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BANK OF CYPRUS PUBLIC COMPANY LTD
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Press Release
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November 9, 2007 Group Financial Results for the Nine Months ended 30 September 2007: - Spectacular increase in profits of 66%. - C£216 mn (euro 370 mn) profit after tax. - New record high return on equity (28,4%) and all-time low cost to income ratio (42,4%). - 2007 profit target upgraded to C£284 mn (euro 486 mn). - Interim dividend of C£0,11 (approximately euro 0,188) per share. A. Summary of Results: Group profit after tax for the nine month period ended 30 September 2007 (9M07) reached C£216 mn (euro 370 mn), recording a spectacular annual increase of 66%. There was a significant improvement in all of the Group's performance indicators in the 9M07 period compared to the corresponding 2006 period, with return on equity increasing to 28,4% and the cost to income ratio improving to 42,4%. Both the Group's banking operations in Cyprus and Greece and the insurance operations contributed to the improvement. The quality of the loan portfolio has improved further and the ratio of non-performing loans to total loans has improved from 6,6% at 30 September 2006 to 4,3% at 30 September 2007. The Board of Directors of the Bank, taking into consideration the results to date and the expected profitability for the whole year, has decided to pay an interim dividend of C£0,11 (approximately euro 0,188 3) per share. 'The Group's excellent results for the first nine months of 2007 confirm the correctness of our strategic expansion, good planning, consistency, systematic approach and credibility that define the Group. The year 2007 is a landmark in the dynamic expansion of the Group. On the back of our recurring profits, we have set the foundations for our expansion in new markets, such as Russia and Romania. The Board of Directors, taking into consideration the spectacular results and excellent prospects, decided to pay an interim dividend of C£0,11 (approximately euro 0,188) per share' Eleftherios P. Ioannou, Chairman of the Board of Directors. The profit after tax for the first nine months of 2007 reached £216 mn (euro 370 mn), recording an increase of 66% compared to the corresponding period of 2006, thus achieving a spectacular return on equity of 28,4%. All of the Group's financial footings increased at significant rates. Our performance both in terms of volumes and profits have led us to upgrade our expectation for Group profit after tax for the whole of 2007 to £284 mn (euro 486 mn) compared to £183 mn (euro 313 mn) for 2006. We continue to deliver on our promises' Andreas Eliades, Group Chief Executive Officer. The main financial highlights of the Group for 9M07 are set out in the table below: * p.p. = percentage points, 1 percentage point = 1%. - Group profit after tax for 9M07 reached C£216 mn (euro 370 mn) compared to C£130mn (euro 223 mn) for the corresponding 2006 period, recording an increase of 66%. - The Group return on equity increased substantially to 28,4% compared to 21,2% for the nine months of 2006 (9M06). - The cost to income ratio improved to 42,4% compared to 46,9% for 9M06. - The improvement of profitability is the result of the following: - Increase of business volumes (28% in loans and 20% in deposits). - Increase of income (increase of net interest income by 26%, fees and commission income by 16% and insurance income by 19%). - Containment of cost growth at rates significantly lower than those of the growth of business volumes. - Enhanced credit risk management, with a resultant decrease of the annual provision charge to 0,4% of total loans. - Increase by C£7 mn (euro 12 mn) in the profit from sale and change in fair value of financial instruments. - The improvement in the profitability of the Group's Cyprus operations is spectacular. Profit after tax increased by 71% to C£171 mn (euro 293 mn). - The profitability of the Greek operations also registered a spectacular increase in 9M07, with profit after tax increasing by 60% to reach C£41 mn (euro 70 mn). B. Target for the whole year 2007: The Group follows its consistent strategy of autonomous growth and further significant growth in volumes and profits. Based on the Group financial results to date, the indications for their further development, as well as the current conditions in the markets in which the Group operates, the Group expects to exceed the profit target of £240 mn (euro 415 mn) which was announced in February 2007. Specifically, the full year 2007 profit target is upgraded to £284 mn (euro 486 mn). In parallel, the Group is successfully implementing its expansion strategy into Russia and Romania, where it has significant comparative advantages. The initial indications of our presence in these two countries are very encouraging and justify our expectations that these markets will become significant drivers of the