Bank of Cyprus now has cushion of €1.6 bln after the recent capital increase of €1.1 bln, continued cost-cutting and cashing in on some €950 mln the government owed it after absorbing the now defunct Laiki Popular Bank and being burdened with its bailout obligations.
Group Finance Director Christakis Patsalides said that additional money raised from a future covered bond issue of about €1 bln will go towards paying down the emergency liquidity assistance (ELA) obligations to the European Central Bank.
In any case, the bank will now have ample funds to overcome the EU-wide stress tests of some 128 systemic Eurozone banks in October.
“With Common Equity Tier 1 ratio amounting to 15.1%, significantly above the minimum required by (banking) supervisors which is 8%, we have created a capital buffer amounting at €1.6 bln”, Patsalides told the state-run Cyprus News Agency in an interview.
He said that given the current risk profile of the bank, the quality of the loan portfolio and the bank’s reduced exposure abroad, there is a significant capital buffer to absorb unexpected losses or shocks.
The senior official of the Group noted that after the completion of the first phase of the share capital increase with a private placement of €1 bln in fresh capital to existing and institutional investors, the existing shareholders hold 53% of the bank, while new shareholders the remaining 47%. The percentage of former “legacy” Laiki Bank is projected to fall to around 10% from 18%, while international investors introduced by billionaire Wilbur Ross will hold a share of 19%. These percentages are expected to change with the completion of Phase 2 of share capital increase, where up to 20% of the shares of Phase 1 will be allocated to existing shareholders, as part of the “clawback” process.
Ross heads a group of investors who have pumped in €400 mln, while the EU-owned European Bank for Reconstruction and Development (EBRD) a further €120 mln.
Patsalides said the increase in share capital also paves the way for borrowing from the debt markets, which will help the bank to replace the ELA with conventional financial instruments, such as bonds and deposits, while improving the trust of the depositors in the bank
“It is not a coincidence that the international rating agencies have seen positively this increase and is expected to gradually upgrade the credit rating of the Bank, something that reduces the cost of borrowing from the markets,” he said.
Moody’s said that the capital increase will improve the bank’s liquidity and its financial position and that it will increase investor confidence and possibly open up other funding prospects.
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