Bank of Cyprus bogged down in €26 mln loss

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Bank of Cyprus, the one-time darling of the Cypriot economy that has suffered two waves of shareholder bail-ins, announced Tuesday a first-quarter loss of €26 mln as coronavirus began to bite.

This is down from a profit of €95 mln in the same quarter a year ago, but less than the hefty €186 mln loss it announced in the previous quarter.

The size of the losses, reminiscent of the post-crisis days seven years ago, has fuelled fresh rumours that the island’s former biggest lender was in trouble once again.

The bank, dogged with high staffing costs and a flat-line in net interest income (NII) and net fee and commission income, has managed to somewhat reduce its exposure to non-performing loans and credit facilities (NPEs) by €142 mln for a total NPE portfolio of €3.7 bln.

BoC said that it has also concluded the sale in May of €133 mln worth of NPEs to debt recovery company B2Kapital as part of the ‘Velocity 2’ programme, but offloading of NPEs will be delayed, for now.

The bank said in its announcement that “against the backdrop of market volatility arising out of the COVID-19 pandemic, the Group continues to work with its advisers towards the sale of a portfolio of NPEs in the future.

Due to prevailing market and operational conditions, this process is likely to take longer than originally anticipated.”

Flush with cash, with its surplus liquidity at €3 bln, it is not yet clear how the bank will assist in reviving the economy by providing loans to businesses that expect to be supported by the government loan guarantee scheme if the bill eventually passes through parliament.

New lending in the first quarter reached €451 mln, an increase of a mere 2% from the fourth quarter of 2020, with a significant amount believed to be attributed to loan restructuring, mainly to large-ticket customers, such as property developers, in exchange for onboarding real estate.

Group CEO Panicos Nicolaou said that despite the uncertain outlook, the bank remains committed to helping customers overcome the crisis, exacerbated with the economic slowdown resulting from the Covid-19 pandemic.

“From the beginning of the crisis, we have stepped up our engagement with our customers to understand their new financial position and needs, in order to find effective ways to support them,” Nicolaou said.

He added: “Our results this quarter reflect the continued progress against our core objective of balance sheet repair.”

The bank said that it has received “over 24,000 applications” requesting a 9-month moratorium on loan instalments (both capital and interest), available to businesses and private individuals with less than 30 days past due.

This represents 63% of gross loans, excluding legacy, worth about €5.8 bln.

Meanwhile, the bank said it will proceed with a capital reduction which will result in the reclassification of €619 mln of its share premium balance as distributable reserves, which shall be available for distribution to shareholders.

The parent company, Bank of Cyprus Holdings PLC, will also proceed with a capital reduction process which will result in the reclassification of €700 mln of share premium as distributable reserves.

This may help boost the share price that has been lingering in the doldrums at 56c, half its value from when Covid-19 appeared in March and still at 17% of the LSE listing price of €3.35 in January 2017.

Clearly, the bank is facing an uphill struggle.