REG - Bank of Cyprus Hldgs - 1Q2023 Group Financial Results
16/05/2023 07:00
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RNS Number : 5466Z Bank of Cyprus Holdings PLC 16 May 2023
Announcement
Group Financial Results for the quarter ended 31 March 2023
Nicosia, 16 May 2023
Key Highlights for the quarter ended 31 March 2023
Economic outlook remains strong
· Economy to grow by c.2.8%(1) in 2023, significantly above the
eurozone average
· Another seasonally strong quarter of new lending of €624 mn, up
41% qoq and broadly flat yoy
· Gross performing loan book of €9.9 bn, up 1% qoq and yoy
Strong profitability benefiting from tailwinds
· NII of €162 mn up 127% yoy, underpinned by interest rate rises
· Total operating expenses(2) down 3% yoy; cost to income ratio(2)
at 34% down 26 p.p. yoy
· Profit after tax of €95 mn for 1Q2023 vs €17 mn for 1Q2022
· ROTE(3) of 21.3% for 1Q2023 vs 4.0% for 1Q2022, with rates higher
than expected and anticipated increases in deposit costs not yet developing
Resilient asset quality
· Asset quality in line with target
· NPE ratio at 3.8% (1.1%(4) net) down 7.6 p.p. yoy
· Coverage at 73%; cost of risk at 44 bps flat qoq and yoy,
reflecting resilient credit portfolio quality
Robust capital and liquidity
· CET1 ratio of 15.2%(,5) and Total Capital ratio of 20.3%(5)
· Organic capital generation of c.90 bps(6)
· Retail funded deposit base at €19.0 bn up 7% yoy and flat qoq
· Highly liquid balance sheet with €9.2 bn placed at the ECB
Resumption of dividend payments after 12 years
· €0.05 dividend per ordinary share (€22.3 mn out of FY2022
profitability); payout ratio of 14% on adjusted recurring profitability(7) or
31% based on FY2022 profit after tax(8)
· Payout ratio expected to build prudently and progressively to
30-50% of adjusted recurring profitability(7)
1. Projections in accordance with Ministry of Finance
2. Excluding special levy on deposits and other levies/contributions
3. ROTE is calculated as annualised profit after tax (attributed to
the owners of the Company) divided by the quarterly average shareholders'
equity minus intangible assets
4. Calculated as NPEs net of provisions over net loans
5. Includes unaudited/unreviewed profits for 1Q2023 and for CRR
compliance purposes an accrual for dividend at a payout ratio of 30% of the
Group's adjusted recurring profitability in line with the Group's approved
dividend policy. Any recommendation for a dividend is subject to regulatory
approval
6. Based on profit after tax before non-recurring items
7. Profit after tax before non-recurring items (attributable to the
owners of the Company) taking into consideration the AT1 coupon
8. As reported in the 2022 Annual Report
*On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. Further
information on IFRS 17 is provided under the sections "Commentary on
Underlying Basis' and F9.
Group Chief Executive Statement
"This year we have achieved a significant milestone with the delivery of our
longstanding intention to resume dividend payments after 12 years. This
represents an important step in the Group's journey of delivering sustainable
profitability and shareholder returns. We have proposed a dividend of €0.05
per ordinary share, in respect of 2022 earnings, equivalent to a 14% payout
ratio on adjusted recurring profitability or 31% based on profit after tax as
reported in 2022 annual report. Going forward, dividends are expected to build
prudently and progressively towards a payout ratio in the range of 30-50%.
The dividend decision was supported by the strong start to the year with the
performance in the quarter ahead of our FY2023 targets. Overall, we generated
profit after tax of €95 mn, corresponding to a ROTE of 21.3%. Total income
amounted to €234 mn, of which €162 mn relates to net interest income, more
than double last year's level. The growth in net interest income was
underpinned by interest rate rises as well as a continued modest deposit
pass-through level. Our non interest income of €72 mn (increased by 8% on
prior year) remained a significant contributor to our profitability and
diversified business model.
Despite elevated inflation, our cost base was 3% lower on the prior period,
reflecting the benefits from recent efficiency actions. As a result, the cost
to income ratio (excluding levies and contributions) stood at 34%, compared to
60% in the prior year.
Our cost of risk remained broadly flat at 44 bps reflecting our resilient
credit portfolio quality. Asset quality is in line with our targets, reflected
in an NPE ratio of 3.8%, and an improved level of coverage of 73% as at
quarter end.
Against the backdrop in the global and European economic environment, the
Cypriot economy continues to demonstrate its strength with GDP forecast to
grow by c.2.8% in 2023, which is expected to outperform the Eurozone average.
As the largest financial group in Cyprus, we continued to support the economy
by extending a seasonally strong €0.6 bn of new loans in 1Q2023, an increase
of 41% on the prior quarter, whilst maintaining strict lending criteria. Our
performing loan book grew by 1% both qoq and yoy to €9.9 bn.
Our capital position remains robust and comfortably in excess of our
regulatory requirements. We ended the quarter with a CET1 ratio of 15.2% and a
Total Capital ratio of 20.3%, generating c.90 bps of organic capital.
Our liquidity position remains robust, stemming from our highly liquid balance
sheet and growing retail-funded deposit base. As at 31 March 2023, our cash
balances amounted to €9.2 bn whilst our deposits remained flat qoq, but
increased by 7% on the prior year to €19.0 bn.
2023 is providing evidence of the Group's transformation into a strong,
diversified, well-capitalised and sustainably profitable banking and financial
services group. We have closed the chapter on the restructuring effort of
recent years and have started a new chapter in which we aim to provide
sustainable returns to shareholders, while continuing to serve our customers,
support the Cypriot economy and contribute to the community. Our positive set
of financial results this quarter provides the foundations to help us deliver
against our targets. We look forward to presenting and discussing an update of
the Group's outlook at our Investor Update, on 8 June 2023."
Panicos Nicolaou
A. Group Financial Results - Underlying Basis
Unaudited Interim Condensed Consolidated Income Statement
€ mn 1Q2023 1Q2022 4Q2022 qoq +% yoy +%
IFRS 17(1) IFRS 17(1)
Net interest income 162 71 136 19% 127%
Net fee and commission income 44 44 50 -12% 1%
Net foreign exchange gains and net gains/(losses) on financial instruments 13 2 12 12% -
Net insurance result 10 11 10 -11% -15%
Net gains/(losses) from revaluation and disposal of investment properties and 2 5 2 -34% -68%
on disposal of stock of properties
Other income 3 4 5 -38% -31%
Total income 234 137 215 8% 70%
Staff costs (46) (47) (42) 9% -4%
Other operating expenses (34) (34) (42) -19% -1%
Special levy on deposits and other levies/contributions (11) (10) (11) -7% 12%
Total expenses (91) (91) (95) -5% -1%
Operating profit 143 46 120 19% 213%
Loan credit losses (11) (12) (11) 0% -6%
Impairments of other financial and non-financial assets (11) (5) (13) -8% 126%
Provisions for pending litigations, regulatory and other matters (net of (6) (0) (8) -26% -
reversals)
Total loan credit losses, impairments and provisions (28) (17) (32) -10% 68%
Profit before tax and non-recurring items 115 29 88 29% -
Tax (18) (6) (13) 40% -
Profit attributable to non-controlling interests (1) 0 (1) -45% -
Profit after tax and before non-recurring items (attributable to the owners of 96 23 74 28% -
the Company)
Advisory and other restructuring costs - organic (1) (1) (1) -22% -15%
Profit after tax - organic (attributable to the owners of the Company) 95 22 73 29% -
Provisions/net profit/(loss) relating to NPE sales - (1) 2 -100% -100%
Restructuring and other costs relating to NPE sales - (1) 0 -41% -72%
Restructuring costs - Voluntary Staff Exit Plan (VEP) - (3) - - -100%
Profit after tax (attributable to the owners of the Company) 95 17 75 26% -
A. Group Financial Results - Underlying Basis (continued)
Unaudited Interim Condensed Consolidated Income Statement - Key Performance
Ratios
Key Performance Ratios 1Q2023 1Q2022 4Q2022 qoq+% yoy+%
IFRS 17(1) IFRS 17(1)
Net Interest Margin (annualised) 2.91% 1.32% 2.36% 55 bps 159 bps
Cost to income ratio 39% 67% 44% -5 p.p. -28 p.p.
Cost to income ratio excluding special levy on deposits and other 34% 60% 39% -5 p.p. -26 p.p.
levies/contributions
Operating profit return on average assets (annualised) 2.3% 0.7% 1.9% 0.4 p.p. 1.6 p.p.
Basic earnings per share attributable to the owners of the Company (€ 21.24 3.86 16.84 4.40 17.38
cent)(2)
Return on tangible equity (ROTE) 21.3% 4.0% 17.3% 4.0 p.p. 17.3 p.p.
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further
details, please refer to Section F.9.
2. The diluted earnings per share attributable to the owners of the Company
for 1Q2023 amounted to 21.20 cents
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 2023 on an
'underlying basis', which the management believes best fits the true
measurement of the performance and position of the Group, as this presents
separately exceptional and one-off items.
Reconciliations between the statutory basis and the underlying basis are
included in Section F.1 'Reconciliation of Interim Income statement for the
quarter ended 31 March 2023 between statutory basis and underlying basis' and
in Section H under 'Alternative Performance Measures', and Section I under
'Definitions & Explanations' to facilitate the comparability of the
underlying basis to the statutory information.
Throughout this announcement, financial information in relation to FY2022 and
quarterly 2022 financial information has been restated for the effects of
transition to IFRS 17 which was adopted on 1 January 2023 and applied
retrospectively. As a result, such 2022 financial information, ratios and
metrics are presented on a restated basis unless otherwise stated. Further
information on impact of IFRS 17 transition is provided below and in Section
F.9 of this announcement.
Throughout this announcement, the capital ratios as at 31 December 2022 have
been restated in order to take into consideration the recommendation of
dividend. This refers to the recommendation by the Board of Directors to the
shareholders for approval at the Annual General Meeting ('AGM') of a final
dividend in respect of the FY2022 earnings following the approval by the
European Central Bank ('ECB'). This proposed dividend amounts to €22.3 mn in
total and had a negative impact of 22 bps in the Group's CET1 ratio and Total
Capital ratio as at 31 December 2022. As a result the 31 December 2022 capital
ratios are presented as restated for the dividend proposal unless otherwise
stated. Further details are provided in Section "A.1.1 Capital Base".
Transition to IFRS 17
On 1 January 2023 the Group adopted IFRS 17 'Insurance Contracts' ('IFRS 17')
which replaced IFRS 4 'Insurance contracts. IFRS 17 is an accounting standard
that was implemented on 1 January 2023, with retrospective application and
establishes principles for the recognition, measurement, presentation, and
disclosure of insurance contracts issued, investment contracts with
discretionary participation features issued and reinsurance contracts held. In
substance, IFRS 17 impacts the phasing of profit recognition for insurance
contracts as profitability is spread over the lifetime of the contract
compared to being recognised substantially up-front under IFRS 4. This new
accounting standard does not change the economics of the insurance contracts
but it does decrease the volatility of the Group's insurance companies
profitability.
The Group's total equity as at 31 December 2022 as restated for IFRS 17
compared to IFRS 4, was reduced by overall €52 mn (predominantly relating to
the life insurance business of the Group) from the below changes:
· The removal of the present value of in-force life insurance
contracts ('PVIF') asset including the associated deferred tax liability,
resulting to a reduction of €101 mn in the Group's total equity.
· The remeasurement of insurance assets and liabilities (including
the impact of the contractual service margin('CSM')) resulting to an increase
in the Group's equity by €49 mn.
Commentary on Underlying Basis (continued)
Transition to IFRS 17 (continued)
The estimated future profit of insurance contracts is included in the
measurement of the insurance contract liabilities as the contractual service
margin ('CSM') and this will be gradually recognised in revenue, as services
are provided over the duration of the insurance contract. A contractual
service margin liability of c.€42 mn was recognised as at 31 December 2022
(reflected in the impact from the remeasurement of insurance liabilities
mentioned above).
With regards to the Group's income statement for the year ended 31 December
2022 as restated for IFRS 17 the profit after tax (attributable to the owners
of the Company) was reduced by €14 mn to €57 mn (vs €71 mn under IFRS 4)
reflecting mainly:
· Profit is deferred and held as CSM liability as mentioned above
to be recognised in the income statement over the contract service period.
· The impact of assumption changes relating to the future service
is also deferred through CSM liability and is recognised in the income
statement over the contract service period.
· There is increased use of current market values in the
measurement of insurance assets and liabilities (for unit-linked business) and
market volatility on unit-linked business is deferred to the CSM, thereby
reducing the volatility in the income statement.
The transition to IFRS 17 had no impact on the Group's regulatory capital.
However, as a result of the benefit arising from the remeasurement of the
insurance assets and liabilities, the life insurance subsidiary distributed
€50 mn as dividend to the Bank in February 2023, which benefited Group
regulatory capital by an equivalent amount on the same date, enhancing CET1
ratio by c.50 bps. Going forward, meaningful dividend generation from the
insurance business is expected to continue.
A. Group Financial Results- Underlying Basis (continued)
Unaudited Interim Condensed Consolidated Balance Sheet
€ mn 31.03.2023 31.12.2022 +%
IFRS 17(1)
Cash and balances with central banks 9,248 9,567 -3%
Loans and advances to banks 416 205 103%
Debt securities, treasury bills and equity investments 2,897 2,704 7%
Net loans and advances to customers 10,013 9,953 1%
Stock of property 978 1,041 -6%
Investment properties 83 85 -2%
Other assets 1,752 1,734 1%
Total assets 25,387 25,289 0%
Deposits by banks 481 508 -5%
Funding from central banks 1,988 1,977 1%
Customer deposits 18,974 18,998 0%
Debt securities in issue 300 298 1%
Subordinated liabilities 307 302 2%
Other liabilities 1,195 1,157 3%
Total liabilities 23,245 23,240 0%
Shareholders' equity 1,899 1,807 5%
Other equity instruments 220 220 -
Total equity excluding non-controlling interests 2,119 2,027 5%
Non-controlling interests 23 22 3%
Total equity 2,142 2,049 5%
Total liabilities and equity 25,387 25,289 0%
Key Balance Sheet figures and ratios 31.03.2023 31.12.2022(1) +
Gross loans (€ mn) 10,278 10,217 1%
Allowance for expected loan credit losses (€ mn) 282 282 0%
Customer deposits (€ mn) 18,974 18,998 -0%
Loans to deposits ratio (net) 53% 52% +1 p.p.
NPE ratio 3.8% 4.0% -20 bps
NPE coverage ratio 73% 69% +4 p.p.
Leverage ratio 8.2% 7.8% +40 bps
Capital ratios and risk weighted assets 31.03.2023 31.12.2022(1,2) +
Common Equity Tier 1 (CET1) ratio (transitional) 15.2% 15.2% -
Total capital ratio (transitional) 20.3% 20.4% -10 bps
Risk weighted assets (€ mn) 10,164 10,114 0%
1 On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further
details, please refer to Section F.9
2. The capital ratios have been restated to take into consideration the
proposed dividend in respect of FY2022 earnings. For further details please
refer to section A.1.1. p.p. = percentage points, bps = basis points, 100
basis points (bps) = 1 p.p.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis
A.1.1 Capital Base
Total equity excluding non-controlling interests totalled €2,119 mn as at 31
March 2023 compared to €2,027 mn as at 31 December 2022 and €2,028 mn as
at 31 March 2022. Shareholders' equity totalled €1,899 mn as at 31 March
2023 compared to €1,807 mn as at 31 December 2022 and €1,808 mn as at 31
March 2022.
The Common Equity Tier 1 capital (CET1) ratio on a transitional basis stood at
15.2% as at 31 March 2023, compared to 15.2% as at 31 December 2022, as
restated. Organic capital generation for 1Q2023 amounted to c.90 bps. During
1Q2023 the CET1 ratio was positively affected by pre-provision income and
negatively affected by the final phasing in of IFRS 9 and other transitional
arrangements, provisions and impairments as well as the other movements.
Additionally, CET1 ratio as at 31 March 2023 was positively affected by €50
mn dividend distributed to the Bank in February 2023 by the life insurance
subsidiary. Throughout this announcement, the capital ratios as at 31 March
2023 include unaudited/un-reviewed profits for the three months ended 31 March
2023 and for CRR compliance purposes an accrual for an estimated final
dividend at a payout ratio of 30% of the Group Adjusted Profit after tax for
the period, which is in line with the Group's approved dividend policy. As per
the latest SREP decision, any dividend distribution is subject to regulatory
approval. Such dividend accrual does not constitute a binding commitment for a
dividend payment nor does it constitute a warranty or representation that such
a payment will be made. Group Adjusted Profit after tax is defined as the
Group's profit after tax before non-recurring items (attributable to the
owners of the Company) taking into account distributions under other equity
instruments such as the annual AT1 coupon. For further details please refer
to 'Resumption of dividends' in section A.1.1.
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 was
phased-in gradually, with the impact being fully phased-in (100%) by 1 January
2023. The final phasing-in of the impact of the impairment amount from the
initial application of IFRS 9 was c.65 bps on the CET1 ratio on 1 January
2023. In addition, a prudential charge in relation to the onsite inspection on
the value of the Group's foreclosed assets is being deducted from own funds
since June 2021, the impact of which is 24 bps on Group's CET1 ratio as at 31
March 2023.
The Total Capital ratio stood at 20.3% as at 31 March 2023, compared to 20.4%
as at 31 December 2022 as restated.
The Group's capital ratios are above the Supervisory Review and Evaluation
Process (SREP) requirements.
In the context of the annual SREP performed by the ECB in 2022 and based on
the final SREP decision received in December 2022, effective from 1 January
2023, the Pillar II requirement has been revised to 3.08%, compared to the
previous level of 3.26%. The Pillar II requirement includes a revised Pillar
II requirement add-on of 0.33% relating to ECB's prudential provisioning
expectations. When disregarding the Pillar II add-on relating to ECB's
prudential provisioning expectations, the Pillar 2 requirement has been
reduced from 3.00% to 2.75%.
The Group's minimum phased-in CET1 capital ratio and Total Capital ratio
requirements were reduced compared to 2022, when disregarding the phasing in
of the Other Systemically Important Institution Buffer. The Group's minimum
phased-in CET1 capital ratio is set at 10.25%, compared to the previous level
of 10.10%, comprising a 4.50% Pillar I requirement, a 1.73% Pillar II
requirement, the Capital Conservation Buffer of 2.50%, the O-SII Buffer of
1.50% and the CcyB of 0.02%. The Group's minimum phased-in Total Capital ratio
requirement is set at 15.10%, compared to the previous level of 15.03%
comprising an 8.00% Pillar I requirement, of which up to 1.50% can be in the
form of AT1 capital and up to 2.00% in the form of T2 capital, a 3.08% Pillar
II requirement, the Capital Conservation Buffer of 2.50%, the O-SII Buffer of
1.50% and the CcyB of 0.02%. The ECB has also maintained the non-public
guidance for an additional Pillar II CET1 buffer (P2G) unchanged compared to
the previous year.
The Bank has been designated as an Other Systemically Important Institution
(O-SII) by the Central Bank of Cyprus (CBC) in accordance with the provisions
of the Macroprudential Oversight of Institutions Law of 2015, and since
November 2021 the O-SII buffer has been set to 1.50%. This buffer was
phased-in gradually, having started from 1 January 2019 at 0.50%. The O-SII
buffer was fully phased-in on 1 January 2023 and now stands at 1.50%.
Own funds held for the purposes of P2G cannot be used to meet any other
capital requirements (Pillar I, Pillar II requirements or the combined buffer
requirement), and therefore cannot be used twice.
On 30 November 2022, the CBC, following the revised methodology described in
its macroprudential policy, decided to increase the CcyB from 0.00% to 0.50%
of the total risk exposure amounts in Cyprus of each licensed credit
institution incorporated in Cyprus. The new rate of 0.50% must be observed as
from 30 November 2023. Based on the above, the CcyB for the Group is
expected to increase.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.1 Capital Base (continued)
Following the 2022 SREP decision, the equity dividend distribution prohibition
was lifted for both the Company and the Bank, with any dividend distribution
being subject to regulatory approval. The Company (Bank of Cyprus Holdings
PLC) and the Bank were under a regulatory prohibition for equity dividend
distribution in the previous year. This prohibition did not apply if the
distribution was made via the issuance of new ordinary shares to the
shareholders, eligible as CET1 capital. No prohibition applied to the payment
of coupons on any AT1 capital instruments issued by the Company or the Bank.
Resumption of dividend payments
In April 2023 the Company obtained the approval of the European Central Bank
to pay a dividend. Following this approval, the Board of Directors of the
Company recommended to the shareholders for approval at the Annual General
Meeting ('AGM') that will be held on 26 May 2023, of a final dividend of
€0.05 per ordinary share in respect of earnings for the year ended 31
December 2022 ('Dividend'). This proposed Dividend amounts to €22.3 mn in
total and is equivalent to a payout ratio of 14% of the FY2022 recurring
profitability adjusted for the AT1 coupon or 31% based on FY2022 profit after
tax (as reported in the 2022 Annual Financial Report). Subject to approval at
the AGM, the Dividend will be paid in cash on 16 June 2023 to those
shareholders on the register on 5 May 2023 ("Record date") with an Ex-Dividend
date of 4 May 2023.
This proposed Dividend resulted in a negative capital impact of 22 bps on the
Group's CET1 ratio and Total Capital ratio as at 31 December 2022. As noted
above, throughout this announcement, the capital ratios as at 31 December 2022
have been restated in order to take into consideration the recommendation of
dividend.
This Dividend reflects the resumption of dividend payments after 12 years,
underpinning the Group's position as a strong and well-diversified
organisation, capable of delivering sustainable shareholder returns.
Dividend policy
In April 2023 the Board of Directors approved the Group dividend policy. The
Group aims to provide a sustainable return to shareholders. Dividend payments
are expected to build prudently and progressively over time, towards a payout
ratio in the range of 30-50% of the Group's profitability after tax, before
non-recurring items, adjusted for AT1 coupon (referred to as "adjusted
recurring profitability"). The dividend policy takes into consideration market
conditions as well as the outcome of capital and liquidity planning.
Project Helix 3
In November 2022, Project Helix 3 was completed resulting in a positive
capital impact of c.50 bps on the Group's CET1 ratio mainly from the release
of risk weighted assets on completion. For further information please refer to
section A.1.5 "Loan portfolio quality".
Other equity instruments
At 31 March 2023, the Group's other equity instruments amounted to €220 mn
flat both to the prior quarter and prior year and relates to Additional Tier 1
Capital Securities (the "AT1 securities").
The AT1 securities constitute unsecured and subordinated obligations of the
Company. They carry a coupon of 12.50% per annum, payable semi-annually in
arrears and resettable every five years. The AT1 securities are perpetual and
can be redeemed at the option of the Company on the fifth anniversary of the
issue date (i.e. 19 December 2023) and each subsequent fifth anniversary,
subject to applicable regulatory consents. If the AT1 securities are not
called, the coupon will reset on the fifth anniversary of the issue date
(i.e.19 December 2023).
The Group continues to monitor opportunities for the optimisation of its
capital position.
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific deferred tax
assets (DTA) into deferred tax credits (DTC) became effective in March 2019.
The legislative amendments cover the utilisation of income tax losses
transferred from Laiki Bank to the Bank in March 2013. The introduction of the
Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)
IV in January 2014 and its subsequent phasing-in led to a more
capital-intensive treatment of this DTA for the Bank. With this legislation,
institutions are allowed to treat such DTAs as 'not relying on profitability',
according to CRR/CRD IV and as a result not deducted from CET1, hence
improving a credit institution's capital position.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.1 Capital Base (continued)
Legislative amendments for the conversion of DTA to DTC (continued)
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 has proceeded with the adoption of modifications to the Law,
including requirements for an additional annual fee over and above the 1.5%
annual guarantee fee already provided for in the Law, to maintain the
conversion of such DTAs into tax credits. In May 2022 the Cyprus Parliament
voted these amendments which became effective at that time. As prescribed by
the amendments in the Law, the annual fee is to be determined by the Cyprus
Government on an annual basis, providing however that such fee to be charged
is set at a minimum fee of 1.5% of the annual instalment and can range up to a
maximum amount of €10 mn per year, and also allowing for a higher amount to
be charged in the year the amendments are effective (i.e. in 2022).
In anticipation of modifications to the Law, the Group has in prior years
acknowledged that such increased annual fee may be required to be recorded on
an annual basis until expiration of such losses in 2028. The Group estimates
that such fees could range up to c.€5 mn per year (for each tax year in
scope i.e. since 2018) although the Group understands that such fee may
fluctuate annually as to be determined by the Ministry of Finance. An amount
of €4.8 mn was recorded in FY2022.
A.1.2 Regulations and Directives
A.1.2.1 The 2021 Banking Package (CRR III and CRD VI and BRRD)
In October 2021, the European Commission adopted legislative proposals for
further amendments to the Capital Requirements Regulation (CRR), CRD IV and
the BRRD (the "2021 Banking Package"). Amongst other things, the 2021 Banking
Package would implement certain elements of Basel III that have not yet been
transposed into EU law. The 2021 Banking Package is subject to amendment in
the course of the EU's legislative process; and its scope and terms may change
prior to its implementation. In addition, in the case of the proposed
amendments to CRD IV and the BRRD, their terms and effect will depend, in
part, on how they are transposed in each member state. The European Council's
proposal on CRR and CRD was published on 8 November 2022. During February
2023, the European Parliament's ECON Committee voted to adopt Parliament's
proposed amendments to the Commission's proposal, and the 2021 Banking Package
is currently in the final stage of the EU legislative process, the trilogue
process, that will eventually result in the final versions of the directives
and regulations. It is expected that the 2021 Banking Package will enter into
force on 1 January 2025; and certain measures are expected to be subject to
transitional arrangements or to be phased in over time.
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 was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in early May 2021. In addition, certain provisions on MREL have been
introduced in CRR ΙΙ which also came into force on 27 June 2019 as part of
the reform package and took immediate effect.
In February 2023, the Bank received notification from the Single Resolution
Board (SRB) of the final decision for the binding minimum requirement for own
funds and eligible liabilities (MREL) for the Bank, determined as the
preferred resolution point of entry. As per the decision, the final MREL
requirement was set at 24.35% of risk weighted assets and 5.91% of Leverage
Ratio Exposure (LRE) (as defined in the CRR) and must be met by 31 December
2025. Furthermore, the binding interim requirement of 1 January 2022 set at
14.94% of risk weighted assets and 5.91% of LRE must continue to be met. The
own funds used by the Bank to meet the Combined Buffer Requirement (CBR) are
not eligible to meet its MREL requirements expressed in terms of risk-weighted
assets. The Bank must comply with the MREL requirement at the consolidated
level, comprising the Bank and its subsidiaries.
A. Group Financial Results - Underlying Basis (continued)
A.1.2 Regulations and Directives (continued)
A.1.2.2 Bank Recovery and Resolution Directive (BRRD) (continued)
A.1. Balance Sheet Analysis (continued)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL) (continued)
The MREL ratio as at 31 March 2023, calculated according to the SRB's
eligibility criteria currently in effect and based on internal estimate, stood
at 20.82% of risk weighted assets (RWA) and at 10.01% of LRE. The MREL ratio
expressed as a percentage of risk weighted assets does not include capital
used to meet the CBR amount, which stood at 4.02% on 1 January 2023 (compared
to 3.77% as at 31 December 2022) and will further increase on 30 November 2023
following increase in CcyB from 0.00% to 0.50% of the total risk exposure
amounts in Cyprus as announced by Central Bank of Cyprus. Throughout this
announcement, the MREL ratios as at 31 March 2023 include
unaudited/un-reviewed profits for the three months ended 31 March 2023 and for
CRR compliance purposes na an accrual for an estimated final dividend at a
payout ratio of 30% of the Group Adjusted Profit after tax for the period,
which is in line with the Group's approved dividend policy. As per the latest
SREP decision, any dividend distribution is subject to regulatory approval.
Such dividend accrual does not constitute a binding commitment for a dividend
payment nor does it constitute a warranty or representation that such a
payment will be made.
The Bank continues to evaluate opportunities to advance the build-up of its
MREL liabilities.
A.1.3 Funding and Liquidity
Funding
Funding from Central Banks
At 31 March 2023, the Bank's funding from central banks amounted to €1,988
mn, which relates to ECB funding, comprising solely of funding through the
Targeted Longer-Term Refinancing Operations (TLTRO) III, compared to €1,977
mn at 31 December 2022.
The Bank borrowed an overall amount of €3 bn under TLTRO III by June 2021,
despite its comfortable liquidity position, given the favourable borrowing
terms, in combination with the relaxation of collateral requirements.
Following the changes in the terms of the TLTRO III announced by the ECB in
October 2022, and given the Bank's strong liquidity position, the Bank
proceeded with the repayment of €1 bn TLTRO III funding in December 2022.
Deposits
Customer deposits totalled €18,974 mn at 31 March 2023 (compared to
€18,998 mn at 31 December 2022) flat in the first quarter and up 7% year on
year. Customer deposits are mainly retail-funded and almost 60% of deposits
are protected under the deposit guarantee scheme.
The Bank's deposit market share in Cyprus reached 37.3% as at 31 March 2023,
compared to 37.2% as at 31 December 2022. Customer deposits accounted for 75%
of total assets and 82% of total liabilities at 31 March 2023 (broadly flat
since 31 December 2022).
The net loans to deposits (L/D) ratio stood at 53% as at 31 March 2023
(compared to 52% as at 31 December 2022 on the same basis), broadly flat in
the first quarter.
Subordinated liabilities
At 31 March 2023, the Group's subordinated liabilities (including accrued
interest) amounted to €307 mn (compared to €302 mn at 31 December 2022)
and relate to unsecured subordinated Tier 2 Capital Notes ('T2 Notes').
The T2 Notes were priced at par with a fixed coupon of 6.625% per annum,
payable annually in arrears and resettable on 23 October 2026. The maturity
date of the T2 Notes is 23 October 2031. The Company will have the option to
redeem the T2 Notes early on any day during the six-month period from 23 April
2026 to 23 October 2026, subject to applicable regulatory approvals.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.3 Funding and Liquidity (continued)
Debt securities in issue
At 31 March 2023, the carrying value of the Group's debt securities in issue
(including accrued interest) amounted to €300 mn (compared to €298 mn at
31 December 2022) and relate to senior preferred notes.
In June 2021, the Bank executed its inaugural MREL transaction issuing €300
mn of senior preferred notes (the "SP Notes"). The SP Notes were priced at par
with a fixed coupon of 2.50% per annum, payable annually in arrears and
resettable on 24 June 2026. The maturity date of the SP Notes is 24 June 2027
and the Bank may, at its discretion, redeem the SP Notes on 24 June 2026,
subject to meeting certain conditions as specified in the Terms and
Conditions, including applicable regulatory consents. The SP Notes comply with
the criteria for MREL and contribute towards the Bank's MREL requirements.
Liquidity
At 31 March 2023, the Group Liquidity Coverage Ratio (LCR) stood at 303%
(compared to 291% at 31 December 2022), well above the minimum regulatory
requirement of 100%. The LCR surplus as at 31 March 2023 amounted to €7.4 bn
(compared to €7.2 bn at 31 December 2022). The increase in liquidity surplus
in 1Q2023 reflects primarily the increase in the fixed income portfolio. When
disregarding the TLTRO III, the Group's liquidity position remains strong with
an LCR of 248% and liquidity surplus of €5.4 bn.
At 31 March 2023, the Group Net Stable Funding Ratio (NSFR) stood at 160%
(compared to 168% at 31 December 2022), well above the minimum regulatory
requirement of 100%.
A.1.4 Loans
Group gross loans totalled €10,278 mn at 31 March 2023, compared to
€10,217 mn at 31 December 2022, up 1 percentage point on the prior quarter
as repayments partly offset new lending.
New lending granted in Cyprus was seasonally strong and reached €624 mn for
1Q2023 (compared to €444 mn for 4Q2022 and €622 mn for 1Q2022) up by 41%
qoq and broadly flat yoy, whilst maintaining strict lending criteria. The qoq
increase is driven by increased seasonal business demand. New lending in
1Q2023 comprised €297 mn of corporate loans, €186 mn of retail loans (of
which €108 mn were housing loans), €77 mn of SME loans and €64 mn of
shipping and international loans.
At 31 March 2023, the Group net loans and advances to customers totalled
€10,013 mn (compared to €9,953 mn at 31 December 2022), increased by 1%
since the beginning of the year.
The Bank is the largest credit provider in Cyprus with a market share of 42.4%
at 31 March 2023, compared to 40.9% at 31 December 2022.
A.1.5 Loan portfolio quality
The Group has continued to make steady progress across all asset quality
metrics. Today, the Group's priorities focus mainly on maintaining high
quality new lending with strict underwriting standards and preventing asset
quality deterioration following the ongoing macroeconomic uncertainty.
The loan credit losses for 1Q2023 totalled €11 mn, compared to €11 mn for
4Q2022 and €12 mn for 1Q2022. Further details regarding loan credit losses
are provided in Section A.2.3 'Profit before tax and non-recurring items'.
The elevated inflation combined with the rising interest rate environment are
expected to weigh on the purchasing power of the Bank's customers. Despite
these persisting pressures there are no signs of asset quality deterioration
to date. While defaults have been limited, the additional monitoring and
provisioning for sectors and individuals vulnerable to the deteriorated
macroeconomic environment remain in place to ensure that potential
difficulties in the repayment ability are identified at an early stage, and
appropriate solutions are provided to viable customers.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1. 5 Loan portfolio quality (continued)
Non-performing exposures reduction
Non-performing exposures (NPEs) as defined by the European Banking Authority
(EBA) were reduced by €22 mn, or 5% in 1Q2023, compared to a reduction of
€607 mn in 4Q2022 (of which c.€550 mn related to Project Helix 3), to
€389 mn at 31 March 2023 (compared to €411 mn at 31 December 2022). The
reduction in 1Q2023 is mainly driven by the net organic NPE reductions of
€22 mn (inflows minus outflows), compared to €57 mn as at 31 December
2022.
As a result, the NPEs account for 3.8% of gross loans as at 31 March 2023,
compared to 4.0% at 31 December 2022.
The NPE coverage ratio stands at 73% at 31 March 2023, compared to 69% as at
31 December 2022. When taking into account tangible collateral at fair value,
NPEs are fully covered.
Project Helix 3
In November 2022, the Group completed Project Helix 3, that refers to the sale
of a portfolio of loans with a gross book value of €555 mn (of which €551
mn relate to non-performing exposures), as well as real estate properties with
a book value of €88 mn as at 30 September 2022, to funds managed by Pacific
Investment Management Company LLC, the agreement for which was announced on 15
November 2021.
Cash consideration of c.€350 mn was received by completion, reflecting
adjustments resulting from, inter alia, loan repayments received on the
Portfolio since the reference date of 31 May 2021.
The transaction represented a milestone in the successful delivery of one of
the Group's strategic priorities of improving asset quality through the
reduction of NPEs with the NPE ratio reducing below 5%.
Project Sinope
In December 2021, the Bank entered into an agreement for the sale of a
portfolio of NPEs, with a contractual balance of €146 mn and a gross book
value of €12 mn as at 31 December 2021, as well as properties in Romania
with carrying value €0.6 mn as at 31 December 2021 (known as 'Project
Sinope'). Project Sinope was completed in August 2022.
Overall, since the peak in 2014, the stock of NPEs has been reduced by €14.6
bn or 97% to €0.4 bn and the NPE ratio by 59 percentage points, from 63% to
below 4%.
A.1.6 Fixed income portfolio
Fixed income portfolio amounts to €2,747 mn as at 31 March 2023, compared to
€2,500 mn as at 31 December 2022, increased by 10% since the beginning of
the year. The portfolio represents 11% of total assets and comprises €2,332
mn (85%) carrying value measured at amortised cost and €415 mn (15%) at fair
value through other comprehensive income ('FVOCI').
The fixed income portfolio measured at amortised cost is held to maturity and
therefore no fair value gains/losses are recognised in the Group's income
statement or equity. This fixed income portfolio has low average duration of
c.2 years and high average rating at A1 or at Aa3 when Cyprus government bonds
are excluded. The fair value of the amortised cost fixed income portfolio as
at 31 March 2023 amounts to €2,245 mn, reflecting an unrealised fair value
loss of €87 mn, equivalent to c.85 bps of CET1 ratio.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.7 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) is focused on the disposal of
on-boarded properties resulting from debt for asset swaps. Cumulative sales
since the beginning of 2017 amount to €1.6 bn and exceed properties
on-boarded in the same period of €1.4 bn.
