Return on tangible equity (ROTE) (annualized) stood at 27.5% over the same period
Hellenic Bank presented a profit of 160.2 million euros for the 1st half of 2023, compared to a profit of 52.9 million euros for the 1st half of 2022. At the same time, the return on tangible equity (ROTE) (annualized) amounted to 27.5% for 1H 2023 compared to 9.7% in 1H 2022.
Net interest income for 1H 2023 was €235.4m, up 77% compared to €133.1m for 1H 2022. The increase was mainly due to an increase in interest income from deposits in Central Banks and other banks and securities following the continued interest rate hikes announced by the ECB. In addition, interest income from the loan portfolio is higher due to the increase in prime lending rates and the reflection of the full impact in 1H 2023 of the acquisition of part of the NPL portfolio from RCB Bank during 2022.
This increase was partially offset by increased interest on the 1H 2023 loan portfolio specifically related to interest expense arising from the issuance of MREL (equity and eligible liability) eligible instruments11 and interest expense on securities MAK1 and MAK212. Also, the benefit in net interest income from borrowing in Targeted Long-Term Refinancing Operations ((TLTROs)13 of approximately €11.6 million recognized in the 1st half of 2022 ceased to exist as of November 2022, following change of the conditions in the SPMAs introduced by the ECB.
The Group's net interest margin (on an annualized basis) for 1H 2023 was 2.41% compared to 1.44% for 1H 2022 (2022: 1.60%). Total non-interest income for 1H 2023 was €58.0m, up 19% compared to €48.8m for 1H 2022.
At 43% the cost to income
The expense-to-income ratio for 1H 2023 was 43%, compared to 76% for 1H 2022, while for 2Q 2023 the expense-to-income ratio was 39% (1Q 2023: 48 %). The annual and quarterly decrease respectively were mainly due to the increase in total net income.
Personnel expenses for the 1st half of 2023 amounted to €60.7 million and compared to €75.4 million in 1st half of 2022, they decreased by 20% and represented 48% of the Group's total expenses (1st half of 2022: 54%).
The main drivers for the reduction in staff costs are the reduction in the number of staff employed by the Group in the 1st half of 2023, as a result of the Voluntary Early Exit Scheme (VEES) implemented in the 4th quarter of 2022. Also in the 1st half of 2022 a provision was made in relation to the Bank's possible legal obligations following a request by employees of the former Cooperative Credit Institutions (formerly SPII) to restore their salaries to 2013 levels, effective January 1, 2019. This is partially offset by the higher index allowance (ATA)15 and the salary increases applicable to each employee according to the expired Collective Agreement and paid by the Group during the 1st half of 2023, effective from January 2022.
< strong>Owns 30% of deposits
At 30 June 2023, customer deposits amounted to €15.7 billion (31 December 2022: €15.9 billion) and were down 1% from year-end 2022. They consisted of Euro deposits of €14, 6 billion (31 December 2022: €14.7 billion) and deposits in foreign currencies amounting to €1.1 billion (31 December 2022: €1.2 billion) mainly in US Dollars. The Group mainly holds deposits from households and approximately 69% of total customer deposits are protected by the Deposit Guarantee Scheme
The Bank's market share of deposits18 on 30 June 2023 was 30.2% compared to 30.7% on 31 December 2022. The market share of deposits on 30 June 2023 consists of 38.0% deposits from households (31 December 2022: 38.4%) and 20.7% deposits from non-financial corporations (31 December 2022: 21.1%).
The Group's Common Equity Tier 131 (CET 1), excluding IFRS 9 transitional provisions, has increased by 269 bp. during the six months ended June 30, 2023, while the Group's Capital Adequacy Ratio31 increased by 616 bp.
For the Group, the Capital Adequacy Ratios, Common Equity Tier 1 (CET 1) and Tier 1 Capital on June 30, 2023, excluding the anticipated profit of the 1st half of 2023, were 23.61%, 17.85% and 20.13%, respectively. For the Bank, the respective Capital Adequacy Ratios, Common Share Capital of Category 1 (CET 1) and Capital of Category 1 (Tier 1) of the Group on June 30, 2023, were 23.51%, 17.76% and 20.04 %, respectively.
