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Cyprus banks try to protect themselves

The Bank of Cyprus and the Hellenic Bank will try to absorb half a billion euros from their shareholders in the next few months in efforts to protect their balance sheets from the Greek crisis and the unfavourable conditions in the domestic market.

ALTHOUGH the Cypriot banks are still in better condition than the Greeks according to Moody’s, the fear of possible pressures on their balance sheets from bad debts alarmed their leaders, who are seeking to protect them.

Last Thursday, the Bank of Cyprus announced that it will issue a Tier 1 Capital of €345 million via rights, while the Hellenic Bank proceeded with the issue of a Tier 2 Capital of €150 million. Marfin has already absorbed €295 million through hybrid capital and stated that it has no capital issue.

The rights of the Bank of Cyprus, which will be issued to the ratio of 1 right/share, may be converted in shares to the ratio of 2 shares for every 7 rights. To ensure that the issue will be successful, the Bank determined a sale price of €2, which represents a discount of 44% from Thursday’s closing price.

The Bank of Cyprus reassured its shareholders that the capital increase does not represent any deterioration in its activities or a stress test.

As announced on Wednesday, the Bank of Cyprus and Marfin will participate in the stress tests to be carried out on 91 European banks to ascertain whether they can absorb possible crises.

With the capital, the Bank will take advantage of the opportunities in the market that it is active in, achieving a strategic target for the strengthening of the bank’s capital “in a period of uncertainty and increasing regulatory requirements Bank of Cyprus pre-emptively strengthens its capital base with high quality capital”.

The proposed rights issue further enhances the Bank’s strong and high quality capital base raising its pro forma 31 March 2010 total adequacy ratio to 12.6%, its Core Tier I ratio to 8.4%, and its Tier I ratio to 11.5%”, the bank added yesterday.

As far as financial performance is concerned, results to date continue to be within the profit target set by the Group in the beginning of the year (€300 million to €400 million profit after tax for the year 2010)”, it said.

The market for certain Greek government bonds became inactive in the second quarter of 2010 and the Group reclassified these from the ‘Available for Sale’ category to the ‘Loans and Receivables’ category.

The Hellenic Bank proceeded with a capital absorbance, offering capital securities to its shareholders and non-shareholders.

The Hellenic Bank announced the issue of Non-Cumulative Convertible Capital Securities of indefinite duration of up to €150 million.

Taking into account the current conditions in the economic environment and for the strengthening of the bank’s capital adequacy, at the meeting held today, the Board of Directors of Hellenic Bank Public Company Ltd decided to propose to the Extraordinary General Meeting to take place on Wednesday, August 4, 2010, the issue of the aforementioned capital securities”, the announcement said.

According to the bank, the main capital index as at December 31, 2009 stood at 9.9% and the total capital adequacy index as at March 31, 2010 at 14%.

We have absorbed recently hybrid capital of €295 million and, therefore, we are covered as far as capital adequacy is concerned”, a Marfin representative told StockWatch. Adding that “Capital is not an issue for us”.

According to Marfin, the Tier 1 Capital index stands at 10.1% and the total adequacy index at 12.1%.

Readers' comments

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  • Jim says:

    It appears the banks are starting to get nervous about bad debt.

    Perhaps they had another look at their exposure to non performing developer loans?

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