RCB Bank Limited, Cyprus third largest lender, announced it has entered into an agreement with Hellenic Bank Public Company Ltd for the sale of a performing loan portfolio of up to €556 million, related funds on the accounts of the corresponding borrowers and related off-balance sheet obligations.

The agreement came as the Bank announced on 24 February that a 46.29% stake held by Russian VTB Bank in the bank was acquired by the other current, Cypriot shareholders of the bank. VTB is among the Russian entities sanctioned following Russia’s invasion of Ukraine. The change of the shareholding structure has not received regulatory approval so far.

In an announcement today, RCB said it expects to receive a total amount of over €500 million, noting that the “bank’s liquidity shall exceed the total amount of all liabilities, which enables RCB Bank Ltd both meeting its obligations towards all of its clients in full as well as to maintain sufficient levels of liquid assets for its further operations.”

According to the bank, the loan portfolio being sold comprises of two tranches. Tranche A of approximately €292 million relating to Cypriot exposures and Tranche B of c. €264 million relating to Cypriot, other European and United Kingdom exposures.

The sale of Tranche A is expected to be completed on 24 March 2022, while the sale of Tranche B is expected to be completed by 31 May 2022, subject to all relevant regulatory approvals, the bank added.

According to the bank, about 75% of the loans are Cypriot exposures, while the remaining c.25% are commercial real estate loans in the European Union and the United Kingdom.

The portfolio includes exposures to Cypriot and other European borrowers in the following main sectors: hotels and accommodation, commercial real estate, construction and development, wholesale and retail trade, manufacturing, food and beverage, renewable energy and education, it said.

“The sale of the loan portfolio shall strengthen further the capital and the liquidity buffers of RCB Bank Ltd and shall create additional substantial buffers, thus allowing for significant absorption capacity of any potential external shocks. The total capital adequacy ratio of RCB Bank Ltd shall increase from c. 21% to over 27%, the bank added.

On its part, Hellenic Bank said the acquisition of Tranche A is expected to be completed by 24 March 2022, while the acquisition of Tranche B is expected to be completed by 31 May 2022, subject to relevant due diligence, final agreement and all relevant regulatory approvals.

According to Hellenic, the Bank’s performing loan portfolio is expected to increase by circa 11%, while the pro-forma NPE ratio (excl. APS-NPEs) will be reduced to c. 13.4% from 14.5%.

The Bank’s risk weighted assets are expected to increase by c. €656 mn, resulting in a pro-forma capital adequacy ratio of c. 20.0%, compared to 22.3% as of September 2021. Upon completion of acquisition of Tranche A, the Bank’s pro-forma capital adequacy ratio is expected to be c. 21.0%, Hellenic said.

Oliver Gatzke, CEO of Hellenic Bank said in a statement that in line with the Bank’s strategy of growing its business in Cyprus, the Transaction increases the Bank’s client base in business lending, provides cross selling opportunities, improves its operating income through higher interest income and creates potential for growing its non-interest income.