The Group completed disposals of €41 mn in 1Q2023 (compared to €37 mn in
4Q2022 and €44 mn in 1Q2022), resulting in a profit on disposal of €2 mn
for 1Q2023 (compared to a profit of c.€3 mn for 4Q2022 and €6 mn for
1Q2022). Asset disposals are across all property classes, with over half of
sales by value in 1Q2023 relating to land.
During 1Q2023, the Group executed sale-purchase agreements (SPAs) for
disposals of 138 properties with contract value of €43 mn, compared to SPAs
for disposals of 161 properties, with contract value of €51 mn for 1Q2022.
In addition, the Group had a relatively strong pipeline of €58 mn by
contract value as at 31 March 2023, of which €38 mn related to SPAs signed
(compared to a pipeline of €70 mn as at 31 December 2022, of which €47 mn
related to SPAs signed).
REMU on-boarded €2 mn of assets in 1Q2023 (compared to additions of €2 mn
in 4Q2022 and €8 mn in 1Q2022), via the execution of debt for asset swaps
and repossessed properties.
As at 31 March 2023, assets held by REMU had a carrying value of €1,050 mn
(comprising properties of €977 mn classified as 'Stock of property' and
€73 mn as 'Investment properties'), compared to €1,116 mn as at 31
December 2022 (comprising properties of €1,041 mn classified as 'Stock of
property' and €75 mn as 'Investment properties').
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.7 Real Estate Management Unit (REMU) (continued)
Assets held by REMU
Assets held by REMU (Group) 1Q2023 1Q2022 4Q2022 qoq +% yoy +%
€ mn
Opening balance 1,116 1,215 1,161 -4% -8%
On-boarded assets 2 8 2 -4% -75%
Sales (41) (44) (37) 8% -8%
Net impairment loss (8) (5) (10) -9% 79%
Transfer to/from own properties (19) - - - -
Closing balance 1,050 1,174 1,116 -6% -11%
Analysis by type and country Cyprus Greece Romania Total
31 March 2023 (€ mn)
Residential properties 64 21 0 85
Offices and other commercial properties 155 14 0 169
Manufacturing and industrial properties 47 17 0 64
Hotels 22 0 0 22
Land (fields and plots) 471 4 0 475
Golf courses and golf-related property 235 0 0 235
Total 994 56 0 1,050
Cyprus Greece Romania Total
31 December 2022 (€ mn)
Residential properties 69 21 0 90
Offices and other commercial properties 180 14 0 194
Manufacturing and industrial properties 48 19 0 67
Hotels 24 0 0 24
Land (fields and plots) 502 4 0 506
Golf courses and golf-related property 235 0 0 235
Total 1,058 58 0 1,116
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis
A.2.1 Total income
€ mn 1Q2023 1Q2022 4Q2022 yoy +%
IFRS 17(1) IFRS 17(1) qoq +%
Net interest income 162 71 136 19% 127%
Net fee and commission income 44 44 50 -12% 1%
Net foreign exchange gains and net gains/(losses) on financial instruments 13 2 12 12% -
Net insurance result 10 11 10 -11% -15%
Net gains/(losses) from revaluation and disposal of investment properties and 2 5 2 -34% -68%
on disposal of stock of properties
Other income 3 4 5 -38% -31%
Non-interest income 72 66 79 -11% 8%
Total income 234 137 215 8% 70%
Net Interest Margin (annualised) 2.91% 1.32% 2.36% 55 bps 159 bps
Average interest earning assets 22,638 21,942 22,855 -1% 3%
(€ mn)
1 On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further
details, please refer to Section F.9 p.p. = percentage points, bps = basis
points, 100 basis points (bps) = 1 percentage point
Net interest income (NII) for 1Q2023 amounted to €162 mn compared to €136
mn for 4Q2022, driven by interest rate rises as well as resilient low deposit
pass-through. Net interest income was up by 127% yoy, reflecting mainly the
repricing of loans and liquids to higher rates and to a lesser extent the
growth of the performing loan book and fixed income portfolio, notwithstanding
the foregone NII on the Helix 3 portfolio (c.€3.5 mn in 1Q2022) and end of
TLTRO favourable terms (c.€4 mn in 1Q2022).
Quarterly average interest earning assets (AIEA) for 1Q2023 amounted to
€22,638 mn, up by 3% yoy driven by the increase in liquid assets mainly as a
result of the increase in deposits by €1.3 bn yoy and the increase in the
fixed income portfolio by c.€0.9 bn yoy, partly offset by the repayment of
€1.0 bn TLTRO in December 2022. Quarterly average interest earning assets
for 1Q2023 remained broadly flat on the prior quarter.
Net interest margin (NIM) for 1Q2023 amounted to 2.91% (compared to 2.36% for
4Q2022 and 1.32% for 1Q2022) supported by interest rate rises.
Non-interest income for 1Q2023 amounted to €72 mn (compared to €79 mn for
4Q2022, down by 11% qoq and compared to €66 mn for 1Q2022, up by 8% yoy),
comprising net fee and commission income of €44 mn, net foreign exchange
gains and net gains/(losses) on financial instruments of €13 mn, net
insurance result of €10 mn, net gains/(losses) from revaluation and disposal
of investment properties and on disposal of stock of properties of €2 mn and
other income of €3 mn. The qoq decrease relates to lower net fee and
commission income. The yoy increase is driven by higher net foreign exchange
gains and net gains/(losses) on financial instruments.
Net fee and commission income for 1Q2023 amounted to €44 mn, down 12% qoq
(compared to €50 mn for 4Q2022), impacted mainly by the termination of the
liquidity fees in December 2022 and NPE sale-related servicing fee in mid-
February 2023, as expected and seasonally lower transactional fees. Net fee
and commission income was broadly flat yoy; when disregarding the impact of
the liquidity fees and NPE sale-related servicing fee, net fee and commission
income was up 16% yoy, reflecting the introduction of price adjustments in
February 2022, higher non-transactional fees and higher credit card
commissions.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.1 Total income (continued)
Net foreign exchange gains and net gains/(losses) on financial instruments of
€13 mn for 1Q2023 (comprising net foreign exchange gains of €8 mn and net
gains on financial instruments of €5 mn), compared to €2 mn for 1Q2022,
reflecting mainly higher foreign exchange income through FX swaps and higher
net gains on financial instruments. Net foreign exchange gains and net
gains/(losses) on financial instruments were broadly flat qoq. Net foreign
exchange gains and net gains/(losses) on financial instruments are considered
volatile profit contributors.
Net insurance result amounted to €10 mn for 1Q2023, compared to €11 mn for
1Q2022, down 15% yoy, impacted by higher claims as well as higher attributable
expenses arising from new business, partly offset by lower reinsurance
expense. Net insurance result is broadly flat on prior quarter.
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties for 1Q2023 amounted to €2 mn (comprising
net gains on disposal of stock of properties of €2 mn, and net losses from
revaluation of investment properties of €0.4 mn), compared to €5 mn for
1Q2022 and €2 mn for 4Q2022. REMU profit remains volatile.
Total income for 1Q2023 amounted to €234 mn, compared to €215 mn for
4Q2022 (up 8% qoq), and to €137 mn for 1Q2022 (up 70% yoy) mainly driven by
the increases in the net interest income, as explained above.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
€ mn 1Q2023 1Q2022 4Q2022 qoq +% yoy +%
IFRS 17(1) IFRS 17(1)
Staff costs (46) (47) (42) 9% -4%
Other operating expenses (34) (34) (42) -19% -1%
Total operating expenses (80) (81) (84) -5% -3%
Special levy on deposits and other levies/contributions (11) (10) (11) -7% 12%
Total expenses (91) (91) (95) -5% -1%
Cost to income ratio 39% 67% 44% -5 p.p. -28 p.p.
Cost to income ratio excluding special levy on deposits and other 34% 60% 39% -5 p.p. -26 p.p.
levies/contributions
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further
details, please refer to Section F.9 p.p. = percentage points, bps = basis
points, 100 basis points (bps) = 1 percentage point
A.2.2 Total expenses
Total expenses for 1Q2023 were €91 mn (compared to €95 mn for 4Q2022 and
€91 mn for 1Q2022, down 5% qoq and 1% yoy), 50% of which related to staff
costs (€46 mn), 38% to other operating expenses (€34 mn) and 12% to
special levy on deposits and other levies/contributions (€11 mn). The
decrease of 5% qoq is driven by seasonally lower other operating expenses,
partly offset by higher staff costs. The yoy decrease of 1% reflects benefits
from the efficiency actions undertaken in the previous year, partly offset by
inflationary pressures, increments and accrued variable compensation.
Total operating expenses for 1Q2023 amounted to €80 mn compared to €84 mn
for 4Q2022 (down 5% qoq) and to €81 mn for 1Q2022 (down 3% yoy).
Staff costs for 1Q2023 were €46 mn, down by 4% yoy resulting from the
savings of the Voluntary Staff Exit Plan (VEP) that took place in 3Q2022,
partially offset by inflationary pressures. Staff costs were up 9% qoq driven
by the cost of living adjustments (COLA) (which relates to c.50% of the annual
inflation for the year ended 31 December 2022), salary increments and the
accrued staff cost rewards of c. €2 mn (variable pay).
In July 2022 the Group completed a VEP which led to the reduction of the
Group's full time employees by 16%, at a total cost of €101 mn, recorded in
the consolidated income statement in 3Q2022. The gross annual savings were
estimated at c.€37 mn or 19% of staff costs with a payback period of 2.7
years. The estimated savings of the VEP are expected to be partially offset by
the renewal of the collective agreement in 2023.
In addition, in January 2022 the Group through one of its subsidiaries
completed a Voluntary Staff Exit Plan (VEP), through which a small number of
its employees were approved to leave at a total cost of €3 mn, recorded in
the consolidated income statement in 1Q2022 as a non-recurring item in the
underlying basis.
The Group employed 2,883 persons as at 31 March 2023 compared to 2,889 persons
as at 31 December 2022 and 3,395 persons as at 31 March 2022.
During December 2022 the Group has granted to eligible employees share awards
under a long-term incentive plan ("2022 LTIP" or the "2022 Plan"). The 2022
Plan involves the granting of share awards and is driven by scorecard
achievement, with measures and targets set to align pay outcomes with the
delivery of the Group's strategy. The employees eligible for 2022 LTIP are the
members of the Extended EXCO. The 2022 LTIP stipulates that performance will
be measured over a 3 year period and financial and non-financial objectives to
be achieved. At the end of the performance period, the performance outcome
will be used to assess the percentage of the awards that will vest.
These shares will then normally vest in six tranches, with the first tranche
vesting after the end of the performance period and the last tranche vesting
on the fifth anniversary of the first vesting date.
In addition, staff costs for 1Q2023 include c.€2 mn staff cost rewards,
namely the Short-Term Incentive Plan. The Plan involves variable remuneration
to selected employees and will be driven by both, delivery of the Group's
strategy as well as individual performance.
Other operating expenses for 1Q2023 were €34 mn compared to €42 mn for
4Q2022, down by 19% qoq and broadly flat yoy. The qoq reduction of 19% was
mainly the result of seasonally higher professional and marketing expenses in
the previous quarter.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.2 Total expenses (continued)
Special levy on deposits and other levies/contributions for 1Q2023 amounted to
€11 mn broadly flat qoq and includes the contribution of the Bank to the
Deposit Guarantee Fund (DGF) of €4 mn which relates to 1H2023 and was
recorded in 1Q2023 (in line with IFRSs). The 4Q2022 charge includes the net
impact of a levy in the form of an annual guarantee fee relating to the Income
Tax legislation in relation to conversion of DTA into DTC of €4.8 mn (see
Section A.1.1 'Capital Base'). The yoy increase of 12% is driven mainly by the
increase of deposits of €1.3 bn yoy.
The cost to income ratio excluding special levy on deposits and other
levies/contributions for 1Q2023 was 34% compared to 39% for 4Q2022 and 60% for
1Q2022. The qoq and yoy decrease of 5 p.p. and 26 p.p. respectively, is driven
mainly by the higher total income.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.3 Profit before tax and non-recurring items
€ mn 1Q2023 1Q2022 4Q2022 qoq+% yoy +%
IFRS 17(1) IFRS 17(1)
Operating profit 143 46 120 19% 213%
Loan credit losses (11) (12) (11) 0% -6%
Impairments of other financial and non-financial assets (11) (5) (13) -8% 126%
Provisions for pending litigations, regulatory and other matters (net of (6) (0) (8) -26% -
reversals)
Total loan credit losses, impairments and provisions (28) (17) (32) -10% 68%
Profit before tax and non-recurring items 115 29 88 29% -
Cost of risk 0.44% 0.44% 0.42% 2 bps -
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further
details, please refer to Section F.9. p.p. = percentage points, bps = basis
points, 100 basis points (bps) = 1 percentage point
Operating profit for 1Q2023 amounted to €143 mn, compared to €120 mn for
4Q2022 (up 19% qoq), and to €46 mn for 1Q2022 (up 213% yoy). The qoq and yoy
increase is driven mainly by the significant increase in net interest income.
Loan credit losses for 1Q2023 were €11 mn flat qoq and yoy and corresponds
to a cost of risk of 44 bps, reflecting resilient credit portfolio quality.
Cost of risk for 1Q2023 includes releases on management overlays for
performing book in specific sectors due to continuing strong loan performance
and expected improved sector performance (such as tourism) and loan credit
losses on Stage 2 and Stage 3 exposures arising from post model adjustments to
capture uncertain macroeconomic conditions and conservative assumptions.
At 31 March 2023, the allowance for expected loan credit losses, including
residual fair value adjustment on initial recognition and credit losses on
off-balance sheet exposures (please refer to Section H. 'Alternative
Performance Measure' and I 'Definitions & Explanations' for definition)
totalled €282 mn (compared to €282 mn at 31 December 2022 and €734 mn at
31 March 2022) and accounted for 2.7% of gross loans (compared to 2.8% of
gross loans for 31 December 2022 and 6.7% of gross loans including portfolios
classified as held to sale for 31 March 2022).
Impairments of other financial and non-financial assets for 1Q2023 amounted to
€11 mn, compared to €13 mn for 4Q2022, down by 8% qoq and compared to €5
mn for 1Q2022, up 126% yoy and they relate mainly to REMU stock impairments.
Provisions for pending litigations, regulatory and other matters (net of
reversals) for 1Q2023 amounted to €6 mn, compared to €8 mn for 4Q2022 down
26% qoq and compared to almost nil for 1Q2022.
Profit before tax and non-recurring items for 1Q2023 amounted to €115 mn
compared to €88 mn for 4Q2022 and €29 mn for 1Q2022.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.4 Profit after tax (attributable to the owners of the Company)
€ mn 1Q2023 1Q2022 4Q2022 qoq +% yoy +%
IFRS 17(1) IFRS 17(1)
Profit before tax and non-recurring items 115 29 88 29% -
Tax (18) (6) (13) 40% -
Profit attributable to non-controlling interests (1) 0 (1) -45% -
Profit after tax and before non-recurring items (attributable to the owners of 96 23 74 28% -
the Company)
Advisory and other restructuring costs - organic (1) (1) (1) -22% -15%
Profit after tax - organic (attributable to the owners of the Company) 95 22 73 29% -
Provisions/net profit/(loss) relating to NPE sales - (1) 2 -100% -100%
Restructuring and other costs relating to NPE sales 0 (1) 0 -41% -72%
Restructuring costs - Voluntary Staff Exit Plan (VEP) - (3) - - -100%
Profit after tax (attributable to the owners of the Company) 95 17 75 26% -
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further
details, please refer to Section F.9. p.p. = percentage points, bps = basis
points, 100 basis points (bps) = 1 percentage point
The tax charge for 1Q2023 is €18 mn compared to €13 mn for 4Q2022 and to
€6 mn for 1Q2022.
Profit after tax and before non-recurring items (attributable to the owners of
the Company) for 1Q2023 is €96 mn compared to €74 mn for 4Q2022 and €23
mn for 1Q2022.
Advisory and other restructuring costs - organic for 1Q2023 are €1 mn,
broadly flat qoq and yoy and relate to the transformation programme and other
strategic projects of the Group.
Profit after tax arising from the organic operations (attributable to the
owners of the Company) for 1Q2023 amounts to €95 mn compared to €73 mn for
4Q2022 and €22 mn for 1Q2022.
Provisions/net profit/(loss) relating to NPE sales for 1Q2023 is nil, compared
to a net profit of €2 mn for 4Q2022, and a net loss of €1 mn in 1Q2022.
Restructuring and other costs relating to NPE sales for 1Q2023 is nil, flat
qoq and compared to €1 mn for 1Q2022 relating to the agreements for the sale
of portfolios of NPEs.
Restructuring costs relating to the Voluntary Staff Exit Plan (VEP) is nil for
1Q2023, compared to €3 mn for 1Q2022. For further details are provided in
Section A.2.2 'Total expenses'.
Profit after tax attributable to the owners of the Company for 1Q2023 amounts
to €95 mn compared to €75 mn for 4Q2022 and €17 mn for 1Q2022. ROTE
stands at 21.3% for 1Q2023, compared to 17.3% for 4Q2022 and 4.0% for 1Q2022.
B. Operating Environment
The International Monetary Fund in its Spring World Economic Outlook released
in April 2023, predicts slower growth for the global economy and increased
financial and other vulnerabilities under tighter monetary conditions. Cyprus
demonstrates relative strength and resilience in this environment with a
growth outlook that outweighs average growth in the EU and with inflation
dropping at a faster pace in comparison.
Growth in the global economy is expected to slow in 2023 and will remain
subdued in the medium term relative to the period before Covid. Growth in the
Euro area and the European Union is expected to slow to 0.8% in 2023 with some
countries like Germany and the United Kingdom slipping into mild recessions
according to the baseline scenario. Growth is expected to be stronger in the
emerging and developing world at 3.9% this year. The risk for the more
advanced countries including the United States, falling into a mild recession
in the second half of 2023 and early next, remains elevated.
In Cyprus the economy rebounded strongly in 2021-22 growing by 6.6% and 5.6%
respectively after a 4.4% contraction in 2020 due to Covid disruptions. The
economy has proved resilient against the shocks of pandemic and the Ukraine
war, attributed to a strong services sectors, particularly information,
communications, professional and financial services. Tourist activity
continued to rebound strongly in 2022 with total arrivals reaching 3.2 million
persons or about 80% of corresponding arrivals in 2019. Receipts reached
€2.4 bn or 91% of 2019 levels. In the first three months of 2023, arrivals
increased by 61% on the same period a year ago and 10% higher than the
corresponding arrivals in 2019. Growth in 2022 was widespread across sectors,
with negative growth recorded only in construction. On the expenditure side
growth in 2022 was driven by domestic demand, particularly private
consumption, with net exports making a negative contribution.
Economic momentum is expected to continue in 2023 at a slower pace, driven
mainly by the expected deterioration of external demand as well as slowing
domestic demand caused by still high consumer price inflation. According to
the Ministry of Finance, GDP is forecasted to grow by c.2.8% for 2023,
outperforming Euro area average.
GDP growth will be materially supported in 2023 by EU funding in the form of
grants and loans from the Recovery and Resilience Facility (RRF). Cyprus has
already received €157 mn as pre-financing in September 2021 and the first
payment of €85 mn in December 2022 after achieving the 14 milestones being
linked to the first instalment. Cyprus is broadly on track in the
implementation of its National Recovery and Resilience Plan.
Inflation measured by the Harmonised Index of Consumer Prices, was 8.1%
average in 2022 compared with 8.4% in the Euro area. Inflation peaked in July
2022 at 10.6% and has been decelerating since reaching 3.8% in April 2023. In
the four months January-April 2023, harmonised inflation was 5.8% and core
inflation, excluding energy and food and beverages items, was 4.9%. Inflation
in the Euro area is proving stickier at 8% in the first quarter of 2023 and
5.6% core, according to Eurostat. For Cyprus, the IMF forecasts harmonised
inflation of 3.9% in 2023 and 2.5% in 2024. For the Euro area the IMF
forecasts harmonised inflation of 5.3% in 2023 and 2.9% in 2024. Cyprus has a
very high dependence on oil and petroleum products which exposes it to changes
in global energy prices and imported inflationary pressures.
Fiscal consolidation will continue, leading to a material decline in
debt-to-GDP ratio. The recovery in 2021 was underpinned by a significant
increase in general government revenue and a relative decline in government
expenditure. As a result, the budget deficit narrowed to 1.7% of GDP from a
deficit of 5.8% of GDP in 2020 which included government measures to support
the economy in the midst of a deep recession induced by the Covid pandemic.
Developments in 2022 were favourable for public finances. Revenues grew by
14.5% while expenditures increased by considerably less, by 4.1%, generating a
significant surplus of 2.3% of GDP. Part of the increase in revenues is a
windfall related to the energy crisis, but overall, the current state of
public finances is positive. Public debt dropped to 86.5% of GDP in 2022 from
101% of GDP in 2021. The IMF forecasts for 2023 and 2024 respectively, fiscal
surpluses of 1.9% and 1.7% of GDP, and gross debt to GDP of 79.5% and 71.9% of
GDP. In the longer term, public debt dynamics will depend on interest rate
developments, inflation, and growth.
The ECB's Governing Council at the monetary policy meeting of 4 May 2023,
decided to increase the three key ECB interest rates by 25 basis points
underlying their determination to ensure the timely return of inflation to the
2% medium term target. Accordingly, the interest rate on the main refinancing
operations and the interest rates on the marginal lending facility and the
deposit facility will be increased to 3.75%, 4.00% and 3.25% respectively.
Against an elevated level of uncertainty, the ECB's monetary policy decisions
will be data driven, on the basis of internal assessments of the inflation
trend in light of the incoming economic and financial data, and the strength
of monetary policy transmission.
The banking sector has undergone significant restructuring since the financial
crisis of 2013. Banks have reduced their foreign exposures, significantly
shrunk their balance sheets, increased their capital buffers, and restructured
and refocused their domestic operations. Prudential supervision has been
strengthened and a new legal framework for private debt restructuring,
including the sale of loans, is now in place. Total non-performing exposures
(NPEs) at the end of January 2023 amounted to €2.3 billion, or 9.6% of gross
loans. NPEs that were restructured were 43.2% of total NPEs, at the end of
January, and the coverage ratio was 52%.
B. Operating Environment (continued)
Private debt has continued to decline since mid-2012, shrinking by more than
half by the end of December 2022 and continued to decline into 2023. The
decline reflects the long process of deleveraging since the start of the
financial crisis and includes the sale or transfer of non-performing loans in
recent years. Private debt, as measured by loans to residents excluding the
government, stands at 76% of nominal GDP at the end of March 2023. New
business lending excluding renegotiated amounts, ('pure loans' as defined by
CBC) reached €3.2 bn in 2022 as a whole, exactly the same level as pure new
lending in 2019, but started to lag in early months of 2023. Pure new loans in
January-March were €0.76 billion or 83% of pure new loans in the
corresponding period the year before. This was driven by a drop in the demand
for mortgages. Cypriot banks are very liquid, and the bulk of excess deposits
are held overnight at the ECB.
Cyprus' current account deficit narrowed from 10.1% of GDP in 2020 to 6.8% in
2021 before deteriorating to 8.8% of GDP in 2022. The current account deficit
will narrow modestly according to the IMF, in 2023-24, to 7.8% and 7.7% of GDP
respectively. The current account deficit will remain higher than pre-pandemic
levels in the medium term, partly due to strong import growth linked to higher
energy prices and EU investment plans, which will weigh on the trade balance.
The size of the country's deficits is partly structural, a consequence of
special purpose vehicles domiciled in Cyprus.
Sovereign ratings
The sovereign risk ratings of the Cyprus Government improved considerably in
recent years reflecting reduced banking sector risks, and improvements in
economic resilience and consistent fiscal outperformance. Cyprus demonstrated
policy commitment to correcting fiscal imbalances through reform and
restructuring of its banking system. Public debt remains high in relation to
GDP but large-scale asset purchases from the ECB ensure favourable funding
costs for Cyprus and ample liquidity in the sovereign bond market.
Most recently, in March 2023 Fitch Ratings upgraded Cyprus' Long-Term Issuer
Default rating at BBB which is one notch above investment grade, from BBB- and
maintained the outlook stable. The upgrade reflects the improvement in public
finances and the government indebtedness as well as strong growth in GDP, the
resiliency of the Cypriot economy to external shocks and the improvement in
the Banking sector in asset quality.
In March 2023, DBRS Morningstar confirmed the Republic of Cyprus's Long-Term
Foreign and Local Currency - Issuer Ratings at BBB (low) and maintained the
trend Stable. The affirmation is supported by a stable political environment,
the government's sound fiscal and economic policies and the favourable
government debt profile. The stable outlook balances recent favourable fiscal
dynamics against downside risks for the economic outlooks.
In September 2022, S&P Global Ratings upgraded Cyprus' investment grade
rating of BBB/A-2 and has changed the outlook from positive to stable. The
upgrade reflects the resiliency of the Cypriot economy to recent external
shock (including the COVID-19 pandemic). The stable outlook balances risks
from the crisis in Ukraine and the economy's diversified structure and the
expectation that the government's fiscal position will continue to improve.
In August 2022, Moody's Investors Service affirmed the Government of Cyprus'
long-term issuer and senior unsecured ratings to Ba1 and changed the outlook
from stable to positive. The key drivers reflecting the affirmation are the
strong reduction in Cyprus' public debt ratio in 2022, stronger-than expected
economic resilience to Russia's invasion of Ukraine and the COVID-19 pandemic
as well the ongoing strengthening of the banking sector. In a credit
assessment that was published in December 2022, Moody's investors service
affirmed a new Cyprus' credit profile.
C. Business Overview
Credit ratings
The Group's financial performance is highly correlated to the economic and
operating conditions in Cyprus. In May 2023 Moody's Investors Service upgraded
the Bank's long-term deposit rating to Ba1 from Ba2, maintaining the positive
outlook. The main drivers for this upgrade are the continued strengthening of
the Bank's asset quality and its improving profitability prospects that
continue to reduce risks to its capital. In April 2023, S&P Global Ratings
affirmed the long-term issuer credit rating of the Bank at BB- and revised the
outlook to positive from stable. The revised outlook reflects the likelihood
of further progress in Cyprus' operating environment, in particular materially
easing funding risks. In December 2022, Fitch Ratings upgraded the Bank's
long-term issuer default rating to B+ from B-, whilst maintaining the positive
outlook. The two-notch upgrade reflects improved Bank's asset quality,
supported by the completion of Project Helix 3 together with the organic
reduction of impaired assets. The upgrade is also underpinned by Fitch's view
of the resilience of the Cypriot economy, even in light of growing economic
uncertainties.
Financial performance
The Group is a leading, financial and technology hub in Cyprus. In 2022 the
Group completed its transformation into a diversified and well-capitalised
organisation with sustainably profitable banking and other financial services.
This was marked by the resumption of dividend payments after 12 years, a
significant milestone, as it represents a new chapter for the Group.
In April 2023 the Company obtained the approval of the European Central Bank
to pay a dividend out of FY2022 profitability. Following this approval, the
Board of Directors of the Company recommended to the shareholders for approval
at the AGM that will be held on 26 May 2023, of a final Dividend of €0.05
per ordinary share in respect of earnings for the year ended 31 December 2022.
This proposed Dividend amounts to €22.3 mn in total and is equivalent to a
payout ratio of 14% of the FY2022 recurring profitability adjusted for the AT1
coupon or 31% based on FY2022 profit after tax (as reported in 2022 Annual
report).
Additionally, the Board of Directors approved the Group dividend policy. The
Group aims to provide a sustainable return to shareholders. Dividend payments
are expected to build prudently and progressively over time, towards a payout
ratio in the range of 30-50% of the Group's profitability after tax, before
non-recurring items, adjusted for AT1 coupon (referred to as "adjusted
recurring profitability"). The dividend policy takes into consideration market
conditions as well as the outcome of capital and liquidity planning.
During the quarter ended 31 March 2023, the Group's financial performance was
ahead of its 2023 targets, confirming the sustainability of its business model
with well-diversified revenues and disciplined cost containment, despite
inflationary pressures. Overall, the Group generated a ROTE of 21.3% compared
to 17.3% in the previous quarter, underpinned mainly by the interest rate
rises and simultaneously a well-managed deposit pass-through.
Favourable interest rate environment
The structure of the Group's balance sheet is geared towards higher interest
rates. As at 31 March 2023, cash balances with ECB (excluding TLTRO of
c.€2.0 bn) amounted to c.€7.2 bn, reflecting immediate benefit from
interest rate rises. The repricing of the reference rates gradually benefits
the interest income on loans, as over 95% of the Group's loan portfolio is
variable rate as at 31 March 2023. The net interest income for 1Q2023 stood at
€162 mn, more than doubled compared to 1Q2022. This increase is underpinned
by faster and steeper than expected interest rate rises as well as a resilient
low deposit pass-through.
Growing revenues in a more capital efficient way
The Group remains focused on growing revenues in a more capital efficient way.
The Group aims to continue to grow its high-quality new lending, drive growth
in niche areas for further market penetration and diversify through
non-banking services, such as insurance and digital products.
The Group has continued to provide high quality new lending in 1Q2023 via
prudent underwriting standards. Growth in new lending in Cyprus has been
focused on selected industries in line with the Bank's target risk profile.
During the quarter ended 31 March 2023, new lending amounted to €624 mn, up
by 41% qoq and broadly flat yoy. The qoq increase is driven by increased
seasonal business demand. As a result, the gross performing loan book expanded
to €9.9 bn up by 1% yoy, as repayments partly offset new lending.
Fixed income portfolio amounts to €2,747 mn as at 31 March 2023, compared to
€2,500 mn as at 31 December 2022, increased by 10% since the beginning of
the year. The portfolio represents 11% of total assets and comprises €2,332
mn (85%) carrying value measured at amortised cost and €415 mn (15%) at fair
value through other comprehensive income ('FVOCI').
C. Business Overview (continued)
Growing revenues in a more capital efficient way (continued)
The fixed income portfolio measured at amortised cost is held to maturity and
therefore no fair value gains/losses are recognised in the Group's income
statement or equity. This fixed income portfolio has low average duration of
c.2 years and high average rating at A1 or at Aa3 when Cyprus government bonds
are excluded. The fair value of the amortised cost fixed income portfolio as
at 31 March 2023 amounts to €2,245 mn, reflecting a fair value loss of €87
mn, equivalent to just c.85 bps of CET1 ratio.
Separately, the Group focuses to continue improving revenues through multiple
less capital-intensive initiatives, with a focus on fees and commissions,
insurance and non-banking opportunities, leveraging on the Group's digital
capabilities. In 2023 fees and commission income will negatively be affected
by the termination of liquidity fees in December 2022 as well as an NPE
sale-related servicing fee in mid-February 2023. As a result, net fee and
commission income were reduced by 12% in the first quarter to €44 mn.
Net fee and commission income is enhanced by transaction fees from the Group's
subsidiary, JCC Payment Systems Ltd (JCC), a leading player in the card
processing business and payment solutions, 75% owned by the Bank. JCC's net
fee and commission income contributed 9% of total non interest income and
amounted to €6 mn in 1Q2023, up 21% yoy, backed by strong transaction
volume.
The Group's insurance companies, EuroLife Ltd (Eurolife) and Genikes Insurance
of Cyprus Ltd (GI) are respectively leading players in the life and general
insurance business in Cyprus, and have been providing a recurring and
improving income, further diversifying the Group's income streams. The net
insurance result for 1Q2023 contributed 13% of non-interest income and
amounted to €10 mn, down 15% yoy, impacted mainly by higher claims as well
as higher attributable expenses arising from new business, partly offset by
lower reinsurance expense. On 1 January 2023, the Group adopted IFRS 17,
retrospectively, which impacts the profit recognition for insurance contracts
by phasing of profit over their lifetime compared to recognised substantially
up-front under IFRS 4. The new accounting standard does not change the
economics of the insurance business and decreases the volatility of the
Group's insurance companies profitability. For further details please refer to
section F.9.
Finally, the Group through the Digital Economy Platform (Jinius) ('the
Platform') aims to generate new revenue sources over the medium term,
leveraging on the Bank's market position, knowledge and digital
infrastructure. The Platform aims to bring stakeholders together, link
businesses with each other and with consumers and to drive opportunities in
lifestyle banking and beyond. The Platform is expected to allow the Bank to
enhance the engagement of its customer base, attract new customers, optimise
the cost of the Bank's own processes, and position the Bank next to the
customer at the point and time of need. Currently, over 1,500 companies are
registered in the platform.
Lean operating model
Striving for a lean operating model is a key strategic pillar for the Group in
order to deliver shareholder value, without constraining funding its digital
transformation and investing in the business.
The efficiency actions of the Group in 2022 to maintain operating expenses
under control in an inflationary environment included further branch footprint
optimisation and substantial streamline of workforce. In July 2022 the Group
successfully completed a Voluntary Staff Exit Plan (VEP) through which 16% of
the Group's full-time employees were approved to leave at a total cost of
€101 mn. Following the completion of the VEP, the gross annual savings were
estimated at c.€37 mn or 19% of staff costs with a payback period of 2.7
years. Additionally in January 2022 one of the Bank's subsidiaries completed a
small-scale targeted Voluntary Staff Exit Plan (VEP), through which a small
number of full-time employees were approved to leave at a total cost of €3
mn. In relation to branch restructuring, during 2022 the Group has reduced the
number of branches by 20 to 60, a reduction of 25%. As a result, the Group's
total operating expenses for 1Q2023 were reduced by 3% on prior year,
reflecting the benefits from the efficiency actions in an inflationary
environment. The cost to income ratio excluding special levy on deposits and
other levies/contributions for 1Q2023 was reduced further to 34%, 26 p.p. down
compared to 1Q2022.
During December 2022 the Group has granted to eligible employees share awards
under a long-term incentive plan ("2022 LTIP" or the "2022 Plan"). The 2022
Plan involves the granting of share awards and is driven by scorecard
achievement, with measures and targets set to align pay outcomes with the
delivery of the Group's strategy. The employees eligible for 2022 LTIP are the
members of the Extended EXCO. The 2022 LTIP stipulates that performance will
be measured over a 3 year period and financial and non-financial objectives to
be achieved. At the end of the performance period, the performance outcome
will be used to assess the percentage of the awards that will vest.
These shares will then normally vest in six tranches, with the first tranche
vesting after the end of the performance period and the last tranche vesting
on the fifth anniversary of the first vesting date.
C. Business Overview (continued)
Lean operating model (continued)
In addition, staff costs for 1Q2023 include c.€2 mn staff cost rewards,
namely the Short-term Incentive Plan. The Plan involves variable remuneration
to selected employees and will be driven by both, delivery of the Group's
strategy as well as individual performance.
Transformation plan
The Group's focus continues to deepen the relationship with its customers as a
customer centric organisation. A transformation plan is already in progress
and aims to enable the shift to modern banking by digitally transforming
customer service, as well as internal operations. The holistic transformation
aims to (i) shift to a more customer-centric operating model by defining
customer segment strategies, (ii) redefine distribution model across existing
and new channels, (iii) digitally transform the way the Group serves its
customers and operates internally, and (iv) improve employee engagement
through a robust set of organisational health initiatives.
Digital transformation
The Bank's digital transformation focuses on developing digital services and
products that improve the customer experience, streamlining internal
processes, and introducing new ways for improving the workplace environment.
During 1Q2023, the Bank continued to enrich and improve its digital portfolio
with new innovative services to its customers. A new functionality, that
enables customers to file their card transaction disputes via the internet
banking makes the process easier for the customers. Moreover, the digital
onboarding process has been improved easing the customer experience.
Additionally, a number of new security features have also been introduced to
further secure the customer online transactions.
The adoption of digital products and services continued to grow and gained
momentum in the first quarter of 2023 and beyond. As at the end of March 2023,
94.2% of the number of transactions involving deposits, cash withdrawals and
internal/external transfers were performed through digital channels (up by
27.8 p.p. from 66.4% in September 2017 when the digital transformation
programme was initiated). In addition, 82.7% of individual customers were
digitally engaged (up by 22.5 p.p. from 60.2% in September 2017), choosing
digital channels over branches to perform their transactions. As at the end of
March 2023, active mobile banking users and active QuickPay users have grown
by 15.1% and 29.3% respectively over the last 12 months. The highest number of
QuickPay users to date was recorded in March 2023 with 173 thousand active
users. Likewise, the highest number of QuickPay payments (in 2023) was
recorded in March 2023 with 536 thousand transactions.
