REG - Bank of Cyprus Hldgs - 1Q2020 Group Financial Results
26/05/2020 07:00
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RNS Number : 9067N Bank of Cyprus Holdings PLC 26 May 2020
Announcement
Group Financial Results for the quarter ended 31 March 2020
Nicosia, 26 May 2020
Key Highlights for the quarter ended 31 March 2020
COVID-19
· Safeguarding health of staff and customers, while ensuring
operational resilience of the Bank
· Supporting both customers affected by COVID-19 and wider Cypriot
economy
· Gradual relaxation of restrictive measures; currently in second
phase
· Additional 88 bps of cost of risk (€28 mn) for 1Q2020
reflecting deterioration of macroeconomic outlook
· NPE portfolio sale delayed due to prevailing market and
operational conditions
· Current focus on proactively assessing the impact of COVID-19 on
loan portfolio
Good Capital and Liquidity Position
· Total Capital ratio of 17.7% and CET1 ratio of 14.3% (IFRS 9
transitional)
· Significant surplus liquidity of €3.0 bn
Continued Balance Sheet Repair in 1Q2020
· Organic NPE reduction of €142 mn for 1Q2020, despite COVID-19
lockdown in March 2020
· NPEs reduced to €3.7 bn (€1.6 bn net)
· Gross NPE ratio reduced to 29% (net NPE ratio at 15%)
· Coverage increased to 56%; total coverage at 124% when including
collateral
· Sale of €133 mn NPEs (Velocity 2) completed in May 2020;
capital neutral
Operational efficiency
· Cost to income ratio (excluding special levy and contributions to
SRF and DGF) reduced to 58%, following the successful completion of
Voluntary Staff Exit Plan in 4Q2019
· Total operating expenses reduced to €84 mn for 1Q2020, down by
14% qoq
· 70% of customers currently digitally engaged
Performance in 1Q2020
· New lending of €451 mn for 1Q2020 (up 2% qoq)
· Total Income of €145 mn, Operating profit of €52 mn for
1Q2020
· Loan credit losses of €64 mn in 1Q2020 (cost of risk at 200
bps), including COVID-related charge of €28 mn
· Underlying result of a loss after tax from organic operations of
€23 mn for 1Q2020
· Loss after tax of €26 mn for 1Q2020
Group Chief Executive Statement
"We are closely monitoring the effects of COVID-19 on both the global and
Cypriot economy. The Government's swift and decisive reaction to the outbreak
of COVID-19 in Cyprus has successfully contained the spread of the pandemic in
the country and today the health situation is stable. As we announce our first
quarter results, less than a month after the release of the 2019 results,
Cyprus has already entered a phased approach to exiting from lockdown with the
gradual relaxation of containment measures, and we have already seen a
parallel movement in economic activity.
Whilst uncertainty for the outlook remains, our priorities remain clear; to
support our customers impacted by COVID-19, as well as the wider Cypriot
economy, whilst safeguarding the health of our colleagues and customers. From
the beginning of the crisis, we have stepped up our engagement with our
customers to understand their new financial position and needs, in order to
find effective ways to support them.
Our results this quarter reflect the continued progress against our core
objective of balance sheet repair. We further reduced our NPEs organically by
€142 mn, despite the COVID-19 lockdown in March 2020. Since the peak in
2014, we have now reduced the stock of NPEs by 75% to €3.7 bn, representing
29% of gross loans (15% on a net NPE basis). NPE coverage has now increased to
56% and total coverage including collateral is at 124%. Additionally, in May
2020, amidst the COVID-19 crisis, we completed Project Velocity 2, relating to
the sale of €133 mn NPEs.
The Bank's capital position remains good and in excess of our regulatory
requirements. As at 31 March 2020, our capital ratios (IFRS 9 transitional)
were Total Capital ratio of 17.7% and CET1 of 14.3%, against an amended CET1
requirement of 9.7% following the regulator's capital easing measures for
COVID-19.
We continue to operate with significant liquidity surplus of €3.0 bn. New
lending in the first quarter reached €451 mn, 2% higher compared to the
previous quarter, helping to support the local economy.
Our cost to income ratio improved by five percentage points this quarter to
58%, following the successful completion of the Voluntary Staff Exit Plan last
October. Overall, total operating expenses reduced by 14% compared to the
previous quarter, enabled by our enhanced digital transformation. Currently,
70% of our customers are digitally engaged.
In the first quarter of the year, we generated total income of €145 mn and a
positive operating result of €52 mn. The underlying result for the quarter
however, was a loss of €23 mn and the overall result a loss of €26 mn,
impacted by the higher loan credit losses of €64 mn to reflect deterioration
of the macroeconomic outlook (COVID-related loan credit losses of €28 mn -
additional cost of risk of 88 bps).
The economic outlook has deteriorated with the impact of COVID-19, and we are
seeing this in reduced levels of activity in transactions and lower demand for
new loans. The economic effects are expected to have a negative impact on the
Group's 2020 financial performance. The full impact remains uncertain and will
be driven by the duration of COVID-19 restrictions, the successful reopening
of the economy and the timing and shape of the economic recovery.
Our strategy remains clear. We continue our efforts to strengthen the balance
sheet, improve our asset quality and enhance the efficiency of our operations
through cost reduction enabled by digital transformation. The Group is well
positioned, with a good capital base and strong liquidity position, and stands
ready to support this recovery and the Cypriot economy."
Panicos Nicolaou
Update on COVID-19
The Group is closely monitoring developments in, and the effects of COVID-19
on both the global and Cypriot economy. On the basis of currently available
information, the Group is not in a position to accurately assess the magnitude
of the impact of COVID-19 on the Group's operations and financial results, as
this will principally depend on the rate and extent of the spread of the
virus, its direct and indirect impact on customers and the effectiveness of
the regulatory and fiscal measures taken to support the economy and mitigate
the impact of the virus.
In common with other European banks, the persistently low interest rate
environment continues to present a challenge to the Group's profitability. As
a consequence of the current challenging economic conditions resulting from
the COVID-19 outbreak, the Group has updated its macroeconomic assumptions
underlying the IFRS 9 calculation of loan credit losses for 1Q2020 in line
with the relevant regulatory guidance, resulting in increased organic loan
credit losses for 1Q2020 of €28 mn.
Despite the lower transactional income and lower demand for loans currently
observed, the on-going economic uncertainty means that the Group does not have
sufficient visibility about the impact of COVID-19 on its operations or
financial results, and therefore, is currently not in a position to provide
guidance for the current financial year. However, the Group's good capital
base and strong liquidity, position it to be able to support its customers
through this period of extreme volatility.
Pandemic Plan and Operational Impact due to COVID-19
COVID-19 is a health crisis, presenting an unprecedented external economic
shock. The Bank's priorities are clear.
Key priorities
• Safeguarding the health of staff and customers, while ensuring
operational resilience of the Bank
• Supporting customers affected by COVID-19 and wider Cypriot
economy
• Provision of liquidity to affected businesses and households
to alleviate short term cash flow burden
Measures taken to Safeguard Health and Safety
• Establishment of a committee to monitor COVID-19 measures,
trace incidents and to provide regular updates to staff
• Implementation of Health and Safety measures in line with the
guidelines and recommendations issued by Ministry of Health
• Special purpose leave for employees that belong to vulnerable
groups
• Enhanced intensive clean-ups, a precautionary disinfection
procedure is in place throughout the Bank
• Shipment of masks, gloves and sanitisers to branches
• Participation in Government's COVID-19 testing schemes
Measures taken to Ensure Operational Resilience
• Activation of the Pandemic Plan to ensure operational
resilience and no disruption of the day-to-day activities
• Splitting the operations of critical units to separate
locations and provision of remote access availability
• Branch network operated on a rotational basis, as a
precautionary measure until 4 May 2020, when first phase of relaxation
measured commenced
• 28% of staff (excluding branches) currently working remotely,
compared to 44% during the lockdown period
• Digital service channels provide alternative solutions for
customers for carrying out daily banking transactions online
• 70% of customers are currently digitally engaged
Supporting customers affected by COVID-19 and wider Cypriot economy through
the provision of liquidity to alleviate short term cash flow burden
• Implementation of moratorium of loan instalments (both capital
and interest) for nine months, available to all customers (both businesses and
private individuals) with less than 30 days past due as at 29 February 2020,
as per the Government measures
• Over 24,000 applications received to date (c.€5.8 bn,
representing 63% of gross loans excluding legacy)
• Provision of liquidity to affected businesses and households
to alleviate short term cash flow burden through:
• New set of measures expected to be announced, to replace
Government guaranteed facilities proposal now withdrawn
• Short term funding based on Central Bank of Cyprus (CBC)
directive
• Other lending products
For further information please refer to the sections B 'Operating Environment'
and C 'Business Overview' on pages 23-27.
A. Group Financial Results - Underlying Basis
Unaudited Interim Condensed Consolidated Income Statement
€ mn 1Q2020 1Q2019(1) 4Q2019(1) qoq yoy +%
+%
Net interest income 85 85 84 2% 0%
Net fee and commission income 38 37 39 -1% 4%
Net foreign exchange gains and net gains on financial instrument transactions 6 10 4 37% -45%
and disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions 11 12 16 -28% -8%
Net gains from revaluation and disposal of investment properties and on 1 4 6 -87% -79%
disposal of stock of properties
Other income 4 8 7 -39% -45%
Total income 145 156 156 -7% -7%
Staff costs (49) (56) (53) -9% -12%
Other operating expenses (35) (41) (43) -20% -17%
Special levy and contributions to Single Resolution Fund (SRF) and Deposit (9) (6) (7) 50% 45%
Guarantee Fund (DGF)
Total expenses (93) (103) (103) -10% -10%
Operating profit 52 53 53 0% 0%
Loan credit losses (64) (47) (29) 120% 36%
Impairments of other financial and non-financial assets (4) (1) (13) -65% -
Provisions for litigation, claims, regulatory and other matters (2) (0) (7) -72% -
Total loan credit losses, impairments and provisions (70) (48) (49) 43% 49%
(Loss)/profit before tax and non-recurring items (18) 5 4 - -
Tax (2) (2) (2) 3% -40%
Profit attributable to non-controlling interests (0) (0) (0) - -
(Loss)/profit after tax and before non-recurring items (attributable to the (20) 3 2 - -
owners of the Company)
Advisory and other restructuring costs - organic (3) (6) (8) -56% -48%
Loss after tax - organic (attributable to the owners of the Company) (23) (3) (6) - -
Restructuring costs - Voluntary Staff Exit Plan (VEP) - - (81) - -
Provisions/net loss relating to NPE sales, including restructuring expenses(2) (3) (5) (86) -97% -31%
Share of profit from associates (CNP) - 2 - - -
Reversal of impairment of DTA and impairment of other tax receivables - 101 (13) - -
(Loss)/profit after tax (attributable to the owners of the Company) (26) 95 (186) -86% -
Unaudited Interim Condensed Consolidated Income Statement - Key Performance
Ratios
Key Performance Ratios 1Q2020 1Q2019(1) 4Q2019(1) qoq yoy +%
+%
Net Interest Margin (annualised) 1.95% 1.88% 1.87% +8 bps +7 bps
Cost to income ratio 64% 66% 67% -3 p.p. -2 p.p.
Cost to income ratio excluding special levy and contributions to SRF and DGF 58% 62% 63% -5 p.p. -4 p.p.
Operating profit return on average assets (annualised) 1.0% 1.0% 1.0% - -
Basic losses per share attributable to the owners of the Company - organic (5.14) (0.88) (1.26) (3.88) (4.26)
(€ cent)
Basic (losses)/earnings per share attributable to the owners of the Company (5.81) 21.23 (41.67) 35.86 (27.04)
(€ cent)
1. The interest income, non-interest income, staff costs, other operating
expenses and loan credit losses related to Project Helix are disclosed under
'Provisions/net loss relating to NPE sales, including restructuring expenses'
in the underlying basis, in order to separate out the impact of this
non-recurring transaction. 2. 'Provisions/net loss relating to NPE sales
including restructuring expenses' refer to the net loss on transactions
completed during FY2019, net loan credit losses on transactions under
consideration at 31 December 2019 and 31 March 2020, as well as the
restructuring costs relating to these trades. For further details please refer
to Section A.2.4. 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 quarter ended 31 March 2020 on the
'underlying basis' which the management believes it best fits the true
measurement of the performance and position of the Group. Reconciliations are
included in section F.1 'Reconciliation of Income Statement between statutory
basis and underlying basis' and in section G 'Definitions & explanations',
to allow for the comparability of the underlying basis to statutory
information.
In addition, the following change was made in the underlying basis, when
compared with previous disclosures.
Project Helix (from Unaudited Interim Condensed Consolidated Income
Statement, footnote 1)
Reclassifications effected to comparative information were made so that items
relating to the NPE sale (Project Helix) are disclosed under non-recurring
items within 'Provisions/net loss relating to NPE sales, including
restructuring expenses' under the underlying basis. Specifically, net interest
income of €17 mn, fee and commission income of €3 mn, total expenses of
€15 mn (comprising staff costs of €1 mn, operating expenses of €12 mn
and restructuring costs of €2 mn), as well as loan credit losses of €10
mn, relating to the quarter ended 31 March 2019, are disclosed under
non-recurring items within 'Provisions/net loss relating to NPE sales,
including restructuring expenses' under the underlying basis.
Unaudited Interim Condensed Consolidated Balance Sheet
€ mn 31.03.2020 31.12.2019 +%
Cash and balances with central banks 4,399 5,060 -13%
Loans and advances to banks 455 321 42%
Debt securities, treasury bills and equity investments 1,948 1,906 2%
Net loans and advances to customers 10,597 10,722 -1%
Stock of property 1,373 1,378 0%
Investment properties 134 136 -2%
Other assets 1,501 1,574 -5%
Non-current assets and disposal groups held for sale 24 26 -9%
Total assets 20,431 21,123 -3%
Deposits by banks 395 533 -26%
Repurchase agreements 170 168 1%
Customer deposits 16,246 16,692 -3%
Subordinated loan stock 255 272 -6%
Other liabilities 1,130 1,169 -3%
Total liabilities 18,196 18,834 -3%
Shareholders' equity 1,986 2,040 -3%
Other equity instruments 220 220 -
Total equity excluding non-controlling interests 2,206 2,260 -2%
Non-controlling interests 29 29 0%
Total equity 2,235 2,289 -2%
Total liabilities and equity 20,431 21,123 -3%
Key Balance Sheet figures and ratios +
31.03.2020 31.12.2019
Gross loans (€ mn) 12,709 12,822 -1%
Allowance for expected loan credit losses (€ mn) 2,109 2,096 1%
Customer deposits (€ mn) 16,246 16,692 -3%
Loans to deposits ratio (net) 65% 64% +1 p.p.
NPE ratio 29% 30% -1 p.p.
NPE coverage ratio 56% 54% +2 p.p.
Leverage ratio 10.1% 10.0% +0.1 p.p.
Capital ratios and risk weighted assets +
31.03.2020 31.12.2019
Common Equity Tier 1 (CET1) ratio (transitional for IFRS 9)(1) 14.3% 14.8% -50 bps
Total capital ratio 17.7% 18.0% -30 bps
Risk weighted assets (€ mn) 12,599 12,890 -2 %
1.The CET1 FL ratio as at 31 March 2020 (including the full impact of IFRS 9)
amounts to 12.9% (compared to 13.1% as at 31 December 2019).
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 p.p.
A.1. Balance Sheet Analysis
A.1.1 Capital Base
Total equity excluding non-controlling interests totalled €2,206 mn at 31
March 2020, compared to €2,260 mn at 31 December 2019. Shareholders' equity
totalled €1,986 mn at 31 March 2020, compared to €2,040 mn at 31 December
2019.
The Common Equity Tier 1 capital (CET1) ratio on an IFRS 9 transitional basis
stood at 14.3% at 31 March 2020, compared to 14.8% at 31 December 2019. During
1Q2020 the CET1 ratio was negatively affected mainly by the phasing-in of IFRS
9 transitional arrangements, a decrease in revaluation reserves and increased
loan credit losses, and was positively affected by the pre-provision income
and the decrease in risk weighted assets (RWAs).
The Group has elected to apply the EU transitional arrangements for regulatory
capital purposes (EU Regulation 2017/2395) where the impact on the impairment
amount from the initial application of IFRS 9 on the capital ratios is
phased-in gradually. The amount added each year decreases based on a weighting
factor until the impact of IFRS 9 is fully absorbed back to CET1 at the end of
the five years. The impact on the capital position for the year 2018 was 5% of
the impact on the impairment amounts from the initial application of IFRS 9,
increasing to 15% (cumulative) for the year 2019 and to 30% (cumulative) for
the year 2020.
The CET1 ratio on a fully loaded basis (including the full impact of IFRS 9)
amounted to 12.9% as at 31 March 2020, compared to 13.1% as at 31 December
2019. On a transitional basis and on a fully phased-in basis, after the
five-year period of transition is complete, the impact of IFRS 9 is expected
to be manageable and within the Group's capital plans.
The Total Capital ratio stood at 17.7% as at 31 March 2020, compared to 18.0%
as at 31 December 2019.
The Group's capital ratios are above the Supervisory Review and Evaluation
Process (SREP) requirements.
Following the annual SREP performed by the European Central Bank (ECB) in 2019
and based on the final 2019 SREP decision received in December 2019, the
Group's minimum phased-in CET1 capital ratio was set at 11.0% (comprising a
4.5% Pillar I requirement, a 3.0% Pillar II requirement (in the form of CET1),
the Capital Conservation Buffer of 2.5% (fully phased-in as of 1 January 2019)
and the Other Systemically Important Institution Buffer of 1.0%) and the
overall Total Capital requirement at 14.5%, comprising an 8.0% Pillar I
requirement (of which up to 1.5% can be in the form of Additional Tier 1
capital and up to 2.0% in the form of Tier 2 capital), a 3.0% Pillar II
requirement (in the form of CET1), the Capital Conservation Buffer of 2.5% and
the Other Systemically Important Institution Buffer of 1.0%. The ECB has also
provided non-public guidance for an additional Pillar II CET1 buffer. Pillar
II add-on capital requirements derive from the context of the SREP, which is a
point in time assessment, and are therefore subject to change over time. The
final 2019 SREP decision became effective on 1 January 2020.
Further to the effects of COVID-19 on both the global and Cypriot economy, the
ECB announced a package of positive measures in March 2020 that should help to
support the capital position of banks. The ECB's capital easing measures for
COVID-19 increase the Group's CET1 buffer by 131 bps following the
frontloading of the new rules on the Pillar II Requirement composition, to
allow banks to use Additional Tier 1 (AT1) capital and Tier 2 (T2) capital to
meet Pillar II Requirements and not only by CET1, initially scheduled to come
into effect in January 2021. As a result, the Group's minimum phased-in CET1
capital ratio is set at 9.7%. The Bank received an amendment to the December
2019 SREP decision to this respect effective as of 12 March 2020. The Total
SREP capital requirement remains unchanged at 14.5%.
Further analysis on the recent developments on the regulatory capital ratios
due to the COVID-19 outbreak are set out further below.
In accordance with the provisions of the Macroprudential Oversight of
Institutions Law of 2015, the CBC is the responsible authority for the
designation of banks that are Other Systemically Important Institutions
(O-SIIs) and for the setting of the O-SII buffer requirement for these
systemically important banks. The Group has been designated as an O-SII and
the O-SII buffer currently set by the CBC for the Group is 2%. This buffer is
being phased-in gradually, having started from 1 January 2019 at 0.5% and
increasing by 0.5% every year thereafter, until being fully implemented (2.0%)
on 1 January 2022. In April 2020, the CBC decided to delay the phasing-in
(0.5%) of the O-SII buffer on 1 January 2021 and 1 January 2022 by 12 months.
Consequently, the O-SII buffer will be fully phased-in on 1 January 2023,
instead of 1 January 2022 as originally set.
The European Banking Authority (EBA) final guidelines on SREP and supervisory
stress testing and the Single Supervisory Mechanism's (SSM) 2018 SREP
methodology provide that own funds held for the purposes of Pillar II Guidance
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. Following the annual SREP performed by the ECB in 2019 and based on the
final 2019 ECB decision received in December 2019, the new provisions are
effective from January 2020.
Based on the SREP decisions of prior years, the Company and the Bank were
under a regulatory prohibition for equity dividend distribution and therefore
no dividends were declared or paid during years 2019 and 2018. Following the
2019 SREP decision, the Company and the Bank are still under equity dividend
distribution prohibition. This prohibition does not apply if the distribution
is made via the issuance of new ordinary shares to the shareholders, which are
eligible as CET1 capital. No prohibition applies to the payment of coupons on
any AT1 capital instruments issued by the Company or the Bank.
