€1.8 bln in 1H losses, but NPLs will be reigned-in *
The Bank of Cyprus has embarked on its newest journey, this time with a board intact and a new CEO who wants to return as much value to the Group as possible, even if this means chasing large corporates to service their loans. Otherwise, if the client is not viable, then the bank will seek to cash-in the securities.
Briefing journalists after announcing a massive 1.8 bln euros in losses for the first half, the management said that the bank is now healthier than before following the bail-in by depositors that recapitalised it to the tune of 3.8 bln euros.
However, with Core Tier 1 ratio at 10.5%, the Group aims to preserve the capital adequacy by retaining internally generated capital, in other words to start cutting back on its dependence on the Emergency Liquidity Assistance which has already been reduced from 11.1 bln euros when it was forced to absorb Laiki Popular, to 9.8 bln at present. Since August, it was also reinstated as an eligible counterparty by the ECB and has already secured some 1.35 bln euros in funding from there.
“The Group’s Core Tier 1 capital ratio has been restored to 10.5%. The restructuring plans are underway and the Group is taking decisive steps to deal with non-performing loans, strengthen risk management and defend its deposit franchise,” said Group CEO John Hourican in a statement.
“Although the Group faces some unprecedented challenges, we are clear on what needs to be done. Our priority remains to restore investor and customer confidence in the bank. This can only be achieved through our focusing on arresting asset quality deterioration, making progress on non-core disposals and maintaining capital ratios so as to build a strong platform for the safe return of depositors to the bank.”
Hourican’s team, that includes a newly-recruited former colleague from RBS who will consult on delinquency, restructuring and recoveries of loans, will review all non-core assets, including the 80% Russian subsidiary Uniastrum and the four insurance companies in order to maximise its asset value.
A senior bank official said the minority shareholders of Uniastrum had not yet approached the new CEO, who has only been in his job for the past three weeks, while in the case of its two life insurance and two general insurance companies, EuroLife and General Insurances on the one hand, and Laiki CNP and Laiki Asfalistiki, does not need to keep them, but does not need to sell them either.
France’s CNP already controls a 50.5% stake in one of the companies and may be interested to buy out the remainder, while buyers may also be sought for the other former Laiki insurance company due its vast portfolio.
The senior banker also said that the loan portfolio of Laiki Bank’s UK subsidiary has already been put on the market to prospective buyers.
As regards the NPLs, the bank’s management disagrees with the Central Bank’s new definition that “will prolong recession” as capital linked to such loans will remain trapped as lending less will result in lesser growth, both for the bank and for the economy as a whole.
The Bank of Cyprus Group currently maintains about 40% of all loans in the market, while the forced disposal of the bank’s Greek operations at a cost of 1.36 bln euros, has reinstated it as a primarily Cypriot bank with 85% of all business focused on the island.
Admitting that the bank lent “too much to too many corporates” in the past, many of whom are having trouble servicing these loans, the bank’s management wants to change the culture about this business to move away from collateral-linked loans and to focus on serviceability and the cash generation ability of companies to determine the size of the new loans.
Also, the bank wants to engage with all borrowers and proceed with requisition or other actions only if the borrower is deemed as not being viable.
BALANCE SHEET
At June 30, gross loans and deposits were 28.3 bln euros and 17.0 bln, respectively, with a net loans to deposits ratio of 140%. Loans in arrears for more than 90 days accounted for 38.8% of gross loans compared to 27,4% at 31 December 2012. The provision coverage ratio of 90+ DPD was 42%.
Non-performing loans based on the new directive of the Central Bank of Cyprus accounted for 36% of gross loans.
“Loan quality deterioration continues into the second half of 2013 affected by the challenging economic and operating conditions in the bank’s primary market, Cyprus,” the bank said in an announcement.
Total Income for the six months ended June 30 was 500 mln euros, with Net Interest Income (NII) at 430 mln and Net Interest Margin (NIM) at 3.17%. Both NII and NIM are affected by the bail-in of depositors which impacted the bank’s deposit base and its cost of deposits.
Total expenses were 285 mln euros with staff costs and other operating costs 173 mln and 112 mln, respectively and the cost to income ratio at 57,0%.
Profit before impairments and restructuring costs was 215 mln euros.
