The Bank of Cyprus on Wednesday released its financial results for the first half of 2022, posting a profit after tax of €50 million, marking a significant improvement over the €1 million loss for the corresponding period of the previous year.
In addition, the bank recorded a profit after tax before non-recurring items of €59 million, reflecting a rise of 20 per cent year-on-year.
This is primarily attributed to the bank generating a higher revenue during this period of time, combined with having lower impairments. The bank also recorded a return on tangible equity (RoTE) of 7.3 per cent.
“Bank of Cyprus Group’s performance in the first half of 2022 confirms the sustainability of our business model, with well-diversified and increasing revenues combined with tight cost control, delivering a healthy 20 per cent increase in profit after tax, before non-recurring items, of €59 million and a corresponding return on tangible equity of 7.3 per cent,” Bank of Cyprus Group CEO Panicos Nicolaou said.
“The business momentum, the actions we have taken, the improved interest rate environment and our significant gearing to increasing interest rates give us confidence in accelerating the delivery of our target of double-digit ROTE earlier, in 2023,” he added.
Regarding the bank’s efficiency and all related actions, the Bank of Cyprus managed to keep its cost-to-income ratio at 58 per cent, which is broadly flat when compared to the previous year.
Furthermore, it successfully completed its voluntary staff exit plan during the third quarter of 2022 at a one-off cost of approximately €99 million.
Full-time employees have been reduced by around 16 per cent, resulting in estimated annual savings of approximately €37 million, which corresponds to 19 per cent of staff costs. In relation to the reduction in full-time staff, the bank also reduced its branch footprint by 25 per cent during the first half of the year.
“In July, we completed a Voluntary Staff Exit Plan (VEP) through which circa 550 applicants were approved to leave at a total one-off cost of circa €99 million, to be recorded in the third quarter,” Nicolaou said.
“Simultaneously, we have reduced the number of branches by 20 to 60 year-to-date, a reduction of 25 per cent. Through these two successful initiatives, the Group has delivered ahead of schedule on its objective of right-sizing the Bank, which is key for the improvement of operating efficiency,” he added.
In terms of capital and liquidity, the bank’s CET1 ratio stood at 14.2 per cent, while its total capital ratio stood at 19.3 per cent.
Moreover, total deposits recorded a 4 per cent quarter-on-quarter increase to reach €18.5 billion.
In addition, the bank has significant surplus liquidity of €6.7 billion and is well-positioned to benefit further from interest rate increases.
Regarding non-performing exposures, the bank’s NPE ratio saw a reduction to 5.7 per cent, compared to 6.5 per cent in March 2022.
“The Bank’s capital position remains robust and comfortably in excess of our regulatory requirements, after absorbing in full the cost of the VEP. As of 30 June 2022, our Total Capital ratio was 19.3 per cent and our CET1 ratio was 14.2 per cent, on both a transitional and pro forma basis. Our liquidity position also remains strong, as such we continue to operate with circa €6.7 billion of surplus liquidity, being well positioned to benefit from further interest rate increases,” Nicolaou explained.
“Balance sheet normalisation continued in the second quarter with a further €74 million of organic NPE reduction, reducing our NPE ratio to 5.7 per cent, pro forma for NPE sales. We remain on track to achieve our target NPE ratio of circa 5 per cent by the end of this year and less than 3 per cent by the end of 2025,” he added.
Nicolaou also touched on the broader economic climate, both in Cyprus and abroad, noting that despite concerns, the Cypriot economy continued to grow strongly in the second quarter, with GDP increasing by 6.1 per cent, significantly outperforming the wider Euro area.
He continued by saying that the strong tourism season is expected to support growth this year, with GDP in Cyprus projected to exceed 5 per cent in real terms in 2022, according to the Finance Ministry.
“As the largest financial group in Cyprus, we continued to support the economy by extending a record €1.2 billion of new loans in the first six months of 2022, an increase of 30 per cent on the prior year, whilst maintaining strict lending criteria,” Nicolaou said.
“As a result, our net performing loan book grew by 4 per cent during the first six months of 2022 to €9.7 billion,” he added.
Furthermore, the Bank of Cyprus Group CEO noted that during the first six months of the year, the bank generated a total income of €299 million and a positive operating result of €109 million, up by 7 per cent from the previous year.
The second quarter of 2022 reflected the beginning of a recovery in the bank’s net interest income due to the improving interest rate environment.
Additionally, the quarter was marked by a strong performance in net fee and commission income and stable insurance income whilst operating expenses (excluding levies and contributions) remain well contained despite inflationary pressures.
Moreover, the bank’s cost of risk, which stands at 43 bps, remained well within the bank’s normalised target range.
“2022 is expected to be a transitional year for Bank of Cyprus, marking the final restructuring actions to transform the Group into a strong, stable and profitable organisation for banking and broader financial products and services in Cyprus,” Nicolaou said.
“Our dynamic strategy which leverages our strong customer base, our market leading position, and our investment in our digital infrastructure and digital offering to clients is proving successful,” he added.
What is more, Nicolaou said that the bank’s progress is being noticed. In an announcement released on August 29 2022, the bank’s board expressed its confidence in the bank’s strategy and prospects. This was combined with a unanimous and unequivocal rejection of three unsolicited, conditional, non-binding proposals by US private equity firm Lone star to acquire the entire issued, and to be issued, share capital of the bank since May 5 2022.
“We remain focused on creating shareholder value and with today’s upgraded guidance we now expect to achieve a ROTE of over 10 per cent in 2023,” Nicolaou stated.
“This lays the foundations for a meaningful return to dividend distributions which we expect from 2023 onwards, subject to regulatory approvals and market conditions,” he concluded.