Hourican says BoC mulls active part in future M&A

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By Stelios Orphanides

Bank of Cyprus’s chief executive officer John Hourican said that the island’s largest lender intends to play a leading role in the consolidation of the Cypriot banking and insurance sector, as it slowly reduces its bad loans mountain.

“We have to push forward in market consolidation over time,” Hourican told an audience at an event in Nicosia on Tuesday according to an audio file forwarded to the Cyprus Business Mai. “We have to play a leading part rather than a following part. I’d rather do the eating than be eaten”.

bankBoth Cyprus’s insurance business, in which Bank of Cyprus operates with its two units Eurolife and General Insurance Cyprus on top of the 50 per cent stake in CNP Cyprialife, and the banking business are “excessively distributed,” the Irish banker said.

A possible participation of Bank of Cyprus in the consolidation of the insurance and banking sector would signal a reversal of the bank’s shrink-to-strength strategy, as part of which it disposed non-core assets in various countries, including Russia, Ukraine and the Balkans following the 2013 banking crisis. Then, the bank had bailed-in its uninsured depositors and was forced to absorb the operations of its main competitor Cyprus Popular Bank, widely known as Laiki, after they both gave up their operations in Greece.

The merger with Laiki created other challenges related to the size of the bank with regard to the €18bn Cypriot economy, almost the size of the bank’s total liabilities. “We have created other problems which is that we now have an incredibly concentrated bank in a single island where we express the macro(-economic indicators) through our own results,” Hourican said. “We have a Siamese relation to the country. If the country does well, we ‘ll do well, if we do badly, there won’t be any credit in the economy”.

Today’s Bank of Cyprus has a long way to go in completing its task of reducing non-performing loans even after cutting their ratio from once 64 per cent to 54.8 per cent, or just over €11bn, in December, he said. Still, the lender managed to move out of its balance sheet bad debts equivalent to 22 per cent of Cyprus’s economy, while the next best performer in the European Union was Italy’s UniCredit with 1.6 per cent.

Laiki“We had a liability problem which has been resolved,” he said in an apparent reference to the full repayment of the emergency central bank funding of €11.4bn it mostly inherited from Laiki. “We now have an asset problem which in its seventh quarter of resolution. And I believe there is probably another 10 to 12 quarters before we can declare some level of victory on that boundary”.

Hourican, who joined Bank of Cyprus in late 2013, months after it was recapitalised with depositors’ funds, dismissed the notion that things in the Cypriot banking system had been running smoothly until the crisis that year.

“When I look at the evolution of non-performing loans in our bank, they were building for 20 years, month on month, quarter on quarter,” he said. “Before the crisis hit, Bank of Cyprus together with Laiki was a 20 per cent non-performing loan bank which would have made it one of the highest portfolios in Europe. So, it is wrong to presume that the banking system was working perfectly before the advent of the crisis”.

On top of the non-performing loan problem, the banking system, Hourican continued, also has to deal with new challenges resulting from technological progress, such as digitisation, or else risk the fate of companies in the music industry, such as EMI, which was acquired by Citigroup six years ago.

File EURO signIn addition, the new “excessive regulation” imposed by the European Union in recent years on the banking sector “presents a massive challenge to small banks to survive,” he said. “We are not saying we will not survive, we will, we ‘ll adapt and make it work but actually the time spent by executives and managers at banks today dealing with the detritus of another piece of regulation being imposed on them across the eurozone is extremely debilitating practice”.

Excessive regulation is “one of the most significant challenges to Europe, European growth, the success of euro, the success of the Eurozone,” he added.

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About Author

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

  • JS Gost

    Strangely a [email protected] business merging with another [email protected] business just makes a [email protected] larger business. Hourican really is becoming Cypriot, starting to blame foreigners and regulators for the domestic failings and years of rule breaking and mismanagement. Who in their right mind would invest in Cyprus ? particularly when it is clear we will not change.