Bank of Cyprus Q1 prof­its UK, Rus­sia de­posits down € 31 mln on lo­cal;

Financial Mirror (Cyprus) - - FRONT PAGE -

Af­ter seven quar­ters of losses and a se­vere re­struc­tur­ing plan im­posed as part of a na­tional bailout, the is­land’s big­gest lender Bank of Cyprus has turned a profit of 31 mln eu­ros af­ter tax for the first quar­ter.

This was on 71 mln eu­ros of pre-tax op­er­a­tional prof­its, a far cry from the record 1.8 bln losses it showed for the first half of 2013 prior to its re­struc­tur­ing, cost-cut­ting and writ­ing off of bil­lions in toxic Greek govern­ment bonds.

But the bank’s chief ex­ec­u­tive was cau­tious and said this turn­around “should not be seen as a trend”, at least not un­til the bank fully re­turns to op­er­a­tional nor­malcy.

This is a ma­jor leap from the last quar­ter of 2013 when it showed a loss of 103 mln eu­ros just as it em­barked on its sur­vival plan and “mov­ing on” pro­gramme of its new board and man­age­ment that came out of a mas­sive re­cap­i­tal­i­sa­tion in the sum­mer by un­se­cured sav­ings from de­pos­i­tors.

The bail-in pro­gramme, an ex­per­i­ment by the Eurogroup of Eu­ro­zone fi­nance min­is­ters who are now hav­ing sec­ond thoughts about their meth­ods, in­jected some 3.8 bln eu­ros of fresh funds to prop up the bank that had al­ready ab­sorbed the now-de­funct Laiki Pop­u­lar Bank, and with a com­bined Eurosys­tem fund­ing of 11.4 bln eu­ros.

CEO John Houri­can, re­cruited by the new share­hold­ers late last year to help the bank turn around, said that “we have made sig­nif­i­cant progress in the im­ple­men­ta­tion of our re­struc­tur­ing plan and we con­tinue to deliver against our strate­gic ob­jec­tives. The per­for­mance of the Cypriot op­er­a­tions, our core busi­ness, was sig­nif­i­cantly stronger than the Group’s over­all per­for­mance, sup­port­ing our ef­forts in shrink­ing to strength through the dis­posal of non-core op­er­a­tions.”

Three pri­mary dis­pos­als in­cluded the sale of the Ukrainian bank­ing sub­sidiary to the Rus­sian-owned Alfa Bank, the sale of a high- risk in­sur­ance port­fo­lio in Ser­bia and its re­main­ing stake in Ro­ma­nia’s Banca Transilvania. This helped re­pay the ELA fund­ing, re­duced to 9.23 bln in May, with an additional 1.4 bln from the ECB still pend­ing.

Houri­can added that the bank’s bal­ance sheet was thus delever­aged by 1 bln eu­ros and the new bench­mark Com­mon Eq­uity Tier 1 cap­i­tal (CET1) ra­tio in­creased from 10.2 to 10.6%. He added that loans in ar­rears from more than 90 days de­clined for the first time in 16 con­sec­u­tive quar­terly in­creases, with the rate of non-per­form­ing loans sta­bilised at 48.6% of its loan­book, the same level as at the end of De­cem­ber 2013.

Of the 247 mln in NPL re­duc­tions, the ma­jor­ity is from cor­po­rate clients, a se­nior man­ager ex­plained, de­bunk­ing the myth that “busi­ness ma­jors” were not re­pay­ing their out­stand­ing loans and that the bank was press­ing harder on re­tail clients, many of whom are un­em­ployed or have seen their sav­ings wiped out and can no longer ser­vice their debts. But the im­pres­sion re­mains and the bank must work harder to con­vince pub­lic opin­ion.

At the same time, the bank has re­duced staff size through a vol­un­tary re­dun­dancy scheme and shut down nearly half its branch net­work to about 130 lo­ca­tions. It is also con­tin­u­ing with the of­fer of non-core as­sets, such as re­dun­dant prop­er­ties from their own real es­tate port­fo­lio or from re­pos­ses­sions, while con­cen­trat­ing op­er­a­tions in their own fa­cil­i­ties has also ben­e­fited the group by about 5 mln eu­ros in rents saved.

The bank also said that its own de­posit rate had sta­bilised, just as the rate of bank­ing sys­tem de­posit out­flows had sig­nif­i­cantly abated in 2014, with the hold­ers of 3-, 6- and 12-month de­posits, frozen and bro­ken up by the Cen­tral Bank of Cyprus, grad­u­ally re­turn­ing their moneys back to the Bank of Cyprus.

Just as the bank’s op­er­a­tional earn­ings came from a com­bi­na­tion of lo­cal busi­ness, cost-cut­ting and as­set sales, con­fi­dence out­side of Cyprus is still not re­cov­ered, with de­posits in the U.K. and the Rus­sian 80%owned sub­sidiary Uni­as­trum con­tin­u­ing to re­cede.

The jus­ti­fi­ca­tion given by se­nior man­agers that the drop in Rus­sian de­posits from 1.15 bln eu­ros a year ear­lier to 767 mln at the end of March was due mainly to the cri­sis in Ukraine was not con­vinc­ing, with the ex­cuse of tougher con­trols on smaller banks in Rus­sia sound­ing more be­liev­able.

Whereas as de­posits in the U.K. seemed steady at 1.295 bln eu­ros in June 2013, they were marginally down to 1.249 bln at the end of the first quar­ter, with Group de­posits slid­ing from 16.97 bln in June 2013 to 14.06 bln in March 2014.

Bank of Cyprus has ap­pointed HSBC to act as ad­vi­sors to re­view and ad­vise on its re­struc­tur­ing process.

CEO Houri­can said the process was on­go­ing, and de­clined to be spe­cific on any pos­si­ble rec­om­men­da­tions.

Asked to com­ment on lo­cal re­ports the bank was con­sid­er­ing a cap­i­tal in­crease ahead of Euro­pean stress tests in au­tumn, as well as that a list­ing on the Lon­don Stock Ex­change was also among po­ten­tial op­tions, he said:

“It is no se­cret the bank has ap­pointed HSBC to re­view the op­tions and struc­ture,” Houri­can said. “As part of that ex­er­cise they are re­view­ing all op­tions in­clud­ing fund­ing and cap­i­tal base.”

At the “ap­pro­pri­ate time” the bank would in­form the broader pub­lic, he said.

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