Bank of Cyprus aims for single digit toxic loan rate

Bank of Cyprus, the island’s largest lender, aims to bring down its non-performing loan rate to a single digit by 2022, leaving behind the legacy problems of the 2013 financial crisis that shattered the banking sector.

In an interview with CNA, Bank of Cyprus CEO Panicos Nicolaou said despite the uncertainty of coronavirus, the bank is “on a much better footing” to deal with its NPL portfolio and challenges posed by the pandemic.

He said despite challenges, 2021 will mark the conclusion of the legacy problems of financial crisis, with the target being to reduce its NPL rate to single digits next year.

“Therefore, we expect more (NPL) reduction in 2021 leaving the 2013 crisis behind us in 2022. I believe progress will continue and the legacy problems left over from 2013 will be very small and manageable,” said Nicolaou.

The bank concluded NPL sales in 2020 worth EUR 1.5 bln, which left the bank “much better off” to tackle coronavirus challenges. Nicolaou explained that any future inflow of bad loans will be offset by the continued reduction of the bank’s legacy NPLs.

Since the 2013 financial crisis, Bank of Cyprus concluded a total reduction in NPLs amounting to EUR 13 bln or 88% of its total NPLs and has set its sights on achieving a singledigit NPL rate (NPLs to total loans) despite continued fallout from the pandemic.

“Surely 2020 was not a normal year, we however achieved a lot. We provided EUR 1.4 bln in new loans to support the economy, we’ve implemented a loan repayment moratorium to more than 25,000 accounts totalling EUR 6 bln but at the same time reduced the risk in our balance sheet.”

Amid the pandemic, BoC reduced its stock of NPLs from EUR 3.9 bln to EUR 1.8 bln adjusting for the two NPL sales concluded last year.

“That means that our NPL rate went down from 30% to 16% while we maintained high liquidity and strengthened our capital.”

Commenting on potential inflow of NPLs due to the expiry of the nine-month payment holiday imposed to alleviate the impact of the pandemic, Nicolaou said the scheme was abused by borrowers who did not face liquidity problems.

“This is evidenced by the situation today. As we announced in our results, until mid-February, 95% of the borrowers have paid their instalments and this is very important and very encouraging.”

In the summer of 2020, the bank reviewed 90% of the loans under moratorium and provided borrowers facing challenges with restructurings or liquidity assistance.

“Progress (on reducing NPLs) is down to the course of the economy but we are cautiously optimistic that the problems arising from the pandemic in the bank’s balance sheet will be manageable.”

Bank of Cyprus made provisions of EUR 200 mln in 2020 including EUR 55 mln associated with the pandemic to “buffer the crisis.”

“Considering where we were at the start of 2020 and where we ended up with a 16% NPL and a 7% NPL rate net of provisions from 16% at the beginning of the year, we have significantly reduced the risk from our balance sheet,” Nicolaou said.