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Panicos Nicolaou: The Key for Banks is to Identify Ways to Transform

Panicos Nicolaou: The Key for Banks is to Identify Ways to Transform

Panicos Nicolaou, CEO at Bank of Cyprus spoke at the 10th Limassol Economic focusing on where European banking is today and pointed out the structural challenges faced by the industry. He highlighted the need to transform which is not only necessary for the banks to operate more efficiently, but it is also increasingly demanded by customers in this new high-tech era.

New technology radically changes the face of financial services and also traditional understanding of the banking sector. According to Panicos Nicolaou, European banks continue to face a number of structural challenges that are weighing on performance and translate into low return on equity. “Over the last years, euro area banks exhibit lower return on equity vs the cost of equity. The return on equity of listed Euro area banks, included in the Eurostoxx index, stands at around 8% below the cost of equity estimated at 13%,” he noted.

He continued by presenting the structural challenges weighing on performance: 

Pressure on Net Interest Margin 

The European bank in September extended a five year period of negative interest rates by cutting the interest rate further into a negative interest rate environment from -0,4% to -0,5%. Also the ECB has revived the quantitative easing programme for an unlimited period

The competition pressure in lending rates continues due to the significant surplus liquidity in the market.  In addition, competition from FinTech could intensify dragging net interest income down


Cost to Income Ratio 

Improving cost efficiency is one of the key challenges due to lower income. Banks are becoming more competitive on the cost side as a way to deal with the low interest rate environment hampering revenue generation. More traditional cost savings measures involve downsizing and branch closures and extend to adopting new cost efficient technologies. Digitalisation nonetheless, involves short to medium term costs. 

Market consolidation and M&A activity can further increase efficiency by delivering synergies on the cost-side


Legacy Issues 

Southern European banks continue to face headwinds due to Non-Performing Loans which absorb operational capacity, tie up capital and involve high administration cost



The industry is dominated by increased regulation over the last years, translating into higher capital requirements and increased focus on dealing with legacy assets within accelerated timeframes . Stringent AML and KYC standards and procedures are reducing clientele scope 


Digital Disruption 

Disruption typically implies of a problem but in this case it’s both a problem and an opportunity. New digital technologies and business models are changing the value proposition of existing goods and services. 

Panicos Nicolaou, concluded that the key for banks is to identify ways to transform and continuously evolve themselves in the face of new technology by driving efficiencies, changing their business models and adapting their customer journeys. 


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