NICOSIA – Cyprus’s Laiki Bank expects to boost profits this year, as its drive to improve its loan portfolio has started to work, a senior manager said. Last month the group, in which HSBC is a 22 percent stakeholder, posted a 37.8 percent rise in first-quarter profit before provisions. Key to improvement was enhanced risk management, cost controls and better performing equity investments, said Sophronis Eteocleous, manager of the economic research and planning unit. «Based on those results, we are optimistic, depending on the recovery of (Cyprus’s) economy, that we are going to see better results for the whole year, compared to the past,» Eteocleous told Reuters in an interview. Cypriot banks have been in the spotlight in recent years over their credit policies and an almost relaxed attitude toward clients dodging or being late on loan repayments. This was highlighted after a stock market rise and subsequent fall four years ago which left thousands of investors in debt after using loans to dabble in stocks. Banks ended up with a mountain of bad debts. Earlier this week, Moody’s cut the financial strength rating of Laiki to «D+» from «C-,» reflecting what it said was a weakening in the bank’s financial fundamentals and particularly the worsening of the quality of its credit portfolio. It put Bank of Cyprus, the largest Cypriot bank, on review for possible downgrade. Laiki is the second largest. More care on lending «A priority of the group is to improve the quality of the loan portfolio,» said Eteocleous. He said the bank had placed a renewed focus on risk. «There is more care on lending, improved procedures for risk assessment, more systematic procedures to reduce excesses.» «We have seen an improved performance in the first quarter despite the slowdown in the banking sector, and the reason was an increase in the interest rate margin,» he said. Official figures show the rate of growth of deposits in the broad banking sector at 2.0 percent in 2003, compared to 9.5 percent growth in 2002. Advances increased by 6.0 percent in 2003, compared to almost 10 percent in 2002, a weakening mirrored by a deterioration of the Cypriot economy, which relies heavily on tourism. Net interest income of Laiki increased to 2.82 percent in the first quarter of 2004 from 2.79 percent in 2003. That was achieved in spite of more stringent central bank regulations restricting the time period interest on overdue loans that could be calculated as income, Eteocleous said.