REG - Bank of Cyprus Hldgs - 1H2024 Group Financial Results
08/08/2024 07:00
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RNS Number : 7003Z Bank of Cyprus Holdings PLC 08 August 2024
Announcement
Group Financial Results for the six months ended 30 June 2024
Nicosia, 8 August 2024
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014, (including, as it forms part of
domestic UK law pursuant to the European Union (Withdrawal) Act 2018 of the
United Kingdom).
Key Highlights for the six months ended 30 June 2024
Strong economic growth continues
· GDP projected to grow by c. 2.9%(1) in 2024 outpacing Euro area
average
· Strong new lending of €1.2 bn, up 10% yoy
· Gross performing loan book at €10.1 bn, up 3% since December
2023
Delivered ROTE of 23.7% in 1H2024
· NII at €420 mn in 1H2024 up 17% yoy; 2Q2024 NII at €207 mn,
down 3% qoq mainly reflecting increased hedging activity
· Total operating expenses(2) up 4% yoy to €167 mn, impacted by
inflation; cost to income ratio(2) at 30% down 2 p.p. yoy
· Profit after tax of €270 mn up 23% yoy, of which €137 mn in
2Q2024 up 4% qoq
· Basic earnings per share of €0.61 for 1H2024 (vs €0.49 for
1H2023)
Liquid and resilient balance sheet
· NPE ratio at 2.8% (0.4% on a net basis) down 60 bps qoq
· NPE coverage at 85%; cost of risk at 31 bps
· Retail funded deposit base at €19.7 bn, up 3% yoy and 2% qoq
· Highly liquid balance sheet with €7.3 bn placed at the ECB;
TLTRO fully repaid in June 2024
· In compliance with 2024 final MREL target post successful
issuance of €300 mn Green Senior Preferred Notes in April 2024
Robust capital and shareholder focus
· CET1 ratio and Total Capital ratio at 18.3% and 23.3%
respectively
· CET1 generation(3) of 214 bps in 1H2024; of which 129 bps in
2Q2024
· Tangible book value per share of €5.27(4) as at 30 June 2024 up
21% yoy
· Distribution yield at 8%(5); €112 mn cash dividend paid in June
2024 and €25 mn buyback launched in April 2024
Long-term deposit rating upgraded by Moody's to Baa1 in July 2024; 2 notches
above investment grade
1. Source: Cyprus' Ministry of Finance; projections as of May 2024
2. Excluding special levy on deposits and other levies/contributions
3. Increase in CET1 ratio (pre-distribution)
4. Shareholder's equity (excluding other equity instruments) minus
intangible assets/ divided by the number of ordinary shares less the shares
held as treasury as at the quarter end
5. Based on the share price as at the date of the announcement of
distribution on 20 March 2024
*Key Highlights are based on the financial results on an 'Underlying Basis'.
Group Chief Executive Statement
"We are pleased to announce that we delivered another quarter of strong
profitability, demonstrating the sustainability of our business model. For the
sixth consecutive quarter, we achieved a ROTE of over 20%, comfortably
exceeding our 2024 targets set in February 2024. This strong performance was
the outcome of resilient net interest income evolution, continued cost
discipline amid inflationary pressures and a low cost of risk. Overall, we
recorded earnings per share of €0.61 during the first half, delivering
strong shareholder value creation, with tangible book value per share
improving by 21% year on year to €5.27.
Our capital position remains robust; rapid capital build-up drove our CET1
ratio to 18.3% and Total Capital ratio to 23.3% net of distribution accrual(1)
as at 30 June 2024. Our asset quality is healthy and continues to improve with
the NPE ratio falling below 3% for the first time.
The Cypriot economy continues to display strength and resilience against the
backdrop of geopolitical uncertainty. In 2024, GDP is forecast to grow by
c.2.9%(2) and is expected to outpace the Eurozone average.
Our strong financial and operational performance is also being reflected in
higher credit ratings, with recent upgrades from Moody's, Fitch and S&P.
This includes a two-notch upgrade from Moody's to the Bank's long-term deposit
rating to Baa1, two notches above investment grade, representing the highest
long-term deposit rating for the Bank since 2011.
Capitalising on this strong performance, and on the back of a supportive
macroeconomic environment we are upgrading today our 2024 and 2025 financial
targets. We now expect that reported ROTE will exceed 19% for 2024, and be
mid-teens in 2025, facilitating strong CET1 generation of over 300 bps per
annum before distributions.
Our commitment to delivering sustainable shareholder returns is demonstrated
by the distribution of €137 mn in respect of 2023 earnings comprising a cash
dividend of €112 mn that was paid in June 2024 and a share buyback of up to
€25 mn that was launched in April 2024. Looking forward, we are now
targeting a distribution towards the higher end of our payout ratio range (i.e
50%) for 2024, subject to market conditions and required approvals. Given our
strong capital generation, we will review our distribution policy alongside
full year 2024 results in the context of prevailing market conditions.
At Bank of Cyprus we regularly evaluate how best to position the Group to
deliver sustainable value to shareholders. One of the matters we have been
assessing is how best to enhance the Group's market visibility, making it more
accessible to a new pool of investors. In this spirit, the Board has reached
the view that a listing on the Athens Stock Exchange (ATHEX) in conjunction
with a delisting from the London Stock Exchange (LSE), will yield a number of
long-term strategic and capital market benefits. In the coming weeks we will
outline why we are recommending the above, with a proposal to be put to
shareholders at a forthcoming EGM to be convened in due course.
We are pleased with the progress we have made so far but remain focused on
delivering for all our key stakeholders. We continue to execute our strategy,
solidifying our position of strength with a clear focus on supporting our
customers, delivering shareholder value and supporting the growth of the
Cypriot economy."
Panicos Nicolaou
1. In line with Commission Delegated Regulation (EU) No 241/2014
principles. The distribution accrual does not constitute an approval or a
decision by the Bank with respect to distribution payments for 2024.
2. Source: Cyprus' Ministry of Finance; projections as of May 2024
A. Group Financial Results - Statutory Basis
Interim Consolidated Income Statement for the six months ended 30 June 2024
Six months ended 30 June
2024 2023
€000 €000
Interest income 504,330 403,852
Income similar to interest income 67,456 22,172
Interest expense (87,237) (56,083)
Expense similar to interest expense (64,666) (11,599)
Net interest income 419,883 358,342
Fee and commission income 89,872 93,879
Fee and commission expense (3,657) (4,275)
Net foreign exchange gains 13,034 15,839
Net gains on financial instruments 729 5,680
Net gains on derecognition of financial assets measured at amortised cost 1,106 5,861
Net insurance finance income/(expense) and net reinsurance finance (311) 263
income/(expense)
Net insurance service result 34,949 34,086
Net reinsurance service result (11,863) (9,788)
Net (losses)/gains from revaluation and disposal of investment properties (1,257) 788
Net gains on disposal of stock of property 2,584 3,906
Other income 5,218 12,200
Total operating income 550,287 516,781
Staff costs (96,135) (93,043)
Special levy on deposits and other levies/contributions (18,784) (18,236)
Provisions for pending litigations, claims, regulatory and other matters (net (2,562) (14,148)
of reversals)
Other operating expenses (70,989) (70,456)
Operating profit before credit losses and impairment 361,817 320,898
Credit losses on financial assets (17,471) (36,772)
Impairment net of reversals on non-financial assets (24,760) (23,206)
Profit before tax 319,586 260,920
Income tax (48,203) (39,768)
Profit after tax for the period 271,383 221,152
Attributable to:
Owners of the Company 270,353 220,247
Non-controlling interests 1,030 905
Profit for the period 271,383 221,152
Basic profit per share attributable to the owners of the Company (€ cent) 60.6 49.4
Diluted profit per share attributable to the owners of the Company (€ cent) 60.4 49.3
A. Group Financial Results - Statutory Basis
Interim Consolidated Balance Sheet as at 30 June 2024
30 June 31 December 2023
2024
Assets €000 €000
Cash and balances with central banks 7,287,221 9,614,502
Loans and advances to banks 384,112 384,802
Reverse repurchase agreements 1,014,858 403,199
Derivative financial assets 67,112 51,055
Investments at FVPL 119,201 135,275
Investments at FVOCI 410,437 443,420
Investments at amortised cost 3,429,116 3,116,714
Loans and advances to customers 10,084,967 9,821,788
Life insurance business assets attributable to policyholders 722,582 649,212
Prepayments, accrued income and other assets 596,292 584,919
Stock of property 763,913 826,115
Investment properties 55,614 62,105
Deferred tax assets 202,717 201,268
Property and equipment 282,342 285,568
Intangible assets 45,686 48,635
Total assets 25,466,170 26,628,577
Liabilities
Deposits by banks 405,438 471,556
Funding from central banks - 2,043,868
Derivative financial liabilities 21,966 17,980
Customer deposits 19,722,692 19,336,915
Changes in the fair value of hedged items in portfolio hedges of interest rate (7,261) -
risk
Insurance contract liabilities 702,196 658,424
Accruals, deferred income, other liabilities and other provisions 563,284 469,265
Provisions for pending litigations, claims, regulatory and other matters 111,470 131,503
Debt securities in issue 970,790 671,632
Subordinated liabilities 313,009 306,787
Deferred tax liabilities 32,934 32,306
Total liabilities 22,836,518 24,140,236
Equity
Share capital 44,481 44,620
Share premium 594,358 594,358
Revaluation and other reserves 88,628 89,920
Retained earnings 1,659,916 1,518,182
Equity attributable to the owners of the Company 2,387,383 2,247,080
Other equity instruments 220,000 220,000
Non‑controlling interests 22,269 21,261
Total equity 2,629,652 2,488,341
Total liabilities and equity 25,466,170 26,628,577
B. Group Financial Results - Underlying Basis
Interim Consolidated Income
Statement
€ mn 1H2024 1H2023 2Q2024 1Q2024 qoq +% yoy +%
Net interest income 420 358 207 213 -3% 17%
Net fee and commission income 86 90 44 42 5% -4%
Net foreign exchange gains and net gains on financial instruments 13 21 6 7 -20% -38%
Net insurance result 23 25 13 10 30% -7%
Net gains/(losses) from revaluation and disposal of investment properties and 2 5 1 1 39% -72%
on disposal of stock of properties
Other income 5 12 2 3 -22% -57%
Total income 549 511 273 276 -1% 7%
Staff costs (96) (93) (48) (48) 1% 3%
Other operating expenses (71) (69) (38) (33) 15% 4%
Special levy on deposits and other levies/contributions (19) (18) (8) (11) -38% 3%
Total expenses (186) (180) (94) (92) 1% 4%
Operating profit 363 331 179 184 -2% 9%
Loan credit losses (16) (24) (9) (7) 28% -36%
Impairments of other financial and non-financial assets (25) (30) (17) (8) 90% -16%
Provisions for pending litigations, regulatory and other matters (net of (3) (14) 7 (10) -174% -82%
reversals)
Total loan credit losses, impairments and provisions (44) (68) (19) (25) -29% -37%
Profit before tax and non-recurring items 319 263 160 159 2% 21%
Tax (48) (40) (23) (25) -7% 21%
Profit attributable to non-controlling interests (1) (1) 0 (1) -22% 14%
Profit after tax and before non-recurring items (attributable to the owners of 270 222 137 133 4% 22%
the Company)
Advisory and other transformation costs - organic - (2) - - - -100%
Profit after tax (attributable to the owners of the Company) 270 220 137 133 4% 23%
B. Group Financial Results - Underlying Basis (continued)
Interim Consolidated Income Statement- Key Performance Ratios
Key Performance Ratios 1H2024 1H2023 2Q2024 1Q2024 qoq+% yoy+%
Net Interest Margin (annualised) 3.66% 3.17% 3.68% 3.70% -2 bps 49 bps
Net Interest Margin (annualised) excluding TLTRO III 3.79% 3.48% 3.70% 3.90% -20 bps 31 bps
Cost to income ratio 34% 35% 34% 33% 1 p.p. -1 p.p.
Cost to income ratio excluding special levy on deposits and other 30% 32% 32% 29% 3 p.p. -2 p.p.
levies/contributions
Operating profit return on average assets (annualised) 2.8% 2.6% 2.9% 2.9% - 0.2 p.p.
Basic earnings per share attributable to the owners of the Company (€ 0.61 0.49 0.31 0.30 0.01 0.12
cent)(1)
Return (annualised) on tangible equity (ROTE) 23.7% 24.0% 23.7% 23.6% 0.1 p.p. -0.3 p.p.
Return (annualised) on tangible equity (ROTE) on 15% CET1 ratio(2) 29.6% 25.3% 29.9% 29.1% 0.8 p.p. 4.3 p.p.
Tangible book value per share(3) (€) 5.27 4.34 5.27 5.23 0.04 0.93
Tangible book value per share excluding cash dividend 5.27 4.34 5.27 4.98 0.29 0.93
1. The diluted earnings per share attributable to the owners of the
Company for 2Q2024 amounted to €0.31 and €0.60 for 1H2024
2. Calculated as Profit/(loss) after tax (attributable to the owners
of the Company) (annualised - (based on year - to - date days), divided by the
quarterly average of Shareholders' equity minus intangible assets and after
deducting the excess CET1 capital on a 15% CET1 ratio from the tangible
shareholders' equity
3. Tangible book value per share is calculated based on number of
shares in issue at the end of the period, excluding treasury shares
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Commentary on Underlying Basis
The financial information presented in this Section provides an overview of
the Group financial results for the six months ended 30 June 2024 on the
'underlying basis' which management believes best fits the true measurement of
the performance and position of the Group, as this presents separately any
non-recurring items and also includes certain reclassifications of items,
other than non-recurring items, which are done for presentational purposes
under the underlying basis for aligning the presentation with items of a
similar nature.
Reconciliations between the statutory basis and the underlying basis to
facilitate the comparability of the underlying basis to the statutory
information, are included in Section B.1 'Reconciliation of Interim
Consolidated Income statement for the six months ended 30 June 2024 between
statutory and underlying basis' and in 'Alternative Performance Measures' of
the Interim Financial Report 2024.
B. Group Financial Results- Underlying Basis (continued)
Interim Consolidated Balance Sheet
€ mn 30.06.2024 31.12.2023 +%
Cash and balances with central banks 7,287 9,615 -24%
Loans and advances to banks 384 385 0%
Reverse repurchase agreements 1,015 403 152%
Debt securities, treasury bills and equity investments 3,959 3,695 7%
Net loans and advances to customers 10,085 9,822 3%
Stock of property 764 826 -8%
Investment properties 56 62 -10%
Other assets 1,916 1,821 5%
Total assets 25,466 26,629 -4%
Deposits by banks 405 472 -14%
Funding from central banks - 2,044 -100%
Customer deposits 19,723 19,337 2%
Debt securities in issue 971 672 45%
Subordinated liabilities 313 307 2%
Other liabilities 1,425 1,309 9%
Total liabilities 22,837 24,141 -5%
Shareholders' equity 2,387 2,247 6%
Other equity instruments 220 220 -
Total equity excluding non-controlling interests 2,607 2,467 6%
Non-controlling interests 22 21 5%
Total equity 2,629 2,488 6%
Total liabilities and equity 25,466 26,629 -4%
Key Balance Sheet figures and ratios 30.06.2024 31.12.2023 +
Gross loans (€ mn) 10,318 10,070 2%
Allowance for expected loan credit losses (€ mn) 251 267 -6%
Customer deposits (€ mn) 19,723 19,337 2%
Loans to deposits ratio (net) 51% 51% -
NPE ratio 2.8% 3.6% -80 bps
NPE coverage ratio 85% 73% +12 p.p.
