The 18th post-program surveillance of Cyprus by international lenders began yesterday with an evaluation of the country’s financial system.

This assessment is part of the post-bailout monitoring program established after Cyprus exited its economic adjustment program.

During the initial meeting between the lenders' technical team and the Central Bank of Cyprus, an in-depth review of the banking sector was conducted. The troika confirmed the “certified sound condition of the banks.”

According to information obtained by Brief, the preliminary assessment by international creditors indicates that the system has stabilized. Cypriot banks are well-capitalized, have abundant liquidity, demonstrate significant profitability, and successfully implement corporate governance practices in line with supervisory requirements.

However, alongside these positive findings, the troika identified several key risk factors, including the real estate sector, private debt—particularly household debt—and non-performing loan portfolios, most of which are managed by credit-acquisition companies.

Additionally, the lenders briefly touched upon a long-standing concern: labor costs in the domestic banking sector.

The troika has consistently advocated for Cypriot banks to control labor costs, particularly regarding contractual obligations to grant annual salary increments and automatic wage adjustments (ATA).

The average salary in the banking sector currently stands at approximately €3,600, with labor costs accounting for 45% of a Cypriot bank’s annual expenses.

Reports suggest that the troika may hold a second meeting with the Central Bank of Cyprus today.

As Brief reported on March 6, beyond banking issues, international creditors are particularly focused on Cyprus’ energy sector, including the Cyprus-Greece electricity interconnection project and developments at the Vasilikos energy hub.

The lenders intend to seek an update on negotiations between Cypriot authorities regarding potential participation in the electricity interconnection project and the conditions under which Cyprus might be involved. Given the financial implications, any agreement would directly impact the country’s public finances.

The laying of the subsea cable for the Cyprus-Greece electricity interconnection is projected to cost around €2 billion by 2030.

Additionally, the Vasilikos energy hub will also come under review. International creditors will request a comprehensive briefing on developments at the site.

The project has been financed by the European Investment Bank and the Development Bank, with total funding reaching approximately €135 million. The European Union has contributed around €73 million to the project. However, progress remains stalled, with no revenue generated, while Cyprus is contractually obliged to continue making payments.