"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
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