Economy: Critical time for the banks
(Reproduces yesterday’s StockWatch article) The immediate future and the remainder of 2019 are expected to be critical for the banks, as they anticipate serious developments that may very well result in a new banking environment. And these developments will be taking place amidst a very unfavourable international environment, as there have been some serious indications of a global recession. The major developments concern mainly the two systemic banks, Bank of Cyprus (BoC) and Hellenic Bank (HB), whose balance sheets have been battling a high rate of NPLs for the past six years. It is evident that the two banks have a long way to go until they resolve the issue with NPLs, especially considering the two laws that were passed by parliament amending the foreclosures framework. The referral of the laws by the Attorney General coupled with the pressure being applied by the supervisory authorities for the initial, stricter framework not to be distorted, are weighing heavily on the banks, who have been battling for years to convince Frankfurt over the real value of their assets. According to the Central Bank, there are still around €10.3b of NPLs in the Cypriot banking system. According to leaked information, the supervisory authorities have imposed a strict timeframe on the banks to drastically reduce their NPLs by the end of 2020, as Cyprus is among the leading countries in Europe when it comes to problematic loans. To accelerate this reduction, the banks are in consultations to sell loan packages. HB, through its CEO Ioannis Matsis, recently announced the bank’s intention to sell an NPL portfolio to an investment fund. It was then leaked – and not refuted – that Pimco is the fund in question. BoC sold an NPL portfolio worth €2.8b in 2018. The transaction included corporate loans as well as loans by small and medium sized enterprises with real estate as collateral. However, BoC’s NPL portfolio remains high while the bank has secured real estate worth hundreds of millions in debt-to-property swaps. Meanwhile, HB’s new Board of Directors is expected to be appointed by the end of August. HB’s shareholders will meet in an EGM on 28 August to elect the 13-member Board. The battle for the majority of seats on the new Board will be between Demetra Investment and Wargaming. The EGM is also expected to offer the first clear indication of the alliances that will emerge among HB’s many major shareholders, but also the strategy the Bank will adopt to deal with the challenges it is facing. On the other hand, John Patrick Hourican will attend his final meeting as BoC’s CEO on 27 August, before handing the reigns over to Panicos Nicolaou. BoC is hoping that the change in leadership and swap to a Cypriot banker will change the bank’s model in a broad range of operations. Another challenge facing the new CEO will be to reduce labour costs.
Banks are considering retirement schemes for staff
Following the reduction of NPLs, banks’ second biggest challenge is the reduction of their operational, labor and branch network costs. The need to reduce staff – with the rapid shrinkage of transactions carried out at the counters and the imperative need to reduce costs in order to improve their pre-provision profitability – is causing a “headache” for the banks’ managements. The majority of local banks are examining various scenarios, and it is every possible that there will be a fresh round of voluntary retirements by the end of the year. Mobile and internet banking and the increasing number of clients carrying out their transactions online has also led to the need to reduce their branch networks. Bank of Cyprus (BoC) has launched three voluntary retirement schemes since 2013, while it is considered a matter of time before a fourth is tabled for discussion. AstroBank is also expected to prepare a retirement scheme, after having acquired USB last year and absorbing 237 employees and 13 branches. And if its acquisition of National Bank of Greece (Cyprus) is finalised, the need to reduce staff will become even bigger. Alpha Bank Cyprus is waiting to see how its €3.8b NPL portfolio will be managed and what the terms of the agreement with Altamira will be; then a number of employees is expected to be dispatched to Altamira and a new retirement plan to be announced. It is noted that in 2016, 359 people were made redundant at Bank of Cyprus and 249 at Alpha Bank, while in 2017, 220 people left Hellenic Bank (HB). HB’s latest retirement plan provided maximum tax-free ex gratia compensation of up to €200.000, covering almost all employees of the group. The average compensation for BoC’s early retirement scheme in 2016 was €160,000. The average compensation at Alpha Bank was €126,000.
New bank map is causing concern
The new Cypriot banking map has turned into a race for two, which has market stakeholders concerned about the level of concentration of the sector. The closure of the Co-op brought massive changes to the banking map, with HB and BoC remaining as the only big players in the market, and the rest of the banks lagging far behind in terms of size. Many of the smaller banks have strong capital and have recorded positive results over the past few years. Their prospects for expansion in retail banking, however, are limited, as this market remains saturated and risky due to over-lending. The data presented by StockWatch show that two out of three depositors and one in two borrowers belong to the two largest banks, with competition between them remaining idle, due to the issues they face with their balance sheets and the broader market conditions. Regarding deposits, BoC has €16.8b and a market share of 35.19% and Hellenic €4.7b (30.73%). Eurobank has a market share of 10.11%, after significantly boosting its deposit base, mainly due to the developments with the Co-op. Alpha Bank’s market share is 4.62% and RCB’s 4.46%. As regards loans, BoC and HB control 54.65% of the market, while they continue their effort to deleverage their balance sheets. BoC’s market share is 34.57%, HB’s 20.08%, and RCB’s 12.79%. The big concentration of deposits and loans at the two big banks is causing concern to market insiders, with economist Marios Clerides telling the site that while this is something that is encouraged by the ECB, “if something unpleasant happens to one of the banking institutions in a small country like Cyprus, then the entire economy will be affected with particularly negative consequences”. As for the banks’ profitability, BoC recorded losses of €104m in 2018, compared with losses of €552m in 2017, while Hellenic recorded profits of €319m due to the Co-op, compared with losses of €46m in 2017. Eurobank recorded profits of €42m in 2018 (€41m in 2017), while RCB’s profits dropped from €97m in 2017, to €76m. AstroBank’s profits increased from €5m to €10m.
