Brokerage firm lifts Bank of Cyprus forecasts after strong results

Euroxx Research has raised its earnings forecasts for the Bank of Cyprus for 2026-2028 and increased its target price for the lender’s shares to €13 from €11.50, following stronger-than-expected first-half results. The brokerage said the shares remain an attractive investment option, combining defensive characteristics, a strong capital position and an exceptionally high dividend yield, which it expects to reach 9.2 per cent in 2026. The Bank of Cyprus reported profit after tax of €252 million for the first half of 2026, up 7 per cent year-on-year, while profit for the second quarter alone reached €131 million. The lender also announced a 20 per cent increase in its interim dividend, with €0.24 per ordinary share to be paid, equivalent to approximately €105m and representing a 44 per cent payout ratio on first-half earnings. “We delivered excellent financial results in the first half of 2026, reflecting our diversified and efficient business model and continued strong performance,” group chief executive Panicos Nicolaou said. The bank’s return on tangible equity reached 18.8 per cent for the first half, comfortably above its full-year target in the mid-teens, while basic earnings per share stood at €0.58. Its cost-to-income ratio remained at 36 per cent, which the bank said reflected continued cost discipline. “Cost management remained disciplined, evidenced by a cost to income ratio of 36 per cent,” Nicolaou said. Euroxx increased its forecasts for the Bank of Cyprus’ net profits by around 10 per cent across the 2026-2028 period. It raised its 2026 net profit forecast by 14 per cent, its 2027 forecast by 8 per cent and its 2028 forecast by 7 per cent. The revisions reflect stronger-than-expected first-half performance, driven by stronger credit growth, higher interest rates and lower provisions for bad loans. Gross performing loans increased to €11.4 billion, up 5 per cent since the beginning of the year and 8 per cent year-on-year. “Our strategy execution drove solid lending and deposit growth,” Nicolaou said. “Our loan book expanded by 8 per cent year-on-year and by 5 per cent year-to-date, driven both by domestic and international demand,” he added. The predominantly retail-funded deposit base rose to €22.8bn, an increase of 3 per cent year-to-date and 9 per cent compared with a year earlier. Euroxx expects net interest income to reach €763m in 2026, up from its previous forecast of €723m. The new estimate is also above management’s revised guidance of approximately €750m, compared with its previous projection of around €720m. The improvement is attributed to strong lending growth, higher European Central Bank interest rates and the expansion of the bank’s fixed-income securities portfolio. Euroxx also highlighted a favourable development in the bank’s cost of credit risk, incorporating reversals of provisions recorded during the first half into its 2026 forecasts. The bank itself reported a net release of 12 basis points in cost of risk, reflecting customer-specific reversals, while its non-performing exposure ratio fell to just 1 per cent. “Asset quality continued to be healthy with the NPE ratio declining to 1 per cent,” Nicolaou said. The Bank of Cyprus reported a CET1 ratio of 20.9 per cent and a total capital ratio of 25.8 per cent at the end of June. Organic capital generation reached 225 basis points during the first half. “Our business continued to deliver strong organic capital generation of 225 basis points in the first half of 2026, supporting our balance sheet position,” Nicolaou said. After accruing for an ordinary distribution at a 70 per cent payout ratio, the bank said its CET1 and total capital ratios stood at 20.9 per cent and 25.8 per cent respectively. “After accruing an ordinary distribution at a 70 per cent payout ratio, at the top end of our distribution policy, our CET1 ratio and total capital ratio stood at 20.9 per cent and 25.8 per cent respectively,” Nicolaou said. The bank said it remains committed to its 2026 distribution policy, targeting an ordinary dividend with a 70 per cent payout ratio and a top-up dividend of up to 20 per cent. “Today, we are pleased to announce an interim dividend of €0.24 per ordinary share, equivalent to a 44 per cent payout ratio from first-half 2026 earnings, representing an increase of 20 per cent year-on-year,” Nicolaou said. Euroxx said the Bank of Cyprus continues to trade at a significant discount to comparable regional banks. The shares are valued at 9.8 times estimated 2026 earnings, around 18 per cent below the average for regional peers. Euroxx expects that discount to narrow gradually, supported by the bank’s strong capital position, excess capital and high shareholder returns. With its new €13 target price, the brokerage calculates that the shares would trade on 12 times 2026 earnings and 1.9 times tangible book value, with an estimated dividend yield of 7.5 per cent. The brokerage maintained a positive stance on the bank’s prospects. The Bank of Cyprus also expressed confidence about its performance for the remainder of 2026. “Capitalising on the strength of our performance in the first half of 2026, as well as higher interest rate expectations, we are confident in achieving a return on tangible equity towards the upper end of our mid-teens range target in 2026,” Nicolaou said.