Asset quality
Balance sheet de-risking was largely completed in 2022, marked by the
completion of Project Helix 3 which refers to the sale of non-performing
exposures with gross book value of c.€550 mn as at the date of completion.
Project Helix 3 represented a further milestone in the delivery of one of the
Group's strategic priorities of improving asset quality through the reduction
of NPEs and delivering NPE ratio below 5%. As at 31 March 2023, the Group's
NPE ratio stood at 3.8%.
The Group's priorities remain intact, maintaining high quality new lending
with strict underwriting standards and preventing asset quality deterioration
in this uncertain outlook.
C. Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda
Climate change and transition to a sustainable economy is one of the greatest
challenges. As part of its vision to be the leading financial hub in Cyprus,
the Group is determined to lead the transition of Cyprus to a sustainable
future. The Group continuously evolves towards its ESG agenda and continues to
progress towards building a forward-looking organisation embracing ESG in all
aspects of business as usual. In 2022, the Company received a rating of AA (on
a scale of AAA-CCC) in the MSCI ESG Ratings assessment.
The ESG strategy formulated in 2021 is continuously expanding. The Group is
maintaining its leading role in the Social and Governance pillars and focus on
increasing the Group's positive impacts on the Environment by transforming not
only its own operations, but also the operations of its customers.
The Group has committed to the following primary ESG targets, which reflect
the pivotal role of ESG in the Group's strategy:
● Become carbon neutral by 2030
● Become Net Zero by 2050
● Steadily increase Green Asset Ratio
● Steadily increase Green Mortgage Ratio
● ≥30% women in Group's management bodies (defined as the
Executive Committee (EXCO) and the Extended EXCO) by 2030
For the Group to articulate the delivery of its primary ESG targets and
address regulatory expectations, a comprehensive ESG working plan has been
established in 2022. The ESG working plan is closely monitored by the
Sustainability Committee, Executive Committee and the Board of Directors at
frequent intervals.
Environmental Pillar
The Group has estimated the Scope 1 and Scope 2 greenhouse gas ('GHG')
emissions of 2021 relating to own operations in order to set the baseline for
carbon neutrality target. The Bank being the main contributor of GHG emissions
of the Group, designed in 2022 the strategy to meet the carbon neutrality
target by 2030 and progress towards Net Zero target of 2050. The Bank plans to
invest in energy efficient installations and actions and replace fuel
intensive machineries and vehicles from 2023 to 2025, which would lead to
c.5-10% reduction in Scope 1 and Scope 2 emissions by 2025 compared to 2021.
The Bank expects that the Scope 2 emissions will be reduced further when the
energy market in Cyprus shifts further towards renewable energy. The Bank
through installation of solar panels and other energy efficiency actions
performed in 2021 and 2022 achieved a reduction in electricity consumption of
1.8 mn KWh (11% reduction) in FY2022 compared to the baseline year of 2021 and
further reduction of c.255k KWh was observed in 1Q2023 compared to 1Q2022.
Investments into energy savings initiatives continue into 2023 in line with
the Bank's strategy to meet its carbon neutrality target.
The Bank of Cyprus is the first bank in Cyprus to join the Partnership for
Carbon Accounting Financials (PCAF) in October 2022 and is following the
recommended methodology for the estimation of the Financed Scope 3 emissions.
The Bank has estimated Financed Scope 3 GHG emissions relating to the loan
portfolio based on PCAF standard and proxies. Following the estimation of
Financed Scope 3 GHG emissions derived from loan portfolio and in conjunction
with the materiality assessment's results on climate and environmental risks
the Bank will be able to identify the carbon-concentrated areas so as to take
the necessary actions to minimise the environmental and climate impact
associated with the loan portfolio by offering targeted climate friendly
products and engaging with its customers. In 2023, following the
identification of carbon-concentrated sectors and asset classes, the Bank is
expected to set decarbonisation targets aligned with 1.5C climate scenario
(Science based targets) which will assist in the formulation of the Bank's
strategy going forward.
The Bank in 2022 launched a low emission vehicle loan product (either hybrid
or electric) and is working to expand its range of environmentally friendly
products. In addition, the Group has set up a Sustainable Finance Framework
which will facilitate the issuance of Green, Social or Sustainable bonds. The
proceeds from such bonds will be allocated to eligible activities and products
designated in the Sustainable Finance Framework.
Moreover, the Bank is making substantial progress in further integrating
climate risk considerations into its risk management approach, as it tries to
integrate climate related risk into its risk culture. The Bank, within the
context of underwriting processes, is currently in the process of
incorporating the assessment of ESG and climate matters and amending its
Policies and Procedures in such a way that potential impact from ESG and
climate is reflected in the fundamental elements of the creditworthiness
assessment. This exercise includes the design of ESG questionnaires per sector
which will then be leveraged for deriving an ESG classification. In addition,
the Bank is in the process to enhance the risk quantification methodology to
assess how the portfolio is affected by C&E risks and will be
incorporating the above elements into the stress testing infrastructure.
C. Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda (continued)
During 2022 in order to enhance the awareness and skillset towards the ESG,
the Group performed several trainings to the Board of Directors, Senior
Management and employees. ESG training opportunities are continuing to be
offered in 2023 at all levels of the organisation. In addition, the internal
communication channels are enhanced by establishing an ESG internal portal and
launching Green@work which provides tips on energy efficiency actions at work.
Early in 2023 the Bank launched a campaign on new Visa Debit cards produced
from recyclable plastic extracted from the ocean. The campaign aims to inform
the public on the level of water contamination from plastic and the impact on
life below water.
Social Pillar
At the centre of the Group's leading social role lie its investments in the
Bank of Cyprus Oncology Centre (with an overall investment of c.€70 mn since
1998, whilst 60% of diagnosed cancer cases in Cyprus are being treated at the
Centre), the work of SupportCY Network, which was developed in 2020, the
contribution of the Bank of Cyprus Cultural Centre in promoting the cultural
heritage of the island, and the Work of IDEA Innovation Centre. The Cultural
Centre undertook a number of innovative projects such as 'AISTHISEIS' - Multi
sensory museum experience for people with disabilities as well as the
ReInHerit program facilitating innovation and research cooperation between
European museums and heritage continuing also into 2023, with 4430 people
participated in events at the Cultural Foundation between January to March
2023. The IDEA Innovation Centre, invested c.€4 mn in start-up business
creation since its incorporation, supported creation of 89 new companies to
date, and provided support to 210+ entrepreneurs through its Startup program
since incorporation. Staff have continued to engage in voluntary initiatives
to support charities, foundations, people in need and initiatives to protect
the environment.
The Group has continued to upgrade its staff's skillset by providing training
and development opportunities to all staff, and capitalising on modern
delivery methods. In 2023, the Group has launched the 'Winning moments'
training program aiming to improve Customer experience through upgrading the
customer service, in which 780 members of staff are expected to participate.
Moreover, the Group continues its emphasis on staff wellness into 2023 by
offering webinars, team building activities and family events with sole
purpose to enhance mental, physical, financial and social health.
Governance Pillar
The Group continues to operate successfully within a complex regulatory
framework of a holding company which is registered in Ireland, listed on two
Stock Exchanges and run in compliance with a number of rules and regulations.
Its governance and management structures enable it to achieve present and
future economic prosperity, environmental integrity and social equity across
its value chain. The Group operates within a framework of prudent and
effective controls, which enable risk assessment and risk management based on
the relevant policies under the leadership of the Board of Directors. The
Group has set up a robust Governance Structure to oversee its ESG agenda.
Progress on the implementation and evolution of the Group's ESG strategy is
monitored by the Sustainability Committee and the Board of Directors. The
Sustainability Committee is a dedicated executive committee set up in early
2021 to oversee the ESG agenda of the Group, review the evolution of the
Group's ESG strategy, monitor the development and implementation of the
Group's ESG objectives and the embedding of ESG priorities in the Group's
business targets. The Group's ESG Governance structure continues to evolve, so
as to better address the Group's evolving ESG needs. The Group's regulatory
compliance continues to be an undisputed priority.
The Board composition of the Company and the Bank is diverse, with 40% of the
Board members being female as at 31 March 2023. The Board displays a strong
skillset stemming from broad international experience. Moreover, the Bank
aspires to achieve a representation of at least 30% women in Group's
management bodies (Defined as the EXCO and the Extended EXCO) by 2030. As at
31 March 2023, there is a 27% representation of women in Group's management
bodies and a 39% representation of women at key positions below the Extended
EXCO level (defined as positions between Assistant Manager and Manager).
C. Business Overview (continued)
Ukrainian crisis
The economic environment has evolved rapidly since February 2022 following
Russia's invasion in Ukraine. In response to the war in Ukraine, the EU, the
UK and the US, in a coordinated effort joined by several other countries
imposed a variety of financial sanctions and export controls on Russia,
Belarus and certain regions of Ukraine as well as various related entities and
individuals. As the war is prolonged, geopolitical tension persists and
inflation remains elevated, impacted by soaring energy prices and disruptions
in supply chains. This high inflation weighs on business confidence and
consumers' purchasing power. In this context the Group is closely monitoring
the developments, utilising dedicated governance structures including a Crisis
Management Committee as required and has assessed the impact the crisis has on
the Group's operations and financial performance.
Direct impact
The Group does not have any banking operations in Russia or Ukraine, following
the sale of its operations of Ukraine in 2014 and in Russia in 2015. The Group
has run down its legacy net exposure to less than €1 mn as at 31 March 2023
in Russia through write-offs and provisions.
The Group has no exposure to Russian bonds or banks which are subject to
sanctions.
The Group has limited direct exposure with loans related to Russia and
Belarus, representing 0.3% of total assets or c.1% of net loans as at 31 March
2023. The net book value of these loans stood at €87 mn as at 31 March 2023,
of which €80 mn are performing, whilst the remaining were classified as NPEs
well before the current crisis. The portfolio is granular and secured mainly
by real estate properties in Cyprus.
Customer deposits related to Russian and Belarusian customers account for only
4% of total customer deposits as at 31 March 2023. This exposure is not
material, given the Group's strong liquidity position. The Group operates with
a significant surplus liquidity of €7.4 bn (LCR ratio of 303%) as at 31
March 2023.
Since 2014 the Bank, has engaged in a very demanding and rigorous
anti-financial crime remediation programme. It fully adheres to all relevant
UN, EU, USA, UK sanction frameworks and has implemented additional measures to
monitor a complicated sanctions environment including systemic enhancements,
specialised training and revision of risk appetite. As a result, the Bank has
effectively terminated the relationship with professional intermediaries
introducing customers to the Bank. Additionally, c.25,900 customer
relationships were terminated and c.12,000 potential new customer
relationships were suspended solely on compliance reasons (eg: KYC, or AML)
for the years 2015-2022.
Indirect impact
Although the Group's direct exposure to Russia or Belarus is limited, the
crisis in Ukraine had a negative impact on the Cypriot economy, mainly arising
from the tourism and professional services sectors, increasing energy prices
fuelling inflation and disruptions to global supply chains. During 2022 the
performance of the tourism sector was strong despite challenges and
represented 80% of 2019 levels, despite the sizeable loss of tourist arrivals
from Russia and Ukraine. To date, tourist activity is recovering to
pre-pandemic levels. The Group continues to monitor exposures in sectors
likely impacted by the prolonged geopolitical uncertainty and persistent
inflationary pressures and remains in close contact with customers to offer
solutions as necessary.
Cyprus has no energy dependence on Russia as it imports oil from Greece, Italy
and the Netherlands; however it is indirectly affected by pricing pressures in
the international energy markets. The focus on renewables increases, and a
steady increase in contribution from renewables is noted.
Overall, the Group has limited impact from its direct exposure, while any
indirect impact depends on the duration and severity of the crisis and its
impact on the Cypriot economy.
The Group continues to closely monitor the situation, taking all necessary and
appropriate measures to minimise the impact on its operations and financial
performance, as well as to manage all related risks and comply with the
applicable sanctions.
D. Strategy and Outlook
The strategic objectives for the Group are to become a stronger, safer and a
more efficient institution with a sustainable and well-diversified business
model committed to deliver sustainable shareholder returns.
The key pillars of the Group's strategy are to:
· Grow revenues in a more capital efficient way; by enhancing
revenue generation via growth in performing book
and less capital-intensive banking and financial services operations
(Insurance and Digital Economy)
· Improve operating efficiency; by achieving leaner operations
through digitisation and automation
· Strengthen asset quality; maintaining high quality new lending,
completing legacy de-risking, normalising cost of risk and reducing (other)
impairments
· Enhance organisational resilience and ESG (Environmental, Social
and Governance) agenda; by continuing to work towards building a
forward-looking organisation with a clear strategy supported by effective
corporate governance aligned with ESG agenda priorities
In early 2023 the Company achieved a significant milestone; its longstanding
intention to resume dividends after 12 years. Following the approval of the
European Central Bank, the Board of Directors of the Company recommended to
the shareholders for approval at the AGM that will be held on 26 May 2023, the
payment of a final dividend of €0.05 per ordinary share in respect of
earnings for the year ended 31 December 2022 ('Dividend'). This proposed
Dividend amounts to €22.3 mn in total and is equivalent to a payout ratio of
14% of the FY2022 recurring profitability adjusted for the AT1 coupon or 31%
based on FY2022 profit after tax (as reported in the 2022 Annual Financial
Report). Subject to approval at the AGM, the Dividend will be paid in cash on
16 June 2023 to those shareholders on the register on 5 May 2023 ("Record
date") with an Ex-Dividend date of 4 May 2023.
Additionally, the Board of Directors approved the Group dividend policy. The
Group aims to provide a sustainable return to shareholders. Dividend payments
are expected to build prudently and progressively over time, towards a payout
ratio in the range of 30-50% of the Group's profitability after tax, before
non-recurring items, adjusted for AT1 coupon (referred to as "adjusted
recurring profitability"). The dividend policy takes into consideration market
conditions as well as the outcome of capital and liquidity planning.
Key Metrics FY2023(3) targets 1Q2023
Date February 2023
NII 40-50% yoy €162 mn
(€520-550 mn) (+127% yoy)
Cost to income ratio(1) mid-40s 34%
Return on Tangible Equity (ROTE)(2) >13% 21.3%
NPE ratio <5% 3.8%
Cost of risk 50-80 bps 44 bps
1. Calculated using total operating expenses which comprise staff
costs and other operating expenses. Total operating expenses do not include
the special levy on deposits or other levies/contributions and do not include
any advisory or other restructuring costs.
2. Return on Tangible Equity (ROTE) is calculated as Profit after Tax
(annualised) divided by the quarterly average Shareholders' equity minus
intangible assets.
3. Based on market forward rates as at 23 January 2023
During the quarter ended, the Group delivered another set of solid financial
results, ahead of its 2023 targets across its key metrics. As a result, the
Group achieved a ROTE of 21.3%, underpinned mainly by the higher interest rate
rises than initially expected. Additionally, the Group's asset quality was in
line with its targets as the NPE ratio stood at 3.8% at quarter end and the
cost of risk amounted to 44 bps.
The Group will be holding an Investor Update event on 8 June 2023, where it
will present and discuss an update of the Group's outlook.
E. Financial Results - Statutory Basis
Unaudited Interim Consolidated Income Statement
The following financial information for the first three months of 2023 and
2022 within Section E corresponds to the condensed consolidated financial
statements prepared in accordance with the International Financial Reporting
Standards as adopted by the European Union. As a result of the
implementation from 1 January 2023 of IFRS 17, 2022 comparative information
has been restated to reflect the impact of IFRS 17 adoption.
Three months ended
31 March
2023 2022
(restated)(1)
€000 €000
Turnover 300,164 201,312
Interest income 181,828 89,143
Income similar to interest income 9,373 4,606
Interest expense (24,557) (18,383)
Expense similar to interest expense (4,393) (4,011)
Net interest income 162,251 71,355
Fee and commission income 46,962 45,953
Fee and commission expense (2,751) (2,227)
Net foreign exchange gains 8,112 5,502
Net gains/(losses) on financial instruments 5,928 (6,008)
Net gains/(losses) on derecognition of financial assets measured at amortised 255 (237)
cost
Net insurance finance income/(expense) and net reinsurance finance 1,298 1,298
income/(expense)
Net insurance service result 12,320 15,520
Net reinsurance service result (4,064) (5,600)
Net losses from revaluation and disposal of investment properties (443) (527)
Net gains on disposal of stock of property 2,013 5,400
Other income 2,917 4,252
Total operating income 234,798 134,681
Staff costs (45,637) (50,482)
Special levy on deposits and other levies/contributions (11,088) (9,857)
Provisions for pending litigations, regulatory and other provisions (net of (6,315) (223)
reversals)
Other operating expenses (35,159) (36,183)
Operating profit before credit losses and impairment 136,599 37,936
Credit losses on financial assets (15,499) (10,775)
Impairment net of reversals on non-financial assets (8,033) (4,822)
Profit before tax 113,067 22,339
Income tax (17,786) (5,296)
Profit after tax for the period 95,281 17,043
Attributable to:
Owners of the Company 94,728 17,220
Non-controlling interests 553 (177)
Profit for the period 95,281 17,043
Basic profit per share attributable to the owners of the Company (€ cent) 21.2 3.9
Diluted profit per share attributable to the owners of the Company (€ cent) 21.2 3.9
(1. ) 2022 comparative information has been restated to reflect the
impact of IFRS 17. Refer to section F9.
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Comprehensive Income
Three months ended
31 March
2023 2022 (restated)(1)
€000 €000
Profit for the period 95,281 17,043
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in (1,930) (6,410)
subsequent periods
Fair value reserve (debt instruments) (1,912) (6,420)
Net losses on investments in debt instruments measured at fair value through (1,762) (5,932)
OCI (FVOCI)
Transfer to the consolidated income statement on disposal (150) (488)
Foreign currency translation reserve (18) 10
(Loss)/profit on translation of net investment in foreign branches and (33) 4,089
subsidiaries
Profit/(loss) on hedging of net investments in foreign branches and 15 (4,079)
subsidiaries
OCI not to be reclassified in the consolidated income statement in subsequent (24) 558
periods
Fair value reserve (equity instruments) - 43
Net gains on investments in equity instruments designated at FVOCI - 43
Property revaluation reserve 26 -
Deferred tax 26 -
Actuarial (losses)/gains on the defined benefit plans (50) 515
Remeasurement (losses)/gains on defined benefit plans (50) 515
Other comprehensive loss for the period net of taxation (1,954) (5,852)
Total comprehensive income for the period 93,327 11,191
Attributable to:
Owners of the Company 92,768 11,368
Non-controlling interests 559 (177)
Total comprehensive income for the period 93,327 11,191
(1. ) 2022 comparative information has been restated to reflect
the impact of IFRS 17. Refer to section F9.
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Balance Sheet
31 March 2023 31 December 2022 1 January 2022 (restated)(1)
(restated)(1)
Assets €000 €000
Cash and balances with central banks 9,247,705 9,567,258 9,230,883
Loans and advances to banks 415,832 204,811 291,632
Derivative financial assets 46,344 48,153 6,653
Investments at FVPL 136,590 190,209 199,194
Investments at FVOCI 428,223 467,375 748,695
Investments at amortised cost 2,332,167 2,046,119 1,191,274
Loans and advances to customers 10,013,108 9,953,252 9,836,405
Life insurance business assets attributable to policyholders 551,295 542,321 551,797
Prepayments, accrued income and other assets 608,908 609,054 583,777
Stock of property 977,525 1,041,032 1,111,604
Investment properties 83,060 85,099 117,745
Deferred tax assets 227,953 227,934 265,942
Property and equipment 268,664 253,378 252,130
Intangible assets 49,430 52,546 54,144
Non-current assets and disposal groups held for sale - - 358,951
Total assets 25,386,804 25,288,541 24,800,826
Liabilities
Deposits by banks 481,037 507,658 457,039
Funding from central banks 1,988,452 1,976,674 2,969,600
Derivative financial liabilities 18,063 16,169 32,452
Customer deposits 18,973,589 18,998,319 17,530,883
Insurance liabilities 617,662 599,992 623,791
Accruals, deferred income, other liabilities and other provisions 393,540 379,182 356,697
Provisions for pending litigation, claims, regulatory and other matters 130,408 127,607 104,108
Debt securities in issue 300,258 297,636 302,555
Subordinated liabilities 307,116 302,104 340,220
Deferred tax liabilities 34,618 34,634 39,817
Total liabilities 23,244,743 23,239,975 22,757,162
Equity
Share capital 44,620 44,620 44,620
Share premium 594,358 594,358 594,358
Revaluation and other reserves 75,197 76,939 99,541
Retained earnings 1,185,027 1,090,349 1,062,711
Equity attributable to the owners of the Company 1,899,202 1,806,266 1,801,230
Other equity instruments 220,000 220,000 220,000
Non‑controlling interests 22,859 22,300 22,434
Total equity 2,142,061 2,048,566 2,043,664
Total liabilities and equity 25,386,804 25,288,541 24,800,826
(1. ) 2022 comparative information has been
restated to reflect the impact of IFRS 17. Refer to section F9.
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Changes in Equity
Attributable to the owners of the Company Other equity instruments Non- controlling interests Total
equity
Share Share Treasury shares Other Retained earnings Property revaluation reserve Financial instruments fair value reserve Life insurance Foreign currency translation reserve Total
capital premium capital reserves in-force
business
reserve
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
31 December 2022 44,620 594,358 (21,463) 322 1,041,152 74,170 7,142 101,301 16,768 1,858,370 220,000 22,300 2,100,670
Impact of retrospective application of IFRS 17 adoption - - - - 49,197 - - (101,301) - (52,104) - - (52,104)
31 December 2022 (restated) / 1 January 2023 44,620 594,358 (21,463) 322 1,090,349 74,170 7,142 - 16,768 1,806,266 220,000 22,300 2,048,566
Profit for the period - - - - 94,728 - - - - 94,728 - 553 95,281
Other comprehensive (loss)/income after tax for the period - - - - (50) 20 (1,912) - (18) (1,960) - 6 (1,954)
Total comprehensive income/(loss) after tax for the period - - - - 94,678 20 (1,912) - (18) 92,768 - 559 93,327
Share-based benefits-cost - - - 168 - - - - - 168 - - 168
31 March 2023 44,620 594,358 (21,463) 490 1,185,027 74,190 5,230 - 16,750 1,899,202 220,000 22,859 2,142,061
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Changes in Equity (continued)
Attributable to the owners 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 Foreign currency translation reserve Total
capital premium in-force
business
reserve
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2022 44,620 594,358 (21,463) 986,623 80,060 23,285 113,651 17,659 1,838,793 220,000 22,434 2,081,227
Impact of retrospective application of IFRS 17 adoption - - - 76,088 - - (113,651) - (37,563) - - (37,563)
Restated balance at 1 January 2022 44,620 594,358 (21,463) 1,062,711 80,060 23,285 - 17,659 1,801,230 220,000 22,434 2,043,664
Profit/(loss) for the period - - - 17,220 - - - - 17,220 - (177) 17,043
Other comprehensive income/(loss) after tax for the period - - - 515 - (6,377) - 10 (5,852) - - (5,852)
Total comprehensive income/(loss) after tax for the period - - - 17,735 - (6,377) - 10 11,368 - (177) 11,191
Defence contribution - - - (4,983) - - - - (4,983) - - (4,983)
Restated balance at 31 March 2022 44,620 594,358 (21,463) 1,075,463 80,060 16,908 - 17,669 1,807,615 220,000 22,257 2,049,872
F. Notes
F.1 Reconciliation of interim income statement between
statutory and underlying basis
€ million Underlying basis Other Statutory
basis
Net interest income 162 - 162
Net fee and commission income 44 - 44
Net foreign exchange gains and net gains on financial instruments 13 1 14
Net gains on derecognition of financial assets measured at amortised cost - 0 0
Net insurance result* 10 - 10
Net gains from revaluation and disposal of investment properties and on 2 - 2
disposal of stock of properties
Other income 3 - 3
Total income 234 1 235
Total expenses (91) (7) (98)
Operating profit 143 (6) 137
Loan credit losses (11) 11 -
Impairment of other financial and non-financial assets (11) 11 -
Provisions for litigation, claims, regulatory and other matters (net of (6) 6 -
reversals)
Credit losses on financial assets and impairment net of reversals of - (23) (23)
non-financial assets
Profit before tax and non-recurring items 115 (1) 114
Tax (18) - (18)
Profit attributable to non-controlling interests (1) - (1)
Profit after tax and before non-recurring items (attributable to the owners of 96 (1) 95
the Company)
Advisory and other restructuring costs - organic (1) 1 -
Profit after tax (attributable to the owners of the Company) 95 - 95
* Net insurance result per underlying basis comprises the aggregate of
captions 'Net insurance finance income/(expense) and net reinsurance finance
income/(expense)', 'Net insurance service result' and 'Net reinsurance service
result' per the statutory basis.
The reclassification differences between the statutory basis and the
underlying basis are explained below:
· Net gains on loans and advances to customers at FVPL of
€1 million included in 'Loan credit losses' under the underlying basis are
included in 'Net gains/(losses) on financial instruments' under the statutory
basis. Their classification under the underlying basis is done to align their
presentation with the loan credit losses on loans and advances to customers at
amortised cost.
· 'Net gains on derecognition of financial assets
measured at amortised cost' of approximately €0.3 million under the
statutory basis comprise net gains on derecognition of loans and advances to
customers included in 'Loan credit losses' under the underlying basis as to
align their presentation with the loan credit losses on loans and advances to
customers.
· Provisions for litigation, claims, regulatory and other
matters amounting to €6 million presented within 'Operating profit before
credit losses and impairment' under the statutory basis, are presented under
the underlying basis in conjunction with loan credit losses and impairments.
· Advisory and other restructuring costs of approximately
€1 million included in 'Other operating expenses' under the statutory basis
are separately presented under the underlying basis since they comprise mainly
fees to external advisors in relation to the transformation programme and
other strategic projects of the Group.
· 'Credit losses on financial assets' and 'Impairment net
of reversals on non-financial assets' under the statutory basis include: i)
credit losses to cover credit risk on loans and advances to customers of €12
million, which are included in 'Loan credit losses' under the underlying
basis, and ii) credit losses of other financial assets of €3 million and
impairment net of reversals of non-financial assets of €8 million, which are
included in 'Impairment of other financial and non-financial assets' under the
underlying basis, as to be presented separately from loan credit losses.
F. Notes (continued)
F.2 Customer deposits
The analysis of customer deposits is presented below:
31 March 31 December 2022
2023
By type of deposit €000 €000
Demand 10,398,586 10,561,724
Savings 2,888,682 2,840,346
Time or notice 5,686,321 5,596,249
18,973,589 18,998,319
By geographical area
Cyprus 13,096,705 13,019,109
Greece 1,847,877 1,933,771
United Kingdom 692,050 706,233
United States 159,069 178,962
Germany 121,182 168,785
Romania 65,792 69,514
Russia 733,833 700,465
Ukraine 306,864 290,050
Belarus 94,983 83,299
Other countries 1,855,234 1,848,131
18,973,589 18,998,319
Deposits by geographical area are based on the country of passport of the
Ultimate Beneficial Owner.
31 March 31 December 2022
2023
By currency €000 €000
Euro 17,036,294 17,067,299
US Dollar 1,519,474 1,529,548
British Pound 347,890 333,458
Russian Rouble 2,371 3,466
Swiss Franc 11,670 11,796
Other currencies 55,890 52,752
18,973,589 18,998,319
By customer sector
Corporate and Large corporate 1,858,324 1,915,300
International corporate 143,987 139,898
SMEs 929,693 1,007,555
Retail 11,441,093 11,333,783
Restructuring
- Corporate 13,948 16,017
- SMEs 6,482 6,375
- Retail other 9,503 10,152
Recoveries
- Corporate 1,372 1,262
International banking services 3,966,753 3,957,050
Wealth management 602,434 610,927
18,973,589 18,998,319
F. Notes (continued)
F.3 Loans and advances to customers
31 March 31 December 2022
2023
€000 €000
Gross loans and advances to customers at amortised cost 9,986,904 9,917,335
Allowance for ECL of loans and advances to customers (186,333) (178,442)
9,800,571 9,738,893
Loans and advances to customers measured at FVPL 212,537 214,359
10,013,108 9,953,252
F.4 Credit risk concentration of loans and advances to
customers
Industry (economic activity), business line and geographical concentrations of
the Group's gross loans and advances to customers at amortised cost are
presented in the tables below.
The geographical concentration, for credit risk concentration purposes, is
based on the Group's Country Risk Policy, which is followed for monitoring the
Group's exposures, in accordance with which exposures are analysed by country
of risk based on the country of residency for individuals and the country of
registration for companies.
31 March 2023 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000 €000
Trade 922,648 354 38 2 - 33 923,075
Manufacturing 319,571 44,930 - - - 27,412 391,913
Hotels and catering 962,462 24,304 36,071 - - 40,095 1,062,932
Construction 527,293 9,090 22 359 1 20 536,785
Real estate 962,791 94,750 1,906 5,812 - 46,020 1,111,279
Private individuals 4,510,966 11,848 69,679 222 17,786 53,337 4,663,838
Professional and other services 558,481 612 5,297 921 385 40,859 606,555
Shipping 12,657 - - - - 195,064 207,721
Other sectors 449,666 1 1 - 3 33,135 482,806
9,226,535 185,889 113,014 7,316 18,175 435,975 9,986,904
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
31 March 2023 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000 €000
Corporate and Large corporate 3,449,479 25,477 45 - 383 186 3,475,570
International corporate 93,814 152,202 42,816 5,812 - 373,157 667,801
SMEs 1,006,636 539 1,184 397 - 2,121 1,010,877
Retail
- housing 3,298,760 2,568 34,931 38 93 18,123 3,354,513
- consumer, credit cards and other 914,586 804 554 5 - 844 916,793
Restructuring
- corporate 54,862 - 842 883 - 64 56,651
- SMEs 41,406 - 174 - 154 - 41,734
- retail housing 68,727 103 2,037 - 287 176 71,330
- retail other 24,517 35 17 - 194 22 24,785
Recoveries
- corporate 16,950 - 451 2 172 33 17,608
- SMEs 27,825 - 1,126 - 2,503 2,132 33,586
- retail housing 68,031 261 19,321 64 3,296 8,952 99,925
- retail other 29,975 20 1,284 - 70 391 31,740
International banking services 91,306 1,659 8,143 115 11,023 24,802 137,048
Wealth management 39,661 2,221 89 - - 4,972 46,943
9,226,535 185,889 113,014 7,316 18,175 435,975 9,986,904
31 December 2022 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000 €000
Trade 922,093 384 37 2 - 33 922,549
Manufacturing 323,074 44,978 - - - 27,943 395,995
Hotels and catering 928,346 16,565 35,614 - - 40,086 1,020,611
Construction 545,421 8,955 23 1,965 1 20 556,385
Real estate 978,708 94,823 1,866 5,848 - 45,769 1,127,014
Private individuals 4,496,081 11,146 73,120 401 19,103 54,584 4,654,435
Professional and other services 551,269 980 5,311 907 313 36,923 595,703
Shipping 13,338 - - - - 173,830 187,168
Other sectors 427,535 2 - - 3 29,935 457,475
9,185,865 177,833 115,971 9,123 19,420 409,123 9,917,335
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
31 December 2022 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000 €000
Corporate and Large corporate 3,380,542 17,781 50 - 312 102 3,398,787
International corporate 139,813 152,143 42,327 5,850 - 345,175 685,308
SMEs 1,021,950 1,036 1,451 2,003 - 2,171 1,028,611
Retail
- housing 3,272,253 2,450 36,839 219 186 18,687 3,330,634
- consumer, credit cards and other 885,558 856 576 5 1 900 887,896
Restructuring
- corporate 66,151 - 869 869 - 63 67,952
- SMEs 48,027 - 432 - 158 384 49,001
- retail housing 70,283 104 1,841 - 291 114 72,633
- retail other 24,093 16 21 - 192 21 24,343
Recoveries
- corporate 19,063 - 452 - 172 32 19,719
- SMEs 26,150 - 1,117 - 2,664 1,774 31,705
- retail housing 69,790 260 19,778 64 3,431 9,672 102,995
- retail other 31,967 12 1,265 - 49 337 33,630
International banking services 90,652 1,722 8,953 113 11,964 24,470 137,874
Wealth management 39,573 1,453 - - - 5,221 46,247
9,185,865 177,833 115,971 9,123 19,420 409,123 9,917,335
The loans and advances to customers include lending exposures in Cyprus with
collaterals in Greece with a carrying value as at 31 March 2023 of €138,318
thousand (31 December 2022: €106,701 thousand).
The loans and advances to customers reported within 'Other countries' as at 31
March 2023 include exposures of €2.3 million in Ukraine (31 December 2022:
€2.6 million).
F. Notes (continued)
F.5 Analysis of loans and advances to customers by stage
The following tables present the Group's gross loans and advances to customers
at amortised cost by staging and by geographical analysis (based on the
country in which the loans are managed).
31 March 2023 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 8,034,686 1,562,590 353,839 118,450 10,069,565
recognition
Residual fair value adjustment on initial recognition (64,870) (14,241) (1,502) (2,048) (82,661)
Gross loans at amortised cost 7,969,816 1,548,349 352,337 116,402 9,986,904
Cyprus 7,969,616 1,548,349 351,757 116,402 9,986,124
Other countries 200 - 580 - 780
7,969,816 1,548,349 352,337 116,402 9,986,904
31 December 2022 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 7,931,511 1,586,488 372,821 115,544 10,006,364
recognition
Residual fair value adjustment on initial recognition (64,255) (20,885) (1,803) (2,086) (89,029)
Gross loans at amortised cost 7,867,256 1,565,603 371,018 113,458 9,917,335
Cyprus 7,867,037 1,565,603 368,922 113,458 9,915,020
Other countries 219 - 2,096 - 2,315
7,867,256 1,565,603 371,018 113,458 9,917,335
F. Notes (continued)
F.5 Analysis of loans and advances to customers by stage
(continued)
The following tables present the Group's gross loans and advances to customers
at amortised cost by stage and by business line concentration:
31 March 2023 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate and Large corporate 2,604,022 782,080 49,989 39,479 3,475,570
International corporate 666,785 962 35 19 667,801
SMEs 856,551 141,191 2,907 10,228 1,010,877
Retail
- housing 2,927,236 391,971 22,211 13,095 3,354,513
- consumer, credit cards and other 748,896 139,496 12,839 15,562 916,793
Restructuring
- corporate 2,973 19,821 23,702 10,155 56,651
- SMEs 10,277 11,390 17,587 2,480 41,734
- retail housing 4,393 21,814 42,631 2,492 71,330
- retail other 1,722 5,132 16,877 1,054 24,785
Recoveries
- corporate - - 16,571 1,037 17,608
- SMEs - - 31,860 1,726 33,586
- retail housing - - 86,331 13,594 99,925
- retail other 98 - 26,947 4,695 31,740
International banking services 105,736 29,278 1,846 188 137,048
Wealth management 41,127 5,214 4 598 46,943
7,969,816 1,548,349 352,337 116,402 9,986,904
31 December 2022 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate and Large corporate 2,502,630 807,282 54,259 34,616 3,398,787
International corporate 685,099 150 35 24 685,308
SMEs 825,123 189,825 3,299 10,364 1,028,611
Retail
- housing 2,982,436 305,714 30,071 12,413 3,330,634
- consumer, credit cards and other 704,959 152,815 14,376 15,746 887,896
Restructuring
- corporate 2,842 34,246 20,689 10,175 67,952
- SMEs 12,643 10,603 23,374 2,381 49,001
- retail housing 5,168 22,018 42,155 3,292 72,633
- retail other 1,713 5,364 16,237 1,029 24,343
Recoveries
- corporate - - 18,403 1,316 19,719
- SMEs - - 29,339 2,366 31,705
- retail housing - - 88,956 14,039 102,995
- retail other 108 - 28,569 4,953 33,630
International banking services 104,539 31,934 1,254 147 137,874
Wealth management 39,996 5,652 2 597 46,247
7,867,256 1,565,603 371,018 113,458 9,917,335
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers
Three months ended
31 March
2023 2022
€000 €000
Impairment loss net of reversals on loans and advances to customers 17,693 14,132
Recoveries of loans and advances to customers previously written off (3,918) (4,066)
Changes in expected cash flows (1,571) 912
Financial guarantees and commitments 266 (270)
12,470 10,708
The movement in ECL of loans and advances to customers, including the loans
and advances to customers held for sale, and the analysis of the balance by
stage is as follows:
Three months ended
31 March
2023 2022
€000 €000
1 January 178,442 591,417
Foreign exchange and other adjustments (50) (840)
Write offs (10,650) (45,959)
Interest (provided) not recognised in the income statement 898 4,012
Charge for the period 17,693 14,132
31 March 186,333 562,762
Stage 1 16,531 16,630
Stage 2 31,594 28,852
Stage 3 120,249 456,473
POCI 17,959 60,807
31 March 186,333 562,762
The allowance for ECL, included above, for loans and advances to customers
held for sale as at 31 March 2022 amounted €308,916 thousand. There were no
loans classified as held for sale as at 31 March 2023.