Share premium reduction
Bank
The Bank will proceed (subject to approvals mainly by the ECB and the Court of
Cyprus) with a capital reduction process which will result in the
reclassification of c.€619 mn of the Bank's share premium balance as
distributable reserves, which shall be available for
distribution to the shareholders of the Bank, resulting in
total net distributable reserves of c.€800 mn on a pro forma basis (31
December 2019). The reduction of capital will not have any impact on
regulatory capital or the total equity position of the Bank or the Group.
The distributable reserves provide the basis for the calculation of
distributable items under the Capital Requirements Regulation (EU) No.
575/2013 (CRR), which provides that coupons on AT1 capital instruments may
only be funded from distributable items.
Company
The Company (Bank of Cyprus Holdings PLC) will proceed (subject to approval by
the shareholders, the ECB and the Irish High Court) with a capital reduction
process which will result in the reclassification of €700 mn of the
Company's share premium as distributable reserves. This will increase the
distributable reserves of the Company to c.€1 bn on a pro forma basis (31
December 2019). The capital reduction has been proposed as a special
resolution for approval by shareholders at the Company's Annual General
Meeting scheduled on 26 May 2020. The capital reduction will not have any
impact on regulatory capital or the total equity position of the Company, the
Bank or the Group.
The distributable reserves provide the basis for the calculation of
distributable items under the CRR, which provides that coupons on AT1 capital
instruments may only be funded from distributable items.
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) were adopted by the Cyprus
Parliament on 1 March 2019 and published in the Official Gazette of the
Republic on 15 March 2019. The law amendments cover the utilisation of income
tax losses transferred from Laiki Bank to the Bank in March 2013. The
introduction of CRD IV in January 2014 and its subsequent phasing-in led to a
more capital-intensive treatment of this DTA for the Bank. The law amendments
resulted in an improved regulatory capital treatment, under CRR, of the DTA
amounting to c.€285 mn or a CET1 uplift of c.190 bps in March 2019.
The Group understands that, in response to concerns raised by the European
Commission with regard to the provision of state aid arising out of the
treatment of such tax losses, the Cyprus Government is considering the
adoption of modifications to the Law, potentially including requirements for
an additional annual fee over and above the 1.5% annual guarantee fee already
acknowledged, to maintain the conversion of such DTAs into tax credits. In
anticipation of such modifications the Group recorded an additional amount of
€13 mn in 4Q2019 by way of an estimated additional fee (for the years 2018
and 2019), bringing the total guarantee fee recognised for FY2019 to €19 mn.
Project Helix
In June 2019, Project Helix was completed resulting in a positive impact of
c.140 bps on both the Group's CET1 and Total Capital ratios, mainly from the
release of risk weighted assets. Project Helix had an overall net positive
impact on the Group capital ratios of c.60 bps.
Sale of investment in CNP Cyprus Insurance Holdings Ltd
In October 2019, the sale of the Group's investment in its associate CNP
Cyprus Insurance Holdings Limited ("CNP") was completed, resulting in a
positive impact of c.30 bps on both the Group's CET1 and Total Capital ratios,
mainly from the release of risk weighted assets. The shareholding had been
acquired as part of the acquisition of certain operations of Laiki Bank in
2013 and was sold to CNP Assurances S.A. for a cash consideration of €97.5
mn.
Voluntary Staff Exit Plan
In October 2019, the Group completed a voluntary staff exit plan (VEP) at a
total cost of €81 mn, recorded in the consolidated income statement in
4Q2019, resulting in a negative impact of c.60 bps on both the Group's CET1
and Total Capital ratios.
Further NPE sales in the future
Against the backdrop of market volatility arising out of the COVID-19
pandemic, the Group continues to work with its advisers towards the sale of a
portfolio of NPEs in the future. Due to prevailing market and operational
conditions, this process is likely to take longer than originally anticipated.
In the context of IFRS 9, the Bank recognised additional loan credit losses of
€75 mn in 4Q2019, with a negative capital impact of 46 bps, as a result of
the anticipated balance sheet de-risking through further NPE sales in the
future. On completion of an NPE trade, the Group's capital ratios would
benefit from any associated RWA reduction, subject to regulatory approval.
Implications on capital from the Outbreak of COVID-19
The Group is closely monitoring developments in, and the effects of COVID-19
on both the global and Cypriot economy. The ECB has announced a package of
positive measures that should help to support the capital position of the
Bank, in order to secure favourable conditions of financing for the economy
with the aim to mitigate the effects of the crisis. Specifically, the measures
increase the Group's capital base available to absorb potential losses due to
the crisis. In addition, the early adoption of CRD V for the composition of
the Pillar II Requirement provide flexibility regarding the Group's compliance
with the minimum capital requirement of Pillar II.
Following the ECB's capital easing measures for COVID-19 announcements, the
Bank received a relevant decision amending the 2019 SREP decision in April
2020 and effective as of 12 March 2020 for the frontloading of the new rules
on the Pillar II Requirement composition, to allow banks to use Additional
Tier 1 (AT1) capital and Tier 2 (T2) capital to meet Pillar II Requirements
and not only by CET1, initially scheduled to come into effect in January 2021,
which increased the Group's CET1 buffer by 131 bps. The Total SREP capital
requirement remains unchanged. In addition, the ECB allows banks to operate
temporarily below the level of Pillar II Guidance, the capital conservation
buffer (CCB) and the countercyclical buffer. It is noted that the
countercyclical buffer is 0% for Cypriot banks.
In addition, in April 2020 the CBC decided to delay the phasing-in of the 1
January 2021 O-SII buffer (0.5% for the Bank) by 12 months. Consequently, the
O-SII buffer will be fully phased-in on 1 January 2023, instead of 1 January
2022 as originally set.
Since 31 March 2020 the mark-to market valuation resulting from the
fluctuation of the prices of the debt securities in the portfolio held at
FVOCI decreased by €5 mn by 20 May 2020, following the COVID-19 outbreak and
the resultant volatile market and economic environment. This change is
recognised directly in equity i.e. through Other Comprehensive Income
(OCI).
Furthermore, on 20 May 2020, the Group held Cyprus sovereign debt securities
of a nominal amount of €735 mn (compared to €542 mn on 31 March 2020), of
which €337 mn is held at FVOCI portfolio and €398 mn is held at amortised
cost portfolio. The increase since the quarter end is mainly due to the
Group's participation on the issuance of 52-week treasury bills of the Cyprus
Government in April 2020.
A.1.2 Regulations and Directives
A.1.2.1 Revised rules on capital and liquidity (CRR II and CRD V)
On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRD V)
came into force. As an amending regulation, the existing provisions of CRR
apply, unless they are amended by CRR II. Member states are required to
transpose the CRD V into national law. Certain provisions took immediate
effect (primarily relating to Minimum Requirement for Own Funds and Eligible
Liabilities, MREL), but most changes will start to apply from mid-2021.
Certain aspects of CRR II are dependent on final technical standards to be
issued by the EBA and adopted by the European Commission. The key changes
introduced consist of, among others, changes to qualifying criteria for CET1,
AT1 and Tier 2 instruments, introduction of requirements for MREL and a
binding Leverage Ratio requirement and a Net Stable Funding Ratio (NSFR).
A.1.2.2 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 must be transposed into
national law. 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 took immediate effect.
The Bank has received formal notification from the CBC in its capacity as
National Resolution Authority, of the final decision by the Single Resolution
Board (SRB), for the binding minimum requirement for own funds and eligible
liabilities (MREL) for the Bank, determined as the preferred resolution point
of entry. The MREL requirement has been set at 28.36% of risk weighted assets
as of 30 June 2019 and must be met by 31 December 2025. This MREL requirement
would be equivalent to 18.54% of total liabilities and own funds (TLOF) as at
30 June 2019. The MREL requirement is in line with the Bank's expectations,
and largely in line with its funding plans.
This decision is based on the current legislation, it is expected to be
updated annually and could be subject to subsequent changes by the resolution
authorities, especially considering the developments of the BRRD and its
transposition into the local legislation.
The MREL ratio of the Bank as at 31 March 2020, calculated according to SRB's
eligibility criteria currently in effect and based on the Bank's internal
estimate, stood at 18.09% of RWAs.
A.1.3 Funding and Liquidity
Funding
Funding from Central Banks
At 31 March 2020 and at 31 December 2019, the Bank had no funding from central
banks. At 31 December 2018, the Bank's funding from central banks amounted to
€830 mn, which related to ECB funding, comprising solely of funding through
the Targeted Longer-Term Refinancing Operations (TLTRO II). In 3Q2019, the
Bank decided to early repay the ECB funding of €830 mn, given its
comfortable liquidity position.
Deposits
Customer deposits totalled €16,246 mn at 31 March 2020, compared to
€16,692 mn at 31 December 2019, reduced by 3% in the first quarter.
The Bank's deposit market share in Cyprus reached 34.8% as at 31 March 2020,
compared to 35.1% as at 31 December 2019. Customer deposits accounted for 80%
of total assets and 89% of total liabilities at 31 March 2020.
The net Loans to Deposit ratio (L/D) stood at 65% as at 31 March 2020,
compared to 64% as at 31 December 2019. The L/D ratio had reached a peak of
151% as at 31 March 2014.
Subordinated Loan Stock
At 31 March 2020 the Bank's subordinated loan stock (including accrued
interest) amounted to €255 mn (compared to €272 mn at 31 December 2019)
and relates to unsecured subordinated Tier 2 Capital Notes of nominal value
€250 mn, issued by the Bank in January 2017.
Liquidity
At 31 March 2020 the Group Liquidity Coverage Ratio (LCR) stood at 219%
(compared to 208% at 31 December 2019), in compliance with the minimum
regulatory requirement of 100%.
The liquidity surplus at 31 March 2020 amounted to €3.0 bn, compared to
€3.2 bn at 31 December 2019. The decrease in 1Q2020 is mainly driven by the
reduction in deposits.
The Net Stable Funding Ratio (NSFR) has not yet been introduced. It will be
enforced as a regulatory ratio under CRR II in 2021, with the limit set at
100%. At 31 March 2020, the Group's NSFR, on the basis of Basel ΙΙΙ
standards, stood at 126% (compared to 127% at 31 December 2019).
Implications on liquidity from the Outbreak of COVID-19
Resulting from the outbreak of COVID-19, the ECB has announced a positive
package of measures including that the ECB will allow banks to temporarily
operate below the LCR minimum requirement. In addition, the ECB decided on
additional longer-term refinancing operations (LTROs) through a full-spread
fixed-rate auction equal to the average deposit facility interest rate.
Similarly, the ECB announced that for the TLTRO III operation in June 2020,
considerably more favourable terms will be applied during the period from
June 2020 to June 2021 to all TLTRO III operations outstanding during that
same time.
On 18 March 2020 the Governing Council of the ECB decided to launch a new
Pandemic Emergency Purchase Programme (PEPP) for an amount of €750 bn and
purchases will be conducted until the end of 2020. Furthermore, it was
decided to expand the range of eligible assets under the Corporate Sector
Purchase Programme (CSPP) to non-financial commercial paper and to ease the
collateral standards by adjusting the main risk parameters of the collateral
framework.
A.1.4 Loans
Group gross loans totalled €12,709 mn at 31 March 2020, compared to
€12,822 mn at 31 December 2019. Gross loans in Cyprus totalled €12,634 mn
at 31 March 2020 accounting for 99% of Group gross loans, compared to
€12,736 mn at 31 December 2019, also accounting for 99% of Group gross
loans.
New loans granted in Cyprus reached €451 mn for 1Q2020, compared to €443
mn for 4Q2019 (up by 2% qoq) and to €563 mn for 1Q2019 (down by 20% yoy).
At 31 March 2020, the Group net loans and advances to customers totalled
€10,597 mn (compared to €10,722 mn at 31 December 2019).
The Bank is the single largest credit provider in Cyprus with a market share
of 41.0% at 31 March 2020, compared to 41.1% at 31 December 2019.
A.1.5 Loan portfolio quality
Tackling the Group's loan portfolio quality remains the top priority for
management. The Group has continued to make steady progress across all asset
quality metrics and the loan restructuring activity has continued. The Group
has been successful in engineering restructuring solutions across the spectrum
of its loan portfolio.
Non-performing exposures (NPEs) as defined by the European Banking Authority
(EBA) were reduced by €142 mn or 4% during 1Q2020 to €3,738 mn at 31 March
2020 (compared to €3,880 mn at 31 December 2019), despite the COVID-19
lockdown in March 2020. The Group has recorded organic NPE reductions for
twenty consecutive quarters.
The NPEs account for 29% of gross loans as at 31 March 2020, compared to 30%
at 31 December 2019, an improvement of 1 p.p. qoq. The NPE coverage ratio
improved to 56% at 31 March 2020, compared to 54% at 31 December 2019, an
improvement of 2 p.p. qoq. When taking into account tangible collateral at
fair value, NPEs are fully covered.
31.03.2020 31.12.2019
% gross loans % gross loans
€ mn € mn
NPEs as per EBA definition 3,738 29.4% 3,880 30.3%
Of which, in pipeline to exit: 365 2.9% 428 3.3%
-NPEs with forbearance measures, no arrears(1)
1. The analysis is performed on a customer basis.
Project Helix
In June 2019, the Group announced the completion of Project Helix, that refers
to the sale of a portfolio of loans with a gross book value of €2.8 bn (of
which €2.7 bn related to non-performing loans) secured by real estate
collateral to certain funds affiliated with Apollo Global Management LLC, the
agreement for which was announced on 28 August 2018. Cash consideration of
c.€1.2 bn was received on completion, reflecting adjustments resulting from,
inter alia, loan repayments received on the Helix portfolio since the
reference date of 31 March 2018. The participation of the Bank in the senior
debt in relation to financing the transaction was syndicated down from the
initial level of €450 mn to c.€45 mn, representing c.4% of the total
acquisition funding. Upon completion, the NPE ratio was reduced by c.11 p.p.
to 33% as at 30 June 2019, c.70% lower than its peak in 2014.
ESTIA
In July 2018 the Government announced a scheme aimed at addressing NPEs backed
by primary residence, known as ESTIA (the 'Scheme'). The ESTIA eligible
portfolio of c.€0.8 bn of retail core NPEs as at 31 March 2020, referred to
the potentially eligible portfolio following on-going detailed assessment
based on the Bank's available data on Open Market Value (OMV) and NPE status.
These act as a clear definition of socially protected borrowers, acting as an
enabler against strategic defaulters. In accordance with the Scheme, the
eligible loans are to be restructured to the lower of the contractual balance
and the OMV. The Government subsidises one third of the instalment of the
restructured loan, subject to the borrowers servicing their restructured
loans.
The Scheme is expected to resolve part of the ESTIA-eligible portfolio (€42
mn as at 15 May 2020), to identify non-viable customers for which alternative
restructuring solutions are being considered, including by the Government
(€30 mn as at 15 May 2020), and to facilitate the resolution of the
remaining customers (€746 mn as at 15 May 2020), mainly by focusing on
realising collateral through consensual and non-consensual foreclosures.
Over 75% of the applications submitted by 31 December 2019 by value currently
remain incomplete. Following the outbreak of COVID-19, the deadline for
borrowers to complete their application has been extended by three months to
June 2020.
Project Velocity 1
In June 2019, the Bank completed the sale of a non-performing loan portfolio
of primarily retail unsecured exposures, with a contractual balance of €245
mn and a gross book value of €34 mn as at the reference date of 30 September
2018 (known as Project Velocity 1) to APS Delta s.r.o. This portfolio
comprised 9,700 heavily delinquent borrowers, including 8,800 private
individuals and 900 small-to-medium-sized enterprises. The gross book value of
this portfolio as at the date of disposal was €30 mn. The sale was broadly
neutral to both the profit and loss and to capital.
Project Velocity 2
In January 2020, the Bank entered into an agreement with B2Kapital Cyprus Ltd,
to sell a non-performing loan portfolio of primarily retail unsecured
exposures, with a contractual balance of €398 mn and gross book value of
€144 mn as at the reference date of 31 August 2019, known as Project
Velocity 2. This portfolio comprised c.10.000 borrowers, including c.8.400
private individuals and c.1.600 small-to-medium-sized enterprises. As at 31
December 2019, this portfolio was classified as a disposal group held for
sale, with a gross book value of €139 mn. Following a change in the
perimeter, the revised portfolio had a gross book value of €133 mn as at 31
March 2020 and was classified as a disposal group held for sale at the quarter
end. A reversal of impairment of €1 mn for 1Q2020 was recorded under
'Provisions/net loss relating to NPE sales, including restructuring expenses'
in the underlying basis income statement (compared to a reversal of impairment
of €6 mn for 4Q2019). The sale was completed in early May 2020 and was
capital neutral on completion.
Additional strategies to accelerate de-risking
The Group continues to assess the potential to accelerate the decrease in NPEs
on its balance sheet through additional sales of NPEs in the future. To that
extent the Group continues to review the feasibility of NPE reduction
structures with the aim of identifying the option that best meets the Group's
strategic objectives. The preparation phase involves defining the relevant NPE
portfolio, evaluation of real estate collaterals, data remediation and
enhancement of data tapes, borrower information memorandums, legal due
diligence and transaction structuring options. For the purposes of completing
the workstreams outlined above and in order to conclude on the best possible
structure, the Group has engaged international advisors, and is continuing to
engage in discussions with various third parties, that may be interested in
pursuing a possible collaboration with the Group. A range of potential
outcomes is possible, including outright sales (including the Bank retaining a
portion of the related financing). The Group is not committed to any outcome
arising from these third party discussions.
Against the backdrop of market volatility arising out of the COVID-19
pandemic, the Group continues to work with its advisers towards the sale of a
portfolio of NPEs in the future. Due to prevailing market and operational
conditions, this process is likely to take longer than originally anticipated.
In the context of IFRS 9, the Bank recognised additional loan credit losses of
€75 mn in 4Q2019, with a negative capital impact of 46 bps, as a result of
the anticipated balance sheet de-risking through further NPE sales in the
future. On completion of an NPE trade, the Group's capital ratios would
benefit from any associated RWA reduction, subject to regulatory approval.
As at 31 March 2020, a portfolio of credit facilities related to Helix with
gross book value of €45 mn (compared to €46 mn as at 31 December 2020), of
mainly secured non-performing exposures (known as 'Helix Tail') was classified
as a disposal group held for sale.
Following the outbreak of COVID-19, the Group is now focused on arresting any
potential asset quality deterioration. Once economic conditions normalise, the
Group expects to resume its efforts to improve its asset quality position by
seeking solutions, both organic and inorganic, to make the Bank a stronger and
safer institution, capable of continuing to support the local economy.
A.1.6 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) on-boarded €12 mn of assets in 1Q2020
(down by 73% yoy), via the execution of debt for asset swaps and repossessed
properties. The focus for REMU is increasingly shifting from on-boarding of
assets resulting from debt for asset swaps towards the disposal of these
assets. The Group completed organic disposals of €14 mn in 1Q2020 (compared
to €48 mn in 4Q2019), resulting in a profit on disposal of €1 mn for
1Q2020.
During the quarter ended 31 March 2020, the Group executed sale-purchase
agreements (SPAs) with contract value of €16 mn (89 properties), compared to
€150 mn (125 properties) for 4Q2019. In addition, the Group had signed SPAs
for disposals of assets with contract value of €49 mn as at 31 March 2020,
compared to €36 mn as at 31 December 2019.
Completion of Project Helix
With the completion of Project Helix in 2Q2019, properties with a carrying
value of €109 mn, which were included in the portfolio for the NPE sale
(Helix), were derecognised as of 30 June 2019. As at 31 March 2019, properties
with carrying value of €98 mn were included in the portfolio for the NPE
sale (Helix), compared to €74 mn as at 31 December 2018, due to adjustments
made to the portfolio of assets.
Change in classification of properties which are leased out under operating
leases
In 2019, the Group decided to classify certain leased properties acquired in
exchange of debt and leased out under operating leases as 'Investment
Properties' (measured at fair value under IAS 40) instead of 'Stock of
property' (measured at the lower of cost and net realisable value under IAS
2). The change was applied retrospectively, resulting in the restatement of
comparatives (as at 31 December 2018). This change had no material impact on
the Group's comparative retained earnings and a cumulative impact of €1 mn
gain was recognised in the Group's income statement under 'Net gains from
revaluation and disposal of investment properties and on disposal of stock of
properties' in 2019. The reclassified properties continue to be managed by
REMU.
Assets held by REMU
As at 31 March 2020, assets held by REMU had a carrying value of €1,484 mn
(comprising properties of €1,373 mn classified as 'Stock of property' and
€111 mn as 'Investment Properties'), compared to €1,490 mn as at 31
December 2019 (comprising properties of €1,378 mn classified as 'Stock of
property' and €112 mn as 'Investment Properties').
In addition to assets held by REMU, properties classified as 'Investment
properties' with carrying value of €23 mn as at 31 March 2020 (compared to
€24 mn as at 31 December 2019), relate to legacy properties held by the Bank
before the set-up of REMU in January 2016.
