is necessary to analyse, at all times, whether the policies proposed provide the appropriate incentives for agents to adapt to the adjustment, increasing the probability that the economy will return to a growth path in the medium term.

The cost to income ratio of the Cyprus Banking Sector, which amounts to 76 percent as at June 2022, is significantly higher than the respective EU average of 63 percent. Investment in technology can become the catalyst in the effort to strengthen efficiency and build sustained profitability, which will ultimately bridge the gap with the rest of the EU area banks. The second challenge relates to the risks of climate change. The ongoing effort to reduce the dependence on Russian energy may increase the transition risks and as such banks must enhance and adapt their climate risk mitigation strategies. The fact that certain banks have started making tangible steps in this regard is a positive development, but they are still early on the learning curve and behind their European peers. They must act faster and more decisively to meet our expectations of incorporating climate-related risks into their overall risk management frameworks, which will ultimately also target their clientele and the submission of detailed climate related information in order to feed the banks' risk management processes. Professional accountants also have an important role to play in this overall transformation of the economy by providing relevant advice to their customers to set up the appropriate management information systems that could enhance the relevant disclosures. And this takes me to the third challenge which is the overall interaction of credit institutions with their clientele. It is in the interest of both clients and banks to cultivate a relationship of mutual respect and trust.