BOCY sale of Uni­as­trum is ‘credit pos­i­tive’ says Moody’s

Financial Mirror (Cyprus) - - FRONT PAGE -

The sale of Rus­sian sub­sidiary Uni­as­trum to a smaller bank for EUR 7 mln will be credit pos­i­tive for the Bank of Cyprus, ac­cord­ing to Moody’s, a trans­ac­tion that will in­cur an ac­count­ing loss of EUR 29 mln but will help re­duce its risk-weighted as­sets sig­nif­i­cantly.

Hav­ing over-ex­posed the bank to the high-risk Greek and Rus­sian mar­kets in the past decade, the pre­vi­ous man­age­ment drove Bank of Cyprus to the brink of bank­ruptcy in 2013 when it showed to have an un­sus­tain­able amount of Greek gov­ern­ment toxic bonds. As a re­sult, these bonds were writ­ten down, the bank’s losses ex­ceeded EUR 1 bln and it lost its Greek fran­chise net­work, to­gether with now-de­funct Laiki Pop­u­lar Bank which it in­her­ited. Laiki also bur­dened BOCY with its ECB-ap­proved emer­gency liq­uid­ity as­sis­tance, amount­ing to about EUR 11 bln at the end of 2013 and pru­dently re­duced to less than half as of March this year.

Last week, Bank of Cyprus said it had agreed to sell its tur­bu­lent 80% stake in Uni­as­trum for a mere EUR 7 mln to Artem Avetisyan, the ma­jor­ity share­holder in Bank Re­gional Credit, 147th big­gest in Rus­sia by as­sets, but it also rid it­self of about EUR 700 mln in risk weighted as­sets.

In March, when BOCY re­leased its au­dited re­sults for 2014, the to­tal loss of dis­con­tin­ued oper­a­tions for the year amounted to EUR 303 mln, of which a loss of 299 mln re­lated to the Rus­sian oper­a­tions, 36 mln to the Ukrainian oper­a­tions dis­posed in the sec­ond quar­ter of 2014 and a profit of 36 mln from the Greek oper­a­tions due to the re­ver­sal of a pro­vi­sion recog­nised ini­tially in 2013.

BOCY bought into Uni­as­trum in 2008 for EUR 371 mln and has since seen only losses and shrink­ing de­posits at bank’s 120 branches, em­ploy­ing 2,000 staff. This has prompted mem­bers of the Cyprus par­lia­ment to call for a probe into the in­vest­ment, sug­gest­ing that this was the be­gin­ning of the down­fall of the once-mighty Cyprus bank.

Fol­low­ing a sim­i­lar sale in Ukraine last year, BOCY’s net ex­po­sure to Rus­sia is now re­duced to EUR 114 mln of loans and real es­tate as­sets which will “be re­duced over time”, the bank had said in a state­ment. It will re­tain its rep of­fices in Moscow and St Peters­burg.

The credit for the bank’s delever­ag­ing goes mainly to its out­go­ing CEO John Houri­can, who an­nounced that he was step­ping down at the end of Au­gust, half way through his con­tract, hav­ing sold all the over­seas and “non-core” as­sets, and re­fo­cused the is­land’s largest len­der to a “pri­mar­ily Cypriot” bank.

Hav­ing failed to agree on a suc­ces­sor, the next board meet­ing at the end of July will de­ter­mine the new CEO who will be an­nounced in early Au­gust, ac­cord­ing to bank sources.

The rat­ing agency said that BOCY will now have to fo­cus its ef­forts on re­duc­ing its high rate of non-per­form­ing loans, ac­count­ing for about 53% of its gross loans. This rate is doggedly high and a con­cern to an­a­lysts as long as the bank has not yet started to sig­nif­i­cantly dis­pose of dis­tressed loans or resched­ule trou­bled mort­gages due to an eight-month de­lay by par­lia­ment to pass a pack­age of mea­sures on fore­clo­sures and in­sol­ven­cies that pro­tect bor­row­ers as well.

In ear­lier state­ments, the bank said it had delever­aged its bal­ance sheet by EUR 3.5 bln, dis­pos­ing of its Ukra­nian oper­a­tions, its in­vest­ment in the Ro­ma­nian Banca Tran­sil­va­nia, its loans in Ser­bia, as­sets in Ro­ma­nia and the UK loan port­fo­lio ac­quired from Laiki Bank.

“The bank is run­ning a process to dis­pose of its oper­a­tions in Rus­sia,” it had added ear­lier this year, sug­gest­ing that Uni­as­trum, it­self at the heart of a strug­gle by con­trol by its for­mer own­ers Gagik Zakaryan and Ge­orge Peskov, would no longer bur­den the Group with a de­te­ri­o­ra­tion of its loan­book and de­posits.

On June 1, Uni­as­trum’s cap­i­tal amounted to 6.6 bln rou­bles (EUR 110 mln) and with as­sets of 50.6 bln rou­bles (EUR 820 mln) was ranked 102nd big­gest in Rus­sia.

Ac­cord­ing to In­ter­fax-CEA, Kostroma-based Bank Re­gional Credit is the 147th big­gest by as­sets of 26.4 bln rou­bles (EUR 430 mln), less than half of Uni­as­trum, and has 18 of­fices.

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