Bank of Cyprus posts net loss of €126 million in the first half of 2020

Bank of Cyprus, the island’s largest lender posted a net loss of €126 million in the first half of 2020, mainly affected by a net loss from an Non-performing exposure (NPE) package sale (Helix 2) and additional loan loss provisions amid the coronavirus pandemic that hampers economic activity.

The Group Chief Executive Officer Panicos Nicolaou said in a statement that although the gradual easing of restrictions lead to increased economic activity “the global impact from the pandemic, however, continues to affect the economy and uncertainty remains.”

NIcolaou added that despite the challenging market conditions, we reached agreement for the sale of €0.9 bn NPEs in Project Helix 2 earlier this month, while the bank reduced its stock of NPEs organically (through restructuring, debt for asset swaps and write offs) by a further €279 mn in the first half of the year and completed a sale of €133 mn NPEs in Project Velocity 2, reducing its NPE stock by €1.3 billion.
 
“Overall, since the peak in 2014, we have now reduced the stock of NPEs by €12.4 bn or 83% to €2.6 bn and our NPE ratio is now reduced to 22% on a pro forma basis,” Nicolaou said adding “we remain  committed to further de-risking of the balance sheet and will continue to seek solutions, both organic  and inorganic to achieve this.”

Noting that the bank will continue to assess potential NPE sales, Nicolaou said that the bank is “working closely with our clients to arrest potential future asset quality deterioration and NPE inflows once moratoria periods and other government support schemes come to an end.”
 
He added the bank’s capital and liquidity position “remains good and in excess of our regulatory requirements” with Total Capital ratio of 17.9% and CET1 of 14.4%, both pro forma for Helix2.  “We continue to operate with significant liquidity surplus of €3.9 bn(LCR at 257%),” he concluded.
 
Amid the Covid-19 crisis, the bank booked total provisions amounting to €120 million in the first half of 2020 of which €87 million for credit losses.
 
In the end of June 2020 the bank’s Common Equity Tier 1 capital (CET1) ratio on an IFRS 9 transitional basis stood at 14.3% and 14.4%, adjusted for the Project Helix 2 sale agreement signed in the third quarter of 2020, compared to 14.3% at 31 March 2020and 14.8% at 31 December 2019m, whereas the bank’s total capital ratio amounted to 17.8% (17.9% pro forma Helix 2) compared to 17.7% in the first quarter of 2020.
 
According to the financial results, NPEs were reduced by €270 mn or 7% during 2Q2020 (comprising inorganic reduction of NPEs of €137 mn and a reduction through the completion of Project Velocity 2 of €133 mn) to €3,468 mn at 30 June 2020  (compared to€3,738 mn at 31 March 2020 and €3,880 mn at 31 December 2019), despite the COVID-19 lockdown in March 2020.
 
“The Group has recorded organic NPE reductions for twenty-one consecutive quarters. Pro forma for Helix 2, NPEs were down by a further €886 mn to €2,582 mn on the basis of 30 June 2020 figures,” the bank said.
 
The NPEs account for 28% of gross loans as at 30 June 2020, compared to 29% as at 31 March 2020 (improved by 1 p.p. qoq) and 30% at 31 December 2019, on the same basis. Adjusted for Helix 2 project the NPE ratio is reduced further to 22% on the basis of the 30 June 2020 figures.
 
Furthermore, the Bank added that the NPE coverage ratio improved to 59% at 30 June 2020, compared to 56% at 31 March 2020 (improved by 3p.p. qoq) and 54% at 31 December 2019.
 
Group gross loans totalled €12,491 mn at 30 June 2020, compared to €12,709 mn at 31 March 2020 and €12,822 mn at 31 December 2019.
 
Pro forma for Helix 2, gross loans are reduced by €898 mn to €11,593 mn at 30 June 202. New loans granted in Cyprus reached €689 mn for 1H2020, compared to €1,111 mn for 1H2019 (down by 38% yoy), reflecting the effects of the pandemic and lockdown measures.
 
The Bank said it remains the single largest credit provider in Cyprus with a market share of 41.7% at 30June 2020, compared to 41.0% at 31 March 2020 and to 41.1% at 31 December 2019.
 
Furthermore net interest income (NII) and net interest margin (NIM) for 1H2020 amounted to €168 mn and 1.90% respectively, broadly flat year on year, as the pressure on effective loan yields is offset by the decreased cost of deposits, the bank added.
NII and NIM for the second quarter of 2020 amounted to €83 mn (compared to €85 mn for 1Q2020)  and  1.88% (compared  to  1.95%  for  1Q2020) respectively, mainly due to higher cash collections on interest not previously recognised of €4 mnin 1Q2020.
 
Total income for 1H2020 amounted to €288mn, compared to €333 mn for 1H2019, down by by 13% year on year, while total income for 2Q2020 amounted to €143mn, broadly flat compared to 1Q202.
 
Total expenses for 1H2020 were €180mn (compared to €208mn for 1H2019anddown by 14% yoy), 53% of which related to staff costs (€96mn), 38% to other operating expenses (€69mn) and 9% (€15mn) to special levy and contributions to Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF).
 
Total operating expenses for 2Q2020 were €81 mn, compared to €84 mn for 1Q2020 (down by 3% qoq). Staff costs of €96 mn for 1H2020 decreased by 14% yoy (compared to €112 mn in 1H2019), mainly driven by cost savings following the completion  of  the  voluntary  staff  exit  plan  (VEP)  in  4Q2019,  through  which c.11% of the Group’s full-time employees were approved to leave at a total cost of €81 mn, recorded in the consolidated income statement in 4Q2019.