Hellenic Bank Pcl (HB) presented its 3-year Strategic Development Plan, aimed to increase turnover through new products and a further improvement in the quality of service, while at the same time placing new, yet conservative, performance targets which are likely to be met and surpassed.
The new strategic plan is the brainchild of CEO Makis Keravnos and his management team who in the past year have managed a spectacular turnaround in the bank’s fortunes, which had previously lost direction and was bleeding millions of pounds in losses.
“We have many challenges to face, but with the Strategic Plan we know where we are going,” said Keravnos, who did not rule out any cooperation with others, if and when any such opportunity may arise.
The main challenges facing the Hellenic Bank Group include meeting the Basle II regulations as adopted by the Central Bank of Cyprus, the challenges in the run up and after the adoption of the euro as Cyprus’ official currency in January 2008, issues relating to the common European payment system (SEPA), intense competition in Cyprus and Greece, and the need to adopt the best business model to serve HB client interests and meet the objectives of the Group.
Main objectives
Keravnos said that the Group’s main objectives include increasing revenue, improve the quality of its loan portfolio, the proper use of human resources, improve the quality of service to clients, boost productivity and make sure that the HB Group continues to record satisfactory and above industry growth in operations.
Placing particular emphasis on raising staff productivity and motivation through better service, Keravnos revealed that 96% of staff go regularly on training courses, with such training costing the bank some CYP 100,000 in the first half of 2006.
Referring to improving service to clients, Keravnos said a culture change is now underway so that all staff view clients as their partners, with the objective of attracting more quality customers.
Conservative forecasts
The 3-year Strategic Plan is sure to disappoint all those waiting for ‘above average’ growth in turnover, profit and further improvement in financial ratio. It would appear that HB Management has decided to adopt conservative profit targets, possibly with the aim of beating and surpassing those targets in future.
After promising to lift pre-tax profit from CYP 7.7 mln in 2005 to CYP 28.8 mln in 2006, Keravnos said the pre-tax profit target for 2007 is set at CYP 29.4 mln (for a 2% improvement) while for 2008, pre-tax profits are forecast to climb a further 10% to CYP 32.3 mln.
Asked by the Financial Mirror if the profit targets were considered low and how they compared to other bank forecasts, Keravnos said that 2006 is an exceptional year because of the low base of 2005 with which it is being compared.
“That kind of growth is hard to sustain, but we shall definitely aim for the best performance,” said Keravnos, giving analysts enough room to hope for a better performance.
According to the conservative forecasts as outlined in the 3-year Strategic Plan, the return-on-equity (ROE) target is seen climbing from 4.7% in 2005 to 13% in 2006 and staying flat at 13.1% in 2007 and 2008.
Total revenue is forecast to reach CYP 135 mln in 2006 from CYP 117 mln in 2005 and climbing to CYP 140 mln in 2007 and CYP 149 mln in 2008.
The cost to income ratio, which hit 72.4% in 2005 — the highest in Cyprus and probably in the EU — is set to decline to 65% in 2006, then increase to 65.9% in 2007 and thereafter decline to 64.7% in 2008.
The slight increase for 2007 is based on the assumption that HB will not be able to repeat its dazzling 2006 performance as non-recurring items disappear.
The ratio of provisions to gross advances is seen declining from 1.41% in 2005 to 1.10% in 2006 and then 0.90% in 2007 to 0.87% in 2008, which if achieved will help reduce the provision charge.
The level of Non-performing Loans (NPLs) to gross advances is seen declining from 14.3% in 2005 to 9.7% by 2008 as the loan portfolio improves and sour debts are recovered gradually.
