By Eleftheria Koumouli – Manager of Governance & Markets Compliance Dept., Group Compliance Division, Bank of Cyprus PCL
Bank of Cyprus (BoC) has come a long way since the heady days of 2013 when it took over the responsibility of €11billion in emergency liquidity assistance (ELA) by the now-defunct Laiki Bank, while depositors experienced a ‘haircut’ on their savings.
Wasting no time in the drive to bounce back, and following John Hourican’s appointment as CEO in August 2014, the bank raised €1billion in fresh capital. The move attracted international investors and saw the appointment of Dr Josef Ackermann as chairman of the board of directors.
Other significant appointees brought a unique set of skills and experience to the boardroom. The corporate governance structure was overhauled and new procedures and policies were put in place. The board focussed on compliance with the regulatory framework and followed a ‘shrink to strength’ strategy, which included divestment of its non-core business abroad. The strategy to revive the bank was premised on a strong set of values along three reform pillars.
The values comprised high ethical standards of accountability, integrity, transparency, fairness, equity, sustainability and ethics, all fundamental to good governance. The reform pillars were as follows: to focus activities by shrinking to strength; to repair the bank, restoring confidence in it and to gradually address the challenge of excessively high non-performing exposures (NPEs); and last but not least, to rebuild the Bank. This last pillar entailed developing an effective senior management team, improving efficiency and strengthening and diversifying revenue generation.
December 2014 saw the bank’s return to both the Cyprus Stock Exchange (CSE)
and Athens Stock Exchange (ASE). In late 2015 the Real Estate Management Unit (REMU) was established to professionalise the onboarding, management and sale of repossessed property.
2017 was a year of major achievements. The last remaining portion of the ELA was repaid and on January 19 BoC shares commenced trading on the LSE. The listing in Cyprus was retained. Determined to commit to the highest standards of corporate governance and transparency, the board decided to comply with the UK Corporate Governance Code on a voluntary basis. Today, the bank is the only institution in the region that is concurrently governed by three different corporate governance frameworks (UK Code, Cyprus Stock Exchange (CSE) Code and the Governance Directive of the Central Bank of Cyprus), by four different jurisdictions (Cyprus, UK, Ireland and the European Union).
Management focussed all efforts on rebuilding a financially sound, trusted and even safer organisation. It continues to focus on driving a customer-centric, transparent, non-bureaucratic, modern and strong set of values throughout the organisation. These values and principles emphasise ethical behaviour, zero tolerance for all forms of financial crime, and strict adherence to compliance requirements. The bank respects and furthers clients’ interests, while gaining a deeper appreciation for each and every one of its employees. These essential hallmarks of a modern banking landscape help safeguard the bank’s reputation going forward.
To better serve its customers, the Bank of Cyprus is investing in improved products and services and modernising its agenda. It is leading the economy and the financial sector in digitisation, its customers already reaping the benefits with online access to banking services through their computers, tablets and mobile devices.
BoC Group retains the largest market share in outstanding deposits and loans, as well as the lion’s share in credit expansion. BoC Group also serves the insurance needs of its clients through two highly efficient and dynamic insurance companies, which themselves have the largest market share in life insurance and the second largest share in the non-life insurance market.
“To better serve its customers, the Bank of Cyprus is investing in improved products and services and modernising its agenda”
The Bank is moreover committed to providing credit to the recovering Cyprus economy, which has consistently been one of the fastest growing in Europe. Management is targeting new and exciting lending in selected industries such as tourism, professional services, information/communication technologies, health, energy, education and green projects.
Despite some constraints, demand for bank credit is on the rise. A major enhancement of the existing legislative framework governing bank loan foreclosures, insolvency and local sales, and the introduction of new legislation on loan securitisation in 2018, have brought the Cypriot legal framework closer to best practices in Europe.
The bank embarked on an intensified strategy of further accelerating the reduction in balance sheet risk through a major reduction of non-performing exposures (NPEs). By the end of 2018, the bank had slashed NPEs by €10billion or about 70 per cent compared to December 2014 – equivalent to approximately 50 per cent of the country’s gross domestic product (GDP).
With the bank’s access to capital markets reinstated, it raised a €250million Tier 2 bond in January 2017 and another €220million of Additional Tier 1 (AT1) capital in August 2018. Today the Bank carries approximately €4billion of surplus liquidity, deposits have grown by €5billion since 2014, and, by the end of 2018, the bank held a market share of 34 per cent in resident deposits and 38 per cent in non-resident deposits. Its loan-to-deposit ratio is strong at 67 per cent – more than adequate to fund loan balances and far better than European bank averages.
The board played a critical leadership role in debating, endorsing and monitoring the implementation of an appropriate reform strategy.
Under the board’s guidance, the bank strives to ensure strict compliance with all prudential capital and other regulatory requirements. Most notably, this includes the strictest enforcement of all requirements for know-your-customer, anti-money laundering, data confidentiality, and other compliance issues. The bank prides itself over its performance in these areas, not least for taking the bold step of closing existing accounts or refusing to open new accounts for individuals and legal entities posing elevated risks.
In May 2019, and following five years of successfully chairing the BoC board, Dr Ackermann stepped down and Takis Arapoglou – who has extensive experience in international capital markets and the banking world – was elected chairman of the board. Six months later, Hourican departed and Panicos Nicolaou, previously the director of corporate banking, was appointed as CEO. The Bank of Cyprus Group is set to continue on the path clearly paved by the board, achieving even better results.
The banking industry in Europe and elsewhere is changing rapidly, driven by existing structural constraints, such as the need for further consolidation, but also the ongoing digitisation process and the IT revolution. Naturally, the Cypriot banking system will stay abreast of developments in the global financial system, seeking to stay competitive in an increasingly interconnected environment.
The bank is confident it can tackle the challenges that lie ahead, such as further reducing its stock of NPEs, containing its cost structure, optimising its funding structure, and continuing to modernise its operations.
It has set out to be a benchmark among the best well-governed European institutions, having made remarkable progress since the events of March 2013. The bank is extremely proud of its robust and effective set of structures, policies and functions that define management principles and management decision-making.
About the Author:
Eleftheria Koumouli is Manager Governance & Markets Compliance Department, Group Compliance Division of the Bank of Cyprus PCL. She joined the Bank in 1992 as a member of the Group Internal Audit team before being seconded in 1999 to The Cyprus Investment and Securities Corporation Ltd (a subsidiary of the Bank) in various positions and in 2007 as Compliance Officer of the investment firm before returning to the Bank in 2013.
Eleftheria received her BSc (Eng) from Edinburgh University and then worked as a civil engineer for 3 years before obtaining an MBA (Accounting) from St. John’s University in New York. She is an Associate of the Chartered Institute of Bankers (now the Institute of Financial Services) and is a certified person for the provision of investment services (Advanced Certificate).