Assets held by REMU (Group) 1Q2020 1Q2019 4Q2019 qoq yoy +%
€ mn +%
Opening balance 1,490 1,530 1,513 -2% -3%
On-boarded assets (including construction cost) 12 45 37 -67% -73%
Sales (14) (30) (48) -71% -54%
Impairment loss (4) (2) (12) -68% 100%
Transfer to non-current assets and disposal groups held for sale - (1) - - -
Closing balance 1,484 1,542 1,490 -0% -4%
Analysis by type and country Cyprus Greece Romania Total
31 March 2020 (€ mn)
Residential properties 183 26 0 209
Offices and other commercial properties 197 29 6 232
Manufacturing and industrial properties 72 32 0 104
Hotels 24 0 - 24
Land (fields and plots) 625 7 3 635
Golf courses and golf-related property 280 - - 280
Total 1,381 94 9 1,484
Cyprus Greece Romania Total
31 December 2019 (€ mn)
Residential properties 182 26 0 208
Offices and other commercial properties 200 29 6 235
Manufacturing and industrial properties 73 32 0 105
Hotels 24 0 - 24
Land (fields and plots) 628 7 3 638
Golf courses and golf-related property 280 - - 280
Total 1,387 94 9 1,490
A.1.7 Non-core overseas exposures
The remaining non-core overseas net exposures (including both on-balance sheet
and off-balance sheet exposures) at 31 March 2020 are as follows:
€ mn 31 March 2020 31 December 2019
Greece 137 139
Romania 24 25
Russia 16 19
Total 177 183
The Group continues its efforts for further deleveraging and disposal of
non-essential assets and operations in Greece, Romania and Russia.
In accordance with the Group's strategy to exit from overseas non-core
operations, the operations of the branch in Romania were terminated in January
2019, following the completion of deregistration formalities with respective
authorities.
In addition to the above, as at 31 March 2020, there were overseas
exposures of €265 mn in Greece, relating to both loans and properties (at
similar levels to 31 December 2019), not identified as non-core exposures,
since they are considered by management as exposures arising in the normal
course of business.
A.2. Income Statement Analysis
A.2.1 Total income
€ mn 1Q2020 1Q2019(1) 4Q2019(1) qoq yoy +%
+%
Net interest income 85 85 84 2% 0%
Net fee and commission income 38 37 39 -1% 4%
Net foreign exchange gains and net gains on financial instrument transactions 6 10 4 37% -45%
and disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions 11 12 16 -28% -8%
Net gains from revaluation and disposal of investment properties and on 1 4 6 -87% -79%
disposal of stock of properties
Other income 4 8 7 -39% -45%
Non-interest income 60 71 72 -16% -15%
Total income 145 156 156 -7% -7%
Net Interest Margin (annualised) 1.95% 1.88% 1.87% +8 bps +7 bps
Average interest earning assets 17,539 18,243 17,721 -1% -4%
(€ mn)
1. The interest income, non-interest income, staff costs, other operating
expenses and loan credit losses related to Project Helix are disclosed under
'Provisions/net loss relating to NPE sales, including restructuring expenses'
in the underlying basis, in order to separate out the impact of this
non-recurring transaction. p.p. = percentage points, bps = basis points, 100
basis points (bps) = 1 percentage point
Net interest income (NII) for 1Q2020 amounted to €85 mn (broadly flat yoy
and qoq) and includes increased interest cash collections not previously
recognised of c.€4 mn. Net interest margin (NIM) for 1Q2020 stood at 1.95%,
up by 7 bps yoy, positively impacted by the reduction in volume and cost of
deposits. An amount of c.€12 mn relating to a one - off charge included in
'Net interest income' under the statutory basis for 4Q2019, is presented
within 'Loan credit losses' under the underlying basis, which is related to a
change in the method of amortising arrangement fees given that this was a
non-recurring item.
Quarterly average interest earning assets for 1Q2020 amounted to €17,539 mn,
compared to €17,721 mn for 4Q2019, (down by 1% qoq) and to €18,243 mn for
1Q2019 (down by 4% yoy). The qoq decrease is mainly driven by the reduction of
liquid assets resulting from the reduced volume of deposits. The yoy decrease
is mainly driven by the reduction of liquid assets following repayment of ECB
funding (TLTRO) in September 2019, as well as to the reduction in net loans.
Non-interest income for 1Q2020 amounted to €60 mn (down by 15% yoy),
comprising net fee and commission income of €38 mn, net foreign exchange
gains and net gains on financial instrument transactions and
disposal/dissolution of subsidiaries and associates of €6 mn, net insurance
income of €11 mn, net gains from revaluation and disposal of investment
properties and on disposal of stock of properties of €1 mn and other income
of €4 mn.
Net fee and commission income for 1Q2020 amounted to €38 mn, compared to
€37 mn for 1Q2019 and to €39 mn for 4Q2019. Net fee and commission income
comprises 44% of transactional income that is negatively affected by the
effects of the COVID-19 outbreak.
Net foreign exchange gains and net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates of €6 mn for 1Q2020,
comprising net foreign exchange gains of €9 mn and net losses on financial
instrument transactions of €3 mn, decreased by 45% yoy and increased by 37%
qoq. The decrease yoy is mainly driven by net revaluation losses in 1Q2020
compared to net revaluation gains in 1Q2019. The increase qoq is mainly driven
by higher net foreign exchange gains.
Net insurance income of €11 mn for 1Q2020, at similar levels as for 1Q2019,
but decreased by 28% qoq, primarily due to negative market performance
following the outbreak of COVID-19 and higher insurance claims.
Net gains from revaluation and disposal of investment properties and on
disposal of stock of properties for 1Q2020 amounted to €1 mn relating mainly
to net gains on disposal of stock of properties (REMU gains) impacted by the
COVID-19 lockdown, compared to €6 mn in the previous quarter and to €4 mn
in 1Q2019. REMU profit remains volatile.
Total income for 1Q2020 amounted to €145 mn, compared to €156 mn for both
1Q2019 and 4Q2019 (down by 7% both yoy and qoq).
A.2.2 Total expenses
€ mn 1Q2020 1Q2019(1) 4Q2019(1) qoq yoy +%
+%
Staff costs (49) (56) (53) -9% -12%
Other operating expenses (35) (41) (43) -20% -17%
Total operating expenses (84) (97) (96) -14% -14%
Special levy and contributions to Single Resolution Fund (SRF) and Deposit (9) (6) (7) 50% 45%
Guarantee Fund (DGF)
Total expenses (93) (103) (103) -10% -10%
Cost to income ratio 64% 66% 67% -3 p.p. -2 p.p.
Cost to income ratio excluding special levy and contributions to SRF and DGF 58% 62% 63% -5 p.p. -4 p.p.
1. The interest income, non-interest income, staff costs, other operating
expenses and loan credit losses related to Project Helix are disclosed under
'Provisions/net loss relating to NPE sales, including restructuring expenses'
in the underlying basis, in order to separate out the impact of this
non-recurring transaction.
p.p. = percentage points, bps = basis points, 100 basis points (bps) =
1 percentage point
Total expenses for 1Q2020 were €93 mn (compared to €103 mn for 1Q2019 and
4Q2019, down by 10% both yoy and qoq), 53% of which related to staff costs
(€49 mn), 37% to other operating expenses (€35 mn) and 10% (€9 mn) to
special levy and contributions to Single Resolution Fund (SRF) and Deposit
Guarantee Fund (DGF). The yoy and qoq decrease is driven by lower staff
costs and other operating expenses.
Total operating expenses for 1Q2020 were €84 mn, compared to €97 mn for
1Q2019 and €96 mn for 4Q2019 (down by 14% both yoy and qoq).
Staff costs of €49 mn for 1Q2020 decreased by 9% qoq (compared to €53 mn
in 4Q2019 ) and by 12% yoy (compared to €56 mn in 1Q2019), mainly driven by
the completion of the voluntary staff exit plan (VEP) in 4Q2019, through which
c.11% of the Group's full-time employees were approved to leave at a total
cost of €81 mn, recorded in the consolidated income statement in 4Q2019.
Following the completion of the VEP, the gross annual savings are estimated at
c.€28 mn or c.13% of staff costs (excluding the c.100 persons relating to
the Helix transaction). The annual savings net of the impact from the renewal
of the collective agreement for 2019 and 2020, are estimated at €23 mn or
11% of staff costs.
The Group employed 3,566 persons as at 31 March 2020 (compared to 3,672 as at
31 December 2019, including c.100 persons relating to the Helix transaction
who were transferred to the buyer upon full migration in January 2020). The
staff costs related to these persons are included under 'Provisions/net loss
relating to NPE sales, including restructuring expenses' in the underlying
basis.
Other operating expenses for 1Q2020 were €35 mn, decreased by 20% qoq (€43
mn in 4Q2019) and by 17% yoy (€41 mn in 1Q2019), mainly due to lower
consultancy and property-related expenses in 1Q2020.
Special levy and contributions to Single Resolution Fund (SRF) and Deposit
Guarantee Fund (DGF) for 1Q2020 was €9 mn, compared to €7 mn in 4Q2019
(increased by 50% qoq) and €6 mn in 1Q2019 (increased by 45% yoy). The
increase is driven by the contribution of the Bank to the Deposit Guarantee
Fund (DGF) of €3 mn. This contribution relates to the first half of 2020 and
in line with IFRSs, it is recorded in 1Q2020.
As from 1 January 2020 and until 3 July 2024 the Bank is subject to
contribution to the Deposit Guarantee Fund (DGF) on a semi-annual basis. The
contributions are calculated based on the Risk Based Methodology (RBM) as
approved by the management committee of the Deposit Guarantee and Resolution
of Credit and Other Institutions Schemes (DGS) and is publicly available on
the CBC's website. In line with the RBM, the contributions are broadly
calculated on the covered deposits of all authorised institutions and the
target level is to reach at 0.8% of these deposits by 3 July 2024.
The cost to income ratio excluding special levy and contributions to Single
Resolution Fund (SRF) and Deposit Guarantee Fund (DGF) for 1Q2020 was 58%,
compared to 63% in 4Q2019 and 62% in 1Q2019, principally reflecting a 14%
reduction in total operating expenses both yoy and qoq.
A.2.3 (Loss)/profit before tax and non-recurring items
€ mn 1Q2020 1Q2019(1) 4Q2019(1) qoq yoy +%
+%
Operating profit 52 53 53 0% 0%
Loan credit losses (64) (47) (29) 120% 36%
Impairments of other financial and non-financial assets (4) (1) (13) -65% -
Provisions for litigation, claims, regulatory and other matters (2) (0) (7) -72% -
Total loan credit losses, impairments and provisions (70) (48) (49) 43% 49%
(Loss)/profit before tax and non-recurring items (18) 5 4 - -
Cost of risk 2.00% 1.44% 0.89% +111 bps +56 bps
1. The interest income, non-interest income, staff costs, other operating
expenses and loan credit losses related to Project Helix are disclosed under
'Provisions/net loss relating to NPE sales, including restructuring expenses'
in the underlying basis, in order to separate out the impact of this
non-recurring transaction.
p.p. = percentage points, bps = basis points, 100 basis points (bps) =
1 percentage point
Operating profit for 1Q2020 was €52 mn, at similar levels to the previous
quarter and to 1Q2019.
The loan credit losses for 1Q2020 totalled €64 mn, compared to €29 mn for
4Q2019 (up by 120% qoq) and compared to €47 mn for 1Q2019 (up by 36% yoy).
The 1Q2020 charge of €64 mn, includes €28 mn reflecting the initial impact
of IFRS 9 Forward Looking Information (FLI) driven by the deterioration of the
macroeconomic outlook, as a result of the economic effects of the COVID-19
outbreak. The change in the macroeconomic assumptions has led to the migration
of c.€435 mn loans from Stage 1 to Stage 2.
The 4Q2019 charge of €29 mn includes an amount of c.€12 mn relating to a
one - off charge for a change in the method of amortising arrangement fees.
This amount is included in 'Net interest income' under the statutory basis and
presented within 'Loan credit losses' under the underlying basis, given that
this was a non-recurring item.
The annualised loan credit losses charge (cost of risk) for 1Q2020 accounted
for 2.00% of gross loans, of which 88 bps reflect the deterioration of the
macroeconomic outlook, compared to a loan credit losses charge of 1.12% for
FY2019.
At 31 March 2020, the allowance for expected loan credit losses, including
residual fair value adjustment on initial recognition and credit losses on
off-balance sheet exposures totalled €2,109 mn (compared to €2,096 mn at
31 December 2019) and accounted for 16.6% of gross loans (compared to 16.3% at
31 December 2019). The increase in the allowance for expected loan credit
losses in 1Q2020 amounted of €13 mn, whilst the increase in the previous
quarter amounted to €10 mn.
Impairments of other financial and non-financial assets for 1Q2020 amounted to
€4 mn, compared to €13 mn for 4Q2019 (down by 65% qoq) and to €1 mn in
1Q2019. Impairments of other financial and non-financial assets for 1Q2020
primarily related to loss on revaluation of properties.
Provisions for litigation, claims, regulatory and other matters for 1Q2020
totalled €2 mn, compared to €7 mn for 4Q2019 and Nil in 1Q2019.
A.2.4 (Loss)/profit after tax (attributable to the owners of the Company)
€ mn 1Q2020 1Q2019(1) 4Q2019(1) qoq yoy +%
+%
(Loss)/profit before tax and non-recurring items (18) 5 4 - -
Tax (2) (2) (2) 3% -40%
Profit attributable to non-controlling interests (0) (0) (0) - -
(Loss)/profit after tax and before non-recurring items (attributable to the (20) 3 2 - -
owners of the Company)
Advisory and other restructuring costs - organic (3) (6) (8) -56% -48%
Loss after tax - organic (attributable to the owners of the Company) (23) (3) (6) - -
Restructuring costs - Voluntary Staff Exit Plan (VEP) - - (81) - -
Provisions/net loss relating to NPE sales, including restructuring expenses(2) (3) (5) (86) -97% -31%
Share of profit from associates (CNP) - 2 - - -
Reversal of impairment of DTA and impairment of other tax receivables - 101 (13) - -
(Loss)/profit after tax (attributable to the owners of the Company) (26) 95 (186) -86% -
1. The interest income, non-interest income, staff costs, other operating
expenses and loan credit losses related to Project Helix are disclosed under
'Provisions/net loss relating to NPE sales, including restructuring expenses'
in the underlying basis, in order to separate out the impact of this
non-recurring transaction. 2. 'Provisions/net loss relating to NPE sales
including restructuring expenses' refer to the net loss on transactions
completed during FY2019, net loan credit losses on transactions under
consideration at 31 December 2019 and 31 March 2020, as well as the
restructuring costs relating to these trades. For further details please see
analysis below.
The tax charge for 1Q2020 is €2 mn, at similar levels to 4Q2019 and 1Q2019.
Loss after tax and before non-recurring items (attributable to the owners of
the Company) for 1Q2020 was €20 mn, compared to a profit of €2 mn for
4Q2019 and €3 mn for 1Q2019.
Advisory and other restructuring costs - organic for 1Q2020 amounted to €3
mn, compared to €8 mn for 4Q2019 and €6 mn for 1Q2019.
Loss after tax arising from the organic operations (attributable to the owners
of the Company) for 1Q2020 amounted to €23 mn, compared to €6 mn for
4Q2019 and to €3 mn for 1Q2019.
Restructuring costs relating to the Voluntary Staff Exit Plan (VEP) amounted
to €81 mn for 4Q2019. For further details please refer to Section A.2.2
'Total expenses'.
Provisions/net loss relating to NPE sales, including restructuring expenses
for 1Q2020 amounts to €3 mn (compared to €86 mn for 4Q2019) and relates
mainly to restructuring expenses for NPE sales. The amount of €86 mn for
4Q2019 includes the net result of the sale of the Helix portfolio (including
the interest income, non-interest income, staff costs, other operating
expenses and loan credit losses) of a loss of €6 mn, as well as a reversal
of impairment of €6 mn resulting from the sale of the Velocity 2 portfolio.
Also, additional loan credit losses within the context of IFRS 9 of €75 mn
were recorded in 4Q2019 as a result of the anticipated balance sheet
de-risking through further NPE sales in the future. Restructuring costs
related to these projects totalling €10 mn for 4Q2019 were also included.
Share of profit from associates totalled €2 mn for 1Q2019 and related to the
share of profit from CNP Cyprus Insurance Holdings Limited (CNP). In October
2019, the Group completed the sale of its entire shareholding of 49.9% in its
associate CNP, that had been acquire d as
part of the acquisition of certain operations of Laiki Bank in 2013, for a
cash consideration of €97.5 mn.
The reversal of impairment of DTA and impairment of other tax receivables
totalled €101 mn for 1Q2019, comprising the net positive impact of €109 mn
following amendments to the Income Tax legislation in Cyprus adopted in March
2019, and an impairment of €8 mn relating to Greek tax receivables adversely
impacted from legislative changes. The carrying value of the remaining
receivable as at 31 March 2020 and 31 December 2019 was c.€5 mn. In
addition, levy in the form of a guarantee fee of €13 mn was recorded in
4Q2019 in relation to the right to convert tax losses into a tax credit. For
further information, please refer to Section A.1.1. Capital Base, 'Legislative
amendments for the conversion of DTA to DTC'.
Loss after tax attributable to the owners of the Company for 1Q2020 was €26
mn, compared to a loss of €186 mn for 4Q2019 and to a profit of €95 mn for
1Q2019.
B. Operating Environment
The COVID-19 outbreaks, both domestically and globally, have up-ended the
initial economic projections. The IMF now expects the global economy to
contract by 3% in 2020, which is worse than during the 2008-2009 financial
crisis. This contrasts with its February update that was anticipating a 3%
growth instead, in the global economy. Likewise, the US is expected to
contract by 5.9% in 2020 and the Euro Area by 7.5%. For Cyprus the IMF now
expects the economy to contract by 6.5% in the year, compared with earlier
projections for growth of 2.9%. Strong recoveries are expected in 2021
provided the pandemic fades away in the second half of 2020 and containment
measures are gradually unwound. The IMF expects growth of 5.8% in the global
economy in 2021 under a baseline scenario. Likewise, the Cyprus economy is
expected to grow by 5.6% in 2021.
The Cyprus economy has achieved considerable progress in the programme years,
and the recovery that started in 2015 continued uninterruptedly into 2019.
Real GDP increased by 3.2% in 2019 following an increase of 4.1% in 2018. The
unemployment rate had dropped to 7% in 2019 from over 16% in 2014. Up until
the end of 2019 an improving labour market, bank recapitalisations, lower
borrowing costs and firmer external demand had bolstered purchasing power and
construction activity. The business environment overall experienced
uninterrupted improvement in this period.
In 2020 economic activity is expected to be held back as tourism inflows are
severely impacted. Based on flash estimates, real GDP increased by 0.8%
seasonally adjusted in the first quarter of the year compared with an increase
of 3.4% in the same period the year before. From monthly figures the average
unemployment rate was 6.1% in the quarter with an uptick in March. Tourist
arrivals declined by 31% in the quarter and by 67% in March alone, with the
travel ban taking effect from about the middle of the month onwards. Tourist
receipts dropped by 38.9% in the same period and by 73.5% in March. Car
registrations, a gauge of consumer demand, dropped by 29% in January-April
after dropping by 36% in March and by 82% in April. Economic sentiment turned
negative in March and April. The economic sentiment indicator was down by
12.2% on average in January-April 2020 dropping by 32.4% in April. In the
banking sector new lending to businesses and households remained at about the
same levels, and slightly higher in January-April, compared with the same
period the year before.
Fiscal policy
In 2020 the Government budget is expected to post a steep deficit as a result
of the measures the Government announced in response to the COVID-19 pandemic
and economic contraction. According to the Stability Programme 2020-2023 as
published in early May, the fiscal impact of these measures in 2020 is
estimated at 4.4% of GDP.
Measures taken by the Cyprus Government are broadly in line with those taken
by other governments in Europe and around the world with differences in terms
of size. These measures include support for short-time work, tax forbearance
and household income support. Liquidity support measures not included in the
budget calculations include the freeze on loan repayments until the end of the
year. An initial scheme for bank loan guarantees has been withdrawn after
disagreements in Parliament.
Total Government revenue is expected to drop as the economy contracts in the
year and tax revenues are lost. However, the decline in revenues is expected
to be mitigated by higher social security contributions resulting from
increased contributions in the context of the National Health System. Given a
drop in nominal GDP, the ratio of revenues are expected to rise according to
the Stability Programme thus containing the potential deterioration of the
fiscal deficit. The final deficit will be determined by the actual performance
of the economy and any additional support measures that may be introduced in
the year that are now not budgeted for.
