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Bank of Cyprus eyes return to profit, higher asset growth in 2018

Bank of Cyprus Holdings Plc, parent of Cyprus' largest lender, will return to profit in 2018 and its balance sheet will start expanding again after five years of shrinkage, CEO John Hourican said Nov. 21.

Bank of Cyprus Public Co. Ltd. is still struggling with running down its pile of toxic assets after being bailed out in the 2013 Cypriot financial crisis, but better economic conditions and tougher actions against bad loans have enabled the ECB to lower its capital guidance, paving the way for an eventual dividend, Hourican said on an earnings call.

"The dynamics of a heavily provisioned legacy book declining on the one hand, and a slowly increasing performing, healthy loan book on the other hand, will impact the way we reach EPS in 2018," he said, referring to the bank's reiterated earnings per share target of 40 euro cents.

Its balance sheet grew slightly in the first nine months of 2017, to €22.9 billion in total assets from €22.2 billion, with €9.2 billion of nonperforming exposures, down from €11 billion at the end of 2016. Data from S&P Global Market Intelligence shows total assets stood at €30.3 billion in 2013. The 2018 target is €24 billion.

Meanwhile, the ECB has lowered Bank of Cyprus' so-called SREP guidance for 2018 to a common equity Tier 1 ratio of 9.375% from 9.5%, Hourican said. SREP — the supervisory review and evaluation process — allows the ECB to set bank-specific minimum capital levels, which vary depending on various factors.

The lowered guidance reflects the ECB's view that Bank of Cyprus is now less risky following a €500 million provision in the second quarter, which was also demanded by the supervisor.

The bank's own forecast suggests a CET1 ratio above 13% at the end of 2018, from 12.2% at the end of the third quarter of 2017, taking into account a decline of €250 million to €300 million in equity due to the new accounting standard known as IFRS 9, which will be adopted by the industry in January.

The bank posted a third-quarter after-tax profit of €1 million, compared to a loss of €556 million in the previous quarter.