— Banks suffer as incomes decline; provisions are increased —
The combined profits of the companies listed on the Cyprus Stock Exchange (CSE) fell 54.2% year-on-year in the first half of 2009 to EUR 211.22 mln from EUR 460.67 mln in the same period in 2008, according to Financial Mirror data based on official announcements.
The actual decline of EUR 249.4 mln is one of the steepest falls witnessed in recent years and will probably worsen as profits are squeezed as a result of the credit crisis sweeping the globe, which is now starting to affect Cyprus.
CSE-listed company profits have been steadily declining. Since hitting a record of EUR 1.65 bln in 2007, total profits fell to EUR 742.4 mln in 2008 and at this rate, are expected to tumble a further 50% in 2009.
The Main Market sector, which includes the three leading banks accounting for 80% of daily volume and some of the largest companies listed on the CSE, reported a 62% decline in profitability in the first half to EUR 210.4 mln in 2009 from EUR 553 mln in the same period in 2008. In real numbers, the decline was a whopping EUR 343 mln with the bulk attributed to the steep fall in the profitability of the three banks.
The only good news came from the Investment Companies sector which, on the back of a 50% increase in equity prices in Cyprus and Greece, managed to turn around 1H’08 losses of EUR 156 mln into a profit of EUR 29 mln for an impressive EUR 185 mln positive gain. However, since Cypriot fund managers are usually passive and do not change the composition of the funds, some of the “paper” profits will disappear if prices edge lower since most of the profits now reported for the first half have not been booked and realised.
Banks suffer
Bank of Cyprus, the island’s largest lender, saw first half profits in 2009 decline by 39% YoY to EUR 147.58 mln from EUR 243.64 mln in 1H’08 with profits burdened by a decline in net interest margin and the added cost of expansion in Russia, which led to a 32% increase in expenses. BOCY was the most aggressive in hiking its provision charge by 264% to EUR 95.6 mln, with the provisions to advances ratio now at 0.76%. Return on Equity was 13.9%, while the capital adequacy ratio at end-June amounted to 11.1% with shareholder funds advancing by EUR 158 mln to EUR 2.2 bln.
Marfin Popular Bank was burdened by a 19.8% decline in net interest income which forced total income 7.4% lower. On the positive side, the bank kept cost increases under check, with total costs climbing by only 11.8%. Provisions increased by 162% resulting in net profits amounting to EUR 90.3 mln, down 59% YoY from EUR 220.4 mln reported in 1H’08. The bank’s capital adequacy ratio was 11.6% at the end of June with RoE at 8.3% and shareholder funds climbing by EUR 16 mln to EUR 3.48 bln.
Hellenic Bank reported a 96% YoY decline in first half profits to EUR 2 mln on the back of a sharp 16% decline in income and a 100% increase in provisions, as well as record losses from its operations in Greece. This forced the closely watched cost-to-income ratio to 69%, compared to 56% for BOCY and 57% for MPB.
Despite the hit from Greece, Hellenic Bank reported that its capital adequacy ratio remained high at 13%, but its RoE was particularly low at 0.9%. HB’s shareholder funds increased by EUR 18 mln to EUR 458.5 mln.
Alpha Bank Cyprus, which although non-listed, made public its results, was the only bank among the majors to record a highly satisfactory 12% increase in net interest income, limiting the decline in total income to only 2.6%. Alpha Bank Cyprus also succeeded in keeping costs under control, with total costs increasing by only 3.2%, giving it the best cost-to-income ratio of 31%. Following a 243% increase in provisions, net after tax profits fell 30% to EUR 34.18 mln.
USB Bank also managed to increase its net interest income by 14%, helping total income increase by 10.5% in the first half, but a 1296% increase in provisions forced net profits to decline by 50% to EUR 1.1 mln.
What next?
Despite the disappointing results, the CSE index is up 50% from the beginning of this year, led by a powerful rally by Bank of Cyprus shares, which are up 85% year-to-date, followed by MPB shares, up 32%, and HB shares, up 26%.
The rally on Cypriot banking shares since the March record lows has been entirely due to the positive mood prevailing abroad and the spectacular rallies of financial stocks around the world.
In effect, local investors are now pushing Cyprus stocks up or down, based on what happens on Wall Street, rather than paying attention to the fundamentals of the Cyprus market, which remain weak, with corporate profits and dividends under pressure.