According to the Ministry of Finance (Stability Programme 2020-2023, April
2020), the budget deficit is estimated at 4.2% of GDP in 2020 with public debt
rising to 116.8%. The steep rise in the debt ratio also reflects the recent
revision of the Annual Financing Programme targeted for the pandemic crisis
and the decline in nominal GDP. The budget deficit can be expected to narrow
gradually over 2021-2022 as the economy strengthens and the Government reduces
spending as a share of GDP.
In 2008-2012, the underlying dynamics in public finances were unstable. Public
debt was rising driven by large unsustainable budget deficits whilst economic
activity was stagnating. Currently the situation is vastly different. Public
debt is higher in absolute terms compared to 2012, but prior to the virus
outbreak, the combination of relatively high growth rates, large budget
surpluses and low debt service costs, were supporting a sustained decline.
This declining trend will be halted in 2020-2021 as a result of the pandemic
induced recession, but it is expected to resume as growth returns.
European Union support
European institutions have stepped up efforts to tackle the crisis. The
European Commission has suspended the fiscal and state aid rules paving the
way for member states to incur deficits without punitive repercussions. The
ECB launched a new wave of net asset purchases and introduced a €750 bn
Pandemic Emergency Purchase Programme. The Bank's supervisory authority eased
capital requirements providing relief to banks and relaxed the rules around
non-performing loans. The Pandemic Emergency Purchase Programme with its
flexible framework, paves the way for massive bond-buying this year ensuring
funding conditions remain favourable for countries facing a rapid
deterioration in their public finances.
The Eurogroup of Eurozone finance ministers concluded a package of fiscal
stimulus in early April for a total of €540 bn. This package includes credit
lines from the ESM for €240 bn; loan guarantees from the EIB for an
additional €200 bn; and labour market support for €100 bn in the so-called
SURE programme introduced by the European Commission.
In a more recent development French President Emmanuel Macros and German
Chancellor Angela Merkel published a joint statement on how to fund Europe's
recovery from the COVID-19 pandemic. The proposal calls for a €500 bn
borrowing by the European Commission to be distributed as grants not loans, to
the areas and industries most affected by the pandemic. This is mutual debt
and is subject to the approval of all 27 countries of the European Union.
Banking sector and non-performing loans
In the banking sector, total loans to residents and non-residents alike, were
€33.6 bn at the end of March 2020. This corresponds to 164.5% of 2020
estimated nominal GDP. Total loans consisted of €7.1 bn to non-residents and
€26.5 bn to residents or €26.2 bn excluding the Government. The latter,
which include more than €9 bn in non-performing, were 128% of nominal GDP.
The stock of NPLs declined from €20.9 bn at the end of December 2017 to
€10.4 bn as at end-December 2018 after the sale of loans by the Bank
(Project Helix) and the resolution of the Cyprus Cooperative Bank. This is a
drop of €10.5 bn in the period. This drop originated from SMEs for €4.3 bn
and from households for €5.8 bn an additional €0.3 bn came from other
sectors. The stock of NPLs dropped to €9.5 bn at the end of November 2019.
This consisted of €4.9 bn from households and €3.7 bn from SMEs. Other
non-financial companies and the financial companies comprised the remaining
€1 bn.
The ratio of NPLs to gross loans was 28.6% in November 2019 from 30.5% at end
December-2018 reflecting a further drop in both non-performing loan and loans
outstanding. The share of restructured facilities was 44.2% and the coverage
ratio stood at 54.6% at the end of November.
Sovereign ratings
The sovereign risk ratings of the Cyprus Government improved considerably in
recent years reflecting expectations of a sustained decline in public debt as
a ratio to GDP, expected further declines in non-performing exposures and a
more stable price environment following a protracted period of deflation and
low inflation. In November 2018 Fitch Ratings upgraded its Long-Term Issuer
Default ratings for Cyprus to investment grade (BBB-) with stable outlook. In
October 2019, Fitch affirmed its rating and upgraded its outlook to positive.
In July 2018 Moody's Investors Service upgraded Cyprus' sovereign rating to
Ba2 from Ba3 with a stable outlook. In September 2019 Moody's affirmed its
rating and upgraded its outlook to positive. S&P Global Ratings maintains
an investment grade rating (BBB-) with a stable outlook since September 2018,
which was affirmed in March 2020.
In April 2020, Fitch affirmed its rating and revised its outlook to stable,
reflecting the significant impact the global COVID-19 pandemic might have on
the Cyprus economy and fiscal position. In April 2020 Moody's Investors
Service issued an Update on their credit opinion for the Cyprus Sovereign and
revised their forecasts for the Cyprus economy in view of the coronavirus
outbreak. According to the Update, the outbreak will weigh on near term growth
and fiscal prospects but the impact on the credit profile is expected to be
temporary.
C. Business Overview
As the Cypriot operations account for 99% of gross loans and 100% of customer
deposits, the Group's financial performance is highly correlated to the
economic and operating conditions in Cyprus. In June 2019, Moody's Investors
Service affirmed the Bank's long-term deposit rating of B3 (positive outlook)
and in July 2019, Standard and Poor's affirmed their long-term issuer credit
rating on the Bank of 'B+' (stable outlook). In November 2019, Fitch Ratings
affirmed their long-term issuer default rating of B- (positive outlook). In
April 2020, Fitch Ratings revised their outlook to negative, reflecting the
significant impact the outbreak of COVID-19 might have on the Cypriot economy
and consequently the Bank.
The Group is closely monitoring developments in, and the effects of COVID-19
on both the global and Cypriot economy. On the basis of currently available
information, the Group is not in a position to accurately assess the magnitude
of the impact of COVID-19 on the Group's operations and financial results, as
this will principally depend on the rate and extent of the spread of the
virus, its direct and indirect impact on customers and the effectiveness of
the regulatory and fiscal measures taken to support the economy and mitigate
the impact of the virus.
In common with other European banks, the persistently low interest rate
environment continues to present a challenge to the Group's profitability. As
a consequence of the current challenging economic conditions resulting from
the COVID-19 outbreak, the Group has updated its macroeconomic assumptions
underlying the IFRS 9 calculation of loan credit losses for 1Q2020 in line
with the relevant regulatory guidance, resulting in increased organic loan
credit losses for 1Q2020 of €28 mn. Under the base scenario, the Bank is
expecting the Cypriot economy to contract by 6.9% in 2020, with gradual
recovery from 2021 onwards, with GDP growth of 5.4% for 2021. The Bank's
projections are in line with those published by the IMF, the Cyprus Ministry
of Finance, the EBRD, the European Commission and the Economics Research
Centre of the University of Cyprus.
Net fee and commission income for 1Q2020 amounts to €38 mn, of which 44% is
estimated to relate to transactional activity. Despite the lower transactional
income and lower demand for loans currently observed, the on-going economic
uncertainty means that the Group does not have sufficient visibility about the
impact of COVID-19 on its operations or financial results, and therefore, is
currently not in a position to provide guidance for the current financial
year. However, the Group's good capital base and strong liquidity, position
it to be able to support its customers through this period of extreme
volatility.
The Group's medium-term strategic priorities remain clear, with a sustained
focus on strengthening its balance sheet, and improving asset quality and
efficiency in order to continue to play a vital role in supporting the
Cypriot economy.
In light of the recent outbreak of COVID-19, the Group is taking all
appropriate measures, in line with guidelines and recommendations issued by
the Ministry of Health, to protect the health of both staff and customers,
while ensuring the operational resilience of the Bank.
Upon the outbreak of COVID-19, the Pandemic Incident Management Plan (PIMP) of
the Group was invoked and a dedicated team is monitoring the situation
domestically and globally and provide guidance on health and safety measures,
travel advice and business continuity for our Group. Local government
guidelines are being followed in response to the virus. Also, the potential
economic implications for the sectors where the Group is active in are being
assessed in order to identify possible mitigating actions.
In accordance with the Pandemic Plan, the Group has adopted a set of measures
to ensure minimum disruption to its operations. The measures comprise rules
for quarantine for employees who are vulnerable due to health conditions and
for those who have returned from epicentres of the infection. The Group has
replaced face-to-face meetings with telecommunications, adjusting the
customary etiquette of personal contact, including those with customers. Staff
for critical functions has been split into separate locations. In addition, to
ensure continuity of business, many employees are working from home and the
remote access capability has been updated significantly. Additionally, the
Group follows strict rules of hygiene, increased intensity of cleaning and
disinfection of spaces, and other measures to protect the health and safety of
staff and customers.
As the leading financial institution in the country, the Group has a good
capital position and a significant liquidity surplus of €3 bn as it heads
into uncertain times, to support its customers and the economy to recover from
this shock. The Bank has considerable experience in managing challenging
circumstances. The Management maintains its relentless focus on asset quality,
funding, capital and efficiency to ensure the Bank maintains its financial
strength, but remains equally flexible to adjust its short term priorities as
needed to react to the emerging conditions of these unprecedented times. The
Management's investment in the digital transformation programme has
strengthened the Group's operational resilience and enabled the full
deployment of digital service channels to customers. For further information,
please refer to the section "Digital Transformation" below.
In addition, the package of policy measures announced by the ECB and the
European Commission, as well as the unprecedented fiscal and other measures of
the Cyprus Government, should help reduce the negative impact and support the
recovery of the Cypriot economy.
Tackling the Bank's loan portfolio quality is of utmost importance for the
Group. The Group has been successful in engineering restructuring solutions
across the spectrum of its loan portfolio. Following the outbreak of COVID-19
the Group is now focused on arresting any potential asset quality
deterioration. Once economic conditions normalise, the Group expects to resume
its efforts to improve its asset quality position by seeking solutions, both
organic and inorganic, to make the Bank a stronger and safer institution,
capable of continuing to support the local economy.
The July 2018 foreclosure law amendments have expedited the process and
limited options to frustrate execution. In July 2019, the Cyprus Parliament
voted through certain changes to the 2018 law which, in the most part, seek to
(a) provide additional checks and balances where banks are seeking to
foreclose small loans (<€350 thousand) secured by a principal private
residence, and (b) extend the foreclosure timetable by extending various
notice periods. These amendments have not yet passed into law, as the
President of the Republic has referred these to the Supreme Court, based on
legal advice from the Attorney General that elements thereof are
unconstitutional. Discussions are on-going, including, inter alia, with the
Ministry of Finance, the CBC and the Financial Ombudsman, aiming to introduce
amendments to the foreclosure and loan restructuring framework that are
acceptable to all stakeholders. Following the outbreak of COVID-19, the
foreclosure process has been suspended until 31 August 2020, in line with the
latest decision of the Association of Cyprus Banks.
The strategic focus of the Group on asset quality, funding, capital and
efficiency aims to ensure that it maintains its financial strength. During the
quarter ended 31 March 2020, new lending amounted to €451 mn (increased by
2% qoq). To date, growth in new lending in Cyprus has been focused on selected
industries more in line with the Bank's target risk profile, such as tourism,
trade, real estate, professional services, information/communication
technologies, energy, education and green projects. Until recently, the Group
has also been exploring ways to grow its new lending, including careful,
modest new lending in shipping, syndicated loans, as well as other
initiatives, however, following the outbreak of COVID-19, new lending is
focused on supporting the Cypriot economy.
Following the outbreak of COVID-19, the sectors most adversely affected
initially are expected to be tourism, trade, transport and construction. The
Group has a well - diversified performing loan portfolio. As at 31 March
2020, the Group's performing loan book exposure to tourism was limited to
€1.0 bn, out of a total performing loan book of €9.2 bn. Respectively, the
Group's performing loan book exposure to trade was also €1.0 bn, whilst to
construction was limited to €0.5 bn. At the same time, the Group had only a
small performing loan book exposure to the oil and gas industry of c.€45 mn.
Aiming at supporting investments by SMEs and mid-caps to boost the Cypriot
economy, and create new jobs for young people, the Bank continues to provide
joint financed schemes. To this end, the Bank continues its partnership with
the European Investment Bank (EIB), the European Investment Fund (EIF), the
European Bank for Reconstruction and Development (EBRD) and the Cyprus
Government.
Management is also placing emphasis on diversifying income streams by
optimising fee income from international transaction services, wealth
management and insurance. The Group's insurance companies, EuroLife Ltd and
General Insurance of Cyprus Ltd operating in the sectors of life and general
insurance respectively, are leading players in the insurance business in
Cyprus, as such business have been providing a stable, recurring fee income,
further diversifying the Group's income streams. The insurance income net of
claims and commissions for 1Q2020 amounted to €11 mn, down by 8% yoy,
contributing to 19% of non-interest income.
In order to further optimise its funding structure, the Bank continues to
focus on the shape and cost of deposit franchise, taking advantage of the
increased customer confidence towards the Bank. The cost of deposits has been
reduced by 65 bps to 11 bps over the last 27 months. In addition, liquidity
fees for specific customer groups have been introduced in March 2020.
A key focus of the Group remains the active management of funding costs and
on-going running expenses. The Digital Transformation Programme that started
in 2017 has begun to deliver an improved customer experience (see section
below), whilst the branch footprint rationalisation continued in 4Q2019,
further improving the Bank's operating model. The number of branches was
reduced by 18% in 2019 and the branch network is now less than half the size
it was in 2013. The management remains focused on further improvement in
efficiency.
Digital Transformation
As part of its vision to be the leading financial hub in Cyprus, the Bank
continues its Digital Transformation Programme, which focuses on three
strategic pillars: developing digital services and products that enhance the
customer experience, streamlining internal processes, and introducing new ways
of working to improve the workplace environment.
In recent months, various new features were introduced on the new mobile app,
to enhance self-service functionalities. Users can now retrieve a forgotten
user id, set a new passcode in case they forgot their old one and activate
their subscription without having to contact the bank. Additionally, users can
now purchase a Digipass through the mobile app, a verification instrument that
allows them to perform a variety of transactions securely. Finally, customers
can now register for a subscription to the Bank's digital channels without
having to fill in a physical form or visit a branch. Integration with modern
payment solutions has been made easier as users can now add their Visa cards
to the BoC Wallet (Android) through the mobile app directly.
Moreover, the launch of the new Cards and Payments systems has been completed.
This is expected to offer customised solutions and improve the customer
banking experience. For example, it is expected to offer new features through
mobile banking in 2020, such as the ability for the customer to freeze their
credit or debit card in the event of a loss (freeze and unfreeze), and the
ability to determine a maximum limit for specific transactions.
The adoption of digital products and services continued to grow and gain
momentum in 2019. As at the end of 2019, 78% of the number of transactions
involving deposits, cash withdrawals and internal/external transfers were
performed through digital channels (compared to 67% two years earlier).
Regarding the use of mobile banking, the number of active users increased by
20% in 2019, compared to the previous year.
In 2020, as a result of the COVID-19 restrictive measures, a reduction in cash
withdrawals and deposits performed through the branch network has been
observed. An increase in the adoption of digital products and services and in
digital subscriber penetration has also been observed as more customers have
gained access to digital channels and more cards have been issued. As at the
end of April 2020, 70% of customers were digitally engaged (up by 10 p.p. from
60% since the digital transformation programme was initiated in September
2017). A further increase is expected in 2Q2020 driven by the increase in the
number of subscribers and the number of cards that have been issued. Within
this context, the Bank has launched various initiatives aiming to provide
better, faster and safer services. Such initiatives include amongst others the
issuance of debit cards free of charge and on a fast track basis until the end
of May 2020, the provision of SMS Digipass devices free of charge, and the
ability for new customers to apply for account opening via the Bank's website.
As part of the Bank's ambition to be one of the cornerstones of the digital
economy, customers have been enabled to authorise the release of their
identification details to the Government, using the internet banking
credentials thus enabling a digital registration on the Government Gateway
Portal (Ariadni) where they can use electronic services that are made
available by the Government of Cyprus (up until now citizens needed to be
physically present to identify themselves).
In addition, the Bank has taken the necessary actions to enable customers to
purchase Qualified Digital Signature certificates, which can be used to
digitally sign Bank, Government as well as any other document that requires a
signature, eliminating the need of physical presence and enhancing the
customer experience. It should be noted that the Bank is one of the first
banks in Europe to offer a fully digital application process to acquire a
Qualified Digital Signature certificate.
Furthermore, changes in the workplace, with the introduction of new
technologies and tools that will drastically change the employee experience,
improving collaboration and knowledge sharing across the organisation, are
expected to be seen in 2020.
D. Strategy and Outlook
The strategic objectives for the Group are to become a stronger, safer and a
more focused institution capable of supporting the recovery of the Cypriot
economy and delivering appropriate shareholder returns in the medium term.
The key pillars of the Group's strategy are to:
· Arrest any asset quality deterioration resulting from the
outbreak of COVID-19 and further reduce the level of delinquent loans upon
normalisation of market and operational conditions
· Achieve a lean operating model
· Maintain an appropriate capital position by internally generating
capital
· Further optimise the funding structure
· Focus on the core Cyprus market
· Deliver value to shareholders and other stakeholders
KEY PILLARS ACTION TAKEN IN 1Q2020 and 2019 PLAN OF ACTION
1. Arrest any asset quality deterioration resulting from the outbreak • Please refer to Sections A.1.5 'Loan Portfolio Quality' and • Focus on realising collateral via consensual and non
of COVID-19 and further reduce the level of delinquent loans upon A.1.6 'Real Estate Management Unit' -consensual foreclosures
normalisation of market and operational conditions
• Real estate management via REMU
• Continue to explore alternative measures for accelerating NPE
reduction, such as NPE sales, securitisations etc
2. Achieve a lean operating model • Please refer to Section A.2.4 '(Loss)/profit after tax • Implementation of Digital Transformation Programme underway,
(attributable to the owners of the Company)' and Section A.2.2 'Total aimed at enhancing productivity through alternative distribution channels and
expenses' for further details in relation to the voluntary staff exit plan reducing operating costs over time
that took place in 4Q2019 and Section C 'Business Overview'
• Management remains focused on further improvement in
efficiency
3. Maintain an appropriate capital position • Please refer to Section A.1.1 'Capital Base' • Internally generating capital
4. Further optimise the funding structure • Please refer to Section A.1.3 'Funding and Liquidity' • Focus on shape and cost of deposit franchise
• Introduction of liquidity fees
5. Focus on core Cyprus market • Please refer to Sections A.1.4 'Loans', A.2.1 'Total income' • Targeted lending in Cyprus into growing sectors to fund
and C 'Business Overview' recovery
• New loan origination, while maintaining lending yields
• Revenue diversification via fee and commission income from
international banking, wealth and insurance which provides stable, recurring
income
6. Deliver value • Please refer to page 7 for the Key Balance Sheet figures and • Deliver appropriate medium-term risk-adjusted returns
ratios, as well as the Capital ratios and risk weighted assets
The Group is closely monitoring developments in, and the effects of COVID-19
on both the global and Cypriot economy. On the basis of currently available
information, the Group is not in a position to accurately assess the magnitude
of the impact of COVID-19 on the Group's operations and financial results, as
this will principally depend on the rate and extent of the spread of the
virus, its direct and indirect impact on customers and the effectiveness of
the regulatory and fiscal measures taken to support the economy and mitigate
the impact of the virus.
In common with other European banks, the persistently low interest rate
environment continues to present a challenge to the Group's profitability. As
a consequence of the current challenging economic conditions resulting from
the COVID-19 outbreak, the Group has updated its macroeconomic assumptions
underlying the IFRS 9 calculation of loan credit losses for 1Q2020 in line
with the relevant regulatory guidance, resulting in increased organic loan
credit losses for 1Q2020 of €28 mn.
Despite the lower transactional income and lower demand for loans currently
observed, the on-going economic uncertainty means that the Group does not have
sufficient visibility about the impact of COVID-19 on its operations or
financial results, and therefore, is currently not in a position to provide
guidance for the current financial year. However, the Group's good capital
base and strong liquidity, position it to be able to support its customers
through this period of extreme volatility.
The Group's medium-term strategic priorities remain clear, with a sustained
focus on strengthening its balance sheet, and improving asset quality and
efficiency in order to continue to play a vital role in supporting the
Cypriot economy.
