Mention the words ‘bank’ and ‘Cyprus’ in the same sentence and it is likely to bring back dramatic images of queues at cash tills and angry depositors. Two banks at the centre of the 2013 crisis were the now-defunct Laiki and Bank of Cyprus (BoC). BoC inherited just over €9bn in Emergency Liquidity Assistance (ELA) from Laiki, in addition to the €2bn or so it had on its own books, and things were initially very precarious for the bank, even after the bailout programme began. So why am I suggesting that BoC may be the best managed bank in Cyprus?
The primary reason is that it has gone furthest in tackling NPLs. BoC’s NPLs based on the tougher European Banking Authority (EBA) definition fell by €800m to €14.2bn in September 2015, from €15.0bn in December 2014.
In the same period those of the Cooperative Central Bank rose by €367m to €7.7bn, from €7.2bn in December. Those of Hellenic Bank rose to €2.7bn from €2.5bn in the same period.
Of course, in absolute terms the level of BoC’s NPLs is much larger. It also still has the highest NPL ratio (62% compared with 59.6% for the Co-ops and 61.2% for Hellenic). But it is the first bank to start seeing a fall in the value of bad loans.
BoC has also made use of rising deposits, asset sales and government debt redemptions to cut its ELA dramatically. From a peak of €11.4bn in April 2013, it had dropped to €3.8bn by December 2015—a drop of two-thirds.
It is also the only bank since the crisis that has not been “caught short” on capital. Having already received €1.5bn from EU taxpayers, the Co-ops had to ask the government for a second recap of €175m late last year because it was surprised by tougher demands from the EU authorities over provisioning for NPLs.
Hellenic Bank was also found to be around €100m short of capital in the EU-wide stress tests published in later October 2014.
The fact that it was able to plug that hole very quickly suggests that it could have anticipated the problems earlier.
This has not happened with BoC. It had already raised enough capital by the time the stress tests were published.
And so far it has managed assets, NPLs and its capital cushions to avoid any unpleasant surprises.
Moreover, despite its big challenges, it is the only one of the three banks that recorded three-month profits in the first, second and third quarters of 2015.
I regularly moan on twitter about its big charges on forex and foreign transactions, and clearly the BoC has a big hurdle in bringing the NPL ratio into single digits.
I have no commercial interest in saying this. But I still believe BoC is the best-managed bank in Cyprus.