Bank of Cyprus posts 1H €220 mln profit

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Leading lender, Bank of Cyprus posted after-tax profits of €220 mln for the first half of 2023, highlighting its robust profitability, a significant leap from the €43 mln recorded last year.

Some €125 mln of these profits were made in the second quarter of 2023.

According to the results, net Interest Income (NII) reached €358 mln, marking a remarkable 146% increase year over year.

The bank’s prudent cost management strategies led to a 2% reduction in total operating expenses, resulting in an improved cost-to-income ratio of 32%.

The bank’s Return on Tangible Equity (ROTE) surged from 4.9% in 1H2022 to 24% in the current period, underpinned by robust NII growth.

Despite the challenges posed by rising interest rates, the Bank of Cyprus managed to maintain stable new lending at €1.1 bln.

The Non-Performing Exposure (NPE) ratio decreased by 7 percentage points year on year to 3.6%, or 0.8% on a net basis.

The coverage ratio was enhanced to 78%, further ensuring asset quality.

The balance sheet remains highly liquid, with €9.1 bln placed at the European Central Bank.

The bank has already achieved its 2025 Minimum Requirement for Own Funds and Eligible Liabilities (MREL) following successfully issuing €350 mln senior preferred notes in July 2023.

Bank of Cyprus demonstrated strong organic capital generation of approximately 220 basis points in the first half of 2023, with 120 basis points generated in the second quarter alone.

The bank maintains a CET1 ratio of 16.0% and Total Capital ratio of 21.1%.

The successful refinancing of €220 mln Additional Tier 1 (AT1) Capital Securities further underscores the bank’s capital resilience.

It also paid a dividend in June 2023, with a payout ratio of 14% out of its 2022 earnings, for the first time in 12 years.

Interest rates

In a written statement, Group Chief Executive Panicos Nicolaou attributed the increased profitability to escalating interest rates and enhanced efficiency.

“This performance demonstrates that we are well on track to achieve our 2023 targets presented during our inaugural investor update event in June 2023”, he said.

Key takeaways from the investor update event in June included a raised Return on Tangible Equity (ROTE) target of >17% for 2023 and >16% for 2025, supported by a strong capital generation of approximately 200-250 basis points per annum pre-distributions for the period 2023-2025.

“The bank’s dividend policy was reiterated, with the payout ratio expected to prudently and progressively build to 30-50% of adjusted recurring profitability.”

Nicolaou said the bank’s total income marked €511 mln, with a substantial €358 mln stemming from net interest income, more than twice the previous year’s level.

“This boost mirrored the elevated interest rate environment, complemented by sustained low deposit pass-through levels.

“Our tight cost management is proving successful despite persistent inflationary pressures with total operating expenses reduced by 2% yoy and our cost-to-income ratio (excluding levies and contributions) at 32%”.

He said the bank’s highly liquid balance sheet led to significant gains from higher rates, with over one-third of its assets held in cash balances with central banks.

The deposit base grew modestly by 4% yearly, reaching €19.2 bln.

He added that as the largest financial group in Cyprus, the bank extended €1.1 bln in new loans during the first half of 2023, maintaining stringent lending criteria.