BOCY boosts funds, profits continue
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.”