Bank of Cyprus to post 2015 after tax loss of €0.4bn on increased provisions


Bank of Cyprus said that it will post an after tax loss of €0.4bn for 2015 caused by an increase in provisions for impairment of customer loans by €0.6bn in October to December to a total of €1bn for the year, adding that it will need no additional capital.

“The bank has made changes to its provisioning assumptions taking into account the ongoing regulatory dialogue with European Central Bank, bolstering its provision coverage levels,” the lender said in an emailed statement on Tuesday in reference to the supervisory review evaluation process, widely referred to as SREP.

Bank of Cyprus’s board decided by taking into account the methodologies of existing international financial reporting standards, “to make certain amendments to the assumptions in the bank’s provisioning methodologies,” the lender said. “These changes relate to extending recovery periods and applying additional realisation discounts on certain portfolios of problem loans. Provisions are a highly judgmental area under international financial reporting standards”.

The bank’s core equity tier 1 ratio is thereafter “expected to remain strong at approximately 14 per cent,” the island’s largest lender said and thus “the bank does not need to raise additional capital” as the ratio is higher than the minimum required ratio of 11.75 per cent.

“The bank continues to make good progress in delivering against its strategic objectives,” Bank of Cyprus said. “During the fourth quarter of 2015 and during January 2016, the Bank completed the restructuring of a number of large lending exposures. This is expected to result in a €0.7bn reduction in 90 days past due (loans) for the fourth quarter of 2015,” which is a 6 per cent drop compared to the quarter before.

The banks said that the increase in liquidity resulting from “continuing deposit inflows” which resulted in a quarterly increase of customer deposits by €0.6bn, or 4 per cent, helped it reduce its reliance on emergency liquidity assistance from the ECB by €1.4bn since September 30 to currently €3.5bn.

Bank of Cyprus added that “these changes will significantly bridge the regulatory dialogue with the ECB and explicitly bolster” its provisional levels. “Provision coverage levels against the bank’s loans in arrears for more than 90 days will improve to levels approaching 50 per cent”.

Bank of Cyprus’s statement came three weeks ahead of the official announcement of its 2015 earnings. In January to September 2015, the lender generated an after tax net income of €73m.

By Stelios Orphanides

 

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