E. Statutory Financial Results
Unaudited Interim Consolidated Income Statement
Three months ended
31 March
2020 2019
(restated)
€000 €000
Turnover 207,575 240,815
Interest income 101,673 126,967
Income similar to interest income 12,487 13,199
Interest expense (17,217) (26,313)
Expense similar to interest expense (12,017) (11,807)
Net interest income 84,926 102,046
Fee and commission income 40,107 42,239
Fee and commission expense (2,063) (3,210)
Net foreign exchange gains 8,662 6,869
Net (losses)/gains on financial instrument transactions and (3,812) 3,953
disposal/dissolution of subsidiaries
Insurance income net of claims and commissions 11,404 12,413
Net losses from revaluation and disposal of investment properties (284) (212)
Net gains on disposal of stock of property 1,103 4,208
Other income 4,465 8,075
144,508 176,381
Staff costs (49,051) (57,099)
Special levy on deposits on credit institutions in Cyprus, contribution to (9,195) (12,091)
Single Resolution Fund and other levies
Other operating expenses (42,593) (60,831)
43,669 46,360
Net gains on derecognition of financial assets measured at amortised cost 954 2,848
Credit losses to cover credit risk on loans and advances to customers (63,802) (59,822)
Credit losses of other financial instruments (662) (7,441)
Impairment of non-financial assets (3,803) (1,389)
Loss before share of (loss)/profit from associates (23,644) (19,444)
Share of (loss)/profit from associates (438) 2,228
Loss before tax (24,082) (17,216)
Income tax (1,726) 112,353
(Loss)/profit after tax for the period (25,808) 95,137
Attributable to:
Owners of the Company (25,912) 94,690
Non-controlling interests 104 447
(Loss)/profit for the period (25,808) 95,137
Basic and diluted (loss)/profit per share attributable to the owners of the (5.8) 21.2
Company (€ cent)
Unaudited Interim Consolidated Statement of Comprehensive Income
Three months ended
31 March
2020 2019
€000 €000
(Loss)/profit for the period (25,808) 95,137
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in
subsequent periods
Fair value reserve (debt instruments)
Net (losses)/gains on investments in debt instruments measured at fair value (25,643) 6,951
through OCI (FVOCI)
Transfer to the consolidated income statement on disposal (1,971) 396
(27,614) 7,347
Foreign currency translation reserve
Profit/(loss) on translation of net investment in foreign branches and 19,766 (6,809)
subsidiaries
(Loss)/profit on hedging of net investments in foreign branches and (19,087) 6,019
subsidiaries
Transfer to the consolidated income statement on dissolution of foreign 105 -
subsidiary
784 (790)
Total OCI that may be reclassified in the consolidated income statement in (26,830) 6,557
subsequent periods
OCI not to be reclassified in the consolidated income statement in subsequent
periods
Fair value reserve (equity instruments)
Share of net gains from fair value changes of associates - 2,156
Net gains on investments in equity instruments designated at FVOCI 94 176
94 2,332
Property revaluation reserve
Deferred Tax (901) 29
Actuarial losses on the defined benefit plans
Remeasurement losses on defined benefit plans (126) (1,991)
Total OCI not to be reclassified in the consolidated income statement in (933) 370
subsequent periods
Other comprehensive (loss)/income for the period net of taxation (27,763) 6,927
Total comprehensive (loss)/income for the period (53,571) 102,064
Attributable to:
Owners of the Company (53,429) 101,599
Non-controlling interests (142) 465
Total comprehensive (loss)/income for the period (53,571) 102,064
Unaudited Interim Consolidated Balance Sheet
31 March 31 December 2019
2020
Assets €000 €000
Cash and balances with central banks 4,398,781 5,060,042
Loans and advances to banks 455,284 320,881
Derivative financial assets 20,065 23,060
Investments 1,724,850 1,682,869
Investments pledged as collateral 222,752 222,961
Loans and advances to customers 10,596,536 10,721,841
Life insurance business assets attributable to policyholders 416,209 458,852
Prepayments, accrued income and other assets 264,351 243,930
Stock of property 1,372,858 1,377,453
Deferred tax assets 341,333 379,126
Investment properties 134,112 136,197
Property and equipment 283,850 288,054
Intangible assets 173,864 178,946
Investments in associates and joint venture 1,959 2,393
Non-current assets and disposal groups held for sale 23,988 26,217
Total assets 20,430,792 21,122,822
Liabilities
Deposits by banks 395,609 533,404
Repurchase agreements 169,673 168,129
Derivative financial liabilities 70,174 50,593
Customer deposits 16,245,575 16,691,531
Insurance liabilities 594,364 640,013
Accruals, deferred income, other liabilities and other provisions 316,493 324,246
Pending litigation, claims, regulatory and other matters 102,225 108,094
Subordinated loan stock 254,850 272,170
Deferred tax liabilities 46,768 46,015
Total liabilities 18,195,731 18,834,195
Equity
Share capital 44,620 44,620
Share premium 1,294,358 1,294,358
Revaluation and other reserves 181,160 210,701
Retained earnings 466,403 490,286
Equity attributable to the owners of the Company 1,986,541 2,039,965
Other equity instruments 220,000 220,000
Total equity excluding non‑controlling interests 2,206,541 2,259,965
Non‑controlling interests 28,520 28,662
Total equity 2,235,061 2,288,627
Total liabilities and equity 20,430,792 21,122,822
Comparative information was restated as follows:
· Following the change in 2019 in the classification of long-term
leased properties with rental yield at market level which are leased out under
operating leases as investment properties, gain on disposal of these
properties of €192 thousand was reclassified from 'Net gains on disposal of
stock of property' to 'Net losses from revaluation and disposal of investment
properties' during the three months ended 31 March 2019. The disclosures on
the change in the classification are presented in the Consolidated Financial
Statements for the year ended 31 December 2019 within the Annual Financial
Report.
· 'Fee and commission income' and 'Fee and commission expense' as
restated, include elimination of intragroup amounts between 'Fee and
commission income' and 'Fee and commission expense' amounting to €539
thousand.
· Levy in the form of a guarantee fee relating to the revised
income tax legislation of €5,753 thousand has been reclassified from 'Fee
and commission expense' to 'Special levy on deposits on credit institutions in
Cyprus, contribution to Single Resolution Fund and other levies'.
· Comparative information for turnover was restated to include 'Net
gains on disposal of stock of property' in the turnover, the effect of the
change in the classification of properties which are leased out under
operating leases and the effect of the change in the fee and commission income
as described above.
The above restatements are consistent with the presentation of such amounts in
the Consolidated Financial Statements for the year ended 31 December 2019
within the 2019 Annual Financial Report and these did not have an impact on
the results for the period or the equity of the Group.
Unaudited Interim Consolidated Statement of Changes in Equity
Attributable to the shareholders of the Company Other equity instruments Non- controlling interests Total
equity
Share Share Treasury shares Retained earnings Property revaluation reserve Financial instruments fair value reserve Life insurance in-force business reserve Foreign currency translation reserve Total
capital premium
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2020 44,620 1,294,358 (21,463) 490,286 79,286 33,900 102,051 16,927 2,039,965 220,000 28,662 2,288,627
(Loss)/profit for the period - - (25,912) - - - - (25,912) - 104 (25,808)
Other comprehensive (loss)/income after tax for the period - - (126) (676) (27,499) - 784 (27,517) - (246) (27,763)
Total comprehensive (loss)/income after tax for the period - - (26,038) (676) (27,499) - 784 (53,429) - (142) (53,571)
Decrease in value of in-force life insurance business - - - 2,457 - - (2,457) - - - - -
Tax on decrease in value of in-force life insurance business - - - (307) - - 307 - - - - -
Change in the holding of Undertakings for Collective Investments in - - - 5 - - - - 5 - - 5
Transferable Securities (UCITS) Fund
31 March 2020 44,620 1,294,358 (21,463) 466,403 78,610 6,401 99,901 17,711 1,986,541 220,000 28,520 2,235,061
Attributable to the shareholders of the Company Other equity instruments Non- controlling interests Total
equity
Share Share Treasury shares Retained earnings Property revaluation reserve Financial instruments fair value reserve Life insurance in-force business reserve Foreign currency translation reserve Total
capital premium
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2019 44,620 1,294,358 (21,463) 591,941 79,433 15,289 101,001 16,151 2,121,330 220,000 25,998 2,367,328
Profit for the period - - - 94,690 - - - - 94,690 - 447 95,137
Other comprehensive (loss)/income after tax for the period - - - (1,991) 22 9,668 - (790) 6,909 - 18 6,927
Total comprehensive income/(loss) after tax for the period - - - 92,699 22 9,668 - (790) 101,599 - 465 102,064
Increase in value of in-force life insurance business - - - (800) - - 800 - - - - -
Tax on increase in value of in-force life insurance business - - - 100 - - (100) - - - - -
31 March 2019 44,620 1,294,358 (21,463) 683,940 79,455 24,957 101,701 15,361 2,222,929 220,000 26,463 2,469,392
F. Notes
F.1 Reconciliation of income statement between statutory and
underlying basis
€ million Underlying basis NPE Other Statutory
basis
Sales
Net interest income 85 - - 85
Net fee and commission income 38 - - 38
Net foreign exchange gains and net gains on financial instrument transactions 6 - (1) 5
and disposal/dissolution of subsidiaries
Insurance income net of claims and commissions 11 - - 11
Net gains from revaluation and disposal of investment properties and on 1 - - 1
disposal of stock of properties
Other income 4 - - 4
Total income 145 - (1) 144
Total expenses (93) (3) (5) (101)
Operating profit 52 (3) (6) 43
Loan credit losses (64) - 1 (63)
Impairments of other financial and non-financial assets (4) - - (4)
Provisions for litigation, claims, regulatory and other matters (2) - 2 -
Loss before tax and non-recurring items (18) (3) (3) (24)
Tax (2) - - (2)
Profit attributable to non-controlling interests (0) - - (0)
Loss after tax and before non-recurring items (attributable to the owners of (20) (3) (3) (26)
the Company)
Advisory and other restructuring costs-organic (3) - 3 -
Loss after tax - organic* (attributable to the owners of the Company) (23) (3) - (26)
Provisions/net loss relating to NPE sales, including restructuring expenses (3) 3 - -
Loss after tax (attributable to the owners of the Company) (26) - - (26)
*This is the loss after tax (attributable to the owners of the Company),
before the provisions/net loss relating to NPE sales, including restructuring
expenses.
The reclassification differences between the statutory basis and underlying
basis mainly relate to the impact from 'non-recurring items' and are explained
as follows:
NPE sales
· Total expenses include restructuring costs of
€3 million mainly relating to the sale of portfolio of NPEs and are
presented within 'Provisions/net loss relating to NPE sales, including
restructuring expenses' under the underlying basis.
Other reclassifications
· Advisory and other restructuring costs of
approximately €3 million included in 'Other operating expenses' under the
statutory basis are separately presented under the underlying basis since they
represent one-off items.
· Provisions for litigation, claims, regulatory and
other matters amounting to €2 million included in 'Other operating expenses'
under the statutory basis, are separately presented under the underlying
basis, since they mainly relate to cases that arose outside the normal
activities of the Group.
· Net losses on loans and advances to customers at
FVPL of €1 million included in 'Loan credit losses' under the underlying
basis are included in 'Net gains on financial instrument transactions and
disposal/dissolution of subsidiaries' under the statutory basis. Their
classification under the underlying basis is consistent to the net losses on
loans and advances to customers at amortised cost.
F.2 Customer deposits
The analysis of customer deposits is presented below:
31 March 31 December 2019
2020
By type of deposit €000 €000
Demand 7,438,461 7,595,231
Savings 1,648,093 1,567,344
Time or notice 7,159,021 7,528,956
16,245,575 16,691,531
By geographical area
Cyprus 16,245,575 16,691,531
By currency
Euro 14,584,183 15,009,828
US Dollar 1,281,668 1,286,292
British Pound 287,345 288,289
Russian Rouble 22,343 30,113
Swiss Franc 10,771 10,803
Other currencies 59,265 66,206
16,245,575 16,691,531
By customer sector
Corporate 1,099,297 1,117,222
Global corporate 714,437 691,550
SMEs 746,483 770,655
Retail 9,965,445 10,140,920
Restructuring
- Corporate 43,346 52,421
- SMEs 21,427 28,222
- Retail other 9,615 10,507
Recoveries
- Corporate 5,245 6,140
International banking services 3,304,392 3,543,315
Wealth management 335,888 330,579
16,245,575 16,691,531
Deposits by geographical area are based on the originator country of the
deposit.
F.3 Loans and advances to customers
31 March 31 December 2019
2020
€000 €000
Gross loans and advances to customers at amortised cost 12,001,884 12,008,146
Allowance for ECL for impairment of loans and advances to customers (1,692,457) (1,655,598)
Loans and advances to customers at amortised cost 10,309,427 10,352,548
Loans and advances to customers measured at FVPL 287,109 369,293
10,596,536 10,721,841
F.4 Credit risk concentration of gross loans and advances to
customers
Industry and business lines concentrations and geographical analysis of Group
gross loans and advances to customers at amortised cost are presented in the
tables below:
31 March 2020 Cyprus Other countries Total Residual fair value adjustment on initial recognition Gross loans at amortised cost after residual fair value adjustment on initial
recognition
By economic activity €000 €000 €000 €000 €000
Trade 1,345,760 11,760 1,357,520 (16,498) 1,341,022
Manufacturing 454,746 2,803 457,549 (4,583) 452,966
Hotels and catering 950,556 848 951,404 (17,343) 934,061
Construction 818,215 3,019 821,234 (10,492) 810,742
Real estate 1,135,606 23,997 1,159,603 (14,608) 1,144,995
Private individuals 5,887,253 900 5,888,153 (108,600) 5,779,553
Professional and other services 779,479 31,039 810,518 (20,832) 789,686
Other sectors 755,646 685 756,331 (7,472) 748,859
12,127,261 75,051 12,202,312 (200,428) 12,001,884
By business line
Corporate 1,977,108 21,199 1,998,307 (19,453) 1,978,854
Global corporate 1,927,092 45,702 1,972,794 (16,006) 1,956,788
SMEs 1,136,957 7,364 1,144,321 (16,240) 1,128,081
Retail
- housing 2,839,896 - 2,839,896 (40,462) 2,799,434
- consumer, credit cards and other 891,694 786 892,480 1,531 894,011
Restructuring
- corporate 269,540 - 269,540 (2,657) 266,883
- SMEs 299,926 - 299,926 (4,266) 295,660
- retail housing 335,250 - 335,250 (2,878) 332,372
- retail other 176,366 - 176,366 (2,577) 173,789
Recoveries
- corporate 100,282 - 100,282 (2,671) 97,611
- SMEs 445,762 - 445,762 (16,308) 429,454
- retail housing 887,357 - 887,357 (37,353) 850,004
- retail other 676,874 - 676,874 (37,173) 639,701
International banking services 130,224 - 130,224 (1,342) 128,882
Wealth management 32,933 - 32,933 (2,573) 30,360
12,127,261 75,051 12,202,312 (200,428) 12,001,884
31 December 2019 Cyprus Other countries Total Residual fair value adjustment on initial recognition Gross loans at amortised cost after residual fair value adjustment on initial
recognition
By economic activity €000 €000 €000 €000 €000
Trade 1,334,506 11,092 1,345,598 (16,375) 1,329,223
Manufacturing 456,129 3,222 459,351 (4,659) 454,692
Hotels and catering 932,435 840 933,275 (17,436) 915,839
Construction 838,388 3,272 841,660 (10,821) 830,839
Real estate 1,131,179 23,777 1,154,956 (14,760) 1,140,196
Private individuals 5,892,821 929 5,893,750 (110,332) 5,783,418
Professional and other services 797,044 41,970 839,014 (22,745) 816,269
Other sectors 741,858 683 742,541 (4,871) 737,670
12,124,360 85,785 12,210,145 (201,999) 12,008,146
By business line
Corporate 1,970,656 22,371 1,993,027 (18,212) 1,974,815
Global corporate 1,862,119 53,972 1,916,091 (16,342) 1,899,749
SMEs 1,118,499 8,632 1,127,131 (16,827) 1,110,304
Retail
- housing 2,834,411 - 2,834,411 (41,724) 2,792,687
- consumer, credit cards and other 893,199 810 894,009 1,835 895,844
Restructuring
- corporate 323,670 - 323,670 (2,545) 321,125
- SMEs 322,284 - 322,284 (5,007) 317,277
- retail housing 353,593 - 353,593 (3,059) 350,534
- retail other 181,768 - 181,768 (2,723) 179,045
Recoveries
- corporate 93,299 - 93,299 (2,692) 90,607
- SMEs 449,559 - 449,559 (15,981) 433,578
- retail housing 882,311 - 882,311 (37,654) 844,657
- retail other 670,787 - 670,787 (37,256) 633,531
International banking services 134,940 - 134,940 (1,288) 133,652
Wealth management 33,265 - 33,265 (2,524) 30,741
12,124,360 85,785 12,210,145 (201,999) 12,008,146
The loans and advances to customers in Cyprus include lending exposures to
Greek entities granted by BOC PCL in Cyprus in its normal course of business
with a carrying value of €182,697 thousand (31 December 2019: €184,130
thousand) and lending exposures in Cyprus with collaterals in Greece with a
carrying value of €82,732 thousand (31 December 2019: €80,324 thousand).
