John Hourican

John Hourican

CEO of Bank of Cyprus

Banking / Cyprus

“Bank of Cyprus has had ten consecutive quarters of growth”

In January 2017, just four years after the Greek Depression dragged it to the brink, Bank of Cyprus (BoC) closed a final debt, effectively putting to rest a bitter relic of the nation’s financial crisis. With the issuance of BoC’s last payment for the €11.6 billion Emergency Liquidity Assistance (ELA), acquired as the result of the absorption of Laiki Bank, a sum equal to 60% of the nation’s real GDP, CEO John Hourican is now looking to achieve even larger market shares as the bank shifts from a pro-equity rehabilitation strategy to one of pure growth. Joined by a board that includes the world’s biggest names in banking, such as Josef Ackermann, former CEO of Deutsche Bank, as chairman, Hourican explains how strengthening of law and a drive for foreign equity have led to BoC’s rebirth.

What priority action did BoC take to regain investors’ trust?
First, we had to assess whether the recapitalization of the bank was efficient, and in my view it was not. We called our board for a robust conversation, and then we went ahead and raised €1 billion of new equity for the bank, which was the largest ever investment into Cyprus since the foundation of the state in 1960. That to me was the starting point for the rebuilding of confidence. Our core strategy was then to re-establish credibility in the bank and its management, as well as pass the European Central Bank’s stress test by raising more equity. Only after we raised the equity we actually begin to try and raise deposits. Renewed confidence was then made possible due to a number of circumstances, including repaying the ELA package worth €11.6 billion, deleveraging the balance sheet, and by lifting capital controls and restrictions on our deposits earlier than expected.

How has this renewed confidence paid off today?
Confidence is a function of exceeding expectation, not meeting expectations. You create no confidence by just doing what you say you’re going to do, so what we did is set very strong ambitions and then beat them. Today, our trust scores are dramatically better than they were when I came to this position, and Cyprus’ society is beginning to realize that the bank is on a sensible recovery. We’ve now taken 22% of GDP off our balance sheet, which is 15 times more than any other bank in Europe. Another way to put it is last year we took €3 billion off of our balance sheet, similar to the progress of the entire Greek banking system over the same period.

We took €3 billion off of our balance sheet, similar to the progress of the entire Greek banking system.

What is the strategy behind decreasing non-performing loans (NPL)?
There are a couple of hygiene factors needed to tackle NPLs. The first one is good law. If you don’t have good law, you can’t tackle anything. Cyprus’ British Commonwealth law had been weakened through legislative action over decades, and we had to ensure that the legislative reform agenda gave rise to the strengthening of law. Now we have a foreclosure regime that has been improved from a 10- to 15-year recovery period to an 18-month recovery period. Secondly, we had to create incentives around the behaviors of borrowers to encourage them to come and consensually deal with their debts rather than having to go through the foreclosure route.

Why did BoC relist on the London Stock Exchange?
BoC needed to delist from Athens, and we didn’t want Cyprus associated with Greece because Cyprus was becoming a success and I wanted to differentiate it from its neighbor. Moreover, we were significantly oversubscribed on the first billion, so that was a validation of this type of strategy.

How will Chinese investment impact the future of Cyprus?
There is a need for Europe to connect to China in a more organized way, and Cyprus is the Eastern gateway to the European Union. It’s under Asia, above Africa, and at the very edge of Europe. I believe that smart Chinese money should look at Cyprus because it’s an €18 billion economy, so a €1 billion investment is 6% of GDP. You can change the nature of the entire country with a relatively small investment from China.

You can change the nature of the entire country [of Cyprus] with a relatively small investment from China.

Why should investors work with BoC?
In all, 83% of Cypriots have an active bank account with us, we have 60% market share in corporate accounts, and a 40% share in the total market. If you add the entire banking system together and compare it to us, we are as large as the rest of the banking sector put together.

How do you envision BoC’s recovery to continue?
BoC has had ten consecutive quarters of growth and NPL reduction, and the bank has been able to profit from the sale of real estate that we’ve on-boarded rapidly. This year is looking even better. BoC sold in the first quarter 2017 the same amount of real estate we sold in all of 2016, and I think that pace will continue. Pace is everything in recovery.