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Moody’s gives thumbs up to HB’s CNP deal

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Hellenic Bank’s takeover of CNP Assurances’ regional operations, allowing it to dominate the local insurance market is a credit positive, according to Moody’s Investors Service.

The €182 mln deal will help the bank group leap to the forefront of the sector and secure a whopping 30% share of the life insurance market and a 23% share of the general insurance sector.

That places Hellenic Bank’s insurance business ahead of Bank of Cyprus that, based on its 2023 annual report, enjoyed a 27% market share with its EuroLife subsidiary and 14% of the general insurance market with Genikes Asfaleies.

The rating agency said that the acquisition from the A1-rated French giant, “will be credit positive for Hellenic Bank because it will allow it to diversify its franchise and income streams, by growing its non-funded income and reducing reliance on interest rates. It will also make Hellenic Bank the leader in the Cyprus insurance market.”

The transaction, which is pending regulatory, competition authority and other approvals, is expected to be completed by the first quarter of 2025 and will likely include CNP Cyprus’ 330 employees.

Under the transaction, CNP Assurances has a put option giving it the option to sell, which, “we expect it will exercise once all approvals are received, and Hellenic Bank is irrevocably committed to acquire CNP Cyprus if such option is exercised.

“The total acquisition cost is expected to be at €182 million, representing a price to book value ratio of 1, which will reduce the bank’s total capital adequacy by 2.6 percentage points to a still solid proforma 25.8%, upon completion.

“However, we expect this to be recovered through retained earnings, because profitability remains strong and the bank is not currently paying any dividends,” the rating agency said.

Moody’s said the transaction will also boost the diversification and sustainability of Hellenic Bank’s profitability.

The bank (Baa3 positive, ba2), which reported a total profit of €365 mln in 2023, will strengthen its insurance-related income, reducing its reliance on net interest income, which accounts for 80% of its total revenue, compared with its domestic peer Bank of Cyprus, which had a lower reliance at 72% in 2023.

Moody’s added that the bank’s combined larger insurance operations will benefit from the creation of cost synergies.

“In addition, the acquisition will create cross-selling opportunities, because it will acquire a large number of insurance customers (latest reported was 160,000), while it will also be able to offer its existing banking customer with CNP Cyprus’ broader suit of insurance and wealth management products.”