EVERYONE expected the Bank of Cyprus’ results for 2012 to be very disappointing but the €2.2 billion loss announced last Friday exceeded most expectations.
Provisions for impairment of loans, the bank explained rose markedly last year – to €2.3bn compared to the €426m in 2011 – reflecting the worsening of its loan portfolio and falling collateral values.
Another reason for the big discrepancy was that for 2011, the bank grossly under-calculated its provisions, by using the old definition for non-performing loans.
Will this year’s results be any better? Unlikely when we consider that they will include the fire-sale of the BoC operation in Greece which the bank claimed caused losses in the region of €1.4bn. And it also warned that provisions for NPLs would remain high as more borrowers would default and collateral values would continue on the downward path. We do not know how the addition of Laiki’s €9bn ELA debt will impact on this year’s results but it will be considered a success if the losses remained at 2012 levels.
These results are unlikely to help the bank regain public trust and confidence which were eliminated by the hair-cut and the revelations of the reckless management decisions and sparked a capital outflow that cannot be stopped. On the contrary, the huge losses will simply have reinforced people’s fears and lack of trust in the BoC, raising questions about its future. What is more worrying is that the bank does not have a damage limitation plan or a communications strategy to reverse the negative climate.
How could it, when the bank is still without a chief executive and has as its chairman an academic, with no business experience, who took the post with the backing of the bank employees’ union ETYK? The chairman does not seem to be providing the strong leadership the bank is desperate for in the absence of a CEO. On the contrary, the board appears deeply divided, as the disagreements over the 2012 results, which needed more than 15 hours of board deliberations to be finalised, would indicate.
What are the chances of a return to normalcy by a bank faced by a combination of no leadership, a bickering board, terrible results and public confidence at rock bottom? The situation could be salvaged if the BoC had a capable CEO in place with a plan – someone who would talk about the problems facing the bank and then explain the actions that will be taken, first to steady the ship and gradually return it to normalcy.
But nobody from the bank said anything about the 2012 results which were contained in a press release. Nobody thought it necessary to give some public re-assurances to the bank’s customers and inform them of the actions that will be taken to improve the situation. The message was that there is nobody at the bank prepared to assume a leadership role, take responsibility and tackle the many problems being faced.
At the most critical time in its history the Bank of Cyprus is on automatic pilot and nobody seems to care.