The Bank of Cyprus has announced it reached an agreement for the sale of Uniastrum Bank and certain other Russian assets. The transaction has been effected for a nominal consideration of €7 mn and results in an accounting loss of €29 mn, €24 mn of which is caused by the technical unwinding of a foreign currency translation reserve. The remaining €5 mn reflects a loss against the net book value of the assets and validates the accuracy of the write downs taken previously.
According to an announcement issued here today by the Bank of Cyprus, the Group has reached another milestone in its deleveraging and de-risking strategy and the transaction results in an improvement of approximately 30 basis points in Common Equity Tier 1 capital ratio due to the reduction of approximately €700 mn in risk weighted assets.
In addition, the sale reduces the Group’s overall net exposure in Russia to €114 mn, expected to be reduced over time and it follows a similar disposal in Ukraine and completes the disposal of the Group’s overseas banking subsidiaries identified for sale.
The decision to sell the Russian operations, says the announcement, is part of the Group’s strategy of focusing on core businesses and markets and disposing of operations that are considered as non-core. With the disposal of this major overseas banking subsidiary, the Group has reached another milestone in its deleveraging and de-risking strategy, and has eliminated future potential risks relating to its Russian operations, including any liquidity risks.
During the fourth quarter of 2014, the Group’s operations in Russia were reclassified and treated as a disposal group held for sale. In light of the deteriorating economic conditions in Russia since mid-December 2014, the Bank proceeded to reassess its operations in that country and significantly increased the level of provisions for impairment of its loans and other assets, reflecting a deliberately more conservative stance regarding the Russian economic outlook and significantly reducing the Group’s exposure to Russia.
Specifically, the Bank recorded €289 mn of provisions for impairment during the fourth quarter of 2014 and the first quarter of 2015 in relation to its Russian operations. In addition to these provisions, an impairment loss of €84 mn was recognised against the carrying value of non-current assets within IFRS 5 measurement scope during the fourth quarter of 2014.
This sale allows the Group to de-risk its balance sheet by approximately €700 mn and allows the release of risk weighted assets of approximately €700 mn. The sale improves its regulatory capital position, with a positive impact of around 30 basis points on the Group’s Common Equity Tier 1 capital ratio.
Following the disposal, the overall net exposure of the Group in Russia will be limited to €114 mn relating to loans and real estate assets, expected to be reduced over time. It is noted that this transaction does not affect the Bank’s presence in Russia through its two representative offices in Moscow and St. Petersburg.