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BoC bolsters case for London

By George Telaveris

The positive financial results reported by Bank of Cyprus (BoC) this week have put the island’s biggest lender on course for a London listing by the end of the year and a likely upgrade from credit rating agencies.

BoC reported a net profit of €50.6m, up from €46.1m in the first quarter of 2015 on the back of lower provisions for non-performing loans (NPLs).

The bank managed to slash another €1bn from bad loans in the first quarter of this year, pushing loans in arrears for more than 90 days (90+ DPD) down to €10.3bn, from €11.3bn in December, while new loan restructuring amounted to €1.5bn.

“We made very good progress in reducing the stock of loans with arrears greater than 90 days by €1.0bn or 9% during the quarter and we expect to drive further reduction during the coming quarters of 2016,” the Chief Executive Officer (CEO) John Hourican said in a statement.

The 90+ DPD ratio declined to 47.1% in the first quarter, from 50.1% in December.

The cut in 90+ DPD will eventually feed into a reduction of non-performing exposures (NPEs) measured by the European Banking Authority (EBA). The EBA uses a stricter methodology which keeps restructured loans on the NPL list for 12 months.

NPEs are in any case already in decline, dropping by €641m in the first quarter to €13.3bn, or 61% of gross loans.

Disposing of real estate
BoC has started disposing of real estate acquired as part of the debt to asset swaps. As of March 2016 the ‘carrying value’ of properties held as inventories was €746m.

During the first quarter the newly established Real Estate Management Unit (REMU) acquired €285m through debt for equity swaps and disposed of €48m.

The liquidity problem that BoC largely inherited from ex-Laiki is expected to be eliminated in the coming months. BoC inherited €9bn of Emergency Liquidity Assistance (ELA) from Laiki pushing the total up to €11.4bn.
Thanks to an increase in domestic deposits and improving profitability, it has now cut that level to €2.8bn.

Speaking during the financial results presentation, the group’s Chief Financial Officer (CFO) Eliza Livadiotou said the bank’s main targets are to significantly reduce the problem loan book, to normalise its funding structure, to fully repay ELA and to focus on core banking activities in Cyprus and the UK.

Cyprus on the investor radar
The combination of a rapid drop in NPLs through debt to asset swaps, a first-quarter Cyprus GDP growth rate of 2.7%, falling unemployment rates and positive figures on tourism will help BoC in its bid to list on the London Stock Exchange this year.

“A London listing will allow them to issue a bond to repay ELA, leading to an upgrade in both the bank’s and the country’s credit rating,” a person familiar with the matter told the Cyprus Weekly.

The most important effect of BoC’s listing will be to put Cyprus on the map for international investors.
“What the politicians fail to see is that with the telecoms and electricity companies still in state hands, Cyprus is completely off the radar for foreign investors,” an analyst told the Cyprus Weekly.

“But once BoC is listed in London, it will really put the whole of Cyprus on the map”, he added.

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