07/09/2015 06:21
The lower interest rates that prevailed throughout the second quarter had a significant negative impact on banks' revenues in the first half of the year.
Net interest income, the banks' primary source of revenue, was negatively affected during H1 of 2015 mainly due to the lower interest rates imposed by the central bank of Cyprus.
The lower loan interest rates announced by all banks in February 2015 and put into effect on March 1, 2015 had an immediate negative impact on the banks' interest income while interest expenses will be affected positively only gradually as deposits are renewed.
The impact was more pronounced than in the first quarter as the lower lending rates were in effect for a longer time resulting in even higher interest income declines.
Bank of Cyprus, Coops and Hellenic Bank, the country's three systemic banks, experienced a 15%, 18% and 31% drop in their net interest income respectively.
Alpha Bank Cyprus' -20% is also due to the transfer of some loans to a related company while Eurobank appears to having been affected the least with a drop of just 3%.
It is expected that a similar situation will prevail in the next 2-3 quarters before the pressure starts to alleviate as deposit rate adjustments are made.
Interest income was negatively affected also from the increase in non-performing exposures as well as from the increase in liquid assets which naturally have a low return.
Other sources of income remained basically stable as changes in absolute terms are insignificant.
BOCY and COOPs managed to contain their operating expenses as some expenses that occurred in 2014 H1 were not repeated.
The most notable changes for BOCY occurred in "provisions and settlements of litigations or claims" which were reduced to €2 mn from €12 mn, and for COOPs in staff costs primarily due to a charge of €16 mn in 2014 H1 for early retirement which was not repeated this year.
On the contrary, HB's expenses increased by 22% at the back of a 4% increase in staff costs as the number of employees increased by 153, while consultancy and legal expenses amounting to €13 mn were not present in 2014.
As a result the related expense ratio for BOCY deteriorated to 36,4% from 33,1% in 14 H1, for COOPs was basically unchanged at 46,4%, while HB's deteriorated to 64,7% from 41,3% last year.
ABCY's expense ratio deteriorated to 48,4%, excluding a once off expense of €5,4 mn while Eurobank sports by far the healthiest ratio at 29%.
Provisions for non-performing loans (NPLs) were significantly lower than in 14 H1 especially for HB.
Banks stressed the decelerated growth of new problematic loans and the relative high provisions assumed in previous quarters in justifying the lower impairment charges.
The net effect of all of the above factors was a small half-year profit for BOCY and COOPs although lower than the respective figures of 2014, and a break-even situation for HB reversing last year's losses.
ABCY contained its losses to half compared to 2014 H1 with Eurobank managing a €17 mn profit.
Financial position
Deposits which are the banks' primary funding source increased by 3% for BOCY and COOPs partly owing to exchange rate fluctuations while they decreased by 2% for HB.
The 9% decrease in ABCY's deposits are mostly attributable to the recent developments in Greece but according to the bank the situation has now stabilised.
According to BOCY the positive trend in deposits continued after the end of the period under examination.
Net loans either remained stable (BOCY) or showed a 2% decrease showing the still difficult environment that prevails for credit expansion as both lenders (banks) and borrowers (customers) are hesitant to proceed to new loans.
Latest figures by the central bank suggest that this trend is gradually changing.
The net loans to deposits ratio marginally improved from the end of 2014 but remains quite high for BOCY while for HB it remains at a very comfortable level.
It has improved for ABCY due to a larger decline in loans (transfer to another company) than in deposits and is at a comfortable level for Eurobank.
NPLs although showing signs of stabilization remain at unsustainably high levels and all of the systemic banks underscore the importance of improving the situation, appearing optimistic that the recently approved new legislation on foreclosures will help towards this direction.
The shown NPL ratios were used so as for a fair comparison to be made. Using stricter criteria imposed by the European Bank Authority would further worsen them as for BOCY for example the ratio would increase to 62%.
Eurobank's NPL ratio stands at a mere 6,4% reflecting the bank's "young" loan portfolio compared to the rest of the banks but also suggesting a very prudent loan extension policy.
The NPL coverage ratio (NPLs already provided for in the profit & loss statement) exhibited slight changes from the end of last year but in any case it remains below the 50% level which is considered as appropriate, suggesting that the banks still have a long way to go in this area with the exception of Eurobank.
The banks state though that when collaterals are taken into account, NPLs are fully covered.
The all important capital adequacy ratio of Common Equity Tier 1 ratio remains high for all of the five banks ranging from 13,5% to 24% compared to the minimum requirement of 8%.
This suggests that the banks are in a position to absorb further losses without having to resort to additional capital injections.
The two publicly traded banks trade at a substantial discount to their adjusted net asset value (after excluding intangible assets) as for BOCY the ratio stands at 0,57, based on a market price of €0,187 and for HB at 0,61 based on a price of €1,69, due to the still precarious state of the Cyprus economy in general, and the banks' in specific.
