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(Alliance News) - Bank of Cyprus Holdings PLC said Monday it has agreed to offload a EUR545 million portfolio of non-performing loans as part of its Project Helix.
Project Helix is Bank of Cyprus's effort to sell off its non-performing loans.
The sale, to funds affiliated with Pacific Investment Management Co LLC, covers the lender's Helix 2 Portfolio B.
Portfolio A - covering EUR916 million in non-performing loans - was sold in August last year to Pacific.
Portfolio B had a contractual balance of EUR783 million and comprises about 16,000 loans, mainly to retail and SME clients, secured over about 4,000 real estate collaterals, Bank of Cyprus explained.
The net book value of the assets being sold amounts to EUR244 million. The gross consideration amounts to 44% of the gross book value and 31% of the contractual balance payable in cash, of which 50% is payable at completion and the remaining 50% is deferred up to December 2025 without any conditions attached.
The consideration can be increased through an earnout arrangement, depending on the performance of Portfolio B, Bank of Cyprus said.
"The transaction represents another milestone in the delivery of one of the group's core strategic objectives of improving asset quality through the reduction of NPEs," Bank of Cyrpus said.
The lender added: "The transaction reduces the stock of NPEs by 22%. Overall, the pro forma NPE reduction for 2020 amounted to about EUR2.1 billion reducing NPEs to EUR1.8 billion and the NPE ratio to 16%, including Helix 2 (Portfolios A and B) and an organic NPE reduction of about EUR600 million."
The bank noted the deal is expected to be "broadly neutral" to its capital ratios. At the end of September, Bank of Cyprus's CET 1 ratio slipped to 14.6% from 14.8% at the end of 2019.
"Upon the payment of the deferred consideration and without taking account of any positive impact from the earnout, the transaction is expected to have a 14 bps positive capital impact on the group's CET1 ratio. The loan credit losses on Portfolio B, expected to be recorded in the fourth quarter of 2020, is estimated at about EUR27 million," Bank of Cyprus said.
The deal is expected to be completed early in the second half.
Chief Executive Panicos Nicolaou said: "Despite the on-going challenging market conditions, the bank has signed the sale of EUR1.4 billion NPEs in the last six months (Helix 2 Portfolios A and B). Our combined de-risking actions have reduced NPEs in the year 2020 by about EUR2.1 billion, from EUR3.9 billion to EUR1.8 billion, and the NPE ratio from 30% to 16%."
The CEO noted, since the bank's peak, it has reduced its NPEs by EUR13.2 billion, or 88%, taking its NPE ratio to 16% from 63%.
"As part of our broader strategic objectives to drive shareholder value creation as set out with our medium term strategic targets announced with our financial results for the nine months ended September 30, 2020, we remain committed to further de-risking the balance sheet and we will continue to seek solutions, both organic and inorganic, to achieve our target of a single digit NPE ratio by the end of 2022. We will continue to assess the potential to accelerate the decrease in NPEs on our balance sheet through additional sales of NPEs in the future," Nicolaou added.
Shares in Bank of Cyprus were 1.4% higher in London on Monday at EUR0.74 each.
By Paul McGowan; paulmcgowan@alliancenews.com
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