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Bank of Cyprus agrees to sell bad loans amounting to €2.8 bn

posted onAugust 29, 2018
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The Bank of Cyprus announced on Tuesday it agreed the sale of a portfolio of loans with a gross book value of €2.8 bn (of which €2.7 bn relate to nonperforming loans) secured by real estate collateral. 

The Portfolio comprises 14,024 loans to corporate and SME borrowers, secured over 9,065 properties. The bank said it sold the loan portfolio to Apollo Global Management LLC. 

Apollo is an alternative investment manager with offices in New York, Los Angeles, Houston, Chicago, Bethesda, Toronto, London, Frankfurt, Madrid, Luxembourg, Mumbai, Delhi, Singapore, Hong Kong and Shanghai. 

The sale of its loans is the largest announced so far in Cyprus.

“This is a transformative sale for the Bank and is the first meaningful Corporate and SME NPL trade in Cyprus. Since 2014, we have focused on decreasing our stock of NPLs 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. There is of course much more work to be done and we remain as focused as ever on continuing to seek solutions, both organic and inorganic, to further improve the Bank’s asset quality position.” John Patrick Hourican, the bank’s top executive said. 

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Morgan Stanley & Co. International plc, KPMG LLP and Alantra Corporate Portfolio Advisors International acted as financial advisors, Allen & Overy LLP acted as lead English legal advisors, Chryssafinis & Polyviou LLC acted as lead Cypriot legal advisors and Ashurst LLP as legal advisors to Bank of Cyprus in this transaction.

The completion of the transaction remains subject to a number of conditions precedent, including mainly regulatory and other approvals, including the ECB agreeing to a Significant Risk Transfer benefit from the transaction.

Following the completion of the transaction, the Bank’s gross NPEs will be 65% lower than its peak in 2014.

The bank also announced its financial results for the six months ended June 30, 2018. It said that its turnover fell to €550.7m in the first half of the year from €606.2m the previous year. 

The bank generated a net loss of €55.8m in the period under review compared with a €553.4m loss the year before. The reduced loss resulted mainly from a decline in expected losses from loans and advancements to customers from €750.9m in the first six months of last year to €267.7m this year, partly offset by a reduction in net interest income from €316.3m to €249.4m. 

The lender, the island’s largest, also announced the intention of its board chairman Josef Ackermann to step down at the shareholders’ annual general meeting in 2019 after completing two terms. 

As Dr Ackermann indicated to the Boards “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’’. 

Hourican, who joined the bank in 2013, has agreed to stay as Group Chief Executive Officer until 2020. The bank’s share which opened at €2.325 on Tuesday gained more than €0.10 in the afternoon. 

The Bank of Cyprus Group operates through a total of 122 branches, of which 120 operate in Cyprus, 1 in Romania and 1 in the United Kingdom and employs 4,402 staff worldwide.The Bank of Cyprus also has representative offices in Russia, Ukraine and China.  At 30 June 2018, the Group’s Total Assets amounted to €23.7 bn and Total Equity was €2.2 bn.