Hellenic Bank minority shareholders concerned about poor performance (Update-1)

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(Updates with background in thirteenth paragraph)

By Stelios Orphanides

Investors received with concern yesterday’s announcement of a €10.5m after-tax loss in the first quarter by Hellenic Bank and warned that the bank needs to improve the area of governance.

“In terms of efficiency, we have the same situation as we had when the Church was in charge,” said Andreas Leonidou, the top executive of Prochoice Chrimatistiriaki, a Larnaca-based investment firm. “Provisions are raised continuously. It’s strange for an economy rising at a 3 per cent rate to see an increase in provisions”.

“Either they had been withholding information about bad debtors or there is something wrong with the management,” he continued. “There can be no other explanation”.

Hellenic Bank, until four years ago dominated by the Church of Cyprus, is the only Cypriot lender that survived the 2013 banking crisis without resorting to a bail-in or a bailout. It posted last year an after-tax loss of €63.5m. In the first quarter of 2017, it increased its provisions for loan impairment by €27.3m to almost €1.4bn against €916.5m in the respective quarter of 2014, a year after the culmination of the banking crisis.

From January to March this year, the bank’s cost-to-income ratio, an indicator reflecting a lender’s financial soundness, rose to 69.6 per cent compared to 40.7 per cent in the first quarter of 2014.

“Up to 130 new workers have been hired over the past two years without reducing the number of big salary earners,” Leonidou, who was commenting in his private capacity, continued, adding that unlike Bank of Cyprus, which offered in recent years three voluntary-exit schemes to reduce its staff levels, Hellenic failed to do so.

The only exception was the scheme of June to September 2013, which allowed the bank to reduce its staff level by 165. It employed at the end of March 1,652 workers compared with 1,403 three years earlier, with staff cost rising to €20.9m in the first quarter of 2017 from €19.7m three years before.

Leonidou said that the bank has hardly increased its customer loans over the past years, even as it attracted more customer deposits, resulting in the bank parking €2bn in excess liquidity at the European Central Bank (ECB) at an annual cost of 0.4 per cent, or €8m.

“These are funds that could have been invested in securities with even zero yield such as German government bonds or those of countries rated AAA,” Leonidou continued, adding that inefficiencies also result in slow response times in opening customer accounts.

“Hellenic Bank still requires guarantors to extend mortgage credit,” he said, adding that the bank remains “stuck to old mentalities”.

“Instead of being the first to launch aggressive mortgage schemes, even Bank of Cyprus, with a 100-per-cent loans-to-deposits ratio, offers better terms,” he said.

Leonidou attributed the blame to Hellenic’s board, dominated by the New York-based hedge fund Third Point and the Nicosia-based entertainment software developer Wargaming.net, with 26.2 per cent and 24.9 per cent shareholding, respectively. The Nicosia-based Demetra Investment Plc Ltd and the London-based European Bank of Reconstruction and development have a 10.1 per cent and 5.4 per cent stake respectively. Other shareholders who spoke on condition of anonymity also expressed concerns about the corporate governance levels.

The Cyprus Business Mail understands that none of the minority shareholders is officially represented in the bank’s board.

“They are promising over the past years to better manage these funds and it looks like they cannot,” he said. “Third Point and Wargaming are demonstrating some kind of indifference and we don’t know the reasons”.

On Wednesday, Hellenic’s chief executive officer Ioannis Matsis, who got the ECB’s approval last month, said that the bank’s management is aware of the challenges lying ahead in reducing its bad loan portfolio, which fell to 57 per cent in the first quarter compared with 58 per cent in the previous quarter.

The bank’s chairwoman Irena Georgiadou announced yesterday her decision to step down and remain member of the board, citing personal reasons.

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About Author

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

  • Adele

    Have to confess I have an bank account with Hellenic but keep the minimum about possible just to keep it open… What do they expect us that live in Cyprus have no faith in the banking system so my bulging mattress is more of a safe haven.

    • Jack Iacovou

      I understand your concern but stockpiling cash in homes is never a safe option.
      I would keep deposits in a Bank as long as these are under the maximum deposit guarantee which believe is 100k. If you have more that this then spread it around to other banks. I also have an account with Hellenic

      • Adele

        Don’t worry Jack I’m not that rich x

        • Jack Iacovou

          ha, me neither – by mattress is not bulging!!. Take care J.

          • Adele

            You to Jack.

    • Eye on Cyprus

      Do gold bars really bulge, Adele? I didn’t know because I don’t have any.

  • JS Gost

    How any bank in Cyprus or Greece survives beggars belief. The smoke and mirror BS machine must be running on overdrive. Like the Emperors new clothes the truth will out, and the real crisis can begin. Delaying the inevitable will only make it worse

  • Eye on Cyprus

    You and your mattress! SQ and her drawers full of sparkling bling! You both have an embarras de richesse. Meanwhile, I am scrubbing decks and working my passage on Captain Bligh’s cruise ship. I don’t think I can bear another flogging. How the other half lives!

  • Eye on Cyprus

    I could never, ever think of you two as a pair of scrubbers.

  • Eye on Cyprus

    This is frightening! I don’t remember how to behave. I gave up on my former life of ‘goodness’ so that I could join Mike’s Naughty Club and be with wicked folk like you.

  • Eye on Cyprus

    All the nice girls love a sailor . . . but all the sailors love the naughty girls. I have been led astray and far from the paths of righteousness.

    • Adele

      It’s the uniform we can’t resist a man in uniform…lol.

  • Bruce

    Recent developments in the reported finances and managerial resignations at Hellenic Bank are very worrying. Are the Supervisors at the Central bank doing proper monitoring and supervision of the banks as did not do in the period leading up to the the 2012/13 crisis that culminated in the deposit haircut.How are the Co-ops performing? Have we had any recent financial statements from them?.And will AKEL have a good Presidential candidate who can at least be honest about the financial problems confronting Cyprus and have a strategy for dealing with them in the process appointing competent persons and not just friends and party loyalists as has been the practice of our Finance Minister.

    • Wanderer

      AKEL? You gotta be kidding, expecting commies to make any sound financial decisions.