31.08.2022
The Bank of Cyprus released its financial results for the first half of 2022 on Wednesday, reporting an after-tax profit of €50 million , a significant improvement from the €1 million loss for the corresponding period of the previous year.
In addition, the bank recorded an after-tax profit before non-recurring items of EUR 59 million , reflecting an increase of 20% year-on-year.
This is primarily due to the fact that the bank received higher income during this period of time, coupled with a lower level of impairment. The bank also recorded a return on equity (RoTE) of 7.3%.
“Bank of Cyprus Group’s performance in the first half of 2022 confirms the resilience of our business model, with well-diversified and growing revenues, coupled with tight cost controls, delivering a strong 20% increase in pre-tax profit before non-recurring items. , in the amount of 59 million euros and a corresponding return on tangible capital of 7.3 percent,” said Bank of Cyprus Group CEO Panikos Nikolaou.
“The momentum of the business, the actions we have taken, the improved interest rate environment, and our strong focus on raising interest rates give us confidence to accelerate our double-digit ROTE target earlier in 2023,” he added.
In terms of bank performance and all related activities, the Bank of Cyprus managed to maintain a cost-to-income ratio of 58 percent, which is broadly unchanged from the previous year.
In addition, in the third quarter of 2022, the company successfully completed its voluntary employee layoff plan, spending around €99 million in a lump sum.
The number of full-time employees has been reduced by around 16%, resulting in annual savings of around EUR 37 million , corresponding to 19% of personnel costs. Due to staff cuts, the bank also reduced the number of branches by 25% during the first half of the year.
“In July, we completed the Voluntary Staff Exit Plan (VEP), under which approximately 550 layoff applicants were approved, with a total lump-sum cost of around €99 million, to be registered in the third quarter,” Nicolau said.
“At the same time, we have reduced the number of branches from 20 to 60 since the beginning of the year, a reduction of 25 percent. With these two successful initiatives, the Group met its target of optimizing the size of the Bank ahead of schedule, which is key to improving operational efficiency,” he added.
In terms of capital and liquidity, the bank’s CET1 ratio was 14.2% and the total capital ratio was 19.3%.
In addition, total deposits increased by 4% compared to the previous quarter and reached 18.5 billion euros.
In addition, the bank has a significant liquidity surplus of EUR 6.7 billion and is well positioned to further benefit from higher interest rates.
In terms of bad risks, the bank’s NPE ratio fell to 5.7% from 6.5% in March 2022.
“The Bank’s capital position remains strong and comfortably exceeds our regulatory requirements after fully covering the cost of the CGP. As of June 30, 2022, our total equity ratio was 19.3% and our CET1 ratio was 14.2% on both a transitional and contingent basis. Our liquidity position also remains strong, so we continue to operate with around €6.7bn of excess liquidity , well positioned to benefit from further interest rate hikes,” Nicolau explained.
“Balance sheet normalization continued in the second quarter with a further €74 million reduction in organic NPE, bringing our NPE ratio down to 5.7%, indicative of NPE sales. We remain on track to reach our NPE target of around 5% by the end of this year and below 3% by the end of 2025,” he added.
Nikolaou 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 expanding by 6.1%, well ahead of the wider euro area. .
He continued by saying that a strong tourist season is expected to support growth this year, with Cyprus GDP projected to exceed 5% in real terms in 2022, according to the Ministry of Finance.
“As the largest financial group in Cyprus, we have continued to support the economy with a record 1.2 billion euros of new loans in the first six months of 2022, up 30% from the previous year, while maintaining strict lending criteria . said Nicolau .
“As a result, our net outstanding loan portfolio grew by 4% in the first six months of 2022 to €9.7 billion ,” he added.
In addition, the CEO of the Bank of Cyprus Group noted that in the first six months of the year, the bank generated a total income of 299 million euros and a positive operating result of 109 million euros, which is 7% more than in the previous year.
The second quarter of 2022 reflected the beginning of the recovery in the bank’s net interest income due to the improvement in the interest rate.
In addition, the quarter was marked by strong net fee and commission income and solid insurance income, while operating expenses (excluding fees and premiums) remain subdued despite inflationary pressures.
Moreover, the bank’s cost of risk of 43 basis points remains within the bank’s normalized target range.
“2022 is expected to be a transitional year for the Bank of Cyprus, marking the final restructuring actions to transform the Group into a strong, stable and profitable entity for banking and broader financial products and services in Cyprus,” Nicolau said.
“Our dynamic strategy, which leverages our large customer base, our market leadership, and our investment in our digital infrastructure and digital customer offerings, is proving successful,” he added.
Moreover, Nicolau said that the bank’s progress is noticeable. In an announcement published on August 29, 2022, the bank’s board expressed confidence in the bank’s strategy and prospects. This was combined with the unanimous and unequivocal rejection of three unsolicited, conditional, non-binding offers from US private equity firm Lone star to acquire the bank’s entire issued and issueable share capital effective May 5, 2022.
“We remain focused on creating shareholder value, and with today’s updated outlook, we expect ROTE to exceed 10% in 2023,” Nicolau said.
“This sets the stage for the substantial return to dividend distribution that we expect from 2023, subject to regulatory approval and market conditions,” he concluded.
