(Adds more background in second paragraph and CEO comment in eighth paragraph)
By Stelios Orphanides
Bank of Cyprus, the island’s largest lender, said that it generated an after tax net profit of €64m in 2016, against a net loss of €438m the year before on reduced provisions which offset a drop in net interest income as rates remain at record lows.
Net interest income dropped 19 per cent last year to €686m, reducing overall revenue 7 per cent to €963m, the lender said in an emailed statement on Wednesday. Total expenses dropped to 3 per cent last year, in which the bank reduced its staff levels with a voluntary retirement scheme, to €397m, which includes €224m in staff expenses down from €234m in 2015. The cost to income ratio rose last year to 41 per cent from 39 per cent in 2015.
The bank’s profit generation came almost to a halt in the fourth quarter in which net revenue fell to €2m, from €3m in July to September, €5m in the second quarter and ten times as much in the first quarter, the bank said. The bank booked a total of €370m in provisions for loan impairments last year, compared with €959m the year before. The bank booked €103m in provisions in the last quarter of 2016, against €109m in the third quarter, €96m in the second and €62m in the first.
Profit before provisions rose to €148m in October to December, which was the highest compared to all other quarters, the bank said.
Non-performing loans fell to €11bn in December which accounts for 54.8 per cent of the bank’s loan portfolio compared to €11.9bn or 57.8 per cent in September and almost €14bn in December 2015, the bank said. Loans in arrears for over 90 days amounted to €8.3bn or 41.3 per cent of the bank’s loan portfolio, compared to €8.8bn in September and €11.3bn in December 2015.
The lender, which almost two months ago announced the full repayment of its outstanding emergency liquidity assistance (ELA) just days before commencing the trading of its stock at London Stock Exchange, said that its common equity tier 1 ratio rose 70 basis points last year to 14.7 per cent.
Total gross loans fell 11 per cent to €20.1bn in December, while customer deposits rose 16 per cent to €16.5bn. Earnings per share, which closed yesterday at €2.77 at the exchange in Nicosia and €2.79 in London, were €0.71. The shareholders’ equity rose 1 per cent to below €3.1bn.
The bank’s chief executive officer John Hourican described the bank’s results as “satisfactory,” reflecting its ongoing de-risking strategy which aims at reducing bad loans, further improving funding structure, maintaining the capital position, focusing on operations at home and in the UK, improve operating cost and delivering value to shareholders and other stakeholders.
“During the fourth quarter of 2016 we saw continued positive momentum in risk reduction,” Hourican was quoted as saying. “Our reduction in non-performing exposures in the fourth quarter of €867m was nearly double the in-quarter reduction of €459m for loans where delinquency of greater than 90 days is recorded.
“Deposit growth in the fourth quarter was extremely strong,” Hourican continued. “Deposits in the fourth quarter grew by €867m and, at the end of December our loan to deposit ratio stands at a healthy 95 per cent, well inside the European averages. This strong growth helped contribute to our ability to fully repay ELA so rapidly”.
Bank of Cyprus, whose Cypriot operations account for 91 per cent both in terms of loans and deposits, said that following the consolidation of the Cypriot economy’s growth rate last year it expects that Cyprus’s economic outlook remains positive over the medium term.
The economy expanded at a projected rate of 2.8 per cent last year compared to 1.7 per cent in 2015.
“Upside risks to the outlook relate to a longer period of low oil prices, further improvement of economic fundamentals in the euro area and implementation of projects in tourism, energy and public projects,” Bank of Cyprus said.
“Downside risks to the growth projections are associated with high levels of non-performing exposures and a potential deterioration of the external environment,” as a result of a probable continuation of the recession in Russia, to which the bank reduced its exposure to merely €44m, Bank of Cyprus said. Also, a weaker growth in the euro area and a weaker sterling a result of Brexit could affect the performance of the Cypriot tourism industry.
“Underpinning the Group’s momentum is a recovering Cypriot economy,” the Irish banker, who is scheduled to talk to the press later this afternoon in Nicosia, said, adding that the bank extended more than €1bn in fresh lending last year.