LONDON (Alliance News) - Bank of Cyprus Holdings PLC on Tuesday reported a narrowed interim pretax loss, despite a drop in turnover, as the lender agreed to sell a portfolio of non-performing loans with a gross book value of EUR2.8 billion to Apollo Global Management LLC.
Bank of Cyprus said the loan portfolio, called Project Helix, will be transferred to a licensed Cypriot credit acquiring company, the shares will then be acquired by "certain funds affiliated" with the American public equity firm.
The bank will receive gross cash consideration of EUR1.4 billion for the portfolio - which comprises of 14,0242 loans to corporate and small & medium-sized enterprise borrowers, secured over 9,065 properties. The portfolio had a net book value of EUR1.5 billion as of June 30.
Bank of Cyprus intends to participate in the senior debt in relation to the transaction of about EUR450 million.
The sale to Apollo is the bank's first disposal of non-performing loans which "accelerates" its strategy of de-risking it balance sheet, resulting in a non-performing exposure ratio improvement of about 10 percentage points.
The reduction of non-performing exposure will lead to an improvement in asset quality, according to the bank. Following completion of the sale, the bank's gross non-performing exposure will be 65% lower than its peak in 2014.
Chief Executive Officer John Hourican said: "This is a transformative sale for the bank and is the first meaningful corporate and small & medium-sized enterprises non-performing loans trade in Cyprus.
"Since 2014, we have focused on decreasing our stock of non-performing loans and improving the asset quality of the bank, and today's transaction is a significant step forward on our journey of de-risking the balance sheet and enhancing our capital position."
For the six months ended June, Bank of Cyrpus posted an interim pretax profit of EUR51.0 million, narrowed from EUR481.1 million a year before.
The bank narrowed its credit losses to cover credit risk on loans and advances to customers in the half to EUR267.7 million from EUR750.9 million the year before.
Bank of Cyprus also had reduced provision and impairment costs of EUR107 million from EUR727 million the year before.
The bank's turnover decreased 9.2% to EUR550.7 million from EUR606.2 million. Bank of Cyprus' interest income decreased in the half to EUR335.0 million from EUR425.7 million.
Bank of Cyprus CET1 ratio stands at 11.9%, or 14.0% pro forma including the loan portfolio and the GBP103 million sale of its UK subsidiary, down from 12.7% at the end of 2017.
More positively, the bank swung to a profit after tax and before restructuring costs of EUR111 million from a EUR467 million loss a year before.
This reflected the additional provisions of about EUR500 million in the first half of 2017, which came from a one-off effect of the change in the provisioning assumptions.
The bank's profit after tax and before restructuring costs and before the Helix project sale was EUR108 million, from a EUR540 million loss the year before.
Total income decreased to EUR432 million from EUR470 million. Gross loans and advances to customers were down to EUR18.31 billion from EUR18.76 billion a year before.
Looking ahead, the bank believes the recovery of the Cypriot economy is gaining momentum and the medium-term outlook remains "favourable".
The improving macroeconomic conditions, falling unemployment and broadening investments are being challenged by the economy facing "high public indebtedness and a high level of non-performing exposure".
In a separate announcement, the lender said Chairman Josef Ackermann will step down from his role at the company's next annual general meeting in 2019.
A replacement for Ackermann was not announced. Bank of Cyprus said the nominations & corporate governance committee of its board will begin the search for his successor "in due course".
The bank also announced it has extended the appointment of Chief Executive Officer John Hourican to the end of 2020.
Ackermann said: "When I was first asked to take my position with the Bank of Cyprus I committed to stay for three years. Now, almost four years later, with a strong board and executive management team, major strides have already been made in restructuring the bank and in formulating appropriate reform strategies. It may thus be a suitable time to give an indication of my intentions, as part of the bank's prudent governance practices."
Shares in Bank of Cyprus were up 5.9% Tuesday at EUR2.44 each.
Bk. Cyprus Hldg (BOCH)