Listed companies: Legal advisors
All public listed companies in Cyprus are obliged to make public the names of their legal advisors. Gold magazine lists all the law firms that offer legal services to public companies in Cyprus, based on information provided by the Cyprus Stock Exchange. HELLENIC BANK PUBLIC Ltd: Georgiades Pelides LLC.
Banks in the dock
The Cyprus Consumers Association is doing what the state should have done years ago, which is to take the banks to court over the abusive clauses in their contracts with clients. The Association’s president Marios Droushiotis told Politis Radio yesterday that the relevant rulings of the Commerce Ministry’s Consumer Protection Service have been shelved for the past three years now, when they should have been led to court. Droushiotis said there are six rulings concerning five different banks. He said the Association has sought the services of a law firm with the aim of appealing the cases in court this autumn. From what he is aware, Droushiotis said the government has been studiously avoiding taking the cases to court as it does not want to harm the banks. When he asked for explanations on the matter, he was told that the reason was that the matter is being delayed by the Attorney-general. The Consumer Protection Service’s rulings followed complaints that were filed by borrowers who had taken out mortgages. Some of the abusive clauses saw the banks transfer part of the loan to a special deposit account, which would be charged interest decided by the bank, which the consumer would agree to in advance, without knowing what this interest rate would be, or at least the criteria for estimating it.
The Shacolas arcade and parking area for sale for €10.5m
Bank of Cyprus is selling the “Ledra Arcade” on Ledra Street in Nicosia, which used to belong to the Shacolas Group of Companies. According to a report on reporter.com, the commercial development is being sold for €10.5m and includes an underground, three-level car park, five shops and common seating areas.
Scholarship to unemployed graduates
As part of its CSR strategy, RCB Bank is offering a scholarship worth €1,142 to the student who will acquire the highest grade in the examination to enter the MBA programme of the Mediterranean Institute of Management. The sum covers the first term’s fees. The scholarship is for unemployed graduates only.
Naturalisation scheme is of vital importance
The Cypriot citizenship-by-investment scheme is a very important tool in the effort to boost and develop the Cypriot economy, and it has proved very beneficial for a broad range of sectors and activities, the Cyprus Land and Building Developers Association (LBDA) said in an announcement yesterday, responding to fresh media reports on the matter. It said that over the past few years following the economic crisis, the scheme’s contribution to efforts for the economy’s recovery has been vital, especially for the construction sector, where unemployment has dropped by over 80%, when the average drop in unemployment for the rest of the economy has been around 50%. In addition, the scheme contributed substantively to re-starting development activity, by attracting foreign investments, implementing development projects, creating new job positions, increasing state revenue and stabilising the banking sector, through helping reduce NPLs. The scheme, it said, attracts investors of international scope whose presence significantly boosts the country’s effort to promote itself as an international business hub.
Reduced trips to Greece due to expensive prices
Phileleftheros reports that the expensive fares to Greece appear to have shaken Cypriots, who have instead chosen alternative destinations for their summer holidays. It is worth noting that there were 50.000 less Cypriots who travelled to Greece this year, led elsewhere by the expensive ticket prices of the three airlines Aegean, BlueAir, and Cyprus Airways following the closing of Cobalt Airways. Despite the fact that the number of trips has increased by 11,8%, trips to Greece have decreased by -15,4%. On the other hand, trips to Russia, Bulgaria, Germany and the UK marked an increase.
Boxes for reducing harm
The Cyprus National Addictions Authority (CNAA), in cooperation with the Health Ministry, has installed automatic machines that provide boxes for reducing harm. The project’s aim is to ensure that drug users can easily access these boxes which reduce the risks involved with drug use via injection. Following the Health Ministry’s approval, this machine was moved from the Old Nicosia General Hospital to the Nicosia city centre near the Faneromeni Square. In addition, CNAA is examining the possibility of also moving the machines from the Paphos & Limassol General Hospitals to similar locations, so as to ensure anonymity and accessibility. There are five machines in total, one in each district. Using these tools will help reduce the spreading of infectious diseases, especially of Hepatitis C (HCV) and HIV, and other health risks that result from mutual or repeated use of syringes and similar tools.