articles | 30 June 2014

Bank of Cyprus examining capital and funding options

The Bank of Cyprus (BoC) announced recently that it was examining certain funding and capital options in line with the proposals of its advisors, to strengthen its buffers against mounting non-performing loans, and in light of the upcoming stress tests by the European Central Bank.

“The Group is proceeding with the assessment of potential investor interest regarding these options and will issue further announcements when and if there is further tangible progress, subject to approval of the Board of Directors in a future Board meeting,” the announcement read.

The news came after the Cyprus government had decided to repay part of the €1.8 billion bailout bond issued in favour of now-defunct Laiki Bank, which was transferred to BoC after the failed lender was wound down.

The partial repayment, the bank said in a statement earlier in the week, will total €950 million. It will increase the bank’s core-tier 1 capital by 0.4% to 10.6%.

But the BoC has variously been urged to go to the markets for a capital injection, both by Finance Minister Harris Georgiades and Governor of the Central Bank Chrystalla Georghadji, who said it would be “wise” for Cypriot banks to seek capital increases ahead of the stress tests.

“I believe this target is achievable,” Georgiades said earlier in the week, with regard to the prospect of local banks tapping investor confidence in the Cypriot financial system. He offered last week’s successful sovereign debt issue to international investors as evidence of such confidence.

Despite the BoC’s vague announcement, local media reported that the lender’s management has come to a decision to raise capital through a share issue, but did not vote on it, as the details had not been finalised. The capital increase, reports said, could range from €800 million to €1 billion, and will be completed by mid-September.

The BoC’s consultants HSBC and Credit Suisse both urged the bank to proceed to issuing capital, citing the government’s successful debt issue, as well as the favourable climate being shaped across Europe and Greece – recently, Greek banks comfortably managed to raise €8.2 billion from international markets.

The consultants advised the BoC that several foreign funds have expressed interest to invest in the bank, citing their own research.

Meanwhile, Thursday’s 10-hour board meeting also decided the recruitment of two deputy CEOs, who are expected to assume their duties in July.

The hiring of a deputy CEO had been tabled some months ago by the board, causing suspicions of a rift between the board and executive management – which the deputy CEO would ostensibly help bridge by keeping executive boss John Patrick Hourican in check. But the plan was shelved, it was thought, after both sides were summoned by President Anastasiades for a chat last April.

Source: Cyprus Mail

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