Our View: Islands’ two main banks finally have clean bill of health

Greece’s Eurobank has doubled its shareholding in Hellenic Bank it was announced on Thursday. It acquired 12.6 per cent of Hellenic in 2021 adding another 13.5 per cent of the shares this month in a deal it made with Wargaming, taking its total shareholding to 26.1 per cent. It is now the biggest shareholder in Cyprus’ second largest bank. The share price of Hellenic Bank is riding high as the purchase was seen by investors as a vote of confidence by Eurobank, a top Greek bank.

After almost a decade of instability and uncertainty, the Cyprus banking sector now has a clean bill of health and the two systemic banks are finally recording healthy profits. On Wednesday, Hellenic Bank posted profits of €76.4 million for the first nine months of the year, a 263 per cent increase on the corresponding period of 2021. A couple of weeks earlier, the Bank of Cyprus announced a profit of €101 million, up 71 per cent year on year, although the amount would go on paying for the voluntary exit scheme.

It has been a long and arduous path to full recovery for the two banks after the crisis of early 2013 which saw the second largest bank, Laiki, go into administration and the Bank of Cyprus bailing in its depositors. Hellenic Bank and the Bank of Cyprus secured large investments for their recapitalisation and made the reduction of the large percentage of non-performing exposures on the books their number one priority. The objective was gradually achieved, through the sale of loan portfolios to debt recovery companies, and both have healthy capital adequacy ratios. The Cyprus Cooperative Bank did not make it, its healthy part being taken over by Hellenic.

The clean bill of health of the banks is the reason there has been an interest in them from abroad. Eurobank became the main shareholder of Hellenic because it saw good growth prospects. Earlier in the year, the Bank of Cyprus received three unsolicited, non-binding proposals for the company’s entire share capital from private equity firm Lone Star. The board rejected all three offers, saying of the third and highest, at €1.51 per share, “it fundamentally undervalues the company and its future prospects.”

This reflected the confidence of the board in the growth prospects and future profitability of the bank, which was underlined by this year’s performance. There may be new offers from different quarters in the future, but this happens only when a bank is viewed as a sound investment. And both Cyprus’ systemic banks have emerged from their 10-year trials, much stronger and healthier.