…revises full-yr profit target to CYP 160 mln
Bank of Cyprus Pcl first half profit surged 172% year-on-year to CYP 85 mln, beating by a wide margin the estimates made by analysts forecasting gains of CYP 75 mln, and also the Financial Mirror estimates of CYP 78-85 mln.
Bank of Cyprus also lifted its year-end net profit forecast to CYP 160 mln (€ 278 mln), compared to its previous forecast of CYP 120 mln, as well as the UBS full year profit forecast of CYP 140 mln.
A significant factor in boosting profit higher was the drop in provision charge, and the CYP 19 mln gain booked from revaluation and investment gains, which as predicted by the Financial Mirror would be the catalyst, driving the profits higher.
The reorganisation and development of the Group’s business 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 1H06 reached C£85 mln (€148 mln) compared to C£31 mln (€54 mln) for the corresponding 2005 half, recording an increase of 172%.
As a result of the significant increase in the Group’s profitability, the Group return on equity increased by 10,6 percentage points compared to 1H05, reaching 21,5%. The cost to income ratio improved to 47,1% compared to 59,1% for 1H05.
The above results reflect:
The positive effect of the steps taken for:
Improvement of income (24% increase in net interest income, 14% increase in commission income and 12% increase in income from insurance operations).
Containment of the rate of increase of expenses to 3% compared to the rate of increase of deposits and loans of 15% and 19%, respectively.
Increase of loans (annual increase of 19%).
The increase by C£19 mln (€33 mln) in the profit from sale and change in fair value of financial instruments.
Bullish forecast
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 reach C£160 mln (€278 mln) compared to the previous target of C£120 mln (€209 mln). The expected profit is positively compared to the profit of C£72 mln (€126 mln) for 2005, an expected increase of 122%.
The Group is taking all the necessary measures for containment of non-performing loans. Specifically it is expected that at the end of 2006 the non-performing loans will decrease at a level below 7,5% of total loans, compared to 9,3% as at 1 January 2006.
Loan growth
The Group’s loans reached C£8,10 bln (€14,08 bln) at 30 June 2006, recording an increase of 19%.
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 to 25,9% in April 2006 (latest published figures) compared to 24,4% in April 2005.
In Cyprus, the Group’s total loans at 30 June 2006 amounted to C£3,91 bn (€6,80 bn), recording an annual increase of 20%.
In Greece, the annual rate of increase in the Group’s loans reached 23%. The Group’s loan portfolio in Greece increased to C£3,44 bn (€5,99 bn) at 30 June 2006.
As of end-April 2006, the Group’s market share of loans in Greece increased to 3,89%, up from 3,76% a year ago.
The Group’s dynamic expansion in lending in Greece focused mainly on housing and consumer loans. The balance of housing and consumer loans at 30 June 2006 increased by 53% and 37%, respectively, compared to 30 June 2005.
NPLs decline
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 arrear 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 C£676 mln (€1,17 bn) at 1 January 2006 to C£642 mln (€1,12 bn) at 30 June 2006. The ratio of NPLs to total loans at 30 June 2006 was 8,1% compared to 9,3% at 1 January 2006.
Using the stricter definition mentioned earlier, the Group’s NPLs in Greece at 30 June 2006 accounted for 4,9% of total loans, compared to 5,9% at 1 January 2006.
The ratio of coverage of NPLs by provisions increased to 50% at 30 June 2006, compared to 43% at 1 January 2006. The remaining balance of NPLs is covered by tangible collateral.
Deposits up
The Group’s total deposits at 30 June 2006 reached C£10,67 bn (€18,56 bn), recording a 15% annual increase. The increase in Group deposits in Cyprus during the past year was significant (19%), especially deposits in foreign currency. Total Group deposits in Cyprus at 30 June 2006 amounted to C£5,98 bn (€10,40 bn). At 30 April 2006 (latest available data), the Bank’s market share of total banking system deposits in Cyprus, including credit cooperatives, amounted to 29,5%, compared to 29,2% in April 2005.
