THE ISLAND’S two largest banks yesterday announced first half losses for 2011 after taking provisions for a Greek sovereign debt swap.
Bank of Cyprus (BoC), the island’s biggest lender announced a net loss of €112 million while second largest Marfin Popular Bank, which has a greater exposure to Greek debt, reported a net loss of €196.9 million.
Excluding the impairment of Greek Government Bonds (GGBs), BoC reported a net profit of €155 million, down 4.0 per cent from €163 million in H1 2010, after taking into account a new domestic tax on deposits to assist the cash-strapped government.
The bank said it expected to turn out a profit by the end of the year.
“Profitability is expected to exceed the impact from the exchange plan of GGBs, based on its current terms, resulting in the Group reporting significant net profitability for the full year 2011,” BoC said.
BoC had previously said earnings would be in line with 2010, when it turned a net profit of €306 million.
BoC, as well as Marfin, will participate in the plan to exchange GGBs, based on the decisions of the July 21 EU Summit for the support of Greece.
Private sector creditors have agreed to take a 21 per cent loss on their bond holdings as part of a €37 billion contribution to Greece’s rescue plan.
On June 30, 2011, the nominal value of the GGBs eligible for the plan totalled €1.07 billion, which BoC has impaired by €281 million or 26 per cent.
It said the net effect would be a €20 million hit to its equity, after allowing for a gain on completion of the bond swap and previous moves to account for the expected writedown.
BoC, which recently passed an EU-wide stress test said it “remains in a strong position to face the challenges of the ongoing negative environment in the main European markets in which it operates, enjoying strong liquidity (loans to deposits ratio 86 per cent), minimal repayments of debt obligations in the next two years and a Tier 1 capital ratio of 11.6 per cent following the issue of Convertible Enhanced Capital Securities (CECS) and the impairment of Greek Government Bonds (GGBs).”
Excluding its participation in the bond swap, Marfin said it would have posted a net profit of €77.1 million in the first six months of the year, up from €52.6 million in the first half of 2010.
Marfin, which also passed the EU-wide stress test, said bonds with a nominal value of €2.6 billion would participate in the swap. It said the impact of the swap of GGBs plus writedowns on other equity and bond holdings would be €274 million.
Cypriot banks are significant holders of Greek debt, a factor that has been instrumental in Cyprus’ sovereign ratings being pummelled in the past year by agencies worried a fiscally weak government would be unable to step in and assist them if required.
BoC shares recorded a 9.42 per cent loss yesterday while Marfin stock lost 2.94 per cent.
