Hellenic Bank eyes growth, Bank of Cyprus’s market share

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By Stelios Orphanides

The completion of Hellenic Bank’s capital increase by the end of the year may spark further developments in Cyprus’s banking system leading to significant changes its balance sheet as well as in that of Bank of Cyprus, which now has a new board empowered to take strategic decisions.

Hellenic Bank, which is set out to increase its capital by 220 million euros in order to cover a 105 million euros capital shortfall attested by the European Central Bank’s asset quality review in October, is planning to use the excess funds to further expand its operations as well as its market share on the Cypriot market, two Hellenic officials with knowledge of the situation interviewed by the Cyprus Business Mail said on condition of anonymity.

The lender, the only major Cypriot lender which withstood the 2013 banking crisis without having to turn part of its deposits in to equity or seek government assistance controlled by the Nicosia based entertainment software developer Wargaming.net and Daniel Loeb’s New York-based hedge fund Third Point, may seek to buy “packages of loans” from other banks, they said and named Bank of Cyprus as a potential seller.

“We have liquidity deposited at the ECB and we are paying for this,” one official said.
A third lender official who also spoke on condition of anonymity, said that the lender’s liquidity at the ECB “exceeds 1 billion euros” which could be used to “cover the funding gap,” in case Hellenic buys indeed loan packages. He added that the liquidity needed to cover the said funding gap would exceed the value of the acquired loans by 25 per cent.

The ECB further reduced in September the deposit facility rate to -0.2 per cent, after it first reduced it to -0.10 per cent in June, in an attempt to protect the euro area from low inflation and help its economic recovery via increased bank lending.

Bank of Cyprus has a 41 per cent market share in gross loans and 25 per cent in deposits in the domestic banking system as well as an outstanding 7.5 billion euros debt to the European Central Bank in the form of emergency liquidity assistance it inherited from failed lender Cyprus Popular Bank.

“We have a 7 per cent market share in loans and want to see it grow to a double digit figure, either by acquiring assets or by growing organically,” one of the Hellenic Bank’s officials said. “We have the muscle to buy and if we find something that fits us then we do it”.

At the Bank of Cyprus shareholders annual meeting which elected a new board of directors on November 20, the lender’s chief executive officer John Hourican said that the lender made good progress in its “shrink to strength strategy” which involved selling foreign assets. Whether the Bank of Cyprus will also consider selling assets in its core market remains unknown. “The lender has taken no decision on the matter,” a Bank of Cyprus spokesman said in a telephone interview.

The Bank of Cyprus new board which includes US billionaire Wilbur Ross and the former boss of Deutsche Bank Josef Ackermann may have to decide on related proposals, something the previous board could not. In September, Central Bank of Cyprus governor Chrystalla Georghadji instructed the lender’s previous board members to step down and to refrain from taking any “strategic decisions” until the election of a new board.

A central bank official who spoke to the Cyprus Business Mail on condition of anonymity, said that the supervisor is unaware of any agreement or negotiations between licenced banks involving the sale of loan packages. The sale of loans between banks is subject to approval by the Central Bank of Cyprus.

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Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]

  • Bystander

    Sounds too good to be true.

  • Rory Keelan

    Capital adequacy is a ratio between two numbers – risk weighted assets and regulatory capital. Neither explicitly (fully) takes in asset quality. Dud loans generally have the same risk weight as good ones. So a good CAR does not mean a solid bank if NPLs are excessive. Better to look at the ratio of unprovided (i.e. NPLs less loan loss reserves) to free capital – the latter being shareholders funds less Tier 1 or Tier 2 debt capital, fixed assets etc. The calculation is not comforting for ANY Cyprus bank.

    • Себастьян Returns

      “”Dud loans generally have the same risk weight as good ones.””

      Sorry, I would not agree with you, although it can largely be an exercise in judgement.

      Only a fool would rate an NPL in the same category as a Government-backed securities such as Russia, USA and most EU countries (usually rated at at 100%).

      Furthermore, fixed term deposits are also attributed different ‘risk weights’ due to their illiquidity.

      And all that is before taking into consideration ‘loans to related parties’.

      • Rory Keelan

        Read again – word is LOAN – not securities (government or otherwise). Government securities have risk weightings from 0% (local government in local currency) all the way through the spectrum depending on rating of issuer and currency. However my point is about LOANs in general and NPLs in particular – and the fact that capital for all Cyprus banks is impaired by unprovided NPLs.

        • Себастьян Returns

          So you don’t think that the root of all this – investment in Greek Sovereign bonds (securities, loans… call it whatever you want) was one almighty NPL that led to the demise of Laiki ?

          • Rory Keelan

            You still miss the point of my comment – which related to meeting the stress tests – which in turn do not fully take into account NPLs. I am talking regulatory calculations – and their mis-use by banks in Cyprus to give a ‘gloss’ on the real (dire) position.

          • Себастьян Returns

            “”their mis-use by banks””…

            I did acknowledge before that “”it can largely be an exercise in judgement””. Anyway, Cyprus is not alone in this regard.

            Having worked under CySEC regulation (in Cyprus), I have produced many monthly, quarterly and annual Capital Adequacy returns for CIFs, although I was never actually responsible for the returns (I was never a Director).

            I am now doing the same for FCA regulated companies – nothing changes much !

  • Себастьян Returns

    “”on condition of anonymity””…

    There is far too much rhetoric being thrown around for any anonymous statement to be taken seriously.