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Bank of Cyprus Group beat market expectations by delivering much higher than expected growth in its first quarter profitability despite the negative global environment. The investments of the Group in the new markets are expected to yield significant future benefits in the coming years, in terms of business growth as well as profitability.
Specifically, for the first quarter 2008 profit after tax reached EUR116mln recording an annual increase of 9% and achieving a return on equity of 23,2%. The results were much better than the EUR 111.5 mln in average expectations forecast by analysts in a poll conducted by the Financial Mirror.
The Group increased its efficiency and improved the cost to income ratio from 44,6% for the first quarter 2007 to 43,7% for the first quarter 2008 despite the significant investment for further expansion of the network in Greece, and also the cost of the development of operations in Russia and Romania. The ratio of non-performing loans to total loans improved to 3,6% at 31 March 2008 from 5,0% at 31 March 2007 and from 3,8% at 31 December 2007. The Group’s loan portfolio and deposits grew by 29% and 12% respectively. This performance is in line with the targets of the Group’s three year strategic plan 2008-2010.
There was a successful increase of the customer base and an annual increase of deposits by 12%. Cost growth was contained at rates lower (7%) than the rate of growth of business volumes (29%). The quality of the Group’s loan portfolio improved with the relevant ratio being reduced to 3,6% compared to 5% at 31 March 2007 and 3,8% at 31 December 2007. The provision charge was maintained at 0,3% of total loans.
The profitability of the Group’s operations in Cyprus continues to be exceptional. Profit after tax for the first quarter of 2008 stood at EUR 88 mln, recording an increase of 8% and generating a return on equity of 40%.
The profitability of the Group’s operations in Greece is also noteworthy with profit after tax for the first quarter of 2008 reaching EUR 23 mln, recording an increase of 9% compared with the first quarter of 2007.
The Group’s operations in Russia and Romania made a positive contribution to profits for the first time. Profit after tax for the first quarter of 2008 reached EUR 0,2 mln in Russia and EUR 1,3 mln in Romania.
Prospects
The Group is focused on the implementation of its strategy of autonomous growth and further significant growth rates in both volumes and profits. The financial performance to date is in line with the targets of the Group’s three year strategic plan 2008-2010.
The Group is taking measures to offset the negative impact from the continuous pressure on liability spreads. Such measures include the repricing of selected loan products, the faster expansion of the Group in the new markets with higher margins and the enhancement of other income.
The Group’s loans reached EUR 20,53 bln at 31 March 2008, recording an annual increase of 29%.
Loans
The Group’s total loans in Cyprus at 31 March 2008 amounted to EUR 10,08 bln, recording an annual increase of 33%.
The Group has the leading market share (28,5%) in total loans of commercial banks and credit cooperatives in Cyprus. The preservation of our leading market share is the result of the recognition of Bank of Cyprus’ leading brand name, its extensive network as well as the effective marketing campaigns focusing on the business sector and mortgage lending.
The annual rate of increase in the Group’s loans in Greece reached 23%, with total loans reaching EUR 8,35 bln at 31 March 2008 and the market share standing at 3,7% in December 2007 (latest available data).
The Group’s dynamic expansion in Greece was focused mainly on mortgage and business loans. Mortgage and business loans (corporate customers) balances at 31 March 2008 increased by 33% and 39% respectively compared to 31 March 2007.
At 31 March 2008, Group loans in the United Kingdom and Australia recorded annual rates of increase of 3% and 25% respectively, reaching EUR 1,22 bln and EUR 395 mln, respectively.
In the new markets, Russia and Romania, the Group’s loan portfolio reached
EUR 480 mln at 31 March 2008, recording an increase of 40% compared to the previous quarter ended 31 December 2007.
Non-Performing Loans (NPLs)
The exceptional improvement in the quality of the Group’s loan portfolio was the result of, among others: Collections of overdue amounts. Lower inflow of new NPLs as a result of the continuous improvement of credit risk management.
Specifically, the total amount of loans in arrear for longer than three months which are not fully covered by collateral (“non performing loans”) has decreased to EUR 747 mln, a 5% decline in absolute numbers since 31 March 2007.
The ratio of NPLs to total Group loans at 31 March 2008 was 3,6% compared to 5,0% at
31 March 2007 and 3,8% at 31 December 2007.
In parallel, the Group increased the coverage ratio (provisions/NPLs) to 78% at 31 March 2008, compared to 72% one year ago. The remaining balance of NPLs is fully covered by tangible collateral.
The quality of the loan portfolio in Cyprus registered a significant improvement with the relevant indicator improving to 4,9% at 31 March 2008 compared to 7,3% one year ago.
The quality of the Group loan portfolio in Greece remains very good. Using the NPL definition mentioned above, the Group’s NPLs in Greece improved to 2,9% at 31 March 2008, compared to 3,4% a year earlier. This ratio compares favourably to the ratio of the Greek banking system, as per Bank of Greece data.
Deposits
The Group’s total deposits increased by 12% reaching EUR 23,98 bln at 31 March 2008, enhancing its liquidity. The increase in the Group’s deposits together with the low loans to deposits ratio (85,6%), confirm the Group’s ability to implement its strategic plan. It is noted that as at 31 March 2008 78% of Group assets were funded by customer deposits whereas only 12% were funded by wholesale funding.
In Cyprus, the annual rate of increase in Group deposits was 14% with total deposits reaching
EUR 13,85 bln as at 31 March 2008. The Group has the leading market share (30,0%) of total deposits of commercial banks and credit cooperatives.
A percentage of 39% of total deposits of the Group’s Cyprus operations is in foreign currency. The Bank’s market share in this sector among commercial banks stood at 43,1% in March 2008. It is noted that following Cyprus’s entry into the Eurozone on 1 January 2008, the Euro is the national currency of Cyprus.
The US dollar deposits of the Group represent 79% of total foreign currency deposits in Cyprus. The annual rate of increase of foreign currency deposits, which was negatively impacted by the sharp decrease of the US dollar relative to the Euro, was 3%. It is noted that the real annual rate of increase of foreign currency deposits was 18%.
Group deposits in Greece increased at an annual rate of 9%, reaching EUR 8,66 bln at 31 March 2008. At the end of December 2007 (latest available data) the Group’s market share in deposits in Greece stood at 3,6%.
At 31 March 2008, the Group’s deposits in the United Kingdom and Australia reached EUR 1,16 bln and EUR 259 mln respectively.
Shareholders’ Funds
At 31 March 2008, the Group shareholders’ funds amounted to EUR 2,03 bln, recording a significant increase of 24% from 31 March 2007. The Group capital adequacy ratio per Basel II requirements stood at 12,4% and the core tier 1 ratio at 8,8%.
