The Cyprus banking system closely follows the British equivalent and offers a very large range of services for individuals and businesses. The domestic banking system comprises the Central Bank of Cyprus, nine commercial banks, of which four are public companies quoted on the Cyprus Stock Exchange (CSE), and three specialised financial institutions. The Central Bank was established in 1964 and is responsible for formulating and implementing monetary and credit policy.
It also administers the foreign exchange reserves of the republic, supervises banks and acts as banker and financial agent of the government. Seven of the nine commercial banks operating in the government controlled area are locally incorporated.
Since 1996 the Central Bank of Cyprus embarked on a course of restructuring and liberalising the financial system within the context of Cyprus efforts to prepare for accession to the EU. The new monetary policy framework demands that the minimum reserve requirement be reduced to 7%, and the introduction of repurchase agreements and a lombard type of facility.
In January 2000 a relaxation of the rules and regulations applicable to direct and portfolio investments in Cyprus by citizens of EU member states as well as direct investments from Cypriots abroad came into effect.
Furthermore, from 1 January 2001, interest rates have been liberalised. Three onshore commercial banks (Bank of Cyprus, Laiki Bank and Hellenic Bank) dominate the banking sector, accounting for some 75% of total deposits, and maintain extensive branch networks throughout the island. The distribution of deposits is highly skewed towards time deposits, making the cost of funds quite substantial.
Also, a well-developed international banking system operates in Cyprus. It comprises twenty-nine International Banking Units (IBUs), two Administrative Banking Units and seven international representative offices of foreign banks.
Transfers of pensions, salaries and other income from abroad are very simple and fast via the well-advanced Cyprus banking system. The foreign residents may open foreign and local currency accounts easily and major credit cards are accepted throughout the island. The banks are efficient, modern, equipped with the latest technology and have many convenient branches. Many international banks have branches in Cyprus.