Loans and advances to customers classified as held for sale
Industry and business lines concentrations and geographical analysis of Group
loans and advances to customers at amortised cost classified as held for sale
are presented in the tables below:
31 March 2020 Cyprus Other countries Total Residual fair value adjustment on initial recognition Gross loans at amortised cost after residual fair value adjustment on initial
recognition
By economic activity €000 €000 €000 €000 €000
Trade 19,138 - 19,138 (1,215) 17,923
Manufacturing 6,599 - 6,599 (319) 6,280
Hotels and catering 5,628 - 5,628 (551) 5,077
Construction 11,273 - 11,273 (590) 10,683
Real estate 1,436 - 1,436 (153) 1,283
Private individuals 111,175 - 111,175 (6,239) 104,936
Professional and other services 17,654 - 17,654 (1,410) 16,244
Other sectors 5,527 - 5,527 (264) 5,263
178,430 - 178,430 (10,741) 167,689
By business line
Corporate 360 - 360 1 361
SMEs 3 - 3 - 3
Retail
- consumer, credit cards and other 18 - 18 (1) 17
Restructuring
- corporate 6,313 - 6,313 (89) 6,224
- SMEs 1,169 - 1,169 (2) 1,167
- retail housing 23 - 23 (1) 22
- retail other 7,082 - 7,082 (210) 6,872
Recoveries
- corporate 18,217 - 18,217 (851) 17,366
- SMEs 23,107 - 23,107 (1,308) 21,799
- retail housing 5,859 - 5,859 (581) 5,278
- retail other 116,205 - 116,205 (7,693) 108,512
International banking services 74 - 74 (6) 68
178,430 - 178,430 (10,741) 167,689
Loans and advances to customers classified as held for sale (continued)
31 December 2019 Cyprus Other countries Total Residual fair value adjustment on initial recognition Gross loans at amortised cost after residual fair value adjustment on initial
recognition
By economic activity €000 €000 €000 €000 €000
Trade 19,263 - 19,263 (1,224) 18,039
Manufacturing 6,649 - 6,649 (322) 6,327
Hotels and restaurants 5,725 - 5,725 (561) 5,164
Construction 11,187 - 11,187 (595) 10,592
Real estate 1,416 - 1,416 (153) 1,263
Private individuals 117,137 - 117,137 (6,474) 110,663
Professional and other services 18,068 - 18,068 (1,490) 16,578
Other sectors 5,519 - 5,519 (264) 5,255
184,964 - 184,964 (11,083) 173,881
By business line
Corporate 710 - 710 - 710
SMEs 5 - 5 - 5
Retail
- consumer, credit cards and other 330 - 330 - 330
Restructuring
- corporate 7,706 - 7,706 (88) 7,618
- SMEs 1,157 - 1,157 (2) 1,155
- retail housing 1,142 - 1,142 (15) 1,127
- retail other 41,996 - 41,996 (1,884) 40,112
Recoveries
- corporate 18,493 - 18,493 (853) 17,640
- SMEs 21,997 - 21,997 (1,306) 20,691
- retail housing 5,316 - 5,316 (564) 4,752
- retail other 86,039 - 86,039 (6,365) 79,674
International banking services 73 - 73 (6) 67
184,964 - 184,964 (11,083) 173,881
F.5 Analysis of loans and advances to customers by staging
The following tables present the Group's loans and advances to customers at
amortised cost by staging and by business line concentration:
31 March 2020 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on initial 6,524,224 2,128,637 2,937,478 611,973 12,202,312
recognition
Residual fair value adjustment on initial recognition (75,299) (20,594) (16,213) (88,322) (200,428)
Gross loans at amortised cost after residual fair value adjustment on initial 6,448,925 2,108,043 2,921,265 523,651 12,001,884
recognition
Gross loans at amortised cost before residual fair value adjustment on initial Stage 1 Stage 2 Stage 3 POCI Total
recognition
31 March 2020
By business line €000 €000 €000 €000 €000
Corporate 1,546,720 354,456 56,445 40,686 1,998,307
Global corporate 1,429,394 361,877 144,656 36,867 1,972,794
SMEs 766,782 330,902 34,283 12,354 1,144,321
Retail
- housing 2,081,153 643,996 102,685 12,062 2,839,896
- consumer, credit cards and other 552,376 270,969 49,625 19,510 892,480
Restructuring
- corporate 31,038 46,485 172,013 20,004 269,540
- SMEs 28,003 48,419 204,986 18,518 299,926
- retail housing 594 7,601 318,205 8,850 335,250
- retail other 224 1,804 167,249 7,089 176,366
Recoveries
- corporate - - 82,246 18,036 100,282
- SMEs - - 370,734 75,028 445,762
- retail housing - - 712,866 174,491 887,357
- retail other 169 18 509,392 167,295 676,874
International banking services 71,182 48,661 10,172 209 130,224
Wealth management 16,589 13,449 1,921 974 32,933
6,524,224 2,128,637 2,937,478 611,973 12,202,312
Residual fair value adjustment on initial recognition Stage 1 Stage 2 Stage 3 POCI Total
31 March 2020
By business line €000 €000 €000 €000 €000
Corporate (19,460) (926) 1,237 (304) (19,453)
Global corporate (10,771) (5,089) 401 (547) (16,006)
SMEs (11,447) (3,998) (108) (687) (16,240)
Retail
- housing (33,490) (6,397) (160) (415) (40,462)
- consumer, credit cards and other 1,321 227 185 (202) 1,531
Restructuring
- corporate 16 (1,403) (1,142) (128) (2,657)
- SMEs (96) (578) (2,321) (1,271) (4,266)
- retail housing - (33) (2,002) (843) (2,878)
- retail other - 21 (1,172) (1,426) (2,577)
Recoveries
- corporate - - (277) (2,394) (2,671)
- SMEs - - (2,660) (13,648) (16,308)
- retail housing - - (3,606) (33,747) (37,353)
- retail other - - (4,463) (32,710) (37,173)
International banking services (315) (1,008) (19) - (1,342)
Wealth management (1,057) (1,410) (106) - (2,573)
(75,299) (20,594) (16,213) (88,322) (200,428)
Gross loans at amortised cost after residual fair value adjustment on initial Stage 1 Stage 2 Stage 3 POCI Total
recognition
31 March 2020
By business line €000 €000 €000 €000 €000
Corporate 1,527,260 353,530 57,682 40,382 1,978,854
Global corporate 1,418,623 356,788 145,057 36,320 1,956,788
SMEs 755,335 326,904 34,175 11,667 1,128,081
Retail
- housing 2,047,663 637,599 102,525 11,647 2,799,434
- consumer, credit cards and other 553,697 271,196 49,810 19,308 894,011
Restructuring
- corporate 31,054 45,082 170,871 19,876 266,883
- SMEs 27,907 47,841 202,665 17,247 295,660
- retail housing 594 7,568 316,203 8,007 332,372
- retail other 224 1,825 166,077 5,663 173,789
Recoveries
- corporate - - 81,969 15,642 97,611
- SMEs - - 368,074 61,380 429,454
- retail housing - - 709,260 140,744 850,004
- retail other 169 18 504,929 134,585 639,701
International banking services 70,867 47,653 10,153 209 128,882
Wealth management 15,532 12,039 1,815 974 30,360
6,448,925 2,108,043 2,921,265 523,651 12,001,884
31 December 2019 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on initial 7,020,377 1,523,823 3,038,733 627,212 12,210,145
recognition
Residual fair value adjustment on initial recognition (75,508) (20,455) (16,516) (89,520) (201,999)
Gross loans at amortised cost after residual fair value adjustment on initial 6,944,869 1,503,368 3,022,217 537,692 12,008,146
recognition
Gross loans at amortised cost before residual fair value adjustment on initial Stage 1 Stage 2 Stage 3 POCI Total
recognition
31 December 2019
By business line €000 €000 €000 €000 €000
Corporate 1,643,073 248,464 60,676 40,814 1,993,027
Global corporate 1,467,004 263,296 149,464 36,327 1,916,091
SMEs 849,347 226,351 40,463 10,970 1,127,131
Retail
- housing 2,237,619 435,853 149,257 11,682 2,834,411
- consumer, credit cards and other 644,345 169,440 60,826 19,398 894,009
Restructuring
- corporate 32,992 61,896 198,152 30,630 323,670
- SMEs 49,279 55,902 195,681 21,422 322,284
- retail housing 2,613 3,881 336,931 10,168 353,593
- retail other 430 607 173,213 7,518 181,768
Recoveries
- corporate - - 74,899 18,400 93,299
- SMEs - - 374,671 74,888 449,559
- retail housing - - 706,060 176,251 882,311
- retail other 216 - 503,408 167,163 670,787
International banking services 76,253 45,300 12,805 582 134,940
Wealth management 17,206 12,833 2,227 999 33,265
7,020,377 1,523,823 3,038,733 627,212 12,210,145
Residual fair value adjustment on initial recognition Stage 1 Stage 2 Stage 3 POCI Total
31 December 2019
By business line €000 €000 €000 €000 €000
Corporate (18,187) (963) 1,241 (303) (18,212)
Global corporate (10,924) (4,871) - (547) (16,342)
SMEs (11,522) (4,374) (244) (687) (16,827)
Retail
- housing (35,575) (5,653) (237) (259) (41,724)
- consumer, credit cards and other 2,303 (377) 64 (155) 1,835
Restructuring
- corporate (113) (1,351) (833) (248) (2,545)
- SMEs (86) (557) (2,266) (2,098) (5,007)
- retail housing (9) (15) (2,039) (996) (3,059)
- retail other - - (1,134) (1,589) (2,723)
Recoveries
- corporate - - (262) (2,430) (2,692)
- SMEs - - (2,625) (13,356) (15,981)
- retail housing - - (3,668) (33,986) (37,654)
- retail other - - (4,390) (32,866) (37,256)
International banking services (288) (983) (17) - (1,288)
Wealth management (1,107) (1,311) (106) - (2,524)
(75,508) (20,455) (16,516) (89,520) (201,999)
Gross loans at amortised cost after residual fair value adjustment on initial Stage 1 Stage 2 Stage 3 POCI Total
recognition
31 December 2019
By business line €000 €000 €000 €000 €000
Corporate 1,624,886 247,501 61,917 40,511 1,974,815
Global corporate 1,456,080 258,425 149,464 35,780 1,899,749
SMEs 837,825 221,977 40,219 10,283 1,110,304
Retail
- housing 2,202,044 430,200 149,020 11,423 2,792,687
- consumer, credit cards and other 646,648 169,063 60,890 19,243 895,844
Restructuring
- corporate 32,879 60,545 197,319 30,382 321,125
- SMEs 49,193 55,345 193,415 19,324 317,277
- retail housing 2,604 3,866 334,892 9,172 350,534
- retail other 430 607 172,079 5,929 179,045
Recoveries
- corporate - - 74,637 15,970 90,607
- SMEs - - 372,046 61,532 433,578
- retail housing - - 702,392 142,265 844,657
- retail other 216 - 499,018 134,297 633,531
International banking services 75,965 44,317 12,788 582 133,652
Wealth management 16,099 11,522 2,121 999 30,741
6,944,869 1,503,368 3,022,217 537,692 12,008,146
The following table presents the Group's loans and advances to customers at
amortised cost before residual fair value adjustment on initial recognition by
staging and geographical analysis.
31 March 2020 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Cyprus 6,523,507 2,128,637 2,863,144 611,973 12,127,261
Other countries 717 - 74,334 - 75,051
6,524,224 2,128,637 2,937,478 611,973 12,202,312
31 December 2019 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Cyprus 7,019,591 1,523,823 2,953,734 627,212 12,124,360
Other countries 786 - 84,999 - 85,785
7,020,377 1,523,823 3,038,733 627,212 12,210,145
Loans and advances to customers classified as held for sale
The following tables present the Group's loans and advances to customers at
amortised cost classified as held for sale by staging and by business line
concentration.
31 March 2020 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on 25 929 147,580 29,896 178,430
initial recognition
Residual fair value adjustment on initial recognition - 12 (3,250) (7,503) (10,741)
Gross loans at amortised cost after residual fair value adjustment on initial 25 941 144,330 22,393 167,689
recognition
Gross loans at amortised cost before residual fair value adjustment on initial Stage 1 Stage 2 Stage 3 POCI Total
recognition
31 March 2020
By business line €000 €000 €000 €000 €000
Corporate - 360 - - 360
SMEs - - - 3 3
Retail
- consumer, credit cards and other - - 18 - 18
Restructuring
- corporate 20 569 4,742 982 6,313
- SMEs 5 - 960 204 1,169
- retail housing - - 23 - 23
- retail other - - 5,774 1,308 7,082
Recoveries
- corporate - - 14,437 3,780 18,217
- SMEs - - 16,771 6,336 23,107
- retail housing - - 4,677 1,182 5,859
- retail other - - 100,159 16,046 116,205
International banking services - - 19 55 74
25 929 147,580 29,896 178,430
Loans and advances to customers classified as held for sale (continued)
Residual fair value adjustment on initial recognition Stage 1 Stage 2 Stage 3 POCI Total
31 March 2020
By business line €000 €000 €000 €000 €000
Corporate - - 1 - 1
Retail
- consumer, credit cards and other - - (1) - (1)
Restructuring
- corporate - 12 (2) (99) (89)
- SMEs - - - (2) (2)
- retail housing - - (1) - (1)
- retail other - - (31) (179) (210)
Recoveries
- corporate - - (213) (638) (851)
- SMEs - - (357) (951) (1,308)
- retail housing - - (211) (370) (581)
- retail other - - (2,435) (5,258) (7,693)
International banking services - - - (6) (6)
- 12 (3,250) (7,503) (10,741)
Gross loans at amortised cost after residual fair value adjustment on initial Stage 1 Stage 2 Stage 3 POCI Total
recognition
31 March 2020
By business line €000 €000 €000 €000 €000
Corporate - 360 1 - 361
SMEs - - - 3 3
Retail
- consumer, credit cards and other - - 17 - 17
Restructuring
- corporate 20 581 4,740 883 6,224
- SMEs 5 - 960 202 1,167
- retail housing - - 22 - 22
- retail other - - 5,743 1,129 6,872
Recoveries
- corporate - - 14,224 3,142 17,366
- SMEs - - 16,414 5,385 21,799
- retail housing - - 4,466 812 5,278
- retail other - - 97,724 10,788 108,512
International banking services - - 19 49 68
25 941 144,330 22,393 167,689
Loans and advances to customers classified as held for sale (continued)
31 December 2019 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on 176 807 153,608 30,373 184,964
initial recognition
Residual fair value adjustment on initial recognition - 13 (3,402) (7,694) (11,083)
Gross loans at amortised cost after residual fair value adjustment on initial 176 820 150,206 22,679 173,881
recognition
Gross loans at amortised cost before residual fair value adjustment on initial Stage 1 Stage 2 Stage 3 POCI Total
recognition
31 December 2019
By business line €000 €000 €000 €000 €000
Corporate - 360 350 - 710
SMEs - - 2 3 5
Retail
- consumer, credit cards and other 139 47 144 - 330
Restructuring
- corporate 20 397 6,164 1,125 7,706
- SMEs 7 1 952 197 1,157
- retail housing 4 - 1,128 10 1,142
- retail other 6 2 37,281 4,707 41,996
Recoveries
- corporate - - 14,757 3,736 18,493
- SMEs - - 15,749 6,248 21,997
- retail housing - - 4,154 1,162 5,316
- retail other - - 72,908 13,131 86,039
International banking services - - 19 54 73
176 807 153,608 30,373 184,964
Residual fair value adjustment on initial recognition Stage 1 Stage 2 Stage 3 POCI Total
31 December 2019
By Business line €000 €000 €000 €000 €000
Restructuring
- corporate - 13 (2) (99) (88)
- SMEs - - - (2) (2)
- retail housing - - (9) (6) (15)
- retail other - - (732) (1,152) (1,884)
Recoveries
- corporate - - (214) (639) (853)
- SMEs - - (357) (949) (1,306)
- retail housing - - (200) (364) (564)
- retail other - - (1,888) (4,477) (6,365)
International banking services - - - (6) (6)
- 13 (3,402) (7,694) (11,083)
Loans and advances to customers classified as held for sale (continued)
Gross loans at amortised cost after residual fair value adjustment on initial Stage 1 Stage 2 Stage 3 POCI Total
recognition
31 December 2019
By Business line €000 €000 €000 €000 €000
Corporate - 360 350 - 710
SMEs - - 2 3 5
Retail
- consumer, credit cards and other 139 47 144 - 330
Restructuring
- corporate 20 410 6,162 1,026 7,618
- SMEs 7 1 952 195 1,155
- retail housing 4 - 1,119 4 1,127
- retail other 6 2 36,549 3,555 40,112
Recoveries
- corporate - - 14,543 3,097 17,640
- SMEs - - 15,392 5,299 20,691
- retail housing - - 3,954 798 4,752
- retail other - - 71,020 8,654 79,674
International banking services - - 19 48 67
176 820 150,206 22,679 173,881
The following table presents the staging of the Group's gross loans and
advances to customers at amortised cost before residual fair value adjustment
on initial recognition classified as held for sale as at 31 March 2020 and 31
December 2019 by geographical analysis:
31 March 2020 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Cyprus 25 929 147,580 29,896 178,430
25 929 147,580 29,896 178,430
31 December 2019 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Cyprus 176 807 153,608 30,373 184,964
176 807 153,608 30,373 184,964
F.6 Credit losses to cover credit risk on loans and advances to
customers
Three months ended
31 March
2020 2019
€000 €000
Impairment loss net of reversals on loans and advances to customers 65,569 69,798
Recoveries of loans and advances to customers previously written off (7,536) (8,302)
Changes in expected cash flows 6,691 (179)
Financial guarantees and commitments (922) (1,495)
63,802 59,822
The movement in ECL of loans and advances, including the loans and advances to
customers held for sale, and the closing balance analysis by staging, is as
follows:
31 March 2020 Cyprus Other countries Total
€000 €000 €000
1 January 1,742,103 61,447 1,803,550
Foreign exchange and other adjustments 1,913 (3,366) (1,453)
Write offs (42,589) (8,888) (51,477)
Interest provided not recognised in the income statement 24,464 (4,207) 20,257
Charge for the period 56,914 8,655 65,569
31 March 1,782,805 53,641 1,836,446
Stage 1 25,422 - 25,422
Stage 2 44,392 - 44,392
Stage 3 1,502,448 53,641 1,556,089
POCI 210,543 - 210,543
Total 1,782,805 53,641 1,836,446
31 March 2019 Cyprus Other countries Total
€000 €000 €000
1 January 3,315,259 146,746 3,462,005
Foreign exchange and other adjustments 1,719 3,489 5,208
Write offs (104,071) 2,123 (101,948)
Interest provided not recognised in the income statement 41,058 2,243 43,301
Charge for the period 68,151 1,647 69,798
31 March 3,322,116 156,248 3,478,364
Stage 1 30,087 3 30,090
Stage 2 57,531 - 57,531
Stage 3 2,805,551 156,245 2,961,796
POCI 428,947 - 428,947
Total 3,322,116 156,248 3,478,364
The impairment loss net of reversals on loans and advances to customers in
Cyprus, including the loans and advances to customers held for sale, by
staging for the period is presented in the table below:
Three months ended
31 March
2020 2019
€000 €000
Stage 1 11,812 (4,050)
Stage 2 10,220 2,449
Stage 3 34,882 69,752
56,914 68,151
The impairment loss net of reversal on loans and advances to customers in
'Οther countries' for the periods ended 31 March 2020 and 31 March 2019
relates to Stage 3 loans and advances to customers.
The credit losses of loans and advances to customers include credit losses
relating to loans and advances to customers classified as held for sale. Their
balance by staging and geographical analysis is presented in the table below:
31 March 2020 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Cyprus 4 139 126,442 17,404 143,989
4 139 126,442 17,404 143,989
Collectively assessed 4 139 126,442 17,404 143,989
31 March 2019 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Cyprus 8,167 26,381 1,306,685 192,034 1,533,267
Other countries - - 52,531 - 52,531
8,167 26,381 1,359,216 192,034 1,585,798
Collectively assessed 8,167 26,381 1,359,216 192,034 1,585,798
The above tables do not include the residual fair value adjustments on initial
recognition of loans acquired from Laiki Bank as this forms part of the gross
carrying amount and ECL on financial guarantees which are part of other
liabilities on the balance sheet.
During the three months ended 31 March 2020 the total non‑contractual
write‑offs recorded by the Group amounted to €52,124 thousand (three
months ended 31 March 2019: €56,244 thousand).
Assumptions have been made about the future changes in property values, as
well as the timing for the realisation of the collateral, taxes and expenses
on the repossession and subsequent sale of the collateral as well as any other
applicable haircuts. Indexation has been used to estimate updated market
values of properties, while assumptions were made on the basis of a
macroeconomic scenario for future changes in property values.
At 31 March 2020 the weighted average haircut (including liquidity haircut and
selling expenses) used in the collectively assessed provision calculation for
loans and advances to customers excluding those classified as held for sale is
c.32% under the baseline scenario (31 December 2019: c.32%, excluding those
classified as held for sale).
The timing of recovery from real estate collaterals used in the collectively
assessed provision calculation for loans and advances to customers has been
estimated to be on average seven years under the baseline scenario (31
December 2019: average seven years), excluding those classified as held for
sale.
For the calculation of individually assessed allowances for ECL, the timing of
recovery of collaterals as well as the haircuts used are based on the specific
facts and circumstances of each case.
For Stage 3 customers, the calculation of individually assessed allowances for
ECL is the weighted average of three scenarios; base, adverse and favourable.
The base scenario focuses on the following variables, which are based on the
specific facts and circumstances of each customer: the operational cash flows,
the timing of recovery of collaterals and the haircuts from the realisation of
collateral. The base scenario is used to derive additional scenarios for
either better or worse cases. Under the adverse scenario operational cash
flows are decreased by 50%, applied haircuts on real estate collateral are
increased by 50% and the timing of recovery of collaterals is increased by one
year with reference to the baseline scenario. Under the favourable scenario,
applied haircuts are decreased by 5%, with no change in the recovery period
with reference to the baseline scenario. Assumptions used in estimating
expected future cash flows (including cash flows that may result from the
realisation of collateral) reflect current and expected future economic
conditions and are generally consistent with those used in the Stage 3
collectively assessed exposures. In the case of loans and advances to
customers held for sale at 31 March 2020, the Group has taken into
consideration the timing of expected sale and the estimated sale proceeds in
determining the ECL. Amounts previously written off which are expected to be
recovered through sale, are presented in 'Recoveries of loans and advances to
customers previously written off'.
For the calculation of expected credit losses three scenarios were used; base,
adverse and favourable with 50%, 30% and 20% probability respectively.
Any positive cumulative average future change in forecasted property values
was capped to zero for the three months ended 31 March 2020 and the year
2019. This applies to all scenarios.
The above assumptions are also influenced by the ongoing regulatory dialogue
BOC PCL maintains with its lead regulator, the ECB, and other regulatory
guidance and interpretations issued by various regulatory and industry bodies
such as the ECB and the EBA, which provide guidance and expectations as to
relevant definitions and the treatment/classification of certain
parameters/assumptions used in the estimation of allowance for ECL.
Any changes in these assumptions or differences between assumptions made and
actual results could result in significant changes in the estimated amount of
ECL of loans and advances to customers.
F.7 Rescheduled loans and advances to customers
Cyprus Other countries Total
31 March 2020 €000 €000 €000
Stage 1 266,118 110 266,228
Stage 2 384,756 - 384,756
Stage 3 1,511,402 31,630 1,543,032
POCI 199,514 - 199,514
2,361,790 31,740 2,393,530
31 December 2019
Stage 1 357,658 114 357,772
Stage 2 299,448 - 299,448
Stage 3 1,567,155 33,253 1,600,408
POCI 202,502 - 202,502
2,426,763 33,367 2,460,130
F.8 Credit risk disclosures
According to the European Banking Authority's (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, distress restructuring and obligor
bankruptcy.
(iii) Material exposures as set by the Central Bank of
Cyprus (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 under probation that
present more than 30 days past due within the probation period.
Exposures include all on and off balance sheet exposures, except those held
for trading, and are categorised as such for their entire amount without
taking into account the existence of collateral.
The following materiality criteria are applied:
· When the problematic exposures of a customer that
fulfil the NPE criteria set out above are 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
problematic part of the exposure is classified as non-performing.
· Material arrears/excesses are defined as follows:
- Retail exposures: Total arrears/excesses amount greater than €100
- Exposures other than retail: Total arrears/excesses are greater than
€500
and the amount in arrears/excess in relation to the customer's total exposure
is at least 1%.
NPEs may cease to be considered as non-performing only when all of the
following conditions are met:
(i) The extension of forbearance measures does not lead to the
recognition of impairment or default.
(ii) One year has passed since the forbearance measures were
extended.
(iii) Following the forbearance measures and according to the
post-forbearance conditions, there is no past due amount or concerns regarding
the full repayment of the exposure.
(iv) No unlikely-to-pay criteria exist for the debtor.
(v) The debtor has made post-forbearance payments of a
non-insignificant amount of capital (different capital thresholds exist
according to the facility type).
The tables below present the analysis of loans and advances to customers in
accordance with the EBA standards.
