REG - Bank of Cyprus Hldgs - 1Q2024 Group Financial Results
16/05/2024 07:00
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RNS Number : 6936O Bank of Cyprus Holdings PLC 16 May 2024
Announcement
Group Financial Results for the quarter ended 31 March 2024
Nicosia, 16 May 2024
Key Highlights for the quarter ended 31 March 2024
Resilient economic outlook
· 3.3% GDP growth in 1Q2024; projected to grow by c. 2.9%(1) in
2024 outpacing Euro area average
· Seasonally strong quarter of new lending of €676 mn, up 46% qoq
and 8% yoy
· Gross performing loan book at €10.0 bn, up 2% qoq
Delivering ROTE of 23.6% in 1Q2024
· NII of €213 mn down 3% qoq, reflecting modest decline in
Euribor, hedging and marginally higher cost of deposits
· Total operating expenses(2) down 14% on prior quarter due to
quarterly seasonality and broadly flat yoy; cost to income ratio(2) reduced to
29% (vs 34% in 1Q2023)
· Profit after tax of €133 mn down 4% qoq and up 40% yoy; basic
earnings per share of €0.30 for 1Q2024
Liquid and resilient balance sheet
· NPE ratio at 3.4% (0.8% on net basis) down 20 bps qoq
· NPE Coverage at 77% up 4 p.p. on prior year; cost of risk at 27
bps
· Retail funded deposit base at €19.3 bn, flat qoq and up 2% yoy
· Highly liquid balance sheet with €7.2 bn placed at the ECB;
€1.7 bn TLTRO repaid in March 2024
· In compliance with 2024 final MREL target post successful
issuance of €300 mn Green Senior Preferred Notes in April 2024
Robust capital and shareholder focus
· Regulatory CET1 ratio and Total Capital ratio of 17.1% and 22.0%
respectively
· Including 1Q2024 profits net of distribution accrual, CET1 ratio
at 17.6% and Total Capital ratio at 22.5%
· Organic capital generation(3) of 128 bps in 1Q2024
· Tangible book value per share of €5.23(4) as at 31 March 2024
up 26% yoy
1. Source: Cyprus' Ministry of Finance; projections as of April 2024
2. Excluding special levy on deposits and other levies/contributions
3. Based on profit after tax (pre-distributions)
4. This includes cash dividend which is expected to be paid on 14 June
2024
*Key Highlights are based on the financial results on an 'Underlying Basis'.
Group Chief Executive Statement
"We had a strong start to the year underpinned by compelling financial results
and the approval of a meaningful distribution, representing another important
milestone in our strategic progress. We proposed a total distribution of
€137 mn in respect of 2023 earnings comprising a cash dividend of €112 mn
and an inaugural share buyback of up to €25 mn, corresponding to an overall
payout ratio of 30%, a material increase compared to the previous year.
During the first quarter of the year, we delivered a ROTE of 23.6%, the fifth
consecutive quarter with a ROTE over 20%, tracking ahead of our 2024 targets.
Our performance was supported by continued strong net interest income,
declining only modestly from the previous quarter, reflecting high rates and
ample liquidity as well as our continuous focus on cost discipline and robust
asset quality.
This was all supported by a Cypriot economy that continues to display strength
and resilience against the backdrop of geopolitical uncertainty. In the first
quarter of 2024, GDP increased by 3.3% in Cyprus and is forecast to grow by
c.2.9%(1) in 2024, expected to outpace the Eurozone average.
Our balance sheet is characterised by a robust capital position, high
liquidity and healthy asset quality. Our regulatory CET1 ratio stood at 17.1%
as at 31 March 2024 or 17.6% including profits in the quarter net of
distribution accrual(2). Organic capital generation was again strong at c.130
bps. Our tangible book value per share improved by 26% year on year to
€5.23, reflecting our delivery for shareholder value creation.
In April 2024 the Group successfully issued €300 mn MREL-eligible green
senior preferred notes, thereby finalising our MREL requirements and including
a comfortable buffer. This issuance was the first ever green bond issuance for
Bank of Cyprus, representing an important step to lead the transition of
Cyprus to a sustainable future.
