Loucas Marangos on why 2025 will be a year of adjustment for the financial sector

The CEO of cdbbank, Loucas Marangos, has shared the assessment that 2025 will be a year of adjustment for the financial sector.

He also suggested that digital transition and green financing are the two main trends that will dominate the banking industry.

In an interview with InBusinessNews, as part of its IN Business Forecasting 2025 series, Marangos refered to cdbbank's strategic plan for the current year, which - as he explaieds - focuses on three main axes.

"As a bank with a long-standing presence in the Cypriot economy for more than six decades, cdbbank continues to contribute substantially to the development of the country. At the heart of our strategy is the support of entrepreneurship and society, with an emphasis on innovation, sustainability and continuous development," he pointed out.

The CEO of cdbbank appeared convinced that acquisitions and mergers will remain in the spotlight for the coming years, shaping a new landscape, something towards which, as he stated, the strengthening of the Greek presence in the Cypriot banking sector will also contribute, with collaborations and initiatives intensifying.

Furthermore, in light of the banking sector recently being strengthened and shielded in terms of the quality of its loan portfolio and its capital adequacy, Loucas Marangos also estimated that any reduced profitability will be a temporary phenomenon for banks in Cyprus.

How do you view the Cypriot economy in 2025? How optimistic are you about its prospects?

According to estimates by the Central Bank of Cyprus, the GDP growth rate for 2024 is expected to reach 3.7%, compared to 2.6% for 2023. This is the second highest growth rate in the eurozone, which gives a particular momentum to the country's economy.

In fact, estimates predict that Cyprus' GDP growth rate will continue to be comparatively higher than that of the eurozone, both in 2025 and 2026.

More specifically, with regard to 2025 and taking into account European and international economic developments, as well as the trends and pressures observed, it is predicted that the growth rate of the Cypriot economy will fluctuate around 3% and is expected to exceed that of the eurozone.

Additionally, domestic inflation is projected to decline to 2.2% in 2024 from 3.9% in 2023, while for the years 2025 and 2026 it is estimated to decrease further to 1.9%. Also noteworthy are the recent upgrades of the Cypriot economy to investment grade A by the international rating agencies Moody's, Standard & Poor's and Fitch.

In general, I am optimistic that the Cypriot economy will not be affected to the extent that other European countries will be affected and will continue to grow at satisfactory and higher rates than those of the eurozone.

What are the biggest risks for the Cyprus economy in 2025? What needs to be taken into consideration to maintain the growth path?

Geopolitical tensions, such as the ongoing war in Ukraine and conflicts in the Middle East, are creating turmoil in the wider region and shaping a climate of uncertainty.

Cyprus is a pole of stability in a region characterised by instability, but there is always the possibility that unrest could affect it.

At the same time, the economic slowdown in our country's key European partners may lead to reduced demand and revenue from the tourism sector.

Another factor that causes concern is the trend observed in Europe towards equalising the minimum level of taxation in all its countries, an element that may harm the island's attractiveness as an investment destination.

Given that growth in Cyprus is largely based on the inflow of foreign capital, either through investments or through the relocation of companies to our country, it is clear that the challenges for the coming period will be significant, but as I mentioned above, manageable.

What needs to be done to make Cyprus an even more attractive destination for foreign investments? How important are they, in your opinion, for its economy?

For a small economy like Cyprus, foreign investment is vital. Cyprus is already an attractive investment destination, providing a strong service complex that can attract and effectively serve foreign investors.

However, there is significant room for improvement. I would like to mention, for example, that the increased cost of housing and the difficulty of finding housing for employees constitute serious challenges for large companies that are establishing themselves in Cyprus, and especially in Limassol.

Therefore, there is an urgent need to design and implement a strategy to address this major issue. It is also necessary to improve the country's technological infrastructure, given that digital transformation is a competitiveness issue and a basic requirement for investors looking for modern and efficient systems.

Additionally, the pressures intensifying at the European level, combined with the introduction of a single tax regime, may affect prospective investors, as these are essential criteria for making decisions about relocating their companies.

Regarding your company's sector of activity, how do you estimate it will develop in 2025? Are there any issues that concern you?

2025 will be a year of adjustment for the financial sector. Although the reduction in interest rates in Europe is expected to lead to reduced revenues for banks, I nevertheless consider it a significant advantage that Cypriot institutions maintain significant capital reserves.

At the same time, it is observed that recently the sector has been strengthened and shielded in terms of the quality of its loan portfolio and its capital adequacy.

