Interview with Andreas Coustaris, Association of Cyprus Banks (ACB) and Marios Skandalis, Chief Compliance Officer, Bank of Cyprus

Interview with Andreas Coustaris, Association of Cyprus Banks (ACB) and Marios Skandalis, Chief Compliance Officer, Bank of Cyprus


BF: Cyprus is experiencing decent growth as it recovers from the COVID-19 crisis and the Central Bank expects 2.6% y-o-y GDP growth in 2023, which is strongly linked to the banking sector. What do you view as the greatest strengths of Cyprus’ banks and how are they contributing to the nation’s economic recovery?

Andreas Coustaris: After the crisis of 2013, the banking sector headed in a new direction and left behind past problems and turbulences. As a result, it is now in significantly better shape. The first half of the last decade saw a major campaign of reshaping. A lot of branches were closed, while new mechanisms, tools, departments and a digital and green loan transformation were initiated. Today, the banking sector in Cyprus is a model banking system, implementing best practices, with a strong focus on AML (anti-money laundering) compliance. In the last few years, the pandemic has accelerated the digital transformation of the whole country and the banking sector itself has seen a rise in ICT and digital technology. New loans were provided to the market, amounting to over €2.3 billion in 2022. We have also seen a significant NPL (non-performing loans) reduction, from 50% some years ago to less than 10%.This was achieved through three main tools: improvement in loans structuring, debt to asset swaps and the sale of loans. With these cleaner balance sheets, banks can provide new loans to consumers and businesses, focusing in some instances on specific economic sectors like ICT, real estate, education and health services.

We see a strong correlation between the recovery of the banking sector and the country’s economic growth. Part of the challenge is keeping a good pace at around 2-4% y-o-y growth, like we have in recent years; with Cyprus’ overall growth being always north of that of the EU.

Marios Skandalis: Our banking sector has come a long way and through various revolutionary and unique phases, achieving undeniable standards of governance excellence. Back in 2013, we had not only the second largest bank on the island shutting down, but also the largest bank, Bank of Cyprus, had its depositors receiving a haircut of nearly 50% on their deposits. These events could not go unnoticed, especially for us. Back in 2013, we were standing at a crossroads between survival and extinction. We had the choice to either press the “Game Over” button, or reset the economy and, above all, change our culture. We chose the latter and decided to focus on setting international best practices and standards as our benchmark, rather than the mere provisions of the law. It wasn’t just a strategic choice to change the course of action, but a total change of culture. We knew we couldn’t go back to those bad practices. We followed this path and with an uncompromised commitment to new values and targets, and demonstrating relevant resilience, the Cyprus banking industry achieved what many considered impossible.

Since then, the banking sector has remained robust, sustainable and demonstrated further improvement. We started with a huge remediation process as we had several billion euros of Emergency Liquidity Assistance (ELA) to repay. Bank of Cyprus alone had to repay €12 billion of ELA, which was almost equal to the country’s entire GDP. The same bank had nearly half of its asset portfolio as non-performing loans. Today, Bank of Cyprus has fully repaid the ELA, has billions of euros of liquidity buffer and less than 5% of NPL stock. Not only are we in a normal situation, but we are on a successful path for any well governed institution. The case of Bank of Cyprus is not unique, but reflects the whole banking industry in Cyprus.

Many economies and institutions may undergo this phase of failure and recovery, but most fail again. In our case, the events of 2013 were so immense that we needed to form a national strategy of more than remediation and go the extra mile to successfully reverse the perceptions of our stakeholders. Today, in every aspect of banking, we always focus and set as our standards, best international banking practices. Where there are no international best practices, we have developed our own. For example, regarding the sanctions, Cypriot banks normally don’t have any kind of US or UK nexus, so by law they do not abide by any of the sanctions issued by the US or UK, but they voluntarily follow them, signaling the high standards of governance they apply. This is the face and the culture of the new banking industry of Cyprus, which forms a pillar of strong credibility as well as reliability to customers, investors and other stakeholders. Our adherence to the recently issued international sanctions have given us the opportunity to prove by actions that we walk the talk and that the remediation measures applied over the last decade or so have not been a mere firework, but have embedded in the sector’s new culture. We have given a strong message to other regulated financial services in Cyprus of the long-term benefits derived when we truly adhere to high standards of ethos and integrity, which form the backbone of any well governed jurisdiction.