Leverage ratio 10.1% 9.1% +100 bps
Capital ratios and risk weighted assets 30.06.2024 31.12.2023 +
(Regulatory)(1) (Regulatory)(2)
Common Equity Tier 1 (CET1) ratio (transitional) 18.3% 17.4% +80 bps
Total capital ratio (transitional) 23.3% 22.4% +90 bps
Risk weighted assets (€ mn) 10,580 10,341 +2%
1. Includes reviewed profits for 1H2024 net of distribution accrual (refer to
B.2.1 'Capital Base'). Any recommendation for a distribution is subject to
regulatory approval
2. Includes profits for the year ended 31 December 2023 net of distribution at
30% payout ratio, following ECB approval in March 2024 (refer to section
B.2.1)
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 p.p.
B. Group Financial Results- Underlying Basis (continued)
B.1 Reconciliation of Interim Consolidated Income Statement for the six
months ended 30 June 2024 between the statutory and underlying basis
€ million Underlying basis Other Statutory
basis
Net interest income 420 - 420
Net fee and commission income 86 - 86
Net foreign exchange gains and net gains on financial instruments 13 - 13
Net gains on derecognition of financial assets measured at amortised cost - 1 1
Net insurance result* 23 - 23
Net gains/(losses) from revaluation and disposal of investment properties and 2 - 2
on disposal of stock of properties
Other income 5 - 5
Total income 549 1 550
Total expenses (186) (3) (189)
Operating profit 363 (2) 361
Loan credit losses (16) 16 -
Impairment of other financial and non-financial assets (25) 25 -
Provisions for pending litigations, claims, regulatory and other matters (net (3) 3 -
of reversals)
Credit losses on financial assets and impairment net of reversals of - (42) (42)
non-financial assets
Profit before tax and non-recurring items 319 - 319
Tax (48) - (48)
Profit attributable to non-controlling interests (1) - (1)
Profit after tax (attributable to the owners of the Company) 270 - 270
* Net insurance result per underlying basis comprises the aggregate of
captions 'Net insurance finance income/(expense) and net reinsurance finance
income/(expense)', 'Net insurance service result' and 'Net reinsurance service
result' per the statutory basis.
The reclassification differences between the statutory basis and the
underlying basis are explained below:
· 'Net gains on derecognition of financial assets
measured at amortised cost' of €1 million under the statutory basis comprise
net gains on derecognition of loans and advances to customers included in
'Loan credit losses' under the underlying basis as to align their presentation
with the loan credit losses on loans and advances to customers.
· Provisions for pending litigations, claims, regulatory
and other matters amounting to €3 million presented within 'Operating profit
before credit losses and impairment' under the statutory basis, are presented
under the underlying basis in conjunction with loan credit losses and
impairments.
· 'Credit losses on financial assets' and 'Impairment net
of reversals on non-financial assets' under the statutory basis include: i)
credit losses to cover credit risk on loans and advances to customers of €17
million, which are included in 'Loan credit losses' under the underlying
basis, and ii) credit losses of other financial assets of €0.3 million and
impairment net of reversals of non-financial assets of €25 million, which
are included in 'Impairment of other financial and non-financial assets' under
the underlying basis, as to be presented separately from loan credit losses.
B. Group Financial Results - Underlying Basis (continued)
B.2 Balance Sheet Analysis
B.2.1 Capital Base
Total equity excluding non-controlling interests totalled €2,607 mn as at 30
June 2024 compared to €2,601 mn as at 31 March 2024 and to €2,467 mn as at
31 December 2023. Shareholders' equity totalled to €2,387 mn as at 30 June
2024 compared to €2,381 mn as at 31 March 2024 and to €2,247 mn as at 31
December 2023.
The regulatory Common Equity Tier 1 capital (CET1) ratio on a transitional
basis stood at 18.3% as at 30 June 2024 compared to 17.1% as at 31 March 2024
(or 17.6% when including retained earnings and after distribution accrual for
1Q2024) and to 17.4% as at 31 December 2023. Throughout this announcement, the
regulatory capital ratios as at 30 June 2024 include reviewed profits for the
six months ended 30 June 2024 in line with the ECB Decision (EU) (2015/656) on
the recognition of interim or year-end profits in CET1 capital in accordance
with Article 26(2) of the CRR, net of distribution accrual at the top end of
the Group's approved distribution policy in line with Commission Delegated
Regulation (EU) No 241/2014 principles (such ratios are referred to as
regulatory). As per the latest SREP decision, any distribution is subject to
regulatory approval. Such distribution accrual in respect of 2024 earnings
does not constitute a binding commitment for a distribution payment nor does
it constitute a warranty or representation that such a payment will be made.
Since September 2023, a charge is deducted from own funds in relation to the
ECB prudential expectations for NPEs, which amounted to 26 bps as at 30 June
2024, compared to 32 bps as at 31 March 2024 and as at 31 December 2023. A
prudential charge in relation to an onsite inspection on the value of the
Group's foreclosed assets is being deducted from own funds since June 2021,
the impact of which was 7 bps on Group's CET1 ratio as at 30 June 2024
(compared to 10 bps on Group's CET1 ratio as at 31 March 2024 and to 12 bps as
at 31 December 2023). In addition, the Group is subject to increased capital
requirements in relation to its real estate repossessed portfolio which follow
a SREP provision to ensure minimum capital levels retained on long-term
holdings of real estate assets, with such requirements being dynamic by
reference to the in-scope REMU assets remaining on the balance sheet of the
Group and the value of such assets. As at 30 June 2024, the impact of these
requirements was 47 bps on Group's CET1 ratio, compared to 41 bps as at 31
March 2024 and to 24 bps as at 31 December 2023. The above-mentioned
requirements are within the capital plans of the Group and incorporated within
its capital projections.
The regulatory Total Capital ratio on a transitional basis stood at 23.3% as
at 30 June 2024 compared to 22.0% as at 31 March 2024 (or 22.5% when including
retained earnings and after distribution accrual for 1Q2024) and to 22.4% as
at 31 December 2023.
The Group's capital ratios are above the Supervisory Review and Evaluation
Process (SREP) requirements.
On 30 November 2022, the CBC, following the revised methodology described in
its macroprudential policy, decided to increase the CcyB from 0.00% to 0.50%
of the total risk exposure amounts in Cyprus of each licensed credit
institution incorporated in Cyprus effective from 30 November 2023. Further,
in June 2023, the CBC announced an additional increase of 0.50% in the CcyB of
the total risk exposure amounts in Cyprus of each licensed credit institution
incorporated in Cyprus effective from June 2024, increasing the CcyB to 1.00%.
As a result, the CcyB for the Group as at 30 June 2024 amounted to c.0.94%.
The Bank has been designated as an Other Systemically Important Institution
(O-SII) by the Central Bank of Cyprus (CBC) in accordance with the provisions
of the Macroprudential Oversight of Institutions Law of 2015 and the relevant
buffer increased by 37.5 bps to 1.875% on 1 January 2024. In April 2024,
following a revision by the CBC of its policy for the designation of credit
institutions that meet the definition of O-SII institutions and the setting of
O-SII buffer to be observed, the Group's O-SII buffer has been reduced to
2.00% on 1 January 2026 (from the previous assessment of 2.25% on 1 January
2025) to be phased by 6.25 bps annually, to 1.9375% on 1 January 2025 and
2.00% as of 1 January 2026 from the current level of 1.875%.
As at 30 June 2024, the Group's minimum phased-in CET1 capital ratio
requirement is set at 11.36%, comprising a 4.50% Pillar I requirement, a 1.55%
Pillar II requirement, the Capital Conservation Buffer of 2.50%, the O-SII
Buffer of 1.875% and CcyB of c.0.94%. Likewise, the Group's minimum phased-in
Total Capital ratio requirement is set at 16.06%, comprising an 8.00% Pillar I
requirement, of which up to 1.50% can be in the form of AT1 capital and up to
2.00% in the form of T2 capital, a 2.75% Pillar II requirement, the Capital
Conservation Buffer of 2.50%, the O-SII Buffer of 1.875% and the CcyB of
c.0.94%. The ECB has also provided revised lower non-public guidance for an
additional Pillar II CET1 buffer (P2G) compared to previous year.
Own funds held for the purposes of P2G cannot be used to meet any other
capital requirements (Pillar I, Pillar II requirements or the combined buffer
requirement), and therefore cannot be used twice.
B. Group Financial Results - Underlying Basis (continued)
B.2 Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
The Group's minimum phased-in CET1 capital ratio requirement as at 31 December
2023 was set at 10.72%, comprising a 4.50% Pillar I requirement, a 1.73%
Pillar II requirement, the Capital Conservation Buffer of 2.50%, the O-SII
Buffer of 1.50% and the CcyB of c.0.48%. The Group's minimum phased-in Total
Capital ratio requirement was set at 15.56%, comprising an 8.00% Pillar I
requirement, of which up to 1.50% can be in the form of AT1 capital and up to
2.00% in the form of T2 capital, a 3.08% Pillar II requirement, the Capital
Conservation Buffer of 2.50%, the O-SII Buffer of 1.50% and the CcyB of
c.0.48%. Following the annual SREP performed by the ECB in 2022, ECB has also
maintained the non-public guidance for an additional Pillar II CET1 buffer
(P2G) for 2023 unchanged compared to 2022.
Distributions
In April 2023, the Company obtained the approval of the ECB to pay a dividend
of €0.05 per ordinary share in respect of earnings for the year ended 31
December 2022. This was the first dividend payment after 12 years underpinning
the Group's position as a strong and well-diversified organisation, capable of
delivering sustainable shareholder returns.
In March 2024, the Company obtained the approval of the ECB to pay a cash
dividend and to conduct a share buyback (together the 'Distribution'). The
Distribution corresponded to a 30% payout ratio of FY2023 adjusted recurring
profitability and amounted to €137 mn in total, comprising a cash dividend
of €112 mn and a share buyback of up to €25 mn. The proposed final
dividend of €0.25 per ordinary share was declared at the Annual General
Meeting ('AGM') which was held on 17 May 2024. The dividend was paid in cash
on 14 June 2024.
In April 2024, the Group launched its inaugural programme to buy back ordinary
shares in the Company for an aggregate consideration of up to €25 mn (the
'Programme'). The purpose of the Programme is to reduce the Company's share
capital and therefore shares purchased under the Programme will be
cancelled. The Company has entered into non-discretionary agreements with
Numis Securities Limited (trading as 'Deutsche Numis') and The Cyprus
Investment and Securities Corporation Ltd ('CISCO') acting as joint lead
managers, to conduct the Programme and to repurchase Shares on the Company's
behalf and to make trading decisions under the Programme independently of the
Company in accordance with certain pre-set parameters. The Programme takes
place on both the London Stock Exchange and the Cyprus Stock Exchange and may
continue until 14 March 2025 subject to market conditions, the ongoing capital
requirements of the business and early termination rights customary for a
transaction of this nature. The implementation of the share buyback programme
complies with the Company's general authority to repurchase the Company's
ordinary shares as approved by shareholders at the Company's AGM on 17 May
2024, and with the terms of the approval received from the ECB. The maximum
number of shares that may be repurchased under the ECB approval is 1.6% of the
total outstanding shares as at 31 December 2023 (i.e. up to 7,343,249 Shares).
The Distribution in respect of 2023 earnings was equivalent to c.130 bps on
CET1 ratio as at 31 December 2023.
Distribution policy
The Group aims to provide a sustainable return to shareholders. Distributions
are expected to be in the range of 30-50% payout ratio of the Group's adjusted
recurring profitability, including cash dividends and buybacks, with any
distribution being subject to regulatory approval. Group adjusted recurring
profitability is defined as the Group's profit after tax before non-recurring
items (attributable to the owners of the Company) taking into account
distributions under other equity instruments such as the annual AT1 coupon. In
line with the Group's distribution policy, the Group is committed to
delivering sustainably growing distributions through a combination of cash
dividend and share buybacks while maintaining a robust capital base to support
profitable growth and prudently prepare for upcoming potential regulatory
changes. Supported by its continued progress towards its strategic targets,
the Group intends to move towards the top-end of the 30%-50% range of its
distribution policy (i.e 50% payout ratio) for 2024, subject to required
approvals. Any proposed distribution quantum, as well as envisaged allocation
between dividend and buyback, will take into consideration market conditions
as well as the outcome of its ongoing capital and liquidity planning exercises
at the time. Given the strong capital generation, the Group's distribution
policy is expected to be reviewed with the full year 2024 financial results in
the context of prevailing market conditions.
Share Capital
As at 30 June 2024, there were 444,812,058 issued ordinary shares with a
nominal value of €0.10 each, compared to 446,199,933 issued ordinary shares
as at 31 March 2024 and 31 December 2023. The reduction since the beginning of
the year relates to the share buyback programme that was launched in April
2024. For further details please refer to Section B.2.1 'Capital Base'.
B. Group Financial Results - Underlying Basis (continued)
B.2 Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
Other equity instruments
At 30 June 2024, the Group's other equity instruments relate to Additional
Tier 1 Capital Securities (the "AT1 securities") and amounted to €220 mn,
flat on prior quarter.
The Fixed Rate Reset Perpetual Additional Tier 1 Capital Securities constitute
unsecured and subordinated obligations of the Company, are perpetual and are
issued at par. They carry an initial coupon of 11.875% per annum, payable
semi-annually and resettable on 21 December 2028 and every 5 years thereafter.
The Company will have the option to redeem these capital securities from, and
including, 21 June 2028 to, and including, 21 December 2028 and on each
interest payment date thereafter, subject to applicable regulatory consents
and the relevant conditions to redemption.
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific deferred tax
assets (DTA) into deferred tax credits (DTC) became effective in March 2019.
The legislative amendments cover the utilisation of income tax losses
transferred from Laiki Bank to the Bank in March 2013. The introduction of the
Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)
IV in January 2014 and its subsequent phasing-in led to a more
capital-intensive treatment of this DTA for the Bank. With this legislation,
institutions are allowed to treat such DTAs as 'not relying on future
profitability', according to CRR/CRD IV and as a result not deducted from
CET1, hence improving a credit institution's capital position. The Law
provides that a guarantee fee on annual tax credit is payable annually by the
credit institution to the Government.
Following certain modifications to the Law in May 2022, the annual guarantee
fee is to be determined by the Cyprus Government on an annual basis, providing
however that such fee to be charged is set at a minimum fee of 1.5% of the
annual instalment and can range up to a maximum amount of €10 mn per year.
The Group estimates that such fees could range up to c.€5 mn per year (for
each tax year in scope i.e. since 2018) although the Group understands that
such fee may fluctuate annually as to be determined by the Ministry of
Finance.