The charge for the period on loans and advances to customers, including the
loans and advances to customers held for sale as at 31 March 2022, by stage is
presented in the table below:
Three months ended
31 March
2023 2022
€000 €000
Stage 1 (10,476) (1,215)
Stage 2 9,262 (48)
Stage 3 18,907 15,395
17,693 14,132
During the three months ended 31 March 2023 the total non‑contractual
write‑offs recorded by the Group amounted to €4,465 thousand (three months
ended 31 March 2022: €36,921 thousand). The contractual amount outstanding
on financial assets that were written off during the three months ended 31
March 2023 and that are still subject to enforcement activity is €39,560
thousand (31 December 2022: €972,621 thousand).
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers (continued)
Assumptions have been made about the future changes in property values, as
well as the timing for the realisation of collateral, taxes and expenses on
the repossession and subsequent sale of the collateral as well as any other
applicable haircuts. Indexation has been used as the basis to estimate updated
market values of properties supplemented by management judgement where
necessary given the difficulty in differentiating between short-term impacts
and long-term structural changes and the shortage of market evidence for
comparison purposes. Assumptions were made on the basis of a macroeconomic
scenario for future changes in property prices, and these are capped to zero
for all scenarios, in case of any future projected increase, whereas any
future projected decrease is taken into consideration.
At 31 March 2023 the weighted average haircut (including liquidity haircut and
selling expenses) used in the collectively assessed provision calculation for
loans and advances to customers is approximately 32% under the baseline
scenario (31 December 2022: approximately 32%).
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 2022: average seven years).
For the calculation of individually assessed provisions, the timing of
recovery of collaterals as well as the haircuts used are based on the specific
facts and circumstances of each case. For specific cases judgement may also be
exercised over staging during the individual assessment.
For the calculation of expected credit losses three scenarios were used; base,
adverse and favourable with 50%, 30% and 20% probability respectively.
The above assumptions are also influenced by the ongoing regulatory dialogue
the Group 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 provisions.
Any changes in these assumptions or differences between assumptions made and
actual results could result in significant changes in the estimated amount of
expected credit losses of loans and advances to customers.
Overlays in the context of current economic conditions
The two overlays introduced in 2022 in response to uncertainties from the
consequences of the Ukrainian crisis, in the collectively assessed population
for exposures that were considered to be the most vulnerable to the
implications of the crisis, continue to be in effect during the three months
ended 31 March 2023. These were introduced to address the increased
uncertainties from the geopolitical instability, trade restrictions,
disruptions in the global supply chains, increases in the energy prices and
their potential negative impact on the domestic cost of living. The impact on
the ECL from the application of these overlays was approximately €3.5
million release for the three months ended 31 March 2023 (following an update
of the assessment of the sectors classified as High Risk and/or Early Warning)
and a net transfer of €23 million loans from Stage 1 to Stage 2 as at 31
March 2023.
Specifically, the first overlay relates to private individuals that are
expected to be affected by the increased cost of living in order to reflect
the future vulnerabilities to inflation, where a scenario with higher
percentage increase is applied for the cost of living. A one-notch downgrade
is applied to the identified portfolio, reflecting the expected impact of
inflation to their credit quality. The second overlay relates to sectors that
have been classified as High Risk or Early Warning to reflect the expected
Gross Value Added (GVA) outlook of these sectors, where this has deteriorated.
Specifically, the sector risk classification is carried out by comparing the
projected GVA outlook of each sector with its past performance (intrinsic) and
its performance vis-a-vis other sectors (systemic). In cases where both
systemic and intrinsic indicators are found to have deteriorated, the relevant
sector is classified as High Risk, whereas if only one of the two has
deteriorated, then the sector is classified as Early Warning. A one-notch
downgrade is applied to Early Warning sectors whereas for High Risk sectors a
more severe downgrade is applied accordingly.
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers (continued)
In addition, the overlay on the probability of default (PD), introduced in
the fourth quarter of 2022 to address specifically the high inflation
environment affecting the economy, continued to be in effect during the three
months ended 31 March 2023. With this overlay the PDs were floored to the
maximum of 2018/2019 level, on the basis that these years are considered as
closer to a business-as-usual environment in terms of default rates. The
impact on the ECL from the application of this overlay was €3.2 million
release for the three months ended 31 March 2023, as a result of multiple
components including updated ratings, PD and thresholds calibrations and stage
migrations.
In addition, in the three months ended 31 March 2023, for the LGD parameter,
the overlay has been integrated through reduced curability period for Stage 2
and Stage 3 exposures (i.e., the maximum period that a customer is considered
to cure has been reduced). The impact on the ECL was €8.4 million charge for
the three months ended 31 March 2023.
The Group has exercised critical judgement on a best effort basis, to consider
all reasonable and supportable information available at the time of the
assessment of the ECL allowance as at 31 March 2023. The Group will continue
to evaluate the ECL allowance and the related economic outlook each quarter,
so that any changes arising from the uncertainty on the macroeconomic outlook
and geopolitical developments, impacted by the implications of the Russian
invasion of Ukraine, are timely captured.
F.7 Rescheduled loans and advances to customers
The below table presents the Group's forborne loans and advances to customers
by staging.
31 March 2023 31 December 2022
€000 €000
Stage 1 - -
Stage 2 776,447 857,356
Stage 3 201,402 215,730
POCI 31,481 33,212
1,009,330 1,106,298
F.8 Pending litigation, claims, regulatory and other matters
The Group, in the ordinary course of business, is involved in various disputes
and legal proceedings and is subject to enquiries and examinations, requests
for information, audits, investigations, 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. 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. There are also situations where
the Group may enter into a settlement agreement. This may occur only if such
settlement is in BOC PCL's interest (such settlement does not constitute an
admission of wrongdoing) and only takes place after obtaining legal advice and
all approvals by the appropriate bodies of management.
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, regulatory and other matters as at 31 March 2023 and hence it is
not believed that such matters, when concluded, will have a material impact
upon the financial position of the Group. Details on the material ongoing
cases are disclosed within the 2022 Annual Financial Report.
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts'
Overview
On 1 January 2023 the Group adopted IFRS 17 'Insurance Contracts' and as
required by the standard applied the requirements retrospectively with
comparative information restated from the transition date, 1 January 2022.
IFRS 17 is a comprehensive new accounting standard for insurance contracts
which replaces IFRS 4 Insurance Contracts. In contrast to the requirements in
IFRS 4, IFRS 17 provides a comprehensive model (the general measurement model
or 'GMM') for insurance contracts, supplemented by the variable fee approach
('VFA') for contracts with direct participation features that are
substantially investment-related service contracts, and the premium allocation
approach ('PAA') mainly for short duration insurance contracts. The main
features of the new accounting standard for insurance contracts are the
following:
i. The measurement of the present value of future cash flows, incorporating
an explicit risk adjustment, remeasured every reporting period (the fulfilment
cash flows)
ii. A Contractual Service Margin (CSM) that is equal and opposite to any day
one gain in the fulfilment cash flows of a group of contracts. The CSM
represents the unearned profitability of the insurance contracts and is
recognised in profit or loss over the service period (i.e., the coverage
period)
iii. Certain changes in the expected present value of future cash flows are
adjusted against the CSM and thereby recognised in profit or loss over the
remaining contractual service period
iv. The recognition of insurance revenue and insurance service
expenses in the consolidated income statement based on the concept of services
provided during the period
v. Insurance services results (earned revenue less incurred claims) are
presented separately from the insurance finance income or expense
vi. Extensive disclosures to provide information on the recognised
amounts from insurance contracts and the nature and extent of the risks
arising from these contracts.
Transition application
The standard is applied retrospectively using a fully retrospective approach
('FRA') as if it had always applied, unless it is impracticable to so, in
which case either a modified retrospective approach ('MRA') or a fair value
approach ('FVA') can be selected. Impracticability assessments were performed
based on the requirements of IFRS 17 and considered the availability of data
and systems and the requirement not to apply hindsight within the measurement.
Following the completion of impracticability assessments, the Group applied
the following approaches:
· The FRA for all non-life groups of insurance contracts and
non-individual life groups of insurance contracts, irrespective of issue date.
· The MRA for groups of life insurance contracts issued between
2016 and 2021.
· The FVA for groups of life insurance contracts issued prior to
2016.
Determination on transition of the fair value of insurance contract
liabilities for which FVA was applied
Under the FVA approach required by IFRS 17, the valuation of insurance
liabilities on transition is based on the requirements of IFRS 13 'Fair Value
Measurement'. This requires consideration of the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (an exit price). Under the
FVA, the CSM of the liability for remaining coverage at the transition date is
determined as the difference between the fair value of the groups of insurance
contracts and the fulfilment cash flows measured as at that date. There is
judgement involved in determining an appropriate fair value, as there is a
lack of observable data for actual transactions for closed book insurance
businesses and a range of possible modelling approaches. In determining the
fair value the Group considered the estimated profit margin that a market
participant would demand in return for assuming the insurance liabilities, and
the discount rate that would be applied within the IFRS 13 calculation. The
approach for setting these included the following:
· The discount rate was derived with an allowance for an
illiquidity premium that takes into account the level of 'matching' between
the Group's assets and related liabilities.
· Solvency II information (i.e. Best Estimate Liabilities and Risk
Margin) has been utilised.
Modified retrospective approach ('MRA')
The Group is permitted to use the MRA only to the extent that is does not have
reasonable and supportable information to apply a FRA. MRA is an approach to
achieve the closest outcome to the full retrospective application, with the
prescribed modifications to address some of the challenges of retrospective
application. Under MRA the below simplifications are permitted:
· assessments at the date of initial recognition of groups of
insurance contracts;
· contractual service margin for insurance contracts without direct
participation features;
· contractual service margin for insurance contracts with direct
participation features; and
· insurance finance income or expenses.
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts'
Transition application (continued)
In applying the modified retrospective approach, the Group used reasonable and
supportable information from its existing reporting systems, with the
objective to arrive at the outcome closest to the full retrospective
approach. The Group applied each of the following modifications:
· Group of contracts issued between 2016 and 2021 contain contracts
issued more than one year apart. For these groups, the discount rates on
initial recognition were determined at 1 January 2022 instead of at the date
of initial recognition.
· For group of contracts issued or initiated between 2016 and 2021, the
future cash flows on initial recognition were estimated by:
- the transactions occurred in period 2016-2021, plus
- the expected future cashflows estimated at 31 December 2021.
· For groups of contracts issued or initiated between 2016 and 2021,
the illiquidity premiums applied to the risk-free yield curves on initial
recognition were estimated by determining an average spread between the
risk-free yield curves and the discount rates determined retrospectively for
the period between 1 January 2016 and 1 January 2022.
· For groups of contracts issued or initiated between 2016 and 2021,
the risk adjustment for non-financial risk on initial recognition was
determined by adjusting the amount at 1 January 2022.
· The amount of the CSM recognised in profit or loss before 1 January
2022 was determined by comparing the coverage units provided before 1 January
2022 and the expected coverage units at 1 January 2022.
The sections below provide a summary of the significant accounting policies
applied under IFRS 17, information on the quantitative impact of transition of
IFRS 17, the impacted and restated information on the 1 January 2022 and 31
December 2022 consolidated balance sheet and the restatement impact on the
consolidated income statement for the year ended 31 December 2022 and the
three months ended 31 March 2022.
F.9.1 Summary of significant accounting policies
Identifying contracts in the scope of IFRS 17
IFRS 17 establishes principles for the recognition, measurement, presentation
and disclosure of insurance contracts, reinsurance contracts and investment
contracts with discretionary participation features.
An insurance contract is a contract under which the Group accepts significant
insurance risk from another party by agreeing to compensate that party if it
is adversely affected by a specified uncertain future event.
When identifying contracts in the scope of IFRS 17, there is a need to assess
whether contracts need to be treated as a single contract and whether embedded
derivatives, investment components and goods and services components have to
be separated and accounted for under another standard. For the Group's
insurance and reinsurance contracts, there were no significant changes arising
from the application of these requirements.
Level of aggregation
Individual insurance contracts that are managed together and subject to
similar risks are identified as a group.
Contracts that are managed together usually belong to the same product line
and have similar characteristics such as being subject to a similar pricing
framework or similar product management and are issued by the same legal
entity. If a contract is exposed to more than one risk, the dominant risk of
the contract is used to assess whether the contract features similar risks.
Each group of contracts is then divided into annual cohorts (i.e. by year of
issue) and each cohort into three groups, based on expected profitability: (i)
contracts that are onerous at initial recognition; (ii) contracts that at
initial recognition have no significant possibility of becoming onerous
subsequently; and (iii) the remaining contracts.
The groups of insurance contracts are established at initial recognition
without subsequent reassessment and form the unit of account at which the
contracts are measured.
Contract boundaries
The measurement of a group of insurance contracts includes all of the future
cash flows within the boundary of each contract in the group. Cash flows are
within the boundary of an insurance contract if they arise from substantive
rights and obligations that exist during the reporting period in which the
Group can compel the policyholder to pay the premiums, or in which the Group
has a substantive obligation to provide the policyholder with services. The
Group has determined that expected future single premium injections and
regular premium increases for unit-linked life contracts, even though at the
discretion of policyholders, are within the contract boundaries as the Group
may not adjust the terms and conditions for such increases. Similarly for
multiyear (more than one year) non-life contracts the Group has assessed that
they are expected to equal their duration as the Group cannot reprice or
terminate the insurance contract during the coverage period.
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.1 Summary of significant accounting policies (continued)
Measurement
IFRS 17 introduces a standard measurement model, the General Measurement Model
(GMM) and allows also for a simplified approach, the Premium Allocation
Approach (PAA). IFRS 17 also provides for the Variable Fee Approach (VFA),
which is mandatory to apply for insurance contracts with direct participation
features upon meeting the eligibility criteria. While the GMM is the default
measurement model under IFRS 17, the Group applies the VFA primarily to
insurance contracts in the unit linked life portfolio. The PAA is applied for
contracts with coverage periods of one year or less, or as an approximation to
the general measurement model and is primarily applied by the Group to
non-life insurance contracts and to non-individual life insurance contracts as
well as to reinsurance contracts of the Group except for the individual life
reinsurance agreement, for which the GMM was applied. For the rest of the
insurance contracts (individual protection life contracts, the acquired
portfolio and health long-term portfolio) the Group applies the GMM approach.
Initial measurement
Groups of insurance contracts under GMM or VFA are initially measured as the
total of:
- Fulfilment cash flows, which comprise:
· an estimate of the present value of future cash flows that are
expected to arise as the Group fulfils its service under the insurance
contracts; and
· an explicit risk adjustment for non-financial risk (i.e., the
risk adjustment held on balance sheet)
- Contractual Service Margin (CSM) which represents the unearned
profit that the Group will recognise as it provides insurance contract
services.
The fulfilment cash flows comprise unbiased and probability-weighted estimates
of future cash flows, discounted to present value to reflect both the time
value of money and financial risks, plus a risk adjustment for non-financial
risk. The discount rate applied reflects the time value of money, the
characteristics of the cash flows, the liquidity characteristics of the
insurance contracts and, where appropriate, is consistent with observable
current market prices.
The risk adjustment for non-financial risk for a group of insurance contracts
is the compensation required for bearing the uncertainty in relation to the
amount and timing of the cash flows that arises from non-financial risk. The
risk adjustment is explicit and determined separately from other fulfilment
cash flows.
Subsequent measurement
GMM
At the end of each reporting period, IFRS 17 requires that insurance contracts
are measured as the sum of:
· Liability for remaining coverage (LRC), comprising fulfilment
cash flows related to future service and the CSM at the reporting date; and
· Liability for incurred claims (LIC), comprising fulfilment cash
flows related to past service at the reporting date (claims and expenses not
yet paid, including claims incurred but not yet reported).
The fulfilment cash flows of groups of insurance contracts are measured at the
reporting date using current estimates of future cash flows, current discount
rates and current estimates of the risk adjustment for non-financial risk.
Changes in fulfilment cash flows are recognised as follows:
- Changes related to future service are adjusted against the CSM
unless the group of contracts is onerous in which case such changes are
recognised in the net insurance service result in the income statement
- Changes related to past or current service are recognised in the
net insurance service result in the income statement
- The effects of the time value of money and financial risk are
recognised as net insurance finance income or expense in the income statement
The amount of CSM recognised in income statement for services in a period is
determined by the allocation of the CSM remaining at the end of the reporting
period over the current and remaining expected coverage period of the group of
insurance contracts based on coverage units. Services provided are estimated
using coverage units, which reflect the quantity of benefits and the coverage
duration.
VFA
The VFA is modified for contracts with direct participation features
(contracts where returns are based on the performance of underlying assets).
For insurance contracts under the VFA, changes in the Group's share of the
underlying items, and economic experience and economic assumption changes
adjust the CSM, whereas these changes do not adjust the CSM under the GMM but
are recognised in profit or loss as they arise.
PAA
This is an optional simplification. The LRC is measured as premiums less
insurance acquisition cash flows. There is no CSM recognised.
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.1 Summary of significant accounting policies (continued)
Directly attributable expenses
In accordance with IFRS 17, directly attributable expenses, which include both
acquisition and maintenance costs are incorporated in actual and estimated
future cash flows and recognised in the net insurance result. Acquisition
costs are amortised. Costs that are not directly attributable remain in
operating expenses.
Presentation
The amounts presented in the consolidated income statement under IFRS 17
include:
i. Net insurance finance income/(expense) and net reinsurance finance
income/(expense), that comprises of:
· Net insurance finance income/(expense) which represents the
finance related change in the carrying value of a group of insurance contracts
comprising interest accreted to the CSM, effects of changes in interest rates
and other financial assumptions and the effect of changes in the fair value of
underlying items for direct participating contracts
· Net finance income/(expense) from reinsurance contracts held is
the finance related change in the carrying value of a group of reinsurance
contracts comprising interest accreted and effects of changes in interest
rates and other financial assumptions.
ii. Net insurance service result, that comprises of:
· insurance revenue that reflects the consideration to which the Group
expects to be entitled in exchange for the provision of coverage and other
insurance contract services (excluding any investment components) and includes
among others CSM released during the period, revenue for insurance contracts
under the PAA and changes in risk adjustment related to current service period
and experience variance.
· insurance service expenses that comprise the incurred claims and
other incurred insurance service expenses (excluding any investment
components), and losses on onerous groups of contracts and reversals of such
losses.
iii. Net reinsurance service result, that comprises of amounts recovered
from reinsurers and reinsurance expenses.
F.9.2 Transition impact
On transition on 1 January 2022, consistent with the disclosures in the 2022
Annual Financial Report, the Group's Total Equity and Equity attributable to
the owners of the Company was reduced by €37,563 thousand, reflecting the
aggregate impact of the PVIF elimination and remeasurement of insurance assets
and liabilities, and net of associated tax impact. Similarly, adjusting for
the impact of IFRS 17 on the profit for the year ended 31 December 2022, the
impact on the Group's Total Equity and Equity attributable to the owners of
the Company as at 31 December 2022 as reported under IFRS 4 has reduced by
€52,104 thousand as restated under IFRS 17, as analysed below.
At 1 January At 31 December
2022 2022
€000 €000
IFRS 4 Total Equity 2,081,227 2,100,670
IFRS 4 Equity attributable to owners of the Company 1,838,793 1,858,370
Removal of PVIF asset (129,890) (115,776)
Contractual service margin (43,731) (41,863)
Removal of IFRS 4 assets and liabilities and recording of IFRS 17 fulfilment 129,255 97,028
cash flows and risk adjustment
Tax effect (incl. PVIF tax effect) 7,079 9,601
Other (276) (1,094)
Total impact of IFRS 17 restatements (37,563) (52,104)
IFRS 17 Equity attributable to owners of the Company 1,801,230 1,806,266
IFRS 17 Total Equity 2,043,664 2,048,566
The reduction of the Group's equity by €52 million as at 31 December 2022
comprises the elimination of the in-force life insurance business asset (PVIF)
and the associated deferred tax liability, of a net decrease €101 million
and the remeasurement of insurance assets and liabilities (including the
impact of the contractual service margin) resulting in a net increase in
equity by €49 million.
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.2 Transition impact (continued)
On transition on 1 January 2022, the Group's Tangible Equity attributable to
the owners of the Company was increased by €92,327 million. Adjusting for
the impact of IFRS 17 on the profit for the year ended 31 December 2022, the
impact on the Group's Tangible Equity attributable to the owners of the
Company as at 31 December 2022 as restated under IFRS 17 has increased by
€63,672 million as analysed below.
At 1 January At 31 December 2022
2022
€000 €000
IFRS 4 Tangible Equity attributable to owners of the Company 1,654,759 1,690,048
Contractual service margin (43,731) (41,863)
Removal of IFRS 4 assets and liabilities and recording of IFRS 17 fulfilment 129,255 97,028
cash flows and risk adjustment
Tax effect (incl. PVIF tax effect) 7,079 9,601
Other (276) (1,094)
Total impact of IFRS 17 restatements 92,327 63,672
IFRS 17 Tangible Equity attributable to owners of the Company 1,747,086 1,753,720
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.2 Transition impact (continued)
Consolidated Income Statement for the year ended 31 December 2022 under the
statutory basis, as restated for IFRS 17 and as reported under IFRS 4.
Year ended
31 December 2022
IFRS 17 IFRS 4
(restated) (as previously presented)
€000 €000
Interest income 428,849 428,849
Income similar to interest income 22,119 22,119
Interest expense (65,721) (65,821)
Expense similar to interest expense (14,840) (14,840)
Net interest income 370,407 370,307
Fee and commission income 202,583 202,583
Fee and commission expense (10,299) (10,299)
Net foreign exchange gains 31,291 31,291
Net gains/(losses) on financial instruments (614) 10,052
Net gains/(losses) on derecognition of financial assets measured at amortised 5,235 5,235
cost
Net Insurance finance income/(expense) and net reinsurance finance 4,075 -
income/(expense)
Net insurance service result 60,530 -
Net reinsurance service result (20,039) -
Income from assets under insurance and reinsurance contracts - 114,681
Expenses from liabilities under insurance and reinsurance contracts - (43,542)
Net losses from revaluation and disposal of investment properties (999) (999)
Net gains on disposal of stock of property 13,970 13,970
Other income 16,681 16,681
Total operating income 672,821 709,960
Staff costs (285,154) (294,361)
Special levy on deposits and other levies/contributions (38,492) (38,492)
Provisions for pending litigations, regulatory and other provisions (net of (11,880) (11,880)
reversals)
Other operating expenses (157,916) (166,365)
Operating profit before credit losses and impairment 179,379 198,862
Credit losses on financial assets (59,087) (59,529)
Impairment net of reversals on non-financial assets (29,549) (29,549)
Profit before tax 90,743 109,784
Income tax (31,312) (35,812)
Profit after tax for the period 59,431 73,972
Attributable to:
Owners of the Company 56,565 71,106
Non-controlling interests 2,866 2,866
Profit for the year 59,431 73,972
Basic profit per share attributable to the owners of the Company (€ cent) 12.7 15.9
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.2 Transition impact (continued)
Consolidated Balance Sheet as at transition date and at 31 December 2022 as
restated under IFRS 17 and as reported under IFRS 4 in the 2022 Annual
Financial Report.
IFRS 17 IFRS 4
(restated) (as previously presented)
31 December 1 January 31 December 2022 1 January 2022
2022 2022
Assets €000 €000 €000 €000
Cash and balances with central banks 9,567,258 9,230,883 9,567,258 9,230,883
Loans and advances to banks 204,811 291,632 204,811 291,632
Derivative financial assets 48,153 6,653 48,153 6,653
Investments at FVPL 190,209 199,194 190,209 199,194
Investments at FVOCI 467,375 748,695 467,375 748,695
Investments at amortised cost 2,046,119 1,191,274 2,046,119 1,191,274
Loans and advances to customers 9,953,252 9,836,405 9,953,252 9,836,405
Life insurance business assets attributable to policyholders 542,321 551,797 542,321 551,797
Prepayments, accrued income and other assets 609,054 583,777 639,765 616,219
Stock of property 1,041,032 1,111,604 1,041,032 1,111,604
Investment properties 85,099 117,745 85,099 117,745
Deferred tax assets 227,934 265,942 227,521 265,481
Property and equipment 253,378 252,130 253,378 252,130
Intangible assets 52,546 54,144 168,322 184,034
Non-current assets and disposal groups held for sale - 358,951 - 358,951
Total assets 25,288,541 24,800,826 25,434,615 24,962,697
Liabilities
Deposits by banks 507,658 457,039 507,658 457,039
Funding from central banks 1,976,674 2,969,600 1,976,674 2,969,600
Derivative financial liabilities 16,169 32,452 16,169 32,452
Customer deposits 18,998,319 17,530,883 18,998,319 17,530,883
Insurance liabilities 599,992 623,791 679,952 736,201
Accruals, deferred income, other liabilities and other provisions 379,182 356,697 384,004 361,977
Provisions for pending litigation, claims, regulatory and other matters 127,607 104,108 127,607 104,108
Debt securities in issue 297,636 302,555 297,636 302,555
Subordinated liabilities 302,104 340,220 302,104 340,220
Deferred tax liabilities 34,634 39,817 43,822 46,435
Total liabilities 23,239,975 22,757,162 23,333,945 22,881,470
Equity
Share capital 44,620 44,620 44,620 44,620
Share premium 594,358 594,358 594,358 594,358
Revaluation and other reserves 76,939 99,541 178,240 213,192
Retained earnings 1,090,349 1,062,711 1,041,152 986,623
Equity attributable to the owners of the Company 1,806,266 1,801,230 1,858,370 1,838,793
Other equity instruments 220,000 220,000 220,000 220,000
Non‑controlling interests 22,300 22,434 22,300 22,434
Total equity 2,048,566 2,043,664 2,100,670 2,081,227
Total liabilities and equity 25,288,541 24,800,826 25,434,615 24,962,697
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.3 Transition impact on the Consolidated Balance Sheet as at 1
January 2022
The adjustments to the Group's balance sheet as at 1 January 2022 arising on
the adoption of IFRS 17 are presented below.
Balance IFRS 4 Removal of PVIF and IFRS 4 assets and liabilities IFRS 17 fulfilment cash flows incl. Risk adjustment * IFRS 17 CSM Tax Other Balance Total movements
effect IFRS 17
€000 €000 €000 €000 €000 €000 €000 €000
Assets
Prepayments, accrued income and other assets 616,219 (70,121) 37,676 - - 3 583,777 (32,442)
Deferred tax assets 265,481 - - - 461 - 265,942 461
Intangible assets 184,034 (129,890) - - - - 54,144 (129,890)
All other assets 23,896,963 - - - - - 23,896,963 -
Total assets 24,962,697 (200,011) 37,676 - 461 3 24,800,826 (161,871)
Liabilities
Insurance liabilities 736,201 (735,143) 579,002 43,731 - - 623,791 (112,410)
Accruals, deferred income, other liabilities and other provisions 361,977 (5,559) - - - 279 356,697 (5,280)
Deferred tax liabilities 46,435 - - - (6,618) - 39,817 (6,618)
All other liabilities 21,736,857 - - - - - 21,736,857 -
Total liabilities 22,881,470 (740,702) 579,002 43,731 (6,618) 279 22,757,162 (124,308)
* includes reinsurance assets and liabilities adjustments
Transition drivers
Removal of PVIF and IFRS 4 assets and liabilities
The present value of in-force business ('PVIF') which was previously reported
under IFRS 4 within 'Intangible assets' and that arose from the upfront
recognition of future profits associated with in-force insurance contracts, is
no longer recognized under IFRS 17. The estimated future profits are included
in the measurement of the insurance contract liability as the contractual
service margin ('CSM'), representing the unearned profit, which will be
gradually recognized over the duration of the contract. Other IFRS 4 insurance
assets and insurance contract liabilities are removed on transition, to be
replaced with IFRS 17 insurance assets and liabilities.
Recognition of the IFRS 17 fulfilment cash flows and risk adjustment
The measurement of insurance contract liabilities under IFRS 17 is based on
groups of insurance contracts and includes a liability for fulfilling the
contractual obligations associated with the insurance contract, such as
premiums, expenses, insurance benefits and claims. These are recorded within
the fulfilment cash flow component of the insurance contract liability,
together with the risk adjustment.
Recognition of the IFRS 17 CSM
In contrast to IFRS 4 accounting, where profits were recognised upfront, under
IFRS 17 they are deferred within the CSM which is systematically recognized in
revenue as services are provided over the coverage period of groups of
insurance contracts.
Tax effect
The removal of deferred tax liability primarily results from the removal of
the associated PVIF intangible, and new deferred tax assets and liabilities
are reported, where appropriate, on temporary differences between the new IFRS
17 accounting balances and their associated tax bases.
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.4 Transition impact on the Consolidated Income Statement
Summary of the impact of implementing IFRS 17 on the Group's statutory income
statement for the year ended 31 December 2022 is presented below.
For the year ended 31 December 2022
IFRS 4 Removal of Net insurance finance income expense IFRS 17 CSM IFRS 17 insurance revenue-other than CSM IFRS 17 insurance expense Net expense from reinsurance Attributable expenses (reclassification to net insurance service result) Tax IFRS 17
IFRS 4 and reclassifications Effect (restated)
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Interest income 428,849 428,849
Income similar to interest income 22,119 22,119
Interest expense (65,821) 100 (65,721)
Expense similar to interest expense (14,840) (14,840)
Net interest income 370,307 - - - 100 - - - - 370,407
Fee and commission income 202,583 - - - - - - - - 202,583
Fee and commission expense (10,299) - - - - - - - - (10,299)
Net foreign exchange gains 31,291 - - - - - - - - 31,291
Net gains/(losses) on financial instruments 10,052 (10,666) - - - - - - - (614)
Net gains/(losses) on derecognition of financial assets measured at amortised 5,235 - - - - - - - - 5,235
cost
Net Insurance finance income/(expense) and net reinsurance finance - - 4,075 - - - - - - 4,075
income/(expense)
Net insurance service result - - - 5,031 130,061 (74,562) - - - 60,530
Net reinsurance service result - - - - - - (20,039) - - (20,039)
Income from assets under insurance and reinsurance contracts 114,681 (114,681) - - - - - - - n/a
Expenses from liabilities under insurance and reinsurance contracts (43,542) 43,542 - - - - - - - n/a
Net losses from revaluation and disposal of investment properties (999) - - - - - - - - (999)
Net gains on disposal of stock of property 13,970 - - - - - - - - 13,970
Other income 16,681 - - - - - - - - 16,681
Total operating income 709,960 (81,805) 4,075 5,031 130,161 (74,562) (20,039) - - 672,821
Staff costs (294,361) - - - - - - 9,207 - (285,154)
Special levy on deposits and other levies/contributions (38,492) - - - - - - - - (38,492)
Provisions for pending litigations, regulatory and other provisions (net of (11,880) - - - - - - - - (11,880)
reversals)
Other operating expenses (166,365) - - - - - - 8,449 - (157,916)
Operating profit before credit losses and impairment 198,862 (81,805) 4,075 5,031 130,161 (74,562) (20,039) 17,656 - 179,379
Credit losses on financial assets (59,529) - - - 442 - - - - (59,087)
Impairment net of reversals on non-financial assets (29,549) - - - - - - - - (29,549)
Profit before tax 109,784 (81,805) 4,075 5,031 130,603 (74,562) (20,039) 17,656 - 90,743
Income tax (35,812) 77 4,423 (31,312)
Profit after tax for the period 73,972 (81,805) 4,075 5,031 130,603 (74,562) (20,039) 17,733 4,423 59,431
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.4 Transition impact on the Consolidated Income Statement
(continued)
The Consolidated Income Statement for the three months ended 31 March 2022
under statutory basis, as restated for IFRS 17 and as reported under IFRS 4 is
presented below:
Three months ended
31 March 2022
IFRS 4 IFRS 17 IFRS 17
adjustments (restated)
€000 €000
Turnover 201,312 201,312
Interest income 89,143 - 89,143
Income similar to interest income 4,606 - 4,606
Interest expense (18,391) 8 (18,383)
Expense similar to interest expense (4,011) - (4,011)
Net interest income 71,347 8 71,355
Fee and commission income 45,953 - 45,953
Fee and commission expense (2,227) - (2,227)
Net foreign exchange gains 5,502 - 5,502
Net gains/(losses) on financial instruments (2,446) (3,562) (6,008)
Net gains/(losses) on derecognition of financial assets measured at amortised (237) - (237)
cost
Net insurance finance income/(expense) and net reinsurance finance - 1,298 1,298
income/(expense)
Net insurance service result - 15,520 15,520
Net reinsurance service result - (5,600) (5,600)
Income from assets under insurance and reinsurance contracts 21,919 (21,919) -
Expenses from liabilities under insurance and reinsurance contracts (5,592) 5,592 -
Net losses from revaluation and disposal of investment properties (527) - (527)
Net gains on disposal of stock of property 5,400 - 5,400
Other income 4,252 - 4,252
Total operating income 143,344 (8,663) 134,681
Staff costs (52,851) 2,369 (50,482)
Special levy on deposits and other levies/contributions (9,857) - (9,857)
Provisions for pending litigations, regulatory and other provisions (net of (223) - (223)
reversals)
Other operating expenses (37,944) 1,761 (36,183)
Operating profit before credit losses and impairment 42,469 (4,533) 37,936
Credit losses on financial assets (10,990) 215 (10,775)
Impairment net of reversals on non-financial assets (4,822) - (4,822)
Profit before tax 26,657 (4,318) 22,339
Income tax (5,505) 209 (5,296)
Profit after tax for the period 21,152 (4,109) 17,043
Attributable to:
Owners of the Company 21,329 (4,109) 17,220
Non-controlling interests (177) - (177)
Profit for the period 21,152 (4,109) 17,043
Basic profit per share attributable to the owners of the Company (€ cent) 4.8 (0.9) 3.9
Diluted profit per share attributable to the owners of the Company (€ cent) 4.8 (0.9) 3.9
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.5 Analysis of new insurance line items included in the
consolidated income statement for the year ended 31 December 2022
Year ended
31 December 2022
IFRS 17 basis
(restated)
€000
Insurance finance income and expense and reinsurance finance income and 41,429
expense
Return on assets backing insurance liabilities (37,354)
Net insurance finance income and net reinsurance finance income/(expense) 4,075
Insurance revenue 135,495
Insurance service expenses (74,562)
Other insurance related income/(expense) (403)
Net insurance service result 60,530
Allocation of reinsurance premiums (36,170)
Amounts recoverable from reinsurers for incurred claims 16,131
Net reinsurance service result (20,039)
Net insurance result 44,566
G. Additional Risk and Capital Management disclosures
G.1 Additional Credit risk disclosures
The tables below present the analysis of loans and advances to customers in
accordance with the EBA standards.
31 March 2023 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(1,2)
Total exposures with forbearance measures Of which: NPEs Total exposures with forbearance measures Of which:
NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 41,205 - - - 24 - - -
Other financial corporations 229,266 3,239 11,704 2,858 5,289 2,409 2,435 2,317
Non-financial corporations 5,146,894 139,060 739,490 89,549 89,726 65,349 49,224 44,166
Of which: Small and Medium sized Enterprises(3) (SMEs) 3,320,044 80,225 358,007 31,214 48,173 30,296 13,799 9,613
Of which: Commercial real estate(3) 3,926,524 114,638 692,528 80,030 67,215 53,575 44,142 40,824
Non-financial corporations by sector
Construction 528,108 9,934 8,866
Wholesale and retail trade 908,772 20,453 15,007
Accommodation and food service activities 1,204,298 21,252 9,675
Real estate activities 1,093,780 17,945 15,817
Manufacturing 388,976 8,817 5,157
Other sectors 1,022,960 60,659 35,204
Households 4,782,076 245,050 258,136 128,881 91,294 66,262 42,391 34,189
Of which: Residential mortgage loans(3) 3,781,556 204,750 226,961 112,362 58,884 46,450 34,197 27,537
Of which: Credit for consumption(3) 552,791 35,106 35,782 19,004 24,323 14,566 7,563 6,451
Total on-balance sheet 10,199,441 387,349 1,009,330 221,288 186,333 134,020 94,050 80,672
(1.)Excluding loans and advances to central banks and credit institutions.
