BOCY is­sues warn­ing for € 400 mln losses

Financial Mirror (Cyprus) - - FRONT PAGE -

The bank, that was twice bailed out by de­pos­i­tors and share­hold­ers, and bur­dened in 2013 with a colos­sal debt of about EUR 11 bln from the now-de­funct Laiki Pop­u­lar Bank, said that its non-per­form­ing loans will “im­prove” to 50% of its loan-book and that it has now re­duced its ECB-funded ‘emer­gency liq­uid­ity al­lowance’ to EUR 3.5 bln.

In a state­ment for its pre­lim­i­nary fi­nan­cial re­sults for 2015, that will be put to the board on Fe­bru­ary 25, the bank said that as a re­sult of amend­ments to the as­sump­tions in its pro­vi­sion­ing method­olo­gies, pro­vi­sion cov­er­age lev­els against the Bank’s loans in ar­rears for more than 90 days will im­prove to lev­els ap­proach­ing 50%. The bank also ex­pects a EUR 0.7 bln re­duc­tion in the loans in ar­rears for more than 90 days, for the fourth quar­ter of 2015.

“The Bank ex­pects to in­crease its pro­vi­sion­ing lev­els by EUR 0.6 bln to a full-year charge of about EUR 1 bln, re­sult­ing in an ex­pected full-year loss af­ter tax of EUR 0.4 bln,” a press re­lease said .

It noted that “were the bank not to make any changes to its pro­vi­sion­ing as­sump­tions, the profit af­ter tax for the year 2015 would have been about EUR 100 mln. The bank’s CET1 ra­tio would, in th­ese cir­cum­stances, ex­ceed 16%”.

Bank of Cyprus an­nounced prof­its of EUR 73 mln for the first nine months of the year, marginally down from the same three quar­ters the pre­vi­ous year, ham­pered by the loss­mak­ing Rus­sian sub­sidiary Uni­as­trum that was only dis­posed of in Septem­ber 2015.

The changes pro­vi­sion­ing as­sump­tions re­late to ex­tend­ing re­cov­ery pe­ri­ods and ap­ply­ing ad­di­tional re­al­i­sa­tion dis­counts on cer­tain port­fo­lios of prob­lem loans and they “will sig­nif­i­cantly bridge the reg­u­la­tory di­a­logue with the ECB and ex­plic­itly bol­ster the bank’s pro­vi­sion­ing lev­els”.

The state­ment said that the bank’s CET1 ra­tio (tran­si­tional ba­sis) will con­tinue to be strong at about 14%, re­main­ing higher than the min­i­mum re­quired ra­tio of 11.75% re­lat­ing to the Pil­lar II cap­i­tal re­quire­ment, “con­firm­ing that there is no need for the Group to raise ad­di­tional cap­i­tal”.

Dur­ing the fourth quar­ter of 2015 and dur­ing Jan­uary 2016, the bank said it com­pleted the re­struc­tur­ing of a num­ber of large lend­ing ex­po­sures and that fur­ther re­duc­tions for the early quar­ters of 2016 are ex­pected as the re­struc­tur­ing ef­forts con­tinue.

It also said that the bank’s liq­uid­ity po­si­tion con­tin­ues to im­prove, ben­e­fit­ing from con­tin­u­ing de­posit in­flows, with cus­tomer de­posits grow­ing by EUR 0.6 bln dur­ing the fourth quar­ter of 2015 (4% in­crease) and that EUR 1.4 bln of ELA fund­ing has been re­paid post 30 Septem­ber 2015, re­duc­ing it to a cur­rent level of EUR 3.5 bln.

Only last week, Moody’s warned that “while the re­cov­er­ing econ­omy is sup­port­ing loan re­cov­er­ies and de­pos­i­tor con­fi­dence, Bank of Cyprus’ and Hel­lenic Bank’s ex­tremely weak loan qual­ity will only grad­u­ally im­prove in 2016.”

“The eco­nomic re­cov­ery and a raft of new leg­isla­tive mea­sures to help lenders re­cover un­paid loans are im­prov­ing Bank of Cyprus’ and Hel­lenic Bank’s re­struc­tur­ing prospects, fund­ing con­di­tions as well as their prof­itabil­ity. How­ever, the large stocks of prob­lem loans will take sev­eral years to work through, with the weak real-es­tate mar­ket ham­per­ing col­lat­eral sales,” said Moody’s an­a­lyst Melina Sk­ouri­dou.

How­ever, the rat­ing agency recog­nised that “be­cause of the in­creased eco­nomic ac­tiv­ity and strength­en­ing de­pos­i­tor con­fi­dence, cus­tomer de­posits are start­ing to re­build grad­u­ally.”

Al­though

steadily

de­clin­ing, Bank

of

Cyprus

re­mains de­pen­dent on ELA, while Hel­lenic Bank faced fewer out­flows dur­ing the cri­sis and main­tains a stronger de­posit-based fund­ing pro­file, the Moody’s re­port said.

Bank of Cyprus is ahead in terms of re­struc­tur­ing and re­cov­er­ing on prob­lem loans. As a re­sult, its prof­itabil­ity, which also ben­e­fits from re­cov­er­ies on the dis­counted as­sets it ac­quired when it took over Laiki’s do­mes­tic busi­ness in 2013, is re­cov­er­ing at a faster pace. How­ever, both banks’ prof­its will re­main mod­est the com­ing years as they build up their low lev­els of pro­vi­sions.

Ac­count­ing for around 41% of prob­lem loans, the banks’ loan loss pro­vi­sions pro­vide a lim­ited buf­fer against losses from their high stock of NPLs which con­tin­ues to pose risks to their cap­i­tal lev­els. The ra­tio of non-per­form­ing loans to gross loans, which stood at 56.9% of to­tal lend­ing for Hel­lenic Bank and 52.5% for Bank of Cyprus as of Septem­ber 2015, will re­main high over the fore­see­able fu­ture.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.