Loan market share at 26%
Gross loans at 30 June 2023 amounted to €6,286 million compared to €6,963 million at 31 December 2022, a decrease of 10%, mainly as a result of the completion of Project Starlight. The performing loan portfolio increased by 2% while the non-performing portfolio decreased by 58%, compared to December 31, 2022. The decrease in NPLs in the 1st half of 2023 is mainly due to the completion of Project Starlight. The Bank's loan market share22 on 30 June 2023 was 26.0% (31 December 2022: 27.7%) and consists of 33.0% loans to Households (31 December 2022: 34.7%) and 22.3% loans to non-financial organizations (31 December 2022: 24.6%).
Total new borrowing in Q2 2023 amounted to €331m, compared to new borrowing in Q1 2023 of €315m (up 5% quarter-on-quarter), and total €647m for 1H 2023 marked an increase of 16% year-on-year compared to new borrowing of €556m in 1H 2022.
MED at 3 .3%
NPLs as defined by the European Banking Authority (EBA) for the Group amounted to €562 million on 30 June 2023 and decreased by 58% compared to €1,335 million on 31 December 2022 (NPLs excluding NPLs covered from the PPS amounted to €0.2 billion on June 30, 2023 and €1.0 billion on December 31, 2022). The decrease in the 1st half of 2023 is mainly due to the completion of Project Starlight.
The NDE ratio on June 30, 2023 was 8.9% compared to 19.2% on December 31, 2022. The NDE ratio excluding NDEs covered by the PPS, on June 30, 2023 was 3.3% (December 31, 2022 : 13.5%). The decrease in the 1st half of 2023 is mainly due to the completion of Project Starlight. Adjusted for held-for-sale portfolios, the NPL ratio fell to 9.8% at 31 December 2022, while the NPL ratio excluding NPLs covered by the PPS was 3.6% at 31 December 2022.
What the interim CEO, Mr. Antonis Rouvas, said
Commenting on the Group's results for the six months ended June 30, 2023, Mr. Antonis Rouvas, Interim Chief Executive Officer of the Group, stated:
Hellenic Bank's performance for the first half of 2023 was stable . Profit after tax was €160m, mainly due to higher interest income from Central Bank deposits and interest income from debt securities as interest rates rise, but also from lower expenses. The results demonstrate the resilience of our business model and our efforts to continue to enhance the Bank's value.
The Bank maintains a strong capital position with a Capital Adequacy Ratio of 26.5%. Liquidity remains in excess with a Liquidity Coverage Ratio at 499%, enabling us to continue to support our clients by providing competitive and tailored financial and insurance products. New lending during the first half of 2023 reached €647 million (up 16% year-on-year). As a result of the successful Voluntary Early Exit Plan (VEP) implemented in 2022, the adjusted cost-to-income ratio in the first half of 2023 reached 38%, in line with the Bank's medium-term objectives.
However, challenges in the economic and operating environment remain, with interest rates and inflation on an upward trend above the long-term average, as well as the ongoing Russia/Ukraine war crisis, which could affect the Bank's financial performance in next quarters.
During the first half of 2023 we successfully issued a new €200 million Tier 2 Subordinated bond under the EMTN Program. The total bid book was oversubscribed by almost 4.5 times, reaffirming investor confidence in the Bank. Despite this, the Bank's funding from the capital markets remains expensive, reflecting the Bank's current non-investment grade credit rating. By demonstrating sustainable financial performance and operating in an environment that will remain supportive, we will work towards achieving an investment grade credit rating to further facilitate the Bank's access to capital markets at more competitive interest rates.
In March 2023 we completed Project Starlight, significantly reducing the Bank's balance sheet risk and non-performing loan exposure to 3.3% (excluding NPLs covered by the PPS) as of June 30, 2023. Despite the shift of NPLs off banking system, their level in Cyprus remains one of the highest in Europe. Therefore, we consider it imperative to implement a stable and functional legislative framework to deal with strategic defaulters and for Cyprus to continue to attract foreign direct investment and facilitate domestic debt issuers' access to international capital markets. We reiterate our commitment to support our vulnerable customers and work closely with the authorities, supporting proposed measures to address the long-standing issue of NPLs.
The Bank's 2022 Sustainability Report was published in June and is based on our new ESG strategy. We remain committed to leading the economy's sustainable transition, setting high goals to become a climate-neutral Bank, increase our green lending (€107m in the first half of 2023), improve our ESG rating and support customers and investors in their green transition.
I am very grateful and proud of my colleagues who remain focused on supporting customers and executing our transformation plan. We are still working to create value for all involved, continuing to finance the development of the Cypriot economy