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Bank of Cyprus results analysis

Bank-of-Cyprus-HQBANK of Cyprus published its Group Financial Results for the quarter ended 31 March 2014 a short while ago and the local and international media were quick to hail the results.

With the help of Exito Capital International, we looked a little deeper and despite reporting a positive result of €31 million, we still found some concerns which make us believe it is far too early to suggest that the biggest Cypriot bank has turned the corner for good.

Key facts


The Bank of Cyprus is the largest banking institution in Cyprus and given its very high credit exposure to the Cypriot businesses and households, the Bank’s future financial performance is interlinked with the Cypriot economy, real estate market and is highly correlated with the trajectory of economic activity in Cyprus.

The Troika also noted that while the recession in 2014 is expected to be somewhat less severe than anticipated, the outlook remains challenging. The contraction of output for 2014 has been revised down to 4.2% from 4.8%, given the better-than-expected outturn for 2013 and other recent indicators pointing to gains in confidence.

Unemployment remains very high, and large non-performing loans are constraining the ability of banks to supply credit to the economy. As a result, the recovery is now expected to be more subdued than previously forecast, with moderate growth projected at 0.4% in 2015 and gradually improving thereafter, as domestic demand is weighed down by the need to reduce very high levels of indebtedness.

Borrowers are expected to continue facing challenges, while property prices may fall even further (Exito Capital, 2014).

The ability of Bank of Cyprus to continue as a going concern is dependent on:

  1. The successful implementation of the Group’s Restructuring Plan and the realisation of the macroeconomic scenario which formed the basis of its preparation.
  2. The period over which the restrictive measures and capital controls are in place.
  3. The continuing reliance on and availability of the Central Bank liquidity facilities.
  4. The actual outcome of litigation and claims mainly relating to the bail-in of deposits and the absorption of losses by the holders of equity and debt instruments of the Bank.


Though there are signs that things are slowly stabilising at BOC and hence chances of survival have increased, it is obvious that the bank (speaking in medical terms as per Ben Rosenberger – Exito Capital) is still in intensive care and on life support. Without the emergency funding from the ECB the bank would literally be illiquid with potentially severe consequences.

The outlook is challenging and linked to a lot of uncertainties. The recovery – if successful – will certainly take several years. As Ben Rosenberger (Exito Capital) stated, media suggestions that the bank may be floated on the London stock exchange in the near term is in our view totally unfounded. It would be suggesting that a patient who is just recovering from a cardiac arrest can participate in the next London marathon.

Exito Capital International