articles | 09 May 2016

BoC aims for 40% NPLs

Bank of Cyprus (BoC) is expected to report a significant reduction of non-performing loans (NPLs) and Emergency Liquidity Assistance (ELA) for the first quarter of 2016 according to a trading update issued recently.

The bank said it had slashed loans in arrears for more than 90 days (90+ DPD) by €1bn in just three months, with the ratio declining to 47% as of March 31 from 50% at the end of December 2015.

This follows a cut of €1.2bn in the 90+ DPD ratio in 2015 and almost €1bn for the tougher European Banking Authority (EBA) definition.

“BoC’s results were surprisingly good,” an experienced banker told the press, while a high bar has been set for 2016.

“The Bank will be happy to see the NPL ratio reduced somewhere closer to 40% from 62% (EBA definition) at the end of 2015,” a BoC officer that told the press.

The group expects after-tax profits to reach €50 million, strengthening the common equity tier 1 (CET1) capital ratio to around 14.3% from 14% at the end of 2015.

This reflects “the profitability of the first quarter of 2016 and the on-going reduction in risk-weighted assets”, the statement said.

Despite strong profits, the bank is not expected to pay dividends.

“The European Central Bank will not allow dividend payments while NPLs are at this level and one should expect that they will require from them to further increase their loan provisioning”, a person familiar with the matter told the press.

Remaining ELA to go

The improving liquidity position has allowed the bank to reduce ELA by another €600m to €3.2bn from a peak of €11.4bn in April 2013 when it absorbed some €9bn from the now defunct Laiki.

“The lender wants to extinguish ELA within the year,” a bank officer said.

For the final ELA repayment, the BoC is expected to issue a covered bond of between €500 million and €1bn.

BoC announced at the end of March that it would pursue a premium listing on the London Stock Exchange, aiming for a listing in the second half of 2016.

Source: InCyprus

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