Bank of Cyprus sees bond sales only after more progress on NPLs

Bank of Cyprus Pcl will make further progress in reducing the level of its non-performing loans before selling new debt, Chief Executive Officer John Hourican said.

"We’re beginning the process of roadshows but we’re not yet sufficiently ready to tap ‘in size’ the fixed-income markets at a price that we’re willing to pay," Hourican said in an interview in Nicosia. "It will be sometime next year before we begin to do that." The lender had previously said it might sell new bonds before the end of 2015.

Bank of Cyprus has access to normal European Central Bank monetary operations through its covered bond and has some wholesale funding, but hasn’t yet been able to access the bond component of the "liability stack," mostly because Cyprus needs to demonstrate further progress on non-performing loans, Hourican said. The bank conducted two private placements in 2008 while its last public issue was in 2007.

The bank’s portfolio of non-performing loans of 90 days or more fell by 143 million euros ($153 million) in the second quarter compared with the first three months of 2015, to 12.6 billion euros, accounting for 53 percent of total loans.

"The stock of non-performing loans was arrested some time ago and is now beginning to decline," Hourican said. "The percentages haven’t necessarily improved because we’ve been removing large chunks of the balance sheet and sometimes mathematics don’t work in your favor, but we’ve been reducing risk against the capital," he said.

New legislation

While Cypriot lawmakers on Nov. 12 approved legislation to allow lenders to sell non-performing loan portfolios to third parties, "there won’t be a large-scale sale of the loans," Hourican said.

The legislation is a milestone toward normal banking operations, Hourican said, including the sale of loans. "Once we start to see tangible results, then I’d expect to see that translated into the share price." The stock is down over 20 percent this year, trimming the bank’s market value to 1.5 billion euros.

Bank of Cyprus is "well on its way" in the planning for a move of its main listing "to a more liquid, index-driven exchange, either London or one of the other major European exchanges," Hourican said. "Liquidity on the Athens and Cyprus exchanges is non-existent."

The change will most likely happen in the second half of next year though the lender plans to maintain a secondary listing in its home country.

[Bloomberg]