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Bad loans curb profit for banks

By George Telaveris

Although the Cyprus banking sector has come a long way since the 2013 financial crises, the banks’ need for more provisions on their bad loans adds pressure on their profits.

Bank of Cyprus (BoC) shares trembled in August ahead of BoC half year results that are due to be announced on August 29. The bank’s shares were trading at €3.35 on August 2, their highest in the month, and had fallen to €3.15 on August 14. Its shares have recovered ever since to €3.25.

In May 2017, BoC, the country’s biggest lender, recorded an increase of its non-performing exposure (NPE) coverage to reach 42%, up from 41% in its first quarter results.

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“The lender will need to increase its provision above 50% in the years to come to be able to meet international standards in the coming years,” an experienced regulator told the Cyprus Weekly.

The European Banking Authority’s (EBA) impact assessment on the International Financial Reporting Standard (IFRS9) that will come into effect on January 1, 2018 estimated that an average increase in provisions of 13% will be needed by Cypriot banks to meet the current levels in the European economic area.

Bank of Cyprus has recorded €2 million in net profit for the first quarter of 2017, compared to €50 million during the same quarter last year.

At the same time, net interest income has dropped 15% to €156 million from €185 million that it was in the same period last year, as the ECB’s negative interest rate and competition are squeezing the bank’s profits.

Hellenic waits

Meanwhile, Hellenic Bank has decided to publish its half year results at the end of September. The lender expects that its joint venture with APS on loan and real estate management will add value to the bank. APS paid Hellenic €20.6m, according to the lender’s announcement at the stock exchange in July. According to the deal Hellenic’s stock of NPLs, valued at €2.3b, and real estate assets worth €150m, will be managed by APS Cyprus. APS Cyprus now owns 51% of the asset management company, while the remaining 49% is owned by Hellenic, which retains ownership of the NPLs and real estate.

Coop Bank

The Audit Committee in the House of Representatives is expected to test the Cyprus Cooperative Bank’s (CCB) decision-making on Monday, when it intends to convene to examine the CCB’s cooperation with Altamira and its upcoming listing on the Cyprus Stock Exchange.

“This bank belongs to the state and we want to know what is going on,” said the leader of the Green party George Perdikis, who is the one who requested the extra ordinary meeting.

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