Bank of Cyprus and Laiki Bank are forecast to boost their 2005 profits by more than 50% on top of a spectacular performance in 2004, with Hellenic Bank also seen over-turning its losses and returning to profit.
The average of forecasts by three of the island’s best research firms, Sharelink, CLR and Egnatia polled by the Financial Mirror sees BOC lifting profits by 55% year-on-year to CYP 58 mln in 2005 from CYP 37.5 mln in 2004, while Laiki Bank is seen boosting profits by 74% to CYP 36.6 mln from CYP 21.1 mln in 2004. Hellenic Bank meanwhile is seen returning to profits of CYP 9.3 mln from CYP 15.3 mln losses booked for 2004.
Optimism on a robust profit increase during 2005 has been instrumental in boosting the share prices of all three banks, and in turn the CSE higher.
BOC’s shares, now trading around CYP 1.88 are up about 25.5% since the start of this year, Laiki’s shares, now trading at CYP 1.33 are up 17.6% while Hellenic, currently hovering around 40.5 cent is up 9.1%, compared to the overall CSE GENX, which is up 20% in the same period.
Another reason why investors have flocked to Bank shares is the decision by the two majors, BOC and Laiki to declare dividends for 2004 and amid expectations that there will be a satisfactory increase in the dividend payout rate in 2005.
BOC confirmed market expectations when it announced the intention to pay a 4 cent per share dividend for 2004 while Laiki announced a 3 cent per share dividend for 2004. Hellenic Bank will not pay any dividend. Based on the most recent prices, BOC is trading on a dividend yield of 2.2% while Laiki is trading on a dividend yield of 2.3%, according to Financial Mirror calculations.
Analysts are expecting that BOC will be hiking its 2005 dividend to 6 cent per share, while Laiki is seen upping its 2005 dividend to 4.5-5.0 cent.
In view of plans to raise more capital through rights issues, analysts do not rule out the possibility that the two major banks may proceed with the payment of an interim dividend sometime in September following the announcement of the first half results and ahead of possible rights issues before the year-end. BOC has already announced the intention to raise between CYP 80-100 mln through a rights issue in the final quarter of 2005.
The only major problem confronting the major banks is the level of non-performing loans, which at around 10.5% of average total loans is stubbornly high and possibly a major factor that will force ratings agencies to maintain their low ratings or even proceed with possible downgrades.
Moody’s, the international rating agency has already announced that it has placed Hellenic Bank on watch for a possible downgrade due to its problematic loans, which forced the Bank to hike provisions last year to a record amount of CYP 45 mln.