This new culture has not gone unnoticed. In 2019, MONEYVAL which is the arm of the Financial Action Task Force(FATF) that governs several smaller jurisdictions, stated that Cyprus had rated fully, or largely, compliant with 37 out of 40 technical points of compliance. In the other three points, it was rated as partially compliant, with no reported area of non-compliance. The banking sector was rated excellent in all areas and has been the leverage for the overall positive report for the Cyprus economy. As a result, Cyprus remains on the “White List” of the FATF in contrary to neighboring jurisdictions in the Mediterranean that remained on the “Grey List”.

When the crisis occurred in 2013, we had only one US bank left: Citibank. If that bank had left, the economy would have completely shut down. We managed to persuade and pass an undeniable message that the business culture in Cyprus has changed and that the economy and the banking sector are on a sustainable path of good governance. As a result, we now have four banks offering US Clearing Services – a record number for us.

There were times when the size of the banking industry in Cyprus was eight times the country’s GDP. Today, it is somewhere around three times, which is normal. Back in 2014, our exposure to Russia and Russian clients was more than 12%. Today, it is less than 1% in terms of the value of deposits from that jurisdiction. These statistics are what demonstrated that with hard work and commitment to excellence, you finally succeed. We have managed to keep the economy on this upward trend by applying a rigorous and very focused de-risking strategy, but at the same time, applied a strategy where we have identified alternative jurisdictions to conduct business. These jurisdictions – like Israel, Greece, and Egypt – are more aligned with the new risk strategy of the Cyprus banking sector and have been the new regions we collaborate with on banking matters. The natural gas resource explorations have facilitated the collaboration with these new jurisdictions.

Andreas Coustaris: We will maintain this position of compliance and robustness today, simply because we have gone through a situation that nobody else has. We know what it means to go through a banking crisis and that is why we have put in place the security to never go through that again.


BF: Banks in Cyprus are integral in supporting the country’s widening SMEs and startups, a number that has grown progressively since 2014 to almost 60,000 in 2022. How would you describe the current support systems in place to foster growth of Cyprus’ up-and-coming entrepreneurs and startups?

Andreas Coustaris: Banks, in collaboration with the state, try to support that new up-and-coming sector of SMEs and startups with various initiatives. The banks support with special initiatives, provide some fresh loans and give them the ability to take their first steps to see if they can survive in the real market, or if they need to switch to new or alternative ideas. At the same time, the state has implemented some bigger schemes to make the landscape of the economy friendlier to new companies, or for youngsters to build their own companies. A lot of funding schemes have been launched by the state as well. Of course, Cyprus faces comparison with Israel, but it’s a growing industry and after the war in Ukraine resulted in a lot of companies moving their business here, it will pick up even more.


BF: How would you assess the level of talent within Cyprus’ financial services sector? What are the remaining skills gaps that need to be filled?

Andreas Coustaris: We have one of the highest levels of educated people with university and master’s degrees.What we need is more infrastructure in terms of Internet speed and access, business continuity plans and infrastructure server points – all the infrastructures that can support SMEs to be digitally oriented and a modernized framework to support this. For instance, we have one high performance computing (HPC) facility at the Institute of Cyprus which is important for R&D. We need more infrastructure in the field of digital technology.

Marios Skandalis:  We are ranked third in the EU for university literacy rates. The key is to always be proactive and set the path for others to follow. The digital strategy of the island was accelerated during COVID-19. As an example, the Bank of Cyprus started exploring ways to digitally involve clients in 2018 without using paper and without the client being physically present in Cyprus. However, once the pandemic erupted in 2020, we managed to accelerate this process and that year became the first bank to digitally onboard clients. We are digitally onboarding clients today without requiring their physical presence and it has not only helped local clients trying to address COVID-19 restrictions, but also helped a lot of Ukrainian people without physical access to banking institutions to conduct their banking affairs. Moreover, this digital onboarding offered by Bank of Cyprus has enabled our bank to introduce enhanced ways of due diligence in assessing new clients for onboarding. Cyprus’ high competence and literacy in financial services, geostrategic location, EU and eurozone membership, positioning at the center of three continents – Europe, Asia and Africa – creates an ideal environment to conduct business in a reliable way.


BF: The fintech sector has attracted many new players in recent years. What are local banks doing to bridge gaps between the growing fintech sector and create partnerships and synergies to add value to the market?