Our positive set of financial results this quarter provides the foundations to
deliver a ROTE of over 17% on a 15% CET1 ratio. We will review our financial
targets alongside our 1H2024 financial results. We continue to execute our
strategy, with a clear focus on supporting our customers, delivering
shareholder value and assisting the development of the Cypriot economy."
Panicos Nicolaou
1. Source: Cyprus' Ministry of Finance; projections as of April 2024
2. In line with Commission Delegated Regulation (EU) No 241/2014
principles. The distribution accrual does not constitute an approval by
regulators or a decision by the Bank with respect to distribution payments for
2024. Any recommendation of a distribution is subject to regulatory approval
A. Group Financial Results - Underlying Basis
Unaudited Interim Condensed Consolidated Income Statement
€ mn 1Q2024 4Q2023 1Q2023 qoq +% yoy +%
Net interest income 213 220 162 -3% 31%
Net fee and commission income 42 46 44 -10% -5%
Net foreign exchange gains and net gains on financial instruments 7 8 13 -12% -44%
Net insurance result 10 16 10 -37% 4%
Net gains/(losses) from revaluation and disposal of investment properties and 1 3 2 -81% -65%
on disposal of stock of properties
Other income 3 3 3 -8% 1%
Total income 276 296 234 -7% 18%
Staff costs (48) (51) (46) -6% 5%
Other operating expenses (33) (42) (34) -24% -3%
Special levy on deposits and other levies/contributions (11) (13) (11) -8% 4%
Total expenses (92) (106) (91) -13% 2%
Operating profit 184 190 143 -3% 28%
Loan credit losses (7) (19) (11) -64% -39%
Impairments of other financial and non-financial assets (8) (15) (11) -45% -22%
Provisions for pending litigations, claims, regulatory and other matters (net (10) (8) (6) 24% 55%
of reversals)
Total loan credit losses, impairments and provisions (25) (42) (28) -40% -12%
Profit before tax and non-recurring items 159 148 115 7% 39%
Tax (25) (10) (18) 148% 40%
Profit attributable to non-controlling interests (1) 0 (1) - 5%
Profit after tax and before non-recurring items (attributable to the owners of 133 138 96 -4% 38%
the Company)
Advisory and other transformation costs - organic - - (1) - -100%
Profit after tax (attributable to the owners of the Company) 133 138 95 -4% 40%
A. Group Financial Results - Underlying Basis (continued)
Unaudited Interim Condensed Consolidated Income Statement- Key Performance
Ratios
Key Performance Ratios 1Q2024 4Q2023 1Q2023 qoq +% yoy +%
Net Interest Margin (annualised) 3.70% 3.66% 2.91% 4 bps 79 bps
Net Interest Margin (annualised) excluding TLTRO III 3.90% 4.00% 3.18% -10 bps 72 bps
Cost to income ratio 33% 36% 39% -3 p.p. -6 p.p.
Cost to income ratio excluding special levy on deposits and other 29% 32% 34% -3 p.p. -5 p.p.
levies/contributions
Operating profit return on average assets (annualised) 2.9% 2.8% 2.3% 0.1 p.p. 0.6 p.p.
Basic earnings per share attributable to the owners of the Company (€)(1) 0.30 0.31 0.21 -0.01 0.09
Return on tangible equity (ROTE) 23.6% 25.6% 21.3% -2.0 p.p. 2.3 p.p.
Return on tangible equity (ROTE) on 15% CET1 ratio(2) 29.1% 28.8% 21.9% 0.3 p.p. 7.2 p.p.
Tangible book value per share (€) 5.23 4.93 4.15 0.30 1.08
Tangible book value per share excluding the proposed cash dividend 4.98 4.68 4.10 0.30 0.88
1. The diluted earnings per share attributable to the owners of the Company
for 1Q2024 amounted to €0.30 (compared to €0.31 for 4Q2023 and €0.21 for
1Q2023)
2. Calculated as Profit/(loss) after tax (attributable to the owners of the
Company) (annualised - (based on year - to - date days), divided by the
quarterly average of Shareholders' equity minus intangible assets and after
deducting the excess CET1 capital on a 15% CET1 ratio from the tangible book
value
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 2024 on the
'underlying basis' which management believes best fits the true measurement of
the performance and position of the Group, as this presents separately any
non-recurring items and also includes certain reclassifications of items,
other than non-recurring items, which are done for presentational purposes
under the underlying basis for aligning the presentation with items of a
similar nature.
