Bank of Cyprus 9M profits flat, NPLs -5%, deposits up
But improving fundamental suggest that the bank will not need any further capital increase, much to the delight of its major shareholders who want to avoid a scenario being played in Greece of injecting fresh funds to rexcapitalise the crisis-stricken banks there.
On the other hand, the island’s biggest lender said it reduced its non-performing loans, delinquent for over 90 days, by EUR 649 mln at the end of the third quarter, down by 5% from the previous quarter, to EUR 11.998 bln, that still accounts for 52% of gross loans.
Bank officials said during a press briefing on Monday that the bank’s 30 biggest NPL exposures have been reduced by EUR 1 bln in the past year, while a further EUR 800 mln are nearing completion of the recovery or restructuring process.
As regards the rest of the bad loans, some 38% held by small to medium-sized enterprises have been restructured, as have 40% of the property loans.
Deposits increased by 5% to EUR 527 mln, improving the bank’s market share from 24.6% a year ago to 26.5% at the end of September, while its loans market share has also increased fro 38.5% in June to 39.3% in September.
The i mprovement of the financial results and the continued restructuring plan of the bank itself will be a tall order for the new CEO, replacing John Hourican who had delayed his departure for the third time, now scheduled to leave “well after Christmas”, a bank official said.
“The benchmark has been set very high, as (Hourican) has set a very impressive track record. We are ahead of our own restructuring plans, including reducing non-core assets and staff.”
By Monday night, the board and Hourican had reached an agreement for him to remain, staying on for a two-year contract and an option to renew for one more.
The bank currently employs 4,610 and having recently offloaded its troubled Russian banking arm, is now a primarily Cyprus-centred bank once again, with local operations accounting for 92% and 89% of Group loans and deposits, respectively.
The bank has also increased lending, pouring EUR 500 mln into the economy, evenly split among retail household loans and corporate lending, with the vast majority valued at below EUR 100,000 each. Thus, the loans to deposits ratio (L/D) improved to 132%.
Liquidity has further improved with the core tier 1 ratio increased by 70 basis points to 15.6%, while the ECB’s emergency liquidity assistance (ELA) has also been reduced by EUR 1.6 bln from June to September to a present outstanding EUR 4.3 bln.
“We have made further progress against our strategic objectives during the third quarter,” outgoing CEO John Hourican said in a statement.
“We have bolstered the Group’s CET1 ratio by 70 basis points to 15.6%, due to reduced risk weighted assets relating to the disposal of the majority of the Russian operations and due to organic capital generation. However, we are engaged in an on-going regulatory dialogue with ECB for SREP (Supervisory Review and Evaluation Process) and we do not expect the Group to be required to raise any capital,” Hourican added.
“With the (Uniastrum) sale, we have completed the disposal of the overseas banking subsidiaries earmarked for sale. At the same time, we have eliminated future potential risks relating to the Russian operations, released risk weighted assets of EUR 550 mln and strengthened regulatory capital position by 30 basis points,” he said.
“Our credit risk management efforts are intensifying. Loan restructuring activity remains high and we are close to finalising the restructuring of many of our large borrowers. The changes in the legislative framework, coupled with the improving economic fundamentals, are supporting our efforts to tackle delinquent loans and to address the asset quality problem.”
Hourican said that “the Cyprus economy continues to perform better than expected amidst a relatively unfavourable external environment. The fiscal performance is exceeding expectations and the government has recently tapped the international markets for the third time since the start of the bailout programme. As the Troika-supported programme is coming to an end in early 2016, we urge the authorities to maintain the reforms momentum to improve the country’s competitiveness and attract much-needed foreign investment in the country.”
He added that the bank is providing credit to creditworthy individuals and companies, creating the conditions to boost domestic economic activity.
“Through specific, deliberate and well-timed actions, we are delivering a stronger, more focused institution capable of supporting the recovery of the Cypriot economy. As the leading financial institution in Cyprus, the bank’s financial performance is highly correlated to the economic and operating conditions in Cyprus and will benefit significantly from the economic recovery,” Hourican’s statement concluded.
Net interest income (NII) for 9M2015 was reduced by 13% to EUR 644 mln and net interest margin (NIM) was 3.85%. NII for 3Q2015 was EUR 205 mn, compared to EUR 212 mn for 2Q2015, reflecting the full effect of the partial repayment of a bond by the Republic of Cyprus in June and deleveraging actions.
Total income for 9M2015 was reduced by 12% to EUR 786 mln, reflecting a reduction of total income for the third quarter to EUR 251 mln, from EUR 261 mln in the second.
Insurance income was also reduced, down 10% year-onyear to EUR 32 mln, including the half-share of CNP Asfalistiki, the former insurance arm of ex-Laiki Popular Bank.
Total expenses for the nine month period were also reduced, down 5% to EUR 296 mln, with the cost to income ratio at 38%.
Net profit on disposal of non-core assets for the nine month period was EUR 23 mln, including the loss from the disposal of the majority of the Russian operations and other non-core assets.