Hellenic Bank posted a profit of €55.4 million for the first half of 2022, compared to a profit of €21.0 million in the first half of 2021, according to Group’s financial results for the six-month period.
“Despite this challenging environment, Hellenic Bank performed well above expectations, making solid progress towards its strategic goals. We delivered an after-tax profit of €55.4m proving the resilience and robustness of our business model”, said the Group’s Chief Executive Officer Oliver Gatzke.
As the Chief Financial Officer of the Bank Antonis Rouvas stated during the presentation of the results, the key parameter for the significant increase in the Bank's profitability in relation to the corresponding period of 2021 was the release of some of the provisions that the bank had made during the COVID era and after it became clear that the economy was showing resilience.
The capital position remained solid with the Capital Adequacy Ratio and Common Equity Tier 1 (CET 1) at 20.95% and 18.68%, respectively, significantly exceeding the minimum regulatory requirements of the supervisory authorities. The Pro Forma NPE ratio reached 3.6% and the Adjusted NPE Provision Coverage Ratio reached 57%.
“The Project Starlight related to the sale of a €0,7billion of gross non-performing loan portfolio and the agreement with RCB to acquire a performing loan portfolio, significantly reduced our pro-forma NPE ratio to c.3,6%, one of the lowest, among peers”, said the Banks’ CEO.
Net interest income (NII) amounted to €133,0 million, up by 3% year-on-year. Impairment losses were €11,2 million. Total new lending approved reached €556 million. NPEs provision coverage ratio was at 53% as of 30 June 2022, while cost to income ratio was 76%.
The banks also announced that its liquidity position remain robust, with a Liquidity Coverage Ratio of 473% and a liquidity surplus in Liquidity Coverage Ratio of €6,4 billion. Net loans to deposits ratio amounted to 41%. As of June 30, 2022, customer deposits stood at €15.5 billion, up 3% year-on-year.
During the presentation of the results the CEO mentioned that the first half of 2022 was better than expected and the outlook for the second half is rather positive, while a question mark remains for 2023, expressing concern about how the rise of interest rates and increased inflation will affect the bank's profitability.
As he mentioned that uncertainty remains, and the Bank must be cautious. He also noted that in the middle of the year, the 10-year Cyprus government bond reached a peak yield of 3.5%, mainly due to the credit spread widening, reflecting the uncertain capital market environment.
“Despite the fact that Cyprus is doing well in terms of economy, better than expected, there’s a gloomy picture around the country risk and being a bank in Cyprus we have to deal with it”, he said.
Gatzke referred to three main uncertainties for the bank until the end of 2022. Among them, the ongoing dialogue with the unions and the Ministry of Labour on the staff’s exit plan and the collective agreement, the outcome of which may affect Bank's financial results at the end of the year.
He also referred to "Project Starlight", saying that it was expected to be completed by the end of the year, but since there was no final agreement on the transfer of the assets, they must remain cautious.
He also spoke of the uncertainty of the challenging macroeconomic environment and how this will affect specific sectors in Cyprus such as construction and therefore the bank's asset quality.
Regarding the impact on the bank's loan portfolio from the increase in interest rates, Gatzke noted that a large part of the Bank’s existing loans will not be significantly affected, since there' re linked with the Cypriot base rate which is not as affected as much the Euribor. He said however that new lending linked to Euribor will be affected and said the bank should remain cautious on loan developments until early 2023.
At the same time, he spoke of a "paradox" that exists in the Cypriot banking system, since banks can invest in government bonds with a yield of 3.5%, while the bank's lending rates for corporates for example, are much lower and it is not in the bank's interest to grant such loans.
He noted that with changes in the interest rate environment the bank will have to ensure that it prices its new loans and the risk they carry at the right level.
"We will provide funding to the economy, but it has to be at the right price," he said.
Asked if deposit rates will also increase, he said there is so much liquidity that they have no intention of raising deposit rates at the moment. What they could offer, he added, is the option for customers to get a higher interest rate on term deposits.