B.2.2 Regulations and Directives
B.2.2.1 The 2021 Banking Package (CRR III and CRD VI and BRRD)
In October 2021, the European Commission adopted legislative proposals for
further amendments to the Capital Requirements Regulation (CRR), CRD and the
BRRD (the "2021 Banking Package"). Amongst other things, the 2021 Banking
Package would implement certain elements of Basel III that have not yet been
transposed into EU law. In the case of the proposed amendments to CRD and the
BRRD, their terms and effect will depend, in part, on how they are transposed
in each member state. In December 2023, the preparatory bodies of the Council
and European Parliament endorsed the amendments to the CRR and the CRD and the
legal texts were published on the Council and the Parliament websites. In
April 2024, the European Parliament voted to adopt the amendments to the CRR
and the CRD; Regulation (EU) 2024/1623 (known as CRR III) and Directive (EU)
2024/1619 (known as CRD VI) were published in the EU's official journal in
June 2024, with entry into force 20 days from the date of the publication.
Most provisions of the CRR III will become effective on 1 January 2025 with
certain measures subject to transitional arrangements or to be phased in over
time. Member states shall adopt and publish, by 10 January 2026, the laws,
regulations and administrative provisions necessary to comply with CRD VI and
shall apply most of those measures by 11 January 2026.
B.2.2.2 Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January
2016, EU member states shall apply the BRRD's provisions requiring EU credit
institutions and certain investment firms to maintain a minimum requirement
for own funds and eligible liabilities (MREL), subject to the provisions of
the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part
of the reform package for strengthening the resilience and resolvability of
European banks, the BRRD ΙΙ came into effect and was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in May 2021. In addition, certain provisions on MREL have been introduced
in CRR ΙΙ which also came into force on 27 June 2019 as part of the reform
package and were immediately effective.
B. Group Financial Results - Underlying Basis (continued)
B.2 Balance Sheet Analysis (continued)
B.2.2.2 Bank Recovery and Resolution Directive (BRRD) (continued)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL) (continued)
In January 2024, the Bank received final notification from the SRB regarding
the 2024 MREL decision, by which the final MREL requirement is now set at
25.0% of risk weighted assets (or 30.3% of risk weighted assets taking into
account the expected prevailing CBR as at 31 December 2024 which needs to be
met with own funds on top of the MREL) and 5.91% of Leverage Ratio Exposure
(as defined in the CRR) and must be met by 31 December 2024.
The Bank must comply with the MREL requirement at the consolidated level,
comprising the Bank and its subsidiaries.
In April 2024, the Bank proceeded with an issue of €300 million green senior
preferred notes (the 'Green Notes'). The Green Notes comply with the MREL
criteria and contribute towards the Bank's MREL requirement. For further
details, please refer to section 'B.2.3'.
The MREL ratio as at 30 June 2024, calculated according to the SRB's
eligibility criteria currently in effect and based on internal estimate, stood
at 33.4% of RWAs (including capital used to meet the CBR) and at 14.0% of LRE
(based on the regulatory Total Capital as at 30 June 2024). The CBR stood at
5.31% as at 30 June 2024 (compared to 4.86% as at 31 March 2024 and to 4.48%
as at 31 December 2023), reflecting the increase of the CcyB from c.0.49% to
c.0.94% in June 2024.
The CBR is expected to increase further as a result of the phasing in of O-SII
buffer from 1.875% to 1.9375% on 1 January 2025 and to 2.00% on 1 January
2026.
Throughout this announcement, the MREL ratios as at 30 June 2024 include
profits for the six months ended 30 June 2024 in line with the ECB Decision
(EU) (2015/656) on the recognition of interim or year-end profits in CET1
capital in accordance with Article 26(2) of the CRR, net of distribution
accrual at the top end of the Group's approved distribution policy in line
with Commission Delegated Regulation (EU) No 241/2014 principles.
B.2.3 Funding and Liquidity
Funding
Funding from Central Banks
Following the repayment of €1.7 bn under the seventh TLTRO III operation in
March 2024 and €0.3 bn under the eighth TLTRO III operation in June 2024,
the Bank's funding from central banks was reduced to nil as at 30 June 2024,
compared to €310 mn as at 31 March 2024 and to €2,044 mn as at 31 December
2023.
Deposits
Customer deposits totalled €19,723 mn at 30 June 2024 (compared to 19,260 mn
at 31 March 2024 and to €19,337 mn at 31 December 2023) up by 2% on prior
quarter and since the beginning of the year. Customer deposits are mainly
retail-funded and c.57% of deposits are protected under the deposit guarantee
scheme as at 30 June 2024.
The Bank's deposit market share in Cyprus reached 37.5% as at 30 June 2024,
compared to 37.5% as at 31 March 2024 and to 37.7% as at 31 December 2023.
Customer deposits accounted for 77% of total assets and 86% of total
liabilities at 30 June 2024 (compared to 73% of total assets and 80% of total
liabilities as at 31 December 2023). The increase since the beginning of the
year relates to the repayment of €2.0 bn TLTRO and the 2% increase in
customer deposits.
The net loans to deposits (L/D) ratio stood at 51% as at 30 June 2024
(compared to 52% as at 31 March 2024 and to 51% as at 31 December 2023 on the
same basis), flat since the beginning of the year.
Subordinated liabilities
At 30 June 2024, the carrying amount of the Group's subordinated liabilities
amounted to €313 mn (compared to €309 mn at 31 March 2024 and to €307 mn
at 31 December 2023) and relate to unsecured subordinated Tier 2 Capital Notes
('T2 Notes').
The T2 Notes were priced at par with a fixed coupon of 6.625% per annum,
payable annually in arrears and resettable on 23 October 2026. The maturity
date of the T2 Notes is 23 October 2031. The Company will have the option to
redeem the T2 Notes early on any day during the six-month period from 23 April
2026 to 23 October 2026, subject to applicable regulatory approvals.
B. Group Financial Results - Underlying Basis (continued)
B.2 Balance Sheet Analysis (continued)
B.2.3 Funding and Liquidity (continued)
Funding (continued)
Debt securities in issue
At 30 June 2024, the carrying value of the Group's debt securities in issue
amounted to €971 mn (compared to €673 mn at 31 March 2024 and to €672 mn
at 31 December 2023) and relate to senior preferred notes. The increase of 45%
since the beginning of the year relates to the issuance of €300 mn green
senior preferred notes ('Green Notes') in April 2024.
In April 2024, the Bank successfully launched and priced an issuance of €300
mn green senior preferred notes. The Green Notes were priced at par with a
fixed coupon of 5% per annum, payable in arrear, until the Option redemption
date i.e. 2 May 2028. The maturity date of the Green Notes is 2 May 2029;
however, the Bank may, at its discretion, redeem the Green Notes on the
Optional Redemption Date subject to meeting certain conditions (including
applicable regulatory consents) as specified in the Terms and Conditions. If
the Green Notes are not redeemed by the Bank, the coupon payable from the
Optional Redemption Date until the Maturity Date will convert from a fixed
rate to a floating rate and will be equal to 3-month Euribor + 197.1 bps,
payable quarterly in arrear.
The issuance was met with strong demand, attracting interest from more than
120 institutional investors, with a final orderbook over 4 times
over-subscribed at €1.3 bn and final pricing 50 basis points tighter than
the initial pricing indication. The transaction represents the Bank's
inaugural green bond issuance in line with the Group's Beyond Banking
approach, aimed at creating a stronger, safer and future-focused Βank and
leading the transition of Cyprus to a sustainable future. An amount equivalent
to the net proceeds of the Green Notes will be allocated to Eligible Green
Projects as described in the Bank's Sustainable Finance Framework, which
include Green Buildings, Energy Efficiency, Clean Transport and Renewable
Energy.
Post this issuance, the Bank finalized its MREL build-up and created a
comfortable buffer over the final requirements of 25% of RWAs (or 30.3% of
RWAs taking into account the prevailing CBR as at 31 December 2024) and 5.91%
of LRE which the Bank must meet by 31 December 2024. For further details,
please refer to section B.2.2.2 Minimum Requirement for Own Funds and Eligible
Liabilities (MREL).
In July 2023, the Bank successfully launched and priced an issuance of €350
mn of senior preferred notes (the "Notes"). The Notes were priced at par with
a fixed coupon of 7.375% per annum, payable annually in arrear, until the
Optional Redemption Date i.e. 25 July 2027. The maturity date of the Notes is
25 July 2028; however, the Bank may, at its discretion, redeem the Notes on
the Optional Redemption Date subject to meeting certain conditions (including
applicable regulatory consents) as specified in the Terms and Conditions. If
the Notes are not redeemed by the Bank, the coupon payable from the Optional
Redemption Date until the Maturity Date will convert from a fixed rate to a
floating rate and will be equal to 3-month Euribor + 409.5 bps, payable
quarterly in arrear. The Notes comply with the criteria for the Minimum
Requirement for Own Funds and Eligible Liabilities ("MREL") and contribute
towards the Bank's MREL requirements.
In June 2021, the Bank executed its inaugural MREL transaction issuing €300
mn of senior preferred notes (the "SP Notes"). The SP Notes were priced at par
with a fixed coupon of 2.50% per annum, payable annually in arrears and
resettable on 24 June 2026. The maturity date of the SP Notes is 24 June 2027
and the Bank may, at its discretion, redeem the SP Notes on 24 June 2026,
subject to meeting certain conditions as specified in the Terms and
Conditions, including applicable regulatory consents. The SP Notes comply with
the criteria for MREL and contribute towards the Bank's MREL requirements.
Liquidity
At 30 June 2024, the Group Liquidity Coverage Ratio (LCR) stood at 304%
(compared to 315% at 31 March 2024 and to 359% at 31 December 2023), well
above the minimum regulatory requirement of 100%. The LCR surplus as at 30
June 2024 amounted to €7.5 bn (compared to €7.3 bn at 31 March 2024 and to
€9.1 bn at 31 December 2023) up 3% qoq as the issuance of €300 mn of the
green senior preferred notes in April 2024 and the increase of 2% qoq in
customer deposits partially offset the impact from the repayment of the
remaining TLTRO III of €300 mn in June 2024.
At 30 June 2024, the Group Net Stable Funding Ratio (NSFR) stood at 156%
(compared to 155% as at 31 March 2024 and to 158% at 31 December 2023), well
above the minimum regulatory requirement of 100%.
B.2.4 Loans
Group gross loans totalled €10,318 mn at 30 June 2024, compared to €10,276
mn at 31 March 2024 and to €10,277 mn at 30 June 2023) flat on prior year.
B. Group Financial Results - Underlying Basis (continued)
B.2 Balance Sheet Analysis (continued)
B.2.4 Loans (continued)
New lending granted in Cyprus reached €551 mn for 2Q2024 (compared to a
seasonally strong new lending of €676 mn for 1Q2024 and €462 mn for
4Q2023) down by 18% qoq. New lending in 2Q2024 comprised €210 mn of
corporate loans, €209 mn of retail loans (of which €137 mn were housing
loans), €59 mn of SME loans and €73 mn of shipping and international
loans. New lending for 1H2024 totalled €1,227 mn, up 10% yoy driven mainly
by corporate demand.
At 30 June 2024, the Group net loans and advances to customers totalled
€10,085 mn (compared to €10,028 mn at 31 March 2024 and to €9,822 mn at
31 December 2023) up 3% since the beginning of the year.
The Bank is the largest credit provider in Cyprus with a market share of 43.2%
at 30 June 2024, compared to 42.9% at 31 March 2024 and to 42.2% at 31
December 2023.
In December 2023, the Bank entered into an agreement with Cyprus Asset
Management Company ('KEDIPES') to acquire a portfolio of performing and
restructured loans with gross book value of c.€58 mn with reference date 31
December 2022 (the 'Transaction'). The Transaction was broadly neutral to the
Group's income statement and capital position. The Transaction was completed
in March 2024.
B.2.5 Loan portfolio quality
The Group has continued to make steady progress across all asset quality
metrics. The Group's priorities focus mainly on maintaining high quality new
lending with strict underwriting standards and preventing asset quality
deterioration.
The loan credit losses for 2Q2024 amounted to €9 mn, compared to €7 mn for
1Q2024 and totalled €16 mn for 1H2024. Further details regarding loan credit
losses are provided in Section B.3.3 'Profit before tax and non-recurring
items'.
Non-performing exposures
The high interest rate environment as well as inflationary pressures are
expected to weigh on customers behaviour. Despite these elements, there are no
material signs of asset quality deterioration to date. While defaults have
been limited, the additional monitoring and provisioning for sectors and
individuals vulnerable to the macroeconomic environment remain in place to
ensure that potential difficulties in the repayment ability are identified at
an early stage, and appropriate solutions are provided to viable customers.
Non-performing exposures (NPEs) as defined by the European Banking Authority
(EBA) were reduced by €53 mn, or 15% in 2Q2024, compared to a net decrease
of €18 mn in 1Q2024, to €294 mn at 30 June 2024 (compared to €347 mn at
31 March 2024 and €365 mn at 31 December 2023).
As a result, the NPEs reduced to 2.8% of gross loans as at 30 June 2024,
compared to 3.4% of gross loans as at 31 March 2024 and 3.6% of gross loans as
at 31 December 2023.
The NPE coverage ratio stands at 85% at 30 June 2024, compared to 77% at 31
March 2024 and to 73% at 31 December 2023. When taking into account tangible
collateral at fair value, NPEs are fully covered.
Overall, since the peak in 2014, the stock of NPEs has been reduced by €14.7
bn or 98% to c.€0.3 bn and the NPE ratio by c.60 p.p. from 63% to below 3%.
Mortgage-To-Rent Scheme ("MTR")
In July 2023, the Mortgage-to-Rent Scheme ('MTR') was approved by the Council
of Ministers and aims for the reduction of NPEs backed by primary residence
and simultaneously protect the primary residence of vulnerable borrowers. The
eligible criteria include:
· Borrowers that were non-performing as at 31 December 2021,
remained non-performing as at 31 December 2022 and who also received
government allowances during the period January 2021 to December 2022, with
facilities backed by primary residence with Open Market Value up to €250k;
· Borrowers that had a fully completed application to Estia Scheme
and were assessed as eligible but not viable with a primary residence of up to
€350k Open Market Value; and
· all applicants that were approved under Estia Scheme but their
inclusion was terminated.
B. Group Financial Results - Underlying Basis (continued)
B.2 Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
Mortgage-To-Rent Scheme ("MTR") (continued)
Under the MTR, eligible property owners will voluntarily surrender ownership
of their residence to Cyprus Asset Management Company ('KEDIPES') which has
been approved by the Government to provide and manage social housing and will
be exempted from their mortgage loan, as the state will be covering fully the
required rent on their behalf. KEDIPES will carry out a new valuation and a
technical due diligence for the eligible applicants' property and if satisfied
will approve the application and pay to the banks an amount equal to 65% of
the Open Market Value of the primary residence in exchange for the mortgage
release, the write off of the NPE loan and the transfer of the property title
deeds.
The eligible applicants will be able to acquire the primary residence after 5
years at a favourable price, below the Open Market Value.
The scheme has been launched in December 2023; it is expected to act as
another tool to address NPEs in the Retail sector.
B.2.6 Fixed income portfolio
Fixed income portfolio amounts to €3,828 mn as at 30 June 2024, compared to
€3,743 mn as at 31 March 2024 and €3,178 mn as at 30 June 2023, increased
by 2% on the prior quarter and by 20% on prior year. As at 30 June 2024, the
portfolio represents 15% of total assets and comprises €3,429 mn (90%)
measured at amortised cost and €399 mn (10%) at fair value through other
comprehensive income ('FVOCI').
