constantinos herodotou : address - annual general meeting of the association of cyprus international financial firms ( aciff ) address by mr constantinos herodotou, governor of the central bank of cyprus, at the annual general meeting of the association of cyprus international financial firms ( aciff ), nicosia, 10 february 2022. * * * it is my pleasure to address the open session of the annual general meeting of the association of cyprus international financial firms ( aciff ) today and present the current situation of the cyprus and european banking sectors as well as the challenges ahead. i will also try to shed some light on the trends and developments in the banking industry. let me start with an update on the cyprus banking sector. we are now almost a decade after the peak of the financial crisis in cyprus and looking at our banks'key financials, we observe a significant balance sheet derisking and an improvement in their loss absorption capacity. this is despite the shocks caused by the on - going pandemic. specifically, the capital position of our banks, measured through the common equity tier 1 ratio rose from 14, 2 % at the end of 2014 to 17, 2 % at the end of september 2021. this is well above the eu average of 15, 7 %. in addition, during the same period a noteworthy clean - up from non - performing loans has taken place, where troubled loans in the banking sector have been reduced from 28, 3bln euros in 2014 to 4, 3bln euros in october 2021. nonetheless, the npl ratio in the cyprus banking sector is still high, ca. 15, 2 % as at october 2021. although this has been drastically reduced from the peak of 48 % back in 2014, it is still well above the eu average of 2, 1 %. therefore the efforts for further deleveraging must be continued. the liquidity position has also improved. the level of deposits is currently at the highest level ever recorded since 2014, amounting to 51, 5b euros with the reliance on domestic depositors climbing to 82 % as opposed to 70 % in 2014. this adds to the resilience of the deposits base since these depositors are associated with a more predictable and stable behaviour. the liquidity coverage ratio, indicating the availability of liquid funds against deposit outflows over a 30 day stressed period, stood at the level of 313 % in december 2021 which is more than 3 times higher than the minimum requirement of 100 %, placing

sales volume. in addition to rationalising the cost structure, banks need to identify avenues to enhance their income capacity. 4 / 5 bis - central bankers'speeches last, but no least, consolidation can further enhance efficiency through reaping costcutting synergies created through economies of scale. nevertheless, this will be determined by market forces and the shareholders of credit institutions. let me now conclude. the transformation of banks'business model towards digitilisation may give them the opportunity in the long term to enhance their profitability by rationalising their cost structure and providing more efficient, tailor - made services to their customers. nevertheless, the underlying risks of this transformation should not be ignored. the competition from fintech such as emis and pis leaves no room for complacency to banks. they need to adapt to the demands of the new era regardless of which school of thought, which i mentioned earlier, they belong to. climate related and other emerging risks, like cybersecurity, must be taken into consideration during the transformation of business models in order to safeguard sustainable growth. it might be pertinent to recall what charles darwin said :'' it is not the strongest of the species that survives, nor the most intelligent that survives. it is the one that is the most adaptable to change''. 5 / 5 bis - central bankers'speeches