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Hellenic Bank, the third biggest lender that is trying to shed its conservative image of the past by attracting new business, aims to use its strong liquid assets base to double its loan portfolio through organic growth, and not through acquiring distressed or other portfolios.
But new loans will probably have to wait until parliament approves the final batch of laws on foreclosures and insolvencies, that have kept the rate of non-performing loans in the island’s banking system hovering at about 50% of the national loanbook, more than double the rate at bailed-out Ireland.
Hellenic’s NPLs in its 9-month results appeared at 56% of the €4.4 bln loan book, up from 46% at the end of 2013.
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The bank’s CEO, Bert Pijls, has said that demand for new loans is strong, as its recent offer of “cheap loans” for corporates carrying a 3% interest, has already attracted bids for €45 mln from a pool of €70 mln co-financed by the European Investment Bank.
“We are looking at opportunities to maybe invest our liquid assets slightly differently but within the prudent management the bank has always had in the past,” Pijls told the Cyprus News Agency.
As a result, Pijs added, the recently recapitalised lender that boasts Daniel Loeb’s Third Point Hellenic Recovery Fund and online game developers Wargaming.net among its major shareholders, has seen its deposit base rising steadily in 2014 and in 2015.
According to Financial Mirror data, deposits as at September 30 were up 11% year-on-year to €6.13 bln, from 5.51 bln in the same nine-month period last year. And this at a time when the Central Bank of Cyprus announced that September saw the highest deposits outflow from the banking system since July 2013, as total deposits fell by €850.6 mln.
“When there is uncertainty, it is better to be liquid. Being liquid means we are strong, liquidity means we have an opportunity to grow,” Pijls said.
The CEO is confident that the bank will double its lending in 2015 over 2014 but cautioned that the absence of a proper legal framework on foreclosures, which is currently the thorny issue of Cyprus’ economic adjustment programme imposed by the Troika of international lenders, could hinder new lending as well as obstruct the recovery of the real estate sector.
“This just makes new lending more difficult. It also means it is more difficult to attract foreign investment to come in to the market, that could be directly to the market or foreign investment funds wanting to invest in real estate in Cyprus.”
Pijls dismissed fears that the banks will engage in large-scale repossessions once the foreclosure framework is in force.
“I have no intent to flood the market with properties and put families with children out on the street,” Pijls told the Cyprus News Agency, adding that the new laws could act as a tool to help convince borrowers to engage pro-actively with the bank to work out a restructuring deal and combat strategic defaults.
“If there is a blatant case of a strategic default, when we know a borrower has the ability to pay and he is not paying, yes we will use the foreclosure law and I think that is the socially correct thing to do. Strategic defaulters put deposits at risk,” he said.
For Pijls the legal framework on foreclosures is also a prerequisite for the recovery of the real estate sector, which in turn is crucial for the Cypriot economy’s recovery, as it could trigger transactions between banks and non-banks on properties.
On loan restructuring, Pijls said that the majority of Hellenic’s loan book is at some stage of restructuring, but he noted that he is not in favour of what he called “cosmetic restructuring.”
Restructuring, he said, should be implemented on a customer-by-customer basis in order to achieve a long-term restructuring and not simply grant a grace period.
As regards the bank’s intention to list on the Athens Stock Exchange, Pijls said he expects the bank’s shares to start trading by the second quarter of the current year.
“It is important for us to create more liquidity in our shares, it is in the share holder’s interests,” he said, explaining why the board decided last week to proceed with a 50:1 reverse stock split, reducing the number of shares listed on the Cyprus Stock Exchange from 9.4 bln shares to 187 mln. The shares are currently trading on the CSE at 3-3.5c.
The board decided to restructure the share capital through a reverse stock split, as well as a share-bonus package for executive officers, including CEO Pijls. In January, the bank listed 87.4 mln new shares on the CSE that emerged from the unexercised rights which had not been covered by the issue last November, that will probably be used as part of the share remuneration scheme.
In all, the bank raised €204 mln from its recent capital share increase, covering 92% of the target set, in addition to the €100 mln raised from Third Point, Wargaming and local investment fund Demetra in early 2014 that rescued the bank from a state-sponsored bailout or bail-in of depositors.
With the completion of its share capital increase, the bank’s Common Equity Tier 1 ratio presently stands at 12.8%.