The fixed income portfolio measured at amortised cost is held to maturity and
therefore no fair value gains/losses are recognised in the Group's income
statement or equity. This fixed income portfolio has high average rating at
Aa3. The amortised cost fixed income portfolio as at 30 June 2024 has an
unrealised fair value loss of €29 mn, equivalent to c.30 bps of CET1 ratio
(compared to an unrealised fair value loss of €14 mn as at 31 March 2024)
due to increase in the bond yields.
B.2.7 Reverse repurchase agreements
Reverse repurchase agreements amount to €1,015 mn as at 30 June 2024,
compared to €708 mn as at 31 March 2024 and €403 mn as at 31 December
2023. The increase since the beginning of the year relates to the additional
hedging activities the Group is carrying out in order to reduce its net
interest income sensitivity. The average yield of reverse repurchase
agreements is c.3.0% p.a. and the average duration is estimated at c.2.5
years.
B.2.8 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) is focused on the disposal of
on-boarded properties resulting from debt for asset swaps. Cumulative sales of
repossessed assets since the beginning of 2019 amount to c.€1.0 bn and
exceed properties on-boarded in the same period of €0.5 bn.
REMU completed disposals (and transfers) of €57 mn in 1H2024 (compared to
€68 mn in 1H2023), resulting in a profit on disposal of c.€3 mn for 1H2024
(compared to a profit of c.€4 mn for 1H2023). Asset disposals are across all
property classes, with almost two thirds in gross sale value in 1H2024
relating to land.
During the six-months ended 30 June 2024, REMU executed sale-purchase
agreements (SPAs) for disposals of 258 properties with contract value of €65
mn (including transfers of €3 mn), compared to SPAs for disposals of 273
properties with contract value of €78 mn for 1H2023.
In addition, REMU had a pipeline of €49 mn by contract value as at 30 June
2024, of which €18 mn related to SPAs signed (compared to a pipeline of
€66 mn as at 30 June 2023, of which €38 mn related to SPAs signed).
REMU on-boarded €14 mn of assets in 1H2024 (compared to additions of €6 mn
in 1H2023), via the execution of debt for asset swaps and repossessed
properties.
As at 30 June 2024, repossessed properties held by REMU had a carrying value
of €790 mn, compared to €836 mn as at 31 March 2024 and €973 mn as at 30
June 2023 and remains on track to achieve its target of reducing this
portfolio to c.€0.5 bn by end-2025.
B. Group Financial Results - Underlying Basis (continued)
B.2 Balance Sheet Analysis (continued)
B.2.8 Real Estate Management Unit (REMU) (continued)
Assets held by REMU
Repossessed Assets held by REMU (Group) 1H2024 1H2023 2Q2024 1Q2024 qoq +% yoy +%
€ mn
Opening balance 862 1,079 836 862 -3% -20%
On-boarded assets 14 6 9 5 98% 186%
Sales (57) (68) (39) (17) 128% -16%
Net impairment loss (26) (22) (16) (10) 68% 20%
Transfers (3) (21) - (3) -100% -86%
Closing balance 790 974 790 836 -6% -19%
Analysis by type and country of repossessed properties Cyprus Greece Total
30 June 2024 (€ mn)
Residential properties 50 9 59
Offices and other commercial properties 105 10 115
Manufacturing and industrial properties 25 13 38
Hotels 13 0 13
Land (fields and plots) 365 3 368
Golf courses and golf-related property 197 0 197
Total 755 35 790
Cyprus Greece Total
31 December 2023 (€ mn)
Residential properties 50 12 62
Offices and other commercial properties 110 13 123
Manufacturing and industrial properties 36 16 52
Hotels 17 0 17
Land (fields and plots) 405 4 409
Golf courses and golf-related property 199 0 199
Total 817 45 862
B. Group Financial Results - Underlying Basis (continued)
B.3 Income Statement Analysis
B.3.1 Total income
€ mn 1H2024 1H2023 2Q2024 1Q2024 qoq +% yoy +%
Net interest income 420 358 207 213 -3% 17%
Net fee and commission income 86 90 44 42 5% -4%
Net foreign exchange gains and net gains on financial instruments 13 21 6 7 -20% -38%
Net insurance result 23 25 13 10 30% -7%
Net gains/(losses) from revaluation and disposal of investment properties and 2 5 1 1 39% -72%
on disposal of stock of properties
Other income 5 12 2 3 -22% -57%
Non-interest income 129 153 66 63 5% -16%
Total income 549 511 273 276 -1% 7%
Net Interest Margin (annualised) 3.66% 3.17% 3.68% 3.70% -2 bps 49 bps
Average interest earning assets 23,064 22,781 22,588 23,171 -3% 1%
(€ mn)
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Net interest income (NII) for 1H2024 amounted to €420 mn compared to €358
mn for 1H2023, up 17% yoy. The increase yoy is mainly attributed to higher
interest rates on liquid assets and loans, partially offset by a moderate
increase in time and notice cost of deposits and funding costs as well as
higher cost of hedging.
Net interest income (NII) for 2Q2024 amounted to €207 mn, compared to €213
mn for 1Q2024, down 3% qoq. The qoq decrease reflects the continued activity
to reduce NII sensitivity via hedging, and the higher funding costs following
the issuance of €300 mn green senior preferred notes in April 2024 whilst
time and notice cost of deposits remain resiliently low.
Quarterly average interest earning assets (AIEA) for 1H2024 amounted to
€23,064 mn, broadly flat yoy.
Quarterly average interest earning assets (AIEA) for 2Q2024 amounted to
€22,588 mn, down 3% qoq, impacted mainly by the €2.0 bn TLTRO III
repayment.
Net interest margin (NIM) for 1H2024 amounted to 3.66% (compared to 3.17% for
1H2023), up 49 bps yoy, supported mainly by the higher interest rate outlook
compared to prior year.
Net interest margin (NIM) for 2Q2024 stood at 3.68% broadly flat qoq.
Quarterly net interest margin (NIM) was distorted by the changes in the
quarterly average interest earning assets following the repayment of €2.0 bn
TLTRO III. When disregarding the impact of TLTRO, NIM is revised to 3.70% for
2Q2024, compared to 3.90% in the previous quarter. The qoq reduction relates
mainly to the progress on hedging.
Non-interest income for 1H2024 amounted to €129 mn (compared to €153 mn
for 1H2023, down 16% yoy) comprising net fee and commission income of €86
mn, net foreign exchange gains and net gains on financial instruments of €13
mn, net insurance result of €23 mn, net gains/(losses) from revaluation and
disposal of investment properties and on disposal of stock of properties of
€2 mn and other income of €5 mn. The yoy reduction is mainly due to lower
net foreign exchange gains and net gains on financial instruments as well as
lower net fee and commission income.
Non-interest income for 2Q2024 amounted to €66 mn (compared to €63 mn for
1Q2024 up 5% qoq) comprising net fee and commission income of €44 mn, net
foreign exchange gains and net gains on financial instruments of €6 mn, net
insurance result of €13 mn, net gains/(losses) from revaluation and disposal
of investment properties and on disposal of stock of properties of €1 mn and
other income of €2 mn. The qoq increase is mainly due to higher net
insurance result and higher net fee and commission income.
Net fee and commission income for 1H2024 amounted to €86 mn compared to
€90 mn in prior year, down 4% yoy, mainly due to lower transactional fees.
Net fee and commission income for 2Q2024 amounted to €44 mn, compared to
€42 mn in 1Q2024, up 5% qoq, driven mainly by higher non-transactional and
transactional fees.
B. Group Financial Results - Underlying Basis (continued)
B.3 Income Statement Analysis (continued)
B.3.1 Total income (continued)
Net foreign exchange gains and net gains on financial instruments amounted to
€13 mn for 1H2024, down 38% yoy due to lower foreign exchange gains on FX
swaps and lower revaluation gains in financial instruments (1H2023: c.€5.5
mn).
Net foreign exchange gains and net gains on financial instruments amounted to
€6 mn for 2Q2024, compared to €7 mn for 1Q2024, comprising a net foreign
exchange gain of c.€6.3 mn and a net loss on financial instruments of
c.€0.4 mn. Net foreign exchange gains and net gains on financial instruments
are considered volatile profit contributors.
Net insurance result amounted to €23 mn for 1H2024, compared to €25 mn for
1H2023, down 7% yoy, due to negative claim experience in the non-life
insurance business, arising from the severe weather-related events occurred in
1Q2024.
Net insurance result amounted to €13 mn for 2Q2024, compared to €10 mn for
1Q2024, reflecting better claims experience and reduction in loss component of
the insurance contracts (in line with IFRS 17) in life insurance business.
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties of €2 mn for 1H2024 (comprising net gains
on disposal of stock of properties and investment properties of c.€3 mn, and
net loss from revaluation of investment properties of c.€1 mn) compared to
€5 mn for 1H2023. REMU profit remains volatile.
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties of €1 mn for 2Q2024 flat qoq.
Total income amounted to €549 mn for 1H2024 (compared to €511 mn for
1H2023, up 7% yoy) due to higher net interest income as explained above. Total
income amounted to €273 mn for 2Q2024 compared to €276 mn for 1Q2024.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.2 Total expenses
€ mn 1H2024 1H2023 2Q2024 1Q2024 qoq +% yoy +%
Staff costs (96) (93) (48) (48) 1% 3%
Other operating expenses (71) (69) (38) (33) 15% 4%
Total operating expenses (167) (162) (86) (81) 7% 4%
Special levy on deposits and other levies/contributions (19) (18) (8) (11) -38% 3%
Total expenses (186) (180) (94) (92) 1% 4%
Cost to income ratio 34% 35% 34% 33% 1 p.p. -1 p.p.
Cost to income ratio excluding special levy on deposits and other 30% 32% 32% 29% 3 p.p. -2 p.p.
levies/contributions
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Total expenses for 1H2024 were €186 mn (compared to €180 mn for 1H2023 up
4% yoy), 52% of which related to staff costs (€96 mn), 38% to other
operating expenses (€71 mn) and 10% to special levy on deposits and other
levies/contributions (€19 mn). The increase yoy is mainly due to higher
staff costs. Total expenses for 2Q2024 were €94 mn (compared to €92 mn for
1Q2024, up 1% qoq), as the 15% qoq increase in other operating expenses was
partially offset by the 38% qoq decrease in special levy on deposits and other
levies/contributions.
Total operating expenses amounted to €167 mn for 1H2024 (compared to €162
mn for 1H2023, up 4% yoy) mainly due to higher staff costs. Total operating
expenses amounted to €86 mn in 2Q2024 compared to €81 mn in 1Q2024.
Staff costs for 1H2024 were €96 mn (compared to €93 mn for 1H2023, up 3%
yoy) and include c.€5 mn performance-related pay accrual (compared to
c.€3.5 mn performance-related pay accrual and c.€2.8 mn termination cost
in 1H2023). Net of these accruals, staff costs increased by 5% yoy, reflecting
salary increments and higher cost of living adjustments (COLA) as well as
higher employer's contributions. Staff costs for 2Q2024 were €48 mn flat
qoq.
The performance-related pay accrual relates to the Short-Term Incentive Plan
('STIP') and the Long-Term Incentive Plan ('LTIP'). The Short-Term Incentive
Plan involves variable remuneration to selected employees and will be driven
by both, delivery of the Group's strategy as well as individual performance.
The LTIP is a share-based compensation plan and provides for an award in the
form of ordinary shares of the Company based on certain non-market performance
and service vesting conditions.
The LTIP was approved by the 2022 AGM, which took place on 20 May 2022. The
LTIP involves the granting of share awards and is driven by scorecard
achievement, with measures and targets set to align pay outcomes with the
delivery of the Group's strategy. Currently, under the plan, the employees
eligible for LTIP awards are the members of the Extended EXCO, including the
executive directors. The LTIP stipulates that performance will be measured
over a 3-year period and sets financial and non-financial objectives to be
achieved. At the end of the performance period, the performance outcome will
be used to assess the percentage of the awards that will vest. In December
2022, the Group granted 819,860 share awards to 22 eligible employees under
the LTIP, comprising the Extended Executive Committee of the Group. The awards
granted in December 2022 are subject to a three year performance period for
2022-2024 (with all performance conditions being non-market performance
conditions). In October 2023, 479,160 share awards were granted to 21 eligible
employees, comprising the Extended Executive Committee of the Group. The
awards granted in October 2023 are subject to a three-year performance period
2023-2025 (with all performance conditions being non market performance
conditions). In April 2024, 403,990 share awards were granted to 21 eligible
employees, comprising the Extended Executive Committee of the Group. The
awards granted in April 2024 are subject to a three-year performance period
2024-2026 (with all performance conditions being non market performance
conditions).
These shares will then normally vest in six tranches, with the first tranche
vesting after the end of the performance period and the last tranche vesting
on the fifth anniversary of the first vesting date.
As at 30 June 2024, the Group employed 2,860 persons compared to 2,847 persons
as at 31 March 2024 and to 2,830 persons as at 31 December 2023.
B. Group Financial Results - Underlying Basis (continued)
B.3 Income Statement Analysis (continued)
B.3.2 Total expenses (continued)
Other operating expenses for 1H2024 amounted to €71 mn, compared to €69 mn
for 1H2023, up 4% yoy, impacted mainly by inflationary pressures and marketing
expenses. Other operating expenses amounted to €38 mn for 2Q2024 compared to
€33 mn for 1Q2024 due to higher professional and marketing expenses.
Special levy on deposits and other levies/contributions for 1H2024 amounted to
€19 mn compared to €18 mn for 1H2023, up 3% yoy, driven mainly by the
increase of deposits of €0.55 bn yoy. Special levy on deposits and other
levies/contributions for 2Q2024 amounted to €8 mn, down by 38% qoq, due to
the c.€4 mn contribution of the Bank to the Deposit Guarantee Fund (DGF)
relating to 1H2024 which was recorded in 1Q2024 (in line with IFRSs).
The cost to income ratio excluding special levy on deposits and other
levies/contributions for 1H2024 was 30% compared to 32% for 1H2023,
benefitting from higher income. The cost to income ratio excluding special
levy on deposits and other levies/contributions for 2Q2024 was 32% compared to
29% for 1Q2024.
B. Group Financial Results - Underlying Basis (continued)
B.3 Income Statement Analysis (continued)
B.3.3 Profit before tax and non-recurring items
€ mn 1H2024 1H2023 2Q2024 1Q2024 qoq+% yoy +%
Operating profit 363 331 179 184 -2% 9%
Loan credit losses (16) (24) (9) (7) 28% -36%
Impairments of other financial and non-financial assets (25) (30) (17) (8) 90% -16%
Provisions for pending litigations, regulatory and other matters (net of (3) (14) 7 (10) -174% -82%
reversals)
Total loan credit losses, impairments and provisions (44) (68) (19) (25) -29% -37%
Profit before tax and non-recurring items 319 263 160 159 2% 21%
Cost of risk 0.31% 0.48% 0.34% 0.27% 7 bps -17 bps
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Operating profit for 1H2024 amounted to €363 mn, compared to €331 mn for
1H2023, up by 9% yoy reflecting mainly the significant increase in net
interest income. Operating profit of €179 mn for 2Q2024 was down 2% qoq due
to lower total income and higher total expenses as explained above.
