Cyprus Mail
Guest Columnist

The message for BoC’s ‘Helixed’ customers

The BoC holds 50 per cent of the entire market of loans to households.

By Demetris Theodorou

A LATE-NIGHT announcement by Bank of Cyprus last Tuesday threw a good deal of light on the goings on in the bank’s progress in 2019. The announcement covered three issues: Capital Requirements, Helix progress and the infamous Deferred Tax Asset that was passed on the bank in 2013, during the Laiki takeover.

Interestingly, these are three issues on which the grapevine chatter was picking up in recent weeks. It is no secret that the bank is planning to proceed with further NPL sales in a drive to “finish the job” as CEO John Hourican often says. It is also no secret that a new mass sale of non-performing loans (NPLs) to an external investor, if pushed quickly through, will need financing, perhaps even to the point where new capital needs to be raised.

Bank of Cyprus executives object to this, commenting that the first sale of distressed assets (NPLs) to Apollo, an investment fund, was capital accretive. The sale of loans, known as Project Helix inside BoC, was deemed a success, securing a strong price of 48 per cent of nominal value. Nonetheless, many analysts presume that capital may be needed if the bank pushes through a new sell-off in a hurry.

“If the strategy is to get rid of the NPLs at any cost, then obviously there will be some cost”, a Bank of Cyprus executive said. “The good news is that BoC maintains control of its own decisions on this. The bank will be very deliberate in how it strategises this”.

Last week’s announcement made no comment on a new sale, but it did clarify that Helix is proceeding quickly. This may have been a signal intended for customers who have been “Helixed”, seeing their non-performing loans sold off, and their collateral passed on to Apollo Capital, the fund that purchased the NPLs.

Senior bank staff have been open about the matter in recent weeks, commenting that the so-called “Helix periphery” – customers included in the sale of loans – have been engaging in intensive “rumour-mongering” against the bank.

“You look at the list of customers in Helix, and the first thought is that these are people unaccustomed to being treated like mere mortals. This treatment has created a great deal of awkwardness, even anger among them, about the way they are treated”, said a banker. “Their reaction has been to tell anyone that will listen that if the bank is now treating them this way, it must be in trouble.”

Tuesday’s announcement noted that the Bank’s participation in financing Apollo has been lowered, leading to “significant de-risking”. This is a strong signal to heavyweight business elites that the trade will be completed as planned and that their loans will be transferred to Apollo, without any substantive delays. Syndication of the loan to other lenders has been a point of contention with regulators. Tuesday’s announcement was clearly intended to put an end to that discussion by noting that the question of syndicating the loan, has been settled. Whether it succeeded in doing so, will become clear in the days to follow.

Asked to comment on what the message is for “Helixed” customers, a Bank of Cyprus executive commented dryly: “You’d better settle your obligations now if you can. Being some of the largest businesses of the country, you ought to know that delaying tactics will prove to be both expensive and ultimately ineffective. This is the signal. And many of the intended recipients are now getting it”.

At the same time, the Tuesday announcement commented on the infamous SREP exercise. This “Supervisory Review and Evaluation Process”, or SREP for short, is a feared exercise which often leads to the conclusion that Banks need to enhance their capital.  Above all, the information blackout on SREP is inevitably a painful point for the Bank’s communications team. “How do you discuss publicly something that is confidential? If you say the problem does not exist, in the eyes of people you confirm that it does. You create the smoke that tells them there must be a fire”. Coffee-shops have been aflush with gossip that Bank of Cyprus will be in need of new capital. The formal announcement addressed this gossip directly, but in a subtle way, by noting that the capital requirements of the bank remain the same as last year.

Nonetheless, the announcement was formal and was noted by the regulators, which makes it credible. Bank of Cyprus announced that it remains “comfortably above the minimum capital requirements”.

The keyword, “comfortably”, is of essence. This is an improved phraseology compared to previous announcements, where the bank characterized its capital as “adequate”. And while most people would fail to see this distinction, wording is always a major matter of discussion between lawyers and accountants. “Comfortably”, used in a formal announcement, is quite a signal.

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