"Smart Chi­nese money should look at Cyprus"

Cyprus’ largest bank, the Bank of Cyprus, turned a cor­ner this Jan­uary by of­fi­cially clos­ing a 11.6 bil­lion euro cri­sis-era loan. With some of world's s’ top bankers on his board, CEO John Hourican is now trans­form­ing re­newed con­fi­dence into a con­crete re

Global Times – Metro Beijing - - FRONT PAGE - by Justin Calderon Justin@the-busi­ness­re­port.com

In Jan­uary 2017, just four years after the Greek De­pres­sion dragged it to the brink, Bank of Cyprus (BoC) closed a final debt, ef­fec­tively putting to rest a bit­ter relic of the na­tion's fi­nan­cial cri­sis. With the is­suance of BoC's last pay­ment for the 11.6 bil­lion euro Emer­gency Liq­uid­ity As­sis­tance (ELA), ac­quired as the re­sult of the ab­sorp­tion of Laiki Bank, a sum equal to 60 per­cent of the na­tion's real GDP, CEO John Hourican is now look­ing to achieve even larger mar­ket shares as the bank shifts from a pro-equity re­ha­bil­i­ta­tion strat­egy to one of pure growth. Joined by a board that in­cludes the world's big­gest names in bank­ing, such as former Deutsche Bank CEO Josef Ack­er­mann as chair­man, Hourican ex­plained how a drive for for­eign equity has led to BoC's re­birth. What pri­or­ity action did BoC take to re­gain in­vestors' trust?

First, we had to as­sess whether the re­cap­i­tal­iza­tion of the bank was ef­fi­cient and, in my view, it was not. We called our board for a ro­bust con­ver­sa­tion, and then we went ahead and raised 1 bil­lion euro of new equity for the bank, which was the largest ever in­vest­ment into Cyprus since the foun­da­tion of the state in 1960. That to me was the start­ing point for the re­build­ing of con­fi­dence. Our core strat­egy was then to reestab­lish cred­i­bil­ity in the bank and its man­age­ment, as well as pass the Euro­pean Cen­tral Bank’s stress test by rais­ing more equity. Only after we raised the equity could we actually be­gin to try and raise de­posits. Re­newed con­fi­dence was then made pos­si­ble due to a number of cir­cum­stances, in­clud­ing re­pay­ing the ELA pack­age worth 11.6 bil­lion euro, delever­ag­ing the bal­ance sheet, and by lift­ing cap­i­tal con­trols and re­stric­tions on our de­posits ear­lier than ex­pected.

We took 3 bil­lion euro off of our bal­ance sheet, sim­i­lar to the progress of the en­tire Greek bank­ing sys­tem.

How has this re­newed con­fi­dence paid off to­day?

Con­fi­dence is a function of ex­ceed­ing ex­pec­ta­tion, not meet­ing ex­pec­ta­tions. You can­not cre­ate con­fi­dence by just do­ing what you say you are going to do, so what we did is set very strong am­bi­tions and then beat them. To­day, our trust scores are dra­mat­i­cally bet­ter than they were when I came to this po­si­tion, and Cypriot so­ci­ety is be­gin­ning to re­al­ize that the bank is on a sen­si­ble re­cov­ery. We have now taken 22 per­cent of GDP off our bal­ance sheet, which is 15 times more than any other bank in Europe. Like­wise, we can say that in 2016 we took 3 bil­lion eu­ros off of our bal­ance sheet, sim­i­lar to the progress of the en­tire Greek bank­ing sys­tem over the same pe­riod. What is the strat­egy behind de­creas­ing non-per­form­ing loans (NPL)? There are a cou­ple of hy­giene fac­tors needed to tackle NPLs. The first one is good law. If you do not have good law, you can­not tackle any­thing. Cyprus’ Bri­tish Com­mon­wealth law had been weak­ened through leg­isla­tive action over decades, and we had to en­sure that the leg­isla­tive re­form agenda gave rise to the strength­en­ing of law. Now we have a fore­clo­sure regime that has been im­proved from a 10 to 15-year re­cov­ery pe­riod to an 18-month re­cov­ery pe­riod. Se­condly, we had to cre­ate in­cen­tives around the be­hav­iors of bor­row­ers to en­cour­age them to come and con­sen­su­ally deal with their debts rather than hav­ing to go through the fore­clo­sure route. Why did BoC relist on the London Stock Ex­change? BoC needed to delist from Athens, and we did not want Cyprus as­so­ci­ated with Greece be­cause Cyprus was becoming a suc­cess and I wanted to dif­fer­en­ti­ate it from its neigh­bor. More­over, we were sig­nif­i­cantly over­sub­scribed on the first bil­lion, so that was a val­i­da­tion of this type of strat­egy. How will Chi­nese in­vest­ment im­pact the fu­ture of Cyprus? There is a need for Europe to con­nect to China in a more or­ga­nized way, and Cyprus is the Eastern gate­way to the Euro­pean Union.

You can change the na­ture of the en­tire country [of Cyprus] with a rel­a­tively small in­vest­ment from China.

It is un­der Asia, above Africa and at the edge of Europe. Smart Chi­nese money should look at Cyprus be­cause it's an 18 bil­lion euro econ­omy, so a 1 bil­lion euro in­vest­ment is 6 per­cent of GDP. You can change the na­ture of the en­tire country with a rel­a­tively small in­vest­ment from China. Why should in­vestors work with BoC? In all, 83 per­cent of Cypri­ots have an ac­tive bank ac­count with us, we have 60 per­cent mar­ket share in cor­po­rate ac­counts and a 40 per­cent share in the total mar­ket. If you add the en­tire bank­ing sys­tem to­gether and com­pare it to us, we are as large as the rest of the bank­ing sec­tor put to­gether. How do you en­vi­sion BoC's re­cov­ery to con­tinue? BoC has had ten con­sec­u­tive quar­ters of growth and NPL re­duc­tion, and the bank has been able to profit from the sale of real es­tate that we have on-boarded rapidly. This year is look­ing even bet­ter. In the first quar­ter of 2017, we sold the same amount of real es­tate we sold in all of 2016, and I think that pace will con­tinue. Pace is ev­ery­thing in re­cov­ery.

JOHN HOURICAN CEO of Bank of Cyprus

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