Loan credit losses for 1H2024 were €16 mn compared to €24 mn for 1H2023,
down 36% yoy, supported by the continued robust performance of the credit
portfolio and improved macroeconomic assumptions. Loan credit losses for
2Q2024 amounted to €9 mn compared to €7 mn for 1Q2024.
Cost of risk for 1H2024 is equivalent to 31 bps, compared to a cost of risk of
48 bps for 1H2023 (down 17 bps yoy). Cost of risk for 2Q2024 was 34 bps,
compared to a cost of risk of 27 bps for 1Q2023, up 7 bps qoq.
At 30 June 2024, the allowance for expected loan credit losses, including
residual fair value adjustment on initial recognition and credit losses on
off-balance sheet exposures (please refer to Section F. 'Definitions and
Explanations' for definition) totalled €251 mn (compared to €267 mn as at
31 March 2024 and €267 mn at 31 December 2023) and accounted for 2.4% of
gross loans (compared to 2.6% as at 31 March 2024 and 2.7% as at 31 December
2023).
Impairments of other financial and non-financial assets for 1H2024 amounted to
€25 mn, compared to €30 mn for 1H2023, down 26% yoy and relate mainly to
REMU stock properties. Impairments of other financial and non-financial assets
for 2Q2024 were €17 mn, compared to €8 mn for 1Q2024 and relate mostly to
REMU stock properties due to the ageing of the stock and increased impairments
on large, specific, illiquid properties.
Provisions for pending litigations, claims, regulatory and other matters (net
of reversals) for 1H2024 amounted to €3 mn, compared to €14 mn for 1H2023.
Provisions for pending litigations, claims, regulatory and other matters (net
of reversals) amounted to a reversal of €7 mn for 2Q2024, compared to a
provision of €10 mn for 1Q2024, relating primarily to a release of a
provision on a claim following the closing of the investigation by the
Commission of the Protection of Competition.
Profit before tax and non-recurring items for 1H2024 totalled to €319 mn,
compared to €263 mn for 1H2023. Profit before tax and non-recurring items
for 2Q2024 amounted to €160 mn, broadly flat on prior quarter.
B. Group Financial Results - Underlying Basis (continued)
B.3 Income Statement Analysis (continued)
B.3.4 Profit after tax (attributable to the owners of the Company)
€ mn 1H2024 1H2023 2Q2024 1Q2024 qoq +% yoy +%
Profit before tax and non-recurring items 319 263 160 159 -2% 21%
Tax (48) (40) (23) (25) -7% 21%
Profit attributable to non-controlling interests (1) (1) 0 (1) -22% 14%
Profit after tax and before non-recurring items (attributable to the owners of 270 222 137 133 4% 22%
the Company)
Advisory and other transformation costs - organic - (2) - - - -100%
Profit after tax (attributable to the owners of the Company) 270 220 137 133 4% 23%
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
The tax charge for 1H2024 amounted to €48 mn compared to €40 mn for
1H2023. The tax charge for 2Q2024 amounted to €23 mn, compared to €25 mn
for 1Q2024.
On 22 December 2022, the European Commission approved Directive 2022/2523
which provides for a minimum effective tax rate of 15% for the global
activities of large multinational groups (Pillar Two tax). The Directive that
follows closely the OECD Inclusive Framework on Base Erosion and Profit
Shifting should have been transposed by the Member States throughout 2023,
entering into force on 1 January 2024. In Cyprus, the legislation has not been
substantively enacted at the balance sheet date, however it is expected to be
enacted within 2024. The Group expects to be in scope of the legislation and
has performed an assessment of the potential impact of Pillar Two income taxes
with the current estimate being a charge of approximately 1.5% on profit
before tax as at 30 June 2024. Because of the calculation complexity resulting
from these rules and as the final legislation has yet to be enacted, the
impact of this reform has been estimated to range up to 2% of profit before
tax and will be further refined upon the enactment and implementation of
relevant legislation.
Profit after tax and before non-recurring items (attributable to the owners of
the Company) for 1H2024 is €270 mn, compared to €222 mn for 1H2023. Profit
after tax and before non-recurring items (attributable to the owners of the
Company) for 2Q2024 is €137 mn, compared to €133 mn for 1Q2024.
Advisory and other transformation costs - organic for 1H2024 are nil, compared
to €2 mn for 1H2023. Advisory and other transformation costs - organic for
2Q2024 are nil, flat qoq.
Profit after tax attributable to the owners of the Company for 1H2024 amounts
to €270 mn corresponding to a ROTE of 23.7%, compared to €220 mn for
1H2023 (and a ROTE of 24.0%). ROTE on 15% CET1 ratio for 1H2024 increases to
29.6%, compared to 25.3% for 1H2023, calculated on the same basis. Profit
after tax attributable to the owners of the Company for 2Q2024 amounts to
€137 mn, corresponding to a ROTE of 23.7%, compared to a profit of €133 mn
for 1Q2024 (and a ROTE of 23.6%). ROTE on 15% CET1 ratio for 2Q2024 increases
to 29.9% compared to a ROTE of 29.1% for 1Q2024, calculated on the same basis.
The adjusted recurring profitability used for the Group's distribution policy
(i.e. defined as the Group's profit after tax before non-recurring items
(attributable to the owners of the Company) taking into account distributions
under other equity instruments such as the annual AT1 coupon which is paid
semi-annually) amounted to €124 mn for 2Q2024 compared to €133 mn for
1Q2024 and totals to €257 mn for 1H2024, compared to €201 mn for 1H2023.
C. Operating Environment
Real GDP increased by 3.4% seasonally adjusted in the first quarter of 2024.
Overall growth in the quarter returned to about the long-term average, and
contributions from the economic sectors returned to their long-term trends.
This was true mainly for trade, transport and accommodation, information and
communications, professional and administrative services, and also the public
related sectors of public administration, education and health. For 2024,
the economy is expected to increase by c.2.9% according to the Ministry of
Finance (based on May 2024 projections).
Short-term risks are mostly external and to the downside, including a downturn
in major tourism markets, an escalation of regional conflicts, and delays in
the implementation of the Recovery and Resilience Plan. In the medium-term,
risks are from climate change and from possible further deterioration in the
global geopolitical outlook. The digital and green transitions remain key
challenges.
The unemployment rate, after rising in 2020 and the first half of 2021, has
been declining and dropped to 6.0% in the fourth quarter of 2023 and to 5.7%
in the first quarter of 2024, seasonally adjusted. The unemployment rate was
6.5% in the Euro area in the first quarter of 2024.
In January-June 2024, harmonised inflation was 2.3% in Cyprus and core
inflation was 2.5%. In the Euro area, harmonised inflation was 2.5% and core
inflation was 2.9%. The decline in the harmonised inflation was driven by the
non-core components of energy and food, while core inflation, defined as total
index less energy and food, was stickier. In 2023 total harmonised inflation
in Cyprus was 3.9% and consisted of 2.8 percentage points core inflation and
1.1 percentage points non-core inflation. Food prices contributed 1.9
percentage points and energy prices contributed -0.7 percentage points.
Tourist arrivals for the period January-June 2024 were broadly at the same
levels as in prior year. Likewise, receipts in January-May 2024 demonstrated a
small increase of 3% compared to the same period the year before.
In public finances, there have been significant improvements in budget and
debt dynamics including debt affordability indicators. The recovery in 2021
was underpinned by a significant increase in general government revenue and a
decrease in government expenditure. The result was a reduction in the budget
deficit to -1.8% of GDP, from a deficit of -5.7% of GDP in 2020. In 2022 the
budget surplus rose to 2.7% of GDP and 3.1% of GDP in 2023. Gross debt was
114.9% of GDP in 2020 and has dropped successively to 85.6% and 77.3% of GDP
in 2022 and 2023 respectively. The budget balance is forecasted to remain in
surplus at 2.9% of GDP in 2024 according to the Ministry of Finance Strategic
Framework of Fiscal Policy 2025-2028, and gross debt is expected to continue
to decline below 60% of GDP in 2026. Debt affordability metrics are favourable
and are expected to remain solid in the medium term, as gross financing needs
are moderate, and the cash buffer gives the government a high degree of
financing flexibility.
Cypriot banks are well capitalized and remain resilient. Despite the high
interest rates, asset quality has not deteriorated. Non-performing exposures
(NPEs) are by now, largely outside of bank balance sheets, but their
resolution is critical for private sector balance sheets. As at 31 May 2024,
NPEs in the Cyprus banking system were €1.8 billion or 7.4% of gross loans,
compared with 7.9% of gross loans at the end of December 2023, and 9.5% at the
end of December 2022, according to the Central Bank of Cyprus. The NPE ratio
in the non-financial companies' segment was 6.3% at the end of May 2024 and
that of households was 9.2%. About 44% of total NPEs are restructured
facilities and the coverage ratio was 54% as at 31 May 2024.
Risks remain to the downside. In the short-term, a slowing of economic
activity in main tourism markets and an escalation of regional conflicts could
slow Cyprus's efforts to reorient its services exports.
C. Operating environment (continued)
Sovereign ratings
The sovereign risk ratings of the Cypriot government have improved
significantly in recent years, reflecting reduced banking sector risks,
improved economic resilience and consistent fiscal outperformance. Cyprus has
demonstrated policy commitment to correcting fiscal imbalances through reform
and restructuring of its banking system.
In June 2024, Fitch Ratings upgraded Cyprus' long-term foreign currency issuer
default rating to 'BBB+' from 'BBB' whilst maintaining its outlook on Cyprus
positive. The upgrade relates mainly to the reduced vulnerabilities to
financial shocks, the continued strengthening of the banking sector's credit
profile, the deleveraging of the private sector, the reduction of Cyprus
public debt as well as its strong GDP growth.
In addition, in June 2024, S&P Global Ratings upgraded Cyprus' long-term
local and foreign currency sovereign credit ratings to BBB+ from BBB, whilst
maintaining its outlook on Cyprus positive. This one-notch upgrade of Cyprus'
rating reflects the progress Cyprus has made in recent years to address fiscal
imbalances, amid resilient growth as well as the strengthening financial
position of Cypriot banks.
In September 2023, Moody's Investors Service upgraded the long-term issuer and
senior unsecured ratings of the Government of Cyprus to Baa2 from Ba1. The
outlook was revised to stable from positive. This is a two-notch upgrade of
Cyprus' ratings, reflecting broad-based and sustained improvements in the
country's credit profile as a result of past and ongoing economic, fiscal, and
banking reforms. Economic resilience has improved, and medium-term growth
prospects remain strong. Fiscal strength has also improved significantly, with
a positive debt trend and sound debt affordability metrics. The stable outlook
balances the positive credit trends with remaining challenges.
DBRS Ratings GmbH (DBRS Morningstar) confirmed Cyprus' Long-Term Foreign and
Local Currency - Issuer Ratings at BBB (high) in March 2024. DBRS Ratings had
upgraded the long-term foreign and local currency issuer ratings of Cyprus
from BBB to BBB (high) in September 2023. The rating action is stable. The
upgrade was driven by the recent decline in government debt and the
expectation that public debt metrics will continue to improve over the next
few years, while economic growth is expected to remain among the strongest in
the euro area. The stable outlook balances the recent favourable fiscal
dynamics with downside risks to the economic outlook.
D. Business Overview
Credit ratings
The Group's financial performance is highly correlated to the economic and
operating conditions in Cyprus. In July 2024, Moody's Investors Service
upgraded the Bank's long-term deposit rating to Baa1 from Baa3 and revised the
outlook to stable. The upgrade by two notches reflects the ongoing
improvements of the Bank's solvency profile, the increased protection afforded
to the Bank's depositors, and its strengthened capital. This is the highest
long-term deposit rating for the Bank since 2011. The stable outlook balances
potential further asset quality improvements against lower normalised
profitability metrics, a broadly stable operating environment, and stable
funding, liquidity and capital metrics. Additionally in July 2024, Fitch
Ratings upgraded long-term issuer default rating to BB+ from BB, whilst
maintaining the positive outlook. The one-notch upgrade reflects a combination
of Fitch's improved assessment of the Cypriot operating environment, reduced
private sector indebtedness, expectation of continued economic growth, the
Bank's strengthened capitalisation and reduced exposure to legacy net problem
assets. In June 2024, S&P Global Ratings upgraded the long-term issuer
credit rating of the Bank to BB+ and maintained a positive outlook. The
upgrade by one notch was driven by the reduction of economic imbalances,
strengthened capitalisation, supportive economic conditions and the solid
profitability stemming from improved efficiency and contained cost of risk.
Financial performance
The Group is a leading, financial and technology hub in Cyprus. During the six
months ended 30 June 2024, the Group generated a profit after tax of €270
mn, corresponding to a ROTE of 23.7%, demonstrating the sustainability of its
business model. This strong performance was supported by a resiliently strong
net interest income, continuous management of its cost base despite inflation
and a low cost of risk and was feeding through into strong growth of the
Group's tangible book value per share. Since June 2023, the Group's tangible
book value per share improved by 21% to €5.27, accelerating shareholder
value creation.
Interest rate environment
The structure of the Group's balance sheet remains highly liquid. As at 30
June 2024, cash balances with ECB amounted to c.€7.3 bn whereas the Group's
loan portfolio is mainly floating rate, with almost half of the loan portfolio
being Euribor based. Net interest income for the six months ended 30 June 2024
stood at €420 mn, up 17% yoy due to higher interest income on loans and
liquid assets, underpinned by high interest rates, all of which served to more
than offset the higher cost of deposits and funding costs and the continued
hedging activity to reduce NII sensitivity.
Overall, the Group intends to increase its hedging position in FY2024 by
further €4-5 bn compared to FY2023 (with average duration of 3-4 years),
subject to market conditions, via receive fixed interest rate swaps, further
investment in fixed rate bonds, additional reverse repos and continuing
offering of fixed rate loans.
In the first half of 2024, the Group carried out hedging of €3.4 bn, on
track to meet its 2024 target of €4-5 bn. The increase was mainly attributed
to the hedging through receive fixed interest rate swaps, investing in fixed
rate bonds, entering into reverse repos and offering fixed rate loans.
Simultaneously, about a quarter of the Group's loan portfolio is linked with
the Bank's base rate which provides a natural hedge against the cost of
deposits. Overall, these actions have led to a reduction in the net interest
income sensitivity (to a parallel shift in interest rates by 100 bps) by €27
mn since 31 December 2023.
Growing revenues in a more capital efficient way
The Group remains focused on growing revenues in a more capital efficient way
through growth of high-quality new lending and the growth in niche areas, such
as insurance and digital products that provide further market penetration and
diversify through non-banking operations.
The Group has continued to provide high quality new lending in 1H2024 via
prudent underwriting standards. Growth in new lending in Cyprus has been
focused on selected industries in line with the Bank's target risk profile.
During the six months ended 30 June 2024, new lending remained strong at
€1.2 bn, up 10% on prior year, driven mainly by business demand. Gross
performing loan book increased by 3% since the beginning of the year to
c.€10.1 bn; loan growth is subdued by repayments.
