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
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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
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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 ,
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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 .
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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
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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
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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 .
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