Cooperative banks report €28m in after-tax Q1 profit (Update-1)

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(Updates with background in third paragraph and CEO comment in ninth paragraph)

By Stelios Orphanides

The Cooperative Central Bank, Cyprus’s second largest lender bailed out by the government with €1.7bn, said that it generated in the first quarter of the year a total of €28m in after-tax profit compared to €37.1m in the respective quarter of 2015.

The drop in profitability was mainly on reduced net interest income which fell to €74.5 in January to March from €89.5m in the respective quarter of 2015, the co-op bank said in an emailed statement on Monday. The bank also saw its operating expenses rise to €45.2m from €41.8m respectively mainly on other operating expenses which rose by almost €2m to €18.4m in the first quarter. Staff costs rose by €854,000 to €24.4m.

The bank, owned almost entirely by the government, saw its non-performing loan ratio drop marginally to 59.3 per cent of its loan portfolio or €7.4bn, partly as a result of the latter dropping to €12.5bn from €12.8bn in the fourth quarter of 2015, the bank said. At the end of December, the bank’s non-performing loans stood at €7.6bn. The March 2016 non-performing loans ratio also includes restructured loans accounting for 7.7 per cent of the loan portfolio which “are expected to be declassified in the next months”.

“In the first quarter of 2016, loan restructurings worth €323m were carried out,” which raises overall restructurings completed after a special unit was established to €1.7bn with a 76 per cent cure rate, the bank said. In 2016, the bank intends to restructure another €1bn in bad loans.

The Cooperative Central Bank said that its common equity tier 1 capital ratio rose to 15.7 per cent which includes the first quarter profit. The bank included a total of €10.2m in provisions for impairments of customer loans in its first quarter earnings.

Loans in arrears for more than 90 days dropped to well above €6.2bn in the first quarter from €6.5bn in December, the bank said. Its provisions ratio for 90 days past due loans fell to 53 per cent in March or €33.3bn.

Deposits fell to €12.5bn in March from €12.7bn in December, the Cooperative Central Bank said.

“The progress in non-performing loans management confirms the very significant preparation carried out by the Cooperative banks in this area by undertaking innovative initiatives both concerning the adoption of international best practices and the use of state of the art technology,” the bank said adding that in this context, a special unit to manage 30 days past due loans was taken into operation “weeks ago”.

The chief executive officer of the Cooperative Central Bank, Nicholas Hadjiyiannis said that the bank’s first quarter profits are a confirmation of progress achieved “reflected in the continuous strengthening of the balance sheet with respect to provisions, capital, liquidity and the drop in non-performing loans”.

“The challenges ahead of us are tackled gradually but methodically with hard work and balanced approaches,” Hadjiyiannis added.

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