The annual rate of increase in Group deposits in Greece reached 12%, with total deposits amounting to C£3,99 bn (€6,94 bn) at 30 June 2006 and market share to 3,57% based on the latest published figures (April 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 86% at 30 June 2006 from 78% a year ago.
At the end of 1H06, the Group shareholders funds amounted to C£818 mln (€1,42 bn).
At 30 June 2006, the Group capital adequacy ratio stood at 12,9%.
Net Interest Income and Net Interest Margin
Net interest income reached C£164 mln (€284 mln), recording an annual increase of 24%. The increase is primarily attributable to the significant increase in the Group’s footings in Greece and Cyprus. The Group net interest margin (NIM) for 1H06 was 2,70%, compared to 2,60% for the year 2005 and 2,63% for 1H05, mainly as a result of the improvement in the NIM of the Group’s operations in Greece.
The net interest margin in Cyprus was contained at 2,21% for 1H06 compared to 2,27% for the year 2005 and 2,35% for 1H05. The reduction was the result of the reduction in the Cyprus pound base rate and the increase in foreign currency deposits.
The net interest margin of the Group’s Greek operations for 1H06 stood at 3,11%, increasing from 2,82% for the year 2005 and 2,72% for 1H05. This development is mainly due to the improved cost of deposits of the Group’s Greek operations, as well as the increase in the loans to deposits ratio to 86% from 78% a year ago.
Total net fee and commission income for 1H06 reached C£49 mln (€85 mln), recording an annual increase of 14%, primarily as a result of increased income from the Group’s operations in Cyprus and Greece.
The good performance of the Group’s insurance operations continued in 1H06. Income from insurance business recorded a 12% annual increase, reaching C£13 mln (€23 mln). Income from insurance business contributed 8% of Group profit before tax and reached C£8 mln (€14 mln), recording an increase of 18%.
Net Gains on Sale and Change in Fair Value of Financial Instruments
During 1H06, the Group recorded C£19 mln (€32 mln) net gains on sale and change in fair value of financial instruments. This profit comprises C£14 mln (€23 mln) profit from the change in fair value of derivatives and C£5 mln (€9 mln) profit from disposal of shares and bonds.
Expenses
The Group’s cost containment programme had a positive impact on the Group results. Total expenses for 1H06 amounted to C£120 mln (€209 mln), with the annual rate of increase being contained to 3% compared to the rate of increase in deposits and loans which was 15% and 19%, respectively. As a result of the cost containment, as well as the increased level of income (including the profit on sale and change in fair value of financial instruments), the cost to income ratio of the Group improved to 47,1% for 1H06, compared to 59,1% for 1H05.
Staff costs amounted to C£75 mln (€130 mln), recoding an annual increase of 1%, mainly due to the 4% reduction of the cost relating to the Group’s Cyprus operations. The decrease was attributed to the reduction in staff numbers in Cyprus by 47 employees since 30 June 2005 and the relatively lower contributions to the staff pension plan, as a result of the notable reduction in the deficit of the plan. Staff costs relating to the Group’s Greek operations increased by 16%, as a result of the increase in staff numbers by 7% (to 2.503 employees at 30 June 2006 from 2.349 employees one year ago) to respond to the increased volume of business (23% increase in loans) and to support the fifteen new branches opened in the intervening period.
The other (non-staff) operating expenses of the Group recorded an annual increase of 7% and amounted to C£45 mln (€79 mln).
The cost to income ratio of the Group’s Cyprus operations improved to 44,6% for 1H06 compared to 60,5% for 1H05. The ratio for the Group’s Greek operations stands at the satisfactory level of 49,0% (1H05: 56,1%), especially considering the relatively low maturity level of the branch network.
The Group’s expenses in the other countries it operates increased by 1%.
