(Updates with more background in fifth paragraph)
By Stelios Orphanides
Hellenic Bank, the island’s third largest lender, has said that it expects to post a €13m after tax loss in April to June on a €51m increase in provision of impairments for loan losses.
“As a result of these provisions, the provision coverage of non-performing exposures as at June 2017 is expected to increase to about 60 per cent compared to 57 per cent as at March 31, 2017,” the bank said in a statement on the website of the Cyprus Stock Exchange on Friday. “The group’s equity tier 1 (CET1) ratio and capital adequacy ratio as at June 30 2017, on a transitional basis, are expected to decline to an estimated 13.3 per cent and 17 per cent respectively which remains above the 2016 minimum supervisory review evaluation process (SREP) regulatory requirement of 9.25 per cent and 12.75 per cent respectively”.
Hellenic Bank, the second Cypriot lender announcing an increase in its provisioning levels after Bank of Cyprus did so less than two weeks ago, added that its second quarter financial results will include an accounting gain of €19m resulting from the agreement with non-performing loans management specialist APS Holdings.
“These changes further strengthen the group’s ability to accelerate its plans for balance sheet de-risking and deleveraging whilst it continues to focus its resources on managing and growing its performing loan book by providing financing to creditworthy households and businesses thereby supporting the Cypriot economy,” Hellenic which is one of the four Cypriot banks jointly supervised by the European Central Bank and the Central Bank of Cyprus added.
The bank, which is struggling with €2.5bn, in non-performing loans — accounting for 57 per cent of its loan portfolio — “will not need to issue more capital as its capital buffers are ample,” a Hellenic Bank source commented in a telephone interview.
Hellenic posted a net loss of €10.5m in the first quarter and €63.5bn in losses last year.
Following the increase in provisioning levels to reflect “amendments to the parameters and assumptions for estimating the recoverable amount of property collateral values” used in the bank’s provisioning methodology, accumulated impairment losses are expected to exceed the €1.4bn mark.
The amendments were made as part of the implementation of the International Financial Reporting Standards 9 (IFRS9) set for next year, and “take into account the bank’s accelerated plans for resolving problem loans, latest market developments,” and the ongoing dialogue with regulators.
The agreement with APS to set up APS Debt Servicing Ltd, to which the bank outsourced the management of its non-performing loans and real estate management operations, even though implemented in July, may have contained the increase in provisions, the source added.