BOC to raise tier 2 capital to help fight NPL-scourge (Update-2)


(Adds comment by CEO Hourican in fourth paragraph)

By Stelios Orphanides

Bank of Cyprus’s chief executive officer John Hourican said the lender may consider the issue of new tier 2 capital to further strengthen its balance sheet.

Bank of Cyprus AGM HouricanHourican who was addressing shareholders at the bank’s AGM, in Nicosia on Tuesday, said that it reported a core equity capital 1 ratio of 14.4 per cent in June and “has sufficient common equity capital to support its strategy and so it is not expecting to raise any additional equity”.

“However, we are, as you should expect, constantly examining ways to improve the efficiency of our shareholders’ capital as well as the funding of our balance sheet,” he said. “To that end, and as our bank normalizes, we are carefully exploring the possibility of introducing tier 2 capital to augment the strength of our balance sheet and supplement our equity capital base”. Hourican did not specify the exact amount.

The bank made “good progress” following the 2013 banking crisis, Hourican told shareholders at the AGM. It was the first such meeting not to be disrupted by angry depositors and bondholders who lost money in the 2013 banking crisis, which may be perceived as another sign of normalisation in the bank’s relation with its shareholders and former customers.

Bank of Cyprus posted a €56m after-tax profit in the first half of the year in which it slashed 350 jobs with a voluntary retirement scheme. In 2015, the bank generated a €438m loss, caused mainly by its former Russian unit Uniastrum, compared to a loss of €261m in 2014.

Hourican said that the outstanding emergency liquidity fell to below €1bn from an initial €11.4bn. “We hold more liquid assets than ELA and we expect to fully extinguish the remaining emergency liquidity assistance early next year,” he said. “The repayment of ELA demonstrates that the strategy we set has, to date, worked to restore and normalise the Bank’s funding profile”.

Bank of Cyprus AGM HouricanStill, “non-performance and delinquency continue to be a scourge in our loan book and a stain the nation’s image,” the Irish banker said. “We continue to need the support of the legislature, the legal system, and the wider society to speed up the resolution of this issue”.

Hourican added that in January 2015 to June 2016, Bank of Cyprus could claim two-thirds of overall drop in non-performing loans in the banking system in which it has a 40 per cent share in total loans.  “But there is still much to do,” he continued.

Hourican said that “1,000 days” after it was recapitalised, the bank has managed to concentrate the focus of its operations in Cyprus by disposing its offshore operations, including Uniastrum. “Our strategy during the past 1,000 days has been to shrink to strength through deliberately shedding non-core businesses and exposures overseas,” he said.

The improved macroeconomic indicators in the Cypriot economy, which is expected to expand this year by almost 3 per cent, after growing 1.7 per cent last year, “are certainly encouraging signs that make us cautiously optimistic about the prospects for our core Cyprus market, though the momentum of policy reforms should continue,” he said. “As the government emphasises, there is still an unfinished agenda”.

Hourican added that the bank remains “committed to the same strategy” of improving its service to its customers, technology, reducing bureaucracy, continue to support economic recovery through lending, after pumping €650m in new loans this year alone, and fullt repay its ELA. “We will vigorously and deliberately pursue the highest standards of corporate governance and do all we can to discover liquidity and value for our Bank and its shareholders,” he said, in reference to the bank’s plan for a listing at the London Stock Exchange. Details about that will be released “as soon as we have greater clarity in due course”.

Earlier, the bank’s chairman, Swiss banker Josef Ackermann, said that the “sustained and determined implementation of the bank’s restructuring and consolidation strategy” has started to pay off concrete results in “critical areas.”

Ackermann made special reference to the ongoing negotiations for the reunification of the island, which are entering a critical phase as President Nicos Anastasiades and Turkish Cypriot leader Mustafa Akinci are about to announce the Swiss venue at which the two will discuss the territorial aspect of the Cyprus problem.

“In case of a hoped-for successful outcome, major eventual potential economic benefits, but pose also major transitional challenges that deserve close attention,” Ackermann said. “In this context, the existing European Union policy, legal and administrative framework, can serve as an ideal basis for the functioning of a federal state in Cyprus. The potential reunification of the EU’s only divided country deserves the EU’s full political support and eventual financial assistance”.

Bank of Cyprus AGMThe former Deutsche Bank top banker said that even after completing its adjustment programme in March in a way that earned Cyprus “well-deserved praise from EU policy makers and international financial institutions,” the Cypriot economy “is still fragile” as the challenging international environment may deteriorate further following the Brexit vote.

“Arrivals of UK tourists, which account for the largest share in Cyprus’ total tourist arrivals, might be affected from 2017 onwards,” he said.

Ackermann warned that the reform process which effectively came to a halt in December last year, needs to resume with the implementation of the government’s Action Plan for Growth, which provides for a reform of the unproductive and inefficient public sector.

“It is essential that no policy reversals take place and that the reform regains momentum, especially as regards the modernisation of public administration, the preservation of fiscal discipline, the further improvement in the business environment, and the enforcement of property rights,” Ackermann continued. “These reforms are necessary to capitalise on the socially painful adjustment measures already implemented, and unlock Cyprus’ unexploited substantial growth potential by attracting foreign direct investment and facilitating the deleveraging efforts of the household and corporate sectors”.

In the question and answer section, which followed the speeches, shareholders were told that BoC had a “modest exposure to Deutsche Bank,” an important partner for the Cypriot bank in its dollar clearance business.

When one of the meeting attendee’s complained about the strict anti-money laundering compliance practices of the bank, Ackermann said that a recent unflattering report in German television about the bank, which has upgraded its compliance to “world class” levels, highlighted the need of being strict.

Still, “we do not want to lose clients because we are too rigid,” he added.

In response to a question whether the trading of the bank’s share at the London Stock Exchange will be in British pound or euro, Ackermann said that the bank had taken no decision on the matter.

15 BoC fighting to restore health

By Stelios Orphanides

Bank of Cyprus, the island’s largest lender, is on Tuesday holding its annual general meeting after undergoing an unprecedented transformation over the three-and-a-half years, probably the most turbulent in its 117-year

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