Reconciliations between the statutory basis and the underlying basis to
facilitate the comparability of the underlying basis to the statutory
information, are included in Section F.1 'Reconciliation of Interim
Consolidated Income statement for the three months ended 31 March 2024 between
statutory and underlying basis' and Section H under 'Alternative Performance
Measures' and Section I under 'Definitions & Explanations.
A. Group Financial Results- Underlying Basis (continued)
Unaudited Interim Condensed Consolidated Balance Sheet
€ mn 31.03.2024 31.12.2023 +%
Cash and balances with central banks 7,217 9,615 -25%
Loans and advances to banks 384 385 0%
Reverse repurchase agreements 708 403 75%
Debt securities, treasury bills and equity investments 3,876 3,695 5%
Net loans and advances to customers 10,028 9,822 2%
Stock of property 804 826 -3%
Investment properties 62 62 0%
Other assets 1,862 1,821 2%
Total assets 24,941 26,629 -6%
Deposits by banks 396 472 -16%
Funding from central banks 310 2,044 -85%
Customer deposits 19,260 19,337 0%
Debt securities in issue 673 672 0%
Subordinated liabilities 309 307 1%
Other liabilities 1,370 1,309 5%
Total liabilities 22,318 24,141 -8%
Shareholders' equity 2,381 2,247 6%
Other equity instruments 220 220 -
Total equity excluding non-controlling interests 2,601 2,467 5%
Non-controlling interests 22 21 3%
Total equity 2,623 2,488 5%
Total liabilities and equity 24,941 26,629 -6%
Key Balance Sheet figures and ratios 31.03.2024 31.12.2023 +
Gross loans (€ mn) 10,276 10,070 2%
Allowance for expected loan credit losses (€ mn) 267 267 0%
Customer deposits (€ mn) 19,260 19,337 0%
Loans to deposits ratio (net) 52% 51% 1 p.p.
NPE ratio 3.4% 3.6% -20 bps
NPE coverage ratio 77% 73% +4 p.p.
Leverage ratio 10.2% 9.1% +110 bps
Capital ratios and risk weighted assets 31.03.2024 31.03.2024 31.12.2023 +
(Regulatory) (including Retained Earnings(1)) (Regulatory)(2)
Common Equity Tier 1 (CET1) ratio (transitional) 17.1% 17.6% 17.4% +20 bps
Total capital ratio (transitional) 22.0% 22.5% 22.4% +10 bps
Risk weighted assets (€ mn) 10,548 10,548 10,341 +2%
1. Includes unaudited/unreviewed profits for 1Q2024 net of distribution
accrual (refer to A.2.1 'Capital Base'. Any recommendation for a distribution
is subject to regulatory approval
2. Includes profits for the year ended 31 December 2023 net of distribution at
30% payout ratio, following ECB approval in March 2024 (refer to section
A.2.1).
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 p.p.
A. Group Financial Results - Underlying Basis (continued)
A.2 Balance Sheet Analysis
A.2.1 Capital Base
Total equity excluding non-controlling interests totalled €2,601 mn as at 31
March 2024 compared to €2,467 mn as at 31 December 2023 and €2,119 mn as
at 31 March 2023. Shareholders' equity totalled to €2,381 mn as at 31 March
2024 compared to €2,247 mn as at 31 December 2023 and to €1,899 mn as at
31 March 2023.
The regulatory Common Equity Tier 1 capital (CET1) ratio on a transitional
basis stood at 17.1% as at 31 March 2024 compared to 17.4% as at 31 December
2023. Throughout this announcement, the regulatory capital ratios as at 31
March 2024 do not include profits for the quarter ended 31 March 2024 (such
ratios are referred as regulatory). Including the profits for 1Q2024 of c.130
bps, net of distribution accrual at the top end of the Group's approved
distribution policy in line with Commission Delegated Regulation (EU) No
241/2014 principles of c.70 bps, the CET1 ratio on a transitional basis
(referred as ratios including retained earnings) increased to 17.6% as at 31
March 2024. As per the latest SREP decision, any distribution is subject to
regulatory approval. Such distribution accrual in respect of 2024 earnings
does not constitute a binding commitment for a distribution payment nor does
it constitute a warranty or representation that such a payment will be made.