Group's development in the coming three-year period. C. Financial Footings: C.1 Group Loans: The Group's loans reached C£10,68 bn (euro 18,27 bn) at 30 September 2007, recording an annual increase of 28%. C.1.1 Loans in Cyprus: The Group's total loans in Cyprus at 30 September 2007 amounted to C£5,21 bn (euro 8,92 bn), recording an annual increase of 32%. The Group has increased its market share in total loans of commercial banks and credit cooperatives in Cyprus, to 28,3% in September 2007 (latest available data), compared to 26,7% in December 2006 and 26,3% in September 2006, an increase of 2 percentage points in the last 12 months. The continuous increase in our market share is the result of the recognition of Bank of Cyprus' leading brand name, as well as its extensive distribution network and the effective marketing campaigns focusing on the corporate sector and mortgage lending. The Group's market share in total loans, including those of the international banking units, stood at 24,2% in September 2007. C.1.2 Loans in Greece: In Greece, the annual rate of increase in the Group's loans reached 23%, with the Greek loan portfolio reaching C£4,43 bn (euro 7,58 bn) at 30 September 2007 and the market share standing at 3,7% in July 2007 (latest available data). The Group's dynamic expansion in Greece focused mainly on housing and consumer loans. The balance of housing and consumer loans at 30 September 2007 increased by 31% and 29%, respectively, compared to 30 September 2006. C.1.3 Loans in Other Countries: At 30 September 2007, Group loans in the United Kingdom and Australia increased by 18% and 47%, reaching C£747 mn (euro 1,28 bn) and C£220 mn (euro 377 mn), respectively. In the new markets, Russia and Romania, the Group's loan portfolio at 30 September 2007 reached C£72 mn (euro 124 mn), with the inflow of loan applications indicating prospects for much higher volumes. C.1.4 Loans by Customer Sector. The breakdown of the Group's loan portfolio in Cyprus and Greece by customer sector is shown below. C.1.5 Non-Performing Loans ('NPLs'): During 9M07, the improvement in the quality of the Group's loan portfolio was exceptional and was the result of, among others: - Collections of overdue amounts. - Lower inflow of new NPLs as a result of the continuous improvement of credit risk management. Specifically, the Group NPLs have declined in absolute numbers by 17% since 30 September 2006. As at 30 September 2007, Group NPLs decreased to C£451 mn (euro 773 mn). It is stressed that the Group applies the definition of NPLs which includes all loans in arrears for longer than three months. In addition, the NPL classification extends to all other loans of the customers who have a specific facility classified as non-performing. The ratio of NPLs to total Group loans at 30 September 2007 was 4,3% compared to 6,6% at 30 September 2006 and 5,6% as at 31 December 2006. The coverage ratio (provisions/NPLs) increased to 78% as at 30 September 2007, compared to 60% one year ago. The remaining balance of NPLs is fully covered by tangible collateral. The vast majority of non-performing loans relate to the Group's Cyprus operations with the relevant indicator improving to 6,0% at 30 September 2007 compared to 9,7% one year ago. It should be noted that in Cyprus, the lengthy process required for the foreclosure of collateral, especially property, acts as an obstacle in the collection of overdue amounts. The quality of the Group loan portfolio in Greece remains very good, despite the high growth rate of the portfolio. Using the NPL definition mentioned above, the Group's NPLs in Greece improved to 3,1% at 30 September 2007, compared to 4,6% at 30 September 2006. This ratio compares favourably to the ratio of the Greek banking system, as per Bank of Greece data. C.2 Group Deposits: The Group's total deposits at 30 September 2007 reached C£13,72 bn (euro 23,48 bn), recording a 20% annual increase. C.2.1 Deposits in Cyprus: In Cyprus, the annual rate of increase in Group deposits was 24%. Deposits in Cyprus amounted to C£7,98 bn (euro 13,66 bn) at 30 September 2007. The Bank's market share of total deposits of commercial banks and credit cooperatives for September 2007 (latest available data) amounted to 30,9%, compared to 29,6% for September 2006. A percentage of 60% of total deposits of the Group's Cyprus operations is in foreign currency. The Bank's market share in this sector of the deposit market among commercial banks stood at 43% in September 2007. C.2.2 Deposits in Greece: Group deposits in Greece increased significantly at an annual rate of 15%, reaching C£4,87 bn (euro 8,33 bn) at 30 September 2007. At the end of July 2007 (latest available data) the Group's market share in deposits in Greece stood at 3,6%. C.2.3 Deposits in Other Countries: At 30 September 2007, the Group's deposits in the United Kingdom and Australia reached C£716 mn (euro 1,23 bn) and C£148 mn (euro 253 mn), recording an annual increase of 17% and 