…Profit target for 2006 raised
Bank of Cyprus Group beat market expectations by a wide margin and delivered a fantastic set of first quarter results, lifting net profits by a whopping 132% with the added bonus that the full year results, previously expected at CYP 120 mln are now forecast to exceed, probably ranging between CYP 145-148 mln.
The improvement in all of the Group’s profitability indicators was also
significant. The reorganisation of the Group’s activities in Cyprus, combined with the cost containment and income enhancement plans, the positive course of the Group’s insurance operations, the continuation of its dynamic expansion in Greece and the positive results from the sale and change in fair value of financial instruments contributed to the profitability improvement.
Group profit after tax for 1Q06 reached CYP 37 mln (EUR 65 mln) compared to CYP 16 mln (EUR 28 mln) for the corresponding 2005 quarter, recording an increase of 132%.
As a result of the significant increase in the Group’s profitability, the Group return on equity increased by 7.8 percentage points compared to 1Q05, reaching 19,1%.
Profit before provisions reached CYP 62 mln, recording an annual increase of 58%. The cost to income ratio improved to 49.0% compared to 59.9% for 1Q05.
The spectacular results were achieved as total income surged 24.6% to CYP 122.53 mln while total costs increased by 2% only to CYP 60.04 mln.
Net interest income was up 19% to CYP 78.38 mln, fees and commissions were up 16% to CYP 23.83 mln, forex revenue surged 23% to CYP 3.8 mln, insurance activities were up at CYP 7.09 mln, while the Bank booked CYP 8.3 mln from revaluation and gains on investments.
Staff costs on the other hand increased by a tiny 0.7% to CYP 38.16 mln while other costs were up 4.4% to CYP 21.87 mln.
This also explains the dramatic decline in the cost to income ratio to 49% from 56.7% previously.
Core profits surged 58% to CYP 62.4 mln from CYP 39.45 mln a year ago.
Provision for doubtful debt fell 9% to CYP 18.14 mln from CYP 19.93 mln, and were instrumental in boosting net profits to CYP 37.22 mln in the first quarter compared to expectations of CYP 28-29 mln and CYP 16.04 mln a year ago. For the whole of 2005, BOC had reported net profits of CYP 72.41 mln.
Earnings per share were 6.8 cent from 3.2 cent a year ago. Book value per share according to Financial Mirror calculations increased to CYP 1.465 from CYP 1.4 at the end of 2005, with price to book value at 3.15 times.
Profit increase
Based on the Group financial results to date, the indications for their further development, as well as the current conditions in the markets in which the Group operates, it is expected that the Group profit after tax for the full year of 2006 will exceed the target of CYP 120 mln (EUR 208 mln) which was set and announced on 27 February 2006.
Analysts widely expect BOC to reach the CYP 140 mln target set by UBS and possibly reach CYP 145-148 mln for the whole of 2006.
Increase in loans
The Group’s loans reached CYP 7,68 bln at 31 March 2006, recording an increase of 18%. The Group has significantly strengthened its presence in the retail lending sector in Cyprus. As such, the market share of the Bank in total banking system advances, including credit cooperatives,
increased from 24,3% at the end of March 2005 to 25,7% in March 2006
(Dec. 2005: 25,6%).
In Cyprus, the Group’s total loans at 31 March 2006 amounted to CYP 3,67 bln, recording an annual increase of 16%.
In Greece, the annual rate of increase in the Group’s loans reached 22% and continues to be higher than that of the total market (18%). The Group’s loan portfolio in Greece increased to CYP 3,30 bln
(EUR 5,73 bln) at 31 March 2006.
As of end-January 2006, the Group’s market share in loans in Greece increased to 3,86%, up from 3,69% a year ago and 3,83% at end-December 2005.
The Group’s dynamic expansion in lending in Greece focused mainly on housing and consumer loans.The balance of housing and consumer loans at 31 March 2006 increased by 65% and 45%,
respectively, compared to 31 March 2005.
At 31 March 2006, Group loans in the United Kingdom and Australia increased by 3% and 20%, reaching CYP 573 mln and CYP 143 mln respectively.
Non-Performing Loans
During 1Q06 the Group has managed to improve the quality of its loan portfolio, due to: Collections of overdue amounts, and lower inflow of new NPLs as a result of improved credit risk control systems implemented by the Group in the past two years.
Group NPLs declined, despite the introduction as of 1 January 2006 of new stricter rules issued by the Central Bank of Cyprus regarding the definition of non-performing loans. Specifically, the definition has been revised to include all loans in arrears for longer than 3 months (instead of six months as per the superseded rules). In addition, the NPL classification is applied to all other loans of the customers who have a specific facility classified as non-performing. Using the revised definition, Group NPLs declined from CYP 676 mln at 1 January 2006 to CYP 651 mln at 31 March 2006.
The ratio of NPLs to total loans at 31 March 2006 was 8,6% compared to 9,3% at 1 January 2006. Using the stricter definition mentioned earlier, the Group’s NPLs in Greece at 31 March 2006 accounted for 5,2% of total loans, compared to 5,9% at 1 January 2006.
The ratio of coverage of NPLs by provisions increased to 47% at 31 March 2006, compared to 43% at 1 January 2006. The remaining balance of NPLs is covered by tangible collateral.
Deposits
The Group’s total deposits at 31 March 2006 reached CYP 10,36 bln (EUR 17,99 bln), recording a 16% annual increase.
The attraction of new deposits by the Group in Cyprus in the past year, especially deposits in foreign currency, was significant (23%). Total Group deposits in Cyprus at 31 March 2006 amounted to CYP 5,88 bln. At 31 March 2006, the Bank’s market share in total banking system deposits in Cyprus, including credit cooperatives, amounted to 29,7%.
The annual rate of increase in Group deposits in Greece reached 9%, with total deposits amounting to CYP 3,81 bln (EUR 6,61 bln) at 31 March 2006 and market share to 3,73% based on the latest published
figures (January 2006). In accordance with the Group three year (2006-2008) strategic plan, the Group targets the increase of its loans to deposits ratio. This ratio for the Group’s operations in Greece increased to 87% at 31 March 2006 from 77% a year ago.
At 31 March 2006, the Group’s deposits in the United Kingdom and Australia reached CYP 560 mln and CYP 114 mln increasing by 4% and 14%, respectively.
