First half exceed last year’s profit
Cyprus’ four banks listed on the CSE continued to surprise on the upside by delivering a strong set of first-half results, with their combined profit jumping by 181% YoY, but also exceeding the total profits delivered for the whole of 2005.
For the first time in more than four years, all four banks reported a profit, which not only confirms their improving situation, but also may become a catalyst to attract takeover bids from Cyprus or abroad as their management and boards prove that they can deliver results.
Bank of Cyprus (BOC), Laiki (CPB), Hellenic (HB) and Universal (USB) reported a total of CYP 139.04 mln in first half 2006 profits, up 180.8% compared to CYP 49.51 mln in the same period a year ago and surpassing the total CYP 121.7 mln in profit reported for the whole of 2005.
Compared to international banks, especially in Greece, the performance of the Cypriot banks is considered as more than satisfactory and may be a good reason why there is increased interest in the sector’s stocks.
Most profitable
Bank of Cyprus remained the most profitable company on the CSE, reporting a total of CYP 85 mln in first half profits, up 171.5% YoY and more than the CYP 72.4 mln in profit reported for the whole of 2005.
Laiki Bank lifted its total net profit by 111% to CYP 38 mln, but fell short of the CYP 42.7 mln reported for the whole of 2005. CPB was also the only bank which failed to beat first half profit estimates.
Hellenic Bank was probably the star performer in terms of profit improvement, lifting its first half profit by a whopping 1826% YoY to CYP 15.29 mln, more than double the CYP 7.5 mln reported for the whole of 2005.
Last but not least, Universal Bank the tiny by comparison fourth bank listed on the CSE, managed to turn around its losses and reported CYP 532.000 in net profit for the first half compared to CYP 715.000 losses a year ago in the same period and CYP 989.000 losses for the whole of 2005.
Income up, costs under control
The most significant factor boosting bank profits was the huge jump in total income and the ability of the banks to control their costs, despite tough union rules which forbid layoffs and only recently allowed for outsourcing of some services.
BOC again stole the limelight for having the best cost-to-income (c/i) ratio, at 47% which now compares favrouably with the norm prevailing abroad. Laiki followed close behind with a c/i ratio of 53%, HB at 64% and USB at 73.8%.
This was achieved because in all cases, banks boosted income in double digits while costs increased in single digits.
Provisions down
The increase in equity prices, which helped valuations combined with more effective risk management systems and better collection of overdue debt allowed the majority of banks to slash their provisions, with the only exception being Laiki, which increased provisions due to its operations in Greece and Serbia.
BOC, HB and USB slashed provisions by about 20%, while Laiki increased its provisions by 1%.
More importantly, the banks also managed to put a lid on the growth of their non-performing loans (NPLs), some in the case of BOC through aggressive write-offs and others like CPB and HB through the natural process of improved systems and a better climate.
Bigger slice
BOC and CPB continued to report the highest increases in loans as they took back market share and ‘stole’ business away from the Coops, while in terms of deposits growth, all the major banks reported growth in excess of 15%.
BOC delivered the best Return on Equity (ROE) ratio of 21.5%, followed by Laiki at 17.6% and HB at 13%, with the first half performance allowing all major banks to revise their ROE targets higher.
