Bank of Cyprus 9M prof­its flat, NPLs -5%, de­posits up

Financial Mirror (Cyprus) - - FRONT PAGE -

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.

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