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Bank of Cyprus stays resilient

By George Telaveris

Bank of Cyprus (BoC) share price shows signs of stabilizing from initial shock caused by the €550 million loss for the first half of 2017 due to raising its loan-loss provisions by €500 million.

Bank of Cyprus shares price slumped 10% on the stock exchange following the loss announcement. The share price now seems to be showing signs of stabilizing close to €3 from €3.33 that it was at the beginning of the month.

Despite allocating an incremental €500 million of capital to de-risk the Group thinks that it will not need to raise any additional core equity capital.

Nevertheless, the Group announced that it is considering issuing more Tier 2 debt beyond the €250 million it raised in January 2017, and/or issuing Additional Tier 1 securities to shore up its total capital buffers.

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Core tier 1 and Total Capital ratio are expected to shrink to 12.3% and 13.7%, respectively, still exceeding current regulatory minimum requirements of 9.5% and 13.0%, respectively.

A Moody’s credit agency report noted yesterday that losses from BOC will make Cyprus’ entire banking system to be loss-making in 2017.

“The higher charges will make BoC loss-making in 2017, the sixth year out of the past seven that the bank has reported losses (the bank was profitable in 2016),” Moody’s said.

Moody’s expects that the bank’s improved loan-loss reserve buffers will allow it to “absorb credit losses and provide a greater ability to take write-offs, which is part of the bank’s strategy to reduce its high stock of NPLs”.

The banks are increasing provisions for NPLs in line with the increased supervision expected by the European Central Bank’s (ECB) Single Supervisory Mechanism (SSM).

Recent SSM recommendations for systemic banks to increase NPL provisions means that it will affect their profits without much profit recuperation envisaged for 2017.

“We expect reserves relative to nonperforming loans to increase to 60% in June 2017 from 54% in March 2017, in line with the average for Moody’s-rated euro area banks,” the report said.

BoC’s ratio of NPLs to gross loans was 40% as of March 2017. The bank expects the ratio of loan-loss reserves to non-performing exposures, the European Banking Authority’s broad definition of troubled loans, to increase to 48% in June 2017 from 42% as of March 2017.

The Bank of Cyprus is currently looking at selling a large number of loans to reduce its NPL portfolio while making loan-to-asset swaps and adding €1 billion of real estate to its balance sheet.

Increased provisions by systemic banks in Cyprus to cover non-performing loans (NPLs) will see them register a loss for the first half of 2017.

Hellenic Bank has year on year steadily increased its provisions for performing loans and has one of the highest coverage rates of NPLs and is moving forward with APS Debt Servicing Cyprus to consolidate its balance sheet.

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