Bank of Cyprus beats profit estimate

Bank of Cyprus Pcl released its 20006 results with net profit surging by 153% YoY to CYP 183 mln or EUR 317 mln, beating analyst estimates with estimates ranging from EUR 309 mln to EUR 311 mln. EPS stood at CYP 0.334 (EUR 0.578).

Bank of Cyprus Chairman Eleftherios Ioannou said the key drivers of profitability were the strong growth in Net Interest Income- NII (+28.1% YoY), the shift of BOC’s loan portfolio towards high yielding retail products, the higher loan to deposit ratio, the

improvement in Group NIM to 2.81%, containment of cost to income ratio to 46.7% vs. 56.7% in 2005, the significant reduction in provision levels, down 37% or –50bps and investment gains amounting to CYP 15 mln (EUR 26 mln).

Annualised ROE reached 21.7% vs 11.9% in 2005.

NII rose by 28.1% YoY to CYP 358 mln (EUR 620 mln) driven by strong volumes,

BOC’s solid expansion in its Greek loan portfolio (+21% YoY), and the increase in loans to deposits from 69.2% in FY05 to 73.2% in FYM06.

Group NIMs improved vs 2005 (2.60% vs 2.81% in FY06). NIMs from local operations improved to 2.38% (vs 2.27%), whilst NIM in Greece improved to 3.14% from 2.82% in 2005 due to favourable adjustments in the cost of deposits and higher loans to deposits ratio (from 81.5% in FY05 to 85.7%).

Net fees and commission income increased by 12.8% to CYP 101.2 mln (EUR 175 mln), interest in insurance income by +13.8% YoY, foreign exchange income by +43.6% YoY. Investment gains amounted to CYP 15 mln (EUR 26 mln).

Total operating costs rose marginally by 4.4% YoY at CYP 248 mln (EUR 429 mln). Cost to income ratio improved to 46.7% vs. 56.7% in 2005. Core profits reached CYP 283 mln (EUR 489 mln), up by 56% YoY.

Provision charges fell at CYP 58.4 mln (EUR 101 mln), down by 35.9% YoY, whilst annualized provisions were c.70bps of total loans in 2006 vs 123bps in 2005. Group loans reached CYP 8.83 bln (EUR 15.27 bln), up by 19.3% YoY.

In Cyprus, loans rose by 18% to EUR 7.24 bln, whilst in Greece credit increased by 20.6% YoY (EUR 6.55 bln). On the deposit side, at the Group level customer deposits were up by 13% YoY to EUR 20.9 bln, with Cyrpus’ deposits contributing 57% of the total (+11% YoY) to EUR 11.91 bln and Greece capturing 36% (+14% YoY) to EUR 7.63 bln.

Bank of Cyprus CEO Andreas Eliades said the Group 3-year Strategic Plan foresees net profit 07-09 CAGR in excess of 25% and EUR415 mln in net profits for 2007e, for a gain of 31%.

RoE is forecast to climb in excess of 25% by 2009 from 22% in 2006. Eliades also forecasts the reduction of the cost / income ratio to 40% by 2009e from 46.7% in 2006. NII, total income and opex 07-09e CAGR of 18%,16% and 9% respectively, tax rate expected at 20% for the following years, loan impairment charges to be reduced to 50bps by 2009, NPL reduction to less than 4% by 2009e and increase in coverage ratio to 80% by 2009e (from 5.6% and 66% in 2006 respectively), loans, deposits and RWA 07-09 CAGR of 21%, 15% and 21% respectively, whilst loan growth (CAGR) for Greece and Cyprus for the same period is expected at 23% and 13% respectively. The Bank expects to commence operations in Romania and Russia in 1H07 while acquisition in other countries will be also considered, with first priority the Ukraine market. Finally, the Bank targets a total loan contribution of 20% by 2011 from other counties outside Greece and

Cyprus (from 10% in 2006).