NBG Securities Research
– Bank of Cyprus: Good results – Maintain Outperform
|Company||Bank of Cyprus|
|Mcap (EUR m)||1,419|
|Share Price (EUR)||0.16|
|12-mo. Target (EUR)||0.22|
“Good results – Maintain Outperform”
We keep our Outperform rating
Bank of Cyprus’ operating performance came in broadly in line with our expectations in 1Q16 with the bank recording a profit of EUR50m. The increased restructuring activity that took place during the quarter along with the containment of dependence on ELA funding indicate the bank’s strong commitment to implementing its strategic commitments. We believe that the recovery of the Cyprus economy is set to have a positive effect on the bank’s performance. We like the bank’s comfortable CET1 ratio (14.3% in 1Q15) together with the fact that it materially increased its NPL coverage to reach 49% during 1Q16. BoC’s stock has gained 8% ytd, having outperformed European banks by 25%, and now trades at an avg. of 0.4x P/TBV 2016e vs. 0.6x in the European periphery. We maintain our Outperform rating and current estimates for the full year.
Substantial NPL reduction & ELA containment
Total 1Q16 income came in at EUR244m, below our estimate of EUR250m, mainly on the back of lower than expected commission and trading income. NII stood at EUR185m, 6% higher than our estimates and c.7% lower q-o-q mainly driven by the reduction in Eurosystem funding cost. Pre-provision profit stood at EUR145m or 4% below our expectations while loan impairment charges amounted to EUR62m, 43% lower than our estimates. During 1Q16, the bank concluded further restructurings of loans resulting in c.EUR1bn reduction of NPLs with the NPL ratio declining to 47% at 31 March 2016 from 50% at 31 December 2015. The NPL coverage came in at 49%. Profit after tax for 1Q16 amounted to EUR50m. The bank’s CET1 ratio (transitional basis) increased to 14.3%, up from 14.0% at 31 December 2015, reflecting 1Q16’ profitability and the on-going reduction in risk weighted assets. Although deposits in Cyprus remained unchanged during 1Q16, deposit inflows have picked up during April and May 2016. The bank’s improving liquidity position has allowed it to repay EUR1bn of ELA post 31 December 2015, reducing it to the current level of EUR2.8bn.
Loan restructurings of EUR1.5bn during 1Q16
The pace of NPL restructurings accelerated in recent quarters on the back of the bank’s increased restructuring efforts: during 1Q16 total restructurings amounted to EUR1.5bn with corporate loans accounting for 65% of these restructurings. NPLs have been reduced by EUR1bn, the majority of the reduction (88%) originates from the corporate segment. During 1Q16, NPL formation remained at low levels at EUR0.13bn.
Repayment of ELA and normalization of funding structure
The bank aims to fully repay ELA by the end of 2017 on the back of: i) deposit inflows, ii) regaining access to the debt capital markets and iii) asset deleveraging.
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