Net interest income, the banks' primary source of revenue, was negatively affected during H1 of 2015 mainly due to the lower interest rates imposed by the central bank of Cyprus.
The lower loan interest rates announced by all banks in February 2015 and put into effect on March 1, 2015 had an immediate negative impact on the banks' interest income while interest expenses will be affected positively only gradually as deposits are renewed.
The impact was more pronounced than in the first quarter as the lower lending rates were in effect for a longer time resulting in even higher interest income declines.
Bank of Cyprus, Coops and Hellenic Bank, the country's three systemic banks, experienced a 15%, 18% and 31% drop in their net interest income respectively.
Alpha Bank Cyprus' -20% is also due to the transfer of some loans to a related company while Eurobank appears to having been affected the least with a drop of just 3%.
It is expected that a similar situation will prevail in the next 2-3 quarters before the pressure starts to alleviate as deposit rate adjustments are made.
Interest income was negatively affected also from the increase in non-performing exposures as well as from the increase in liquid assets which naturally have a low return.
Other sources of income remained basically stable as changes in absolute terms are insignificant.
BOCY and COOPs managed to contain their operating expenses as some expenses that occurred in 2014 H1 were not repeated.
The most notable changes for BOCY occurred in "provisions and settlements of litigations or claims" which were reduced to €2 mn from €12 mn, and for COOPs in staff costs primarily due to a charge of €16 mn in 2014 H1 for early retirement which was not repeated this year.
On the contrary, HB's expenses increased by 22% at the back of a 4% increase in staff costs as the number of employees increased by 153, while consultancy and legal expenses amounting to €13 mn were not present in 2014.
As a result the related expense ratio for BOCY deteriorated to 36,4% from 33,1% in 14 H1, for COOPs was basically unchanged at 46,4%, while HB's deteriorated to 64,7% from 41,3% last year.
ABCY's expense ratio deteriorated to 48,4%, excluding a once off expense of €5,4 mn while Eurobank sports by far the healthiest ratio at 29%.
Provisions for non-performing loans (NPLs) were significantly lower than in 14 H1 especially for HB.
Banks stressed the decelerated growth of new problematic loans and the relative high provisions assumed in previous quarters in justifying the lower impairment charges.
The net effect of all of the above factors was a small half-year profit for BOCY and COOPs although lower than the respective figures of 2014, and a break-even situation for HB reversing last year's losses.
ABCY contained its losses to half compared to 2014 H1 with Eurobank managing a €17 mn profit.
Financial position
Deposits which are the banks' primary funding source increased by 3% for BOCY and COOPs partly owing to exchange rate fluctuations while they decreased by 2% for HB.
The 9% decrease in ABCY's deposits are mostly attributable to the recent developments in Greece but according to the bank the situation has now stabilised.
According to BOCY the positive trend in deposits continued after the end of the period under examination.
Net loans either remained stable (BOCY) or showed a 2% decrease showing the still difficult environment that prevails for credit expansion as both lenders (banks) and borrowers (customers) are hesitant to proceed to new loans.
Latest figures by the central bank suggest that this trend is gradually changing.
The net loans to deposits ratio marginally improved from the end of 2014 but remains quite high for BOCY while for HB it remains at a very comfortable level.
It has improved for ABCY due to a larger decline in loans (transfer to another company) than in deposits and is at a comfortable level for Eurobank.
NPLs although showing signs of stabilization remain at unsustainably high levels and all of the systemic banks underscore the importance of improving the situation, appearing optimistic that the recently approved new legislation on foreclosures will help towards this direction.
The shown NPL ratios were used so as for a fair comparison to be made. Using stricter criteria imposed by the European Bank Authority would further worsen them as for BOCY for example the ratio would increase to 62%.
Eurobank's NPL ratio stands at a mere 6,4% reflecting the bank's "young" loan portfolio compared to the rest of the banks but also suggesting a very prudent loan extension policy.
The NPL coverage ratio (NPLs already provided for in the profit & loss statement) exhibited slight changes from the end of last year but in any case it remains below the 50% level which is considered as appropriate, suggesting that the banks still have a long way to go in this area with the exception of Eurobank.
The banks state though that when collaterals are taken into account, NPLs are fully covered.
The all important capital adequacy ratio of Common Equity Tier 1 ratio remains high for all of the five banks ranging from 13,5% to 24% compared to the minimum requirement of 8%.
This suggests that the banks are in a position to absorb further losses without having to resort to additional capital injections.
The two publicly traded banks trade at a substantial discount to their adjusted net asset value (after excluding intangible assets) as for BOCY the ratio stands at 0,57, based on a market price of €0,187 and for HB at 0,61 based on a price of €1,69, due to the still precarious state of the Cyprus economy in general, and the banks' in specific.