BOC announces €553m net loss, real estate fund to reduce NPLs

Bank of Cyprus (BoC) said Tuesday it generated an after-tax loss of €553m on reduced net interest income in the first nine months of the year, as it announced new initiatives to reduce bad loans faster.

The island’s largest lender had recorded a net profit of €62m at the same period last year.

BoC said it also received regulatory approval to set up a real estate fund and have it listed on the Cyprus Stock Exchange.

The bank’s income dropped 3 per cent in the first nine months, to €693m, mainly on reduced net interest income, which fell 13 per cent, to €454m.

Total provisions and impairments rose to €840m in the first three quarters of 2017, from €301m a year before, or 180 per cent, the bank said.

It includes €729m in provisioning charges, up 173 per cent, €38m in impairments of other financial and non-financial assets, up 11 per cent, and €73m in provisions for litigation against zero in the respective period last year.

The bank reduced its delinquent loan portfolio by €588m in the third quarter to below €9.2bn, or 47.6m, for the very first time since the introduction, in December 2014, of the current classification rules for non-performing loans ,which include a probation period for restructured loans, it said.

At the end of June, non-performing loans stood at €9.7bn, or 50 per cent.

“Today we are pleased to announce the first of these accelerative non-organic balance sheet repair initiatives,” the bank’s chief executive officer John Hourican was quoted as saying. “Following approval by CySeC (the Cyprus Securities and Exchange Commission) to register a real estate fund as an alternative investment fund (AIF), the bank is launching a Real Estate Fund to be listed on the CSE, subject to meeting certain conditions. This circa €190m fund is the first of its kind in Cyprus and adds further pace to our efforts to accelerate balance sheet de-risking”.

Hourican said that the lender, which pioneered the banking sector’s fight against non-performing loans with the creation of an internal division for loan restructurings and recoveries, maintained its momentum in reducing bad loans for a tenth consecutive quarter.

In the first nine months of the year alone, BoC reduced its non-performing loans by €2bn, Hourican said. Since December 2014, they dropped by 40 per cent while the coverage ratio against delinquent loans rose “above the EU average,” to 49 per cent.

“We expect the organic reduction of our non-performing exposures stock to continue its downward trajectory in the coming quarters,” the Irish banker said. “At the same time, we are actively exploring structured solutions to further accelerate reduction and further normalise the bank.”

The bank’s real estate management unit took on assets worth €356m in the first nine months of the year, including €127m in the third quarter, it said. Its revenue in the first nine-months of the year was €204m, including €64m in July to September.

BoC, which had its share listed at the London Stock Exchange (LSE) in January, saw its cost-to-income ratio rise to 45 per cent, from 42 per cent the previous year, at the end of September.

Its net interest margin fell to 3.18 per cent from 3.51 per cent in September 2016.

“The bank continues to make steady and positive progress in its journey back to strength,” Hourican said. “Our results this quarter reflect our previously communicated strategy. In the third quarter, we continued to direct all operating profitability to further increase coverage levels on delinquent exposures to best position the bank to present a more normal credit cycle charge in 2018”.

The lender which fully repaid its outstanding emergency central bank liquidity in January, saw its deposits rise 5 per cent in nine months, to €17.3bn in September, against a 5 per cent drop in loans to €14.8bn, it said.