2(.)The residual fair value adjustment on initial recognition (which relates
mainly to loans acquired from Laiki Bank and is calculated as the difference
between the outstanding contractual amount and the fair value of loans
acquired and bears a negative balance) is considered as part of the gross
loans, therefore decreases the gross balance of loans and advances to
customers.
3.The analysis shown in lines 'non-financial corporations' and 'households' is
non-additive across categories as certain customers could be in both
categories.
G. Additional Risk and Capital Management disclosures
(continued)
G.1 Additional Credit risk disclosures (continued)
Gross loans and advances to customers Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
31 December 2022
Group gross customer Of which: NPEs Of which exposures with forbearance measures Accumulated impairment, accumulated negative changes in fair value due to Of which: Of which exposures with forbearance measures
credit risk and provisions
loans and advances(1,2) NPEs
Total exposures with forbearance measures Of which: NPEs Total exposures with forbearance measures Of which:
NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 39,766 - - - 25 - - -
Other financial corporations 186,281 3,202 11,665 2,825 6,008 2,332 2,453 2,250
Non-financial corporations 5,134,784 144,522 950,499 91,100 100,265 69,212 53,940 44,957
Of which: Small and Medium sized Enterprises(3) (SMEs) 3,492,414 84,493 449,891 33,140 53,939 33,882 17,643 11,683
Of which: Commercial real estate(3) 3,975,290 120,445 895,971 80,980 76,385 58,414 47,047 41,152
Non-financial corporations by sector
Construction 549,921 11,949 13,319
Wholesale and retail trade 909,438 20,783 15,907
Accommodation and food service activities 1,164,979 20,824 9,543
Real estate activities 1,108,581 20,281 19,738
Manufacturing 392,843 9,429 4,033
Other sectors 1,009,022 61,256 37,725
Households 4,770,863 260,629 290,556 143,140 72,144 54,643 37,362 32,087
Of which: Residential mortgage loans(3) 3,785,834 220,354 253,794 125,994 45,805 37,616 29,759 25,751
Of which: Credit for consumption(3) 547,490 37,622 42,719 21,235 20,355 14,628 8,543 7,486
Total on-balance sheet 10,131,694 408,353 1,252,720 237,065 178,442 126,187 93,755 79,294
(1)(.)Excluding loans and advances to central banks and credit institutions.
2(.)The residual fair value adjustment on initial recognition (which relates
mainly to loans acquired from Laiki Bank and is calculated as the difference
between the outstanding contractual amount and the fair value of loans
acquired and bears a negative balance) is considered as part of the gross
loans, therefore decreases the gross balance of loans and advances to
customers.
3(.)The analysis shown in lines 'non-financial corporations' and 'households'
is non-additive across categories as certain customers could be in both
categories.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management
The primary objective of the Group's capital management is to ensure
compliance with the relevant regulatory capital requirements and to maintain
healthy capital adequacy ratios to cover the risks of its business and support
its strategy and maximise shareholders' value.
The capital adequacy framework, as in force, was incorporated through the
Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)
which came into effect on 1 January 2014 with certain specified provisions
implemented gradually. The CRR and CRD 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. It is directly applicable in all EU member
states. CRD 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
into national law and national regulators were allowed to impose additional
capital buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (Regulation (EU)
2019/876 (CRR II) and Directive (EU) 2019/878 (CRD V)) came into force. As an
amending regulation, the existing provisions of CRR apply, unless they are
amended by CRR II. Certain provisions took immediate effect (primarily
relating to Minimum Requirement for Own Funds and Eligible Liabilities
(MREL)), but most changes became effective as of June 2021. The key changes
introduced consist of, among others, changes to qualifying criteria for Common
Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2 (T2) instruments,
introduction of requirements for MREL and a binding Leverage Ratio requirement
(as defined in the CRR) and a Net Stable Funding Ratio (NSFR).
The amendments that came into effect on 28 June 2021 are in addition to those
introduced in June 2020 through Regulation (EU) 2020/873, which among others,
brought forward certain CRR II changes in light of the COVID-19 pandemic. The
main adjustments of Regulation (EU) 2020/873 that had an impact on the Group's
capital ratio relate to the acceleration of the implementation of the new SME
discount factor (lower RWAs), extending the IFRS 9 transitional arrangements
and introducing further relief measures to CET1 allowing to fully add back to
CET1 any increase in ECL recognised in 2020 and 2021 for non-credit impaired
financial assets and phasing in this starting from 2022 (phasing in at 25% in
2022 and 50% in 2023) and advancing the application of prudential treatment of
software assets as amended by CRR II (which came into force in December 2020).
In addition, Regulation (EU) 2020/873 introduced a temporary treatment of
unrealized gains and losses on exposures to central governments, to regional
governments or to local authorities measured at fair value through other
comprehensive income which the Group elected to apply and implemented from the
third quarter of 2020. This temporary treatment was in effect until 31
December 2022.
In October 2021, the European Commission adopted legislative proposals for
further amendments to CRR, CRD and the BRRD (the '2021 Banking Package').
Amongst other things, the 2021 Banking Package would implement certain
elements of Basel III that have not yet been transposed into EU law. The 2021
Banking Package includes:
· a proposal for a Regulation (sometimes known as 'CRR III') to make
amendments to CRR with regard to (amongst other things) requirements on credit
risk, credit valuation adjustment risk, operational risk, market risk and the
output floor;
· a proposal for a Directive (sometimes known as 'CRD VI') to make
amendments to CRD with regard to (amongst other things) requirements on
supervisory powers, sanctions, third-country branches and ESG risks; and
· a proposal for a Regulation to make amendments to CRR and the BRRD with
regard to (amongst other things) requirements on the prudential treatment of
G-SII groups with a multiple point of entry resolution strategy and a
methodology for the indirect subscription of instruments eligible for meeting
the MREL requirements.
The 2021 Banking Package is subject to amendment in the course of the EU's
legislative process; and its scope and terms may change prior to its
implementation. In addition, in the case of the proposed amendments to CRD and
the BRRD, their terms and effect will depend, in part, on how they are
transposed in each member state.
The European Council's proposal on CRR and CRD was published on 8 November
2022. During February 2023, the European Parliament's ECON Committee voted to
adopt Parliament's proposed amendments to the Commission's proposal, and the
2021 Banking Package is currently in the final stage of the EU legislative
process, the trilogue process, that will eventually result in the final
versions of the directives and regulations. It is expected that the 2021
Banking Package will come in force on 1 January 2025; and certain measures are
expected to be subject to transitional arrangements or to be phased in over
time.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management (continued)
The CET1 ratio of the Group as at 31 March 2023 stands at 15.2% and the Total
Capital ratio at 20.3% on a transitional basis. The ratios as at 31 March 2023
include unaudited/un-reviewed profits for the three months ended 31 March 2023
and for compliance with the CRR an accrual for an estimated final dividend at
a payout ratio of 30% of the Group Adjusted Profit after tax for the period,
which is in line with the Group's approved dividend policy. As per the latest
SREP decision, any dividend distribution is subject to regulatory approval.
Such dividend accrual does not constitute a binding commitment for a dividend
payment nor does it constitute a warranty or representation that such a
payment will be made. Group Adjusted Profit after tax is defined as the
Group's profit after tax before non-recurring items (attributable to the
owners of the Company) taking into account distributions under other equity
instruments such as the annual AT1 coupon.
Minimum CET1 Regulatory Capital Requirements 2023 2022
Pillar I - CET1 Requirement 4.50% 4.50%
Pillar II - CET1 Requirement 1.73% 1.83%
Capital Conservation Buffer (CCB)* 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer 1.50% 1.25%
Countercyclical Buffer (CcyB) 0.02% 0.02%
Minimum CET1 Regulatory Requirements 10.25% 10.10%
* Fully phased in as of 1 January 2019
Minimum Total Capital Regulatory Requirements 2023 2022
Pillar I - Total Capital Requirement 8.00% 8.00%
Pillar II - Total Capital Requirement 3.08% 3.26%
Capital Conservation Buffer (CCB)* 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer 1.50% 1.25%
Countercyclical Buffer (CcyB) 0.02% 0.02%
Minimum Total Capital Regulatory Requirements 15.10% 15.03%
* Fully phased in as of 1 January 2019
The minimum Pillar I total capital requirement ratio of 8.00% may be met, in
addition to the 4.50% CET1 requirement, with up to 1.50% by AT1 capital and
with up to 2.00% by T2 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).
Applicable Regulation allows a part of the said Pillar II Requirements (P2R)
to be met also with AT1 and T2 capital and does not require solely the use of
CET1.
In the context of the annual SREP conducted by the ECB in 2022 and based on
the final SREP decision received in December 2022 effective from 1 January
2023, the P2R has been revised to 3.08%, compared to the previous level of
3.26%. The revised P2R includes a revised P2R add-on of 0.33%, compared to the
previous level of 0.26%, relating to ECB's prudential provisioning
expectations. The P2R add-on is dynamic and can vary on the basis of in-scope
NPEs and level of provisioning. When disregarding the P2R add-on relating to
ECB's prudential provisioning expectations, the P2R is reduced from 3.00% to
2.75%. As a result, the Group's minimum phased in CET1 capital ratio and Total
Capital ratio requirements were reduced when disregarding the phasing in of
the O-SII Buffer. The Group's minimum phased-in CET1 capital ratio requirement
was set at 10.25%, comprising a 4.50% Pillar I requirement, a P2R of 1.73%,
the CCB of 2.50%, the O-SII Buffer of 1.50% (fully phased in on 1 January
2023) and the CcyB of 0.02%. The Group's minimum phased-in Total Capital
requirement was set at 15.10%, comprising an 8.00% Pillar I requirement, of
which up to 1.50% can be in the form of AT1 capital and up to 2.00% in the
form of T2 capital, a P2R of 3.08%, the CCB of 2.50%, the O-SII Buffer of
1.50% and the CcyB of 0.02%. The ECB has also maintained the P2G unchanged.
The Group is subject to a 3% Pillar I Leverage Ratio requirement.
The above minimum ratios apply for both BOC PCL and the Group.
The capital position of the Group and BOC PCL as at 31 March 2023 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.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management (continued)
The CBC, in accordance with the Macroprudential Oversight of Institutions Law
of 2015, sets, on a quarterly basis, the CcyB rates in accordance with the
methodology described in this law. The CcyB for the Group as at 31 March 2023
has been calculated at approximately 0.02%.
On 30 November 2022, the CBC, following the revised methodology described in
its macroprudential policy, decided to increase the countercyclical buffer
rate from 0.00% to 0.50% of the total risk exposure amount in Cyprus of each
licensed credit institution incorporated in Cyprus. The new rate of 0.50% must
be observed as from 30 November 2023. Based on the above, the CcyB for the
Group is expected to increase.
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 since November 2021 the O-SII buffer has been set to 1.50%. This buffer
was phased in gradually, having started from 1 January 2019 at 0.50%. The
O-SII buffer as at 31 December 2022 stood at 1.25% and was fully phased-in on
1 January 2023.
The EBA final guidelines on SREP and supervisory stress testing and the Single
Supervisory Mechanism's (SSM) 2018 SREP methodology provide that the own funds
held for the purposes of Pillar II Guidance (P2G) cannot be used to meet any
other capital requirements (Pillar I requirement, P2R or the combined buffer
requirement), and therefore cannot be used twice.
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 31 March 31 December
2023(1) 2022 2023(1) 2022 (restated)(2)
(restated)(2)
€000 €000 €000 €000
Transitional Common Equity Tier 1 (CET1)(3) 1,548,055 1,540,292 1,506,130 1,509,056
Transitional Additional Tier 1 capital (AT1) 220,000 220,000 220,000 220,000
Tier 2 capital (T2) 300,000 300,000 300,000 300,000
Transitional total regulatory capital 2,068,055 2,060,292 2,026,130 2,029,056
Risk weighted assets - credit risk(4) 9,153,276 9,103,330 9,139,782 9,150,831
Risk weighted assets - market risk - - - -
Risk weighted assets - operational risk 1,010,885 1,010,885 997,720 997,720
Total risk weighted assets 10,164,161 10,114,215 10,137,502 10,148,551
Transitional % % % %
Common Equity Tier 1 ratio 15.2 15.2 14.9 14.9
Total capital ratio 20.3 20.4 20.0 20.0
Leverage ratio 7.0 7.0 6.9 6.9
(1.) Includes unaudited/un-reviewed profits for the three months ended 31
March 2023 and for compliance with the CRR an accrual for dividend at a payout
ratio of 30% of the Group Adjusted Profit after tax for the period, which is
in line with the Group's approved dividend policy. As per the latest SREP
decision, any dividend distribution is subject to regulatory approval. Such
dividend accrual does not constitute a binding commitment for a dividend
payment nor does it constitute a warranty or representation that such a
payment will be made.
(2.) The 2022 capital ratios as previously reported in the 2022 Annual
Financial Report and 2022 Pillar III Disclosures have been restated for the
recommendation by the Board of Directors to the shareholders for approval at
the Annual General Meeting that will be held on 26 May 2023, of a final
dividend in respect of earnings for the year ended 31 December 2022 ('FY2022')
which amounts to an aggregate distribution of €22,310 thousand, following
the approval by the ECB in April 2023.
(3.) CET1 includes regulatory deductions, comprising, amongst others,
intangible assets amounting to €28,485 thousand for the Group and €23,649
thousand for BOC PCL as at 31 March 2023 (31 December 2022: €30,421 thousand
for the Group and €25,445 thousand for BOC PCL). As at 31 March 2023 an
amount of €12,439 thousand, relating to intangible assets, is considered
prudently valued for CRR purposes and is not deducted from CET1 (31 December
2022: €12,934 thousand).
(4.) Includes Credit Valuation Adjustments (CVA).
G. Additional Risk and Capital Management (continued)
G.2 Capital management (continued)
The capital ratios of the Group and BOC PCL as at the reporting date on a
fully loaded basis are presented below:
Fully loaded Group BOC PCL
31 March 31 December 31 March 31 December
2023(1,2) 2022(3,4) 2023(1,2) 2022(3,4)
(restated) (restated)
% % % %
Common Equity Tier 1 ratio 15.2 14.5 14.8 14.1
Total capital ratio 20.3 19.6 20.0 19.3
Leverage ratio 7.0 6.7 6.8 6.5
(1) Includes unaudited/un-reviewed profits for the three months ended 31 March
2023 and for compliance with the CRR an accrual for dividend at a payout ratio
of 30% of the Group Adjusted Profit after tax for the period, which is in line
with the Group's approved dividend policy. As per the latest SREP decision,
any dividend distribution is subject to regulatory approval. Group Adjusted
Profit after tax is defined as the Group's profit after tax before
non-recurring items (attributable to the owners of the Group) taking into
account distributions under other equity instruments such as the annual AT1
coupon. Such dividend accrual does not constitute a binding commitment for a
dividend payment nor does it constitute a warranty or representation that such
a payment will be made.
(2) IFRS 9 fully loaded as applicable.
(3) IFRS 9 and application of the temporary treatment of certain FVOCI
instruments in accordance with Article 468 of CRR fully loaded as applicable.
(4) The 2022 capital ratios as previously reported in the 2022 Annual
Financial Report and 2022 Pillar III Disclosures have been restated for the
recommendation by the Board of Directors to the shareholders for approval at
the Annual General Meeting that will be held on 26 May 2023, of a final
dividend in respect of earnings for the year ended 31 December 2022 ('FY2022')
which amounts to an aggregate distribution of €22,310 thousand, following
the approval by the ECB in April 2023.
During the three months ended 31 March 2023, CET1 ratio was negatively
affected mainly by the phasing in of IFRS 9 and other transitional adjustments
on 1 January 2023, provisions and impairments, other movements and the
increase in risk-weighted assets and was positively affected by pre-provision
income as well as the €50 million dividend distributed to BOC PCL in
February 2023 by the life insurance subsidiary. As a result, the CET1 ratio
(on a transitional basis) has remained unchanged during the three months ended
31 March 2023, whereas on a fully loaded basis the ratio has increased by 74
bps.
In addition, a prudential charge in relation to the onsite inspection on the
value of the Group's foreclosed assets is being deducted from own funds since
June 2021, the impact of which is 24 bps on the Group's CET1 ratio as at 31
March 2023, decreased from 26bps on 31 December 2022 mainly due to impairment
recognised during the period.
Transitional arrangements
The Group has elected in prior years to apply the 'static-dynamic' approach in
relation to the transitional arrangements for the initial application of IFRS
9 for regulatory capital purposes, where the impact on the impairment amount
from the initial application of IFRS 9 on the capital ratios is phased in
gradually. The 'static-dynamic' approach allows for recalculation of the
transitional adjustment periodically on Stage 1 and Stage 2 loans, to reflect
the change of the ECL provisions within the transition period. The Stage 3 ECL
remained static over the transition period as per the impact upon initial
recognition.
The amount added each year for the 'static component' was decreasing based on
a weighting factor until the impact of IFRS 9 was fully absorbed back to CET1
at the end of the five years, with the impact being fully phased-in (100%) on
1 January 2023. The cumulative impact on the capital position as at 31
December 2022 was 75%, with the impact being fully phased-in (100%) on 1
January 2023.
Following the June 2020 amendments to the CRR in relation to the dynamic
component a 100% add back of IFRS 9 provisions was allowed for the years 2020
and 2021, reducing to 75% in 2022, to 50% in 2023 and to 25% in 2024. This
will be fully phased in (100%) by 1 January 2025. The calculation at each
reporting period is against Stage 1 and Stage 2 provisions as at 1 January
2020, instead of 1 January 2018.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management (continued)
In relation to the temporary treatment of unrealized gains and losses for
certain exposures measured at fair value through other comprehensive income,
Regulation EU 2020/873 allows institutions to remove from their CET1 the
amount of unrealized gains and losses accumulated since 31 December 2019,
excluding those of financial assets that are credit-impaired. The relevant
amount was removed at a scaling factor of 100% from January to December 2020,
reduced to 70% from January to December 2021 and to 40% from January to
December 2022. The Group applied the temporary treatment from the third
quarter of 2020.
Capital requirements of subsidiaries
The insurance subsidiaries of the Group, the General Insurance of Cyprus Ltd
and Eurolife Ltd, comply with the requirements of the Superintendent of
Insurance including the minimum solvency ratio. The regulated investment firm
(CIF) of the Group, The Cyprus Investment and Securities Corporation Ltd
(CISCO), complies with the minimum capital adequacy ratio requirements. From
2021 the new prudential regime for Investment Firms ('IFs') as per the
Investment Firm Regulation (EU) 2019/2033 ('IFR') on the prudential
requirements of IFs and the Investment Firm Directive (EU) 2019/2034 ('IFD')
on the prudential supervision of IFs came into effect. Under the new regime
CISCO has been classified as Non-Systemic 'Class 2' company and is subject to
the new IFR/IFD regime in full. In February 2023, the activities of the
regulated UCITS management company of the Group, BOC Asset Management Ltd,
were absorbed by CISCO and BOC Asset Management Ltd was dissolved without
liquidation. The payment services subsidiary of the Group, JCC Payment
Services Ltd, complies with the regulatory capital requirements.
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January
2016 EU member states shall apply the BRRD's provisions requiring EU credit
institutions and certain investment firms to maintain a minimum requirement
for own funds and eligible liabilities (MREL), subject to the provisions of
the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part
of the reform package for strengthening the resilience and resolvability of
European banks, the BRRD ΙΙ came into effect and was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in May 2021. In addition, certain provisions on MREL have been introduced
in CRR ΙΙ which also came into force on 27 June 2019 as part of the reform
package and took immediate effect.
In February 2023, BOC PCL received notification from the SRB and CBC of the
final decision for the binding MREL for BOC PCL, determined as the preferred
resolution point of entry. As per the decision, the final MREL requirement is
set at 24.35% of risk weighted assets and 5.91% of Leverage Ratio Exposure
(LRE) (as defined in the CRR) and must be met by 31 December 2025.
Furthermore, BOC PCL must comply since 1 January 2022 with an interim
requirement of 14.94% of risk weighted assets and 5.91% of LRE. The own funds
used by BOC PCL to meet the Combined Buffer Requirement (CBR) are not eligible
to meet its MREL requirements expressed in terms of risk weighted assets. BOC
PCL must comply with the MREL requirement at the consolidated level,
comprising BOC PCL and its subsidiaries. The decision is subject to annual
review by the competent authorities, updated also as changes in capital
requirements become effective.
As at 31 March 2023, the MREL ratio calculated according to the SRB's
eligibility criteria currently in effect, and based on internal estimate,
stood at 20.8% of RWAs and at 10.0% of LRE. The ratios as at 31 March 2023,
include unaudited/un-reviewed profits for the three months ended 31 March 2023
and for compliance with the CRR an accrual for an estimated final dividend at
a payout ratio of 30% of the Group Adjusted Profit after tax for the period
(as defined above), which is in line with the Group's approved dividend
policy. As per the latest SREP decision, any dividend distribution is subject
to regulatory approval. Such dividend accrual does not constitute a binding
commitment for a dividend payment nor does it constitute a warranty or
representation that such a payment will be made. The MREL ratio expressed as a
percentage of RWAs does not include capital used to meet the CBR amount, which
stood at 4.02% as at 31 March 2023 and will further increase on 30 November
2023 following increase in CcyB from 0.00% to 0.50% of the total risk exposure
amount in Cyprus as announced by the CBC.
BOC PCL continues to evaluate opportunities to advance the build-up of its
MREL liabilities.
G. Additional Risk and Capital Management disclosures
(continued)
G.3 Internal Capital Adequacy Assessment Process (ICAAP),
Internal Liquidity Assessment Process (ILAAP), Pillar II Supervisory Review
and Evaluation Process (SREP) and 2023 SSM Stress test
The Group prepares annual ICAAP and ILAAP packages. Both reports for 2022 have
been completed and submitted to the ECB at the end of March 2023 following
approval by the Board of Directors. The annual ICAAP for 2022 indicated that
the Group has sufficient capital and available mitigants to support its risk
profile and its business and to enable it to meet its regulatory requirements,
both under baseline and stress scenarios. The annual ILAAP for 2022 indicated
that BOC PCL's liquidity position is at a very comfortable level. BOC PCL
maintains liquidity resources which are adequate to ensure its ability to meet
obligations as they fall due under ordinary and stressed conditions.
The Group also undertakes quarterly reviews of its ICAAP results as well as on
an ad-hoc basis if needed, which are submitted to the ALCO and the Risk
Committee of the Board of Directors, considering the latest actual and
forecasted information. During the quarterly review, the Group's risk profile
is reviewed and any material changes/developments since the annual ICAAP
exercise are assessed in terms of capital adequacy.
The Group also undertakes quarterly reviews of the ILAAP through quarterly
liquidity stress tests which are submitted to the ALCO and the Risk Committee
of the Board of Directors. In these reviews actual and forecasted information
is considered. Any material changes since the year-end are assessed in terms
of liquidity and funding. The quarterly review assessment identifies whether
the Group has an adequate liquidity buffer to cover the stress outflows.
The ECB, as part of its supervisory role, has been conducting the SREP and
other inspections (onsite/ off-site/ targeted reviews/ deep-dives) 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. As a result of these supervisory processes,
additional capital and other requirements could be imposed on the Group,
including a revision of the level of Pillar II add-ons, as the Pillar II
add-on capital requirements are a point-in-time assessment and therefore
subject to change over time.
The Group is currently participating in the 2023 SSM Stress Test as one of the
'Other Systematically Important Institutions (O-SII)'. The stress test was
officially launched on 31 January 2023 and is expected to be completed by the
end of July 2023. The exercise will assess EU banks' resilience to an adverse
economic shock and inform the 2023 SREP. The stress test results will be used
to update each bank's Pillar 2 Guidance in the context of the SREP.
Qualitative findings on weaknesses in the Group's stress testing practices
could also affect Pillar 2 Requirements and inform other supervisory
activities.
G.4 Liquidity regulation
The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR)
under CRD IV/CRR (as supplemented by Delegated Regulations (EU) 2015/61), with
the limit set at 100%. The Group has to also comply with the Net Stable
Funding Ratio (NSFR) calculated as per the Capital Requirements Regulation II
(CRR II), with the limit set at 100%.
The LCR is designed to promote the 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 2023, the Group was in compliance with all regulatory liquidity
requirements. As at 31 March 2023, the Group's LCR stood at 303% (compared to
291% as at 31 December 2022). As at 31 March 2023 the Group's NSFR was 160%
(compared to 168% as at 31 December 2022).
G. Additional Risk and Capital Management disclosures
(continued)
G.5 Liquidity reserves
The below table sets out the Group's liquidity reserves:
Composition of the liquidity reserves 31 March 2023 31 December 2022
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 Level 1 Level
2A & 2B 2A & 2B
€000 €000 €000 €000 €000 €000
Cash and balances with central banks 9,079,449 9,079,449 - 9,379,888 9,379,888 -
Placements with banks 248,347 - - 55,825 - -
Liquid investments 2,192,706 1,662,300 263,298 1,827,698 1,344,032 214,800
Available ECB Buffer 44,809 - - 147,844 - -
Total 11,565,311 10,741,749 263,298 11,411,255 10,723,920 214,800
Internal Liquidity Reserves present the total liquid assets as defined in the
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).
Balances in Nostro accounts and placements with banks are not included in
Liquidity reserves as per LCR, 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 additional unencumbered
liquid bonds and are shown at market values net of haircuts based on ECB
methodology and haircuts.
Current available ECB buffer is not part of the Liquidity reserves as per LCR.
H. Alternative Performance Measures
Reconciliations between the statutory basis in Section E and the underlying
basis in Section A are included in Section 'F.1 Reconciliation of interim
income statement between the statutory and underlying basis' above and in the
tables that follow, to facilitate the comparability of the underlying basis to
the statutory information.
Reconciliations between the calculations of non-IFRS performance measures and
the most directly comparable IFRS measures which allow for the comparability
of the underlying basis to statutory information are disclosed below.
On 1 January 2023, the Group adopted IFRS 17 'Insurance Contracts'. As
required by the standard, the Group applied the requirements retrospectively
with comparative information previously published under IFRS 4 'Insurance
Contracts' restated from the 1 January 2022 transition date and therefore
reconciliations of alternative performance measures have also been restated
where applicable.
1. Reconciliation of Gross loans and advances to customers
31 March 31 December 2022
2023
€000 €000
Gross loans and advances to customers as per the underlying basis (as defined 10,277,824 10,217,453
below)
Reconciling items:
Residual fair value adjustment on initial recognition (Section F.5) (82,661) (89,029)
Loans and advances to customers measured at fair value through profit or loss (212,537) (214,359)
(Section F.3)
Aggregate fair value adjustment on loans and advances to customers measured at 4,278 3,270
fair value through profit or loss
Gross loans and advances to customers at amortised cost as per Section F.3 9,986,904 9,917,335
2. Reconciliation of Allowance for expected credit losses on
loans and advances to customers (ECL)
31 March 31 December 2022
2023
€000 €000
Allowance for expected credit losses on loans and advances to customers (ECL) 282,411 281,630
as per the underlying basis (as defined below)
Reconciling items:
Residual fair value adjustment on initial recognition (Section F.5) (82,661) (89,029)
Aggregate fair value adjustment on loans and advances to customers measured at 4,278 3,270
fair value through profit or loss
Provisions for financial guarantees and commitments (17,695) (17,429)
Allowance for ECL of loans and advances to customers as per Section F.3 186,333 178,442
H. Alternative Performance Measures (continued)
3. Reconciliation of NPEs
31 March 31 December 2022
2023
€000 €000
NPEs as per the underlying basis (as defined below) 389,186 410,563
Reconciling items:
POCI (NPEs) (Note 1 below) (35,347) (37,742)
Residual fair value adjustment on initial recognition on loans and advances to (1,502) (1,803)
customers (NPEs) classified as Stage 3 (Section F.5)
Stage 3 gross loans and advances to customers at amortised cost as per Section 352,337 371,018
F.5
NPE ratio
NPEs (as per table above) (€000) 389,186 410,563
Gross loans and advances to customers (as per table above) (€000) 10,277,824 10,217,453
Ratio of NPE/Gross loans (%) 3.8% 4.0%
Note 1: Gross loans and advances to customers at amortised cost before
residual fair value adjustment on initial recognition include an amount of
€35,347 thousand POCI - NPEs (out of a total of €118,450 thousand POCI
loans) (31 December 2022: €37,742 thousand POCI - NPEs (out of a total of
€115,544 thousand POCI loans)) as disclosed in Section F.5.
4. Reconciliation of Loan credit losses
Three months ended
31 March
2023 2022
€000 €000
Loan credit losses as per the underlying basis 11,207 11,930
Reconciling items:
Loan credit losses relating to NPE sales, disclosed under non-recurring items - 1,387
within 'Provisions/net loss relating to NPE sales' under the underlying basis
11,207 13,317
Loan credit losses (as defined) are reconciled to the statutory basis as
follows:
Credit losses to cover credit risk on loans and advances to customers 12,470 10,708
Net (gains)/losses on derecognition of financial assets measured at amortised (255) 237
cost - loans and advances to customers
Net (gains)/losses on loans and advances to customers at FVPL (1,008) 2,372
11,207 13,317
Ratios Information
1. Net Interest Margin (NIM)
Three months ended
31 March
2023 2022
(restated)
a. Net interest income used in the calculation of NIM €000 €000
Net interest income as per the underlying basis/Unaudited Interim Consolidated 162,251 71,355
Income Statement
Net interest income used in the calculation of NIM (annualised) 658,018 289,384
H. Alternative Performance Measures (continued)
Ratios Information (continued)
1. Net Interest Margin (NIM) (continued)
1.2. Interest earning assets 31 March 2023 31 December
2022
€000 €000
Cash and balances with central banks 9,247,705 9,567,258
Loans and advances to banks 415,832 204,811
Loans and advances to customers 10,013,108 9,953,252
Prepayments, accrued income and other assets - Deferred consideration 315,755 311,523
receivable ('DPP')
Investments
Debt securities 2,749,980 2,508,862
Less: Investments which are not interest bearing (3,190) (8,968)
Total interest earning assets 22,739,190 22,536,738
1.3. Quarterly average interest earning assets (€000)
- as at 31 March 2023 22,637,964
- as at 31 March 2022 21,942,860
1.2.
1.4. Net Interest Margin (NIM) Three months ended
31 March
2023 2022
(restated)
Net interest income (annualised) (as per table 1.1. above) (€000) 658,018 289,384
Quarterly average interest earning assets (as per table 1.3. above) (€000) 22,637,964 21,942,860
NIM (%) 2.91% 1.32%
2. Cost to income ratio
The various components used in the determination of the cost to income ratio
are provided below:
2.1 Total Income as per the underlying basis Three months ended
31 March
2023 2022 (restated)
€000 €000
Net interest income (as per table 1.1 above) 162,251 71,355
Net fee and commission income as per the underlying basis/statutory basis 44,211 43,726
Net foreign exchange gains and Net gains/(losses) on financial instruments as 13,032 1,866
per the underlying basis
Net insurance result* 9,554 11,218
Net losses from revaluation and disposal of investment properties and Net 1,570 4,873
gains on disposal of stock of properties (as per the statutory basis)
Other income (as per the statutory basis) 2,917 4,252
Total Income as per the underlying basis 233,535 137,290
*Net insurance result comprises the aggregate of captions 'Net insurance
finance income/(expense) and net reinsurance finance income/(expenses)', 'Net
insurance service result' and 'Net reinsurance service result' per the
statutory basis.
H. Alternative Performance Measures (continued)
Ratios Information (continued)
2. Cost to income ratio (continued)
2.2 Total Expenses as per the underlying basis Three months ended
31 March
2023 2022 (restated)
€000 €000
Staff costs as per the underlying basis 45,637 47,352
Special levy on deposits and other levies/contributions as per the underlying 11,088 9,857
basis/statutory basis
Other operating expenses as per the underlying basis 33,933 34,365
Total Expenses as per the underlying basis 90,658 91,574
Cost to income ratio
Total expenses (as per table 2.2 above) (€000) 90,658 91,574
Total income (as per table 2.1 above) (€000) 233,535 137,290
Total expenses/Total income (%) 39% 67%
3. 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 2023 31 December
2022
(restated)
€000 €000
Total assets used in the computation of the operating profit return on average 25,386,804 25,288,541
assets per the statutory basis (Section E Unaudited Interim Consolidated
Balance Sheet)
Quarterly average total assets (€000)
- as at 31 March 2023 25,337,673
- as at 31 March 2022 (restated) 24,874,104
2023 2022
(restated)
Annualised total income for the three months ended 31 March (as per table 2.1 947,114 556,787
above) (€000)
Annualised total expenses for the three months ended 31 March (as per table (367,669) (371,383)
2.2 above) (€000)
Annualised operating profit for the three months ended 31 March (€000) 579,445 185,404
Quarterly average total assets as at 31 March (as per table above) (€000) 25,337,673 24,874,104
Operating profit return on average assets (annualised) (%) 2.3% 0.7%
H. Alternative Performance Measures (continued)
Ratios Information (continued)
4. Basic earnings after tax and before non-recurring items per
share attributable to the owners of the Company
The various components used in the determination of the 'Basic earnings after
tax and before non-recurring items per share attributable to the owners of the
Company (€ cent)' are provided below:
2023 2022
(restated)
Profit after tax and before non-recurring items (attributable to the owners of 95,954 23,555
the Company) per the underlying basis for the three months ended 31 March
(Section F.1) (€000)
Weighted average number of shares in issue during the period, excluding 446,058 446,058
treasury shares (€000)
Basic earnings after tax and before non-recurring items per share attributable 21.51 5.28
to the owners of the Company (€ cent)
5. Return on tangible equity (ROTE) after tax and before
non-recurring items
The various components used in the determination of 'Return on tangible equity
(ROTE) after tax and before non-recurring items' are provided below:
2023 2022
(restated)
Annualised profit after tax and before non-recurring items (attributable to 389,147 95,529
the owners of the Company) per the underlying basis for the three months ended
31 March (Section F.1) (€000)
Quarterly average tangible total equity as at 31 March (as per table 5.2 1,801,746 1,751,317
below) (€000)
ROTE after tax and before non-recurring items (annualised) (%) 21.6% 5.5%
5.1 Tangible total equity 31 March 31 December 2022
2023 (restated)
Equity attributable to the owners of the Company (as per the statutory basis) 1,899,202 1,806,266
Less: Intangible assets (as per the statutory basis) (49,430) (52,546)
Total tangible equity 1,849,772 1,753,720
5.2 Quarterly average tangible total equity (€000)
- as at 31 March 2023 1,801,746
- as at 31 March 2022 (restated) 1,751,317
6. Return on tangible equity (ROTE)
2023 2022
(restated)
Annualised profit after tax (attributable to the owners of the Company) for 384,175 69,837
the three months ended 31 March (Section F.1) (€000)
Quarterly average tangible total equity as at 31 March (as per table 5.2 1,801,746 1,751,317
above) (€000)
ROTE 21.3% 4.0%
E. Financial Results - Statutory Basis
Unaudited Interim Consolidated Income Statement
The following financial information for the first three months of 2023 and
2022 within Section E corresponds to the condensed consolidated financial
statements prepared in accordance with the International Financial Reporting
Standards as adopted by the European Union. As a result of the
implementation from 1 January 2023 of IFRS 17, 2022 comparative information
has been restated to reflect the impact of IFRS 17 adoption.
Three months ended
31 March
2023 2022
(restated)(1)
€000 €000
Turnover 300,164 201,312
Interest income 181,828 89,143
Income similar to interest income 9,373 4,606
Interest expense (24,557) (18,383)
Expense similar to interest expense (4,393) (4,011)
Net interest income 162,251 71,355
Fee and commission income 46,962 45,953
Fee and commission expense (2,751) (2,227)
Net foreign exchange gains 8,112 5,502
Net gains/(losses) on financial instruments 5,928 (6,008)
Net gains/(losses) on derecognition of financial assets measured at amortised 255 (237)
cost
Net insurance finance income/(expense) and net reinsurance finance 1,298 1,298
income/(expense)
Net insurance service result 12,320 15,520
Net reinsurance service result (4,064) (5,600)
Net losses from revaluation and disposal of investment properties (443) (527)
Net gains on disposal of stock of property 2,013 5,400
Other income 2,917 4,252
Total operating income 234,798 134,681
Staff costs (45,637) (50,482)
Special levy on deposits and other levies/contributions (11,088) (9,857)
Provisions for pending litigations, regulatory and other provisions (net of (6,315) (223)
reversals)
Other operating expenses (35,159) (36,183)
Operating profit before credit losses and impairment 136,599 37,936
Credit losses on financial assets (15,499) (10,775)
Impairment net of reversals on non-financial assets (8,033) (4,822)
Profit before tax 113,067 22,339
Income tax (17,786) (5,296)
Profit after tax for the period 95,281 17,043
Attributable to:
Owners of the Company 94,728 17,220
Non-controlling interests 553 (177)
Profit for the period 95,281 17,043
Basic profit per share attributable to the owners of the Company (€ cent) 21.2 3.9
Diluted profit per share attributable to the owners of the Company (€ cent) 21.2 3.9
(2. ) 2022 comparative information has been restated to reflect the
impact of IFRS 17. Refer to section F9.
