26/01/2016 11:24
Despite the economic recovery, the extremely weak loan quality of bank of Cyprus and Hellenic bank will only gradually improve in 2016, Moody's Investors Service said in a report published today.
According to Melina Skouridou, analyst at Moody's and author of the report, "The economic recovery and a raft of new legislative measures to help lenders recover unpaid loans are improving Bank of Cyprus' and Hellenic Bank's restructuring prospects, funding conditions as well as their profitability. However, the large stocks of problem loans will take several years to work through, with the weak real-estate market hampering collateral sales".
Because of the increased economic activity and strengthening depositor confidence, customer deposits are starting to rebuild gradually.
Although steadily declining, Bank of Cyprus remains dependent on Emergency Liquidity Assistance, while Hellenic Bank faced fewer outflows during the crisis and maintains a stronger deposit-based funding profile.
Bank of Cyprus, the dominant bank by market share, is ahead in terms of restructuring and recovering on problem loans. As a result, its profitability, which also benefits from recoveries on the discounted assets it acquired when it took over Laiki's domestic business in 2013, is recovering at a faster pace. However, both banks' profits will remain modest the coming years as they build up their low levels of provisions.
Accounting for around 41% of problem loans, the banks' loan loss provisions provide a limited buffer against losses from their high stock of non-performing loans which continues to pose risks to their capital levels. The ratio of non-performing loans to gross loans, which stood at 56.9% of total lending for Hellenic Bank and 52.5% for Bank of Cyprus as of September 2015, will remain high over the foreseeable future.
According to Melina Skouridou, analyst at Moody's and author of the report, "The economic recovery and a raft of new legislative measures to help lenders recover unpaid loans are improving Bank of Cyprus' and Hellenic Bank's restructuring prospects, funding conditions as well as their profitability. However, the large stocks of problem loans will take several years to work through, with the weak real-estate market hampering collateral sales".
Because of the increased economic activity and strengthening depositor confidence, customer deposits are starting to rebuild gradually.
Although steadily declining, Bank of Cyprus remains dependent on Emergency Liquidity Assistance, while Hellenic Bank faced fewer outflows during the crisis and maintains a stronger deposit-based funding profile.
Bank of Cyprus, the dominant bank by market share, is ahead in terms of restructuring and recovering on problem loans. As a result, its profitability, which also benefits from recoveries on the discounted assets it acquired when it took over Laiki's domestic business in 2013, is recovering at a faster pace. However, both banks' profits will remain modest the coming years as they build up their low levels of provisions.
Accounting for around 41% of problem loans, the banks' loan loss provisions provide a limited buffer against losses from their high stock of non-performing loans which continues to pose risks to their capital levels. The ratio of non-performing loans to gross loans, which stood at 56.9% of total lending for Hellenic Bank and 52.5% for Bank of Cyprus as of September 2015, will remain high over the foreseeable future.
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