Bank of Cyprus: €9-million loss after absorbing voluntary retirement scheme

Bank of Cyprus, Cyprus’ largest lender, posted a €109 million profits after tax for the nine months ending on September of 2022, but reported a €9 million loss following the absorption of a voluntary retirement scheme which saw 550 of its staff exiting the bank.

The bank promoted the new VRS with a view to improve its efficiency with cost to income following the scheme dropping to 47% in the third quarter and 54% in the nine months of 2022, the bank said.

Furthermore, the bank’s non-performing exposures (NPE) ratio to total loans dropped to 4.5% while its net interest income rose by 19% year on year with the bank benefiting from the rise in ECB interest rates.

“We reported a strong performance in the third quarter of 2022, delivering tangible results against our strategic targets, and confirming the sustainability of our business model with well-diversified revenues and tight cost control,” Panicos Nicolaou, the bank’s CEO said in a statement.

He added that the bank has recorded a 49% increase in profit after tax, before non-recurring items, which corresponds to a return on tangible equity (ROTE) of 11.7%, “on track to achieve an underlying ROTE of circa 10% already in 2022, notwithstanding external uncertainties.”

Last July the bank completed a VRS through which 16% of the Group’s full-time employees were approved to exit the bank, with a total one-off cost of €101 mn recorded in the third quarter. This resulted in a net loss of €59 mn reported in Q3 and a loss of €9 mn for the first nine months of 2022.

The gross annual saving is estimated at €37 mn or 19% of total staff costs, with a payback period of 2.7 years, the bank said.

The Bank said its capital position “remains robust and comfortably in excess of our regulatory requirements, after absorbing in full the cost of the VRS,” noting that at 30 September 2022 its total capital ratio stood at 19.8% and its CET1 ratio amounted to 14.7%.

Furthermore, the bank said new lending amounted to €1.6 billion in the nine months of 2022, up by 25% year on year, while loan origination exceeded the corresponding pre-pandemic levels.

“The yoy increase is driven by increase in lending activity across all sectors, with corporate being the main driver,” the bank added.

Furthermore, the bank added that its liquidity position remains strong, with cash balances with ECB (excluding TLTRO III of €3.0 bn) amounting to €6.9 bn, “leaving the Bank well positioned to benefit from further interest rate increases.”

Deposits increased by 2% in the quarter and 7% year to date reaching to €18.8 bn, while net loans and advances to customers (excluding those classified as held for sale) totalled €10.08 mn compared to €10.14 mn at 30 June 2022 and €9.84 mn at 31 December 2021. As result the (net) loans to deposits ratio for the nine months amounted to 54% compare to the end of 2021.

Following the completion a Helix 3, a sale of a non-performing NPEs package, the bank’s problem loans declined to €467 million corresponding to 4,5% total loans while coverage ratio amounted to 63%.

Nicolaou said the bank continues deliberation with the regulator concerning dividend distribution in 2023.

“We expect the actions we are taking and the momentum in our business to create shareholder value and we now have the foundations for meaningful return to dividend distributions from 2023 onwards, subject to regulatory approval and market conditions,” he said.