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Comprehensive Income
Three months ended
31 March
2023 2022 (restated)(1)
€000 €000
Profit for the period 95,281 17,043
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in (1,930) (6,410)
subsequent periods
Fair value reserve (debt instruments) (1,912) (6,420)
Net losses on investments in debt instruments measured at fair value through (1,762) (5,932)
OCI (FVOCI)
Transfer to the consolidated income statement on disposal (150) (488)
Foreign currency translation reserve (18) 10
(Loss)/profit on translation of net investment in foreign branches and (33) 4,089
subsidiaries
Profit/(loss) on hedging of net investments in foreign branches and 15 (4,079)
subsidiaries
OCI not to be reclassified in the consolidated income statement in subsequent (24) 558
periods
Fair value reserve (equity instruments) - 43
Net gains on investments in equity instruments designated at FVOCI - 43
Property revaluation reserve 26 -
Deferred tax 26 -
Actuarial (losses)/gains on the defined benefit plans (50) 515
Remeasurement (losses)/gains on defined benefit plans (50) 515
Other comprehensive loss for the period net of taxation (1,954) (5,852)
Total comprehensive income for the period 93,327 11,191
Attributable to:
Owners of the Company 92,768 11,368
Non-controlling interests 559 (177)
Total comprehensive income for the period 93,327 11,191
(2. ) 2022 comparative information has been restated to reflect
the impact of IFRS 17. Refer to section F9.
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Balance Sheet
31 March 2023 31 December 2022 1 January 2022 (restated)(1)
(restated)(1)
Assets €000 €000
Cash and balances with central banks 9,247,705 9,567,258 9,230,883
Loans and advances to banks 415,832 204,811 291,632
Derivative financial assets 46,344 48,153 6,653
Investments at FVPL 136,590 190,209 199,194
Investments at FVOCI 428,223 467,375 748,695
Investments at amortised cost 2,332,167 2,046,119 1,191,274
Loans and advances to customers 10,013,108 9,953,252 9,836,405
Life insurance business assets attributable to policyholders 551,295 542,321 551,797
Prepayments, accrued income and other assets 608,908 609,054 583,777
Stock of property 977,525 1,041,032 1,111,604
Investment properties 83,060 85,099 117,745
Deferred tax assets 227,953 227,934 265,942
Property and equipment 268,664 253,378 252,130
Intangible assets 49,430 52,546 54,144
Non-current assets and disposal groups held for sale - - 358,951
Total assets 25,386,804 25,288,541 24,800,826
Liabilities
Deposits by banks 481,037 507,658 457,039
Funding from central banks 1,988,452 1,976,674 2,969,600
Derivative financial liabilities 18,063 16,169 32,452
Customer deposits 18,973,589 18,998,319 17,530,883
Insurance liabilities 617,662 599,992 623,791
Accruals, deferred income, other liabilities and other provisions 393,540 379,182 356,697
Provisions for pending litigation, claims, regulatory and other matters 130,408 127,607 104,108
Debt securities in issue 300,258 297,636 302,555
Subordinated liabilities 307,116 302,104 340,220
Deferred tax liabilities 34,618 34,634 39,817
Total liabilities 23,244,743 23,239,975 22,757,162
Equity
Share capital 44,620 44,620 44,620
Share premium 594,358 594,358 594,358
Revaluation and other reserves 75,197 76,939 99,541
Retained earnings 1,185,027 1,090,349 1,062,711
Equity attributable to the owners of the Company 1,899,202 1,806,266 1,801,230
Other equity instruments 220,000 220,000 220,000
Non‑controlling interests 22,859 22,300 22,434
Total equity 2,142,061 2,048,566 2,043,664
Total liabilities and equity 25,386,804 25,288,541 24,800,826
(2. ) 2022 comparative information has been
restated to reflect the impact of IFRS 17. Refer to section F9.
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Changes in Equity
Attributable to the owners of the Company Other equity instruments Non- controlling interests Total
equity
Share Share Treasury shares Other Retained earnings Property revaluation reserve Financial instruments fair value reserve Life insurance Foreign currency translation reserve Total
capital premium capital reserves in-force
business
reserve
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
31 December 2022 44,620 594,358 (21,463) 322 1,041,152 74,170 7,142 101,301 16,768 1,858,370 220,000 22,300 2,100,670
Impact of retrospective application of IFRS 17 adoption - - - - 49,197 - - (101,301) - (52,104) - - (52,104)
31 December 2022 (restated) / 1 January 2023 44,620 594,358 (21,463) 322 1,090,349 74,170 7,142 - 16,768 1,806,266 220,000 22,300 2,048,566
Profit for the period - - - - 94,728 - - - - 94,728 - 553 95,281
Other comprehensive (loss)/income after tax for the period - - - - (50) 20 (1,912) - (18) (1,960) - 6 (1,954)
Total comprehensive income/(loss) after tax for the period - - - - 94,678 20 (1,912) - (18) 92,768 - 559 93,327
Share-based benefits-cost - - - 168 - - - - - 168 - - 168
31 March 2023 44,620 594,358 (21,463) 490 1,185,027 74,190 5,230 - 16,750 1,899,202 220,000 22,859 2,142,061
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Changes in Equity (continued)
Attributable to the owners 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 Foreign currency translation reserve Total
capital premium in-force
business
reserve
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2022 44,620 594,358 (21,463) 986,623 80,060 23,285 113,651 17,659 1,838,793 220,000 22,434 2,081,227
Impact of retrospective application of IFRS 17 adoption - - - 76,088 - - (113,651) - (37,563) - - (37,563)
Restated balance at 1 January 2022 44,620 594,358 (21,463) 1,062,711 80,060 23,285 - 17,659 1,801,230 220,000 22,434 2,043,664
Profit/(loss) for the period - - - 17,220 - - - - 17,220 - (177) 17,043
Other comprehensive income/(loss) after tax for the period - - - 515 - (6,377) - 10 (5,852) - - (5,852)
Total comprehensive income/(loss) after tax for the period - - - 17,735 - (6,377) - 10 11,368 - (177) 11,191
Defence contribution - - - (4,983) - - - - (4,983) - - (4,983)
Restated balance at 31 March 2022 44,620 594,358 (21,463) 1,075,463 80,060 16,908 - 17,669 1,807,615 220,000 22,257 2,049,872
F. Notes
F.1 Reconciliation of interim income statement between
statutory and underlying basis
€ million Underlying basis Other Statutory
basis
Net interest income 162 - 162
Net fee and commission income 44 - 44
Net foreign exchange gains and net gains on financial instruments 13 1 14
Net gains on derecognition of financial assets measured at amortised cost - 0 0
Net insurance result* 10 - 10
Net gains from revaluation and disposal of investment properties and on 2 - 2
disposal of stock of properties
Other income 3 - 3
Total income 234 1 235
Total expenses (91) (7) (98)
Operating profit 143 (6) 137
Loan credit losses (11) 11 -
Impairment of other financial and non-financial assets (11) 11 -
Provisions for litigation, claims, regulatory and other matters (net of (6) 6 -
reversals)
Credit losses on financial assets and impairment net of reversals of - (23) (23)
non-financial assets
Profit before tax and non-recurring items 115 (1) 114
Tax (18) - (18)
Profit attributable to non-controlling interests (1) - (1)
Profit after tax and before non-recurring items (attributable to the owners of 96 (1) 95
the Company)
Advisory and other restructuring costs - organic (1) 1 -
Profit after tax (attributable to the owners of the Company) 95 - 95
* Net insurance result per underlying basis comprises the aggregate of
captions 'Net insurance finance income/(expense) and net reinsurance finance
income/(expense)', 'Net insurance service result' and 'Net reinsurance service
result' per the statutory basis.
The reclassification differences between the statutory basis and the
underlying basis are explained below:
· Net gains on loans and advances to customers at FVPL of
€1 million included in 'Loan credit losses' under the underlying basis are
included in 'Net gains/(losses) on financial instruments' under the statutory
basis. Their classification under the underlying basis is done to align their
presentation with the loan credit losses on loans and advances to customers at
amortised cost.
· 'Net gains on derecognition of financial assets
measured at amortised cost' of approximately €0.3 million under the
statutory basis comprise net gains on derecognition of loans and advances to
customers included in 'Loan credit losses' under the underlying basis as to
align their presentation with the loan credit losses on loans and advances to
customers.
· Provisions for litigation, claims, regulatory and other
matters amounting to €6 million presented within 'Operating profit before
credit losses and impairment' under the statutory basis, are presented under
the underlying basis in conjunction with loan credit losses and impairments.
· Advisory and other restructuring costs of approximately
€1 million included in 'Other operating expenses' under the statutory basis
are separately presented under the underlying basis since they comprise mainly
fees to external advisors in relation to the transformation programme and
other strategic projects of the Group.
· 'Credit losses on financial assets' and 'Impairment net
of reversals on non-financial assets' under the statutory basis include: i)
credit losses to cover credit risk on loans and advances to customers of €12
million, which are included in 'Loan credit losses' under the underlying
basis, and ii) credit losses of other financial assets of €3 million and
impairment net of reversals of non-financial assets of €8 million, which are
included in 'Impairment of other financial and non-financial assets' under the
underlying basis, as to be presented separately from loan credit losses.
F. Notes (continued)
F.2 Customer deposits
The analysis of customer deposits is presented below:
31 March 31 December 2022
2023
By type of deposit €000 €000
Demand 10,398,586 10,561,724
Savings 2,888,682 2,840,346
Time or notice 5,686,321 5,596,249
18,973,589 18,998,319
By geographical area
Cyprus 13,096,705 13,019,109
Greece 1,847,877 1,933,771
United Kingdom 692,050 706,233
United States 159,069 178,962
Germany 121,182 168,785
Romania 65,792 69,514
Russia 733,833 700,465
Ukraine 306,864 290,050
Belarus 94,983 83,299
Other countries 1,855,234 1,848,131
18,973,589 18,998,319
Deposits by geographical area are based on the country of passport of the
Ultimate Beneficial Owner.
31 March 31 December 2022
2023
By currency €000 €000
Euro 17,036,294 17,067,299
US Dollar 1,519,474 1,529,548
British Pound 347,890 333,458
Russian Rouble 2,371 3,466
Swiss Franc 11,670 11,796
Other currencies 55,890 52,752
18,973,589 18,998,319
By customer sector
Corporate and Large corporate 1,858,324 1,915,300
International corporate 143,987 139,898
SMEs 929,693 1,007,555
Retail 11,441,093 11,333,783
Restructuring
- Corporate 13,948 16,017
- SMEs 6,482 6,375
- Retail other 9,503 10,152
Recoveries
- Corporate 1,372 1,262
International banking services 3,966,753 3,957,050
Wealth management 602,434 610,927
18,973,589 18,998,319
F. Notes (continued)
F.3 Loans and advances to customers
31 March 31 December 2022
2023
€000 €000
Gross loans and advances to customers at amortised cost 9,986,904 9,917,335
Allowance for ECL of loans and advances to customers (186,333) (178,442)
9,800,571 9,738,893
Loans and advances to customers measured at FVPL 212,537 214,359
10,013,108 9,953,252
F.4 Credit risk concentration of loans and advances to
customers
Industry (economic activity), business line and geographical concentrations of
the Group's gross loans and advances to customers at amortised cost are
presented in the tables below.
The geographical concentration, for credit risk concentration purposes, is
based on the Group's Country Risk Policy, which is followed for monitoring the
Group's exposures, in accordance with which exposures are analysed by country
of risk based on the country of residency for individuals and the country of
registration for companies.
31 March 2023 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000 €000
Trade 922,648 354 38 2 - 33 923,075
Manufacturing 319,571 44,930 - - - 27,412 391,913
Hotels and catering 962,462 24,304 36,071 - - 40,095 1,062,932
Construction 527,293 9,090 22 359 1 20 536,785
Real estate 962,791 94,750 1,906 5,812 - 46,020 1,111,279
Private individuals 4,510,966 11,848 69,679 222 17,786 53,337 4,663,838
Professional and other services 558,481 612 5,297 921 385 40,859 606,555
Shipping 12,657 - - - - 195,064 207,721
Other sectors 449,666 1 1 - 3 33,135 482,806
9,226,535 185,889 113,014 7,316 18,175 435,975 9,986,904
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
31 March 2023 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000 €000
Corporate and Large corporate 3,449,479 25,477 45 - 383 186 3,475,570
International corporate 93,814 152,202 42,816 5,812 - 373,157 667,801
SMEs 1,006,636 539 1,184 397 - 2,121 1,010,877
Retail
- housing 3,298,760 2,568 34,931 38 93 18,123 3,354,513
- consumer, credit cards and other 914,586 804 554 5 - 844 916,793
Restructuring
- corporate 54,862 - 842 883 - 64 56,651
- SMEs 41,406 - 174 - 154 - 41,734
- retail housing 68,727 103 2,037 - 287 176 71,330
- retail other 24,517 35 17 - 194 22 24,785
Recoveries
- corporate 16,950 - 451 2 172 33 17,608
- SMEs 27,825 - 1,126 - 2,503 2,132 33,586
- retail housing 68,031 261 19,321 64 3,296 8,952 99,925
- retail other 29,975 20 1,284 - 70 391 31,740
International banking services 91,306 1,659 8,143 115 11,023 24,802 137,048
Wealth management 39,661 2,221 89 - - 4,972 46,943
9,226,535 185,889 113,014 7,316 18,175 435,975 9,986,904
31 December 2022 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000 €000
Trade 922,093 384 37 2 - 33 922,549
Manufacturing 323,074 44,978 - - - 27,943 395,995
Hotels and catering 928,346 16,565 35,614 - - 40,086 1,020,611
Construction 545,421 8,955 23 1,965 1 20 556,385
Real estate 978,708 94,823 1,866 5,848 - 45,769 1,127,014
Private individuals 4,496,081 11,146 73,120 401 19,103 54,584 4,654,435
Professional and other services 551,269 980 5,311 907 313 36,923 595,703
Shipping 13,338 - - - - 173,830 187,168
Other sectors 427,535 2 - - 3 29,935 457,475
9,185,865 177,833 115,971 9,123 19,420 409,123 9,917,335
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
31 December 2022 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000 €000
Corporate and Large corporate 3,380,542 17,781 50 - 312 102 3,398,787
International corporate 139,813 152,143 42,327 5,850 - 345,175 685,308
SMEs 1,021,950 1,036 1,451 2,003 - 2,171 1,028,611
Retail
- housing 3,272,253 2,450 36,839 219 186 18,687 3,330,634
- consumer, credit cards and other 885,558 856 576 5 1 900 887,896
Restructuring
- corporate 66,151 - 869 869 - 63 67,952
- SMEs 48,027 - 432 - 158 384 49,001
- retail housing 70,283 104 1,841 - 291 114 72,633
- retail other 24,093 16 21 - 192 21 24,343
Recoveries
- corporate 19,063 - 452 - 172 32 19,719
- SMEs 26,150 - 1,117 - 2,664 1,774 31,705
- retail housing 69,790 260 19,778 64 3,431 9,672 102,995
- retail other 31,967 12 1,265 - 49 337 33,630
International banking services 90,652 1,722 8,953 113 11,964 24,470 137,874
Wealth management 39,573 1,453 - - - 5,221 46,247
9,185,865 177,833 115,971 9,123 19,420 409,123 9,917,335
The loans and advances to customers include lending exposures in Cyprus with
collaterals in Greece with a carrying value as at 31 March 2023 of €138,318
thousand (31 December 2022: €106,701 thousand).
The loans and advances to customers reported within 'Other countries' as at 31
March 2023 include exposures of €2.3 million in Ukraine (31 December 2022:
€2.6 million).
F. Notes (continued)
F.5 Analysis of loans and advances to customers by stage
The following tables present the Group's gross loans and advances to customers
at amortised cost by staging and by geographical analysis (based on the
country in which the loans are managed).
31 March 2023 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 8,034,686 1,562,590 353,839 118,450 10,069,565
recognition
Residual fair value adjustment on initial recognition (64,870) (14,241) (1,502) (2,048) (82,661)
Gross loans at amortised cost 7,969,816 1,548,349 352,337 116,402 9,986,904
Cyprus 7,969,616 1,548,349 351,757 116,402 9,986,124
Other countries 200 - 580 - 780
7,969,816 1,548,349 352,337 116,402 9,986,904
31 December 2022 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 7,931,511 1,586,488 372,821 115,544 10,006,364
recognition
Residual fair value adjustment on initial recognition (64,255) (20,885) (1,803) (2,086) (89,029)
Gross loans at amortised cost 7,867,256 1,565,603 371,018 113,458 9,917,335
Cyprus 7,867,037 1,565,603 368,922 113,458 9,915,020
Other countries 219 - 2,096 - 2,315
7,867,256 1,565,603 371,018 113,458 9,917,335
F. Notes (continued)
F.5 Analysis of loans and advances to customers by stage
(continued)
The following tables present the Group's gross loans and advances to customers
at amortised cost by stage and by business line concentration:
31 March 2023 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate and Large corporate 2,604,022 782,080 49,989 39,479 3,475,570
International corporate 666,785 962 35 19 667,801
SMEs 856,551 141,191 2,907 10,228 1,010,877
Retail
- housing 2,927,236 391,971 22,211 13,095 3,354,513
- consumer, credit cards and other 748,896 139,496 12,839 15,562 916,793
Restructuring
- corporate 2,973 19,821 23,702 10,155 56,651
- SMEs 10,277 11,390 17,587 2,480 41,734
- retail housing 4,393 21,814 42,631 2,492 71,330
- retail other 1,722 5,132 16,877 1,054 24,785
Recoveries
- corporate - - 16,571 1,037 17,608
- SMEs - - 31,860 1,726 33,586
- retail housing - - 86,331 13,594 99,925
- retail other 98 - 26,947 4,695 31,740
International banking services 105,736 29,278 1,846 188 137,048
Wealth management 41,127 5,214 4 598 46,943
7,969,816 1,548,349 352,337 116,402 9,986,904
31 December 2022 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate and Large corporate 2,502,630 807,282 54,259 34,616 3,398,787
International corporate 685,099 150 35 24 685,308
SMEs 825,123 189,825 3,299 10,364 1,028,611
Retail
- housing 2,982,436 305,714 30,071 12,413 3,330,634
- consumer, credit cards and other 704,959 152,815 14,376 15,746 887,896
Restructuring
- corporate 2,842 34,246 20,689 10,175 67,952
- SMEs 12,643 10,603 23,374 2,381 49,001
- retail housing 5,168 22,018 42,155 3,292 72,633
- retail other 1,713 5,364 16,237 1,029 24,343
Recoveries
- corporate - - 18,403 1,316 19,719
- SMEs - - 29,339 2,366 31,705
- retail housing - - 88,956 14,039 102,995
- retail other 108 - 28,569 4,953 33,630
International banking services 104,539 31,934 1,254 147 137,874
Wealth management 39,996 5,652 2 597 46,247
7,867,256 1,565,603 371,018 113,458 9,917,335
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers
Three months ended
31 March
2023 2022
€000 €000
Impairment loss net of reversals on loans and advances to customers 17,693 14,132
Recoveries of loans and advances to customers previously written off (3,918) (4,066)
Changes in expected cash flows (1,571) 912
Financial guarantees and commitments 266 (270)
12,470 10,708
The movement in ECL of loans and advances to customers, including the loans
and advances to customers held for sale, and the analysis of the balance by
stage is as follows:
Three months ended
31 March
2023 2022
€000 €000
1 January 178,442 591,417
Foreign exchange and other adjustments (50) (840)
Write offs (10,650) (45,959)
Interest (provided) not recognised in the income statement 898 4,012
Charge for the period 17,693 14,132
31 March 186,333 562,762
Stage 1 16,531 16,630
Stage 2 31,594 28,852
Stage 3 120,249 456,473
POCI 17,959 60,807
31 March 186,333 562,762
The allowance for ECL, included above, for loans and advances to customers
held for sale as at 31 March 2022 amounted €308,916 thousand. There were no
loans classified as held for sale as at 31 March 2023.
The charge for the period on loans and advances to customers, including the
loans and advances to customers held for sale as at 31 March 2022, by stage is
presented in the table below:
Three months ended
31 March
2023 2022
€000 €000
Stage 1 (10,476) (1,215)
Stage 2 9,262 (48)
Stage 3 18,907 15,395
17,693 14,132
During the three months ended 31 March 2023 the total non‑contractual
write‑offs recorded by the Group amounted to €4,465 thousand (three months
ended 31 March 2022: €36,921 thousand). The contractual amount outstanding
on financial assets that were written off during the three months ended 31
March 2023 and that are still subject to enforcement activity is €39,560
thousand (31 December 2022: €972,621 thousand).
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers (continued)
Assumptions have been made about the future changes in property values, as
well as the timing for the realisation of collateral, taxes and expenses on
the repossession and subsequent sale of the collateral as well as any other
applicable haircuts. Indexation has been used as the basis to estimate updated
market values of properties supplemented by management judgement where
necessary given the difficulty in differentiating between short-term impacts
and long-term structural changes and the shortage of market evidence for
comparison purposes. Assumptions were made on the basis of a macroeconomic
scenario for future changes in property prices, and these are capped to zero
for all scenarios, in case of any future projected increase, whereas any
future projected decrease is taken into consideration.
At 31 March 2023 the weighted average haircut (including liquidity haircut and
selling expenses) used in the collectively assessed provision calculation for
loans and advances to customers is approximately 32% under the baseline
scenario (31 December 2022: approximately 32%).
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 2022: average seven years).
For the calculation of individually assessed provisions, the timing of
recovery of collaterals as well as the haircuts used are based on the specific
facts and circumstances of each case. For specific cases judgement may also be
exercised over staging during the individual assessment.
For the calculation of expected credit losses three scenarios were used; base,
adverse and favourable with 50%, 30% and 20% probability respectively.
The above assumptions are also influenced by the ongoing regulatory dialogue
the Group 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 provisions.
Any changes in these assumptions or differences between assumptions made and
actual results could result in significant changes in the estimated amount of
expected credit losses of loans and advances to customers.
Overlays in the context of current economic conditions
The two overlays introduced in 2022 in response to uncertainties from the
consequences of the Ukrainian crisis, in the collectively assessed population
for exposures that were considered to be the most vulnerable to the
implications of the crisis, continue to be in effect during the three months
ended 31 March 2023. These were introduced to address the increased
uncertainties from the geopolitical instability, trade restrictions,
disruptions in the global supply chains, increases in the energy prices and
their potential negative impact on the domestic cost of living. The impact on
the ECL from the application of these overlays was approximately €3.5
million release for the three months ended 31 March 2023 (following an update
of the assessment of the sectors classified as High Risk and/or Early Warning)
and a net transfer of €23 million loans from Stage 1 to Stage 2 as at 31
March 2023.
Specifically, the first overlay relates to private individuals that are
expected to be affected by the increased cost of living in order to reflect
the future vulnerabilities to inflation, where a scenario with higher
percentage increase is applied for the cost of living. A one-notch downgrade
is applied to the identified portfolio, reflecting the expected impact of
inflation to their credit quality. The second overlay relates to sectors that
have been classified as High Risk or Early Warning to reflect the expected
Gross Value Added (GVA) outlook of these sectors, where this has deteriorated.
Specifically, the sector risk classification is carried out by comparing the
projected GVA outlook of each sector with its past performance (intrinsic) and
its performance vis-a-vis other sectors (systemic). In cases where both
systemic and intrinsic indicators are found to have deteriorated, the relevant
sector is classified as High Risk, whereas if only one of the two has
deteriorated, then the sector is classified as Early Warning. A one-notch
downgrade is applied to Early Warning sectors whereas for High Risk sectors a
more severe downgrade is applied accordingly.
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers (continued)
In addition, the overlay on the probability of default (PD), introduced in
the fourth quarter of 2022 to address specifically the high inflation
environment affecting the economy, continued to be in effect during the three
months ended 31 March 2023. With this overlay the PDs were floored to the
maximum of 2018/2019 level, on the basis that these years are considered as
closer to a business-as-usual environment in terms of default rates. The
impact on the ECL from the application of this overlay was €3.2 million
release for the three months ended 31 March 2023, as a result of multiple
components including updated ratings, PD and thresholds calibrations and stage
migrations.
In addition, in the three months ended 31 March 2023, for the LGD parameter,
the overlay has been integrated through reduced curability period for Stage 2
and Stage 3 exposures (i.e., the maximum period that a customer is considered
to cure has been reduced). The impact on the ECL was €8.4 million charge for
the three months ended 31 March 2023.
The Group has exercised critical judgement on a best effort basis, to consider
all reasonable and supportable information available at the time of the
assessment of the ECL allowance as at 31 March 2023. The Group will continue
to evaluate the ECL allowance and the related economic outlook each quarter,
so that any changes arising from the uncertainty on the macroeconomic outlook
and geopolitical developments, impacted by the implications of the Russian
invasion of Ukraine, are timely captured.
F.7 Rescheduled loans and advances to customers
The below table presents the Group's forborne loans and advances to customers
by staging.
31 March 2023 31 December 2022
€000 €000
Stage 1 - -
Stage 2 776,447 857,356
Stage 3 201,402 215,730
POCI 31,481 33,212
1,009,330 1,106,298
F.8 Pending litigation, claims, regulatory and other matters
The Group, in the ordinary course of business, is involved in various disputes
and legal proceedings and is subject to enquiries and examinations, requests
for information, audits, investigations, 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. 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. There are also situations where
the Group may enter into a settlement agreement. This may occur only if such
settlement is in BOC PCL's interest (such settlement does not constitute an
admission of wrongdoing) and only takes place after obtaining legal advice and
all approvals by the appropriate bodies of management.
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, regulatory and other matters as at 31 March 2023 and hence it is
not believed that such matters, when concluded, will have a material impact
upon the financial position of the Group. Details on the material ongoing
cases are disclosed within the 2022 Annual Financial Report.
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts'
Overview
On 1 January 2023 the Group adopted IFRS 17 'Insurance Contracts' and as
required by the standard applied the requirements retrospectively with
comparative information restated from the transition date, 1 January 2022.
IFRS 17 is a comprehensive new accounting standard for insurance contracts
which replaces IFRS 4 Insurance Contracts. In contrast to the requirements in
IFRS 4, IFRS 17 provides a comprehensive model (the general measurement model
or 'GMM') for insurance contracts, supplemented by the variable fee approach
('VFA') for contracts with direct participation features that are
substantially investment-related service contracts, and the premium allocation
approach ('PAA') mainly for short duration insurance contracts. The main
features of the new accounting standard for insurance contracts are the
following:
vii. The measurement of the present value of future cash flows,
incorporating an explicit risk adjustment, remeasured every reporting period
(the fulfilment cash flows)
viii. A Contractual Service Margin (CSM) that is equal and opposite to
any day one gain in the fulfilment cash flows of a group of contracts. The CSM
represents the unearned profitability of the insurance contracts and is
recognised in profit or loss over the service period (i.e., the coverage
period)
ix. Certain changes in the expected present value of future cash
flows are adjusted against the CSM and thereby recognised in profit or loss
over the remaining contractual service period
x. The recognition of insurance revenue and insurance service expenses in the
consolidated income statement based on the concept of services provided during
the period
xi. Insurance services results (earned revenue less incurred claims)
are presented separately from the insurance finance income or expense
xii. Extensive disclosures to provide information on the recognised
amounts from insurance contracts and the nature and extent of the risks
arising from these contracts.
Transition application
The standard is applied retrospectively using a fully retrospective approach
('FRA') as if it had always applied, unless it is impracticable to so, in
which case either a modified retrospective approach ('MRA') or a fair value
approach ('FVA') can be selected. Impracticability assessments were performed
based on the requirements of IFRS 17 and considered the availability of data
and systems and the requirement not to apply hindsight within the measurement.
Following the completion of impracticability assessments, the Group applied
the following approaches:
· The FRA for all non-life groups of insurance contracts and
non-individual life groups of insurance contracts, irrespective of issue date.
· The MRA for groups of life insurance contracts issued between
2016 and 2021.
· The FVA for groups of life insurance contracts issued prior to
2016.
Determination on transition of the fair value of insurance contract
liabilities for which FVA was applied
Under the FVA approach required by IFRS 17, the valuation of insurance
liabilities on transition is based on the requirements of IFRS 13 'Fair Value
Measurement'. This requires consideration of the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (an exit price). Under the
FVA, the CSM of the liability for remaining coverage at the transition date is
determined as the difference between the fair value of the groups of insurance
contracts and the fulfilment cash flows measured as at that date. There is
judgement involved in determining an appropriate fair value, as there is a
lack of observable data for actual transactions for closed book insurance
businesses and a range of possible modelling approaches. In determining the
fair value the Group considered the estimated profit margin that a market
participant would demand in return for assuming the insurance liabilities, and
the discount rate that would be applied within the IFRS 13 calculation. The
approach for setting these included the following:
· The discount rate was derived with an allowance for an
illiquidity premium that takes into account the level of 'matching' between
the Group's assets and related liabilities.
· Solvency II information (i.e. Best Estimate Liabilities and Risk
Margin) has been utilised.
Modified retrospective approach ('MRA')
The Group is permitted to use the MRA only to the extent that is does not have
reasonable and supportable information to apply a FRA. MRA is an approach to
achieve the closest outcome to the full retrospective application, with the
prescribed modifications to address some of the challenges of retrospective
application. Under MRA the below simplifications are permitted:
· assessments at the date of initial recognition of groups of
insurance contracts;
· contractual service margin for insurance contracts without direct
participation features;
· contractual service margin for insurance contracts with direct
participation features; and
· insurance finance income or expenses.
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts'
Transition application (continued)
In applying the modified retrospective approach, the Group used reasonable and
supportable information from its existing reporting systems, with the
objective to arrive at the outcome closest to the full retrospective
approach. The Group applied each of the following modifications:
· Group of contracts issued between 2016 and 2021 contain contracts
issued more than one year apart. For these groups, the discount rates on
initial recognition were determined at 1 January 2022 instead of at the date
of initial recognition.
· For group of contracts issued or initiated between 2016 and 2021, the
future cash flows on initial recognition were estimated by:
- the transactions occurred in period 2016-2021, plus
- the expected future cashflows estimated at 31 December 2021.
· For groups of contracts issued or initiated between 2016 and 2021,
the illiquidity premiums applied to the risk-free yield curves on initial
recognition were estimated by determining an average spread between the
risk-free yield curves and the discount rates determined retrospectively for
the period between 1 January 2016 and 1 January 2022.
· For groups of contracts issued or initiated between 2016 and 2021,
the risk adjustment for non-financial risk on initial recognition was
determined by adjusting the amount at 1 January 2022.
· The amount of the CSM recognised in profit or loss before 1 January
2022 was determined by comparing the coverage units provided before 1 January
2022 and the expected coverage units at 1 January 2022.
The sections below provide a summary of the significant accounting policies
applied under IFRS 17, information on the quantitative impact of transition of
IFRS 17, the impacted and restated information on the 1 January 2022 and 31
December 2022 consolidated balance sheet and the restatement impact on the
consolidated income statement for the year ended 31 December 2022 and the
three months ended 31 March 2022.
F.9.1 Summary of significant accounting policies
Identifying contracts in the scope of IFRS 17
IFRS 17 establishes principles for the recognition, measurement, presentation
and disclosure of insurance contracts, reinsurance contracts and investment
contracts with discretionary participation features.
An insurance contract is a contract under which the Group accepts significant
insurance risk from another party by agreeing to compensate that party if it
is adversely affected by a specified uncertain future event.
When identifying contracts in the scope of IFRS 17, there is a need to assess
whether contracts need to be treated as a single contract and whether embedded
derivatives, investment components and goods and services components have to
be separated and accounted for under another standard. For the Group's
insurance and reinsurance contracts, there were no significant changes arising
from the application of these requirements.
Level of aggregation
Individual insurance contracts that are managed together and subject to
similar risks are identified as a group.
Contracts that are managed together usually belong to the same product line
and have similar characteristics such as being subject to a similar pricing
framework or similar product management and are issued by the same legal
entity. If a contract is exposed to more than one risk, the dominant risk of
the contract is used to assess whether the contract features similar risks.
Each group of contracts is then divided into annual cohorts (i.e. by year of
issue) and each cohort into three groups, based on expected profitability: (i)
contracts that are onerous at initial recognition; (ii) contracts that at
initial recognition have no significant possibility of becoming onerous
subsequently; and (iii) the remaining contracts.
The groups of insurance contracts are established at initial recognition
without subsequent reassessment and form the unit of account at which the
contracts are measured.
Contract boundaries
The measurement of a group of insurance contracts includes all of the future
cash flows within the boundary of each contract in the group. Cash flows are
within the boundary of an insurance contract if they arise from substantive
rights and obligations that exist during the reporting period in which the
Group can compel the policyholder to pay the premiums, or in which the Group
has a substantive obligation to provide the policyholder with services. The
Group has determined that expected future single premium injections and
regular premium increases for unit-linked life contracts, even though at the
discretion of policyholders, are within the contract boundaries as the Group
may not adjust the terms and conditions for such increases. Similarly for
multiyear (more than one year) non-life contracts the Group has assessed that
they are expected to equal their duration as the Group cannot reprice or
terminate the insurance contract during the coverage period.
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.1 Summary of significant accounting policies (continued)
Measurement
IFRS 17 introduces a standard measurement model, the General Measurement Model
(GMM) and allows also for a simplified approach, the Premium Allocation
Approach (PAA). IFRS 17 also provides for the Variable Fee Approach (VFA),
which is mandatory to apply for insurance contracts with direct participation
features upon meeting the eligibility criteria. While the GMM is the default
measurement model under IFRS 17, the Group applies the VFA primarily to
insurance contracts in the unit linked life portfolio. The PAA is applied for
contracts with coverage periods of one year or less, or as an approximation to
the general measurement model and is primarily applied by the Group to
non-life insurance contracts and to non-individual life insurance contracts as
well as to reinsurance contracts of the Group except for the individual life
reinsurance agreement, for which the GMM was applied. For the rest of the
insurance contracts (individual protection life contracts, the acquired
portfolio and health long-term portfolio) the Group applies the GMM approach.
Initial measurement
Groups of insurance contracts under GMM or VFA are initially measured as the
total of:
- Fulfilment cash flows, which comprise:
· an estimate of the present value of future cash flows that are
expected to arise as the Group fulfils its service under the insurance
contracts; and
· an explicit risk adjustment for non-financial risk (i.e., the
risk adjustment held on balance sheet)
- Contractual Service Margin (CSM) which represents the unearned
profit that the Group will recognise as it provides insurance contract
services.
The fulfilment cash flows comprise unbiased and probability-weighted estimates
of future cash flows, discounted to present value to reflect both the time
value of money and financial risks, plus a risk adjustment for non-financial
risk. The discount rate applied reflects the time value of money, the
characteristics of the cash flows, the liquidity characteristics of the
insurance contracts and, where appropriate, is consistent with observable
current market prices.
The risk adjustment for non-financial risk for a group of insurance contracts
is the compensation required for bearing the uncertainty in relation to the
amount and timing of the cash flows that arises from non-financial risk. The
risk adjustment is explicit and determined separately from other fulfilment
cash flows.
Subsequent measurement
GMM
At the end of each reporting period, IFRS 17 requires that insurance contracts
are measured as the sum of:
· Liability for remaining coverage (LRC), comprising fulfilment
cash flows related to future service and the CSM at the reporting date; and
· Liability for incurred claims (LIC), comprising fulfilment cash
flows related to past service at the reporting date (claims and expenses not
yet paid, including claims incurred but not yet reported).
The fulfilment cash flows of groups of insurance contracts are measured at the
reporting date using current estimates of future cash flows, current discount
rates and current estimates of the risk adjustment for non-financial risk.
