BOCY boosts funds, prof­its con­tinue

Financial Mirror (Cyprus) - - FRONT PAGE -

Bank of Cyprus, the is­land’s big­gest len­der that was twice bailed out by share­hold­ers and de­pos­i­tors, has re­ported two quar­ters of prof­its, im­proved its fund­ing struc­ture, boosted cap­i­tal and low­ered its re­liance on EU emer­gency funds.

The bank on Wed­nes­day an­nounced af­ter-tax prof­its of EUR 31 mln for the sec­ond quar­ter, which added to the EUR 29 mln in the first, gives a first half fig­ure of EUR 60 mln, a sig­nif­i­cant turn­around from the EUR 337 mln losses it re­ported in the fi­nal quar­ter of 2014.

“The sec­ond quar­ter re­sults demon­strate that we are con­tin­u­ing to make good progress against our strate­gic ob­jec­tives and we are pro­gres­sively im­prov­ing our key fi­nan­cial met­rics,” said out­go­ing CEO John Houri­can, who is ex­pected to leave at the end of Septem­ber, half-way through his con­tract, to re­turn home to Ire­land.

The bank said that it im­proved its fund­ing struc­ture, with the loans-to-de­posits ra­tio de­clin­ing from 138% at the end of March to 136% at the end of June, while cus­tomer de­posits in­creased from 51% of to­tal as­sets in the first quar­ter to 54% in the sec­ond.

The big­gest bur­den on the new share­hold­ers’ backs had been the EUR 11.4 bln in emer­gency liq­uid­ity as­sis­tance (ELA) it had in­her­ited af­ter Laiki Pop­u­lar Bank crashed in 2013 and all its li­a­bil­i­ties were forced onto Bank of Cyprus, it­self re­sort­ing to a bail-in of about EUR 4 bln in de­pos­i­tors funds the same year and then rais­ing EUR 1.1 bln in fresh cap­i­tal from new in­vestors last year, in­clud­ing bil­lion­aire fund man­ager Wil­bur R Ross.

The bank said it halved its ELA ex­po­sure by EUR 1 bln dur­ing the sec­ond quar­ter to EUR 5.9 bln, thanks to a con­tin­u­a­tion of pos­i­tive cus­tomer flows and delever­ag­ing, and by a fur­ther EUR 500 mln post quar­ter-end to a cur­rent level of EUR 5.4 bln, con­firmed by the Cen­tral Bank of Cyprus ear­lier this week.

Ac­cord­ing to the first half re­sults an­nounce­ment, Bank of Cyprus strength­ened its cap­i­tal po­si­tion in the sec­ond quar­ter, with its Com­mon Eq­uity Tier 1 cap­i­tal (CET1) ra­tio in­creased by 100 ba­sis points to 14.9% due to a re­duc­tion of risk weighted as­sets (RWA) and or­ganic cap­i­tal gen­er­a­tion. Dur­ing the sec­ond quar­ter it also delever­aged its bal­ance sheet by a fur­ther EUR 1.3 bln, for a to­tal 23% re­duc­tion of its over­all bal­ance sheet or by EUR 7.6 bln since June 30, 2013.

The other prob­lem the bank is strug­gling with is the huge port­fo­lio of non-per­form­ing loans (NPLs), with the first fore­clo­sure ac­tions only re­ported this month af­ter par­lia­ment de­layed the rel­e­vant le­gal frame­work and in­sol­ven­cies bill for nearly a year.

The bank said its loans in ar­rears for more than 90 days were re­duced by EUR 143 mln dur­ing 2Q2015 and to­talled EUR 12.65 bln at June 30, ac­count­ing for 53% of gross loans, de­spite im­prov­ing the pro­vi­sion­ing cov­er­age ra­tio to 43%.

“The adop­tion of the fore­clo­sure leg­is­la­tion and in­sol­vency frame­work, cou­pled with the im­proved fun­da­men­tals of the Cypriot econ­omy, are sig­nif­i­cant steps in en­abling the Bank to tackle its delin­quent loans and to im­prove its as­set qual­ity,” Houri­can said in a state­ment.

“Ad­dress­ing the Group’s as­set qual­ity prob­lem re­mains the key pri­or­ity. Loan qual­ity shows fur­ther signs of sta­bil­i­sa­tion, with the level of prob­lem loans de­creas­ing and the pro­vi­sion­ing cov­er­age grad­u­ally in­creas­ing,” he added.

“The bank’s strength­ened cap­i­tal po­si­tion and over­all im­prove­ment in its fi­nan­cial po­si­tion en­hance its fund­ing op­tions and will fa­cil­i­tate ac­cess to the cap­i­tal mar­kets for whole­sale fund­ing, sub­ject to mar­ket con­di­tions and in­vestor ap­petite, al­low­ing the bank to fur­ther nor­malise its fund­ing struc­ture.”

“Post quar­ter-end, we have reached an agree­ment for the sale of the ma­jor­ity of our Rus­sian oper­a­tions (sub­sidiary Uni­as­trum). The sale al­lows the fur­ther de-risk­ing of the bal­ance sheet, the elim­i­na­tion of fu­ture po­ten­tial risks re­lat­ing to the Rus­sian oper­a­tions, the re­lease of risk weighted as­sets and, there­fore, the im­prove­ment of the Group’s reg­u­la­tory cap­i­tal po­si­tion.”

Turn­ing to the Cyprus econ­omy, Houri­can said it “is show­ing fur­ther signs of sta­bil­i­sa­tion amidst a rel­a­tively un­favourable ex­ter­nal en­vi­ron­ment. In or­der to sup­port the re­cov­ery of the Cypriot econ­omy, the bank has in­tro­duced new lend­ing schemes and other ini­tia­tives to sup­port lo­cal busi­nesses, cre­at­ing the con­di­tions to help boost do­mes­tic eco­nomic ac­tiv­ity. Through spe­cific, de­lib­er­ate and well­timed ac­tions we are de­liv­er­ing a stronger, more fo­cused in­sti­tu­tion ca­pa­ble of sup­port­ing the re­cov­ery of the Cypriot econ­omy.”

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