Laiki Bank Public Ltd. reported a 102.7% year-on-year increase in 2005 profits to CYP 42.8 mln compared to 21.1 mln in 2004, which was in line with market expectations, but surprised on the upside when it revealed that the Board will recomend a doubling up of the dividend to 6 cent per share from 3 cent a year ago.
Christos Stylianides, Laiki Group General Manager said that shareholders who subscribe to the forthcoming rights issue, in the ratio of 1:6 at CYP 1.20 will be allowed to participate in the dividend, which accordingly lifts the true benefit to 7 cent per share.
Operating income increased by 15,4% compared to 2004 reaching CYP 257,5 mln. This increase is mainly attributed to the very satisfactory growth of 12,2% recorded in net interest income. The Group’s net interest margin remained at a high level of the order of 2,92% compared to 2,93% in 2004 and 2,79% in 2003, despite the negative effect of the consecutive decreases in the base rate of the Cyprus Pound.
Net commissions recorded a satisfactory growth of 4,8% compared to 2004. The commissions from stock exchange and foreign exchange transactions in Cyprus and the credit-related commissions in Greece were particularly improved in 2005. The foreign exchange income recorded a slight increase compared to 2004.
The operating expenses of the Group had a restricted increase of 8,4% compared to 2004.
The containment of the increase in operating expenses combined with the particularly satisfactory growth of the operating income led to the improvement of the cost to income ratio in Cyprus from 61,54% on 31.12.2004 to 56,72% on 31.12.2005.
For the Group the cost to income ratio dropped from 62,59% on 31.12.2004 to 58,77% on 31.12.2005.
Staff costs in Cyprus, which constitute the greatest part of the Group’s staff costs, rose by 8,4% compared to 2004. This increase was anticipated as a consequence of the annual salary increases and the employer’s defined benefit contributions to which the Group is committed as per the collective agreements in force. Due to the Group’s policy to freeze recruitments in Cyprus, the number of staff decreased from 2.424 on 31.12.2004 to 2.416 on 31.12.2005. Overseas, the increase in staff costs is mainly attributed to the increase in staff numbers due to the expansion of operations. In Greece the number of employees rose from 794 on 31.12.2004 to 876 on 31.12.2005 and in Australia from 94 to 109 respectively. In the United Kingdom and Guernsey the staff numbers remained stable.
Depreciation
The depreciation, amortization and goodwill impairment of the Group increased by 16,7% compared to 2004 to CYP 19.7 mln. As a result of the annual impairment test the Consolidated Income Statement of the Group was charged with an impairment of goodwill of CYP 8,8 mln regarding past acquisitions of the Group.
An amount of CYP 4,2 mln of the total impairment of CYP 8,8 mln is related to the acquisition of the Paneuropean Group (2004:amortisation CYP 3,2 mln) and CYP 4,6 mln is related to the acquisition of Laiki Attalos Securities S.A. in Greece (2004:amortisation CYP 0,9 mln). It should be noted that the goodwill on the acquisition of Laiki Attalos Securities S.A. has been fully written off as at 31.12.2005.
Provisions
The provision for impairment of advances dropped by 1,2% compared to 2004 to CYP 46,4 mln. The percentage of non-performing loans to total loans (excluding interest in suspense) dropped to 10,1% compared to 11,5% on 31.12.2004. It is notable that this was achieved without significant writeoffs. Writeoffs take a long time to be made, and as a result the non-performing loans of the Cyprus operations are high, due to the long period it takes for the liquidation of collaterals and especially of property. Realisation of property abroad takes 1-2 years whereas in Cyprus the same process may take 10 years or more. This fact also encourages borrowers not to be timely in the settlement of their arrears. Indicatively we note that if writeoffs of CYP 100 mln were effected, then the above percentage would have decreased from 10,1% to 7,9%.
Greece operations
The profit before provisions in Greece grew by 19,3% compared to last year. It should be noted that as from the beginning of 2005 the Group adopted the revised International Accounting Standard 36 and the International Financial Reporting Standard 3 and as a result the Group in Greece was charged with its share (CYP 2,3 mln) of the full and non-recurring impairment of the investment in Laiki Attalos Securities S.A.
Despite the fact that the quality of the loan portfolio remains satisfactory, it was considered necessary to charge the results of the Group in Greece with a provision for impairment of advances of CYP 11,1 mln compared to CYP 5,9 mln in 2004. This is due to the conservative policy of the Group concerning provisions and the expansion of the loan portfolio.
Due to the impairment charge and the higher provisions, the profit after tax was reduced to CYP 3,3 mln.
Balance Sheet
The Group’s advances rose to CYP 4,3 bln recording a very satisfactory annual increase of 14,7%.
In Cyprus, advances reached CYP 2,5 bln and recorded an annual increase of 7,7%. The greatest growth in the advances of the Group was recorded in the retail sector especially for private consumption and housing.
The advances of the Group in Greece achieved a very satisfactory annual growth of 24,3% and rose to CYP 1,3 bln with a substantial increase of the small and medium-size enterprises portfolio as well as the advances for housing and consumption purposes.
In the United Kingdom and Australia the annual increase of advances was particularly satisfactory and reached 27,2% and 31,1% respectively. The Group’s customer deposits reached CYP 5,7 bln recording an exceptionally satisfactory annual growth of 23,5%.
The deposits in Cyprus had an annual increase of 23,6% which is particularly satisfactory. The factors that contributed to this high increase include the significant growth of the deposits in foreign currency in the Cypriot banking system and the appreciation of the exchange rate of the United States Dollar against the Cyprus Pound.
In Greece, the Group’s customer deposits reached CYP 1,4 bln., recording an annual growth of 23,4%. This increase is particularly satisfactory, as it has been achieved in a particularly competitive environment.
In the United Kingdom and Guernsey the customer deposits grew by 16,8%, while the deposits in Australia registered a particularly satisfactory increase of 33,8%.
Prospects
The main strategic goals of the Group are the quality expansion of its operations, both in Cyprus and overseas, with operating costs under constant control and the improvement in the quality of the advances portfolio. The Group’s strategic targets until 2008 are to reduce the ratio of non-performing loans to total loans to 8%, to raise return on equity to 14% (taking into account the new funds from the issue of the Rights in 2006) and to reduce the cost to income ratio to 56%.
