Hellenic Bank, the island’s second biggest lender and leader in the retail and SMEs sector, saw a drastic turnaround in second quarter profits to €6.7 mln, helping boost the first-half figure that rose to just over €35 mln, both periods having showed significant losses last year.
The turnaround, prior to Hellenic taking over the good assets of the now-suspended Cyprus Cooperative Bank, came on the back of a shrinking turnover and cost-cutting for both periods, as the bank avoided state handouts and resorted to own funds to implement its strategic plan for growth.
Second-quarter turnover dropped to €56.2 mln from about €83 mln a year earlier, “mainly from the increased impairment losses and provisions to cover credit risk” the bank said in its interim report for the first half, that wiped out a gain on the disposal of Cyprus government bonds in Q1 2018. First half turnover shrank from a hair below €150 mln last year to €133.4 mln this year.
Hellenic managed to reduce staff costs by €4 mln, but its core revenue from net interest income (NII) was down 13% from the end of the first half last year, due mainly to “the downward trend of lending rates primarily affecting the performing loan portfolio and the decreasing carrying amount of the impaired loan portfolio.”
The drop in non-interest income was driven “by the lower other income which offsets the higher net gains on disposal and revaluation of foreign currencies and financial instruments,” Hellenic said.
Υannis Matsis, the Group’s Chief Executive Officer, seems confident that the bank is on target with offloading its non-performing loans to dedicated asset managers and continuing its organic growth, which climaxed with the acquisition of CCB’s retail banking, deposits and ‘good’ performing loans.
“During 1H2018 we made further progress in our strategic priorities, strengthening the bank through the continuous resolution of NPEs and growing the bank’s franchise,” Matsis said,
“We completed the first NPE portfolio trade by a Cypriot bank [to B2Kapital Cyprus Ltd, a wholly owned subsidiary of Norwegian B2Holding ASA], totalling €144 mln, in June 2018 and have reduced NPEs for the 11th consecutive quarter.”
“Net NPEs ratio is down to 29% and the NPEs provision coverage has improved to 62%. New lending for the first half of 2018 amounted to €328 mln, 77% higher compared to the year before, reflecting an increased new lending momentum,” he said.
This was in support of tourism, manufacturing, wholesale trade and transportation, as well as creditworthy households.
Turning Things Around
In terms of performance, Matsis said “the Group reported profit after tax of €6.7 mln for 2Q2018 and €35.3 mln for 1H2018. The effects of the key measures taken in 2017, such as the voluntary early exit scheme (VEES), the reorganisation and the setting-up of APS Cyprus, are becoming now more visible.”
He said that Hellenic’s capital position is today stronger, with the Group managing to absorb the costs related to the balance sheet strengthening initiatives and VEES during the last couple of years. The Group’s proforma capital adequacy ratio was 17.41% on a transitional basis at 30 June 2018, well above the minimum requirement.” The CET1 ratio was also high at 13.7%.
“We have successfully completed the acquisition of certain assets and liabilities from the Cyprus Cooperative Bank (CCB) that will accelerate the bank’s strategy of strengthening its franchise across Cyprus with an enlarged and diversified customer base, leading to a more diversified loan portfolio.
“Through this transformation transaction, the bank will become the second largest bank and the leading retail bank on the island. The bank will proceed with a capital raise of €150 mln, already approved by the EGM of August 22, by the end of the year in order to fund the acquired business,” Matsis concluded.
Hellenic said, “the level of NPEs has been reduced to €2.11 bln at June 30, down by 2% compared to the €2.16 bln at 31 December 2017”.
The decrease was mainly driven by the curing of restructured loans, collections, debt to asset swaps and write offs. The NPEs provision coverage stood at 62% as at 30 June 2018 (31 December 2017: 61%). Taking into account tangible collaterals, the net NPEs collateral coverage stood at 142% as at 30 June 2018.
Prior to the CCB acquisition, the Group net loan to deposits ratio stood at 47%, enabling further business expansion. At 30 June, total customer deposits amounted to €5.9 bln (31 December 2017: €5.8 bln), while gross loans amounted to €4.086 bln, up by 1% compared to €4.055 bln as at 31 December 2017, with the performing loan portfolio being increased by 4%.
The bank’s loan market share as at 30 June was 8.6% (8.1% at 31 December 2017) and its deposits market share was 12.0% (11.9% at 31 December 2017).
Bank of Cyprus, the island’s largest lender with a 30% market share of all performing loans, estimated at €26.5 bln, and a 37% share of the country’s €49.4 bln deposits, said last week that it opened 12,300 new accounts in July and August, directly linked to the Co-op bank’s collapse.
Post-CCB acquisition, the merged Hellenic-CCB customer base will exceed 550,000, the deposit market share rises from 12% to 31%, while the performing loan market share is multiplied from 7% to 22%.
The deal also included the transfer of 1,100 staff from CCB to Hellenic and the closure of 100 branches, of which 43 with immediate effect in September. The bank has also been innovative in its plans to serve low-turnout and “part time” branches in the rural areas, with the introduction of two mobile units, aka “banking on wheels”.
