04 Jun 2017 Attracting more investors to the Co-op bank

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This week the government announced that it was going to return 25% of the shares of the Cooperative Central Bank (the co-op) to members. The co-op ended up almost exclusively in state hands as a by-product of the financial crisis in 2013.

As part of the deal, and as I understand it, to comply with the EU state aid rules, the government promised to privatise the bank within a set number of years.

I do not know how the government got round EU state aid rules by ‘returning’ shares at no cost to members, but it is a canny way of beginning to meet its objective of full privatisation by the year 2020.

The co-op ought to be attractive to investors. It has almost one-quarter of the market and a fairly loyal customer base.

But the Cyprus Stock Exchange is small with low liquidity, therefore the co-op needs all the help it can get to attract more investors.

My recommendations are based on what I have been doing for the past few hours as I write this article, namely analysing the most recent accounts of all the banks for my monthly Sapienta report.

Finding my way around the co-op data took me the best part of a day. Finding the same (and more up to date) figures for Bank of Cyprus (BoC) took me 10 minutes.

There are two reasons for this. First, in its most recent financial statement, Bank of Cyprus puts all of the most important data right upfront. I found 13 of the 18 figures I was looking for on page 4.

The co-op, by contrast, does not even publish all these figures. You have to poke around and infer them from other data.

The two key figures that are missing from the co-op accounts are the non-performing exposure (NPE) ratio, measured on the stricter European Banking Authority (EBA) basis, and the coverage ratio, also on an EBA basis.

For potential investors, these statistics give signals about what is to come.

High NPE ratios and low coverage ratios indicate that the regulator is going to demand a steeper or faster increase in provisions, which will have an impact on capital.

I calculated that the co-op NPE ratio was 60% at the end of December, compared with ratios of 55% for BoC and 58% for Hellenic.

I found that the co-op’s EBA coverage ratio was 45.3% at the end of 2016, compared with only 41% for BoC, but a higher 55% for Hellenic in the same period.

Thankfully the co-op’s Common Equity Tier 1 (CET1) ratio, at 15.4%, is high enough for this not to be an immediate concern. But it is something to keep an eye on.

My first recommendation, therefore, is that the co-op publish all the data, even if the regulator might not demand it.

My second recommendation is that it publishes its accounts in English immediately, not a year later.

Accounts in Greek will limit the investor base to the tiny market that is Cyprus and Greece. Accounts in English, on the other hand, will open it up to the whole world.

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