Our View: Cyprus banks bounce back after ten years of uncertainty

After more than a decade of uncertainty, Cyprus’ two systemic banks, Bank of Cyprus and Hellenic Bank have made a full return to healthy profitability, sound fundamentals and positive prospects. This year both will pay dividends for the first time in over a decade, which serves as confirmation that all the problems of the past have been effectively dealt with.

The rising interest rates, over the last year, have certainly boosted profitability, but all the other indicators are sound. Non-performing exposures have been minimised by large-scale sales of loans to credit-buying firms, cost to income ratio has been reduced through volunteer early exit schemes and closure of branches and they boast highly liquid balance sheets, which allows them to benefit from the higher interest rates.

“Over a third of our assets are cash balances with central banks,” said the Bank of Cyprus chief executive Panicos Nicolaou on Wednesday, when the bank announced after-tax profits of €220 million for the first half of 2023. It was a five-fold increase in profits for the first six months of 2022. Hellenic Bank profits for the first quarter of the year were close to €70m and according to its estimates are expected to exceed €200m in 2023.

Both banks acknowledge that rising interest rates played a big part in their impressive results this year. For the Bank of Cyprus Net Interest Income (NNI) in the first six months was €358m, up by 146 per cent year on year; for Hellenic NNI was €101.8m, for the first quarter, up by 70 per cent. The reduction of operating costs is also a positive development, even though both banks paid hefty compensation, that no other business in Cyprus has ever paid, to cut staff in 2022.

In fact, the only blemish that remains on the banking system is the power still wielded by the bank employees union Etyk, and more specifically by its boss Loizos Hadjicostis, whom the bank boards consistently bow to. It is a very unhealthy situation, with Hadjicostis often holding banks to ransom and using his political connections to impose his diktats on the banks, at the expense of the shareholders.

It was no coincidence that the last two CEOs of Hellenic Bank stepped down, before the end of their respective contracts, after repeated clashes with the Etyk boss. After the latest departure, Etyk issued a xenophobic statement dictating the qualities that the new Hellenic CEO should have, as if it is entitled to have a say in the matter.

Our systemic banks are on a sound and healthy footing once again, but the recovery will not be complete if they do not end the toxic influence and constant interference by Etyk. We are not in a socialist state in which businesses belong to the workers, as the Etyk boss seems to think. Banks belong to their shareholders, and it is high time the bank boards acted with this in mind.