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Friday, March 29, 2024

T. Arapoglou: The Bank of Cyprus has entered a new era

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The duration of the period of high interest rates is more important and less how much they will increase says the Chairman of the BOC Board

Τ. Αραπογλου: Η Τραπε&zeta ;α Κύπρου πέρασε σε νέα εποχor

Certainly the bank is not for sale, but the Board of Directors. has an obligation to evaluate each offer and to decide each time based on the interest of its shareholders, says the chairman of the Board of Directors.

From Citigroup, the National Bank of Greece and EFG-Hermes and Mr. Efstratios-Georgios (Takis) Arapoglou participates in a series of Boards of Directors of listed companies and for the last four years he has been the Chairman of the Board of Directors of the Bank of Cyprus. Within these four years there have been many challenges for the banks in Cyprus. In the midst of good management to clean up their balance sheet, came the pandemic, Russia's war in Ukraine and then inflation. And yet, Cypriot banks are proving – so far at least – to be resilient.

Mr. Arapoglou, in one of the few interviews he has given, emphasizes that there is no reason to worry about any negative impact on the Cypriot banking sector from the events of the banking crisis in America and Europe, he talks about interest rates, unfolds the strategy that we will see in Bank in the coming years and expresses a position on the takeover proposals for the Bank of Cyprus.

-To what extent will the banking crisis in Europe and America have ramifications in the Cypriot banking sector as well?< /p>

–Recent bank failures in the US and Europe were isolated incidents and the result of poor risk management and lax supervision. Banking is based on trust and very easily the psychology and fear of depositors can override logic and prompt them to immediately withdraw their deposits from a bank in trouble, as it did. Solutions were finally found and the respective supervisory authorities in cooperation with other larger banks provided substantive solutions to the problems created with relatively manageable losses on the part of depositors. However, the structure and operating rules of the respective depositor protection systems in such crises should be revised to better deal with similar situations in the future, which by the very nature of banking cannot be avoided.

The banks in Cyprus, after their recent restructuring, are shielded with an excess of capital and liquidity and have developed, in cooperation with the supervisory authorities, highly effective risk management systems. In addition, they have no exposure to failed banks. With these data, I believe that there is no reason to worry about any negative impact on the Cypriot banking sector from these events.

–What are the prospects for further development of the Bank of Cyprus given the very high market share you have in the Cypriot market?

–Increasing market share in loans has long ceased to be our main pursuit. Loans alone are not the most efficient use of a bank's regulatory capital. We focus our attention on increasing our share of the total financial expenses of each customer (customer wallet), i.e. loans but also on increasing the number of collaterals in our product loans that we sell to each customer. This greatly increases the return on our supervisory funds, which is our main objective. This process requires a drastic change in the philosophy of approaching our customers by our employees which also requires a parallel very serious upgrade of our supporting digital platform. In addition, the technological upgrade that we are developing will allow us, if we wish, in the long term to operate outside the narrow geographical borders of Cyprus, without necessarily having a physical presence.

– Bank of Cyprus has the possibility to replace from other sources part of the incomes that will be lost due to the projected pan-European reduced demand for loans?

– It is still too early to predict with certainty how much and for how long loan demand will be affected at the pan-European level and especially in each country separately, since it is not yet clear how much the increase in inflation and the corresponding high interest rates will affect the individual economies . In addition, we have the recent crisis of confidence in the banking system and we do not know how much this will affect the interest rate policy of the central banks, whose primary concern is to reduce inflation. However, the signals after recent interest rate hikes by central banks in Europe and the US are that we may be nearing the end of this rate hike cycle. Inflationary pressures, however, continue to be strong. For the Cypriot economy, all indications are particularly positive and we predict that it will be affected much less than most European ones, showing strong resilience and satisfactory growth.

