* Cyprus deposits up, capital adequacy “very healthy” *
The chief executive of Eurobank Group is confident that Cyprus is recovering much faster than expected and based on the feedback from corporate and foreign clients, he wants the wholly-owned subsidiary on the island to remain healthy, profitable and investing in local enterprises.
“When we met with clients in Limassol on Monday night, we gave a clear message that the bank wants to and can finance healthy businesses and I see this as a sign of optimism,” said group CEO Christos Megalou.
“I am very happy with Eurobank Cyprus due to its healthy capital adequacy levels,” he told a news briefing.
His confidence was echoed by Eurobank Cyprus CEO Michalis Louis who said that since the bank was established on the island in 2007, it has focused on four pillars: wealth management, international business banking, corporate and investment banking, and treasury sales.
“Already, we have a network of seven business centres and plan to open an eighth soon, in Paralimni. Two more are in the pipeline, one in Nicosia and one in Limassol.”
Louis said that Q1 2014 after tax profits for Cyprus reached 15.5 mln euros, with the capital adequacy level at 42.62%, down 2 percentage points from the previous year’s ratio due to the revaluation in accordance with Basel III requirements.
At the end of May, deposits had risen by a further 300 mln euros for a total of 2.53 bln mostly from foreign clients, while so far this year the bank has granted new loans of 50 mln euros, mostly to medium-size and large enterprises. Although the bank accepts retail deposits, it does not cater to retail lending and small enterprises.
Financial Mirror data suggests that the bulk of new deposits are linked to the lack of confidence depositors have in Bank of Cyprus and that upon their Troika-imposed term deposits maturing, these are withdrawn and re-deposited in other banks.
“After four positive reviews by the Troika (of international lenders), we need four more positive reviews in order to definitely say we have exited the crisis,” Louis said in his analysis of the local economy.
“2014 seems to be our last year in recession and we seem to be returning to a growth pattern from 2015,” he said.
Turning to the situation in Greece, Group CEO Megalou, who has been at the helm for exactly a year, said that after the successful recapitalisation of 3 bln euros at the end of April, the bank has embarked on a road-show in European markets to promote its first major 500 mln bond issue.
“In the same sense, the Republic of Cyprus’s return to markets with the (upcoming) road show for a potential 500 mln euro bond issue is also a very positive,” he said.
“It is too early to say if the interest rates on the bond issue will be uncompetitive. Quite the contrary, from what we have heard so far, we may be pleasantly surprised.”
Tasos Anastasatos, head of research, said that the projections for the Cyprus financial assistance programme were better than in Greece with the contraction of the economy at a comparatively smaller rate.
“I am impressed with the maturity with which Cyprus has reacted to the ‘catastrophe’. In 2014, it could beat projections with the tourism and the business services sectors proving more resilient,” he said.
Anastasatos said that it is imperative that Cyprus improves its competitiveness, primarily by reducing the labour cost.
“It is an issue of confidence and controlling the public sector deficit,” he said of the biggest challenges facing the Cyprus economy, which boil down to four key ares.
“The primary concern should be the restructuring of banks, in particular Bank of Cyprus and the Coops where the biggest issue is the recovery of securitised loans mostly tied to real estate.
“The second is the continuation of control restrictions that should only be lifted in a conservative pace in order not to risk further capital flight.
“Third is unemployment which will continue to rise in 2014.
“Fourth is deleveraging where reforms must continue, especially in the sectors of health, dealing with the Laiki legacy and privatisations.”
Anastasatos said that for the 2015-2018 period, the government’s focus should be on measures to reduce the gap on fiscal deficit and to a lesser extent to deal with implications of a fallout from the crisis in Ukraine.
“The dynamics of the Cyprus economy are positive and important. The emphasis has to be on reforms and the Cyprus state should take ownership. The inadequacy of the Greek model was that it was going from (Troika) review to review with insufficient reforms in between. Cyprus needs vision, a new development model. The focus should remain on tourism and niche services. Hydro-carbons exploration and output is a very important development but one that has to be considered on the very long term,” Anastasatos concluded.
Replying to question from the Financial Mirror, Eurobank’s economist said that Cyprus must be “ready to meet challenges deriving from the events in Russia and Ukraine through healthy and clear improvement of our fundamentals. The crisis in Ukraine does not seem to be reaching a boiling point, for the time being, but we remain resilient.”
Michalis Louis said that Eurobank Cyprus’ Representative offices in Moscow and in Kiev as well as clients in Cyprus are giving a positive feedback.
“Off course we should be prepared, the same applies to the (Russian government’s) policy for de-offshorisation and the impact this could have on banking and international clients.
“I am hopeful that Cyprus will be out of any potential list targeted by the government in Moscow, be it a grey list or white list.
“Armed with strong capital adequacy which enables the Bank to face any challenge, that the current adverse macroeconomic environment may bring, as well as with its financial robustness, Eurobank Cyprus can and will continue to finance and support the Cyprus economy by supporting viable developmental initiatives,” Louis said, adding that the bank’s strengths lie in its recurring profitability at satisfactory levels, a low ratio of non-performing loans (NPLs), strong liquidity and low operational cost.
Returning to private hands
The bank in Greece is on a path to return to shareholder privatisation, Eurobank Group CEO Megalou explained, with 65% currently in private hands, of which 60% represents institutionals and 5% retail investors. The rest is in the hands of the Hellenic Financial Stability Fund (HFSF).
“The fact that major investors such as Capital Research and Fairfax have invested 550 mln and 300 mln euros, respectively, is a vote of confidence in our prospects in Greece,” the CEO said.
“Our own economists have raised the growth prospects to 0.5-1.0% for 2014 and a projected 2.5-2.9% for 2015, with tourism playing a very big role. Investments in new ventures, such as luxury resorts makes me very optimistic about the future,” he added.
After absorbing the operations of PostBank (TT) and Proton, Megalou said that the Group strengthened its position and now has the second best loans-to-deposit ratio of 109% in Greece, after a high of 130-140%.