Group Chief Executive Statement
"Signs of economic recovery to pre-pandemic levels marked the third quarter of the year, with the Cypriot economy showing more resilience than initially anticipated, proving its open, small and flexible characteristics. However, as the number of new COVID-19 cases has increased in recent weeks, local restrictions have been re-imposed to contain the spread, which is likely to lead to some loss of momentum in economic recovery in the fourth quarter. The latest news for an effective vaccine is encouraging, which in time should support a return to more normal conditions.
Our strategic priorities of strengthening our balance sheet and improving our asset quality and efficiency, while supporting our customers, colleagues and community through COVID-19 remain unchanged.
During the third quarter of the year we continued to support the Cypriot economy and extended a further €288 mn in new loans, up by over 20% compared to the previous quarter, as new demand increased post lockdown, driven by retail housing, supported by the Government's interest rate subsidy scheme. Overall, we have granted c.€1 bn new loans in the first nine months of the year.
During the third quarter of the year, we generated total income of €137 mn and a positive operating result of €44 mn. Cost of risk was maintained at below 100 bps. Q3 was profitable and the profit after tax for the quarter was €4 mn. The overall result for the nine months was a loss after tax of €122 mn, when including the loss on Project Helix 2 and loan credit losses for potential future NPE sales, both recorded in the previous quarter.
In the nine months of the year we reduced our total operating expenses by €40 mn or 13% on a yearly basis, reflecting our on-going efforts to contain costs. The quarterly increase of 4% is reflective of the lower cost base in the second quarter as a result of the restrictive measures for COVID-19.
The Bank's capital position remains good and comfortably in excess of our regulatory requirements. As at 30 September 2020, our capital ratios (on a transitional basis) were 18.2% for the Total Capital ratio and 14.7% for CET1 ratio, both pro forma for Helix 2. Our liquidity position also remains strong as we continue to operate with a significant surplus of €4.1 bn (LCR at 256%). Deposits on our balance sheet remained broadly flat in the quarter at €16.4 bn.
During the third quarter of the year we maintained our focus on dealing with legacy issues. The pace of organic NPE reduction returned to pre-lockdown levels, as we reduced NPEs further by €230 mn, bringing the total organic reduction in the first nine months of the year to over €500 mn. Together with the sales of loans achieved earlier this year (Helix 2 and Velocity 2), we have substantially reduced NPEs by €1.5 bn in the first nine months of 2020. Overall, since the peak in 2014, we have now reduced the stock of delinquent loans by €12.6 bn or 84% to €2.4 bn (on a pro forma basis) and our NPE ratio from 63% to 21% (on a pro forma basis). NPE coverage was maintained at 59%, reducing the residual risk on our balance sheet to €1 bn.
We remain committed to completing the de-risking of the balance sheet and we will continue to assess the potential to accelerate NPE reduction through additional sales. At the same time, we continue to monitor the credit quality of loans under moratorium.
Although there remains uncertainty in the broader operating environment as a result of the pandemic, our vision for the future of the Bank is clear, together with our confidence in delivering our strategic objectives.
Bank of Cyprus has been through a period of considerable change and we are now laying the foundations for delivering greater shareholder value. Our near term priorities include the completion of our balance sheet de-risking and ensuring our cost base remains appropriate whilst further investing in our digital capabilities; and our medium term priorities include capitalising on our strong market position, enhancing revenues, driving down costs and navigating a clear path to sustainable profitability."
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