BANK OF CYPRUS SEE €100m LOSS IN Q2

 Cyprus Mail 28 August 2020 - by Andrew Rosenbaum

The Bank of Cyprus recorded a loss after tax of €100 million for the second quarter of 2020. For the first half, losses totalled €126 million, the bank announced in a statement today.

But these losses met analyst expectations, as they were largely due to provisioning. Total income was  €143 million and there was a positive operating result of €56 million. There was also an underlying result of profit after tax from organic operations of €4 million for the second quarter of 2020.

“Despite the one-offs, Bank of Cyprus reported a resilient top line, operating expenses under control (albeit at a still high cost/income ratio of 57 per cent) and underlying impairments in line with the expectation.  The group’s Non-Performing Exposures ratio now sits at 22 per cent with a cash coverage of 59 per cent, which puts BoC in a good position to organically bring the ratio down into the teens in the coming quarters,” comments Jonas Floriani, an analyst with Axia Research in Nicosia.

“Despite the lockdown we have continued to deliver on our strategic priorities of strengthening our balance sheet and improving our asset quality and efficiency, while supporting our customers, colleagues and community through COVID-19. We have continued to support the Cypriot economy by granting €689 million new loans in the first half of the year, via prudent underwriting standards; 98 per cent of new exposures in Cyprus since 2016 are performing,” Group Chief Executive Panicos Nicolaou said in the statement.

A large part of the bank’s losses are accounted for by provisions. Provisions/net loss relating to non-performing loan (NPE) sales (including restructuring expenses) were at €104 million for the second quarter of 2020, including “Helix 2” (non-performing loan sales) loss of €68 million and loan credit losses of €21 million for potential future sales of such loans.

The bank saw a €1.3 billion reduction in non-performing loans in the first half of 2020, including the €0.9 billion Helix 2 sale agreed with PIMCO in August 2020. There has also been an organic reduction of €137 million in the second quarter of 2020, despite the difficult conditions imposed by the pandemic.

BOC expects the completion of €133 million in sales of these loans  ( known as “Velocity 2”) in the second quarter of 2020. The Gross NPE ratio has been reduced to 22 per cent (11 per cent net) and coverage maintained at 58 per cent.

The bank has maintained a good capital and strong liquidity position. Total Capital ratio is at 17.9 per cent and the CET1 ratio is at 14.4 per cent. Deposits have remained steady, broadly flat from quarter to quarter at €16.3 billion, and there is significant surplus liquidity of €3.9 billion.

Total operating expenses were lower by 18 per cent to €81 million for the second quarter of 2020 from the same period in the previous year, and by 3 per cent quarter-on-quarter.

Performance in Second Quarter 2020
There was new lending of €238 million for 2Q2020 (down by 47 per cent quarter on quarter). The bank attributes the decline to the impact of the  COVID-19 lockdown.

The bank is already seeing nascent signs of economic recovery now that the lockdown is over.

The bank continues to make progress in digital transformation. “The customer’s mobile phone is currently our largest store, with 83% of the bank’s total transactions being done from home. The CYON project, which includes new services we launched in the midst of a pandemic, such as payment from Garmin and Fitbit watches, has progressed rapidly, with additional moves such as electronic signature. These moves have dramatically enhanced the range and quality of services offered outside the store, from the customer’s mobile or tablet,” a source at the bank added.

“We remain committed to further de-risking of the balance sheet and will continue to seek solutions, both organic and inorganic to achieve this. We will continue to assess the potential to accelerate the reduction in NPEs on our balance sheet through additional sales of NPEs in the future. At the same time, we are working closely with our clients to arrest potential future asset quality deterioration and NPE inflows once moratoria periods and other government support schemes come to an end,” Nicolau said.