Bank of Cyprus posts €71 mln profit for 2022; lays foundation for dividends

The Bank of Cyprus on Monday released its preliminary financial results for 2022, posting a profit after tax of €71 million for the entire year, marking a considerable increase over the €30 million in after-tax profit generated during 2021.

In addition, the bank generated a profit after tax of €80 million during the fourth quarter of 2022. This represents an impressive recovery over the loss of €59 million recorded during the third quarter of the same year, which included the implementation of a one-off Voluntary Staff Exit Plan at a charge of €101 million.

Profit after tax before non-recurring items amounted to €188 million, marking a rise of 107 per cent year-on-year, and reflected positive gearing to rising interest rates.

The bank’s total operating expenses recorded a drop of 1 per cent year-on-year, while its cost-to-income ratio was further reduced by 11 per cent year-on-year, with the ratio falling to 49 per cent.

Furthermore, the bank also recorded a return on tangible equity (RoTE) of 11.3 per cent for the entirety of 2022, as well as a RoTE of 19.1 per cent for the final quarter of the year.

“We are pleased to announce a positive set of financial results for 2022, exceeding our targets and confirming the sustainability of our business model with well-diversified revenues and disciplined cost containment despite inflationary pressures,” Bank of Cyprus Group CEO Panicos Nicolaou said.

“Our profit after tax before non-recurring items of €188 million has more than doubled on the prior year, corresponding to a return on tangible equity of 11.3 per cent,” he added.

In its report, the bank highlighted the fact that the Cypriot economy outperformed the Eurozone in 2022, with economic growth amounting to 4.4 per cent during the fourth quarter of the year.

Additionally, Cyprus is expected to record a growth of approximately 3 per cent in 2023, significantly higher than the 0.8 per cent average that the Eurozone is expected to achieve, according to official EU estimates.

During this time, the bank provided record new lending of €2.1 billion during 2022, a rise of 17 per cent compared to 2921, while its net performing loan book stood at €9.6 billion, a rise of 3 per cent year-on-year.

“Against the backdrop of the challenging global and European economic environment, the Cypriot economy is proving resilient and is delivering strong growth notwithstanding headwinds,” Nicolaou said, citing the aforementioned GDP growth figures for 2022 and 2023.

“As the largest financial group in Cyprus, we continued to support the economy by extending a record €2.1 billion of new loans in 2022, an increase of 17 per cent on the prior year, whilst maintaining strict lending criteria,” he added, noting that the bank’s 3 per cent growth in its net performing loan bank “demonstrates strong fundamentals to withstand uncertainties in the macroeconomic outlook”.

During 2022, the bank generated a total income of €699 million and a positive operating result of €318 million, up by 62 per cent over the figure of 2021.

Further, net interest income amounted to €370 million, up 25 per cent on the prior year, of which €136 million was generated during the fourth quarter.

The bank noted that its non-interest income was marked by strong performance in both net fee and commission income, as well as exceptionally strong insurance income in 2022, contributing 47 per cent to its total income.

In terms of operating expenses, which decreased by 1 per cent, the bank noted that this is the result of efficiency-seeking actions undertaken during the year, which more than offset inflationary pressures.

“As a result our cost-to-income ratio, excluding special levies and other contributions, improved by 11 percentage points in the year to 49 per cent, while our cost of risk of 44 basis points remained well within our target range, reflecting healthy asset quality performance,” the Bank of Cyprus CEO stated.

“The reported result was a profit of €71 million for the year ending 31 December 2022, reflecting the large restructuring charge we took earlier in the year for our Voluntary Staff Exit Plan,” he added, noting that in November 2022, the bank also completed its Helix 3 project and derecognised approximately €550 million in non-performing exposures (NPEs) from its balance sheet.

Nicolaou further explained that together with further organic NPE reduction of €360 million, the bank’s NPE ratio stood at 4 per cent at the end of 2022, achieving its 2022 NPE ratio target of sub-5 per cent.

What is more, Nicolaou commented that the bank’s capital position remains robust and is comfortably in excess of its regulatory requirements.

“We ended the year with a Total Capital ratio and CET1 ratio of 20.6 per cent and 15.4 per cent respectively, both on a transitional basis,” he said.

“Our liquidity position remains strong, as such our cash balances with ECB (excluding TLTRO III of €2.0 bn) amounted to €7.6 bn, leaving the Bank well positioned to benefit from further interest rate increases,” he added, noting that deposits on the bank’s balance sheet remained broadly flat during the quarter but increased by 8 per cent on the prior year, to €19 billion.

Moreover, Nicolaou said that due to the bank’s ability to capitalise on this strong performance, the bank today has upgraded its RoTE target for 2023 to more than 13 per cent, up from its previous target of over 10 per cent.

The Bank of Cyprus CEO explained that this “lays the foundations to commence meaningful dividend distributions from 2023 onwards, subject to regulatory approval and market conditions”.

“The RoTE target upgrade is facilitated by our positive gearing to rising interest rates, the significant contribution from non-interest income whilst maintaining cost discipline, a healthy loan portfolio and a solid capital position,” Nicolaou concluded.