In any case, as I mentioned earlier, the growth of the bank's loan portfolio in the narrow sense ceased to be our main goal for new revenue. We study the customer's creditworthiness very carefully, price the loan accordingly and treat it as a means of developing a wider relationship with him in order to serve all kinds of his financial needs. Furthermore, with the development of our new Jinius digital platform, we aim to gain a correspondingly large market share as direct intermediaries in all payments related to product and service purchases by our Business to Business (B2B) and Business to consumer (B2C) customers. ) level. It is a great strategic investment for us and the number of our customers joining this platform is growing at a very high rate. Furthermore, this investment can offer us access to clients across borders.

With the above initiatives, we aim for a dynamic development of all our activities, with the aim of making more efficient use of our valuable and expensive supervisory funds that the supervisory principles require us to maintain.

Lonestar and competition

–Are you worried about the strengthening of your main competitor by the presence of Eurobank's main pillar in equity capital?

–We are not worried the competition. Instead we see him as an opportunity to become better.

– Is Bank of Cyprus a takeover target today, or did the way Lone Star's effort ended closed the doors to other potential interested parties. Also, was it ultimately a matter of price? At the same time, rumors and publications caused interest from National Bank and Alpha Bank in 2022. What do you think?

–In our view Lone Star's effort was clearly opportunistic. He correctly announced that the bank's stock was then still seriously undervalued and expressed interest in the acquisition.

However, the Board of Directors based on its own assessments, was convinced that the execution of the business plan it had approved and which was already in a very successful development, justified a significant increase/correction of the bank's valuation.

On this basis, the Board of Directors believed that accepting Lone Star's proposals would not be in the best interests of T.K.'s shareholders. As it proved very quickly, this decision was absolutely correct, as since then the share price has increased by more than 150%. As it seems, we will soon meet the capitalization size requirement for upgrading the stock to the premium listing of the London Stock Exchange. This will logically increase the awareness of our stock to a wider range of international institutional investors. It is difficult to predict whether there will be other interested parties for the purchase of T.K. in the future. Certainly the bank is not for sale, but the Board of Directors. has an obligation to evaluate each offer and to decide each time based on the interest of its shareholders.

As for the rumors about possible interest from National Bank and Alpha Bank, I can assure you that they are not true.

Negligible NED news

–The rising interest rates has created a two-speed situation. On the one hand, profits for the banks, but at the same time difficulties for the borrowers that may bring problems to the credit institutions at a later stage. Are you worried about this fact and how will you manage it?

–The bad loans that had to be sold to resolve the banks were not created recently. Such large sizes are not created in a few years and in smooth markets. Most were created during the 2013 crisis and a few were left over from earlier as well. However, experience has shown that in most cases, if the supervisory authorities did not force, due to the need for immediate resolution, the sale of these loans and allowed the banks to manage their red loans on their own without pressure, the banks would ultimately have more benefit.

With today's great discipline in lending criteria and enhanced supervision by the ECB and CBC, judging by the behavior of the T.K.'s loan portfolio so far, the rate of creation of new non-performing loans is almost negligible. We follow the developments in this field very closely and certainly, as we have done in other difficult times, we are ready to help those we have chosen to be our clients to cope with any problems that may arise from the increased cost of money for which they bear no responsibility responsibility. I believe that the most important factor that can affect the quality of banks' portfolios will be the length of the period of high interest rates and less how much they will rise.

Four years at the helm and the big challenges

–You complete 4 years in the presidency of the Bank of Cyprus. What was the biggest challenge and how do you rate this period?

– Those in charge of the bank in the period 2015-2019 managed, despite the enormous difficulties, to keep it alive by all means. Their offer is huge. The biggest challenge for me and the entire Board, was its subsequent radical restructuring and sanitization in an environment of almost suffocating monitoring and control by the supervisory authorities. Today the bank is continuously upgraded by rating agencies and the ECB and has returned to sustainable profitability, rapidly increasing its market value and radiating confidence. We achieved all this without having to burden our shareholders with a new capital increase. This required a fundamental review of corporate governance rules, disciplined risk management and all forms of bank operations, as well as increased cooperation with supervisory authorities and our shareholders. For example, today with a percentage of non-performing loans at 4% (from 35% just a few years ago), with a cost/expense ratio lower than 47%, (from over 70%), return on capital of over 11% over- regulatory capital adequacy and excess liquidity, we have moved into a new era, but this does not mean that we do not have more to achieve.