19%, respectively. C.3 Shareholders' Funds: At 30 September 2007, the Group shareholders' funds amounted to C£1,12 bn (euro 1,92 bn), recording a significant increase of 28% since 30 September 2006 and 24% since 31 December 2006. At 30 June 2007, the Group capital adequacy ratio per Basel II requirements stood at 13,3%. D. Analysis of Nine Month 2007 Results: D.1 Net Interest Income and Net Interest Margin: Net interest income reached C£325 mn (euro 556 mn), recording an annual increase of 26%. The increase is primarily attributable to the significant increase in the Group's footings in Cyprus and Greece, as well as to the improvement in the net interest margin (NIM) of the Group's operations in Cyprus. The Group net interest margin (NIM) for 9M07 increased to 2,87%, compared to 2,76% for 9M06. The NIM of the Group's operations in Cyprus increased significantly from 2,32% at 30 September 2006 to 2,57% at 30 September 2007, mainly as a result of the increased margin on foreign currency deposits as well as the increased spread earned on deposits in Cyprus pound. The NIM of the Group's operations in Greece recorded a minor decrease (2,94% compared to 3,12% for 9M06) due to the intensified competition, especially in the lending sector. It is noted that the loans to deposits ratio stands at 91%, allowing for the significant growth of the Greek operations. D.2 Income from Insurance Business: The growth of the Group's insurance operations was significant with an increase in new business premiums of 26% in life insurance and 15% in general insurance. Total income from insurance business recorded a 19% annual increase, reaching C£24 mn (euro 41 mn). The insurance business contributed 7% to Group profit before tax amounting to C£18 mn (euro 30 mn), recording an increase of 40%. D.3 Expenses: Total expenses for 9M07 amounted to C£206 mn (euro 352 mn), with the annual rate of increase of 14% being significantly lower than the rate of increase in loans (28%). This, coupled with productivity increase, resulted in an improvement of cost to income ratio to 42,4% for 9M07 compared to 46,9% for the corresponding 2006 period. Staff costs amounted to C£125 mn (euro 214 mn), recording an annual increase of 10%, mainly due to the increase in the costs of the expanding Greek operations by 23%. Staff costs in Greece grew as a result of the increase in staff numbers by 13%. The increase in staff in Greece is necessary to respond to increased business volumes (23% increase in loans) and to staff the six new branches which opened in the last 12 months, as well as the 9 new branches which have been rented and are expected to become operational in the next few months. The Group currently operates 126 branches in Greece. The increase in staff costs in Cyprus was contained to 3%, despite the much higher rates of increase in volumes (32% increase in loans). The other (non-staff) operating expenses of the Group recorded an annual increase of 21% and amounted to C£81 mn (euro 138 mn). It is noted that the operating expenses of the Group in Greece in the third quarter of 2007, include a donation of C£3 mn (euro 5 mn) to the victims of the large scale fires in Greece during August 2007. The cost to income ratio of the Group's Cyprus operations improved from 44,8% in 9M06 to 36,2% in 9M07. This ratio for the Group's Greek operations stands at the very satisfactory level of 50,1% (9M06: 48,1%), especially considering the relatively low maturity level of the branch network and the cost of opening new branches, which is expensed as incurred. D.4 Provisions for Impairment of Loans: The provision charge for 9M07 amounted to C£30 mn (euro 51 mn) and represented 0,4% (2006: 0,7%) of total Group loans, reflecting the improvement in the quality of the loan portfolio. Notes: 1. All geographical sector analyses are shown following restatements made to bring each sector's capital to the same percentage level of the sector's risk weighted assets. 2. The conversion from Cyprus Pounds (C£) to Euro (euro ) was made using the exchange rate at 30 September 2007 of euro 1=£0,5842. 3. The payment of the dividend in Euros will be based on the exchange rate in force on the working date immediately preceding the ex-dividend date, which may be different than the rate used for the purposes of this announcement. 4. The Group's Condensed Consolidated Financial Statements for the nine months ended 30 September 2007, are available at the Bank of Cyprus Public Company Ltd Registered Office and on the Group's website, as follows: - Registered Office: 51 Stassinos Street, Ayia Paraskevi, Strovolos, P.O. Box 24884, 1398 Nicosia, Cyprus. Telephone: +357 22 842128, Fax: +357 22 378422. - Website: www.bankofcyprus.com (Inv. Relations/Financial Information). 5. The detailed presentation of the financial results for the 9M07 has been posted on the Group's website www.bankofcyprus.com (Inv. Relations/Presentations)
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