08/09/2015 06:50
Both banks that are closely monitored by the central bank according to the provisions of the economic adjustment program are well on their way to achieve the set targets.
After the events of 2013, the central bank of Cyprus prepared a set of separate targets in conjunction with BOCY and COOPs, the country's two biggest credit institutions, in an effort to ensure their viability.
The targets constitute medium term goals to be achieved by the end of 2017 and span four different major areas while they may differ based on what was perceived as most important to each institution.
As shown in the table both banks have made major strides towards these targets as about two years after the events of 2013, they already satisfy most of them.
Asset quality
The coverage ratio for non-performing loans is already in the target range for BOCY while for the COOPs some more effort is needed.
The relative stabilization of NPLs coupled with the new legislation recently in place aiming at assisting the banks in this direction leaves room for optimism that a potential continuation of the improvement of the economy in general, will facilitate the increase of this ratio.
Irrespective of the set targets, an appropriate level for this ratio is considered to be 50%.
The set targets refer to 90+ DPD exposures that are defined as loans with a specific provision (i.e. impaired loans) and loans due for more than 90 days but not impaired.
In the case of COOPs, a target in the level of such exposures is also set with the objective being less than €4,5 bn by the end of 2017.
As of June 30 2015 these stand at €6,8 bn the bank has still some way to go in reaching this goal.
The cost of risk, that is the annual provisions for NPLs as a percentage of total loans, seems to be still some time away before is achieved by BOCY for which a more ambitious target has been set.
Despite an 18% reduction in its provisions during the first half of the year compared to the corresponding period of last year, BOCY's cost of risk stood as at June 30, 2015 to 2,2% compared to the target of less than 1%.
The previously mentioned factors are expected to help the bank in achieving this target as well.
The COOPs are for the time being well within their less strict target of less than 2% with the ratio standing at 0,8%.
Funding
A target of reducing its dependency on the eurosystem has been set for BOCY as this has to decline to below 25%.
The bank appeared keen on doing so from the beginning of the crisis as it made this one of its primary objectives following an aggressive policy of paying off ELA as soon as possible.
As a result this metric already stands at 25% from a peak of 37% in March 2014, and is projected to have declined to 23% by late August thus achieving the target already.
For COOPs a different target has been set in this category and is related to the net loans to deposits ratio which at 77,6% has already achieved the target of less than 85%.
Capital
In the context of this category a quite high common equity tier I ratio has been targeted especially for the COOPs in which case it exceeds 15% as opposed to the minimum of 8%.
At 13,5% the COOPs still need to work things out for this to be fulfilled, while BOCY already is above its threshold of 12%.
For the COOPs an extra target related to the leverage ratio defined as total assets over shareholders' interest, is set. The bank needs to further streamline its assets if it is to satisfy this criterion.
Margins & efficiency
Both organizations have already achieved or are very close to do so the targets of net interest margin and cost to income ratio.
It is important that this was done at a time when the decrease in lending rates had a negative impact on both of these metrics.
As far as the number of COOP branches is concerned, the target of 258 (by the end of 2015) has already been achieved while some more work is needed in further reducing its staff force.
For the third systemic Cypriot bank, the Hellenic bank, no key performance indicators have been set by the central bank as it was neither bailed- out or bailed-in.
On Friday, CB announced a set of additional targets to be implemented by all banks in an effort to incentivise them to increase the volume and improve the quality of restructurings for loans presenting arrears over 90 days but also to take proactive action for the loans presenting arrears over 30 days to prevent them from becoming non-performing.
After the events of 2013, the central bank of Cyprus prepared a set of separate targets in conjunction with BOCY and COOPs, the country's two biggest credit institutions, in an effort to ensure their viability.
The targets constitute medium term goals to be achieved by the end of 2017 and span four different major areas while they may differ based on what was perceived as most important to each institution.
As shown in the table both banks have made major strides towards these targets as about two years after the events of 2013, they already satisfy most of them.
Asset quality
The coverage ratio for non-performing loans is already in the target range for BOCY while for the COOPs some more effort is needed.
The relative stabilization of NPLs coupled with the new legislation recently in place aiming at assisting the banks in this direction leaves room for optimism that a potential continuation of the improvement of the economy in general, will facilitate the increase of this ratio.
Irrespective of the set targets, an appropriate level for this ratio is considered to be 50%.
The set targets refer to 90+ DPD exposures that are defined as loans with a specific provision (i.e. impaired loans) and loans due for more than 90 days but not impaired.
In the case of COOPs, a target in the level of such exposures is also set with the objective being less than €4,5 bn by the end of 2017.
As of June 30 2015 these stand at €6,8 bn the bank has still some way to go in reaching this goal.
The cost of risk, that is the annual provisions for NPLs as a percentage of total loans, seems to be still some time away before is achieved by BOCY for which a more ambitious target has been set.
Despite an 18% reduction in its provisions during the first half of the year compared to the corresponding period of last year, BOCY's cost of risk stood as at June 30, 2015 to 2,2% compared to the target of less than 1%.
The previously mentioned factors are expected to help the bank in achieving this target as well.
The COOPs are for the time being well within their less strict target of less than 2% with the ratio standing at 0,8%.
Funding
A target of reducing its dependency on the eurosystem has been set for BOCY as this has to decline to below 25%.
The bank appeared keen on doing so from the beginning of the crisis as it made this one of its primary objectives following an aggressive policy of paying off ELA as soon as possible.
As a result this metric already stands at 25% from a peak of 37% in March 2014, and is projected to have declined to 23% by late August thus achieving the target already.
For COOPs a different target has been set in this category and is related to the net loans to deposits ratio which at 77,6% has already achieved the target of less than 85%.
Capital
In the context of this category a quite high common equity tier I ratio has been targeted especially for the COOPs in which case it exceeds 15% as opposed to the minimum of 8%.
At 13,5% the COOPs still need to work things out for this to be fulfilled, while BOCY already is above its threshold of 12%.
For the COOPs an extra target related to the leverage ratio defined as total assets over shareholders' interest, is set. The bank needs to further streamline its assets if it is to satisfy this criterion.
Margins & efficiency
Both organizations have already achieved or are very close to do so the targets of net interest margin and cost to income ratio.
It is important that this was done at a time when the decrease in lending rates had a negative impact on both of these metrics.
As far as the number of COOP branches is concerned, the target of 258 (by the end of 2015) has already been achieved while some more work is needed in further reducing its staff force.
For the third systemic Cypriot bank, the Hellenic bank, no key performance indicators have been set by the central bank as it was neither bailed- out or bailed-in.
On Friday, CB announced a set of additional targets to be implemented by all banks in an effort to incentivise them to increase the volume and improve the quality of restructurings for loans presenting arrears over 90 days but also to take proactive action for the loans presenting arrears over 30 days to prevent them from becoming non-performing.