Changes in fulfilment cash flows are recognised as follows:
- Changes related to future service are adjusted against the CSM
unless the group of contracts is onerous in which case such changes are
recognised in the net insurance service result in the income statement
- Changes related to past or current service are recognised in the
net insurance service result in the income statement
- The effects of the time value of money and financial risk are
recognised as net insurance finance income or expense in the income statement
The amount of CSM recognised in income statement for services in a period is
determined by the allocation of the CSM remaining at the end of the reporting
period over the current and remaining expected coverage period of the group of
insurance contracts based on coverage units. Services provided are estimated
using coverage units, which reflect the quantity of benefits and the coverage
duration.
VFA
The VFA is modified for contracts with direct participation features
(contracts where returns are based on the performance of underlying assets).
For insurance contracts under the VFA, changes in the Group's share of the
underlying items, and economic experience and economic assumption changes
adjust the CSM, whereas these changes do not adjust the CSM under the GMM but
are recognised in profit or loss as they arise.
PAA
This is an optional simplification. The LRC is measured as premiums less
insurance acquisition cash flows. There is no CSM recognised.
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.1 Summary of significant accounting policies (continued)
Directly attributable expenses
In accordance with IFRS 17, directly attributable expenses, which include both
acquisition and maintenance costs are incorporated in actual and estimated
future cash flows and recognised in the net insurance result. Acquisition
costs are amortised. Costs that are not directly attributable remain in
operating expenses.
Presentation
The amounts presented in the consolidated income statement under IFRS 17
include:
iv. Net insurance finance income/(expense) and net reinsurance finance
income/(expense), that comprises of:
· Net insurance finance income/(expense) which represents the
finance related change in the carrying value of a group of insurance contracts
comprising interest accreted to the CSM, effects of changes in interest rates
and other financial assumptions and the effect of changes in the fair value of
underlying items for direct participating contracts
· Net finance income/(expense) from reinsurance contracts held is
the finance related change in the carrying value of a group of reinsurance
contracts comprising interest accreted and effects of changes in interest
rates and other financial assumptions.
v. Net insurance service result, that comprises of:
· insurance revenue that reflects the consideration to which the Group
expects to be entitled in exchange for the provision of coverage and other
insurance contract services (excluding any investment components) and includes
among others CSM released during the period, revenue for insurance contracts
under the PAA and changes in risk adjustment related to current service period
and experience variance.
· insurance service expenses that comprise the incurred claims and
other incurred insurance service expenses (excluding any investment
components), and losses on onerous groups of contracts and reversals of such
losses.
vi. Net reinsurance service result, that comprises of amounts recovered from
reinsurers and reinsurance expenses.
F.9.2 Transition impact
On transition on 1 January 2022, consistent with the disclosures in the 2022
Annual Financial Report, the Group's Total Equity and Equity attributable to
the owners of the Company was reduced by €37,563 thousand, reflecting the
aggregate impact of the PVIF elimination and remeasurement of insurance assets
and liabilities, both net of associated tax impact. Similarly, adjusting for
the impact of IFRS 17 on the profit for the year ended 31 December 2022, the
impact on the Group's Total Equity and Equity attributable to the owners of
the Company as at 31 December 2022 as reported under IFRS 4 has reduced by
€52,104 thousand as restated under IFRS 17, as analysed below.
At 1 January At 31 December
2022 2022
€000 €000
IFRS 4 Total Equity 2,081,227 2,100,670
IFRS 4 Equity attributable to owners of the Company 1,838,793 1,858,370
Removal of PVIF asset (129,890) (115,776)
Contractual service margin (43,731) (41,863)
Removal of IFRS 4 assets and liabilities and recording of IFRS 17 fulfilment 129,255 97,028
cash flows and risk adjustment
Tax effect (incl. PVIF tax effect) 7,079 9,601
Other (276) (1,094)
Total impact of IFRS 17 restatements (37,563) (52,104)
IFRS 17 Equity attributable to owners of the Company 1,801,230 1,806,266
IFRS 17 Total Equity 2,043,664 2,048,566
The reduction of the Group's equity by €52 million as at 31 December 2022
comprises the elimination of the in-force life insurance business asset (PVIF)
and the associated deferred tax liability, of a net decrease €101 million
and the remeasurement of insurance assets and liabilities (including the
impact of the contractual service margin) resulting in a net increase in
equity by €49 million.
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.2 Transition impact (continued)
On transition on 1 January 2022, the Group's Tangible Equity attributable to
the owners of the Company was increased by €92,327 thousand. Adjusting for
the impact of IFRS 17 on the profit for the year ended 31 December 2022, the
impact on the Group's Tangible Equity attributable to the owners of the
Company as at 31 December 2022 as restated under IFRS 17 has increased by
€63,672 thousand as analysed below.
At 1 January At 31 December 2022
2022
€000 €000
IFRS 4 Tangible Equity attributable to owners of the Company 1,654,759 1,690,048
Contractual service margin (43,731) (41,863)
Removal of IFRS 4 assets and liabilities and recording of IFRS 17 fulfilment 129,255 97,028
cash flows and risk adjustment
Tax effect (incl. PVIF tax effect) 7,079 9,601
Other (276) (1,094)
Total impact of IFRS 17 restatements 92,327 63,672
IFRS 17 Tangible Equity attributable to owners of the Company 1,747,086 1,753,720
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.2 Transition impact (continued)
Consolidated Income Statement for the year ended 31 December 2022 under the
statutory basis, as restated for IFRS 17 and as reported under IFRS 4.
Year ended
31 December 2022
IFRS 17 IFRS 4
(restated) (as previously presented)
€000 €000
Interest income 428,849 428,849
Income similar to interest income 22,119 22,119
Interest expense (65,721) (65,821)
Expense similar to interest expense (14,840) (14,840)
Net interest income 370,407 370,307
Fee and commission income 202,583 202,583
Fee and commission expense (10,299) (10,299)
Net foreign exchange gains 31,291 31,291
Net gains/(losses) on financial instruments (614) 10,052
Net gains/(losses) on derecognition of financial assets measured at amortised 5,235 5,235
cost
Net Insurance finance income/(expense) and net reinsurance finance 4,075 -
income/(expense)
Net insurance service result 60,530 -
Net reinsurance service result (20,039) -
Income from assets under insurance and reinsurance contracts - 114,681
Expenses from liabilities under insurance and reinsurance contracts - (43,542)
Net losses from revaluation and disposal of investment properties (999) (999)
Net gains on disposal of stock of property 13,970 13,970
Other income 16,681 16,681
Total operating income 672,821 709,960
Staff costs (285,154) (294,361)
Special levy on deposits and other levies/contributions (38,492) (38,492)
Provisions for pending litigations, regulatory and other provisions (net of (11,880) (11,880)
reversals)
Other operating expenses (157,916) (166,365)
Operating profit before credit losses and impairment 179,379 198,862
Credit losses on financial assets (59,087) (59,529)
Impairment net of reversals on non-financial assets (29,549) (29,549)
Profit before tax 90,743 109,784
Income tax (31,312) (35,812)
Profit after tax for the period 59,431 73,972
Attributable to:
Owners of the Company 56,565 71,106
Non-controlling interests 2,866 2,866
Profit for the year 59,431 73,972
Basic profit per share attributable to the owners of the Company (€ cent) 12.7 15.9
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.2 Transition impact (continued)
Consolidated Balance Sheet as at transition date and at 31 December 2022 as
restated under IFRS 17 and as reported under IFRS 4 in the 2022 Annual
Financial Report.
IFRS 17 IFRS 4
(restated) (as previously presented)
31 December 1 January 31 December 2022 1 January 2022
2022 2022
Assets €000 €000 €000 €000
Cash and balances with central banks 9,567,258 9,230,883 9,567,258 9,230,883
Loans and advances to banks 204,811 291,632 204,811 291,632
Derivative financial assets 48,153 6,653 48,153 6,653
Investments at FVPL 190,209 199,194 190,209 199,194
Investments at FVOCI 467,375 748,695 467,375 748,695
Investments at amortised cost 2,046,119 1,191,274 2,046,119 1,191,274
Loans and advances to customers 9,953,252 9,836,405 9,953,252 9,836,405
Life insurance business assets attributable to policyholders 542,321 551,797 542,321 551,797
Prepayments, accrued income and other assets 609,054 583,777 639,765 616,219
Stock of property 1,041,032 1,111,604 1,041,032 1,111,604
Investment properties 85,099 117,745 85,099 117,745
Deferred tax assets 227,934 265,942 227,521 265,481
Property and equipment 253,378 252,130 253,378 252,130
Intangible assets 52,546 54,144 168,322 184,034
Non-current assets and disposal groups held for sale - 358,951 - 358,951
Total assets 25,288,541 24,800,826 25,434,615 24,962,697
Liabilities
Deposits by banks 507,658 457,039 507,658 457,039
Funding from central banks 1,976,674 2,969,600 1,976,674 2,969,600
Derivative financial liabilities 16,169 32,452 16,169 32,452
Customer deposits 18,998,319 17,530,883 18,998,319 17,530,883
Insurance liabilities 599,992 623,791 679,952 736,201
Accruals, deferred income, other liabilities and other provisions 379,182 356,697 384,004 361,977
Provisions for pending litigation, claims, regulatory and other matters 127,607 104,108 127,607 104,108
Debt securities in issue 297,636 302,555 297,636 302,555
Subordinated liabilities 302,104 340,220 302,104 340,220
Deferred tax liabilities 34,634 39,817 43,822 46,435
Total liabilities 23,239,975 22,757,162 23,333,945 22,881,470
Equity
Share capital 44,620 44,620 44,620 44,620
Share premium 594,358 594,358 594,358 594,358
Revaluation and other reserves 76,939 99,541 178,240 213,192
Retained earnings 1,090,349 1,062,711 1,041,152 986,623
Equity attributable to the owners of the Company 1,806,266 1,801,230 1,858,370 1,838,793
Other equity instruments 220,000 220,000 220,000 220,000
Non‑controlling interests 22,300 22,434 22,300 22,434
Total equity 2,048,566 2,043,664 2,100,670 2,081,227
Total liabilities and equity 25,288,541 24,800,826 25,434,615 24,962,697
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.3 Transition impact on the Consolidated Balance Sheet as at 1
January 2022
The adjustments to the Group's balance sheet as at 1 January 2022 arising on
the adoption of IFRS 17 are presented below.
Balance IFRS 4 Removal of PVIF and IFRS 4 assets and liabilities IFRS 17 fulfilment cash flows incl. Risk adjustment * IFRS 17 CSM Tax Other Balance Total movements
effect IFRS 17
€000 €000 €000 €000 €000 €000 €000 €000
Assets
Prepayments, accrued income and other assets 616,219 (70,121) 37,676 - - 3 583,777 (32,442)
Deferred tax assets 265,481 - - - 461 - 265,942 461
Intangible assets 184,034 (129,890) - - - - 54,144 (129,890)
All other assets 23,896,963 - - - - - 23,896,963 -
Total assets 24,962,697 (200,011) 37,676 - 461 3 24,800,826 (161,871)
Liabilities
Insurance liabilities 736,201 (735,143) 579,002 43,731 - - 623,791 (112,410)
Accruals, deferred income, other liabilities and other provisions 361,977 (5,559) - - - 279 356,697 (5,280)
Deferred tax liabilities 46,435 - - - (6,618) - 39,817 (6,618)
All other liabilities 21,736,857 - - - - - 21,736,857 -
Total liabilities 22,881,470 (740,702) 579,002 43,731 (6,618) 279 22,757,162 (124,308)
* includes reinsurance assets and liabilities adjustments
Transition drivers
Removal of PVIF and IFRS 4 assets and liabilities
The present value of in-force business ('PVIF') which was previously reported
under IFRS 4 within 'Intangible assets' and that arose from the upfront
recognition of future profits associated with in-force insurance contracts, is
no longer recognized under IFRS 17. The estimated future profits are included
in the measurement of the insurance contract liability as the contractual
service margin ('CSM'), representing the unearned profit, which will be
gradually recognized over the duration of the contract. Other IFRS 4 insurance
assets and insurance contract liabilities are removed on transition, to be
replaced with IFRS 17 insurance assets and liabilities.
Recognition of the IFRS 17 fulfilment cash flows and risk adjustment
The measurement of insurance contract liabilities under IFRS 17 is based on
groups of insurance contracts and includes a liability for fulfilling the
contractual obligations associated with the insurance contract, such as
premiums, expenses, insurance benefits and claims. These are recorded within
the fulfilment cash flow component of the insurance contract liability,
together with the risk adjustment.
Recognition of the IFRS 17 CSM
In contrast to IFRS 4 accounting, where profits were recognised upfront, under
IFRS 17 they are deferred within the CSM which is systematically recognized in
revenue as services are provided over the coverage period of groups of
insurance contracts.
Tax effect
The removal of deferred tax liability primarily results from the removal of
the associated PVIF intangible, and new deferred tax assets and liabilities
are reported, where appropriate, on temporary differences between the new IFRS
17 accounting balances and their associated tax bases.
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.4 Transition impact on the Consolidated Income Statement
Summary of the impact of implementing IFRS 17 on the Group's statutory income
statement for the year ended 31 December 2022 is presented below.
For the year ended 31 December 2022
IFRS 4 Removal of Net insurance finance income expense IFRS 17 CSM IFRS 17 insurance revenue-other than CSM IFRS 17 insurance expense Net expense from reinsurance Attributable expenses (reclassification to net insurance service result) Tax IFRS 17
IFRS 4 and reclassifications Effect (restated)
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Interest income 428,849 428,849
Income similar to interest income 22,119 22,119
Interest expense (65,821) 100 (65,721)
Expense similar to interest expense (14,840) (14,840)
Net interest income 370,307 - - - 100 - - - - 370,407
Fee and commission income 202,583 - - - - - - - - 202,583
Fee and commission expense (10,299) - - - - - - - - (10,299)
Net foreign exchange gains 31,291 - - - - - - - - 31,291
Net gains/(losses) on financial instruments 10,052 (10,666) - - - - - - - (614)
Net gains/(losses) on derecognition of financial assets measured at amortised 5,235 - - - - - - - - 5,235
cost
Net Insurance finance income/(expense) and net reinsurance finance - - 4,075 - - - - - - 4,075
income/(expense)
Net insurance service result - - - 5,031 130,061 (74,562) - - - 60,530
Net reinsurance service result - - - - - - (20,039) - - (20,039)
Income from assets under insurance and reinsurance contracts 114,681 (114,681) - - - - - - - n/a
Expenses from liabilities under insurance and reinsurance contracts (43,542) 43,542 - - - - - - - n/a
Net losses from revaluation and disposal of investment properties (999) - - - - - - - - (999)
Net gains on disposal of stock of property 13,970 - - - - - - - - 13,970
Other income 16,681 - - - - - - - - 16,681
Total operating income 709,960 (81,805) 4,075 5,031 130,161 (74,562) (20,039) - - 672,821
Staff costs (294,361) - - - - - - 9,207 - (285,154)
Special levy on deposits and other levies/contributions (38,492) - - - - - - - - (38,492)
Provisions for pending litigations, regulatory and other provisions (net of (11,880) - - - - - - - - (11,880)
reversals)
Other operating expenses (166,365) - - - - - - 8,449 - (157,916)
Operating profit before credit losses and impairment 198,862 (81,805) 4,075 5,031 130,161 (74,562) (20,039) 17,656 - 179,379
Credit losses on financial assets (59,529) - - - 442 - - - - (59,087)
Impairment net of reversals on non-financial assets (29,549) - - - - - - - - (29,549)
Profit before tax 109,784 (81,805) 4,075 5,031 130,603 (74,562) (20,039) 17,656 - 90,743
Income tax (35,812) 77 4,423 (31,312)
Profit after tax for the period 73,972 (81,805) 4,075 5,031 130,603 (74,562) (20,039) 17,733 4,423 59,431
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.4 Transition impact on the Consolidated Income Statement
(continued)
The Consolidated Income Statement for the three months ended 31 March 2022
under statutory basis, as restated for IFRS 17 and as reported under IFRS 4 is
presented below:
Three months ended
31 March 2022
IFRS 4 IFRS 17 IFRS 17
adjustments (restated)
€000 €000
Turnover 201,312 201,312
Interest income 89,143 - 89,143
Income similar to interest income 4,606 - 4,606
Interest expense (18,391) 8 (18,383)
Expense similar to interest expense (4,011) - (4,011)
Net interest income 71,347 8 71,355
Fee and commission income 45,953 - 45,953
Fee and commission expense (2,227) - (2,227)
Net foreign exchange gains 5,502 - 5,502
Net gains/(losses) on financial instruments (2,446) (3,562) (6,008)
Net gains/(losses) on derecognition of financial assets measured at amortised (237) - (237)
cost
Net insurance finance income/(expense) and net reinsurance finance - 1,298 1,298
income/(expense)
Net insurance service result - 15,520 15,520
Net reinsurance service result - (5,600) (5,600)
Income from assets under insurance and reinsurance contracts 21,919 (21,919) -
Expenses from liabilities under insurance and reinsurance contracts (5,592) 5,592 -
Net losses from revaluation and disposal of investment properties (527) - (527)
Net gains on disposal of stock of property 5,400 - 5,400
Other income 4,252 - 4,252
Total operating income 143,344 (8,663) 134,681
Staff costs (52,851) 2,369 (50,482)
Special levy on deposits and other levies/contributions (9,857) - (9,857)
Provisions for pending litigations, regulatory and other provisions (net of (223) - (223)
reversals)
Other operating expenses (37,944) 1,761 (36,183)
Operating profit before credit losses and impairment 42,469 (4,533) 37,936
Credit losses on financial assets (10,990) 215 (10,775)
Impairment net of reversals on non-financial assets (4,822) - (4,822)
Profit before tax 26,657 (4,318) 22,339
Income tax (5,505) 209 (5,296)
Profit after tax for the period 21,152 (4,109) 17,043
Attributable to:
Owners of the Company 21,329 (4,109) 17,220
Non-controlling interests (177) - (177)
Profit for the period 21,152 (4,109) 17,043
Basic profit per share attributable to the owners of the Company (€ cent) 4.8 (0.9) 3.9
Diluted profit per share attributable to the owners of the Company (€ cent) 4.8 (0.9) 3.9
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.5 Analysis of new insurance line items included in the
consolidated income statement for the year ended 31 December 2022
Year ended
31 December 2022
IFRS 17 basis
(restated)
€000
Insurance finance income and expense and reinsurance finance income and 41,429
expense
Return on assets backing insurance liabilities (37,354)
Net insurance finance income and net reinsurance finance income/(expense) 4,075
Insurance revenue 135,495
Insurance service expenses (74,562)
Other insurance related income/(expense) (403)
Net insurance service result 60,530
Allocation of reinsurance premiums (36,170)
Amounts recoverable from reinsurers for incurred claims 16,131
Net reinsurance service result (20,039)
Net insurance result 44,566
G. Additional Risk and Capital Management disclosures
G.1 Additional Credit risk disclosures
The tables below present the analysis of loans and advances to customers in
accordance with the EBA standards.
31 March 2023 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(1,2)
Total exposures with forbearance measures Of which: NPEs Total exposures with forbearance measures Of which:
NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 41,205 - - - 24 - - -
Other financial corporations 229,266 3,239 11,704 2,858 5,289 2,409 2,435 2,317
Non-financial corporations 5,146,894 139,060 739,490 89,549 89,726 65,349 49,224 44,166
Of which: Small and Medium sized Enterprises(3) (SMEs) 3,320,044 80,225 358,007 31,214 48,173 30,296 13,799 9,613
Of which: Commercial real estate(3) 3,926,524 114,638 692,528 80,030 67,215 53,575 44,142 40,824
Non-financial corporations by sector
Construction 528,108 9,934 8,866
Wholesale and retail trade 908,772 20,453 15,007
Accommodation and food service activities 1,204,298 21,252 9,675
Real estate activities 1,093,780 17,945 15,817
Manufacturing 388,976 8,817 5,157
Other sectors 1,022,960 60,659 35,204
Households 4,782,076 245,050 258,136 128,881 91,294 66,262 42,391 34,189
Of which: Residential mortgage loans(3) 3,781,556 204,750 226,961 112,362 58,884 46,450 34,197 27,537
Of which: Credit for consumption(3) 552,791 35,106 35,782 19,004 24,323 14,566 7,563 6,451
Total on-balance sheet 10,199,441 387,349 1,009,330 221,288 186,333 134,020 94,050 80,672
(1.)Excluding loans and advances to central banks and credit institutions.
2(.)The residual fair value adjustment on initial recognition (which relates
mainly to loans acquired from Laiki Bank and is calculated as the difference
between the outstanding contractual amount and the fair value of loans
acquired and bears a negative balance) is considered as part of the gross
loans, therefore decreases the gross balance of loans and advances to
customers.
3.The analysis shown in lines 'non-financial corporations' and 'households' is
non-additive across categories as certain customers could be in both
categories.
G. Additional Risk and Capital Management disclosures
(continued)
G.1 Additional Credit risk disclosures (continued)
Gross loans and advances to customers Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
31 December 2022
Group gross customer Of which: NPEs Of which exposures with forbearance measures Accumulated impairment, accumulated negative changes in fair value due to Of which: Of which exposures with forbearance measures
credit risk and provisions
loans and advances(1,2) NPEs
Total exposures with forbearance measures Of which: NPEs Total exposures with forbearance measures Of which:
NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 39,766 - - - 25 - - -
Other financial corporations 186,281 3,202 11,665 2,825 6,008 2,332 2,453 2,250
Non-financial corporations 5,134,784 144,522 950,499 91,100 100,265 69,212 53,940 44,957
Of which: Small and Medium sized Enterprises(3) (SMEs) 3,492,414 84,493 449,891 33,140 53,939 33,882 17,643 11,683
Of which: Commercial real estate(3) 3,975,290 120,445 895,971 80,980 76,385 58,414 47,047 41,152
Non-financial corporations by sector
Construction 549,921 11,949 13,319
Wholesale and retail trade 909,438 20,783 15,907
Accommodation and food service activities 1,164,979 20,824 9,543
Real estate activities 1,108,581 20,281 19,738
Manufacturing 392,843 9,429 4,033
Other sectors 1,009,022 61,256 37,725
Households 4,770,863 260,629 290,556 143,140 72,144 54,643 37,362 32,087
Of which: Residential mortgage loans(3) 3,785,834 220,354 253,794 125,994 45,805 37,616 29,759 25,751
Of which: Credit for consumption(3) 547,490 37,622 42,719 21,235 20,355 14,628 8,543 7,486
Total on-balance sheet 10,131,694 408,353 1,252,720 237,065 178,442 126,187 93,755 79,294
(1)(.)Excluding loans and advances to central banks and credit institutions.
2(.)The residual fair value adjustment on initial recognition (which relates
mainly to loans acquired from Laiki Bank and is calculated as the difference
between the outstanding contractual amount and the fair value of loans
acquired and bears a negative balance) is considered as part of the gross
loans, therefore decreases the gross balance of loans and advances to
customers.
3(.)The analysis shown in lines 'non-financial corporations' and 'households'
is non-additive across categories as certain customers could be in both
categories.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management
The primary objective of the Group's capital management is to ensure
compliance with the relevant regulatory capital requirements and to maintain
healthy capital adequacy ratios to cover the risks of its business and support
its strategy and maximise shareholders' value.
The capital adequacy framework, as in force, was incorporated through the
Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)
which came into effect on 1 January 2014 with certain specified provisions
implemented gradually. The CRR and CRD 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. It is directly applicable in all EU member
states. CRD 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
into national law and national regulators were allowed to impose additional
capital buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (Regulation (EU)
2019/876 (CRR II) and Directive (EU) 2019/878 (CRD V)) came into force. As an
amending regulation, the existing provisions of CRR apply, unless they are
amended by CRR II. Certain provisions took immediate effect (primarily
relating to Minimum Requirement for Own Funds and Eligible Liabilities
(MREL)), but most changes became effective as of June 2021. The key changes
introduced consist of, among others, changes to qualifying criteria for Common
Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2 (T2) instruments,
introduction of requirements for MREL and a binding Leverage Ratio requirement
(as defined in the CRR) and a Net Stable Funding Ratio (NSFR).
The amendments that came into effect on 28 June 2021 are in addition to those
introduced in June 2020 through Regulation (EU) 2020/873, which among others,
brought forward certain CRR II changes in light of the COVID-19 pandemic. The
main adjustments of Regulation (EU) 2020/873 that had an impact on the Group's
capital ratio relate to the acceleration of the implementation of the new SME
discount factor (lower RWAs), extending the IFRS 9 transitional arrangements
and introducing further relief measures to CET1 allowing to fully add back to
CET1 any increase in ECL recognised in 2020 and 2021 for non-credit impaired
financial assets and phasing in this starting from 2022 (phasing in at 25% in
2022 and 50% in 2023) and advancing the application of prudential treatment of
software assets as amended by CRR II (which came into force in December 2020).
In addition, Regulation (EU) 2020/873 introduced a temporary treatment of
unrealized gains and losses on exposures to central governments, to regional
governments or to local authorities measured at fair value through other
comprehensive income which the Group elected to apply and implemented from the
third quarter of 2020. This temporary treatment was in effect until 31
December 2022.
In October 2021, the European Commission adopted legislative proposals for
further amendments to CRR, CRD and the BRRD (the '2021 Banking Package').
Amongst other things, the 2021 Banking Package would implement certain
elements of Basel III that have not yet been transposed into EU law. The 2021
Banking Package includes:
· a proposal for a Regulation (sometimes known as 'CRR III') to make
amendments to CRR with regard to (amongst other things) requirements on credit
risk, credit valuation adjustment risk, operational risk, market risk and the
output floor;
· a proposal for a Directive (sometimes known as 'CRD VI') to make
amendments to CRD with regard to (amongst other things) requirements on
supervisory powers, sanctions, third-country branches and ESG risks; and
· a proposal for a Regulation to make amendments to CRR and the BRRD with
regard to (amongst other things) requirements on the prudential treatment of
G-SII groups with a multiple point of entry resolution strategy and a
methodology for the indirect subscription of instruments eligible for meeting
the MREL requirements.
The 2021 Banking Package is subject to amendment in the course of the EU's
legislative process; and its scope and terms may change prior to its
implementation. In addition, in the case of the proposed amendments to CRD and
the BRRD, their terms and effect will depend, in part, on how they are
transposed in each member state.
The European Council's proposal on CRR and CRD was published on 8 November
2022. During February 2023, the European Parliament's ECON Committee voted to
adopt Parliament's proposed amendments to the Commission's proposal, and the
2021 Banking Package is currently in the final stage of the EU legislative
process, the trilogue process, that will eventually result in the final
versions of the directives and regulations. It is expected that the 2021
Banking Package will come in force on 1 January 2025; and certain measures are
expected to be subject to transitional arrangements or to be phased in over
time.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management (continued)
The CET1 ratio of the Group as at 31 March 2023 stands at 15.2% and the Total
Capital ratio at 20.3% on a transitional basis. The ratios as at 31 March 2023
include unaudited/un-reviewed profits for the three months ended 31 March 2023
and for compliance with the CRR an accrual for an estimated final dividend at
a payout ratio of 30% of the Group Adjusted Profit after tax for the period,
which is in line with the Group's approved dividend policy. As per the latest
SREP decision, any dividend distribution is subject to regulatory approval.
Such dividend accrual does not constitute a binding commitment for a dividend
payment nor does it constitute a warranty or representation that such a
payment will be made. Group Adjusted Profit after tax is defined as the
Group's profit after tax before non-recurring items (attributable to the
owners of the Company) taking into account distributions under other equity
instruments such as the annual AT1 coupon.
Minimum CET1 Regulatory Capital Requirements 2023 2022
Pillar I - CET1 Requirement 4.50% 4.50%
Pillar II - CET1 Requirement 1.73% 1.83%
Capital Conservation Buffer (CCB)* 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer 1.50% 1.25%
Countercyclical Buffer (CcyB) 0.02% 0.02%
Minimum CET1 Regulatory Requirements 10.25% 10.10%
* Fully phased in as of 1 January 2019
Minimum Total Capital Regulatory Requirements 2023 2022
Pillar I - Total Capital Requirement 8.00% 8.00%
Pillar II - Total Capital Requirement 3.08% 3.26%
Capital Conservation Buffer (CCB)* 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer 1.50% 1.25%
Countercyclical Buffer (CcyB) 0.02% 0.02%
Minimum Total Capital Regulatory Requirements 15.10% 15.03%
* Fully phased in as of 1 January 2019
The minimum Pillar I total capital requirement ratio of 8.00% may be met, in
addition to the 4.50% CET1 requirement, with up to 1.50% by AT1 capital and
with up to 2.00% by T2 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).
Applicable Regulation allows a part of the said Pillar II Requirements (P2R)
to be met also with AT1 and T2 capital and does not require solely the use of
CET1.
In the context of the annual SREP conducted by the ECB in 2022 and based on
the final SREP decision received in December 2022 effective from 1 January
2023, the P2R has been revised to 3.08%, compared to the previous level of
3.26%. The revised P2R includes a revised P2R add-on of 0.33%, compared to the
previous level of 0.26%, relating to ECB's prudential provisioning
expectations. The P2R add-on is dynamic and can vary on the basis of in-scope
NPEs and level of provisioning. When disregarding the P2R add-on relating to
ECB's prudential provisioning expectations, the P2R is reduced from 3.00% to
2.75%. As a result, the Group's minimum phased in CET1 capital ratio and Total
Capital ratio requirements were reduced when disregarding the phasing in of
the O-SII Buffer. The Group's minimum phased-in CET1 capital ratio requirement
was set at 10.25%, comprising a 4.50% Pillar I requirement, a P2R of 1.73%,
the CCB of 2.50%, the O-SII Buffer of 1.50% (fully phased in on 1 January
2023) and the CcyB of 0.02%. The Group's minimum phased-in Total Capital
requirement was set at 15.10%, comprising an 8.00% Pillar I requirement, of
which up to 1.50% can be in the form of AT1 capital and up to 2.00% in the
form of T2 capital, a P2R of 3.08%, the CCB of 2.50%, the O-SII Buffer of
1.50% and the CcyB of 0.02%. The ECB has also maintained the P2G unchanged.
The Group is subject to a 3% Pillar I Leverage Ratio requirement.
The above minimum ratios apply for both BOC PCL and the Group.
The capital position of the Group and BOC PCL as at 31 March 2023 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.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management (continued)
The CBC, in accordance with the Macroprudential Oversight of Institutions Law
of 2015, sets, on a quarterly basis, the CcyB rates in accordance with the
methodology described in this law. The CcyB for the Group as at 31 March 2023
has been calculated at approximately 0.02%.
On 30 November 2022, the CBC, following the revised methodology described in
its macroprudential policy, decided to increase the countercyclical buffer
rate from 0.00% to 0.50% of the total risk exposure amount in Cyprus of each
licensed credit institution incorporated in Cyprus. The new rate of 0.50% must
be observed as from 30 November 2023. Based on the above, the CcyB for the
Group is expected to increase.
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 since November 2021 the O-SII buffer has been set to 1.50%. This buffer
was phased in gradually, having started from 1 January 2019 at 0.50%. The
O-SII buffer as at 31 December 2022 stood at 1.25% and was fully phased-in on
1 January 2023.
The EBA final guidelines on SREP and supervisory stress testing and the Single
Supervisory Mechanism's (SSM) 2018 SREP methodology provide that the own funds
held for the purposes of Pillar II Guidance (P2G) cannot be used to meet any
other capital requirements (Pillar I requirement, P2R or the combined buffer
requirement), and therefore cannot be used twice.
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 31 March 31 December
2023(1) 2022 2023(1) 2022 (restated)(2)
(restated)(2)
€000 €000 €000 €000
Transitional Common Equity Tier 1 (CET1)(3) 1,548,055 1,540,292 1,506,130 1,509,056
Transitional Additional Tier 1 capital (AT1) 220,000 220,000 220,000 220,000
Tier 2 capital (T2) 300,000 300,000 300,000 300,000
Transitional total regulatory capital 2,068,055 2,060,292 2,026,130 2,029,056
Risk weighted assets - credit risk(4) 9,153,276 9,103,330 9,139,782 9,150,831
Risk weighted assets - market risk - - - -
Risk weighted assets - operational risk 1,010,885 1,010,885 997,720 997,720
Total risk weighted assets 10,164,161 10,114,215 10,137,502 10,148,551
Transitional % % % %
Common Equity Tier 1 ratio 15.2 15.2 14.9 14.9
Total capital ratio 20.3 20.4 20.0 20.0
Leverage ratio 7.0 7.0 6.9 6.9
(1.) Includes unaudited/un-reviewed profits for the three months ended 31
March 2023 and for compliance with the CRR an accrual for dividend at a payout
ratio of 30% of the Group Adjusted Profit after tax for the period, which is
in line with the Group's approved dividend policy. As per the latest SREP
decision, any dividend distribution is subject to regulatory approval. Such
dividend accrual does not constitute a binding commitment for a dividend
payment nor does it constitute a warranty or representation that such a
payment will be made.
(2.) The 2022 capital ratios as previously reported in the 2022 Annual
Financial Report and 2022 Pillar III Disclosures have been restated for the
recommendation by the Board of Directors to the shareholders for approval at
the Annual General Meeting that will be held on 26 May 2023, of a final
dividend in respect of earnings for the year ended 31 December 2022 ('FY2022')
which amounts to an aggregate distribution of €22,310 thousand, following
the approval by the ECB in April 2023.
(3.) CET1 includes regulatory deductions, comprising, amongst others,
intangible assets amounting to €28,485 thousand for the Group and €23,649
thousand for BOC PCL as at 31 March 2023 (31 December 2022: €30,421 thousand
for the Group and €25,445 thousand for BOC PCL). As at 31 March 2023 an
amount of €12,439 thousand, relating to intangible assets, is considered
prudently valued for CRR purposes and is not deducted from CET1 (31 December
2022: €12,934 thousand).
(4.) Includes Credit Valuation Adjustments (CVA).
G. Additional Risk and Capital Management (continued)
G.2 Capital management (continued)
The capital ratios of the Group and BOC PCL as at the reporting date on a
fully loaded basis are presented below:
Fully loaded Group BOC PCL
31 March 31 December 31 March 31 December
2023(1,2) 2022(3,4) 2023(1,2) 2022(3,4)
(restated) (restated)
% % % %
Common Equity Tier 1 ratio 15.2 14.5 14.8 14.1
Total capital ratio 20.3 19.6 20.0 19.3
Leverage ratio 7.0 6.7 6.8 6.5
(1) Includes unaudited/un-reviewed profits for the three months ended 31 March
2023 and for compliance with the CRR an accrual for dividend at a payout ratio
of 30% of the Group Adjusted Profit after tax for the period, which is in line
with the Group's approved dividend policy. As per the latest SREP decision,
any dividend distribution is subject to regulatory approval. Group Adjusted
Profit after tax is defined as the Group's profit after tax before
non-recurring items (attributable to the owners of the Group) taking into
account distributions under other equity instruments such as the annual AT1
coupon. Such dividend accrual does not constitute a binding commitment for a
dividend payment nor does it constitute a warranty or representation that such
a payment will be made.
(2) IFRS 9 fully loaded as applicable.
(3) IFRS 9 and application of the temporary treatment of certain FVOCI
instruments in accordance with Article 468 of CRR fully loaded as applicable.
(4) The 2022 capital ratios as previously reported in the 2022 Annual
Financial Report and 2022 Pillar III Disclosures have been restated for the
recommendation by the Board of Directors to the shareholders for approval at
the Annual General Meeting that will be held on 26 May 2023, of a final
dividend in respect of earnings for the year ended 31 December 2022 ('FY2022')
which amounts to an aggregate distribution of €22,310 thousand, following
the approval by the ECB in April 2023.
During the three months ended 31 March 2023, CET1 ratio was negatively
affected mainly by the phasing in of IFRS 9 and other transitional adjustments
on 1 January 2023, provisions and impairments, other movements and the
increase in risk-weighted assets and was positively affected by pre-provision
income as well as the €50 million dividend distributed to BOC PCL in
February 2023 by the life insurance subsidiary. As a result, the CET1 ratio
(on a transitional basis) has remained unchanged during the three months ended
31 March 2023, whereas on a fully loaded basis the ratio has increased by 74
bps.
In addition, a prudential charge in relation to the onsite inspection on the
value of the Group's foreclosed assets is being deducted from own funds since
June 2021, the impact of which is 24 bps on the Group's CET1 ratio as at 31
March 2023, decreased from 26bps on 31 December 2022 mainly due to impairment
recognised during the period.
