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Lars Kramer: We Strive Every Day to Build a Stronger Bank

Lars Kramer: We Strive Every Day to Build a Stronger Bank

Lars Kramer, Chief Financial Officer of Hellenic Bank, spoke at the 45th Annual General Meeting of Shareholders about the financial results for the first quarter of 2019 and gave an update on the Group’s latest financial performance.


Loan portfolio quality

“In terms of asset quality, we continue to make progress and NPEs have been reduced for the 14th consecutive quarter to March 2019. NPEs, excluding those that are covered by the Asset Protection Scheme as per the CCB transaction, have been reduced to €2,0 billion at March 2019, and accounted for 26% of gross loans.

We have further strengthened the NPEs provisioning coverage to 66%. When taking into account tangible collaterals, the Net NPEs collateral coverage totalled 147%.

Despite this progress, the momentum needs to be maintained in order to resolve the NPE problem for good, especially when considering that the average NPE ratio for European banks is in the low single digit range. For this reason, our future plans are focused on organic and non-organic NPE reduction, including the possibility of further significant NPE portfolio sales, that will fast track the reduction of NPEs.”


Loan portfolio

“Following the acquisition of the CCB business, our net loan book more than doubled and totaled €6,2 billion in March 2019. Net NPEs are less than €700 m or about 4% of the total balance sheet, evidencing the low level of risk in the Bank’s balance sheet.

More than a quarter of the net loans (about €1,7 billion) are performing exposures covered by the Asset Protection Scheme, highlighting further the low risk profile of the loan book.

Considering the predominance of household and mortgage lending in the business of the ex-CCB, the CCB acquisition has resulted in a more balanced loan book. At March 2019, household lending accounted for 58% of total gross loans compared to a level of around 33% pre-acquisition. This is a solid customer base, based on primary relationships and with significant scope for cross selling opportunities.”  


Capital ratios

“In terms of capital, the Group enjoys a solid capital position, underpinning the Bank’s strategy and providing optionality for resolving the NPEs.  The Group’s capital position has benefited from the acquisition of the CCB business, with its low RWA density, the resultant negative goodwill and the successfully completed €150 million capital raise. The Group’s capital ratios remain comfortably above the minimum regulatory requirement, with the capital adequacy ratio and the CET1 ratio totaling 21,2% and 18,5%, respectively, at 31 March 2019.”



“Moving on to funding, our deposit franchise has been significantly strengthened with the CCB acquisition. Customer deposits totaled €14,6 billion at March 2019, of which Euro deposits were 93% of total deposits and Cyprus deposits accounted for 83% of the total, thereby reducing the reliance on non-Cypriot deposits related to the activities of the International Business Division and improving the deposit base stability and quality. The low ratio of net loans to deposits of around 43% post acquisition remains a key challenge however.”



“In terms of liquidity, our position remains extremely strong. At March 2019, the Liquidity Coverage Ratio was 536%, the Net Stable Funding Ratio was 206% and cash and bank placements totaled €4,6 billion or 28% of total assets. A blessing under other circumstances, our deposit base is a major challenge during a period of negative interest rates, as the resulting abundant liquidity is placed with the ECB at a negative 40 basis points with an overall cost of €16 million per year.

This surplus liquidity is a pan-European phenomenon, with excess reserves placed with the European Central Bank totaling at €1,3 trillion.

With interest rates expected to stay low for longer, our efforts to lower the deposit interest rates are bearing fruit, with the average Euro deposit rate reduced to 32 basis points in June 2019, down from 68 basis points in September 2018. Furthermore, we are in the process of gradually introducing negative deposit rates.  

Although our current funding position enables us to expand our lending business, the attractive, risk-adjusted opportunities in the domestic market are finite, so apart from leveraging our primary lending relationships, we continue focusing on

growing our international lending book and shipping portfolio, 
expanding our fixed income securities portfolio, beyond the CGBs exposure, 
and developing a mutual fund product offering for our customers as an alternative to holding deposits.”

Income statement analysis – Annual

“The Group’s 2018 results were significantly affected by the acquisition of CCB business. The impact of the CCB results for the last four months of 2018 along with the negative goodwill are included in the Group’s 2018 financial results, making them non-comparable with previous financial results.

Hence, the Group’s profit before provisions for 2018 was €88 million. Provisions for impairments remained elevated at €67 million, primarily due to IFRS 9 provisions relating to the Acquired business of about €61 million.

Profit before negative goodwill and tax for the year amounted to €23 million, compared to a loss of €49 million the year before.

A negative goodwill of €298 million was recognised in the Income Statement as a result of the Acquisition, representing the difference between the consideration paid of €74,2 million and the net fair value of the acquired business.

As a result, profit for the year amounted to €320 million, compared to a loss for FY2017 of €45 million.”


Quarterly income statement

“Moving on to the recent quarterly results, the positive impact on the Bank’s financial results from the acquisition is clearly visible, as there is a significant step up in the key lines of the income statement.

Nevertheless, the slide does highlight the need to tackle

1. the Bank’s declining net interest margin, arising primarily from the gradually maturing CGBs, the increased competitive pressure on lending rates, and the highly liquid balance sheet 
2. the relatively low level of fee and commission income, and 
3. the high cost to income ratio, which during 2019 will be inflated by integration costs. 

Addressing these challenges are top of the priority list of management and are part of our strategic plan to achieve our medium-term targets of a NIM greater than 2,3%, a cost to income ratio less than 55% and an ROE of low double digits.

In conclusion, I am encouraged by the dedication and effort of my colleagues to complete the acquisition and integration of the CCB business and I now look forward to fast-tracking the Bank’s restructuring journey to Normalization and to Digital transformation. I fully appreciate that the journey is a challenging one, but we strive every day to build a stronger Bank for all our stakeholders and to create sustainable value for our shareholders.”




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