Fixed income portfolio continued to grow in 1H2024 to €3,828 mn, and
currently represents 15% of total assets. This portfolio is mostly measured at
amortised cost and is highly rated with average rating at Aa3. The amortised
cost fixed income portfolio as at 30 June 2024 has an unrealised fair value
loss of €29 mn, equivalent to c.30 bps of CET1 ratio (compared to an
unrealized fair value gain of €3 mn as at 31 December 2023) due to increases
in the bond yield.
Separately, the Group focuses to continue improving revenues through multiple
less capital-intensive initiatives, with a focus on fees and commissions,
insurance and non-banking opportunities, leveraging on the Group's digital
capabilities. During the six month ended 30 June 2024, non-interest income
amounted to €129 mn, covering almost 77% of the Group's total operating
expenses.
D. Business Overview (continued)
In the first six months of 2024 net fee and commission income amounted to
€86 mn and was down by 4% compared to the previous year, due to lower
transactional fees. Net fee and commission income is enhanced by transaction
fees from the Group's subsidiary, JCC Payment Systems Ltd (JCC), a leading
player in the card processing business and payment solutions, 75% owned by the
Bank. JCC's net fee and commission income contributed 11% of total
non-interest income and amounted to c.€14 mn for 1H2024, up 3% yoy, backed
by strong transaction volume. In the context of its wider strategic
evaluation, the Group is undertaking a strategic review which may result in a
potential disposal of part or all of its holding in JCC, although no decision
has been taken at this stage.
The Group's insurance companies, EuroLife and GI are respectively leading
players in the life and general insurance business in Cyprus, and have been
providing recurring and improving income, further diversifying the Group's
income streams. The net insurance result for 1H2024 contributed c.18% of
non-interest income and amounted to €23 mn; insurance companies remain
valuable and sustainable contributors to the Group's profitability.
Finally, the Group through the Digital Economy Platform (Jinius) ('the
Platform') aims to support the national digital economy by optimising
processes in a cost-efficient way, allow the Bank to strengthen its client
relationships, create cross-selling opportunities as well as to generate new
revenue sources over the medium term, leveraging on the Bank's market
position, knowledge and digital infrastructure. The first Business-to-Business
services are already in use by clients and include invoice, remittance, tender
and ecosystem management. Currently, c.2,200 companies are registered in the
platform and over €600 mn cash were exchanged via the platform since 2023
through invoicing and remittance services.
In February 2024, the Business-to-Consumer service was launched, a Product
Marketplace aiming to increase the touch points with customers. Currently
c.130 retailers were onboarded in fashion, technology, beauty, small
appliances, personal care devices and toy sectors and over 160k products were
embedded in the Marketplace.
Lean operating model
Striving for a lean operating model is a key strategic pillar for the Group in
order to deliver shareholder value, without constraining funding its digital
transformation and investing in the business.
In 2023, the Group completed a small-scale, targeted VEP through which 50
full-time employees were approved to leave at a total cost of c.€7.5 mn,
recorded in staff costs in FY2023. Since the beginning of the year, there was
further branch footprint rationalization as the Group reduced the number of
branches by 5 to 55, a reduction of 8%.
The Group's total operating expenses for 1H2024 amounted to €167 mn, up 4%
on prior year, impacted mainly by inflationary pressures on staff costs. The
cost to income ratio excluding special levy on deposits and other
levies/contributions for the six months ended 30 June 2024 stood at 30%, down
2 p.p. compared to prior year, supported by strong income. In August 2024 a
reward programme through Antamivi Reward scheme' was launched in the context
of the new loyalty scheme 'Pronomia' to reward the Group's performing
borrowers which is expected to impact total operating expenses by c.€3 mn in
the second half of 2024.
Transformation plan
The Group's focus continues on deepening the relationship with its customers
as a customer centric organisation. The Group aims to enable the shift to
modern banking by digitally transforming customer service, as well as internal
operations. The holistic transformation aims to (i) shift to a more
customer-centric operating model by defining customer segment strategies, (ii)
redefine distribution model across existing and new channels, (iii) digitally
transform the way the Group serves its customers and operates internally, and
(iv) improve employee engagement through a robust set of organisational health
initiatives.
Digital transformation
In the dynamic world of banking, the Group stands as a pioneer of digital
banking innovation in Cyprus, reshaping the banking experience into something
more intuitive, more responsive, and more aligned with the contemporary needs
of its customers, consistently pushing the boundaries to offer unparalleled
banking services. The Group aims to continue to innovate, and simplify the
banking journey, providing a unique and personalised experience to each of its
customers.
The Group's digital channels continue to grow. As at 30 June 2024, the Group's
digital community has increased to 467K active subscribers, both on Internet
Banking and the BoC Mobile App, improving by 7% yoy. Likewise, the BoC Mobile
App, had 429K active subscribers as at 30 June 2024 and increased by 10% yoy.
D. Business Overview (continued)
Lean operating model (continued)
Digital transformation (continued)
During 2Q2024, the Group continued to enrich and improve its digital portfolio
with new innovative services to its customers. The Banks loyalty scheme
"pronomia" was launched rewarding customers with several benefits such as,
additional Antamivi points, lower interest rates and no initial bank fees on
new loans and discounts on new insurance policies. Additionally, the ability
to request replacement of a card that was lost or stolen has been added in
both Mobile App and Internet Banking. Furthermore, the ability to provide the
beneficiary details for dividend payments was given to the Bank's
shareholders. In July 2024, Bank of Cyprus is the first bank in Cyprus that
enabled instant payments via digital channels, providing the ability to the
customer to make credit transfers in Euros making the funds available in the
beneficiary customer's account within 10 seconds. Instant transfers are
applicable for credit payments up to €50k within Cyprus and up to €25k
outside Cyprus (to 36 countries in the SEPA Zone).
One of the Group's latest digital innovations, Quickloans, accessible through
both the BoC Mobile App and Internet Banking, has transformed the traditional
loan process, enabling customers to obtain a credit facility decision
instantly, without the need to visit a branch. Since the beginning of the year
2024, over 7k applications were processed, granting €52 mn new loans in
1H2024, equivalent to an increase of 12% compared to 1H2023.
In collaboration with Genikes Insurance, an insurance plan purchase was
integrated into the BOC Mobile App, enabling customers to access car or home
insurance plans through the app at lower rates than branch prices. Digital
insurance sales for the 1H2024 amounted to €291k, compared to €159k for
1H2023, reflecting 925 policies in 1H2024 compared to 541 policies for 1H2023.
Lastly, digital account openings increased by 53% in 1H2024 to 8,291 from
5,423 in 1H2023 and new debit cards increased by 97% yoy to 8,865 in 1H2024
compared to 4,492 during the same period last year.
Asset quality
Balance sheet de-risking was largely completed in 2022; as at 30 June 2024,
the Group's NPE ratio stood at 2.8% already achieving the 2024 NPE ratio
target. The Group's priorities remain intact, maintaining high quality new
lending with strict underwriting standards and preventing asset quality
deterioration.
Capital market presence
In April 2024, the Bank successfully launched and priced an issuance of €300
mn green senior preferred notes ('Green Notes'). With this issuance, the Bank
finalised its MREL build-up and creates a comfortable buffer over the final
requirements of 25% of RWAs (or 30.3% of risk weighted assets taking into
account the expected prevailing CBR as at 31 December 2024) and 5.91% of LRE
which the Bank must meet by 31 December 2024.
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda
Climate change and transition to a sustainable economy is one of the greatest
challenges. As part of its vision to be the leading financial hub in Cyprus,
the Group is determined to lead the transition of Cyprus to a sustainable
future. The Group continuously evolves towards its ESG agenda and continues to
progress towards building a forward-looking organisation embracing ESG in all
aspects of business as usual. In 2024, the Bank received a rating of AA (on a
scale of AAA-CCC) in the MSCI ESG Ratings assessment.
Reaffirming its strong commitment to sustainability and to the long term value
creation for all its stakeholders, in November 2023, the Bank was the first
Bank in Cyprus to become an official signatory of the United Nations
Principles for Responsible Banking representing a single framework for a
sustainable banking industry developed through a collaboration between banks
worldwide and the United Nations Environment Programme Finance Initiative
(UNEP FI).
In line with the Group's Beyond Banking approach and its commitment to create
a stronger, safer and future-focused organisation the Bank proceeded, in 2024,
with the issuance of an inaugural green bond. An amount equivalent to the net
proceeds of the notes will be allocated to eligible green projects as
described in the Bank's sustainable finance framework, which includes green
buildings, energy efficiency, clean transport and renewable energy.
The ESG strategy formulated in 2021 is continuously expanding. The Group is
maintaining its leading role in the Social and Governance pillars and focus on
increasing the Group's positive impacts on the Environment by transforming not
only its own operations, but also the operations of its customers.
D. Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda (continued)
The Group has committed to the following primary ESG targets, which reflect
the pivotal role of ESG in the Group's strategy:
● Become carbon neutral by 2030
● Become Net Zero by 2050
● Steadily increase Green Asset Ratio
● Steadily increase Green Mortgage Ratio
● ≥30% women in Group's management bodies (defined as the
Executive Committee (EXCO) and the Extended EXCO) by 2030
For the Group to continue its progress against its primary ESG targets and
address the evolving regulatory expectations, it further enhanced in 2024, its
ESG working plan which was established in 2022. Progress on the ESG working
plan is closely monitored by the Sustainability Committee, the Executive
Committee and the Board Committees on a quarterly basis.
Environmental Pillar
The Group has estimated the Scope 1 and Scope 2 greenhouse gas (GHG) emissions
of 2021 relating to own operations in order to set the baseline for carbon
neutrality target. The Bank being the main contributor of GHG emissions of the
Group, designed in 2022 the strategy to meet the carbon neutrality target by
2030 and progress towards Net Zero target of 2050. For the Group to become
carbon neutral by 2030, Scope 1 and Scope 2 emissions should be reduced by 42%
by 2030. The Bank, following the implementation of various energy upgrade
actions in 2022 and 2023, achieved a c.18% reduction in Scope 1 and Scope 2
GHG emissions in 2023 compared to the baseline of 2021.
The Group plans to invest in energy efficient installations and actions as
well as replace fuel intensive machineries and vehicles from 2024 to 2025,
which would lead to c.3-4% reduction in Scope 1 and Scope 2 emissions by 2025
compared to 2021. The Group expects that the Scope 2 emissions will be reduced
further when the energy market in Cyprus shifts further towards renewable
energy. The Bank achieved a reduction of c.22% in Scope 1 - Stationary
Combustion GHG emissions and c.5% in Scope 2 GHG emissions in 1H2024 compared
to 1H2023 due to new solar panels connected to energy network in 2023 as well
as branch rationalisation during the year as part of the digitalization
journey. The Bank achieved an increase of 16% in renewable energy production,
from 128,780 Kwh to 149,031 Kwh, in 1H2024 compared to 1H2023.
The Group is gradually integrating climate-related and environmental (C&E)
risks into its Business Strategy. The Bank was the first bank in Cyprus to
join the Partnership for Carbon Accounting Financials (PCAF) in October 2022,
and has estimated and published the Financed Scope 3 GHG emissions associated
with its loan and investment portfolio as well as Insurance associated GHG
emissions using the PCAF standards, methodology and proxies. Following the
estimation of Financed Scope 3 GHG emissions of loan portfolio, the Bank
established a decarbonization target on Mortgage loan portfolio. The
decarbonization target on Mortgage portfolio was established by applying the
International Energy Agency's Below 2 Degree Scenario. For the Bank's Mortgage
loan portfolio to be aligned with the climate scenario and effectively be
associated with lower transition risks, the baseline as at 31 December 2022 of
53.5 kgCO(2)e/m(2) should be reduced by 43% by 31 December 2030. The carbon
intensity of the Mortgage loan portfolio as at 30 June 2024 is estimated at
49.11 kgCO(2)e/m(2) achieving a c.8% reduction compared to baseline, due to
increased installation of solar panels in residential properties in 2023. A
Variable Green Housing product was launched at the end of 2023 to support the
Bank to meet the decarbonization target on Mortgage loans and effectively
limit the level of climate transition risk that is exposed to. The bank is in
the process to launch in 3Q2024, a Fixed Green Housing product aligned with
Green Loan Principles (GLPs) of Loan Market Association (LMA) which is
expected to contribute significantly to the environmentally friendly portfolio
of the Bank by the end of 2024. In addition, the Bank has set lending and
investment limits on specific carbon intensive sectors which are widely
considered to be associated with high climate transition risk. Further, having
introduced and implementing a Business Environment Scan process, the Bank
developed green/transition new lending targets in certain sectors to support
its customer's transition to a low carbon economy and effectively manage
climate transition risks.
During 2023, the Bank has made considerable progress in integrating
climate-related and environmental risks into its risk management approach and
risk culture. The Bank revised and enhanced the Materiality assessment process
on C&E risks. The Bank has carried out a comprehensive identification and
assessment of C&E risks as drivers of existing financial and non-financial
risks considering its business profile and loan portfolio composition. As part
of this process, the Bank has identified the risk drivers, both physical and
transition, which could potentially have an impact on its risk profile and
operations and has assessed the severity of each risk driver for all the
existing categories of risks.
D. Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda (continued)
Environmental Pillar (continued)
In 2024, the Bank introduced the syndicated Synesgy solution (ESG Due
Diligence process) across the Cypriot Banking system designed to enhance data
collection, score customers on their performance against various aspects
around C&E risks and provide guidance on remediation actions. This process
involves the utilization of structured ESG questionnaires, through the Synesgy
platform, applied at the individual company level to derive an ESG score. The
Bank established a structure and detailed Business Environment Scan process to
monitor the impact of C&E risks on its business environment in the short,
medium and long-term. The results of the preliminary (quarterly) and final
(annual) impact assessment have been incorporated in the Materiality
assessment of C&E risks as well as informed the Bank's Business Strategy.
The Bank offers a range of environmentally friendly products to manage
transition risk and help its customers become more sustainable. Specifically,
the Bank offers loans for energy upgrades of homes, installation of solar
panels, acquisition of new hybrid or electric car as well as financing of
renewable energy projects. In addition, following the Energy performance
certificate gathering exercise, in 2024, the Bank identified a pool of
€307.3 mn gross loans, as at 30 June 2024, associated (financing or
collateralized) with properties with EPC Category A. The gross amount of
environmentally friendly loans (including loans associated with properties
with EPC Category A) as at 30 June 2024 was €339.8 mn compared to €272.0
mn as at 31 December 2023.
During 1H2024, in order to enhance the awareness and skillset on ESG matters,
the Group performed relevant trainings to control functions and plans to
perform trainings to the Board of Directors and Senior Management as well as
to other members of staff.
Social Pillar
At the centre of the Group's leading social role lie its investments in the
Bank of Cyprus Oncology Centre (with an overall investment of c.€70 mn since
1998, whilst 55% of diagnosed cancer cases in Cyprus are being treated at the
Centre), the immediate and efficient response of Bank of Cyprus' SupportCY
network consisting of companies and organisations, to various needs of the
society and in cases of crises and emergencies, through the activation of
programs, specialized equipment and a highly trained Volunteers Corps, the
contribution of the Bank of Cyprus Cultural Foundation in promoting the
cultural heritage of the island, and the work of IDEA Innovation Centre.
