BANK of Cyprus (BoC) on Friday announced a €2.2 billion net loss for 2012 on rising provisions for loans and declining profits, up more than 60 per cent on its 2011 losses.
In its financial results, the bank said that “Provisions for impairment of loans and advances have increased significantly (€2.306 million in 2012, compared with €426 million in 2011), reflecting the deterioration in the quality of the loan portfolio and the declining collateral values.
“Loss after tax for 2012, including the impairment of Greek Government Bonds (GGBs) (€188 million), the impairment of goodwill and other intangible assets (€360 million) and the restructuring costs (€21 million), reached €2.214 million compared to €1.359 million for 2011.”
Its non-performing loans ratio at 31 December 2012 reached 23.7%, compared to 10.2% at 31 December 2011. In addition, the events of March 2013 are expected to cause further declines in collateral values. These factors are reflected in the significantly higher levels of provisions for impairment of loans, with accumulated provisions for impairment of loans reaching €3.7 billion and the provision coverage ratio of non-performing loans amounting to 55%.
The bank warned that more borrowers are expected to default, while collateral values are expected to fall even further, leading to increased levels of non-performing loans and provisions for impairment.
The Bank’s Board of Directors believes that the Group is taking all the necessary measures to maintain its viability and the development of its business in the current business and economic environment. However, a number of uncertainties remain:
- The recession may be more severe than envisaged in the macroeconomic scenario which formed the basis for the estimation of future credit losses for the recapitalisation of the Group.
- The liquidity situation is impacted by the level of confidence in the banking system and the period over which the restrictive measures and capital controls are in place. The Group currently has limited access to interbank and wholesale markets which, combined with a reduction in deposits in Cyprus, has resulted in increased reliance on Eurosystem funding.
- The Group is exposed to litigation and claims mainly relating to the bail-in of depositors and the absorption of losses by the holders of equity and debt instruments of the Company.
The bank’s core tier 1 ratio (a measure of a bank’s financial health) sank to minus 1.9 per cent by the end of 2012, way below the EU-mandated level of 9 per cent.
Further reading
Bank Of Cyprus Group – Annual Financial Report for the year ended 31 December 2012
I am still somewhat confused. If the Tier 1 ratio was negative at the end of 2012, how was the Bank allowed to continue operating? The current ratio of 12% is supposed to provide a cushion to offset NPLs, which by the time we are finally given the true facts, may already be too late. How can a Bank continue to operate when it’s Tier 1 ratio falls below the accepted minimum ( legal??) requirement ? Or is this just a ” historic” date when we are informed, some time in the future ? Who is ultimately ” Responsible” and carries the can ?
@ Nigel,
Sorry I completely misread this, the recapitalization has of course already taken place.
“Bank of Cyprus converted 47.5 percent of uninsured deposits exceeding 100,000 euros to equity in a deal finalised in July. Based on that conversion, the bank had a core tier 1 ratio of around 12 percent, central bank officials said at the time.”
It’s all going to end in tears!
@Robert Briggs – hopefully there will be a clearer picture after the next troika visit and discussions.
As you may be aware, a number of developers have gone into liquidation and the banks are looking to recover their losses. Legal battles ahead for those unfortunate people who bought properties from these companies with hidden mortgages on the land.
@ Mr Gavin Jones & Mr Nigel Howarth, in this scenario please tell me and the other readers, what will happen to the Folk who “purchased” property from developers, but as yet do not have their Title Deeds. RB.
@Gavin Jones – There is a grave risk that it could also be ‘funeral rights’ for those who bought property from those developers who mortgaged the land on which those properties were built.
(Check out Europe prepares to come clean on hidden bank losses from Reuters – it looks as everyone has been cooking the books and helps put the problems of the Cyprus Banks into perspective).
Nigel Howarth.
On the subject of good bank/bad bank, in today’s weekly satirical piece entitled ‘Tales from the coffee shop’ in the Cyprus Mail, the possible consequences of such an eventuality were spelt out if this were to happen to the big developers. “Funeral rites” for these organizations was the phrase used.
Nothing ‘satirical’ about this scenario.
@The_Voice – Cyprus has agreed that the Central Bank will increase the minimum Core Tier 1 capital ratio to 9% by 31 December 2013.
(It’s one of the conditions in the Memorandum of Understanding).
The Bank of Cyprus will probably be split into a ‘good’ bank and a ‘bad’ bank (much like Ireland) and this will ease the situation.
“The bank’s core tier 1 ratio (a measure of a bank’s financial health) sank to minus 1.9 per cent by the end of 2012, way below the EU-mandated level of 9 per cent.”
In that case why is it still operating?
It would appear to me that damage limitation is the order of the day. If the “Banks” reveal the true situation today, then they can shut their doors. They are hoping/praying for a Saviour, but nobody will ride to the rescue. The main ” Global” Banks, will watch, and do nothing. Why should they? Cyprus rejected the advances of a Professional Bank previously, so now they will sink, and hopefully something will be learnt. It’s a Professional World out there, learn or stay out of the game !!!
I believe that during the period covered by these accounts, the loan book of Cypriot banks was somewhere in the region of €152 billion (IMF figures).
Let’s say for the sake of argument that the Bank of Cyprus’ share was somewhere in the region of half that. On the stated figure of 23.7% representing its non-performing loan ‘portfolio’, this would equate to approximately €18 billion.
This being the case, surely the losses posted are way off beam and are therefore subject to a classic case of blatant creativity.
Since these results have been posted in December 2012, the position will have deteriorated even further and are no doubt continuing to do so in the context of a contracting economy. The additional ELF hangover of €9+ billion from Laiki won’t exactly help.
Perhaps someone with far greater knowledge of these matters than many of us would care to pitch in and offer their take on what on face value seems to be an extremely dire situation.