As the island’s three largest banks scored a massive improvement in their core profits during 2004, with Bank of Cyprus and Laiki reporting a spectacular improvement in net profits, the high level of non-performing loans (NPLs) continues to weigh on the bank results, leading to possibly new downgrades during the year.
Boosted by a spectacular 24% increase in net interest income, Bank of Cyprus (BOC) delivered the best increase in core profits before provisions, upping its profits by 39% to CYP 139.5 mln in 2004 from CYP 100.6 mln in 2003. Laiki Bank increased its core profits by 26.6% while Hellenic Bank upped its core profits by 31%.
The satisfactory increase in revenue and a determined effort to control cost increases helped BOC and Laiki improve their cost-to-income ratios to 62% while Hellenic Bank’s ratio remained at 70%.
BOC delivered the best profit performance, boosting its net profits for 2004 to CYP 37.5 mln compared to losses of CYP 28.8 mln in 2003. Laiki Bank also saw a spectacular improvement, lifting its net profits by 122% year-on-year to CYP 21.1 mln from CYP 9.5 mln in net profits announced for 2003.
Hellenic Bank meanwhile, was forced to remain in the red, reporting net losses of CYP 15.3 mln compared to net losses of CYP 14.4 mln in 2003 on the back of higher provisions for bad debts.
PROVISIONS
For the third year in a row, the high level of provisions for doubtful debts negatively affected the results of the banks, on top of revaluation losses on investments.
Hellenic Bank was in the worst situation, since it hiked its provision charge for 2004 by 13.8% to CYP 45.45 mln, which was instrumental in forcing the overall results into the red. The total provisions for doubtful debts of Hellenic were up 34% to CYP 170 mln end of 2004.
BOC and Laiki meanwhile continued to benefit from an improvement in the situation. BOC decreased its provision charge by 24% to CYP 83.7 mln from CYP 110.12 mln in 2003, while Laiki Bank reduced its provision charge by 5.3% to CYP 46.9 mln from CYP 49.6 mln in 2003. The total provisions of BOC are CYP 471 mln from CYP 409 mln while those of Laiki are CYP 273 mln from CYP 217 mln a year ago.
NPLs REMAIN HIGH
Bank of Cyprus insists that it managed to reduce the level of its non-performing loans to CYP 681 mln or 10.8% of its loan portfolio in 2004 from CYP 690 mln or 12.4% in 2003.
Laiki reported the total of its non-performing loans at CYP 479 mln or 11.5% of its loan portfolio from CYP 405 mln or 12.2% in 2003 while the total NPLs of Hellenic Bank were reported at CYP 216.5 mln from CYP 188 mln in 2003.
The high level of the NPLs is seen as a negative factor which will lead the international rating agencies to either maintain their current low ratings on the banks, or as Moody’s has already announced in the case of Hellenic Bank, proceed with further downgrades.
A low rating is seen keeping the Cypriots away from international credit markets, or in the event that do head abroad for capital, increase the cost. The low international rating is seen as the main reason why banks are likely to resort to the local market for deposits and capital during 2005.
