On June 1 the Bank will give an “investor update” in London, giving its “mark” for the coming years
According to the financial analyst of Athlos Capital, the main source of the increase in the profits of the Bank of Cyprus was the significant increase in net interest income
By Panagiotis Rougalas
The CEO of Bank of Cyprus, Panikos Nikolaou, placed particular emphasis on achieving the bank's long-term goal of resuming dividend payments after 12 years during the presentation of its financial results for the first quarter of 2023. According to Mr. Nikolaou, the profitability of the bank with 95 million euros did not come solely from the increase in interest rates that the Bank benefits from July 2022. He indicated that the Bank has made significant cost savings since 2019, has a large percentage of non-interest income (NII) and as he pointed out when the results are presented, profitability would be quite good even without the big boost that interest rates have given. A specific reference was made during the presentation of the results for the Bank's non-interest income, which cover its expenses according to the CEO of the Bank of Cyprus.
But how much was the Bank's non-interest income? BOC's non-interest income for Q1 2023 was €72 million, compared to €79 million for Q4 2022, down 11% quarter-on-quarter, and compared to €66 million for Q4 2022. ΄ quarter 2022, up 8% year-on-year. They consist of net income from fees and commissions of 44 million, net gains from foreign exchange trading and net gains/(losses) from financial instruments of 13 million, net result from insurance operations of 10 million, net gains/(losses) from revaluation and sale of real estate investments and sale of real estate stocks of 2 million and other income of 3 million euros. “The decrease on a quarterly basis is due to lower net income from fees and commissions”, reports the Bank, while “the increase on an annual basis is due to the increase in net gains from foreign exchange trading and net gains/(losses) from financial instruments”.< /p>
At the same time, how much are the Bank's expenses? Total expenses for Q1 2023 were €91 million, compared to €95 million for Q4 2022 and €91 million for Q1 2022, down 5% QoQ and 1% YoY . 50% of them concern personnel costs (46 million euros), 38% concern other operating expenses (34 million) and 12% concern the special tax on deposits and other fees/contributions (11 million). “The 5% decrease on a quarterly basis is due to the decrease in other operating expenses due to seasonality and is partially offset by increased staff costs,” explains the Bank, while “the 1% decrease on an annual basis reflects the results from the actions to improve the efficiency of prior year and partially offset by inflationary pressures, wage increases and provision for staff benefits (variable pay) increases.”
BOC's Q1 2023 non-interest income stood at 72 million .euro.
Of course, the 9.2 billion deposits in the central banks, which now with the increase in interest rates are working positively, also played a big role in the bank's profits. It is worth noting that, on June 1, the Bank of Cyprus is expected to give an “investor update” in London, giving its “brand” for the coming years.
What it says the Athlos Capital
According to Athlos Capital financial analyst Fano Vladimirou, the main source of Bank of Cyprus's earnings growth for the first quarter of 2023 was the significant increase in net interest income (+127% year-on-year), supported by the increase in interest rates. He commented to “K” that the Bank of Cyprus is able to benefit significantly from the interest rate increases so far, since a large percentage of its balance sheet is in cash and deposits (~37%) with Central Banks, at an interest rate that is adjusted directly to increases, while more than 50% of its loans are linked to Euribor, which fully reflects interest rate increases with some time lag. “This fact, combined with the more gradual adjustment of deposit rates resulted in a significant increase in net interest income”, he explains characteristically.
It is noteworthy, according to Mr. Vladimirou, that Bank, despite rising interest rates, proceeded with new lending of 624 million euros, +41% on a quarterly basis, while the non-performing loan ratio is significantly reduced to 3.8%. He then indicated that the deposits of the Bank's customers amounted to 19 billion euros, increased by 7% on an annual basis. “It is important to note that the Bank's deposit base consists in its majority (60%) of deposits with individuals which are considered more difficult to move”, comments the financial analyst of Athlos Capital.
Mr. Vladimirou concluded with the following: “The outlook for Bank of Cyprus remains positive since its high liquidity (Liquidity Coverage Ratio 303% – among the highest ratios in the Eurozone) and its sufficient capital position, enable it to take advantage of the current conditions of the highest interest rates”.
