Bank of Cyprus takes 1.01 bln hit on Greek debt

 * GGB haircut estimated at 60%; Final audit to adjust PSI at 53.5% *

Bank of Cyprus posted a net loss of 1.01 bln euros in its 2011 results on Tuesday, including a 60% writedown on the nominal value of its Greek sovereign debt holdings.
Excluding the impairment, the bank said its full-year net profit were slightly improved, up 2% on the previous year at 312 mln euros, based on improved operational profits in Cyprus (+15%), Greece and Russia (+29%).
The total nominal value of bonds affected by the writedown was 2.08 bln euros with a writedown of 1.32 bln euros,. The preliminary results coincided with the announcement of a 53.5% impairment on Greek government bonds (GGBs) held by private bondholders as part of the 130 bln euro rescue package announced by the Eurogroup.
The bank is expected to adjust its losses on the GGB haircut when it publishes its final audited results for 2011.
The final audited results could be different from the preliminary results due to the final determination of the impact of the Private Sector Involvement scheme for the restructuring of Greek public debt on the Group’s financial results, it said.
In the meantime, it is proceeding with its capital strengthening plan that includes introducing a Core Tier 1 capital ratio of 9.1% by next month. Already, the bank is expected to proceed with its 396 mln euro rights issue next week and a voluntary exchange of Convertible Enhanced Capital Securities (CoCos) with ordinary shares of up to 600 mln euros.
The bank said it is “proceeding with other actions to strengthen its capital adequacy ratios, including the effective management of risk weighted assets and the strengthening of its capital base from profits in order to comply with the required regulatory capital adequacy ratios.”
In December, it agreed to sell its subsidiary bank in Australia, Bank of Cyprus Australia Ltd., for around 77 mln euros, improving the Group’s liquid funds by around 250 mln.
The Group said it increased its total income, improved efficiency, increased profits and improved its interest margin resulting in healthy liquidity and an adequate return on equity.
Looking ahead to 2012, it said that it “remains in a position to face the challenges of the economic environment (and) continues to focus on maintaining its organic profitability, healthy liquidity, satisfactory capital adequacy and effective risk management.”
However, expenses and staff costs were marginally up in 2011 at 2% and 3%, respectively, while the portfolio of non-performing loans rose to 10.2% end of year, from 8.6% at September 30, 2011 and 7.3% at December 31, 2010.
Marfin Laiki Bank and Hellenic Bank, the island’s second and third largest lenders, are expected to announce their 2011 results next week.