Bank of Cyprus announced Group losses of 2.2 bln euros for 2012, in a set of results delayed by the financial crisis that hit the island and the restructuring of the banking sector.
The bank, that remains headless without a CEO for over a month, reported a net loss of 2.214 bln euros on Friday, following a 1.359 bln euro loss a year earlier, while interim results for 2013 are not yet available.
The bank’s restructuring, imposed by the Eurogroup of euro zone finance ministers in March as part of a 10 bln euro bailout for bankrupt Cyprus, has taken a heavy toll, as all its operating profits of 620 mln euros, albeit reduced by 22% from 2011, were wiped out after it disposed of its Greek assets and absorbed second biggest lender Laiki Popular, together with its Eurosystem funding of 9 bln euros.
Bank of Cyprus said it had to make a significant increase in provisions (from 426 mln euros in 2011 to 2.3 bln in 2012) “driven by the deterioration of the loan portfolio and the declining collateral values.”
However, the only glimmer of hope for the consolidated group that has also shed about a quarter of its workforce and shrunk its branch network this year to reduce operating costs, following the bank’s recapitalisation through a bail-in by depositors who now account for 81% of its share capital, it can now sustain possible future losses on its loan portfolio.
In 2012, the bank also depreciated the final amount of 188 mln euros from the haircut on Greek government bonds, which at one time reached more than 2 bln euros.
Although the provision coverage ratio of non-performing loans amounting to 55% in 2012 and total deposits reached 28.4 bln euros, down a mere 4% from 2011, these figures have deteriorated further in 2013 due to tight credit controls imposed by the Central Bank of Cyprus and the Troika of international lenders (IMF, ECB, EU), conditional to the bailout and, supposedly, to contain any capital flee. Scared from the credit controls, customers eventually withdrew what deposits they had for fear of seeing all their savings wiped out.
“The events have adversely impacted the 2012 results with respect to conditions that existed at 31 December 2012, such as the recoverability of deferred tax assets in Greece, expectations about the realisable values from collaterals and the impact on the impairment testing on the assessment of the goodwill of overseas subsidiaries,” the bank said in a statement.
Following the recapitalisation, the bank’s share capital currently amounts to 4.7 bln euros. It has disposed of its loans, fixed assets and deposits in Greece to Piraeus Bank, making a payment of 1.2 bln euros, resulting in a loss of 1.4 bln which represents future expected losses for three years to June 2015 and other adjustments as determined by the Resolution Authority.
As at end of March this year, the Group’s customer deposits totalled 19 bln, with deposits in Cyprus accounting for 85% of the total. All deposits in Cyprus fell to 35.9 bln euros in August, the lowest level in five years, having peaked at 50.5 bln euros in May of last year.
The bank is about to submit a restructuring plan which “will define its strategy, business model and risk appetite” with the aim “to create a healthy financial institution, by rebuilding trust and confidence of both depositors and investors, preserving the bank’s status as the cornerstone of the domestic economy and building a resilient institution, able to effectively manage its portfolio of assets and withstand further external shocks and economic turbulence.”
These are plans spearheaded by interim CEO Christos Sorotos who took over at the end of May and stepped down at the bank’s controversial AGM in early September.
The board that arose from the new shareholders (and former depositors), including six Russians, has been searching for a new CEO, not excluding Sorotos, in order to implement the restructuring plan and the smooth integration of the defunct Laiki’s operations.
In a sign of attempt to return to normality, the bank also started advertising for high-interest deposits schemes last week, offering up to 3.40% for 12 months, while offering a 4.75% interest on housing loans.
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