Transitional arrangements
The Group has elected in prior years to apply the 'static-dynamic' approach in
relation to the transitional arrangements for the initial application of IFRS
9 for regulatory capital purposes, where the impact on the impairment amount
from the initial application of IFRS 9 on the capital ratios is phased in
gradually. The 'static-dynamic' approach allows for recalculation of the
transitional adjustment periodically on Stage 1 and Stage 2 loans, to reflect
the change of the ECL provisions within the transition period. The Stage 3 ECL
remained static over the transition period as per the impact upon initial
recognition.
The amount added each year for the 'static component' was decreasing based on
a weighting factor until the impact of IFRS 9 was fully absorbed back to CET1
at the end of the five years, with the impact being fully phased-in (100%) on
1 January 2023. The cumulative impact on the capital position as at 31
December 2022 was 75%, with the impact being fully phased-in (100%) on 1
January 2023.
Following the June 2020 amendments to the CRR in relation to the dynamic
component a 100% add back of IFRS 9 provisions was allowed for the years 2020
and 2021, reducing to 75% in 2022, to 50% in 2023 and to 25% in 2024. This
will be fully phased in (100%) by 1 January 2025. The calculation at each
reporting period is against Stage 1 and Stage 2 provisions as at 1 January
2020, instead of 1 January 2018.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management (continued)
In relation to the temporary treatment of unrealized gains and losses for
certain exposures measured at fair value through other comprehensive income,
Regulation EU 2020/873 allows institutions to remove from their CET1 the
amount of unrealized gains and losses accumulated since 31 December 2019,
excluding those of financial assets that are credit-impaired. The relevant
amount was removed at a scaling factor of 100% from January to December 2020,
reduced to 70% from January to December 2021 and to 40% from January to
December 2022. The Group applied the temporary treatment from the third
quarter of 2020.
Capital requirements of subsidiaries
The insurance subsidiaries of the Group, the General Insurance of Cyprus Ltd
and Eurolife Ltd, comply with the requirements of the Superintendent of
Insurance including the minimum solvency ratio. The regulated investment firm
(CIF) of the Group, The Cyprus Investment and Securities Corporation Ltd
(CISCO), complies with the minimum capital adequacy ratio requirements. From
2021 the new prudential regime for Investment Firms ('IFs') as per the
Investment Firm Regulation (EU) 2019/2033 ('IFR') on the prudential
requirements of IFs and the Investment Firm Directive (EU) 2019/2034 ('IFD')
on the prudential supervision of IFs came into effect. Under the new regime
CISCO has been classified as Non-Systemic 'Class 2' company and is subject to
the new IFR/IFD regime in full. In February 2023, the activities of the
regulated UCITS management company of the Group, BOC Asset Management Ltd,
were absorbed by CISCO and BOC Asset Management Ltd was dissolved without
liquidation. The payment services subsidiary of the Group, JCC Payment
Services Ltd, complies with the regulatory capital requirements.
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January
2016 EU member states shall apply the BRRD's provisions requiring EU credit
institutions and certain investment firms to maintain a minimum requirement
for own funds and eligible liabilities (MREL), subject to the provisions of
the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part
of the reform package for strengthening the resilience and resolvability of
European banks, the BRRD ΙΙ came into effect and was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in May 2021. In addition, certain provisions on MREL have been introduced
in CRR ΙΙ which also came into force on 27 June 2019 as part of the reform
package and took immediate effect.
In February 2023, BOC PCL received notification from the SRB and CBC of the
final decision for the binding MREL for BOC PCL, determined as the preferred
resolution point of entry. As per the decision, the final MREL requirement is
set at 24.35% of risk weighted assets and 5.91% of Leverage Ratio Exposure
(LRE) (as defined in the CRR) and must be met by 31 December 2025.
Furthermore, BOC PCL must comply since 1 January 2022 with an interim
requirement of 14.94% of risk weighted assets and 5.91% of LRE. The own funds
used by BOC PCL to meet the Combined Buffer Requirement (CBR) are not eligible
to meet its MREL requirements expressed in terms of risk weighted assets. BOC
PCL must comply with the MREL requirement at the consolidated level,
comprising BOC PCL and its subsidiaries. The decision is subject to annual
review by the competent authorities, updated also as changes in capital
requirements become effective.
As at 31 March 2023, the MREL ratio calculated according to the SRB's
eligibility criteria currently in effect, and based on internal estimate,
stood at 20.8% of RWAs and at 10.0% of LRE. The ratios as at 31 March 2023,
include unaudited/un-reviewed profits for the three months ended 31 March 2023
and for compliance with the CRR an accrual for an estimated final dividend at
a payout ratio of 30% of the Group Adjusted Profit after tax for the period
(as defined above), which is in line with the Group's approved dividend
policy. As per the latest SREP decision, any dividend distribution is subject
to regulatory approval. Such dividend accrual does not constitute a binding
commitment for a dividend payment nor does it constitute a warranty or
representation that such a payment will be made. The MREL ratio expressed as a
percentage of RWAs does not include capital used to meet the CBR amount, which
stood at 4.02% as at 31 March 2023 and will further increase on 30 November
2023 following increase in CcyB from 0.00% to 0.50% of the total risk exposure
amount in Cyprus as announced by the CBC.
BOC PCL continues to evaluate opportunities to advance the build-up of its
MREL liabilities.
G. Additional Risk and Capital Management disclosures
(continued)
G.3 Internal Capital Adequacy Assessment Process (ICAAP),
Internal Liquidity Assessment Process (ILAAP), Pillar II Supervisory Review
and Evaluation Process (SREP) and 2023 SSM Stress test
The Group prepares annual ICAAP and ILAAP packages. Both reports for 2022 have
been completed and submitted to the ECB at the end of March 2023 following
approval by the Board of Directors. The annual ICAAP for 2022 indicated that
the Group has sufficient capital and available mitigants to support its risk
profile and its business and to enable it to meet its regulatory requirements,
both under baseline and stress scenarios. The annual ILAAP for 2022 indicated
that BOC PCL's liquidity position is at a very comfortable level. BOC PCL
maintains liquidity resources which are adequate to ensure its ability to meet
obligations as they fall due under ordinary and stressed conditions.
The Group also undertakes quarterly reviews of its ICAAP results as well as on
an ad-hoc basis if needed, which are submitted to the ALCO and the Risk
Committee of the Board of Directors, considering the latest actual and
forecasted information. During the quarterly review, the Group's risk profile
is reviewed and any material changes/developments since the annual ICAAP
exercise are assessed in terms of capital adequacy.
The Group also undertakes quarterly reviews of the ILAAP through quarterly
liquidity stress tests which are submitted to the ALCO and the Risk Committee
of the Board of Directors. In these reviews actual and forecasted information
is considered. Any material changes since the year-end are assessed in terms
of liquidity and funding. The quarterly review assessment identifies whether
the Group has an adequate liquidity buffer to cover the stress outflows.
The ECB, as part of its supervisory role, has been conducting the SREP and
other inspections (onsite/ off-site/ targeted reviews/ deep-dives) 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. As a result of these supervisory processes,
additional capital and other requirements could be imposed on the Group,
including a revision of the level of Pillar II add-ons, as the Pillar II
add-on capital requirements are a point-in-time assessment and therefore
subject to change over time.
The Group is currently participating in the 2023 SSM Stress Test as one of the
'Other Systematically Important Institutions (O-SII)'. The stress test was
officially launched on 31 January 2023 and is expected to be completed by the
end of July 2023. The exercise will assess EU banks' resilience to an adverse
economic shock and inform the 2023 SREP. The stress test results will be used
to update each bank's Pillar 2 Guidance in the context of the SREP.
Qualitative findings on weaknesses in the Group's stress testing practices
could also affect Pillar 2 Requirements and inform other supervisory
activities.
G.4 Liquidity regulation
The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR)
under CRD IV/CRR (as supplemented by Delegated Regulations (EU) 2015/61), with
the limit set at 100%. The Group has to also comply with the Net Stable
Funding Ratio (NSFR) calculated as per the Capital Requirements Regulation II
(CRR II), with the limit set at 100%.
The LCR is designed to promote the 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 2023, the Group was in compliance with all regulatory liquidity
requirements. As at 31 March 2023, the Group's LCR stood at 303% (compared to
291% as at 31 December 2022). As at 31 March 2023 the Group's NSFR was 160%
(compared to 168% as at 31 December 2022).
G. Additional Risk and Capital Management disclosures
(continued)
G.5 Liquidity reserves
The below table sets out the Group's liquidity reserves:
Composition of the liquidity reserves 31 March 2023 31 December 2022
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 Level 1 Level
2A & 2B 2A & 2B
€000 €000 €000 €000 €000 €000
Cash and balances with central banks 9,079,449 9,079,449 - 9,379,888 9,379,888 -
Placements with banks 248,347 - - 55,825 - -
Liquid investments 2,192,706 1,662,300 263,298 1,827,698 1,344,032 214,800
Available ECB Buffer 44,809 - - 147,844 - -
Total 11,565,311 10,741,749 263,298 11,411,255 10,723,920 214,800
Internal Liquidity Reserves present the total liquid assets as defined in the
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).
Balances in Nostro accounts and placements with banks are not included in
Liquidity reserves as per LCR, 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 additional unencumbered
liquid bonds and are shown at market values net of haircuts based on ECB
methodology and haircuts.
Current available ECB buffer is not part of the Liquidity reserves as per LCR.
H. Alternative Performance Measures
Reconciliations between the statutory basis in Section E and the underlying
basis in Section A are included in Section 'F.1 Reconciliation of interim
income statement between the statutory and underlying basis' above and in the
tables that follow, to facilitate the comparability of the underlying basis to
the statutory information.
Reconciliations between the calculations of non-IFRS performance measures and
the most directly comparable IFRS measures which allow for the comparability
of the underlying basis to statutory information are disclosed below.
On 1 January 2023, the Group adopted IFRS 17 'Insurance Contracts'. As
required by the standard, the Group applied the requirements retrospectively
with comparative information previously published under IFRS 4 'Insurance
Contracts' restated from the 1 January 2022 transition date and therefore
reconciliations of alternative performance measures have also been restated
where applicable.
5. Reconciliation of Gross loans and advances to customers
31 March 31 December 2022
2023
€000 €000
Gross loans and advances to customers as per the underlying basis (as defined 10,277,824 10,217,453
below)
Reconciling items:
Residual fair value adjustment on initial recognition (Section F.5) (82,661) (89,029)
Loans and advances to customers measured at fair value through profit or loss (212,537) (214,359)
(Section F.3)
Aggregate fair value adjustment on loans and advances to customers measured at 4,278 3,270
fair value through profit or loss
Gross loans and advances to customers at amortised cost as per Section F.3 9,986,904 9,917,335
6. Reconciliation of Allowance for expected credit losses on
loans and advances to customers (ECL)
31 March 31 December 2022
2023
€000 €000
Allowance for expected credit losses on loans and advances to customers (ECL) 282,411 281,630
as per the underlying basis (as defined below)
Reconciling items:
Residual fair value adjustment on initial recognition (Section F.5) (82,661) (89,029)
Aggregate fair value adjustment on loans and advances to customers measured at 4,278 3,270
fair value through profit or loss
Provisions for financial guarantees and commitments (17,695) (17,429)
Allowance for ECL of loans and advances to customers as per Section F.3 186,333 178,442
H. Alternative Performance Measures (continued)
7. Reconciliation of NPEs
31 March 31 December 2022
2023
€000 €000
NPEs as per the underlying basis (as defined below) 389,186 410,563
Reconciling items:
POCI (NPEs) (Note 1 below) (35,347) (37,742)
Residual fair value adjustment on initial recognition on loans and advances to (1,502) (1,803)
customers (NPEs) classified as Stage 3 (Section F.5)
Stage 3 gross loans and advances to customers at amortised cost as per Section 352,337 371,018
F.5
NPE ratio
NPEs (as per table above) (€000) 389,186 410,563
Gross loans and advances to customers (as per table above) (€000) 10,277,824 10,217,453
Ratio of NPE/Gross loans (%) 3.8% 4.0%
Note 1: Gross loans and advances to customers at amortised cost before
residual fair value adjustment on initial recognition include an amount of
€35,347 thousand POCI - NPEs (out of a total of €118,450 thousand POCI
loans) (31 December 2022: €37,742 thousand POCI - NPEs (out of a total of
€115,544 thousand POCI loans)) as disclosed in Section F.5.
8. Reconciliation of Loan credit losses
Three months ended
31 March
2023 2022
€000 €000
Loan credit losses as per the underlying basis 11,207 11,930
Reconciling items:
Loan credit losses relating to NPE sales, disclosed under non-recurring items - 1,387
within 'Provisions/net loss relating to NPE sales' under the underlying basis
11,207 13,317
Loan credit losses (as defined) are reconciled to the statutory basis as
follows:
Credit losses to cover credit risk on loans and advances to customers 12,470 10,708
Net (gains)/losses on derecognition of financial assets measured at amortised (255) 237
cost - loans and advances to customers
Net (gains)/losses on loans and advances to customers at FVPL (1,008) 2,372
11,207 13,317
Ratios Information
2. Net Interest Margin (NIM)
Three months ended
31 March
2023 2022
(restated)
a. Net interest income used in the calculation of NIM €000 €000
Net interest income as per the underlying basis/Unaudited Interim Consolidated 162,251 71,355
Income Statement
Net interest income used in the calculation of NIM (annualised) 658,018 289,384
H. Alternative Performance Measures (continued)
Ratios Information (continued)
1. Net Interest Margin (NIM) (continued)
1.5. Interest earning assets 31 March 2023 31 December
2022
€000 €000
Cash and balances with central banks 9,247,705 9,567,258
Loans and advances to banks 415,832 204,811
Loans and advances to customers 10,013,108 9,953,252
Prepayments, accrued income and other assets - Deferred consideration 315,755 311,523
receivable ('DPP')
Investments
Debt securities 2,749,980 2,508,862
Less: Investments which are not interest bearing (3,190) (8,968)
Total interest earning assets 22,739,190 22,536,738
1.6. Quarterly average interest earning assets (€000)
- as at 31 March 2023 22,637,964
- as at 31 March 2022 21,942,860
1.2.
1.7. Net Interest Margin (NIM) Three months ended
31 March
2023 2022
(restated)
Net interest income (annualised) (as per table 1.1. above) (€000) 658,018 289,384
Quarterly average interest earning assets (as per table 1.3. above) (€000) 22,637,964 21,942,860
NIM (%) 2.91% 1.32%
2. Cost to income ratio
The various components used in the determination of the cost to income ratio
are provided below:
2.1 Total Income as per the underlying basis Three months ended
31 March
2023 2022 (restated)
€000 €000
Net interest income (as per table 1.1 above) 162,251 71,355
Net fee and commission income as per the underlying basis/statutory basis 44,211 43,726
Net foreign exchange gains and Net gains/(losses) on financial instruments as 13,032 1,866
per the underlying basis
Net insurance result* 9,554 11,218
Net losses from revaluation and disposal of investment properties and Net 1,570 4,873
gains on disposal of stock of properties (as per the statutory basis)
Other income (as per the statutory basis) 2,917 4,252
Total Income as per the underlying basis 233,535 137,290
*Net insurance result comprises the aggregate of captions 'Net insurance
finance income/(expense) and net reinsurance finance income/(expenses)', 'Net
insurance service result' and 'Net reinsurance service result' per the
statutory basis.
H. Alternative Performance Measures (continued)
Ratios Information (continued)
2. Cost to income ratio (continued)
2.2 Total Expenses as per the underlying basis Three months ended
31 March
2023 2022 (restated)
€000 €000
Staff costs as per the underlying basis 45,637 47,352
Special levy on deposits and other levies/contributions as per the underlying 11,088 9,857
basis/statutory basis
Other operating expenses as per the underlying basis 33,933 34,365
Total Expenses as per the underlying basis 90,658 91,574
Cost to income ratio
Total expenses (as per table 2.2 above) (€000) 90,658 91,574
Total income (as per table 2.1 above) (€000) 233,535 137,290
Total expenses/Total income (%) 39% 67%
4. 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 2023 31 December
2022
(restated)
€000 €000
Total assets used in the computation of the operating profit return on average 25,386,804 25,288,541
assets per the statutory basis (Section E Unaudited Interim Consolidated
Balance Sheet)
Quarterly average total assets (€000)
- as at 31 March 2023 25,337,673
- as at 31 March 2022 (restated) 24,874,104
2023 2022
(restated)
Annualised total income for the three months ended 31 March (as per table 2.1 947,114 556,787
above) (€000)
Annualised total expenses for the three months ended 31 March (as per table (367,669) (371,383)
2.2 above) (€000)
Annualised operating profit for the three months ended 31 March (€000) 579,445 185,404
Quarterly average total assets as at 31 March (as per table above) (€000) 25,337,673 24,874,104
Operating profit return on average assets (annualised) (%) 2.3% 0.7%
H. Alternative Performance Measures (continued)
Ratios Information (continued)
7. Basic earnings after tax and before non-recurring items per
share attributable to the owners of the Company
The various components used in the determination of the 'Basic earnings after
tax and before non-recurring items per share attributable to the owners of the
Company (€ cent)' are provided below:
2023 2022
(restated)
Profit after tax and before non-recurring items (attributable to the owners of 95,954 23,555
the Company) per the underlying basis for the three months ended 31 March
(Section F.1) (€000)
Weighted average number of shares in issue during the period, excluding 446,058 446,058
treasury shares (€000)
Basic earnings after tax and before non-recurring items per share attributable 21.51 5.28
to the owners of the Company (€ cent)
8. Return on tangible equity (ROTE) after tax and before
non-recurring items
The various components used in the determination of 'Return on tangible equity
(ROTE) after tax and before non-recurring items' are provided below:
2023 2022
(restated)
Annualised profit after tax and before non-recurring items (attributable to 389,147 95,529
the owners of the Company) per the underlying basis for the three months ended
31 March (Section F.1) (€000)
Quarterly average tangible total equity as at 31 March (as per table 5.2 1,801,746 1,751,317
below) (€000)
ROTE after tax and before non-recurring items (annualised) (%) 21.6% 5.5%
5.1 Tangible total equity 31 March 31 December 2022
2023 (restated)
Equity attributable to the owners of the Company (as per the statutory basis) 1,899,202 1,806,266
Less: Intangible assets (as per the statutory basis) (49,430) (52,546)
Total tangible equity 1,849,772 1,753,720
5.2 Quarterly average tangible total equity (€000)
- as at 31 March 2023 1,801,746
- as at 31 March 2022 (restated) 1,751,317
9. Return on tangible equity (ROTE)
2023 2022
(restated)
Annualised profit after tax (attributable to the owners of the Company) for 384,175 69,837
the three months ended 31 March (Section F.1) (€000)
Quarterly average tangible total equity as at 31 March (as per table 5.2 1,801,746 1,751,317
above) (€000)
ROTE 21.3% 4.0%
I. Definitions & Explanations
Adjusted recurring profitability The Group's profit after tax before non-recurring items (attributable to the
owners of the Company) taking into account distributions under other equity
instruments such as the annual AT1 coupon.
Advisory and other restructuring costs Comprise mainly (a) fees of external advisors in relation to: (i) disposal of
operations and non-core assets, and (ii) customer loan restructuring
activities, and (b) the cost of the tender offer for the T2 Capital Notes,
where applicable.
Allowance for expected loan credit losses (previously 'Accumulated Comprises (i) allowance for expected credit losses (ECL) on loans and advances
provisions') to customers (including allowance for expected credit losses on loans and
advances to customers held for sale where applicable), (ii) the residual fair
value adjustment on initial recognition of loans and advances to customers
(including residual fair value adjustment on initial recognition on loans and
advances to customers classified as held for sale where applicable), (iii)
allowance for expected credit losses for off-balance sheet exposures
(financial guarantees and commitments) disclosed on the balance sheet within
other liabilities, and (iv) the aggregate fair value adjustment on loans and
advances to customers classified and measured at FVPL.
AT1 AT1 (Additional Tier 1) is defined in accordance with the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II applicable as at the
reporting date.
Basic earnings after tax per share (attributable to the owners of the Company) Basic earnings after tax per share (attributable to the owners of the Company)
is the Profit/(loss) after tax (attributable to the owners of the Company)
divided by the weighted average number of shares in issue during the period,
excluding treasury shares.
Carbon neutral The reduction and balancing (through a combination of offsetting investments
or emission credits) of greenhouse gas emissions from own operations.
CET1 capital ratio (transitional basis) CET1 capital ratio (transitional basis) is defined in accordance with the
Capital Requirements Regulation (EU) No 575/2013, as amended by CRR II
applicable as at the reporting date.
CET1 Fully loaded (FL) The CET1 fully loaded (FL) ratio is defined in accordance with the Capital
Requirements Regulation (EU) No 575/2013, as amended by CRR II applicable as
at the reporting date.
Cost to Income ratio Cost-to-income ratio comprises total expenses (as defined) divided by total
income (as defined).
Data from the Statistical Service The latest data from the Statistical Service of the Republic of Cyprus, Cyprus
Statistical Service, was published on 18 April 2023.
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. Digitally engaged customers are the
individuals who use the digital channels of the Bank (mobile banking app,
browser and ATMs) to perform banking transactions, as well as digital enablers
such as a bank-issued card to perform online card purchases, based on an
internally developed scorecard.
ECB European Central Bank
I. Definitions & Explanations (continued)
Green Asset ratio The proportion of the share of credit institution's assets financing and
invested in EU Taxonomy-aligned economic activities as a share of total
covered assets.
Green Mortgage ratio The proportion of the share of credit institution's assets financing EU
Taxonomy-aligned mortgages (acquisition, construction or renovation of
buildings) as a share of total mortgages assets.
Gross loans Gross loans comprise: (i) gross loans and advances to customers measured at
amortised cost before the residual fair value adjustment on initial
recognition (including loans and advances to customers classified as
non-current assets held for sale where applicable) and (ii) loans and advances
to customers classified and measured at FVPL adjusted for the aggregate fair
value adjustment.
Gross loans are reported before the residual fair value adjustment on initial
recognition relating mainly to loans acquired from Laiki Bank (calculated as
the difference between the outstanding contractual amount and the fair value
of loans acquired) amounting to €78 mn as at 31 March 2023 (compared to
€86 mn as at 31 December 2022 and €149 mn as at 31 March 2022).
Additionally, gross loans include loans and advances to customers classified
and measured at fair value through profit or loss adjusted for the aggregate
fair value adjustment of €208 mn as at 31 March 2023 (compared to €211 mn
as at 31 December 2022 and €312 mn at 31 March 2022).
Group The Group consists οf Bank of Cyprus Holdings Public Limited Company, "BOC
Holdings" or the "Company", its subsidiary Bank of Cyprus Public Company
Limited, the "Bank" and the Bank's subsidiaries.
Legacy exposures Legacy exposures are exposures relating to (i) Restructuring and Recoveries
Division (RRD), (ii) Real Estate Management Unit (REMU), and (iii) non-core
overseas exposures.
Leverage ratio The leverage ratio is the ratio of tangible total equity (including Other
equity instruments) to total assets as presented on the balance sheet.
Tangible total equity comprises of equity attributable to the owners of the
Company minus intangible assets.
Leverage Ratio Exposure (LRE) Leverage Ratio Exposure (LRE) is defined in accordance with the Capital
Requirements Regulation (EU) No 575/2013, as amended.
Loan credit losses (PL) (previously 'Provision charge') Loan credit losses comprise: (i) credit losses to cover credit risk on loans
and advances to customers, (ii) net gains on derecognition of financial assets
measured at amortised cost and (iii) net gains on loans and advances to
customers at FVPL, for the reporting period/year.
Loan credit losses charge (previously 'Provisioning charge') (cost of risk) Loan credit losses charge (cost of risk) (year-to-date) is calculated as the
annualised 'loan credit losses' (as defined) divided by average gross loans.
The average gross loans are calculated as the average of the opening balance
and the closing balance, for the reporting period/year.
Market Shares Both deposit and loan market shares are based on data from the CBC. The Bank
is the single largest credit provider in Cyprus with a market share of 42.4%
as at 31 March 2023 compared to 40.9% as at 31 December 2022, and 41.9% as at
31 March 2022.
MSCI ESG Rating The use by the Company and the Bank of any MSCI ESG Research LLC or its
affiliates ('MSCI') data, and the use of MSCI Logos, trademarks, service marks
or index names herein, do not constitute a sponsorship, endorsement,
recommendation or promotion of the Company or the Bank by MSCI. MSCI Services
and data are the property of MSCI or its information providers and are
provided "as-is" and without warranty. MSCI Names and logos are trademarks or
service marks of MSCI.
Net Interest Margin Net interest margin is calculated as the net interest income (annualised)
divided by the 'quarterly average interest earning assets' (as defined).
I. Definitions & Explanations (continued)
Net loans and advances to customers Net loans and advances to customers comprise gross loans (as defined) net of
allowance for expected loan credit losses (as defined, but excluding allowance
for expected credit losses on off-balance sheet exposures disclosed on the
balance sheet within other liabilities).
Net loans to deposits ratio Net loans to deposits ratio is calculated as gross loans (as defined) net of
allowance for expected loan credit losses (as defined) divided by customer
deposits.
Net performing loan book Net performing loan book is the total net loans and advances to customers (as
defined) excluding the legacy exposures (as defined).
Net Stable Funding Ratio (NSFR) The NSFR is calculated as the amount of "available stable funding" (ASF)
relative to the amount of "required stable funding" (RSF). The regulatory
limit, enforced in June 2021, has been set at 100% as per the CRR II.
Net zero emissions The reduction of greenhouse gas emissions to net zero through a combination of
reduction activities and offsetting investments
New lending New lending includes the disbursed amounts of the new and existing
non-revolving facilities (excluding forborne or re-negotiated accounts) as
well as the average year-to-date change (if positive) of the current accounts
and overdraft facilities between the balance at the beginning of the period
and the end of the period. Recoveries are excluded from this calculation since
their overdraft movement relates mostly to accrued interest and not to new
lending.
Non-interest income Non-interest income comprises Net fee and commission income, Net foreign
exchange gains/(losses) and net gains/(losses) on financial instruments and
(excluding net gains on loans and advances to customers at FVPL), Net
insurance result, Net gains/(losses) from revaluation and disposal of
investment properties and on disposal of stock of properties, and Other
income.
Non-performing exposures (NPEs) As per the European Banking Authorities (EBA) standards and European Central
Bank's (ECB) Guidance to Banks on Non-Performing Loans (which was published in
March 2017), non-performing exposures (NPEs) are defined as those exposures
that satisfy one of the following conditions:
(i) The borrower is assessed as unlikely to pay its credit obligations in
full without the realisation of the collateral, regardless of the existence of
any past due amount or of the number of days past due.
(ii) Defaulted or impaired exposures as per the approach provided in the
Capital Requirement Regulation (CRR), which would also trigger a default under
specific credit adjustment, diminished financial obligation and obligor
bankruptcy.
(iii) Material exposures as set by the CBC, which are more than 90 days past
due.
(iv) Performing forborne exposures under probation for which additional
forbearance measures are extended.
(v) Performing forborne exposures previously classified as NPEs that present
more than 30 days past due within the probation period.
From 1 January 2021 two regulatory guidelines came into force that affect NPE
classification and Days-Past-Due calculation. More specifically, these are the
RTS on the Materiality Threshold of Credit Obligations Past-Due
(EBA/RTS/2016/06), and the Guideline on the Application of the Definition of
Default under article 178 (EBA/RTS/2016/07).
The Days-Past-Due (DPD) counter begins counting DPD as soon as the arrears or
excesses of an exposure reach the materiality threshold (rather than as of the
first day of presenting any amount of arrears or excesses). Similarly, the
counter will be set to zero when the arrears or excesses drop below the
materiality threshold. Payments towards the exposure that do not reduce the
arrears/excesses below the materiality threshold, will not impact the counter.
For retail debtors, when a specific part of the exposures of a customer that
fulfils the NPE criteria set out above is greater than 20% of the gross
carrying amount of all on balance sheet exposures of that customer, then the
total customer exposure is classified as non‑performing; otherwise only the
specific part of the exposure is classified as non‑performing. For
non‑retail debtors, when an exposure fulfils the NPE criteria set out above,
then the total customer exposure is classified as non‑performing.
I. Definitions & Explanations (continued)
Non-performing exposures (NPEs) Material arrears/excesses are defined as follows: (a) Retail exposures: Total
arrears/excess amount greater than €100, (b) Exposures other than retail:
Total arrears/excess amount greater than €500 and the amount in
arrears/excess in relation to the customer's total exposure is at least 1%.
The NPEs are reported before the deduction of allowance for expected loan
credit losses (as defined).
Non-recurring items Non-recurring items as presented in the 'Unaudited Interim Condensed
Consolidated Income Statement - Underlying basis' relate to the following
items, as applicable: (i) Advisory and other restructuring costs - organic,
(ii) Provisions/net profit/(loss) relating to NPE sales, (iii) Restructuring
and other costs relating to NPE sales, and (iv) Restructuring costs relating
to the Voluntary Staff Exit Plan.
NPE coverage ratio (previously 'NPE Provisioning coverage ratio') The NPE coverage ratio is calculated as the allowance for expected loan credit
losses (as defined) over NPEs (as defined).
NPE ratio NPEs ratio is calculated as the NPEs as per EBA (as defined) divided by gross
loans (as defined).
Operating profit The 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 after tax and before non-recurring items (attributable to the owners of This refers to the profit after tax (attributable to the owners of the
the Company) Company), excluding any 'non-recurring items' (as defined).
Profit/(loss) after tax - organic (attributable to the owners of the Company) This refers to the profit or loss after tax (attributable to the owners of the
Company), excluding any 'non-recurring items' (as defined, except for the
'advisory and other restructuring costs - organic').
Project Helix 3 Project Helix 3 refers to the agreement the Group reached in November 2021 for
the sale of a portfolio of NPEs with gross book value of €551 mn, as well as
real estate properties with book value of c.€88 mn as at 30 September 2022.
Project Helix 3 was completed in November 2022. For further information please
refer to section A.1.5 Loan portfolio quality.
I. Definitions & Explanations (continued)
Project Sinope Project Sinope refers to the agreement the Group reached in December 2021 for
the sale of a portfolio of NPEs with gross book value of €12 mn as at 31
December 2021, as well as properties in Romania with carrying value €0.6 mn
as at 31 December 2021. Project Sinope was completed in August 2022.
Quarterly average interest earning assets This relates to the average of 'interest earning assets' as at the beginning
and end of the relevant quarter. 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 (including cash and balances with central banks classified as
non-current assets held for sale), plus loans and advances to banks, plus net
loans and advances to customers (including loans and advances to customers
classified as non-current assets held for sale), plus 'deferred consideration
receivable' included within 'other assets', plus investments (excluding
equities and mutual funds).
Qoq Quarter on quarter change
Return on Tangible equity (ROTE) Return on Tangible Equity (ROTE) is calculated as Profit/(loss) after tax
(attributable to the owners of the Company) (as defined) (annualised - (based
on year to date days)), divided by the quarterly average of Shareholders'
equity minus intangible assets at each quarter end.
Special levy on deposits and other levies/contributions Relates to the special levy on deposits of credit institutions in Cyprus,
contributions to the Single Resolution Fund (SRF), contributions to the
Deposit Guarantee Fund (DGF), as well as the DTC levy, where applicable.
Total Capital ratio Total capital ratio is defined in accordance with the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II applicable as at the
reporting date.
Total expenses Total expenses comprise staff costs, other operating expenses and the special
levy on deposits and other levies/contributions. It does not include (i)
'advisory and other restructuring costs-organic', (ii) restructuring and other
costs relating to NPE sales, or (iii) restructuring costs relating to the
Voluntary Staff Exit Plan. (i) 'Advisory and other restructuring
costs-organic' amounted to €1 mn for 1Q2023 (compared to €1 mn for 4Q2022,
and €1 mn for 1Q2022) (ii) Restructuring costs relating to NPE sales for
1Q2023 amounted to €0.2 mn (compared to €0.3 mn for 4Q2022, and €1 mn
for 1Q2022), and (iii) Restructuring costs relating to the Voluntary Staff
Exit Plan (VEP) for 1Q2023 was nil (compared to nil for 4Q2022 and €3 mn for
1Q2022).
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 impairments of other financial and non-financial
assets, plus (provisions)/net reversals for litigation, claims, regulatory and
other matters.
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 2023.
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 2023.
The financial information in this announcement is not audited and does not
constitute statutory financial statements of BOC Holdings within the meaning
of section 340 of the Companies Act 2014. The Group statutory financial
statements for the year ended 31 December 2022, upon which the auditors have
given an unqualified opinion, were published on 31 March 2023 and are expected
to be delivered to the Registrar of Companies of Ireland within 56 days of 30
September 2023. The Board of Directors approved the Group statutory financial
statements for the quarter ended 31 March 2023 on 15 May 2023.
Statutory basis: Statutory information is set out on pages 31-101. However, a
number of factors have had a significant effect on the comparability of the
Group's financial position and performance. Accordingly, the results are also
presented on an underlying basis.
Underlying basis: The financial information presented under the underlying
basis provides an overview of the Group financial results for the quarter
ended 31 March 2023, which the management believes best fits the true
measurement of the financial performance and position of the Group. For
further information, please refer to 'Commentary on Underlying Basis' on pages
5-6. The statutory results are adjusted for certain items (as described on
page 36) to allow a comparison of the Group's underlying financial position
and performance, as set out on pages 4-7.
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 2023 have been posted on the Group's website
www.bankofcyprus.com (Group/Investor Relations/Financial Results).
Definitions: The Group uses definitions in the discussion of its business
performance and financial position which are set out in section I, together
with explanations.
The Group Financial Results for the quarter ended 31 March 2023 are presented
in Euro (€) and all amounts are rounded as indicated. A comma is used to
separate thousands and a dot is used to separate decimals.
Forward Looking Statements
This document contains certain forward-looking statements which can usually be
identified by terms used such as "expect", "should be", "will be" and similar
expressions or variations thereof or their negative variations, but their
absence does not mean that a statement is not forward-looking. Examples of
forward-looking statements include, but are not limited to, statements
relating to the Group's near term, medium term and longer term future capital
requirements and ratios, intentions, beliefs or current expectations and
projections about the Group's future results of operations, financial
condition, expected impairment charges, the level of the Group's assets,
liquidity, performance, prospects, anticipated growth, provisions,
impairments, business strategies and opportunities. By their nature,
forward-looking statements involve risk and uncertainty because they relate to
events, and depend upon circumstances, that will or may occur in the future.
Factors that could cause actual business, strategy and/or results to differ
materially from the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements made by the Group include, but
are not limited to: general economic and political conditions in Cyprus and
other European Union (EU) Member States, interest rate and foreign exchange
fluctuations, legislative, fiscal and regulatory developments, information
technology, litigation and other operational risks, adverse market conditions,
the impact of outbreaks, epidemics or pandemics, such as the COVID-19 pandemic
and ongoing challenges and uncertainties posed by the COVID-19 pandemic for
businesses and governments around the world. The Russian invasion of Ukraine
has led to heightened volatility across global markets and to the coordinated
implementation of sanctions on Russia, Russian entities and nationals. The
Russian invasion of Ukraine has caused significant population displacement,
and as the conflict continues, the disruption will likely increase. The scale
of the conflict and the extent of sanctions, as well as the uncertainty as to
how the situation will develop, may have significant adverse effects on the
market and macroeconomic conditions, including in ways that cannot be
anticipated. This creates significantly greater uncertainty about
forward-looking statements. Should any one or more of these or other factors
materialise, or should any underlying assumptions prove to be incorrect, the
actual results or events could differ materially from those currently being
anticipated as reflected in such forward-looking statements. The
forward-looking statements made in this document are only applicable as at the
date of publication of this document. Except as required by any applicable law
or regulation, the Group expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statement
contained in this document to reflect any change in the Group's expectations
or any change in events, conditions or circumstances on which any statement is
based. Changes in our reporting frameworks and accounting standards, including
the recently announced reporting changes and the implementation of IFRS 17
'Insurance Contracts', which may have a material impact on the way we prepare
our financial statements and (with respect to IFRS 17) may negatively affect
the profitability of Group's insurance business
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial services group
in Cyprus, providing a wide range of financial products and services which
include retail and commercial banking, finance, factoring, investment banking,
brokerage, fund management, private banking, life and general insurance. At 31
March 2023, the Bank of Cyprus Group operated through a total of 64 branches
in Cyprus, of which 4 operated as cash offices. The Bank of Cyprus Group
employed 2,883 staff worldwide. At 31 March 2023, the Group's Total Assets
amounted to €25.4 bn and Total Equity was €2.1 bn. The Bank of Cyprus
Group comprises Bank of Cyprus Holdings Public Limited Company, its subsidiary
Bank of Cyprus Public Company Limited and its subsidiaries.
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