“CONTRIBUTIONS

OF THE BANKING SECTOR

TO CYPRUS’ ECONOMIC GROWTH”PRESENTATION BY DR. MICHAEL KAMMAS /

DIRECTOR GENERAL, ASSOCIATION OF CYPRUS BANKS

Central Bank of Cyprus / 30 OCTOBER 2017

ACHIEVEMENTS AND

CHALLENGES OF THE BANKING

SECTOR IN CYPRUS: THE EUROPEAN PERSPECTIVE

CONTENTS1. Role of the Association

2. The role of banks: lending and payments

3. Contribution to GDP growth in Cyprus

4. The banks’ role in society:

➢ Support SMEs

➢ Contribute to the state

➢ Promote advances in technology

➢ Sustain high-quality labor environment

➢ Improve the financial literacy and the business environment

➢ Support society through CSR initiatives

5. Post 2013 economic and financial crisis

➢ New Lending

➢ Finance Ventures that generate new prospects for Cyprus

6. Concluding2

OUR MEMBERS

Associate Member

3

12 FULL MEMBERS

1 ASSOCIATE MEMBER

1. ROLE OF THE ASSOCIATION

➢ Established in 1969, the Association has been actingas the liaison body on behalf of banks in Cyprus.

Over the years the ACB’s role as the representativeof the banking system was strengthened and itbecame the leading voice of the banking sectorin Cyprus.

➢ Member banks have:

o > 93% market share in deposits.

o Over 10,000 employees.

o €62 billion in assets.

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2. THE ROLE OF BANKS: LENDING AND PAYMENTS

Systems for flow of funds

Savers

Borrowers

Banks through intermediation, finance the growth of other sectors.

Savings flow to borrowers/ investors in the form of

loans, which return back to the banking system as

deposits, resulting in a multiplier process.

Banks facilitate the payments of local and foreign

companies / customers, therefore helping other

sectors of the economy to grow as well.

Financial Intermediation:

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➢ The equity market is not significantly developed in Cyprus banks are the main source of company financing.

➢ Improvement of scope of services provided and reduction of lending interest rates across the board, facilitating growth and development.

Source: Central Bank of Cyprus

3. CONTRIBUTION TO GDP GROWTH IN CYPRUS

16.500,0

17.000,0

17.500,0

18.000,0

18.500,0

19.000,0

19.500,0

20.000,0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

0,00%

1,00%

2,00%

3,00%

4,00%

5,00%

6,00%

7,00%

8,00%

3.1 Interest rates and GDP GrowthGDP (net) HOUSING LOANS CORPORATE (1-mln.) CORPORATE (1+mln.

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3. CONTRIBUTION TO GDP GROWTH IN CYPRUS

➢ The greatest

contribution to the

overall growth of

GDP came about

through the growth

of the Financial &

Insurance Sector.

Source: Cyprus Statistical Service

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-2% 0% 2% 4% 6% 8% 10% 12% 14% 16%

Manufacturing

Construction

Wholesale and retail trade

Transportation and communications

Accommodation and food service activities

Financial and insurance activities

Real estate activities

Professional, scientific and technical activities

Public administration and defence

Education

% GDP Growth due to growth in each economic sector

(1995 to 2016)

4. THE BANKS’ ROLE IN SOCIETY

Support SMEs

Contribute to the state

Promote advances in technology

Sustain high-quality labor environment

Improve financial literacy and the business environment

Support society through CSR initiatives

Banks that operate in Cyprus:

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4.1 SUPPORT SMEs:

➢ Financing agreements with the European Investment Bank, European Investment Fund and EBRD introducing low-cost financing schemes aimed at supporting Cypriot businesses.

➢ Creation of a finance-facilitating mechanism for SMEs in cooperation with Ministry of Commerce (adopted in May 2016). 9

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4.2 CONTRIBUTETO THE STATE:

➢ Pre-crisis our members contributedapproximately 7% of the total receipts ofthe Inland Revenue Department and aresome of the largest contributors to the socialinsurance fund.

➢ Facilitate collection of various taxes andfees (eg stamp duty, defense tax).

➢ Assist Tax Department – amended theirprocedures and infrastructure to provide tax-payment services to customers though theirinternet banking systems.

➢ Implement measures to help counter taxevasion (FATCA, CRS). This increases thetax base, enabling the state to make morefunds available towards developmental &social goals.

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4.3 PROMOTE ADVANCES IN TECHNOLOGY:

➢ Initiative with CBC and

Office of the

Commissioner of

Electronic

Communications and

Postal Regulation to tackle

cyber threats.

➢ Embark on digitalization –

assessing new and

emerging technology to

continue improving

processes and customer

interaction.

➢ Key players in national & international

payment systems. Banks invest

substantially in new technologies:

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4.4 SUSTAIN HIGH QUALITY LABOR ENVIRONMENT:

Employment in member banks accounts for

1.9% of total workforce

Provides long term, highly qualified jobs

52% of bank employees

are graduates

Women make up of

58% of banking workforce (compared to 48% of total workforce

in Cyprus)

Strong commitment

to training

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4.5 IMPROVE FINANCIAL LITERACY

AND THE BUSINESS ENVIRONMENT:

➢ Financial education programme“More than Money” was successfully launched in 2016 in primary schools.

➢ Encourage entrepreneurship:- Mentoring & office facilities for start-ups.- Sponsoring youth entrepreneurship programmes.

➢ Promote reliability of transactions & encourage responsible borrowing through establishing the first Credit Bureau in Cyprus.

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1. HEALTH CARE PROGRAMMES

2. SPONSORSHIPS / SCHOLARSHIPS

3. CULTURAL EVENTS

4. SPORTS

5. EDUCATION

6. GREEN ACTIVITIES

4.6 SUPPORT SOCIETY THROUGH CORPORATE

SOCIAL RESPONSIBILITY INITIATIVES:

14

1687

2359

1787

535

868

557

1152

1491

1220

2015 2016 2017*

NEW LOANS € MLN.

TOTAL HOUSEHOLDS NON FINANCIAL CORPORATIONS

5 POST 2013 ECONOMIC AND FINANCIAL CRISIS:

Source: Central

Bank of Cyprus

➢Major role in financing the recovery of the Cypriot economy through quick return to stability and provision of new lending.

➢ Provide lending to support firms across entire spectrum of economy.

* 2017 (seven months) 15

5.1 VOLUME OF PURE NEW LOANS

5.2 FINANCE VENTURES THAT GENERATE NEW PROSPECTS FOR CYPRUS:

Shipping

finance:

Cyprus is one of

the largest

shipping centers

in the world.

Banks are setting

up shipping

business centers

to serve needs of

shipping business

community.

Investment

funds:

Provision of

custodian

services through

network of

international sub-

custodians.

Other services to

fund managers

(safekeeping of

assets, settlement

of transactions).

Energy

sector:

Finance for

renewable

energy projects.

Ready to finance

new opportunities

for infrastructure

related to Oil &

Gas Industry.

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CONCLUDING

Despite

suffering

a bail-in, the

Cyprus banking

sector achieved a swift recovery

The banking sector is focused on

supporting the recovery of Cyprus’s

economy through new lending:

➢ To viable enterprises in traditional

sectors

➢ To promising new ventures that

generate new prospects for Cyprus.

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Enhancing growth

and development

CONTRIBUTIONS

OF THE BANKING SECTOR

TO CYPRUS’ ECONOMIC GROWTHPRESENTATION BY DR. MICHAEL KAMMAS/ DIRECTOR GENERAL, ASSOCIATION OF CYPRUS BANKS

THANK YOU!

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Central Bank of Cyprus / 30 OCTOBER 2017