Andreas Coustaris: Fintechs are the main driver for the banking sector here and abroad. On the one hand, digitally advanced companies drive the sector to provide newer, faster and safer services for consumers; while at the same time challenging the industry because of cost efficiency or cost in general, such as charges and fees.  If the banks didn’t have that challenge from the fintech industry, they would probably be less digitally advanced than they are now.

Banks can compete in that industry and with those kinds of companies. They can provide something that no electro-monetary institution or payment plan company can provide, which is trust, reliability and a sense of safety. Banks can also provide that sense of credibility in the field of AML. They don’t cooperate with high-risk jurisdictions or high-risk persons. It is not so easy to cooperate with companies or people that are using cryptocurrencies, as opposed to digital platforms or EMI institutions. So, we give special focus to this aspect, and we provide to our clients, society and the economy, that trust, credibility and responsibility.


BF: What specific, new disruptive technologies are having the most impact on the local sector, and how has this translated into higher performance for clients?

Andreas Coustaris: According to our member banks – who represent more than 90% of the local market – nine out of 10 customers have an online account, while eight out of 10 do their basic banking services – including deposits, withdrawals, money transfers and check deposits – through alternative channels such as online or ATMs. This is significant for Cyprus as we used to bank in a traditional way with people going to a physical branch and doing their transactions in person. That has changed and the accompanying circumstances accelerated that change, while on the other hand, banks invested in those channels. They have provided various services at no cost and society seems to have embraced that change. Of course, every change has that resistance, but we are at a good point.


BF: Cyprus was ranked 18th in the world at attracting FDI according to the seventh edition of FDI Intelligence’s Greenfield FDI Performance Index 2021, soaring 50 places compared to 2020. What factors make Cyprus a favorable investment destination and what policies help facilitate foreign and US investment specifically?

Marios Skandalis: The first thing that the US business society needs is reliability and the highest return possible. Reliability is something that has been severely questioned in the past, but in a short period of time, we have managed to factually demonstrate in the most transparent way the new, sustainable and reliable face of the Cypriot economy. Today, nobody can deny that our banking sector is one of the most reliable within the EU. Regarding return on investment, this is quite a challenging area. Cyprus, or Cypriots, instead of requesting support from others, and in this case the US, need to explore and identify ways US investors can benefit by investing here. We need to devise such ways and present them in a clear and practical way to all US investors. Once we do that, we can design and issue one of the most successful and viable double tax treaties with the US.


BF: Can you tell me a little more about your overseas roadshows, like the one in Washington DC held in September? 

Marios Skandalis: It’s an initiative that started in 2017 when the sector was ready to present our undeniable results to jurisdictions with whom we want to have a very strong collaboration. We started with the US because their business community are not simply associates, but real partners to the new era that the Cypriot economy is entering. During the recent roadshow, we met with specific groups like the US Treasury, State Department, Federal Reserve Board and groups and committees of the US Congress and the Senate. In New York, we held talks with US banks with whom we collaborate for the clearing of US$. In a partnership, you need to always keep an open and transparent channel of communication. We consider our obligation to provide this to our US stakeholders. Transparency, honesty and integrity are the three pillars on which we have built this collaboration and we will always maintain this approach.


BF: How would you define your key priorities for the remainder of 2023 and for 2024, not only for ACB, but for the banking sector?

Andreas Coustaris: Our priorities include creating a target of digital transformation with various initiatives and action plans. Our banking sector acts as a driver for change and sets the tone for AML compliance standards. It provides green loans, drives digital literacy and has a key role in introducing new things, cultures and approaches for society. It is challenging on the one hand, but productive on the other.

With the tragedy in Ukraine, the banks were ready to implement sanctions. They were familiar with that context and being compliant, so they were ready and supported other sectors and even the government to implement sanctions because they knew how to do it. It’s important for the banking sector to drive society and the economy going forward. Priorities include real digital transformation, and to enforce the reduction of NPL’s ratio closer to the EU average of 1.5-2%, from the current 9%. We also need to ensure the banking sector is prepared for good and bad days, especially in turbulent times.


BF: What is your final message to the readers of USA Today?

Marios Skandalis: Americans and US business leaders can count on Cyprus as a valid, solid, reliable and, above all, sustainable business partner in conducting their business affairs either with Cyprus, or using Cyprus as a hub for conducting their business in, Europe, Asia and Africa.