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Bank of Cyprus is expected to return to profitability in the first quarter, compared to the loss-making fourth quarter of 2014 (loss after tax of €337 mln), it announced on Friday, adding that has taken a more conservative approach to its Russian subsidiary, now regarded as a “disposal group”.
It also said that the exposure to ECB funding through the Emergency Liquidity Assistance (ELA) programme has been reduced to €6.5 bln.
The bank said it had increased its provisions for losses from customer loans in the final quarter of 2014 to €248 mln, compared to a provision of €115 mln in the third quarter.
“The elevated level of provisions for impairment of customer loans (continuing operations) charged during the fourth quarter of 2014 is not expected to be repeated in the first quarter of 2015, where the charge is expected to be in line with the first three quarters of 2014. Profit before provisions and impairments, restructuring costs and discontinued operations for the first quarter of 2015 is expected to be in line with the fourth quarter of 2014. As a result, it is expected that the first quarter of 2015 will be profitable after tax,” the bank said.
“Furthermore, in light of the deteriorating economic conditions in Russia since mid-December 2014, and following the reclassification of the Russian operations as a disposal group held for sale, the bank proceeded to prudently reassess its operations in that country and increased the level of provisions for impairment of customer loans and other assets during the fourth quarter of 2014. As a result, the loss from discontinued operations for the fourth quarter of 2014 totalled €214 mln.”
The bank, that was restructured after depositors received equity for cash as part of the 2013 “bail in” imposed by the Troika of Cyprus’ creditors, and later bailed out with a further €1.1 bln injection from foreign and local investors, said that its first quarter of 2015 is not comparable to the first quarter of 2014 “given the significant deleveraging completed since then, including the partial repayment of the sovereign bond held by the bank,” which had been used to recapitalised failed Laiki Bank and burdened Bank of Cyprus with a further €9.5 bln of ELA funds.
The bank said it “continues to make good progress in delivering against strategic objectives. The balance sheet deleveraging is continuing and the bank completed the disposal of its investment in Marfin Diversified Strategy Fund Plc on April 30, thereby enhancing its liquidity and capital position.”
As part of the deleveraging, the bank’s management team, headed by outgoing CEO John Hourican, has disposed of assets across eastern Europe and the U.K., has shrunk the workforce by more than a third and disposed of non-core properties, concentrating staff in own offices.
The bank also said it “is making progress in arresting the deterioration of its loan book quality. The Bank’s common equity tier 1 (CET 1) ratio is expected to be maintained at around 14%. The liquidity position continues to improve, benefiting from customer inflows experienced throughout the first quarter of 2015 and also during April 2015 despite the full abolition of capital controls. As a result, the Bank has managed to reduce its ELA funding by €0.9 bln since December 31, 2014 to a current level of €6.5 bln, compared to a high of €11.4 bln in April 2013.”
Last month, parliament passed a much-delayed packages of measures on foreclosures and insolvencies that will help all commercial banks to recover assets from bad clients, restructure loans and reduce the rate of non-performing loans (NPLs), currently accounting for more than 50% of the banking system’s loanbook.
The board will convene on Friday, May 29, to review the financial results for the first quarter of 2015 that will be announced on the same day after market close to the Cyprus Stock Exchange and the Athens Exchange.
As at December 31, 2014, the Group total assets amounted to €26.8 bln and total equity was €3.5 bln.