The Cultural Foundation premises and museums were closed from March to June
2024 for renovation purposes so as to launch the new exhibition 'Cyprus
Insula'. The physical attendees of Cultural foundation events remain unchanged
from 1Q2024 (4,062 attendees).
The IDEA Innovation Centre, invested c.€4 mn in start-up business creation
since its incorporation, supported creation of 95 new companies to date,
provided support to 210+ entrepreneurs through its Startup program since
incorporation, and provided education to 7,000 entrepreneurs. Staff continued
to engage in voluntary initiatives to support charities, foundations, people
in need and initiatives to protect the environment.
The Group has continued to upgrade its staff's skillset by providing training
and development opportunities to all staff and capitalising on modern delivery
methods. In 1H2024, the Bank's employees attended 23,482 hours of trainings.
Moreover, the Group continued its emphasis on staff wellness during 2024 by
offering webinars, team building activities and family events with sole
purpose to enhance mental, physical, financial and social health, attended by
c.750 employees through its Well at Work program.
Governance Pillar
The Group continues to operate successfully within a complex regulatory
framework of a holding company which is registered in Ireland, listed on two
Stock Exchanges and run in compliance with a number of rules and regulations.
Its governance and management structures enable it to achieve present and
future economic prosperity, environmental integrity and social equity across
its value chain. The Group operates within a framework with adequate control
environment, which enable risk assessment and risk management based on the
relevant policies under the leadership of the Board of Directors. The Group
has set up a Governance Structure to oversee its ESG agenda. Progress on the
implementation and evolution of the Group's ESG strategy is monitored by the
Sustainability Committee and the Board of Directors. The Sustainability
Committee is a dedicated executive committee set up in early 2021 to oversee
the ESG agenda of the Group, review the evolution of the Group's ESG strategy,
monitor the development and implementation of the Group's ESG objectives and
the embedding of ESG priorities in the Group's business targets. The Group's
ESG Governance structure continues to evolve, so as to better address the
Group's evolving ESG needs. The Group's regulatory compliance continues to be
an undisputed priority.
D. Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda (continued)
Governance Pillar (continued)
The Group's aspiration to achieve a representation of at least 30% women in
Group's management bodies (Defined as the EXCO and the Extended EXCO) by 2030,
has been reached earlier with 33% representation of women, as at 31 December
2023, in Group's management bodies. Women representation in Group management
bodies continue to be 33% as at 30 June 2024. During the transitional phase
of Board's composition in 1H2024 two male members, highly experienced in the
areas of ESG and technology were appointed leading to the female
representation, as at 30 June 2024, being at 37.50%. The Bank is in the
process to appoint new members in the Board which will lead to female
representation of 42%.
E. Strategy and Outlook
The vision of the Group is to create a lifelong partnership with its
customers, guiding and supporting them in an evolving world.
The strategic pillars of the Group remain intact:
· Grow revenues in a more capital efficient way; by enhancing
revenue generation via growth in high quality new lending, diversification to
less capital intensive banking and other financial services (such as insurance
and the digital economy) as well as prudent management of the Group's
liquidity
· Achieve a lean operating model; by ongoing focus on efficiency
through further automations facilitated by digitisation
· Maintain robust asset quality; by maintaining high quality new
lending via strict underwriting criteria, normalising cost of risk and
reducing other impairments
· Enhance organisational resilience and ESG (Environmental, Social
and Governance) agenda; by leading the transition of Cyprus to a sustainable
future and building a forward-looking organisation embracing ESG in all
aspects.
During the first half of 2024, the Group continued to deliver strong financial
and operational results, demonstrating the sustainability of its business
model. Capitalising on its strong performance in 1H2024, the Group has
upgraded its 2024 and 2025 financial targets.
Components of Upgraded Financial Targets
On the back of a more favourable interest rate environment and positive
deposit behaviour, the net interest income for 2024 is upgraded from over
€670 mn to c.€800 mn. This is mainly due to the fact that the interest
rate environment turned out to be more resilient than initially anticipated,
with the pace of rate cuts being prolonged. According to market projections of
July 2024, the ECB deposit facility rate and 6m Euribor are expected to
average to 3.8% and 3.6% respectively for 2024, vis-à-vis 3.4% ECB deposit
facility rate and 3.2% 6m Euribor anticipated in February 2024. Other drivers
of the upgrade of net interest income guidance include:
· Cost of deposits to average to c.35 bps in 2024, facilitated by
the highly liquid banking sector in Cyprus
· Gradual change in deposit mix towards time and notice deposits to
c.43% by 31 December 2024;
· Low single-digit loan growth in 2024-2025, supported by GDP
growth; loan growth subdued by repayments;
· Hedging activity to continue in 2024 to meet its target of €4-5
bn; already carried out €3.4 bn as at 30 June 2024;
· Fixed income portfolio to continue to grow, subject to market
conditions, so that it represents c.17% of total assets by end-2024 (vs 16%
previously guided), benefitting also from rollover to higher rates and;
· Higher wholesale funding costs, reflecting the full year impact
of the 2023 senior preferred issuance and the April 2024 issuance of green
senior preferred notes.
Going forward, the net interest income for 2025 is expected to be lower than
2024 but to remain strong, exceeding €700 mn, based on projections of the
ECB deposit facility rate and 6m Euribor to average to c 3.0% respectively,
reflecting mainly projected lower interest rates and higher cost of deposits,
compared to 2024.
Separately, the Group continues to focus on improving revenues through
multiple less capital-intensive initiatives, with a focus on net fee and
commission income, insurance and non-banking activities, enhancing the Group's
diversified business
model further. Non-interest income is an important contributor to the Group's
profitability and historically covered on average
around 80% of its total operating expenses. The Group reiterated its
expectation to continue covering around 70-80% of the Group's total operating
expenses, supported by a growing net fee and commission income in line with
economic growth for 2024-2025.
Maintaining cost discipline management remains an ongoing focus for the Group.
The cost to income ratio excluding special levy on deposits or other
levies/contributions is revised downwards to below 35% for 2024 (compared to
c.40% previously guided) reflecting mainly the higher income on the back of
the improved interest rate environment. For 2025, the cost to income ratio
excluding special levy on deposits or other levies/contributions is set at
below 40%, reflecting mainly lower income on gradually declining interest
rates.
On asset quality, the Group's NPE ratio decreased to 2.8% as at 30 June 2024
indicating that is already aligned with the 2024 NPE ratio target. In this
respect, the Group aims at an NPE ratio below 3% by end-2024 and below 2.5% by
end-2025. Additionally, due to the continued strong credit portfolio
performance, the cost of risk target is revised downwards and is currently
expected to be c.40 bps for 2024 and within the normalised range of 40-50 bps
for 2025.
E. Strategy and Outlook (continued)
Upgraded ROTE Targets
Overall, the Group expects to deliver a ROTE of over 19% (on a reported basis)
which is translated into a ROTE of over 24% on 15% CET1 ratio for 2024. For
2025, the Group expects to deliver a reported ROTE in the range of mid-teens,
corresponding to high-teens ROTE on 15% CET1 ratio. This strong performance
for 2024 and 2025 will facilitate rapid capital build-up, with the CET1
generation expected to exceed 300 bps p.a. on a pre-distribution level.
Under the normalised interest rate environment (c.2.5%), the Group reiterates
its confidence of delivering a mid-teens ROTE.
Distributions
The Group aims to provide a sustainable return to shareholders. Distributions
are expected to be in the range of 30-50% payout ratio of the Group's adjusted
recurring profitability, including cash dividends and buybacks, with any
distribution being subject to regulatory approval. Group adjusted recurring
profitability is defined as the Group's profit after tax before non-recurring
items (attributable to the owners of the Company) taking into account
distributions under other equity instruments such as the annual AT1 coupon. In
line with the Group's distribution policy, the Group is committed to
delivering sustainably growing distributions through a combination of cash
dividend and share buybacks while maintaining a robust capital base to support
profitable growth and prudently prepare for upcoming potential regulatory
changes. Supported by its continued progress towards its strategic targets,
the Group intends to move towards the top-end of the 30%-50% range of its
distribution policy (i.e 50% payout ratio) for 2024, subject to required
approvals. Any proposed distribution quantum, as well as envisaged allocation
between dividend and buyback, will take into consideration market conditions
as well as the outcome of its ongoing capital and liquidity planning exercises
at the time. Given the strong capital generation, the Group's distribution
policy is expected to be reviewed with the full year 2024 financial results in
the context of prevailing market conditions.
Proposal to enhance the Group's market visibility and improve liquidity via
ATHEX listing
In the context of evaluating how best to position the Group to achieve its
long-term strategic targets and deliver sustainable value to shareholders, the
Board of Directors has been assessing how to enhance the liquidity of the
ordinary shares of the Group which are currently listed on the London Stock
Exchange (LSE) and Cyprus Stock Exchange (CSE). Following extensive
communication with the Group's stakeholders, the Board has reached the view
that listing the ordinary shares on the Athens Stock Exchange ('ATHEX') in
conjunction with a delisting from the LSE will yield a number of long-term
strategic and capital market benefits. These include enhancing the Group's
profile among the relevant investor base focused on the region, enabling
investors to directly compare performance with regional banking peers,
attracting long-term institutional holders within the more focused market
ecosystem of ATHEX and providing scope for inclusion among indices over time.
Taking into account these benefits, the Board of the Group believes that
listing the ordinary shares on ATHEX and delisting the ordinary shares from
the LSE has the potential to enhance the liquidity of the ordinary shares and
may improve the market visibility of the Group for the benefit of
shareholders. The ordinary shares of the Group will continue to be listed on
the CSE. An Extraordinary General Meeting will be convened to propose a
resolution to shareholders to consider the proposed listing on ATHEX; further
details will be announced in due course. The effectiveness of the listing on
ATHEX will also be subject to and conditional upon, being approved by the
ATHEX Listings Committee. Subject to shareholder approval, necessary
regulatory approvals and market conditions, the Board expects the listing and
delisting to take place in autumn 2024.
F. Definitions and Explanations
Adjusted recurring profitability The Group's profit after tax before non-recurring items (attributable to the
owners of the Company) taking into account distributions under other equity
instruments such as the annual AT1 coupon.
Advisory and other transformation costs Comprise mainly of fees of external advisors in relation to: (i) the
transformation program and other strategic projects of the Group and (ii)
customer loan restructuring activities, where applicable.
Allowance for expected loan credit losses (previously 'Accumulated Comprises (i) allowance for expected credit losses (ECL) on loans and advances
provisions') to customers (including allowance for expected credit losses on loans and
advances to customers held for sale where applicable), (ii) the residual fair
value adjustment on initial recognition of loans and advances to customers
(including residual fair value adjustment on initial recognition on loans and
advances to customers classified as held for sale where applicable), (iii)
allowance for expected credit losses for off-balance sheet exposures
(financial guarantees and commitments) disclosed on the balance sheet within
other liabilities, and (iv) the aggregate fair value adjustment on loans and
advances to customers classified and measured at FVPL.
AT1 AT1 (Additional Tier 1) is defined in accordance with the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II applicable as at the
reporting date.
Basic earnings per share (attributable to the owners of the Company) Basic earnings after tax per share (attributable to the owners of the Company)
is the Profit/(loss) after tax (attributable to the owners of the Company)
divided by the weighted average number of shares in issue during the period,
excluding treasury shares.
Carbon neutral The reduction and balancing (through a combination of offsetting investments
or emission credits) of greenhouse gas emissions from own operations.
CET1 capital ratio (transitional basis) CET1 capital ratio (transitional basis) is defined in accordance with the
Capital Requirements Regulation (EU) No 575/2013, as amended by CRR II
applicable as at the reporting date.
CET1 Fully loaded (FL) The CET1 fully loaded (FL) ratio is defined in accordance with the Capital
Requirements Regulation (EU) No 575/2013, as amended by CRR II applicable as
at the reporting date.
Cost to Income ratio Cost-to-income ratio comprises total expenses (as defined) divided by total
income (as defined).
Data from the Statistical Service The latest data from the Statistical Service of the Republic of Cyprus, Cyprus
Statistical Service, was published on 30 July 2024.
Digitally engaged customers ratio This is the ratio of digitally engaged individual customers to the total
number of individual customers. Digitally engaged customers are the
individuals who use the digital channels of the Bank (mobile banking app,
browser and ATMs) to perform banking transactions, as well as digital enablers
such as a bank-issued card to perform online card purchases, based on an
internally developed scorecard.
Diluted earnings per share Diluted earnings per share is the Profit/(loss) after tax (attributable to the
owners of the Company) divided by the weighted average number of ordinary
shares in issue adjusted for the ordinary shares that may arise in respect of
share awards granted to executive directors and senior management of the Group
under the Long-Term Incentive Plans (LTIP)
ECB European Central Bank
F. Definitions and Explanations (continued)
Green Asset ratio The proportion of the share of a credit institution's assets financing and
invested in EU Taxonomy-aligned economic activities as a share of total
covered assets.
Green Mortgage ratio The proportion of the share of a credit institution's assets financing EU
Taxonomy-aligned mortgages (acquisition, construction or renovation of
buildings) as a share of total mortgages assets.
Gross loans Gross loans comprise: (i) gross loans and advances to customers measured at
amortised cost before the residual fair value adjustment on initial
recognition (including loans and advances to customers classified as
non-current assets held for sale where applicable) and (ii) loans and advances
to customers classified and measured at FVPL adjusted for the aggregate fair
value adjustment.
Gross loans are reported before the residual fair value adjustment on initial
recognition relating mainly to loans acquired from Laiki Bank (calculated as
the difference between the outstanding contractual amount and the fair value
of loans acquired) amounting to €60 mn as at 30 June 2024 (compared to 67 mn
as at 31 March 2024 and €69 mn as at 31 December 2023).
Additionally, gross loans include loans and advances to customers classified
and measured at fair value through profit or loss adjusted for the aggregate
fair value adjustment of €133 mn as at 30 June 2024 (compared to €134 mn
as at 31 March 2024 and €138 mn as at 31 December 2023).
Group The Group consists οf Bank of Cyprus Holdings Public Limited Company, "BOC
Holdings" or the "Company", its subsidiary Bank of Cyprus Public Company
Limited, the "Bank" and the Bank's subsidiaries.
Legacy exposures Legacy exposures are exposures relating to (i) Restructuring and Recoveries
Division (RRD), (ii) Real Estate Management Unit (REMU), and (iii) non-core
overseas exposures.
Leverage ratio The leverage ratio is the ratio of tangible total equity to total assets as
presented on the balance sheet. Tangible total equity comprises of equity
attributable to the owners of the Company and Other equity instruments minus
intangible assets.
Leverage Ratio Exposure (LRE) Leverage Ratio Exposure (LRE) is defined in accordance with the Capital
Requirements Regulation (EU) No 575/2013, as amended.
Loan credit losses (PL) (previously 'Provision charge') Loan credit losses comprise: (i) credit losses to cover credit risk on loans
and advances to customers, (ii) net gains on derecognition of financial assets
measured at amortised cost relating to loans and advances to customers and
(iii) net gains on loans and advances to customers at FVPL, for the reporting
period/year.
