constantinos herodotou : speech - 29th annual christmas gala of the hellenic bankers association uk speech by mr constantinos herodotou, governor of the central bank of cyprus, at the 29th annual christmas gala of the hellenic bankers association uk, london, 9 december 2023. * * * ladies and gentlemen, esteemed guests, i would like to thank the hellenic bankers association uk for inviting me to deliver a speech at tonight's gala dinner. it is indeed an honour to address this distinguished gathering of professionals. he global economic environment has become a very complex tapestry, undergoing unprecedented shifts, presenting significant challenges to all regions, including the euro area. the dynamics are complex and multidimensional : brexit, the aftermath of the pandemic, increasing de - globalization, digitilisation and artificial intelligence advances. concurrently, geopolitical turmoil has brought loss of human lives and added layers of economic complexity such as energy security issues and high energy prices impacting both industrial production and consumer spending. in the euro area, the national central banks as well as the european central bank ( ecb ), are playing a significant role in navigating the economies of member states. as we are today in the ecb's official quiet period, five days before our next monetary policy meeting, i cannot make any specific comments on the path of inflation or monetary policy. in compliance, i will focus instead on the current state and main challenges of the financial sector in the euro area. we are all aware of climate change and the risks it presents. for financial institutions, climate - related risks pose threats through two distinct channels : physical risk and transition risk. physical risk, attributed to extreme weather events such as fires and floods, affects banks through damages to property that reduce collateral value, which consequently exposes banks to credit risk. physical risk also impairs, and may lead to the insolvency of counterparties, because of loss of production and creditworthiness. transition risk could result in bank losses through exposures to high emitting firms, which will have to bear a significant cost for greening their operations. the ecb has committed to addressing climate change within its mandate, and focuses on three relevant key objectives : managing climate - related risks, supporting the green transition and fostering wider action. in order to understand the impact of the physical risks, the ecb conducted economy wide stress tests, which showed that the more we delay the green transition, the impact of climate change increases

by the big banks, while the smaller banks are still lagging far behind. so the project aims to provide a possible solution also for the longstanding problem of the non - resolved non - performing loans that are still present at a number of banks. the aim is to make them more resilient for future shocks but also free the time of banks'management and enable them to focus on their core banking business and improve their banking offer and service to their clients. it is therefore of equal importance that the banking sector steps up its efforts to address its structural weaknesses in order to build a sustainable business model. in doing so, banks need to elevate their service levels. in the changing business environment, banks must utilise the opportunities that technology offers in order to enhance their service channels, train their employees in this direction and reduce response times. i have made this point a number of times to the banking sector leadership and stressed the importance for cyprus banks to promote and facilitate more efficient ways of doing business. in this respect, banks are currently engaged in transforming their business models towards technologically more advanced services, with digitization being the focus of this effort. investment in technology can become the catalyst in the effort to strengthen efficiency and build sustained profitability. this should ultimately bridge the current gap that exists with the rest of the eu area banks. in order to further encourage, promote and support domestic financial innovation, the cbc announced last december the operation of its innovation hub. the innovation hub aims to become an official platform for communication between the cbc, as a supervisory and regulatory authority, and businesses or start - ups active in financial technology sectors, in other words fintech, that is, combining innovative technology with financial services. 3 / 4 bis - central bankers'speeches thus, the innovation hub is a crucial step in the broader context of the supervisory objectives and priorities that we have set at the cbc, which include innovation, digital operational resilience, digital transformation and cybersecurity. additionally, as i announced in my last year's speech here, the cbc took the initiative to formulate and implement the'digital onboarding'project. as a reminder, this project's goal is to establish faster, more flexible and efficient banking services by developing the technological platform to allow the digital onboarding of clients and the digital monitoring and renewal of information of clients. we undertook this initiative despite the fact that it is not the responsibility of the cbc. we have nevertheless recognized the multiple benefits that such