Hellenic Bank Pcl (HB) is keen to develop cooperation deals with specialised partners rather than seek direct mergers or acquisitions in order to expand its business with a good possibility that it may soon be in a position to revise higher its 3-year Strategic Plan targets.
HB CEO Makis Keravnos told the Financial Mirror in an exclusive interview that cooperation deals with specialist providers is more beneficial for the bank and its shareholders rather than venturing into risky mergers or acquisitions, the majority of which usually fail or are very difficult and costly to implement.
“The recent agreement signed with ALICO-AIG in the field of mutual funds is just the first of many such deals in the pipeline and which will be announced soon,” said Keravnos.
Hellenic Bank already cooperates closely with ALICO-AIG in the life insurance sector.
Keravnos said such cooperation deals are much faster to implement and produce immediate results, as opposed to making huge investments and building up expertise in new areas, which becomes a drag on earnings.
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— Strategic plan
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Keravnos disagreed with the general view (also shared by the Financial Mirror) that the profitability and performance targets set in the 3-year Strategic Development Plan have been deliberately set at a low level, so that these may be easily surpassed in order to impress investors.
The strategic plan is the brainchild of CEO Keravnos and his management team who in the last year have staged a spectacular turnaround in the bank’s fortunes, which had previously lost direction and was bleeding millions of pounds in losses.
It aims to increase turnover through the launch of new products and a further improvement in the quality of service on offer, while at the same time placing new performance targets.
The plan sees HB lifting after-tax profit from CYP 28.8 mln in 2006 to CYP 29.4 mln in 2007 for a 2% increase and CYP 32.3 mln in 2008 for a measured 10% increase. The ROE is seen flat at 13.1% until 2008 while the cost-to-income ratio is also seen flat at 65% until 2008.
“We did not place low targets so that they can easily be surpassed to impress investors,” Keravnosm said, adding that the targets incorporate a number of risks and challenges that the management had to consider.
The main challenges include new Central Bank guidelines based on EU directives, meeting the Basle II regulations as adopted by the Central Bank, the challenges in the run-up and following 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 client interests and meet the Group’s objectives.
“We are responsible for our actions and do not wish to build high expectations and then fail to deliver. We want to give a healthy and steady increase in profitability over the years. The plan has been carefully drafted taking into account all possible risks.”
Nevertheless, Keravnos said that after the full-year results are released, the bank may decide to revise its targets.
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— Risks
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Keravnos placed particular emphasis on the increased risks now been taken by most banks in their zeal to increase market share in loans and boost their profits.
Hellenic Bank is bucking the trend and according to Keravnos, having learned from recent mistakes, is keen to build a strong and high quality loan portfolio that will not lead to provisions if the market takes a turn for the worse.
“Quality is king and it would be suicide for us to repeat past mistakes and allow for high provisions to play havoc with our results.”
The first priority is to lift the bank’s rating from BBB to BBB+.
Referring to rumours that the bank’s Treasury in
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The operations in
“There may be some minor losses, but overall, the days of big losses from
For 2008, Keravnos would not be drawn into making a forecast in view of the expansion plans scheduled to start in 2007 and go into over-drive in 2008 that may see a major branch network expansion.
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— Share price rally
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Keravnos welcomed the launch of the common trading platform with the ATHEX, which he views as a favourable development, adding that the prospects of capital markets are improving and will improve further with the adoption of the euro in 2008.
The bank’s improving prospects, its sound management and position in the market are seen by Keravnos as the principle reasons why investors have been snapping up HB shares.
However, he noted that no principle buyer has been spotted to be buying the bank’s shares, explaining that the buying is broad-based. As for concerns that a bubble situation is in the making, Keravnos said nowadays the rally in prices is also backed by research by reputable international firms.
He was referring to the UBS investment note on HB giving a price target of CYP 2.40 or EUR 4.16 compared to current levels of EUR 3.24 on the CSE.
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— Dividend
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The forthcoming board meeting on November 13 to discuss the possibility of declaring an interim dividend is the main news referring to HB, with Keravnos adding that the moard’s main consideration is to meet the demands and aspirations of shareholders who in the past three years have not benefited from any dividend.
“We know and we are fully aware of what our shareholders want from us (board and management) and this is why we are taking steady but correct paces to ensure that HB will be able to deliver good results, which in turn will allow us to pay dividends,” Keravnos concluded.
