Senior bank executives and regulators gathering in Davos this week are still grappling with the fallout of the global financial crisis, almost a decade after the collapse of Lehman Brothers. In October 2016, the International Monetary Fund said that medium-term risks to financial sector stability are rising as the global economy enters a new era, characterized by chronic weak growth, prolonged low interest rates and growing political uncertainty.
Financial stability now depends on how well banks adapt to this
|
new era. Economic growth by itself will not be enough to resolve the problem of weak banks, especially in Europe, where the IMF says that one-third of the banking system is at risk.
Policymakers in search of possible solutions could do worse than look at the Mediterranean
|
island of Cyprus, where it took authorities just three years to move the banking sector from intensive care into recovery. A completely restructured financial system, led by a recapitalized Bank of Cyprus, is now once again making a significant contribution to the country’ s economic growth.
As well as regulation, financial innovation will have a major part to play in putting today’ s banks back on the path to growth.“ My hope is that banks will be less busy with new regulatory issues, and more dedicated to their clients,
|
more focused on their core activities and more busy exploiting new financial technologies,” says
Our priority must be to emerge from this prolonged environment of low growth, low inflation and low interest rates.” Christine Lagarde, Managing Director, IMF
Jaime Caruana, general manager of the Bank for International Settlements.
|
|||
|
Leading the way to financial recovery
Why have you proposed listing bank shares in London? We always wanted to be listed on a large, index-driven exchange, while of course maintaining a listing in Cyprus. It is another important step in the journey to normalizing the bank.
I am confident that the City of London will continue to be a powerhouse in global finance regardless of how the separation from Europe occurs.” John Hourican, CEO, Bank of Cyprus
What influence do you think fintech will have on the global financial sector? When you have technology that is cheaper, faster and disruptive to existing paradigms, we need to embrace it or challenge it. I’ m not afraid of it; there are technologies out there such as blockchain that are extremely
|
John Hourican, CEO, Bank of Cyprus interesting. But we have to be careful that we don’ t allow a large portion of the regulated banking industry to disappear into the shadow unregulated space. |
Why do you think there is a rise in populism and anti-EU sentiment in Europe? There is a fatigue in people’ s post-crisis psychology across Europe. With the Brexit vote and the Italian referendum, we can see that people want something different for their lives. They don’ t think that the European experiment is working quite as well as the people who run it think it is. It is a dangerous moment for Europe, and the euro, and we all need to be careful. |
How well do you think the European financial sector has recovered? The biggest issue for Europe is that each of the individual crises has been solved with solutions that are not larger than the crisis, and therefore it tends to continue. Greece is a great example of that. The Italian banking crisis is an example. I think we need to see a greater degree of honesty in national balance sheets, and then a greater degree of socialization of the problem.
Why do you think Cyprus has been able to avoid the populism we have seen in other countries? You have to be deeply honest with your population and you
|
have to explain the need to act swiftly. In Cyprus, authorities took decisive, bold and fast action— and clearly explained to the population what was being done. Policymakers and business also need to be in lockstep. That has not been the case elsewhere.
How is the Cypriot economy performing? And how is the bank contributing? Cyprus is now the secondfastest-growing economy in Europe and one of the only economies in the continent where the government is in surplus. That confidence translates to the banking sector, where we are seeing significant lending opportunities in the hotel industry and the medical industry.
What progress have you made in reducing nonperforming loans? The business is performing very well and we reduced delinquencies over the course of 2016. There is still a big stock that we will work on in 2017 and 2018.
|