The Bank of Cyprus’s acquisition of performing loans worth 150 million euros and deposits of 500 million euros from Cyprus Development Bank, or CDB Bank, has added to signs of further consolidation in Cyprus’s banking sector.
Thirteen years after the banking crisis of March 2013, Cyprus’s lenders have restored credibility, while the banks that remain are posting high profits, maintaining strong capital positions and moving ahead with acquisitions of banks and insurance businesses.
The focus has now shifted to growth, larger market shares, higher fee income and broader business diversification, with steady capital returns to shareholders as a common objective. Furthermore, non-systemic banks in Cyprus are gradually disappearing through acquisitions, mainly of healthy assets, reducing their number and strengthening the larger players.
This has already happened in the case of AstroBank, through Alpha Bank Ltd’s acquisition of its healthy assets, and now in the case of CDB Bank through the Bank of Cyprus. The Cyprus Housing Finance Corporation, Ancoria Bank and smaller foreign banks operating in Cyprus are listed among the non-systemic institutions.
Systemic banks are supervised closely by the European Central Bank and the Single Supervisory Mechanism and are subject to stricter capital and risk management rules. This results in more limited flexibility in lending, with stricter terms and collateral requirements.
Non-systemic banks, by contrast, are supervised by the Central Bank of Cyprus and are not subject to the same strict rules that apply to systemic banks, although they are still closely monitored to ensure solvency. This gives them greater flexibility in financing households and businesses, with more negotiable lending terms.
The agreement between the Bank of Cyprus and CDB Bank was completed after months of talks, with the larger bank acquiring only the healthy assets of CDB Bank. It remains unclear what will happen to the 140 bank employees.
Market speculation over a takeover of CDB Bank had been strong for about a year, while the question was whether the buyer would be a fintech company or a bank. It was widely understood in banking circles that small banks, technology companies and financial organisations in Cyprus were being targeted, with the possible aim of securing a banking licence in Europe.
The Central Bank of Cyprus has already received applications from fintech companies seeking banking licences, although none have been approved so far.
The moves made behind the scenes resolved what is being described as a problem or supervisory burden, with the healthy assets of CDB Bank passing to the Bank of Cyprus. The acquisition does not mean much for the Bank of Cyprus’s balance sheet, but it has removed another small bank from the market and significantly reduced the number of non-systemic lenders.
Developments in Cyprus’s banking system are shaping three main pillars: the Bank of Cyprus as the main credit institution with a targeted strategy, the new Eurobank Limited as one of the two biggest groups in banking and insurance in Cyprus, and Alpha Bank Cyprus as a third force with significant ambitions.
Mergers and acquisitions are also reshaping the wider European banking sector. According to an analysis by the European Banking Authority, such deals are taking on growing strategic importance for European financial institutions.
Among the deals for 2025 are Monte dei Paschi’s takeover of Italian investment bank Mediobanca, BPCE’s acquisition of Portugal’s Novo Banco for about 6.4 billion euros and ABN AMRO’s announcement that it would acquire NIBC Bank for about 960 million euros. These examples show European banks are pursuing consolidation, expansion, greater geographic reach and more diversified business models through mergers and acquisitions.
European Banking Authority data show Cypriot and European banks have only limited direct exposure to counterparties in the Middle East. The authority warned that an escalation in tensions could still cause secondary effects, particularly through higher energy prices, inflation pressures, weaker economic growth and supply chain disruption.
In Cyprus, direct exposure by banks to counterparties in the Middle East stood at 162 million euros at the end of December 2025, up from 108 million euros at the end of June 2025. Of that amount, only 22 million euros related to loans and advances to households.
The European Banking Authority says that, while exposures remain limited at less than 0.5% of total EU bank assets, escalating tensions could create secondary effects, especially through higher energy prices, inflation pressures, weaker global growth and supply chain disruption. Such effects would be felt most strongly in energy-intensive sectors, including transport, construction and parts of manufacturing.
EU banks’ direct exposures to counterparties in the Middle East rose to 132 billion euros in 2025 from 123.4 billion euros at the end of June 2025. Those exposures include about 47 billion euros in loans and advances to banks and other financial companies and about 33 billion euros to non-financial companies.
The non-performing loan ratio for European banks stands at 1.8%, compared with 0.8% in Cyprus. The NPL coverage ratio is 41.4% in the EU and 51.2% in Cyprus.
The share of Stage 2 loans in Cyprus remains at 5%, unchanged from the end of June and down from 5.7% in 2024, while in the EU it stands at 9.1%, down from 9.3% in the previous quarter and 9.7% in 2024.