Bank of Cyprus Group Pcl (BOCY) reported a spectacular 58% YoY increase in first half 2007 profit to EUR 230 mln compared to EUR 146 mln a year ago in the same period and well above the average market expectations of 1H07 profit of EUR 217 mln.
There was a significant improvement in all of the Group’s performance indicators during 1H07, with return on equity increasing to 27,7% and the cost to income ratio improving to 43,0%. The fast growth rate of the Group’s business in all the geographic markets in which the Group operates and the positive development of its insurance operations contributed to the improvement.
The quality of the loan portfolio has improved further and the ratio of non-performing loans to total loans has improved from 8,1% as at 30 June 2006 to 4,6% at 30 June 2007. This development is the result of efficient management of credit risk, achieved though the revised procedures and systems which have been implemented in the last two years.
The cost to income ratio improved to 43,0% compared to 47,1% for 1H06. The results reflect the positive effect of the steps taken to: Increase business volumes (27% in loans and 25% in deposits). Increase net interest income by 30%.Increase income from insurance operations by 19%. Control cost growth at rates significantly lower than those of the growth of business. Enhance credit risk management, thus decreasing of the annual provision charge to 0,4% of total loans.
The improvement in the profitability of the Group’s Cyprus operations is spectacular. Profit after tax increased by 55% to CYP102 mln (EUR175 mln).
The profitability of the Greek operations also registered a substantial increase in 1H07 with profit after tax increasing by 83% to reach CYP30 mln (EUR51 mln) and the return on equity increasing to 19,5% from 13,0% for 1H06.
“The spectacular growth of the Group’s operations continued during the second quarter of 2007. In addition to the strengthening of its leading presence in the domestic market and the expansion in the Greek market, the Group is dynamically expanding in markets with attractive growth potential and solid macroeconomic fundamentals. The commencement of operations in Russia is a major pillar for the achievement of the Group’s strategy. Bank of Cyprus is the first Greek banking group to enter the Russian market,†Eleftherios P. Ioannou, Chairman of the Board of Directors said.
“The results of the first six months of 2007 exceed our expectations and reconfirm the correctness of our strategic directions. All of the Group’s financial footings have increased significantly. Loans and deposits recorded an annual increase of 27% and 25% respectively. The profit after tax for the first six months of 2007 recorded an increase of 58% compared to the corresponding period of 2006, and return on equity reached a new record high of 27,7% The results are evidence of the success and consistency of our strategy, which creates further value for our shareholders,†said Andreas Eliades, Group Chief Executive Officer.
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Prospects
The Group is focused on the implementation of its strategy of autonomous growth and further significant growth rates in volumes and profits. Based on the Group financial results to date, the indications for their further development, as well as the current conditions in the markets in which the Group operates, the Group reconfirms its confidence in achieving the ambitious three-year targets which were announced in February 2007 for:
Reduction of the non-performing loans ratio to below 4,0% by 2009.
Improvement of the cost to income ratio to 40% by 2009.
Increase of return on equity to more than 25% by 2009.
Annual growth rate of profit after tax of over 25% for the three year period 2007-2009.
As far as the profit after tax for the whole of 2007 is concerned, the Group expects that it will exceed the target of EUR415 mln which was set in February 2007.
In parallel, the Group is successfully implementing its expansion strategy into Russia and Romania, where it has significant comparative advantages. The initial indications of our presence in these two countries are very encouraging and justify our expectations that these markets will become significant drivers of the Group’s development in the forthcoming three-year period.
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Higher market share
The Group’s loans reached C£10,24 bn (€17,55 bn) at 30 June 2007, recording an annual increase of 27%.
The Group’s total loans in Cyprus at 30 June 2007 amounted to C£5,01 bn (€8,58 bn), recording an annual increase of 28%.
The Group has increased its market share in total loans of commercial banks and credit cooperatives in Cyprus, to 27,8% in May 2007 (latest available data), compared to 26,7% in December 2006 and 26,0% in May 2006, an increase of 1,8 percentage points in the last 12 months and 3,5 percentage points in the last two years. The continuous increase in our market share is the result of the recognition of Bank of Cyprus’ leading brand name, as well as its extensive distribution network and the effective marketing campaigns focusing on the retail lending sector and specifically mortgage lending. The Group’s market share in total loans, including those of the international banking units, was 24,2% in May 2007.
In Greece, the annual rate of increase in the Group’s loans reached 23%, a higher growth rate than the corresponding rate for the Greek banking system. The Group’s Greek loan portfolio reached C£4,24 bn (€7,27 bn) at 30 June 2007 and the market share stood at 3,7% in April 2007 (latest available data).
the Group NPLs have declined in absolute numbers by 28% since 30 June 2006. As at 30 June 2007, Group NPLs decreased to C£462 mn (€792 mn). It is stressed that the Group applies the definition of NPLs which includes all loans in arrears for longer than three months. In addition, the NPL classification extends to all other loans of the customers who have a specific facility classified as non-performing.
The ratio of NPLs to total Group loans at 30 June 2007 was 4,6% compared to 8,1% at 30 June 2006 and 5,6% as at 31 December 2006.
The coverage ratio (NPLs/provisions) increased to 74% as at 30 June 2007, compared to 50% one year ago. The remaining balance of NPLs is fully covered by tangible collateral.
The vast majority of non-performing loans relate to the Group’s Cyprus operations with the relevant indicator improving to 6,5% at 30 June 2007 compared to 12,3% one year ago. It should be noted that in Cyprus, the lengthy process required for the foreclosure of collateral, especially property, acts as an obstacle in the collection of overdue amounts.
The quality of the Group loan portfolio in Greece remains very good, despite the high growth rate of the portfolio. Using the definition mentioned before, the Group’s NPLs in Greece decreased to 3,2% of total loans at 30 June 2007, compared to 4,9% at 30 June 2006. This ratio compares favourably to the ratio of the Greek banking system, as per Bank of Greece data.
The Group’s total deposits at 30 June 2007 reached C£13,32 bn (€22,82 bn), recording a 25% annual increase.
In Cyprus, the annual rate of increase in Group deposits was 29%. Deposits in Cyprus amounted to C£7,69 bn (€13,18 bn) at 30 June 2007. The Bank’s market share of total deposits of commercial banks and credit cooperatives for May 2007 (latest available data) amounted to 30,1%, compared to 28,9% for May 2006.
The Group’s foreign currency deposits in Cyprus represented 59% of total deposits of the Group in Cyprus and the Bank’s market share in this sector among commercial banks stood at 42,2% for May 2007.
Group deposits in Greece increased significantly at an annual rate of 19%, reaching C£4,73 bn (€8,10 bn) at 30 June 2007. At the end of April 2007 (latest available data) the Group’s market share in deposits in Greece stood at 3,7%.
At 30 June 2007, the Group’s deposits in the United Kingdom and Australia reached C£745 mn (€1,28 bn) and C£149 mn (€255 mn), recording an annual increase of 27% and 26%, respectively.
At 30 June 2007, the Group shareholders’ funds amounted to C£1,04 bn (€1,77 bn), recording a significant increase of 27% since 30 June 2006 and 15% since 31 December 2006.
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