The Bank of Cyprus announced on Thursday it will reduce its dependency from EBC funding by €0.95 billion due to the partial repayment of a government bond held by the bank.
The Bank announced that it has been notified by the Public Debt Management Office of the Republic of Cyprus that the Government will repay €950 mn of a sovereign bond of €1.987 mn on 1 July 2014.
“This will have a positive impact on the Bank’s liquidity, profitability and capital position,” the Bank of Cyprus notes, recalling that the Cypriot sovereign bond being repaid relates to the recapitalisation bond of ex-Laiki that was transferred to Bank of Cyprus in March 2013 following the acquisition of certain assets and liabilities of ex-Laiki as per the relevant decrees issued by the Central Bank of Cyprus in its capacity as the Resolution Authority.
“The bond was pledged as collateral with the ECB and the amount repaid will allow the bank to reduce its ECB funding by approximately €550 mn,” the Bank said, adding that “the remaining amount will be used to reduce ELA by approximately €400 mn.”
According to Bank of Cyprus, with the bond transferred to the Bank at fair value at the acquisition date and redeemed at nominal value, there will be an accounting profit of about €95 mn for the second quarter of 2014 and a positive impact of about €95 mn or 0.4 percentage points on the Group’s common equity tier 1 capital ratio.
The bond repayment follows the Government’s recent offering of €750 mn of 4.75% maturing in 2019, which allows the Government to replace existing more expensive debt with less expensive debt. Cyprus` return to the capital markets came 15 months after the island entered a financial adjustment programme, the soonest a bailed out country return to the markets,
“The above development is another positive contribution to the progress being made by the Bank in its journey back to strength. The Bank continues to deliver on its strategy to deleverage and focus on its core businesses in Cyprus. The relentless focus on asset quality, funding, capital and efficiency will restore the Bank’s financial strength enabling it to support the recovery of the Cypriot economy,” the Bank of Cyprus concludes.