31 March 2020 Gross loans and advances to customers Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
Group gross customer Of which NPEs Of which exposures with forbearance measures Accumulated impairment, accumulated negative changes in fair value due to Of which NPEs Of which exposures with forbearance measures
credit risk and provisions
loans and advances
Total exposures with forbearance measures Of which NPEs Total exposures with forbearance measures Of which on NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 59,836 - - - 3,382 - - -
Other financial corporations 128,053 23,376 18,561 2,347 16,215 10,059 1,761 498
Non-financial corporations 6,165,853 1,308,949 1,071,435 683,985 739,727 659,039 317,666 305,545
Of which: Small and Medium sized Enterprises(2) (SMEs) 4,657,343 1,034,985 761,451 547,721 639,762 569,496 271,341 260,919
Of which: Commercial real estate 4,232,700 809,082 733,482 444,405 453,140 389,145 204,944 195,944
Non-financial corporations by sector
Construction 803,219 246,618 146,545
Wholesale and retail trade 1,305,630 368,880 189,470
Accommodation and food service activities 1,071,733 49,422 49,770
Real estate activities 1,254,196 271,669 137,152
Manufacturing 443,596 107,195 64,716
Other sectors 1,287,479 265,165 152,074
Households 6,182,219 2,228,126 1,534,772 1,200,332 1,180,101 1,101,155 539,706 522,940
Of which: Residential mortgage loans(2) 4,801,399 1,753,585 1,255,187 977,790 863,266 796,618 411,335 397,954
Of which: Credit for consumption(2) 767,775 278,185 174,632 147,680 164,223 160,013 74,046 71,833
12,535,961 3,560,451 2,624,768 1,886,664 1,939,425 1,770,253 859,133 828,983
Loans and advances to customers as held for sale 178,430 177,467 42,889 42,869 154,730 154,596 37,041 37,038
Total on-balance sheet 12,714,391 3,737,918 2,667,657 1,929,533 2,094,155 1,924,849 896,174 866,021
Gross loans and advances to customers Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
31 December 2019
Group gross customer Of which NPEs Of which exposures with forbearance measures Accumulated impairment, accumulated negative changes in fair value due to Of which NPEs Of which exposures with forbearance measures
credit risk and provisions
loans and advances
Total exposures with forbearance measures Of which NPEs Total exposures with forbearance measures Of which on NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 56,921 1 - - 3,389 - - -
Other financial corporations 124,343 27,459 18,489 2,366 17,542 14,843 1,466 462
Non-financial corporations 6,271,155 1,382,074 1,216,902 737,602 753,848 686,025 348,577 337,290
Of which: Small and Medium sized Enterprises(4) 4,662,994 1,073,846 786,069 556,483 636,820 576,635 271,110 261,229
Of which: Commercial real estate 4,270,225 858,998 767,008 480,382 457,622 402,751 219,952 211,902
Non-financial corporations by sector
Construction 823,276 265,879 144,336
Wholesale and retail trade 1,294,815 371,613 185,720
Accommodation and food service activities 1,055,448 50,116 44,823
Real estate activities 1,266,772 296,406 153,802
Professional, scientific and technical activities 425,134 90,832 53,916
Other sectors 1,405,710 307,228 171,251
Households 6,192,505 2,285,998 1,577,249 1,245,937 1,148,304 1,080,696 526,423 513,772
Of which: Residential mortgage loans(4) 4,808,202 1,811,698 1,291,083 1,021,084 842,389 783,146 401,561 392,046
Of which: Credit for consumption(4) 770,552 280,584 177,047 151,313 158,044 156,642 71,357 70,065
12,644,924 3,695,532 2,812,640 1,985,905 1,923,083 1,781,564 876,466 851,524
Loans and advances to customers classified as held for sale 184,964 183,974 45,191 45,028 159,035 158,998 37,438 37,429
Total on-balance sheet 12,829,888 3,879,506 2,857,831 2,030,933 2,082,118 1,940,562 913,904 888,953
F.9 Pending litigation, claims, regulatory and other matters
The Group in the ordinary course of business, is subject to enquiries and
examinations, requests for information, audits, investigations and legal and
other proceedings by regulators, governmental and other public bodies, actual
and threatened, relating to the suitability and adequacy of advice given to
clients or the absence of advice, lending and pricing practices, selling and
disclosure requirements, record keeping, filings and a variety of other
matters. Further as part of its disposal process of certain of its
operations, has provided various representations, warranties and indemnities
to the buyers. These relate to, among other things, the ownership of the
loans, the validity of the liens, tax exposures and other matters agreed with
the buyers. In addition, as a result of the deterioration of the Cypriot
economy and banking sector in 2012 and the subsequent Restructuring of BOC PCL
in 2013 as a result of the bail-in Decrees, BOC PCL is subject to a large
number of proceedings and investigations that either precede, or result from
the events that occurred during the period of the bail-in Decrees. Most
ongoing investigations and proceedings of significance relate to matters
arising during the period prior to the issue of the bail-in Decrees.
Provisions have been recognised for those cases where the Group is able to
estimate probable losses. Any provision recognised does not constitute an
admission of wrongdoing or legal liability. While the outcome of these matters
is inherently uncertain, management believes that, based on the information
available to it, appropriate provisions have been made in respect of legal
proceedings and regulatory and other matters.
F.10 Liquidity regulation
The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR)
under CRD IV/CRR (as supplemented by relevant Regulations). It also monitors
its position against the Net Stable Funding Ratio (NSFR) as proposed under
Basel III and expected to become a regulatory indicator when Capital
Requirements Regulation 2 (CRR2) is enforced with the limit set at 100%.
The LCR is designed to promote short-term resilience of a Group's liquidity
risk profile by ensuring that it has sufficient high quality liquid resources
to survive an acute stress scenario lasting for 30 days. The NSFR has been
developed to promote a sustainable maturity structure of assets and
liabilities.
As at 31 March 2020 the Group was in compliance with all regulatory liquidity
requirements. As at 31 March 2020, the LCR stood at 219% for the Group
(compared to 208% at 31 December 2019) and was in compliance with the minimum
regulatory requirement of 100%. As at 31 March 2020 the Group's NSFR, on the
basis of the Basel ΙΙΙ standards, was 126% (compared to 127% at 31 December
2019).
F.11 Liquidity reserves
The below table sets out the Group's liquidity reserves:
Composition of the liquidity reserves 31 March 2020 31 December 2019
Internal Liquidity reserves as per LCR Delegated Reg (EU) Internal Liquidity reserves as per LCR Delegated Reg (EU)
Liquidity reserves 2015/61 LCR eligible Liquidity reserves 2015/61 LCR eligible
Level 1 Level 2A Level 1 Level 2A
€000 €000 €000 €000 €000 €000
Cash and balances with central banks 4,238,207 4,238,207 - 4,898,360 4,898,361 -
Nostro and placements with banks 258,166 - - 147,086 - -
Liquid investments 1,253,308 1,122,653 141,769 1,214,197 1,115,196 124,763
Available ECB Buffer 1,156,409 - - 1,116,249 - -
Total 6,906,090 5,360,860 141,769 7,375,892 6,013,557 124,763
Internal Liquidity Reserves present the total liquid assets as defined in BOC
PCL's Liquidity Policy. Liquidity reserves as per LCR Delegated Regulation
(EU) 2015/61 present the liquid assets as per the definition of the
aforementioned regulation i.e. High Quality Liquid Assets (HQLA).
Under Liquidity reserves as per LCR, Nostro and placements with banks are not
included, as they are not considered HQLA (they are part of the LCR
Inflows).
Liquid investments under the Liquidity reserves as per LCR are shown at market
values reduced by standard weights as prescribed by the LCR regulation. Liquid
investments under Internal Liquidity reserves include all LCR and/or ECB
eligible investments and are shown at market values net of haircut based on
ECB haircuts and methodology.
Finally, available ECB buffer is not part of the Liquidity reserves as per
LCR, since the assets in the ECB collateral pool are not LCR eligible but only
eligible as collateral for Eurosystem credit operations.
The Liquidity Reserves are managed by Group Treasury.
Resulting from the outbreak of COVID-19, the ECB has adopted a broad set of
policy measures to mitigate the economic impact of the crisis and to ensure
that its directly supervised banks can continue to fulfil their role in
funding the real economy. A high-level description of the main measures which
have a direct or indirect impact on the liquidity position of banks is
described below.
The ECB announced that it will allow banks to operate temporarily below the
defined level of 100% of the LCR.
In addition, the package included a set of collateral easing measures, which
resulted in increasing the banks' borrowing capacity at the ECB operations
and improving the liquidity buffers due to the lower haircuts applied to the
ECB eligible collaterals the bank holds, that comprises of bonds and
Additional Credit Claims (ACC). The collateral easing packages are designed as
temporary measures (with the exception of part of the haircut reduction on
ACCs which is permanent) that will remain in place until September 2021 with
the flexibility to be extended or modified. Furthermore, the ECB enlarged the
scope of the ACC framework, increasing the universe of eligible loans. As far
as existing collateral, the ECB announced changes in collateral rules,
temporarily accepting collaterals with a rating below investment grade, up to
a certain rating level.
Additionally, the package contained measures to provide liquidity support to
the euro area financial system, such as a series of LTROs which will run from
March to June 2020 so participants could shift their outstanding LTRO amounts
to TLTRO III, as well as significant favourable amendments in the terms and
characteristics of TLTRO III. Furthermore, a new series of additional
longer-term refinancing operations, called Pandemic Emergency longer-term
refinancing operations (PELTROs), were introduced with an interest rate of 25
basis points below the average rate applied in the Eurosystem's main
refinancing operations (currently 0%) over the life of the respective PELTRO
that are maturing in the third quarter of 2021.
F.12 Capital management
The primary objective of the Group's capital management is to ensure
compliance with the relevant regulatory capital requirements and to maintain
strong credit ratings and healthy capital adequacy ratios in order to support
its business and maximise shareholders' value.
The capital adequacy framework, as in force, was incorporated through the CRR
and Capital Requirements Directive IV (CRD IV) and came into effect on 1
January 2014 with certain specified provisions implemented gradually. The CRR
and CRD IV transposed the new capital, liquidity and leverage standards of
Basel III into the European Union's legal framework. CRR establishes the
prudential requirements for capital, liquidity and leverage for credit
institutions and investment firms. It is directly applicable in all EU member
states. CRD IV governs access to deposit-taking activities and internal
governance arrangements including remuneration, board composition and
transparency. Unlike the CRR, member states were required to transpose the CRD
IV into national laws and it allowed national regulators to impose additional
capital buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRDV)
came into force. As an amending regulation, the existing provisions of CRR
apply unless they are amended by CRR II. Member states are required to
transpose the CRDV into national law. Certain provisions took immediate effect
(primarily relating to MREL) but most changes will start to apply from
mid-2021. Certain aspects of CRR II are dependent on final technical standards
to be issued by the European Banking Authority (EBA) and adopted by the
European Commission. The key changes introduced consist of among others
changes to qualifying criteria for CET1, AT1 and Tier 2 instruments,
introduction of requirements for MREL and a binding Leverage Ratio requirement
and a Net Stable Funding Ratio (NSFR).
In addition, the Regulation (EU) 2016/445 of the ECB on the exercise of
options and discretions available in Union law (ECB/2016/4) provides certain
transitional arrangements which supersede the national discretions unless they
are stricter than the EU Regulation 2016/445.
The CET1 ratio of the Group at 31 March 2020 stands at 14.3% and the total
capital ratio at 17.7% on a transitional basis.
The minimum Pillar I total capital requirement is 8.0% and may be met, in
addition to the 4.5% CET1 requirement, with up to 1.5% by Additional Tier 1
capital and with up to 2.0% by Tier 2 capital.
The Group is also subject to additional capital requirements for risks which
are not covered by the Pillar I capital requirements (Pillar II add-ons).
Following the annual Supervisory Review and Evaluation Process (SREP)
performed by the ECB in 2019 and based on the final 2019 ECB decision received
on 4 December 2019, the Group's minimum phased-in CET1 capital ratio and Total
Capital ratio remain unchanged, when ignoring the phasing-in of the Other
Systemically Important Institution Buffer (O-SII buffer). The Group's
phased-in CET1 capital ratio was set to 11.0%, comprising a 4.5% Pillar I
requirement, a 3.0% Pillar II requirement (P2R), the Capital Conservation
Buffer of 2.5% (fully phased-in as of 1 January 2019) and the O-SII buffer of
1.0%. The Group's Total Capital requirement is 14.5%, comprising an 8.0%
Pillar I requirement (of which up to 1.50% could be in the form of Additional
Tier 1 capital and up to 2.00% in the form of Tier 2 capital), a 3.0% Pillar
II requirement, the Capital Conservation Buffer of 2.5% and the O-SII buffer
of 1.0%. The ECB has also provided non-public guidance for an additional
Pillar II CET1 buffer. The final 2019 SREP decision is effective from 1
January 2020.
In April 2020, and following ECB and EBA announcements on 12 March 2020 in
response to the COVID-19 outbreak, BOC PCL received an amending decision from
the ECB amending the composition of the Pillar II additional own funds
requirement, allowing to use Additional Tier 1 (AT1) capital and Tier 2 (T2)
capital to meet Pillar II Requirements and not only by CET1, compared to the
2019 final SREP decision received in December 2019 which required P2R to be
met in full with CET1. This decision is effective from 12 March 2020. As a
result, the minimum phased-in CET1 requirement decreased to 9.7%, comprising a
4.5% Pillar I requirement, a 1.7% Pillar II requirement, the Capital
Conservation Buffer (CCB) of 2.5% (fully phased in as of 1 January 2019) and
the O-SII buffer of 1.0%. There is no change on the Total Capital requirement.
The EBA final guidelines on SREP and supervisory stress testing and the Single
Supervisory Mechanism's (SSM) 2018 SREP methodology provide that own funds
held for the purposes of Pillar II Guidance 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.
The Group's minimum phased-in CET1 capital ratio for 2019 was 10.5%,
comprising a 4.5% Pillar I requirement, a 3.0% Pillar II requirement, the CCB
of 2.5% and the O-SII buffer of 0.5%. The ECB had also provided non-public
guidance for an additional Pillar II CET1 buffer.
The Group's minimum phased-in Total capital ratio requirement for 2019 was
14.0%, comprising a 8.0% Pillar I requirement (of which up to 1.50% could be
in the form of Additional Tier 1 capital and up to 2.00% in the form of Tier 2
capital), a 3.0% Pillar II requirement, the CCB of 2.5% and O-SII buffer of
0.5%.
The above minimum ratios apply for both, BOC PCL and the Group.
The capital position of the Group and BOC PCL at 31 March 2020 exceeds both
their Pillar I and their Pillar II add-on capital requirements. However, the
Pillar II add-on capital requirements are a point-in-time assessment and
therefore are subject to change over time.
The CBC, in accordance with the Macroprudential Oversight of Institutions Law
of 2015, sets, on a quarterly basis, the Countercyclical Capital Buffer (CCyB)
level in accordance with the methodology described in this law. The CBC has
set the level of the CCyB for Cyprus at 0% for the six months up to 30 June
2020 and the year 2019.
In accordance with the provisions of this law, the CBC is also the responsible
authority for the designation of banks that are Other Systemically Important
Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for
these systemically important banks. BOC PCL has been designated as an O-SII
and the CBC set the O-SII buffer for BOC PCL and the Group at 2.0%.
This buffer will be phased-in gradually, having started from 1 January 2019 at
0.5% and set to be increasing by 0.5% every year thereafter, until being fully
implemented (2.0%) on 1 January 2022. In April 2020, in response to the
COVID-19 outbreak, the CBC decided to delay the phasing-in (0.5%) of the O-SII
buffer on 1 January 2021 and 1 January 2022 by 12 months. Consequently, the
O-SII buffer will be fully phased-in on 1 January 2023, instead of 1 January
2022 as originally set.
The insurance subsidiaries of the Group comply with the requirements of the
Superintendent of Insurance including the minimum solvency ratio. The
regulated UCITS management company of the Group, BOC Asset Management Ltd
complies with the regulatory capital requirements of the Cyprus Securities and
Exchange Commission (CySEC) laws and regulations. The regulated investment
firm (CIF) of the Group, The Cyprus Investment and Securities Corporation Ltd
(CISCO) meets the minimum total capital ratio hurdle of CySEC but lacks behind
the minimum initial capital requirement and the additional capital
conservation buffer as at 31 March 2020 and as at 31 December 2019. As a
result a business and capital plan was submitted to CySEC in December 2019.
CISCO also submitted to CySEC its Internal Capital Adequacy Assessment Process
(ICAAP) Report in September 2019. It is expected that CySEC will provide CISCO
a reasonable timeframe, based on the capital/business plan submitted, to
comply, as per its Supervisory Review and Evaluation Process (SREP).
F.12.1 Capital position
The capital position of the Group and BOC PCL as at the reporting date (after
applying the transitional arrangements) is presented below:
Regulatory capital Group BOC PCL
31 March 31 December 2019 31 March 2020 31 December 2019(5)
2020
€000 €000 €000 €000
Transitional Common Equity Tier 1 (CET1) 1,806,872 1,909,049 1,760,011 1,869,105
Transitional Additional Tier 1 capital (AT1) 220,000 220,000 220,000 220,000
Tier 2 capital (T2) 200,572 189,955 250,000 250,000
Transitional total regulatory capital 2,227,444 2,319,004 2,230,011 2,339,105
Risk weighted assets - credit risk 11,256,096 11,547,303 11,227,150 11,518,932
Risk weighted assets - operational risk 1,342,700 1,342,700 1,255,875 1,255,875
Total risk weighted assets 12,598,796 12,890,003 12,483,025 12,774,807
% % % %
Transitional Common Equity Tier 1 ratio 14.3 14.8 14.1 14.6
Transitional total capital ratio 17.7 18.0 17.9 18.3
Fully loaded Group BOC PCL
31 March 31 December 2019(8) 31 March 31 December 2019(8)
2020 2020(8)
% % % %
Common Equity Tier 1 ratio 12.9 13.1 12.6 12.9
Total capital ratio 16.4 16.5 16.4 16.6
During the three months ended 31 March 2020 the CET1 was negatively affected
mainly by the phasing-in of IFRS 9 transitional adjustments, the decrease in
revaluation reserves and ECL charges. Risk weighted assets movement and
pre-provision income had a positive effect on CET1 ratio.
As a result of the above, the CET1 ratio decreased by c. 50 bps during the
three months ended 31 March 2020.
The Group has elected to apply the EU transitional arrangements for regulatory
capital purposes (EU Regulation 2017/2395) where the impact on the impairment
amount from the initial application of IFRS 9 on the capital ratios is
phased-in gradually over a five-year period. The amount added back over the
transitional period decreases based on a weighting factor of 95% in 2018, 85%
in 2019, 70% in 2020, 50% in 2021 and 25% in 2022. The impact of IFRS 9 is
fully absorbed after the five-year transitional period.
Following the COVID-19 outbreak, on 12 March 2020, the ECB and the EBA
announced the following relaxation measures for the minimum capital
requirements for banks:
· Banks are temporarily allowed to operate below the
level of capital defined by the Pillar II Guidance, the Capital Conservation
Buffer and the Countercyclical Buffer. The Countercyclical Buffer is 0% for
Cypriot Banks.
· Banks are allowed to use Additional Tier 1 (AT1)
capital and Tier 2 (T2) capital to meet Pillar II Requirements and not only by
CET1; this brings forward a measure that was scheduled to come into effect in
January 2021 with CRD V. An amending SREP decision was received in April 2020
to this respect.
The ECB's capital easing measures for COVID-19 increased the Group's CET1
buffer by 131 bps, effective from 12 March 2020, following the frontloading of
the new rules on the Pillar II Requirement composition, initially scheduled to
come into effect in January 2021. The Total SREP capital requirement remains
unchanged.
In addition, in April 2020 the CBC decided to delay the phasing-in of the 1
January 2021 O-SII buffer (0.5% for BOC PCL) by 12 months. Consequently, the
O-SII buffer will be fully phased-in on 1 January 2023, instead of 1 January
2022 as originally set.
F.12.2 Overview of RWA
RWAs Minimum capital requirements
31 March 31 December 31 March
2020 2019 2020
€000 €000 €000
1 Credit risk (excluding counterparty credit risk (CCR)) 11,116,102 11,411,497 889,288
2 Of which the Standardised Approach 11,116,102 11,411,497 889,288
6 CCR 16,810 12,618 1,345
7 Of which mark to market 12,385 9,568 991
12 Of which Credit Valuation Adjustment (CVA) 4,425 3,050 354
14 Securitisation exposures in the banking book (after the cap) 45,634 45,638 3,651
18 Of which Standardised Approach 45,634 45,638 3,651
23 Operational risk 1,342,700 1,342,700 107,416
25 Of which Standardised Approach 1,342,700 1,342,700 107,416
27 Amounts below the thresholds for deduction (subject to 250% risk weight) 77,550 77,550 6,204
29 Total 12,598,796 12,890,003 1,007,904
The overall decrease in total RWA and capital requirements was driven by
'Credit risk (excluding counterparty credit risk (CCR))' observed in line 1 of
the table above. The decrease in the Credit risk RWA was driven by customers
advances from (a) a decrease in balance sheet values especially in the higher
risk exposure classes, exposures in default and items associated with
particularly high risk, (b) the phasing in of the IFRS9 transitional
arrangements which increases provisions recognised for RWA purposes, (c)
increased residential real estate collaterals and (d) curing. All other risk
categories remain fairly stable.
