Bank of Cyprus creates capital buffer of €1,6 billion after the increase of its share capital, said in an interview with CNA, Finance Director of the Group, Christakis Patsalides, adding that money raised from any placement of covered bonds in the future will be allocated for repayment of the emergency liquidity assistance (ELA) the European Central Bank has provided.
“With Common Equity Tier 1 ratio (CRD IV/CRR- without transitional provisions) amounting to 15,1%, significantly above the minimum required by supervisors which is 8%, we have created a capital buffer amounting at € 1, 6 billion”, he said.
Patsalides said that given the current risk profile of the Bank, the quality of the loan portfolio and the bank`s exposure to various countries abroad, there is a significant capital buffer to absorb unexpected losses or shocks.
The senior official of the Group noted that after the completion of the first phase of the share capital increase, the existing shareholders hold 53% of the Bank, while new shareholders are in possession of the remaining 47%. As he said, the percentage of former Laiki Bank is projected to fall to around 10% from 18%, while international investors introduced by billionaire Wilbur Ross will hold a share of 19%. These percentages are expected to change with the completion of Phase 2 of share capital increase, where up to 20% of the shares of Phase 1 will be allocated to existing shareholders (clawback).
Patsalides pointed out that the increase in bank`s share capital provides a number of strategic advantages, enabling it to meet the regulatory requirements, including the upcoming stress-test by the European Central Bank and perhaps most importantly, paves the way for borrowing from the debt markets, which will help the Bank to replace the ELA with conventional financial instruments, such as bonds and deposits, while improving the trust of the depositors in the bank
“It is not a coincidence that the international rating agencies have seen positively this increase and is expected to gradually upgrade the credit rating of the Bank, something that reduces the cost of borrowing from the markets,” he said.
The recent investment in the capital share of the bank represents 6% of the GDP of Cyprus economy and is the largest foreign investment in the history of the Republic.
“This is expected to have a positive impact on the domestic economy and to contribute to economic recovery”, said Patsalides.
However, the Chief Finance Director of the Group stressed that the capital increase would not affect the bank`s policy for dealing with bad loans. He pointed out that the Bank expects the new legal framework on foreclosures to give the bank the right tools for effective management of non-performing loans, according to the Code of Conduct of the Central Bank.
The bill on foreclosures was approved earlier this week by the Cabinet and is set to be tabled before the House of Representatives for approval. It is an obligation Cyprus has to meet, as part of its agreement of March 2013 with its international lenders (ECB, IMF and EU Commission).
Regarding the liquidity of the Bank, Patsalides said that the reduction in the borrowing from the ELA, increases the liquidity buffer which can be borrowed by the Group in case of emergency.
Furthermore, he added, the improved confidence of depositors in the bank, is expected to enhance the stability observed recently in its deposit base.
“The strengthening of capital and liquidity is expected to improve the ability of the bank to grant loans to the economy. Of course, this will be done in a prudent manner, taking into account the new Bank`s credit criteria and the creditworthiness of the customers”, he said.
He recalled that there are several lending programs offered by the bank or through cooperation with international organizations such as “Jeremie”, aiming to provide credit to the economy.
After the first phase of the capital share increase, the Bank announced a reduction in key interest rates by 0.25%. Patsalides commented that the reduction in key interest rates is part of the bank`s effort to reduce borrowing costs for households and businesses and to strengthen domestic economy. This decision, he added, took into account the recent reduction in interest rates by the European Central Bank.
“This effort is continuing and we hope that we will be able to make further reductions in the near future”, he noted.
Bank of Cyprus, the island`s largest lender, has been recapitalised with depositor money, as part of the €10 billion bailout Cyprus received from the EU/IMF, under which 47.5 per cent of deposits over €100,000 have been converted to shares.
