Hellenic Bank’s acquisition of CNP to boost and diversify revenue, Fitch says

The acquisition of CNP’s insurance operations in Cyprus and Greece is expected to lead to increased and more varied revenue streams for Hellenic Bank, according to a report released this week by international rating agency Fitch.

Hellenic Bank has entered into exclusive negotiations and has signed a put option agreement with CNP Assurances for the acquisition of its subsidiary, CNP Cyprus Insurance Holdings Limited, which operates in Cyprus and Greece, for a price of €182 million.

In its report, the agency noted that the agreement is not expected to have an immediate impact on the bank’s ratings and anticipates that the transaction will have a “manageable” effect of around 2.6 per cent on the bank’s regulatory capital.

“Therefore, we estimate that the adjusted Common Equity Tier 1 (CET1) ratio will remain adequate even after the acquisition (of CNP), above 20 per cent, a level consistent with the bank’s ratings and higher than most banks in southern Europe,” the agency explained.

What is more, according to Fitch, the acquisition of CNP’s operations will boost the bank’s market share in the life insurance sector to approximately 30 per cent, up from 7 per cent in 2023, and 23 per cent in the general insurance sector, up from 9 per cent in 2023, bringing these shares much closer to the bank’s “leading shares” in loans and deposits in the domestic market.

Furthermore, with revenue from insurance activities amounting to €14 million in 2023, the agency believes that the transaction will have “positive long-term effects on our assessments of Hellenic Bank’s business profile and profitability, as it could lead to structurally higher and more diversified revenues, as well as improved opportunities for cross-selling products through a broader range of offerings”.

The agency also said enhancing revenue diversification is a strategic priority for the Hellenic Bank, as it is highly dependent on net interest income, accounting for nearly 80 per cent of total revenue in 2023, which will come under pressure with the start of interest rate cuts by the ECB, unless the bank increases other revenue streams such as insurance and wealth management services.

Furthermore, Fitch believes that the announcement of the agreement is compatible with the ongoing process of the acquisition of the Hellenic Bank by its major shareholder, Eurobank S.A., which itself has embarked on a revenue diversification process and a transformation of its business model.

Meanwhile, it should be noted that Hellenic Bank’s pending acquisition of CNP Cyprus was also welcomed by fellow rating agency Moody’s, which said that it “expects that the acquisition price will be recovered through retained earnings, as profitability remains strong and the bank currently does not pay dividends”.