There were no large exposures for institutions that exceeded the relevant
limits.
F.12.3 Standardised approach - Credit risk exposure and Credit Risk
Mitigation (CRM) effects
The table below illustrates the analysis of RWA and RWA density of all
exposure classes that comprise the RWA reported in lines 1 and 27 of table
F.12.2.
31 March 2020 31 December 2019
RWAs and RWA density RWAs and RWA density
Exposure classes RWAs RWA density RWAs RWA density
€000 % €000 %
Central governments or central banks 347,007 6.2 382,591 6.2
Regional government or local authorities 1,128 1.9 542 0.8
Public sector entities 8 - 9 -
Institutions 171,437 23.3 179,648 29.6
Corporates 3,236,876 99.5 3,353,301 99.5
Retail 929,718 71.0 960,387 71.2
Secured by mortgages on immovable property 1,236,782 37.6 1,180,406 37.5
Exposures in default 1,909,970 106.9 2,053,619 107.3
Higher-risk categories 1,306,956 150.0 1,404,849 150.0
Covered bonds 19,823 10.0 16,333 10.0
Collective investment undertakings (CIUs) 813 77.7 205 100.0
Equity 101,069 185.3 80,275 237.9
Other items 1,932,065 99.2 1,876,882 94.1
Total 11,193,652 57.7 11,489,047 57.1
The main driver behind the overall increase in the RWA density derived from a
shift of balances from lower risk weight, such as 'Balances with Central
Banks', included in exposure class 'Central governments or central banks' to
higher risk weight balances such as 'Customer advances', mainly included in
exposure class 'Secured with mortgages on immovable property'. Furthermore the
overall density was driven upward from the increase in the density of exposure
class 'Other items' from increased risk weight of certain properties held for
sale. The risk density in the remaining exposure classes remains fairly
stable, with the exception of exposure classes 'Collective investment
undertakings (CIUs)' which improved due to improved external ratings, and
exposure class 'Institutions', which improved from improved ratings and
residual maturities.
F.13 Leverage ratio
According to CRR Article 429, the leverage ratio, expressed as a percentage,
is calculated as the capital measure divided by the total exposure measure of
the Group.
The leverage ratio of the Group is presented below:
31 March 31 December 2019
2020
Transitional basis €000 €000
Capital measure (Tier 1) 2,026,872 2,129,049
Total exposure measure 20,316,602 21,075,511
Leverage ratio (%) 10.0 10.1
IFRS 9 fully loaded
Capital measure (Tier 1) 1,810,732 1,866,593
Total exposure measure 20,193,093 20,859,371
Leverage ratio (%) 9.0 9.0
The decrease in the 'Total exposure measure' follows the movements in the
Group's balance sheet assets.
The 'Capital measure (Tier1)' is negatively affected mainly by the phasing-in
of IFRS 9 transitional adjustments, decrease in revaluation reserves and ECL
charges.
The leverage ratio, including the loss (prudential consolidation) of €28,503
thousand for the period ended 31 March 2020, is calculated at 10.0% on a
transitional basis and 9.0% on IFRS 9 fully loaded basis.
F.14 Internal Capital Adequacy Assessment Process (ICAAP),
Internal Liquidity Assessment Process (ILAAP), Pillar II and SREP
The Group prepares the ICAAP and ILAAP reports annually. Both reports for 2019
were approved by the Board of Directors and submitted to the ECB on 30 April
2020. Due to the timing of the two reports, the business plans and ICAAP and
ILAAP stress scenarios have not been updated to reflect the impact of the
COVID-19 in line with relevant supervisory communication on this issue;
however the COVID-19 preliminary estimated impact on capital and liquidity
(based on scenarios) have been referenced commented in the ICAAP and ILAAP
reports under a separate section.
Based on the end of December 2019 ICAAP, BOC PCL has sufficient capital
throughout the three-year horizon to enable it to comply with all regulatory
ratios, both in the base and adverse scenario, under the normative approach.
Under the Economic perspective, a small capital shortfall arises in the
adverse scenario, in 2022, which however can be neutralised by available
mitigants.
The Group also undertakes a quarterly review of its ICAAP results (as at the
end of June and as at the end of September) considering the latest actual and
forecasted information. During the quarterly review, the Group's risk profile
and risk management policies and processes are reviewed and any changes since
the annual ICAAP exercise are taken into consideration.
The Group also undertakes a quarterly review for the ILAAP through quarterly
stress tests submitted to the ALCO and the Risk Committee of the Board of
Directors. During the quarterly review, the liquidity risk drivers are
assessed and, if needed, the stress test assumptions are amended accordingly.
Any material changes since the year-end are assessed in terms of liquidity.
The quarterly review identifies whether the Group has an adequate liquidity
buffer to cover the stress outflows. The Group's ILAAP analysis demonstrates
that the volume and capacity of liquidity resources available to the Group are
adequate.
The ECB, as part of its supervisory role, has been conducting the SREP and
onsite inspections on the Group. SREP is a holistic assessment of, amongst
other things, the Group's business model, internal governance and
institution-wide control arrangements, risks to capital and adequacy of
capital to cover these risks and risks to liquidity and adequacy of liquidity
resources to cover these risks. The objective of the SREP is for the ECB to
form an up-to-date supervisory view of the Group's risks and viability and to
form the basis for supervisory measures and dialogue with the Group.
Additional capital and other requirements could be imposed on the Group as a
result of these supervisory processes, including a revision of the level of
Pillar II add-ons as the Pillar II add-ons capital requirements are a
point-in-time assessment and therefore subject to change over time.
The Group was to participate in the ECB SREP stress test of 2020 which was
launched in January 2020 and was to be concluded by end of July 2020. However
due to the outbreak of COVID-19 and its global spread, EBA decided to postpone
until 2021 the EU-wide Stress Test Exercise of 2020 to allow banks to focus on
and ensure continuity of their core operations. For 2020, the EBA will carry
out an additional EU-wide transparency exercise in order to provide updated
information on banks' exposures and asset quality to market participants. The
ECB announced that it supports the decision of EBA to postpone the stress
tests exercise and will extend the postponement to all banks subject to the
2020 stress test.
G. Definitions & Explanations
Reconciliations
1. Reconciliation of Gross loans and advances to customers
31 March 31 December 2019
2020
€000 €000
Gross loans and advances to customers (as defined below) 12,708,627 12,821,838
Reconciling items:
Residual fair value adjustment on initial recognition (Section F.4) (200,428) (201,999)
Loans and advances to customers classified as held for sale (Section F.4) (167,689) (173,881)
Residual fair value adjustment on initial recognition on loans and advances to (10,741) (11,083)
customers classified as held for sale (Section F.4)
Loans and advances to customers measured at fair value through profit and loss (287,109) (369,293)
(Section F.3)
Aggregate fair value adjustment on loans and advances to customers measured at (40,776) (57,436)
fair value through profit or loss
Gross loans and advances to customers at amortised cost as per section F.3 12,001,884 12,008,146
2. Reconciliation of Allowance for expected credit losses
on loans and advances to customers (ECL)
31 March 31 December 2019
2020
€000 €000
Allowance for expected credit losses on loans and advances to customers (as 2,109,271 2,096,180
defined below)
Reconciling items:
Residual fair value adjustment on initial recognition (Section F.4) (200,428) (201,999)
Aggregate fair value adjustment on loans and advances to customers measured at (40,776) (57,436)
fair value through profit or loss
Allowance for expected credit losses on loans and advances to customers (143,989) (147,952)
classified as held for sale (Section F.6)
Residual fair value adjustment on initial recognition on loans and advances to (10,741) (11,083)
customers classified as held for sale (Section F.4)
Provisions for financial guarantees and commitments (20,880) (22,112)
Allowance for ECL for impairment of loans and advances to customers as per 1,692,457 1,655,598
section F.3
3. Reconciliation of NPEs
31 March 31 December 2019
2020
€000 €000
NPEs (as defined below and as per Section F.8) 3,737,917 3,879,508
Reconciling items:
Loans and advances to customers (NPEs) classified as held for sale (Note 1 (166,714) (172,880)
below)
Residual fair value adjustment on initial recognition on loans and advances to (10,753) (11,096)
customers (NPEs) classified as held for sale (Note 2 below)
Loans and advances to customers measured at fair value through profit and loss (125,803) (144,866)
(NPEs)
POCI (NPEs) (Note 3 below) (497,169) (511,933)
Stage 3 gross loans and advances to customers at amortised cost as per section 2,937,478 3,038,733
F.5
NPE ratio
NPEs (as per table above) (€000) 3,737,917 3,879,508
Gross loans and advances to customers (as per table above) (€000) 12,708,627 12,821,838
Ratio of NPE/Gross loans (%) 29,4% 30.3%
Note 1: Gross loans at amortised cost after residual fair value adjustment on
initial recognition classified as held for sale include an amount of
€144,330 thousand Stage 3 loans (31 December 2019: €150,206 thousand Stage
3 loans) and an amount of €22,384 thousand POCI - Stage 3 loans (out of a
total of €22,393 thousand POCI loans) (31 December 2019: €22,674 thousand
POCI - Stage 3 loans (out of a total of €22,679 thousand POCI loans) as
disclosed in Section F.5.
Note 2: Residual fair value adjustment on initial recognition of loans and
advances to customers classified as held for sale includes an amount of
€3,250 thousand for Stage 3 loans (31 December 2019: €3,402 thousand for
Stage 3 loans) and an amount of €7,503 thousand for POCI - Stage 3 loans (31
December 2019: €7,694 thousand for POCI - Stage 3 loans) as disclosed in
Section F.5.
Note 3: Gross loans and advances to customers at amortised cost before
residual fair value adjustment on initial recognition include an amount of
€497,169 thousand POCI - Stage 3 loans (out of a total of €611,973
thousand POCI loans) (31 December 2019: €511,933 thousand POCI - Stage 3
loans (out of a total of €627,212 thousand POCI loans)) as disclosed in
Section F.5.
Ratios Information
1. Net Interest Margin
Reconciliation of the various components of net interest margin from the
underlying basis to the statutory basis is provided below:
Three months ended
31 March
2020 2019
(restated)
1.1. Reconciliation of Net interest income €000 €000
Net interest income as per the underlying basis 84,926 84,703
Reclassifications for:
Net interest income relating to the Helix portfolio, disclosed under - 17,343
non-recurring items within 'Provisions/net loss relating to NPE sales' under
the underlying basis
Net interest income as per the Unaudited Interim Consolidated Income Statement 84,926 102,046
Net interest income (annualised) 341,571 343,518
1.2. Interest earning assets 31 March 2020 31 December 2019
€000 €000
Cash and balances with central banks 4,398,781 5,060,042
Loans and advances to banks 455,284 320,881
Loans and advances to customers 10,596,536 10,721,841
Loans and advances to customers held for sale 23,700 25,929
Investments
Debt securities 1,781,992 1,738,007
Less: Investments which are not interest bearing (21,496) (23,593)
Total interest earning assets 17,234,797 17,843,107
1.3. Quarterly average interest earning assets (€000)
- as at 31 March 2020 17,538,952
- as at 31 March 2019 18,242,972
2. Operating profit return on average assets
The various components used in the determination of the operating profit
return on average assets are provided below:
31 March 2020 31 December
2019
€000 €000
Total assets used in the computation of the operating profit return on average 20,430,792 21,122,822
assets/per the Unaudited Interim Consolidated Balance Sheet
31 March 2020 31 March
2019
(restated)
€000 €000
Annualised operating profit 211,098 212,320
Quarterly average total assets 20,776,807 21,910,354
Comparative information has been restated as noted within section A. 'Group
Financial Results - Underlying basis - Commentary on Underlying basis' for
the purposes of the underlying basis.
G. Definitions & Explanations (continued)
Accelerated phase-in period Following the Regulation (EU) 2016/445 of the ECB of 14 March 2016 on the
exercise of options and discretions, the DTA was phasing-in by 60% for 2017,
80% for 2018 and 100% for 2019 (fully phased-in).
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), (ii) the residual fair value adjustment
on initial recognition of loans and advances to customers, (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.
Advisory and other restructuring costs Comprise mainly: fees of external advisors in relation to: (i) disposal of
operations and non-core assets, and (ii) customer loan restructuring
activities.
AT1 AT1 (Additional Tier 1) is defined in accordance with Articles 51 and 52 of
the Capital Requirements Regulation (EU) No 575/2013, as amended by CRR II
applicable as at the reporting date.
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.
Contribution to DGF Relates to the contribution made to the Deposit Guarantee Fund.
Contribution to SRF Relates to the contribution made to the Single Resolution Fund.
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 20 May 2020.
Digital transactions ratio This is the ratio of the number of digital transactions performed by
individuals and legal entity customers to the total number of transactions.
Transactions include deposits, withdrawals, internal and external transfers.
Digital channels include mobile, browser and ATMs.
Digitally engaged customers ratio This is the ratio of digitally engaged individual customers to the total
number of individual customers. Digital channels include mobile, browser and
ATMs. It also captures access to a card as well as online card purchases.
ECB European Central Bank
Gross loans Gross loans are reported before the residual fair value adjustment on initial
recognition relating to loans acquired from Laiki Bank (calculated as the
difference between the outstanding contractual amount and the fair value of
loans acquired) amounting to €252 mn at 31 March 2020 (compared to €271 mn
at 31 December 2019).
Additionally, gross loans (i) include loans and advances to customers
classified and measured at fair value through profit and loss adjusted for the
aggregate fair value adjustment of €328 mn at 31 March 2020 (compared to
€427 mn at 31 December 2019), and (ii) are reported after the
reclassification between gross loans and allowance for expected credit losses
on loans and advances to customers classified as held for sale (amounting to
Nil as at both 31 March 2020 and 31 December 2019).
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 gross loans Gross loans 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 (including Other
equity instruments) to total assets as presented on the balance sheet.
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 and (iii) net gains on loans and advances to
customers at FVPL.
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 balance is calculated as the average of the opening balance and
the closing balance).
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 41.0% at 31 March 2020, compared to 41.1% at 31 December 2019, 40.8% at 30
September 2019, 41.3% at 30 June 2019, 46.7% at 31 March 2019, 45.4% at 31
December 2018 and as at 30 September 2018, 38.6% at 30 June 2018 and 37.4% at
31 March 2018.
The market share on loans was affected as at 30 June 2019 following the
derecognition of the Helix portfolio upon the completion of Project Helix
announced on 28 June 2019.
The market share on loans was affected during the quarter ended 31 March 2019
following a decrease in total loans in the banking sector of €1 bn, mainly
attributed to reclassification, revaluation, exchange rate and other
adjustments (CBC).
The market share on loans was affected as at 30 September 2018 following a
decrease in total loans in the banking sector, mainly attributed to €6 bn
non-performing loans of Cyprus Cooperative Bank (CyCB) which remained to
SEDIPES as a result of the agreement between CyCB and Hellenic Bank.
The market share on loans was affected as at 30 June 2018 following a decrease
in total loans in the banking sector of €2.1 bn, due to loan
reclassifications, revaluations, exchange rate or other adjustments (CBC).
Net fee and commission income over total income Fee and commission income less fee and commission expense divided by total
income (as defined).
Net Interest Margin Net interest margin is calculated as the net interest income (annualised)
divided by the quarterly average interest earning assets. Average interest
earning assets exclude interest earning assets of any discontinued operations
at each quarter end, if applicable. Interest earning assets include: cash and
balances with central banks, 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 investments (excluding
equities and mutual funds).
Net loans and advances to customers Comprise gross loans (as defined) net of allowance for expected loan credit
losses (as defined, but excluding credit losses on off-balance sheet
exposures).
Net loan to deposit ratio Net loan to deposit ratio is calculated as gross loans (as defined) net of
allowance for expected loan credit losses (as defined) divided by customer
deposits.
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), on the basis of
Basel III standards. Its calculation is a SREP requirement. The EBA NSFR will
be enforced as a regulatory ratio under CRR II in 2021.
New lending New lending includes the average YTD change (if positive) for overdraft
facilities.
Non-interest income Non-interest income comprises Net fee and commission income, Net foreign
exchange gains and net gains on financial instrument transactions and
disposal/dissolution of subsidiaries and associates (excluding net gains on
loans and advances to customers at FVPL), Insurance income net of claims and
commissions, Net gains/(losses) from revaluation and disposal of investment
properties and on disposal of stock of properties, and Other income.
Non-performing exposures (NPEs) According to the EBA standards and ECB's Guidance to Banks on Non-Performing
Loans (published in March 2017), 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, distress
restructuring 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, and
(v) performing forborne exposures under probation that present more than 30
days past due within the probation period. 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. 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: (i) advisory and
other restructuring costs - organic, (ii) restructuring costs - Voluntary
Staff Exit Plan (VEP), (iii) Provisions/net loss relating to NPE sales,
including restructuring expenses, (iv) Share of profit from associates (CNP),
and (v) Reversal of impairment of DTA and impairment of other tax receivables.
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).
NPE sales NPE sales refer to NPE sale transactions completed during FY2019, as well as
NPE sale transactions under consideration at 31 December 2019 and 31 March
2020, irrespective of whether or not they met the held for sale classification
criteria as at 31 December 2019 or as at 31 March 2020.
Operating profit Comprises profit before Total loan credit losses, impairments and provisions
(as defined), tax, (profit)/loss 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/(loss) after tax and before non-recurring items (attributable to the Excludes non-recurring items (as defined).
owners of the Company)
Profit/(loss) after tax - organic (attributable to the owners of the Company) Profit/(loss) after tax and before 'non-recurring items' as defined
(attributable to the owners of the Company), except for the 'advisory and
other restructuring costs - organic'.
Quarterly average interest earning assets 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, 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 investments (excluding equities and mutual funds).
Qoq Quarter on quarter change
Special levy Relates to the special levy on deposits of credit institutions in Cyprus.
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 and contributions to the Single Resolution Fund (SRF) and Deposit
Guarantee Fund (DGF). It does not include 'advisory and other restructuring
costs-organic', or any restructuring costs relating to the Voluntary Staff
Exit Plan, or any restructuring costs relating to NPE sales. 'Advisory and
other restructuring costs-organic' amounted to €3 mn for 1Q2020 (compared to
€8 mn for 4Q2019). Restructuring costs relating to NPE sales amounted to
€3 mn for 1Q2020 (compared to €10 mn for 4Q2019). Restructuring costs
relating to the Voluntary Staff Exit Plan amounted to Nil for 1Q2020, compared
to €81 mn for 4Q2019.
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 comprises loan credit
losses (as defined), plus (provisions)/reversal of provisions for litigation,
claims, regulatory and other matters plus (impairments)/reversal of
impairments of other financial and non-financial assets.
Underlying basis This refers to the statutory basis after being adjusted for 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 future 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 quarter ended 31 March 2020.
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
quarter ended 31 March 2020. The financial information in this announcement
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 2019, upon which the
auditors have given an unqualified report, were published on 29 April 2020 and
are expected to be delivered to the Registrar of Companies of Ireland within
28 days of 30 September 2020. The Board of Directors approved the Group
financial results for the quarter ended 31 March 2020 on 25 May 2020.
Statutory basis: Statutory information is set out on pages 30-35. However, a
number of factors have had a significant effect on the comparability of the
Group's financial position and results. Accordingly, the results are also
presented on an underlying basis.
Underlying basis: The statutory results are adjusted for certain items (as
described on page 36) to allow a comparison of the Group's underlying
performance, as set out on pages 5-7.
The financial information included in this announcement is neither reviewed
nor audited by the Group's external auditors.
This announcement and the presentation for the Group Financial Results for the
quarter ended 31 March 2020 have been posted on the Group's website
www.bankofcyprus.com (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 G.
The Group Financial Results for the quarter ended 31 March 2020 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 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 and information technology,
litigation and other operational risks. 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
from 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.
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. The
Bank of Cyprus Group operates through a total of 99 branches in Cyprus, of
which 15 operate as cash offices. Bank of Cyprus also has representative
offices in Russia, Ukraine and China. The Bank of Cyprus Group employs 3,566
staff worldwide. At 31 March 2020, the Group's Total Assets amounted to
€20.4 bn and Total Equity was €2.2 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
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www.rns.com (http://www.rns.com/)
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