(Updates with Bank of Cyprus comment in first paragraph)
By Stelios Orphanides
Bank of Cyprus said that it issued a €250m unsecured and subordinated tier 2 capital bond at a 9.25 per cent rate, for the first time following the 2013 banking crisis, as part of its strategy to optimise the level and composition of capital and liabilities.
The bond, part of the bank’s European Medium Term Notes programme, “will mature on 19, January 2027,” Bank of Cyprus said in an emailed statement on Thursday. “The bank will have the option to redeem the Notes early on 19 January 2022, subject to applicable regulatory consents”.
The bank which announced the commencement of the trading of its share at the London Stock Exchange, said that the 10-year notes will be listed on the Luxembourg Stock Exchange’s Euro MTF market. The bond issue, which followed roadshows held on Monday, is expected to increase its total capital ratio by 130 points, it added.
The bank’s return to capital markets, just a week after it fully repaid its central bank emergency liquidity assistance (ELA), was “successful” and “demonstrates the confidence of international investors in the bank,” chief executive officer John Hourican was quoted as saying. “This is a further step in the normalisation of the bank’s funding structure, following the recent full repayment of ELA funding, and is another significant milestone in the bank’s journey back to strength.”
Hours earlier, Moody’s Investors Service, which rates Cyprus’s biggest bank Caa2, eight notches below investment grade, said the full repayment ELA by the lender was “credit positive” as it would further strengthen creditor confidence and allow the lender to access international debt markets.
“However, further progress in dealing with its high stock of non-performing loans is necessary for the bank’s funding conditions to normalise,” Moody’s said in an emailed statement on Thursday.
“Restoring the bank’s funding profile strengthens the likelihood that Bank of Cyprus will regain market access,” Moody’s said.
The repayment of ELA — €11.4bn in April 2013 — inherited from, Cyprus Popular Bank, widely known as Laiki, was made possible via the sale of non-core assets, the 2014 capital increase, the early repayment of the government bond, which BoC again inherited from Laiki when it absorbed its operations four years ago, and increased access to European Central Bank funding, Moody’s said.
Bank of Cyprus saw its deposits increase against its assets from 49 per cent in December 2014, to 70 per cent as of September 2016, or from €13.2bn to €15.6bn respectively.
Moody’s said that the tier 2 capital issue, “if successful, will facilitate larger senior issuances ahead of the coming minimum requirement for own funds and eligible liabilities requirements”.
“Nevertheless, the bank must make further progress in dealing with its high stock of non-performing loans for its funding profile and market access to normalise,” the rating company added. “Although its ratio of non-performing loans to gross loans improved to 42.6 per cent over the past 12 months as of September 2016, from 52.5 per cent a year earlier, Bank of Cyprus has one of the highest delinquency rates of the banks we rate”.
Still, improved macroeconomic conditions will help the bank reduce its non-performing loans, Moody’s said.