Loan credit losses charge (previously 'Provisioning charge') (cost of risk) Loan credit losses charge (cost of risk) (year-to-date) is calculated as the
annualised 'loan credit losses' (as defined) divided by average gross loans.
The average gross loans are calculated as the average of the opening balance
and the closing balance of Gross loans (as defined), for the reporting
period/year.
Market Shares Both deposit and loan market shares are based on data from the CBC. The Bank
is the single largest credit provider in Cyprus with a market share of 43.2%
as at 30 June 2024 (compared to 42.9% as at 31 March 2024 and to 42.2% as at
31 December 2023). The Bank's deposit market share in Cyprus reached 37.5% as
at 30 June 2024 (compared to 37.5% as at 31 March 2024 and to 37.7% as at 31
December 2023).
MSCI ESG Rating The use by the Company and the Bank of any MSCI ESG Research LLC or its
affiliates ('MSCI') data, and the use of MSCI Logos, trademarks, service marks
or index names herein, do not constitute a sponsorship, endorsement,
recommendation or promotion of the Company or the Bank by MSCI. MSCI Services
and data are the property of MSCI or its information providers and are
provided "as-is" and without warranty. MSCI Names and logos are trademarks or
service marks of MSCI.
Net Interest Margin Net interest margin is calculated as the net interest income (annualised)
divided by the 'quarterly average interest earning assets' (as defined).
F. Definitions and Explanations (continued)
Net loans and advances to customers Net loans and advances to customers comprise gross loans (as defined) net of
allowance for expected loan credit losses (as defined, but excluding allowance
for expected credit losses on off-balance sheet exposures disclosed on the
balance sheet within other liabilities).
Net loans to deposits ratio Net loans to deposits ratio is calculated as gross loans (as defined) net of
allowance for expected loan credit losses (as defined) divided by customer
deposits.
Net performing loan book Net performing loan book is the total net loans and advances to customers (as
defined) excluding net loans included in the legacy exposures (as defined).
Net Stable Funding Ratio (NSFR) The NSFR is calculated as the amount of "available stable funding" (ASF)
relative to the amount of "required stable funding" (RSF). The regulatory
limit, enforced in June 2021, has been set at 100% as per the CRR II.
Net zero emissions The reduction of greenhouse gas emissions to net zero through a combination of
reduction activities and offsetting investments
New lending New lending includes the disbursed amounts of the new and existing
non-revolving facilities (excluding forborne or re-negotiated accounts) as
well as the average year-to-date change (if positive) of the current accounts
and overdraft facilities between the balance at the beginning of the period
and the end of the period. Recoveries are excluded from this calculation since
their overdraft movement relates mostly to accrued interest and not to new
lending.
Non-interest income Non-interest income comprises Net fee and commission income, Net foreign
exchange gains/(losses) and net gains on financial instruments and (excluding
net gains on loans and advances to customers at FVPL), Net insurance result,
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties, and Other income.
Non-performing exposures (NPEs) As per the European Banking Authorities (EBA) standards and European Central
Bank's (ECB) Guidance to Banks on Non-Performing Loans (which was published in
March 2017), non-performing exposures (NPEs) are defined as those exposures
that satisfy one of the following conditions:
(i) The borrower is assessed as unlikely to pay its credit obligations in
full without the realisation of the collateral, regardless of the existence of
any past due amount or of the number of days past due.
(ii) Defaulted or impaired exposures as per the approach provided in the
Capital Requirement Regulation (CRR), which would also trigger a default under
specific credit adjustment, diminished financial obligation and obligor
bankruptcy.
(iii) Material exposures as set by the CBC, which are more than 90 days past
due.
(iv) Performing forborne exposures under probation for which additional
forbearance measures are extended.
(v) Performing forborne exposures previously classified as NPEs that present
more than 30 days past due within the probation period.
From 1 January 2021 two regulatory guidelines came into force that affect NPE
classification and Days-Past-Due calculation. More specifically, these are the
RTS on the Materiality Threshold of Credit Obligations Past-Due
(EBA/RTS/2016/06), and the Guideline on the Application of the Definition of
Default under article 178 (EBA/RTS/2016/07).
The Days-Past-Due (DPD) counter begins counting DPD as soon as the arrears or
excesses of an exposure reach the materiality threshold (rather than as of the
first day of presenting any amount of arrears or excesses). Similarly, the
counter will be set to zero when the arrears or excesses drop below the
materiality threshold. Payments towards the exposure that do not reduce the
arrears/excesses below the materiality threshold, will not impact the counter.
For retail debtors, when a specific part of the exposures of a customer that
fulfils the NPE criteria set out above is greater than 20% of the gross
carrying amount of all on balance sheet exposures of that customer, then the
total customer exposure is classified as non performing; otherwise only the
specific part of the exposure is classified as non performing. For non retail
debtors, when an exposure fulfils the NPE criteria set out above, then the
total customer exposure is classified as non performing.
F. Definitions and Explanations (continued)
Material arrears/excesses are defined as follows: (a) Retail exposures: Total
arrears/excess amount greater than €100, (b) Exposures other than retail:
Total arrears/excess amount greater than €500 and the amount in
arrears/excess in relation to the customer's total exposure is at least 1%.
The NPEs are reported before the deduction of allowance for expected loan
credit losses (as defined).
Non-recurring items Non-recurring items as presented in the 'Unaudited Interim Condensed
Consolidated Income Statement-Underlying basis' relate to 'Advisory and other
transformation costs - organic'.
NPE coverage ratio (previously 'NPE Provisioning coverage ratio') The NPE coverage ratio is calculated as the allowance for expected loan credit
losses (as defined) over NPEs (as defined).
NPE ratio NPEs ratio is calculated as the NPEs as per EBA (as defined) divided by gross
loans (as defined).
Operating profit Operating profit comprises profit before loan credit losses (as defined),
impairments of other financial and non-financial assets, Provisions for
pending litigations, claims regulatory and other matters (net of reversals),
tax, profit attributable to non-controlling interests and non-recurring items
(as defined).
Operating profit return on average assets Operating profit return on average assets is calculated as the annualised
operating profit (as defined) divided by the quarterly average of total assets
for the relevant period. Average total assets exclude total assets of
discontinued operations at each quarter end, if applicable.
Phased-in Capital Conservation Buffer (CCB) In accordance with the legislation in Cyprus which has been set for all credit
institutions, the applicable rate of the CCB is 1.25% for 2017, 1.875% for
2018 and 2.5% for 2019 (fully phased-in).
Profit after tax and before non-recurring items (attributable to the owners of This refers to the profit after tax (attributable to the owners of the
the Company) Company), excluding any 'non-recurring items' (as defined).
Profit/(loss) after tax - organic (attributable to the owners of the Company) This refers to the profit or loss after tax (attributable to the owners of the
Company), excluding any 'non-recurring items' (as defined, except for the
'advisory and other transformation costs - organic').
Quarterly average interest earning assets This relates to the average of 'interest earning assets' as at the beginning
and end of the relevant quarter. Interest earning assets include: cash and
balances with central banks (including cash and balances with central banks
classified as non-current assets held for sale), plus reverse purchase
agreements (reverse repos) plus loans and advances to banks, plus net loans
and advances to customers (including loans and advances to customers
classified as non-current assets held for sale), plus 'deferred consideration
receivable' included within 'other assets', plus investments (excluding
equities, mutual funds and other non interest bearing investments).
F. Definitions and Explanations (continued)
Qoq Quarter on quarter change
Return on Tangible equity (ROTE) Calculated as Profit/(loss) after tax (attributable to the owners of the
Company) (as defined) (annualised - (based on year - to - date days)), divided
by the quarterly average of Shareholders' equity minus intangible assets at
each quarter end.
Return on Tangible equity (ROTE) on 15% CET1 ratio Calculated as Profit/(loss) after tax (attributable to the owners of the
Company) (as defined) (annualised - (based on year - to - date days)), divided
by the quarterly average of Shareholders' equity minus intangible assets and
after deducting the excess CET1 capital on a 15% CET1 ratio from the tangible
book value.
Shareholders' equity Shareholders' equity comprise total equity adjusted for non-controlling
interest and other equity instruments.
Special levy on deposits and other levies/contributions Relates to the special levy on deposits of credit institutions in Cyprus,
contributions to the Single Resolution Fund (SRF), contributions to the
Deposit Guarantee Fund (DGF), as well as the DTC levy, where applicable.
Tangible book value per share Calculated as the total equity attributable to the owners of the Company,
(i.e. not including other equity instruments, such as AT1) less intangible
assets at each quarter end divided by the number of ordinary shares of the
Group (excluding treasury shares) at the period/quarter end.
Tangible book value per share excluding the cash dividend Calculated as the total equity attributable to the owners of the Company,
(i.e. not including other equity instruments, such as AT1) less intangible
assets at each quarter/year end and the amounts of cash dividend recommended
for distribution in respect of earnings of the relevant year the dividend
relates to, divided by the number of ordinary shares (excluding treasury
shares) at the period/quarter end.
Total Capital ratio Total capital ratio is defined in accordance with the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II applicable as at the
reporting date.
Total expenses Total expenses comprise staff costs, other operating expenses and the special
levy on deposits and other levies/contributions. It does not include 'advisory
and other transformation costs-organic', where applicable. 'Advisory and
other transformation costs-organic' amounted to nil for 2Q2024 (compared to
nil for 1Q2024 and €2 mn for 1H2023).
Total income Total income comprises net interest income and non-interest income (as
defined).
Total loan credit losses, impairments and provisions Total loan credit losses, impairments and provisions comprise loan credit
losses (as defined), plus impairments of other financial and non-financial
assets, plus provisions for pending litigations, claims regulatory and other
matters net of reversals).
Underlying basis This refers to the statutory basis after being adjusted for reclassification
of certain items as explained in the Basis of Presentation.
Write offs Loans together with the associated loan credit losses are written off when
there is no realistic prospect of recovery. Partial write-offs, including
non-contractual write-offs, may occur when it is considered that there is no
realistic prospect for the recovery of the contractual cash flows. In
addition, write-offs may reflect restructuring activity with customers and are
part of the terms of the agreement and subject to satisfactory performance.
Yoy Year on year change
Basis of Presentation
This announcement covers the results of Bank of Cyprus Holdings Public Limited
Company, "BOC Holdings" or "the Company", its subsidiary Bank of Cyprus Public
Company Limited, the "Bank" or "BOC PCL", and together with the Bank's
subsidiaries, the "Group", for the six months ended 30 June 2024.
At 31 December 2016, the Bank was listed on the Cyprus Stock Exchange (CSE)
and the Athens Exchange. On 18 January 2017, BOC Holdings, incorporated in
Ireland, was introduced in the Group structure as the new holding company of
the Bank. On 19 January 2017, the total issued share capital of BOC Holdings
was admitted to listing and trading on the LSE and the CSE.
Financial information presented in this announcement is being published for
the purposes of providing an overview of the Group financial results for the
six months ended 30 June 2024.
The financial information in this announcement is not audited and does not
constitute statutory financial statements of BOC Holdings within the meaning
of section 340 of the Companies Act 2014. The Group statutory financial
statements for the year ended 31 December 2023, were published on 28 March
2024, upon which the auditors have given an unqualified opinion are expected
to be delivered to the Registrar of Companies of Ireland within 56 days of 30
September 2024. The Board of Directors approved the Group Consolidated
Condensed financial statements for the six months ended 30 June 2024 on 7
August 2024.
Statutory basis: Statutory information is set out on pages 4-5. However, a
number of factors have had a significant effect on the comparability of the
Group's financial position and performance. Accordingly, the results are also
presented on an underlying basis.
Underlying basis: The financial information presented under the underlying
basis provides an overview of the Group financial results for the six months
ended 30 June 2024, which the management believes best fits the true
measurement of the financial performance and position of the Group. For
further information, please refer to 'Commentary on Underlying Basis' on page
7. The statutory results are adjusted for certain items (as described on
section B.1) to allow a comparison of the Group's underlying financial
position and performance.
The financial information included in this announcement is neither reviewed
nor audited by the Group's external auditors.
The Consolidated Condensed Interim Financial Statements for the six months
ended 30 June 2024 have not been audited by the Group's external auditors. The
Group's external auditors have conducted a review of the Consolidated
Condensed Interim Financial Statements in accordance with the International
Standard on Review Engagements (Ireland) 2410 'Review of Interim Financial
Information performed by the Independent Auditor of the Entity'.
This announcement and the presentation for the Group Financial Results for the
six months ended 30 June 2024 have been posted on the Group's website
www.bankofcyprus.com (https://www.bankofcyprus.com/) (Group/Investor
Relations/Financial Results).
Definitions: The Group uses definitions in the discussion of its business
performance and financial position which are set out in section F, together
with explanations.
The Group Financial Results for the six months ended 30 June 2024 are
presented in Euro (€) and all amounts are rounded as indicated. A comma is
used to separate thousands and a dot is used to separate decimals.
Forward Looking Statements
This document contains certain forward-looking statements which can usually be
identified by terms used such as "expect", "should be", "will be" and similar
expressions or variations thereof or their negative variations, but their
absence does not mean that a statement is not forward-looking. Examples of
forward-looking statements include, but are not limited to, statements
relating to the Group's near term, medium term and longer term future capital
requirements and ratios, intentions, beliefs or current expectations and
projections about the Group's future results of operations, financial
condition, expected impairment charges, the level of the Group's assets,
liquidity, performance, prospects, anticipated growth, provisions,
impairments, business strategies and opportunities. By their nature,
forward-looking statements involve risk and uncertainty because they relate to
events, and depend upon circumstances, that will or may occur in the future.
Factors that could cause actual business, strategy and/or results to differ
materially from the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements made by the Group include, but
are not limited to: general economic and political conditions in Cyprus and
other European Union (EU) Member States, interest rate and foreign exchange
fluctuations, legislative, fiscal and regulatory developments, information
technology, litigation and other operational risks, adverse market conditions,
the impact of outbreaks, epidemics or pandemics and geopolitical developments.
This creates significantly greater uncertainty about forward-looking
statements. Should any one or more of these or other factors materialise, or
should any underlying assumptions prove to be incorrect, the actual results or
events could differ materially from those currently being anticipated as
reflected in such forward-looking statements. The forward-looking statements
made in this document are only applicable as at the date of publication of
this document. Except as required by any applicable law or regulation, the
Group expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statement contained in this
document to reflect any change in the Group's expectations or any change in
events, conditions or circumstances on which any statement is based. Changes
in our reporting frameworks and accounting standards, which may have a
material impact on the way we prepare our financial statements and may
negatively affect the profitability of Group's insurance business.
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial services group
in Cyprus, providing a wide range of financial products and services which
include retail and commercial banking, finance, factoring, investment banking,
brokerage, fund management, private banking, life and general insurance. At 30
June 2024, the Bank of Cyprus Group operated through a total of 58 branches in
Cyprus, of which 3 operated as cash offices. The Bank of Cyprus Group employed
2,860 staff worldwide. At 30 June 2024, the Group's Total Assets amounted to
€25.5 bn and Total Equity was €2.6 bn. The Bank of Cyprus Group comprises
Bank of Cyprus Holdings Public Limited Company, its subsidiary Bank of Cyprus
Public Company Limited and its subsidiaries.
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