It was a very complex undertaking to the success of which all the bank's staff contributed decisively and for this reason the second major challenge we had to face was to succeed in having the possibility, in recognition of this effort, to reward as comprehensively as possible the our employees for their great contribution to this success. 2023 will be the year we will be able to do that too. Key to all of this was our successful selection of Panikos Nikolaos as managing director and his constructive cooperation with the Board of Directors for the planning, supervision and execution of a particularly demanding and complex business restructuring plan.

But you realize that the successful restructuring of the bank was not an end in itself. Our biggest “ultimate” challenge was to return the bank to healthy and sustainable profitability and we hope soon to be allowed by the supervisory authorities to reward our shareholders while continuing to support the Cypriot economy.

To upgrade the quality of human contact with customers

– How do you see the banking sector of Cyprus in 10 years from now? Are fintech companies and digital banks your direct competitors?

– Developments in the banking sector, as in almost all sectors worldwide, are huge, happening at an incredibly high speed and with the exclusive catalyst of digital technology. All processes change and with them change the needs for different specialization/training of our employees. What does not change is the need, within this technological revolution, to find a way to maintain and upgrade the quality of human contact and cooperation with customers – to upgrade the so-called customer experience. This is exactly what, at least not yet, one-dimensional fintech and digital banks, most of which have yet to demonstrate profitability and cannot offer comprehensive services to customers, do not offer. In this environment, it is impossible to predict what the banking sector in Cyprus will be like in 10 years. Certainly, by then the sector will become more of a global technology sector and will probably struggle to maintain its current narrow geographical boundaries.

Investment grade and banks in Greece

– Greek banks are returning to profitability after the long crisis period. Do you think their key features justify attracting long-term private capital and reducing state involvement?

– The Greek banks are completing their restructuring with great success after a particularly difficult period and the best recognition for this is the steady upward trend of their shares. This is not only due to the temporary increase in interest rates as many think. The liquidation of bad loans, the adequacy of capital and liquidity, the increase in their operational efficiency and the greatly strengthened corporate governance and supervision have already come to the attention of all investors increasing the demand for their shares. Surely this will make it much easier for the state to reduce its participation in the banks.

– What will the recovery of the investment grade mean for the Greek banking system?

< p>– The strengthening of the Greek economy in recent years has resulted in a serious upgrade of its investment profile, steadily attracting significant foreign direct investments. This has already been recognized by the markets, reducing the cost of money for the country's external borrowing. I believe that very soon Greece will regain investment grade, reduce its borrowing costs even more and this will make it an even more attractive long-term investment destination. Greece, like every country and business, needs stability and predictability to continue its successful course, having now won everyone's respect.

This in turn will enhance the steady growth of economic activity which will support the growth of banking operations. Obviously, the recovery of investment grade will significantly increase the value of the portfolio of government bonds held by Greek banks (which may already have been discounted to some extent in today's valuations), further enhancing their profitability.

– Do you think the return to profitability can support repositioning investment initiatives in the wider Central and Eastern Europe region?

– The general conditions of euphoria, great global economic growth and the opening of the Central and Eastern European economies that we experienced at the beginning of the century and that supported such investment initiatives in these countries no longer exist, nor does it logically seem that we will see them again, at least in the near future future. Furthermore, the valuations of banks in these areas today may not offer the special opportunities they did then.

Experience has shown that, with few exceptions, these initiatives have not proved to be sustainably profitable as there have been serious problems due to the large differences and the administrative and other peculiarities in these then emerging countries. Nevertheless, one cannot rule out new such initiatives in a free market.

But what has also changed drastically compared to the past, is the much increased reason that supervisory authorities will now have in approving such actions. and which today prioritize bank mergers within each country and less cross-border initiatives. The aim is the gradual uniformity of the operation of the local banking systems which will allow a more effective supervision, preparing the ground for the creation of the common pan-European deposit guarantee fund, within the framework of wider European integration.

Source: www.kathimerini.com.cy

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