By Stelios Orphanides
Bank of Cyprus, the island’s largest lender, has said that it will post a loss of €550m in its half-year results as a result of an increase of provisions for loan impairments by €500m and will return to profitability next year.
Following the increase in provisioning aimed at de-risking its balance sheet, the bank, which posted a 14.4 common equity tier 1 capital ratio at the end of the first quarter, will not require additional equity as its “capital levels remain adequate,” it said in an emailed statement on Monday.
“Although allocating an incremental €500m of capital to de-risk the balance sheet through increased provision coverage will result in the group posting a loss of approximately €550m for the half year to 30 June 2017, the reality is that the strength of the group’s capital position has allowed the group to accommodate this without the need to raise any additional core equity capital,” the bank said. “The landmark €1bn equity raise carried out in the summer of 2014 has to date proven sufficient to support the group’s recovery and allowed it support the recovering economy. The group does not expect to have to raise any further core equity and expects to rebuild further strength in its capital base during 2018 through posting results which will reflect a more conventional credit-cycle cost”.
The bank said that the decision to increase provisions will help “draw a line in its discussions with the European Central Bank (ECB) on the levels of provisioning” expected against non-performing loans, which dropped to 51.8 per cent in March from 54.8 per cent in December. The provisioning coverage ratio rose to 42 per cent to 41 per cent respectively.
The step is part of its effort to explore “innovative strategic solutions” to accelerate the balance-sheet de-risking.
“It is too early to go into detail on what these transformational initiatives could include but it suffices to say that detailed work is underway with a number of external counterparties,” it said.
The lender, whose depositors saw almost half of their uninsured deposits turned into equity in the 2013 banking crisis, added that it already extended €1bn in fresh credit to the economy in the first half of the year, roughly as much as the whole of 2016, supporting growth. In the first quarter this year it posted a €2m after tax profit.