Eurobank ‘wants’ and ‘can’ fund healthy businesses

Financial Mirror (Cyprus) - - FRONT PAGE -

The chief ex­ec­u­tive of Eurobank Group is con­fi­dent that Cyprus is re­cov­er­ing much faster than ex­pected and based on the feed­back from cor­po­rate and for­eign clients, he wants the wholly-owned sub­sidiary on the is­land to re­main healthy, prof­itable and in­vest­ing in lo­cal en­ter­prises.

“When we met with clients in Li­mas­sol on Mon­day night, we gave a clear mes­sage that the bank wants to and can fi­nance healthy businesses and I see this as a sign of op­ti­mism,” said group CEO Chris­tos Me­ga­lou.

“I am very happy with Eurobank Cyprus due to its healthy cap­i­tal ad­e­quacy lev­els,” he told a news brief­ing.

His con­fi­dence was echoed by Eurobank Cyprus CEO Michalis Louis who said that since the bank was es­tab­lished on the is­land in 2007, it has fo­cused on four pil­lars: wealth man­age­ment, in­ter­na­tional busi­ness bank­ing, cor­po­rate and in­vest­ment bank­ing, and trea­sury sales.

“Al­ready, we have a net­work of seven busi­ness cen­tres and plan to open an eighth soon, in Par­al­imni. Two more are in the pipe­line, one in Ni­cosia and one in Li­mas­sol.”

Louis said that Q1 2014 af­ter tax prof­its for Cyprus reached 15.5 mln eu­ros, with the cap­i­tal ad­e­quacy level at 42.62%, down 2 per­cent­age points from the pre­vi­ous year’s ra­tio due to the reval­u­a­tion in ac­cor­dance with Basel III re­quire­ments.

At the end of May, de­posits had risen by a fur­ther 300 mln eu­ros for a to­tal of 2.53 bln mostly from for­eign clients, while so far this year the bank has granted new loans of 50 mln eu­ros, mostly to medium-size and large en­ter­prises. Al­though the bank ac­cepts re­tail de­posits, it does not cater to re­tail lend­ing and small en­ter­prises.

Fi­nan­cial Mir­ror data sug­gests that the bulk of new de­posits are linked to the lack of con­fi­dence de­pos­i­tors have in Bank of Cyprus and that upon their Troika-im­posed term de­posits ma­tur­ing, these are with­drawn and re-de­posited in other banks.

“Af­ter four pos­i­tive re­views by the Troika (of in­ter­na­tional lenders), we need four more pos­i­tive re­views in or­der to def­i­nitely say we have ex­ited the cri­sis,” Louis said in his anal­y­sis of the lo­cal econ­omy.

“2014 seems to be our last year in re­ces­sion and we seem to be re­turn­ing to a growth pat­tern from 2015,” he said.

Turn­ing to the sit­u­a­tion in Greece, Group CEO Me­ga­lou, who has been at the helm for ex­actly a year, said that af­ter the suc­cess­ful re­cap­i­tal­i­sa­tion of 3 bln eu­ros at the end of April, the bank has em­barked on a road-show in Euro­pean mar­kets to pro­mote its first ma­jor 500 mln bond is­sue.

“In the same sense, the Repub­lic of Cyprus’s re­turn to mar­kets with the (up­com­ing) road show for a po­ten­tial 500 mln euro bond is­sue is also a very pos­i­tive,” he said.

“It is too early to say if the in­ter­est rates on the bond is­sue will be un­com­pet­i­tive. Quite the con­trary, from what we have heard so far, we may be pleas­antly sur­prised.”

Ta­sos Anas­tasatos, head of re­search, said that the projections for the Cyprus fi­nan­cial as­sis­tance pro­gramme were bet­ter than in Greece with the con­trac­tion of the econ­omy at a com­par­a­tively smaller rate.

“I am im­pressed with the ma­tu­rity with which Cyprus has re­acted to the ‘catas­tro­phe’. In 2014, it could beat projections with the tourism and the busi­ness ser­vices sec­tors prov­ing more re­silient,” he said.

Anas­tasatos said that it is im­per­a­tive that Cyprus im­proves its com­pet­i­tive­ness, pri­mar­ily by re­duc­ing the labour cost.

“It is an is­sue of con­fi­dence and con­trol­ling the pub­lic sec­tor deficit,” he said of the big­gest chal­lenges fac­ing the Cyprus econ­omy, which boil down to four key ares.

“The pri­mary con­cern should be the re­struc­tur­ing of banks, in par­tic­u­lar Bank of Cyprus and the Coops where the big­gest is­sue is the re­cov­ery of se­cu­ri­tised loans mostly tied to real es­tate. “The sec­ond is the con­tin­u­a­tion of con­trol re­stric­tions that should only be lifted in a con­ser­va­tive pace in or­der not to risk fur­ther cap­i­tal flight.“Third is un­em­ploy­ment which will con­tinue to rise in 2014.

“Fourth is delever­ag­ing where re­forms must con­tinue, es­pe­cially in the sec­tors of health, deal­ing with the Laiki legacy and pri­vati­sa­tions.”

Anas­tasatos said that for the 2015-2018 pe­riod, the govern­ment’s fo­cus should be on mea­sures to re­duce the gap on fis­cal deficit and to a lesser ex­tent to deal with im­pli­ca­tions of a fall­out from the cri­sis in Ukraine.

“The dy­nam­ics of the Cyprus econ­omy are pos­i­tive and im­por­tant. The em­pha­sis has to be on re­forms and the Cyprus state should take own­er­ship. The in­ad­e­quacy of the Greek model was that it was go­ing from (Troika) re­view to re­view with in­suf­fi­cient re­forms in be­tween. Cyprus needs vi­sion, a new de­vel­op­ment model. The fo­cus should re­main on tourism and niche ser­vices. Hy­dro-car­bons ex­plo­ration and out­put is a very im­por­tant de­vel­op­ment but one that has to be con­sid­ered on the very long term,” Anas­tasatos con­cluded.

Re­ply­ing to ques­tion from the Fi­nan­cial Mir­ror, Eurobank’s econ­o­mist said that Cyprus must be “ready to meet chal­lenges de­riv­ing from the events in Rus­sia and Ukraine through healthy and clear im­prove­ment of our fun­da­men­tals. The cri­sis in Ukraine does not seem to be reach­ing a boil­ing point, for the time be­ing, but we re­main re­silient.”

Michalis Louis said that Eurobank Cyprus’ Rep­re­sen­ta­tive of­fices in Moscow and in Kiev as well as clients in Cyprus are giv­ing a pos­i­tive feed­back.

“Off course we should be pre­pared, the same ap­plies to the (Rus­sian govern­ment’s) pol­icy for de-off­sho­ri­sa­tion and the im­pact this could have on bank­ing and in­ter­na­tional clients.

“I am hope­ful that Cyprus will be out of any po­ten­tial list tar­geted by the govern­ment in Moscow, be it a grey list or white list.

“Armed with strong cap­i­tal ad­e­quacy which en­ables the Bank to face any chal­lenge, that the cur­rent ad­verse macroe­co­nomic en­vi­ron­ment may bring, as well as with its fi­nan­cial ro­bust­ness, Eurobank Cyprus can and will con­tinue to fi­nance and sup­port the Cyprus econ­omy by sup­port­ing vi­able devel­op­men­tal ini­tia­tives,” Louis said, adding that the bank’s strengths lie in its recurring prof­itabil­ity at sat­is­fac­tory lev­els, a low ra­tio of non-per­form­ing loans (NPLs), strong liq­uid­ity and low op­er­a­tional cost.

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