(Updates with more comment in thirteenth paragraph)
By Stelios Orphanides
Bank of Cyprus’s chief executive officer John Hourican said that the island’s high levels of delinquent loans of roughly half of the banking system’s total loans requires a change in the values of Cypriot society as they pose a fragility for the economy.
“Non-performing loans and general delinquency, albeit reducing, continue to be a blight on the bank and a stain on the country’s image,” the Irish banker told shareholders at the bank’s annual general meeting on Tuesday, hours after the bank posted €554m in net losses caused mainly by increased provisions for loan impairments.
He added that the bank continues to work on “innovative solutions that bring individuals’ and companies’ loan servicing obligations more current and in line with the changing economic and financial circumstances of co-operating borrowers,” Hourican said. “At the same time, we are intensifying our pursuit of strategic and other defaulted borrowers more generally; it remains entirely unacceptable for those who have the means to settle exposures to continue to be in default of their obligations”.
“We would entreat (the Cypriot) society to more universally regard as unacceptable the deliberate default on obligations to repay borrowings,” Hourican said. “We should not forget that it is the depositors of the predecessor banks that are carrying the cost of this behaviour. We must return to a normal expectation that the obligation to repay our debts is a fundamental foundation on which modern and progressive democracy is built.”
Still, the bank has managed to reduce its problematic loan portfolio by 35 per cent, or 5.2bn since December 2014, when the current methodology of classifying non-performing loans came into force, he said. The overall reduction of Bank of Cyprus’s non-performing loans accounts for 83 per cent of the overall reduction of non-performing loans in the banking system and makes up 28 per cent of Cyprus’s economy.
Hourican said that the bank continues to explore ways to speed up the reduction of non-performing loans, including a “potential sell-down of delinquent loans”.
“We will continue to ensure we play our part in protecting vulnerable groups in society but we will be increasingly active in pushing for some non-traditional measures to accelerate non-performing exposure reduction,” he said.
The bank will continue working on premium listing on the London Stock Exchange (LSE) where the bank’s stock is trading since January, the Bank of Cyprus CEO said.
“The listing on the LSE enabled us to fulfil a long-standing commitment to our shareholders. The London listing has increased the visibility of the bank, made it easier for shareholders to trade, and increased the bank’s potential future access to capital”.
This was demonstrated with the sale of half of the stake the defunct Cyprus Popular Bank, also known as Laiki, in May, Hourican said.
He added that that bank, which issued in January a €250m 10-year tier 2 security, is considering further issues.
“During the coming twelve months, we will continue to examine the possibility of incremental capital efficient AT-1 (additional tier 1) or tier 2 issuance,” he said.
Hourican who joined the bank in late 2013 and oversaw its consolidation made a special reference to the increasing effectiveness of the bank’s Real Estate Management Unit (REMU) which manages properties acquired by the bank mainly via loan restructuring agreements and foreclosures.
While in 2016, the REMU sold properties worth €155m, in the first six months of 2017 alone, its sales rose to €184m “at average prices above book value,” Hourican said.
“Sales momentum in the second half of 2017 is increasing with a promising sales pipeline,” he said. “We are also actively exploring a number of innovative ideas to further accelerate the reduction in our real estate exposures”.
Since its inception in early 2016 until June 2017, the REMU on-boarded properties worth €1.3bn and manages properties worth €1.5bn, he said.