Bank of Cyprus posted net profit of €21 million in Q1

Bank of Cyprus group announced on Thursday a net profit of €21 million for the first quarter of 2022, compared to net profit of €8 million in the first quarter of 2021.

At the same time, it announced a record €618 million of new loans and further reduction of non-performing exposures (NPE), marking the third consecutive quarter of accelerating loan growth.

The bank balance sheet normalisation continued in the first quarter with further €100 mn of organic NPE reduction, thus reducing the NPE ratio to 6.5%, pro forma for NPE sales. The bank remains on track to achieve the target for NPE ratio of 5% by the end of this year and less than 3% by the end of 2025. It also announced a 2% increase in its loan portfolio.

As the Group’s Chief Executive Panicos Nicolaou said in a press conference, “new lending reached higher levels than the equivalent period pre-pandemic, whilst maintaining strict lending criteria.”

As at 31 March 2022, the bank’s Total Capital ratio was 20.3% and its CET1 ratio was 15.2%, on both a transitional and pro forma basis. Its liquidity position also remained strong and it continued to operate with over €6 billion surplus liquidity and liquidity coverage ratio (LCR) at 296%. Deposits on balance sheet increased by 1% in the quarter to €17.7 bn.

Additionally, the bank announced that it has now a clear focus on creating shareholder value and providing the foundations for a return to dividend distributions.

“Our plan for the future is clear. We have a dynamic strategy in place, leveraging our strong customer base and customer trust, our market leadership position, and further developing digital knowledge and infrastructure,” said Nicolaou.

“As a consequence, we have a clear focus on creating shareholder value and providing the foundations for a return to dividend distributions,” he stressed.

According to Nicolaou, the Bank's forecasts take into account "worse macroeconomic forecasts, lower GDP growth, higher risk-to-forecast costs, reduced new loans and similar direct and indirect effects of the war in Ukraine".

He also added that the expected rise in interest rates by the ECB "outweighs the negatives of the war".

Speaking at the press conference, in relation to the tendency of interest rate increases by the Central Banks, the Executive Director of the Financial Management Department of the Bank of Cyprus, Eliza Livadiotou, agreed that this "is very positive for the Bank of Cyprus" mainly because the bank has large liquidity reserves which are deposited with the European Central Bank and "today we pay 0.5%".

"Any change in the ECB interest rates will immediately bring better income for the Bank of Cyprus", she said, explaining that "for the 9.3 billion euros currently deposited with the ECB and paying 0.5%, we will either not have this loss or we will start to have income," as interest rates rise.

She also said that it is not true that the Cypriot banks are very exposed to Russian capital and added that the income that the Bank of Cyprus has from commissions from the Russian market is only 3% of its total commissions.

The group generated a total income of €146 million and a positive operating result of €50 mn.

As the group’s CEO said “despite inflationary pressures, we kept our total operating expenses broadly flat in the quarter at €86 mn, reflecting our on-going efforts to contain costs”. The quarterly cost of risk increased modestly to 44 bps in the quarter, reflecting the update in the macroeconomic outlook, but remaining well within the group’s normalised target range.

“We delivered a resilient profit after tax and before non-recurring items of €27 mn, with a corresponding return on tangible equity of 6.7%. The reported result for the quarter was a net profit of €21 mn”, he said.

Finally, Nicolaou noted that in 2022 the Bank is planning to reduce the number of its branches to 60, from 80 today, while reducing its staff by 15%, adding that the "when and how we will reduce it is something that has not been decided yet".