By Stelios Orphanides
HELLENIC Bank, one of four Cyprus systemic banks participating in the European Central Bank’s asset quality review this month, will examine a possible increase in capital on October 25 and 26, the lender said.
As previously announced, the bank will proceed with a rights issue for its existing shareholders to support the needs of the Group’s business plan while at the same time reinforce the bank’s common equity tier 1.
The ECB stress tests, as the review is also known, will be published on October 26 and comprises an analysis of each bank’s balance sheet as at the end of 2013, allocating risk-weighted value to its holdings and a subsequent estimation of recapitalisation needs under normal economic circumstances, considered as the baseline scenario, and under extreme economic conditions.
Banks deemed undercapitalised in the base scenario will receive a six months deadline to raise more capital while those found undercapitalised in the extreme scenario will receive a nine month deadline.
For the first half of this year, Hellenic posted a loss of €95.5m mainly on increased provisions for non-performing loans whose ratio rose to 53 per cent of total loans.
Financial analyst Alecos Sergides told the Cyprus Mail that for the rights issue to be successful, the current shareholders must be both willing and able to invest more money.
“If some of them lack the funds to increase their investment by participating in the rights issue, they must accept that a third party will then participate, which implies that they will have to accept that their share will shrink,” Sergides said.
The main shareholders of Hellenic which increased its capital by €358m almost a year ago are Wargaming Public Company Ltd and Third Point Offshore Master Fund L.P., with each owning a share of 22.55 per cent, followed by Demetra Investments Ltd with around 15 per cent. The bank’s share closed yesterday at 7.6 cents, 1.3 per cent below opening price.
Should the ECB review indicate that the bank capital needs are in the range of €100m, it won’t be very difficult for current shareholders to invest, analyst Sergides said.
Otherwise the bank may have to consider alternative ways to raise more capital, he added.