Bank of Cyprus, the island’s largest lender posted a net loss of €126 million in the first half of 2020, mainly affected by a net loss from an Non-performing exposure (NPE) package sale (Helix 2) and additional loan loss provisions amid the coronavirus pandemic that hampers economic activity.
The Group Chief Executive Officer Panicos Nicolaou said in a statement that although the gradual easing of restrictions lead to increased economic activity “the global impact from the pandemic, however, continues to affect the economy and uncertainty remains”.
NIcolaou added that despite the challenging market conditions, we reached agreement for the sale of €0.9 billion NPEs in Project Helix 2 earlier this month, while the bank reduced its stock of NPEs organically through restructuring, debt for asset swaps, and write offs, by a further €279 million in the first half of the year and completed a sale of €133 million NPEs in Project Velocity 2, reducing its NPE stock by €1.3 billion.
“Overall, since the peak in 2014, we have now reduced the stock of NPEs by €12.4 billion or 83% to €2.6 billion and our NPE ratio is now reduced to 22% on a pro forma basis”, Nicolaou said.
“We remain committed to further de-risking of the balance sheet and will continue to seek solutions, both organic and inorganic to achieve this”, he added.
Noting that the bank will continue to assess potential NPE sales, Nicolaou said that the bank is “working closely with our clients to arrest potential future asset quality deterioration and NPE inflows once moratoria periods and other government support schemes come to an end”.
The bank’s capital and liquidity position “remains good and in excess of our regulatory requirements” with Total Capital ratio of 17.9% and CET1 of 14.4%, both pro forma for Helix2, he added.
“We continue to operate with significant liquidity surplus of €3.9 billion (LCR at 257%)”, he concluded.
Amid the Covid-19 crisis, the bank booked total provisions amounting to €120 million in the first half of 2020 of which €87 million for credit losses.
In the end of June 2020 the bank’s Common Equity Tier 1 capital (CET1) ratio on an IFRS 9 transitional basis stood at 14.3% and 14.4%, adjusted for the Project Helix 2 sale agreement signed in the third quarter of 2020, compared to 14.3% at 31 March 2020 and 14.8% at 31 December 2019.
The bank’s total capital ratio amounted to 17.8% (17.9% pro forma Helix 2) compared to 17.7% in the first quarter of 2020.
According to the financial results, NPEs were reduced by €270 million or 7% during the second quarter in 2020 – comprising inorganic reduction of NPEs of €137 million and a reduction through the completion of Project Velocity 2 of €133 million to €3,468 million June 30, 2020 compared to €3,738 million in March 31, 2020 and €3,880 million in December 31, 2019 despite the COVID-19 lockdown in March 2020.
“The Group has recorded organic NPE reductions for twenty-one consecutive quarters. Pro forma for Helix 2, NPEs were down by a further €886 million to €2,582 million on the basis of June 30, 2020 figures”, the bank said.
On the same basis the NPEs account for 28% of gross loans as of June 30, 2020 compared to 29% as of March 31, 2020 and 30% as of December 31, 2019.
Adjusted for Helix 2 project the NPE ratio is reduced further to 22% based on the June 30, 2020 figures.
Furthermore, the Bank added that the NPE coverage ratio improved to 59% as of June 30, 2020 compared to 56% as of March 31, 2020 and 54% as of December 31, 2019.
Group gross loans totalled €12,491 million as of June 30, 2020 compared to €12,709 million as of March 31, 2020 and €12,822 million as of December 31, 2019.
Pro forma for Helix 2, gross loans are reduced by €898 million to €11,593 million as of June 30, 2020. New loans granted in Cyprus reached €689 million for first half of 2020, compared to €1,111 million for first half of 2019, reflecting the effects of the pandemic and lockdown measures.
The Bank said it remains the single largest credit provider in Cyprus with a market share of 41.7% as of June 30, 2020 compared to 41.0% as of March 31, 2020 and to 41.1% as of December 31, 2019.
Furthermore net interest income (NII) and net interest margin (NIM) for first half of 2020 amounted to €168 million and 1.90% respectively, broadly flat year on year, as the pressure on effective loan yields is offset by the decreased cost of deposits, the bank added.
NII and NIM for the second quarter of 2020 amounted to €83 million compared to €85 million for the first quarter of 2020), and 1.88% compared to 1.95% for the first quarter of 2020 respectively, mainly due to higher cash collections on interest not previously recognised of €4 million in the first half of 2020.
Total income for the first half of 2020 amounted to €288 million compared to €333 million for the first half of 2019, down by 13% year on year, while total income for the second quarter of 2020 amounted to €143 million, broadly flat compared to the first quarter of 2020.
Total expenses for the first half of 2020 were €180 million compared to €208 million for the first half of 2019 and down by 14% year on year, 53% of which related to staff costs (€96 million), 38% to other operating expenses (€69 million) and 9% (€15 million) to special levy and contributions to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF).
Total operating expenses for the second quarter of 2020 were €81 million compared to €84 million for the first half of 2020 down by 3% quarter on quarter.
Staff costs of €96 million for the first half of 2020 decreased by 14% year on year compared to €112 million in the first half of 2019 mainly driven by cost savings following the completion of the voluntary staff exit plan (VEP) in the fourth quarter of 2019 through which 11% of the Group’s full-time employees were approved to leave at a total cost of €81 million recorded in the consolidated income statement for the fourth quarter of 2019.