Best bank: Bank of Cyprus
The recent move by Greek lender Eurobank to establish a majority stake in Hellenic Bank, Cyprus’ second largest bank, is a potentially transformational deal for the island’s banking sector. During the awards review period, however, it was still unclear when or if Eurobank would be able to merge its existing Cypriot business with Hellenic, but if it does, it could become the largest bank in the country.
For now, Bank of Cyprus remains the biggest institution – with market shares in loans and deposits of around 40% – and the country’s best bank.
The balance sheet cleanup is long over. While non-performing loan ratios in Cyprus peaked at close to 50% 10 years ago, this had fallen to 25% by 2020 at Bank of Cyprus. By the end of 2023, the bank’s NPL ratio was 3.6%.
The past year has also been a significant one for Bank of Cyprus because it paid its first dividend in 12 years. While this was relatively small at €22 million or 14% of 2022 earnings, it secured European Central Bank approval for a 30% payout ratio over 2023 earnings including a share buyback for up to €25 million and a cash dividend of €112 million.
The higher payout ratio is against a higher base, as the return on equity in 2023 rose to 24.8%, with cost-to-income ratio falling to 31%, well ahead of targets. The bank’s management believes a return on equity in the mid-teens is sustainable assuming ECB rates don’t fall below between 2% and 2.5%.
The bank’s common equity tier-1 ratio is strong, at 17.4%, and its liquidity coverage ratio is more than 300%. Bank of Cyprus helped reopen the additional tier-1 market in summer 2023 following the hit to that market caused by the Credit Suisse rescue.
On the digital side, in addition to the development of a digital branch called Quickhub, the bank has also rolled out Jinius, which it sees as a platform for digitalizing the Cypriot economy, starting with small and medium-sized enterprises. In a country where international e-commerce companies are less active than in bigger markets, Jinius helps local businesses to sell their products online. It launched for SMEs in 2023 with a launch in the consumer market in February 2024.
“We’ve moved on from ‘mission accomplished’ in terms of the balance sheet cleanup, to managing a company that does not just revolve around lending but also has fee-rich businesses and a best-in-class digital offering,” says chief executive Panicos Nicolaou. “This makes me very proud to be at the bank. We are investing in the future, as the problems from the past are behind us.”
