by banks to help distressed borrowers settle their obligations. in addition, thanks to the solid solvency buffers and the support of the central bank of cyprus that relaxed temporally the capital and loan origination requirements, the banking system has supported the domestic economy by providing fresh lines of credit from january 2020 to june 2022 of 8, 1 billion euros. 2, 6b euros have been granted to households for mortgages, whilst 1, 6 billions and 0, 6 billions have been granted to the wholesale and hotel industries which have been affected severely by the pandemic. nevertheless, all the banks need to remain cautious, prudent and active in order to confront a challenging period that lies ahead us. whilst the first round effects from the geopolitical crisis has been up until now manageable, the second round effects have 5 / 6 bis - central bankers'speeches not yet materialised and uncertainty in an environment with high inflation and weakened growth prospects is elevated. adverse macroeconomic developments may deteriorate banks'profitability and asset quality, causing delinquencies and an upward trend in impairments and provisions. interest rate normalisation policies may support the banks'revenue capacity through higher yields. however, they might fall short to balance out the structural deficiencies that would be magnified if the economic prospects follow an adverse route. it is therefore of pivotal importance for banks to adapt their business strategies to the new realities forged by the consecutive crises. and this would not be an easy ride as challenges emerge, often in unpredictable ways. i will today refer to two which i consider to be amongst the most important ones. the first one relates to business model and structural weaknesses. despite the low profitability being a wider structural european issue, 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, signalling serious cost inefficiencies relative to peers. investment in technology is key in the efforts to unlock efficiency and bridge this gap by addressing chronic issues that dent profitability such as cost inefficiencies, limited avenues of income generation, competitive pressure from entities operating outside the traditional banking spectrum and changing customer demands and needs. the second one relates to the risks of climate change. the ongoing effort to reduce the dependence from russian energy may increase the transition risks and as such banks shall enhance and adapt their climate risk mitigation strategies. the fact that some of the banks have started making

panicos demetriades : the pros and cons of having a separate and independently managed asset management and development bank welcome remarks by mr panicos demetriades, governor of the central bank of cyprus, at the institute of directors ( iod ) open panel discussion, nicosia, 27 august 2013. * * * good evening ladies and gentlemen. i think tonight ’ s panel discussion is very important. the bank of cyprus is our largest bank and it will shortly hold its annual general meeting. at the agm shareholders will choose the board that will run the bank. the strategy that the new board approves will need to be aggressively pursued. the bank of cyprus in the future will have a greater focus on its core cypriot business, serving personal, sme and corporate customers. it will also have to deal with the legacy of historic expansion and growth in non - performing loans. the central bank of cyprus does not have a fixed view as to whether the bank of cyprus should be split into two or not. this is a decision for shareholders and the board. the question is whether separating certain assets is the right answer today. opinion is divided – some say that this would be damaging to borrowers, others that it is the only way to manage the assets and restore the bank to health. i believe that we need to confront this issue and the bank should investigate all options. any decision should be based on the facts and merits. in all options, the bank of cyprus will need to create an organisation to manage nonperforming loans. the bank is already moving in this direction, and should it remain as a single entity it is likely that there will still be a dedicated focus on managing the workout of troubled loans. splitting the bank of cyprus into a commercial bank and an asset management / development bank would create a legal and management separation. this – as any other option – has a number of merits and challenges. two institutions would provide specialisation. the asset management / development bank could focus on maximising value through the restructuring of the loan book with no immediate time pressures. it could also act as a specialist bank focussed on real estate and development related activities. the remaining commercial bank could focus on serving the domestic economy. however, a split could be operationally disruptive in the immediate term, even if it was beneficial over time. substantial progress in the restructuring of the banking system has been made. this has not been easy, and market conditions remain fragile. in determining the way