BOCY uses gov’t bond cash to pay down ELA

Bank of Cyprus has lowered its European Central Bank funding after receiving EUR 750 mln from the government towards a EUR 1.9 bln bond held by the bank issued for the recapitalisation of now defunct Laiki Popular which it absorbed in 2013.

BOCY said on Thursday that it has repaid EUR 500 mln of Emergency Liquidity Assistance (ELA) and EUR 260 mln of European Central Bank (ECB) funding with ELA and ECB funding now reduced to 5.9 bln and 500 mln, respectively.

In total, ELA has been reduced by EUR 5.5 bln since its peak of 11.4 bln in April 2013, to-date this year some 1.5 bln of ELA has been repaid, set as a priority of outgoing CEO John Hourican who set his sights on restructuring the unified bank, deleveraging non-core assets and returning to the bank to a path of profitability. The EUR 1.9 bln bond was transferred to Bank of Cyprus in March 2013, following the acquisition of certain assets and liabilities of Laiki and was pledged as collateral with the European Central Bank (ECB).

In its first-quarter results, Bank of Cyprus said it had reduced ELA to 6.9 bln, while post-results, it said it further lowered the facility to EUR 6.4 bln by the end of May.

“With the bond transferred to the bank at fair value at the acquisition date, there will be an accounting profit of about EUR 33 mln resulting from this transaction,” Bank of Cyprus had said in last week’s announcement, adding that, “the net interest income of the bank going forward will be negatively affected by the early repayment of the bond, primarily driven by the upfront recognition of the accounting gain.” The bank said that the remaining amount of the bond of EUR 340 mln will be replaced on its maturity on July 1 by a new bond for the same nominal amount, with pricing based on the Cyprus government yields prevailing at the time.

The government’s repayment follows the recent offering of a EUR 1 bln bond at a coupon of 3.875% and yield of 4% maturing in 2022.

Last year, the government had initially repaid EUR 950 mln of the ex-Laiki bond on July 1, 2014.

As at the end of the first quarter, the Bank of Cyprus Group’s total assets amounted to EUR 26.7 bln and total equity was EUR 3.5 bln. It’s first quarter results saw after-tax profits of EUR 29 mln, a turnaround from a loss of EUR 337 mln in the last quarter of 2014, but nonperforming loans (in arrears form more than 90 days) totaled EUR 12.79 bln and accounted for 53% of gross loans.