Hellenic Bank posts a €13m profit in 2015 (Update-2)

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(Adds more comment by CEO Bert Pijls in tenth paragraph)

By Stelios Orphanides

Hellenic Bank, Cyprus’ third-largest lender, said that it generated a €13m profit in 2015 after raising its provisions by €71m following consultations with its supervisor, the European Central Bank’s Single Supervision Mechanism.

Last year’s profit attributable to its shareholders was €12.1m compared to a €118.6m loss in 2014, the bank said in an emailed statement on Friday. It was the first time Hellenic Bank announced a profit since 2010.

The lender, mainly owed by the U.S.-based hedge fund Third Point and the Cyprus-based entertainment software developer Wargaming.net, maintained a common equity tier-1 ratio of 14.8 per cent, well over of the minimum required 11.75 per cent, while its capital adequacy ratio at the end of 2015 was 18.1 per cent, the lender said.

The lender said that it managed to decrease its non-performing loans in the fourth quarter of 2015 for the first time after the financial crisis to 59 per cent of its total portfolio, compared with 61 per cent the previous quarter.

“The coverage ratio of non-performing exposures increased from 46 per cent to 50 per cent and is in line with the European Union average,” the bank said. “The results of the last two quarters are encouraging, demonstrating that NPEs management is on the right track”.

In addition, Hellenic Bank said that the pace of restructurings increased in the fourth quarter, allowing it to increase the amount of renegotiated loans to €758m with corporate loans making up 85 per cent of total restructurings.

Hellenic Bank, in which the European Bank of Reconstruction and Development acquired a 5.4 per cent stake last year, said that its net interest income increased in the fourth quarter to 37.1m, up from 34.9m in July to September, which “reflects the repricing of the loans and deposits which came into force in the beginning of 2015”.

Non-interest income almost doubled in the fourth quarter to €43.1m, compared with the third quarter, as it included a €16.7m profit from the sale of Cypriot government securities.

Administrative and other expenses rose 4 per cent in the fourth quarter, reflecting the €3.1m impact the voluntary retirement scheme offered to Hellenic’s workers last year had on its balance sheet.

The bank’s chief executive officer Bert Pijls, who was commenting to the press about the bank’s performance in 2015, said that Hellenic offered last year, in which demand remained “constrained”, €377m in new loans. New loans to private customers last year were €77m and to companies €300m.

The bank’s strategy in 2016 is similar to that of the previous year, as it provides for reduction of its non-performing loans stock and further growth, he said.

Pijls said that while loan restructurings are a “painful process” for both the borrower and the bank, the bank prefers the “consensual approach”.

“This does not mean that the bank will do what the customer wants” or vice versa, he said, “This is going to hurt both sides”.

The bank is in a good way to reduce non-performing loans as successful restructurings made up 70 per cent of the total, he said, adding that the bank now has significantly more tools at its disposal to facilitate restructurings, including the debt-to-asset swap. Pijls noted that Hellenic Bank has not decided yet whether it will establish a special unit to manage the increasing stock of assets customers swap as part of restructuring deals.

There are two solutions, Pijls said. “Either sell them one at a time or pool them,” he said, adding that it is “too early” to say what the bank’s final decision will be.

The bank’s Dutch CEO warned that while the drop in non-performing loans and the progress it made in restructurings is good news for the bank, there is no room for complacency, both at Hellenic Bank, and in Cyprus in general.

The bank, Pijls continued, will continue to look for opportunities to expand inorganically in Cyprus, which remains “overbanked” and as a result “there has to be a consolidation for the market” in order for it to become more competitive.

He also warned strategic defaulters that the bank will use the tools provided by new legislation to reduce its non-performing loans.

“If you are in position to pay and don’t, you bet that we shall use the foreclosure law,” he said and added that, at the same time, the bank is not intending “to put families with kids out on the street”.

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