Bank Of Cyprus Insights

| About: Bank Cyprus (BKCYF)

Summary

Bank of Cyprus last week listed on LSE.

Progress on the restructuring plan of its Non-performing Loans (NPLs).

Major holdings on real estate.

The Bank of Cyprus (BACPD) has successfully completed its entry in London Stock Exchange last week (LSE:BOCH). This is a huge step forward for the future of the company.

Brief History of the company (Last 4 years)

  • Being the major player in a crashing economy.
  • Merged with second biggest player in the country, Laiki Bank for sustaining the Cyprus economy
  • First bail-in for a European country (trimming customers deposits above 100,000 EUR)
  • Selling the majority of its foreign operations in really cheap prices (Greek operations to Pireaus Bank, Russian operations all sold, International operations scaled down tremendously)
  • Laiki inherited 11.4 billion EUR debt (from ELA) to Bank of Cyprus. The new entity managed to payoff this amount (11.4b) in less than 3 years
  • Returned to profitability (Net Profit of 5m EUR) in Q3 2016

Biggest shareholders

Ex-Laiki Bank at 9.3%, TD Ameritrade Asset Management (5.24%), EBRD (5.02%), Tyrus Capital S.A.M (3.5%) and Osome Investments Limited (3.3%).

John Hourican, the CEO of Bank of Cyprus, recently revealed in an interview that he is in discussions with investors to acquire shares of BΟCΗ.

Recent Events

Bank of Cyprus last week became a major shareholder in Kings Avenue Mall, the newest Mall in Cyprus, after agreed to exchange part of Athienitis Constructions & Developers loans for a share of 45% of the commercial building.

It is worth noting that Mall of Cyprus occupancy is in high levels and people perceive it as a good alternative for the really hot days in Paphos.

Aristo Developers, a Cyprus leading developers recently disclosed that he is buying back the 45% of Dolphins Capital and he fully repaid Bank of Cyprus debts by exchanging Venus Rock.

Real Estate Effect

When you think Bank of Cyprus, you should think of Real Estate.

Bank of Cyprus is the biggest lender in the island. The island biggest sector is real estate. More specifically selling real estate to foreigners.

Foreigners usually buy properties as follows:

  • Holiday homes - mainly British retirees
  • 2m EUR investment to real estate for getting a Cyprus/EU passport - mainly Russians and Middle east nationals
  • And permanent residency (300k EUR invested in a NEW property) - mainly Chinese for moving around EU easily

Inevitably Bank of Cyprus is not well diversify due to the nature of the economy. Nonetheless, Bank of Cyprus is financing projects in all the above-mentioned categories which diversify the exposure to various countries. Moreover, Bank of Cyprus recently announced that it will start financing shipping projects. This shows the commitment of management to ensure the company's position for a future slowdown in the real estate sector.

Bank of Cyprus recently changed its loans policy granting loans now to 20% LTV ratio. It is the first bank to move in this low territory after the financial crisis and a lot of Cypriots are moving on getting their loans from Bank of Cyprus for purchasing their first house.

Cyprus economy growth was 2.9% in 2016 and it is forecasted to keep growing at 3.1% in 2017.

Non-performing Loans (NPLs)

Retail investors NPLs seem not to be moving in any positive direction.

There are discussions, in parliament, of selling the NPLs to hedge funds or amending the current legislation. At the moment the legislation states that a lender can sell a property, in an auction, if the owner is not repaying his loan. The minimum selling price will be 80% of the free market value of the property. Lenders are asking to remove the 80% threshold so they can sell NPLs faster.

Concluding

Hourican seems to be the CEO who knows how to turn around a Bank. Bank of Cyprus turned profitable, with an astonishing rate, and they managed to restructure loans of corporate clients or exchange part of their loans with prime commercial real estate (which will provide a steady cashflow). There are movements from the management to increase diversification through financing shipping project, as well. The amendments in its loan policy will increase slightly its diversification to various nationalities (British, Russian, Chinese, Cypriots). NPLs are the black sheep for Bank of Cyprus at the moment with no clear solution how to handle them. However, the Cyprus Government proved that when it needed to rescue its financial system was there. I strongly believe that Bank of Cyprus will keep increasing its market share and profitability, which makes it likely for its share price to take a huge leap.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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