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Bank of Cyprus | Tide of Dividends

From Turnaround to Top-Tier Returns – Over the past decade, Bank of Cyprus (BoC) has executed one of Europe’s most far-reaching restructurings. From NPEs peaking at 63% in 2015, the ratio has collapsed to just 1.7% in H1’25, among the cleanest in Europe, with coverage at 124%. This derisking, coupled with high-rate sensitivity during the 2022–23 tightening cycle, propelled profitability to the top of the sector: RoTE reached 21.4% in 2024 (18.4% in H1’25), well above the 14–15% Greek/periphery average. A 20.6% CET1 ratio (no DTCs) and standout efficiency (C/I c36% vs c42% periphery) underscore BoC’s disciplined model. Having reinstated dividends after years of restructuring, BoC now ranks among Europe’s most attractive income plays, offering an 8–9% yield.

Pricing Power and Diversification Anchor Earnings Resilience – BoC’s dominance in a two-bank market (c80% share) ensures durable pricing power. In mid-2025, the average one-year term-deposit rate in Cyprus was just c1.1% vs c1.8% in the euro area, while new housing-loan and corporate spreads of c2.0% and c2.8% support a sector-leading NIM of c2.5% through 2027e (vs c2.0% periphery). With rates normalised (DFR 2.0%/2.0%/2.25% for 2025–27e), NII should stabilise near €750m by 2027e (flat in 2026e yoy, +5% in 2027e) as volume growth and margin discipline offset lower rates. Non-interest income (28% of revenues in H1’25) from credit, insurance (Eurolife/Geniki, strengthened by the Ethniki Insurance deal), payments (JCC), and wealth management adds further resilience. Together with best-in-class efficiency, these drivers sustain €581m/€568m/€593m pre-provision profits in 2025–27e and RoTEs of 15.7%/14.9%/14.8%.

Sector-Leading Capital Position Supports Attractive Payouts – With a 20.6% FL CET1 ratio—well above our assumed 13% internal target—BoC holds €670m of excess capital (c18% of market cap), projected to rise to €1bn by 2027e (c28%), enabling growth, higher payouts and selective bolt-on deals. In 2025, BoC returned €241m (50% of 2024 profits) via dividends and buybacks, followed by its first interim dividend in a decade (€0.20/share). Supported by strong capital generation and a 50–70% payout (70% for 2025), BoC is positioned to sustain 8–9% yields and c5% annual TBV growth—making it one of Europe’s most shareholder-friendly banks.

Valuation – Despite its transformation and material re-rating in the last few years, BoC still trades at just c1.27x 2025e P/TBV, broadly in line with Greek peers but well below Eurobank (1.38x) and NBG (1.47x)—both with comparable fundamentals and similar RoTEs. Its superior dividend yield offsets, in our view, the more tepid loan-growth outlook, reinforcing its appeal as a high-return, income-generating play. BoC also trades at a discount to peripheral banks (c1.5x) and the SX7E (c1.35x), despite RoTE in line with periphery peers and above the SX7E average, while offering superior yield (>8% vs 6-7% for SX7E/periphery). The stock has gained +55% since its Athens re-listing in September 2024, supported by rising liquidity (ADT > €6m) and a declining cost of equity. With expanding institutional ownership and stronger index visibility (and potential MSCI index inclusion), we see ample further re-rating potential. We initiate with a Buy and €10.0 PT, implying 2027e P/TBV of 1.47x, backed by one of the highest yields on offer in Europe.