Therefore, I estimate that reduced profitability will be a temporary phenomenon for banks in Cyprus. In addition to the aforementioned, when monitoring developments in the financial and banking sector, one finds a series of issues that require immediate regulation, so that banking institutions can continue their smooth operation without any hindrance.

A typical example is the disproportionately high costs caused to small banks by the increasing regulatory obligations that characterise the banking sector in the European Union.

Another issue that needs to be resolved is the time-consuming judicial procedures, with the long delays that are observed to be a brake on the effective functioning of the economy.

What are the biggest trends/changes you expect to occur in your sector and what are the most significant challenges?

Two key trends will dominate the banking industry in 2025: Digital transition and green finance.

The ambitious goals set by Brussels to address climate change, with the green transition at the centre, require a combination of significant investments in green technologies, infrastructure and research.

The banking sector is at the forefront of this effort, playing a critical role in shaping a sustainable future. Increasing regulatory requirements to address climate change are forcing banks to adapt their business models to meet environmental needs, while also fostering the creation of larger banking structures.

Reducing the energy footprint, the rapid adoption of digital tools and the focus on ESG indicators are challenges that banks are being called upon to address.

In this context, banks are pioneering, creating green financial products that attract investors willing to support environmental initiatives and contribute to a sustainable ecosystem.

At the same time, the intensification of environmental policies is estimated to increase the cost of borrowing for energy-intensive businesses in the medium term, as banks will be called upon to manage increased capital requirements in the near future.

As for technological developments, they are undoubtedly redefining the banking industry at a rapid pace, transforming not only its operation but also the overall customer experience.

The constantly evolving technology requires substantial investments and strategic flexibility, while the assessment and prudent management of the risks arising from dependence on digital systems (ICT risks) remains at the forefront.

The use of artificial intelligence is also expected to play an important role in the digital transition of the banking sector. Through it, banks can improve data analysis and offer personalised services.

The combination of innovation and security is essential as we move into the future of digital banking.

A strong trend that seems to be taking hold in Cypriot business is that of acquisitions and mergers. Will we see it strongly in your sector as well?

Acquisitions and mergers will remain in the spotlight for the coming years, shaping a new landscape. The strengthening of the Greek presence in the Cypriot banking sector, with collaborations and initiatives intensifying, will also contribute to this.

This dynamic environment is mainly due to the ongoing tightening of the European regulatory framework. Compliance requirements, designed primarily for large banking organisations, impose disproportionately high costs on smaller banks, from technological upgrades to risk management.

The resulting inequality creates economic pressure, which enhances the prospects for consolidation through acquisitions and mergers, as the benefits of creating economies of scale are substantial.

I would say it is a natural progression. As regulatory obligations and operating costs increase, more banks are looking for partnerships or joining forces to exploit economies of scale. Thus, the banking landscape is gradually shaping itself into larger and more resilient entities.

What can we expect in terms of your organiwation's plans and development strategy in 2025? What moves do you intend to make in this direction?

As a bank with a long-standing presence in the Cypriot economy for more than six decades, cdbbank continues to contribute substantially to the development of the country. At the heart of our strategy lies the support of entrepreneurship and society, with an emphasis on innovation, sustainability and continuous development.

Our strategic plan for 2025 focuses on three main axes:

1. Prudent loan portfolio development: We seek to increase financing with careful risk diversification, maintaining sound financial foundations. At the same time, we continue our efforts to effectively manage non-performing loans (NPLs), which I should note have already been significantly reduced.
2. Technological upgrade: With significant investments in the Bank's technological infrastructure, we are transforming the way we operate. We utilise digital tools that increase efficiency, accelerate processes and enhance our customers' experience, remaining true to our customer-centric orientation.
3. Enhancing green entrepreneurship and sustainability: We offer comprehensive financing solutions for renewable energy sources, energy-efficient buildings and other green initiatives, from which significant economic and environmental benefits arise.

At the same time, we are investing in reducing our environmental footprint through energy upgrades, measuring and managing emissions, as well as adapting our head offices in Nicosia to new environmental requirements.

At cdbbank, we invest in innovation to adapt to today's demands and tomorrow's prospects. In this context, we are moving forward with the digitalisation and automation of our services, keeping the human factor at the centre of the customer experience.

Our commitment remains unchanged: To be a supporter of the Cypriot economy and society, as the bank has been doing since 1963, adapting to modern challenges and opportunities.

(Source: InBusinessNews)