Since September 2023, a charge is deducted from own funds in relation to the
ECB prudential expectations for NPEs, which amounted to 32bps as at 31 March
2024, broadly flat compared to prior quarter. A prudential charge in relation
to an onsite inspection on the value of the Group's foreclosed assets is being
deducted from own funds since June 2021, the impact of which was 10 bps on
Group's CET1 ratio as at 31 March 2024 (compared to 12 bps on 31 December
2023). In addition, the Group is subject to increased capital requirements in
relation to its real estate repossessed portfolio which follow a SREP
provision to ensure minimum capital levels retained on long-term holdings of
real estate assets, with such requirements being dynamic by reference to the
in-scope REMU assets remaining on the balance sheet of the Group and the value
of such assets. As at 31 March 2024 the impact of these requirements was 41
bps on Group's CET1 ratio, compared to 24 bps as at 31 December 2023. The
above-mentioned requirements are within the capital plans of the Group and
incorporated within its capital projections.
The regulatory Total Capital ratio on a transitional basis stood at 22.0% as
at 31 March 2024 compared to 22.4% as at 31 December 2023. Including the
profits for 1Q2024 of c.130 bps, net of distribution accrual at the top end of
the Group's approved distribution policy in line with Commission Delegated
Regulation (EU) No 241/2014 principles of c.70 bps the Total Capital ratio on
transitional basis (including retained earnings) increases to 22.5% as at 31
March 2024.
The Group's capital ratios are above the Supervisory Review and Evaluation
Process (SREP) requirements.
As at 31 March 2024 the Group's minimum phased-in CET1 capital ratio is set at
10.91%, comprising a 4.50% Pillar I requirement, a 1.55% Pillar II
requirement, the Capital Conservation Buffer of 2.50%, the O-SII Buffer of
1.875% and CcyB of 0.49%. Likewise, the Group's minimum phased-in Total
Capital ratio requirement is set at 15.61%, comprising an 8.00% Pillar I
requirement, of which up to 1.50% can be in the form of AT1 capital and up to
2.00% in the form of T2 capital, a 2.75% Pillar II requirement, the Capital
Conservation Buffer of 2.50%, the O-SII Buffer of 1.875% and the CcyB of
0.49%. The ECB has also provided revised lower non-public guidance for an
additional Pillar II CET1 buffer (P2G) compared to previous year. From 2 June
2024 both CET1 capital and Total Capital requirements are expected to increase
by c.0.50% as a result of the increase in the CcyB.
On 30 November 2022, the CBC, following the revised methodology described in
its macroprudential policy, decided to increase the CcyB from 0.00% to 0.50%
of the total risk exposure amounts in Cyprus of each licensed credit
institution incorporated in Cyprus effective from 30 November 2023. Further,
in June 2023, the CBC announced an additional increase of 0.50% in the CcyB of
the total risk exposure amounts in Cyprus of each licensed credit institution
incorporated in Cyprus to be observed from June 2024, increasing the CcyB to
1.00%.
The Bank has been designated as an Other Systemically Important Institution
(O-SII) by the Central Bank of Cyprus (CBC) in accordance with the provisions
of the Macroprudential Oversight of Institutions Law of 2015 and the relevant
buffer increased by 37.5 bps to 1.875% on 1 January 2024. In April 2024,
following a revision by the CBC of its policy for the designation of credit
institutions that meet the definition of O-SII institutions and the setting of
O-SII buffer to be observed, the Group's O-SII buffer has been reduced to
2.00% on 1 January 2026 (from the previous assessment of 2.25% on 1 January
2025) to be phased by 6.25 bps annually to 1.9375% on 1 January 2025 and 2.00%
as of 1 January 2026 from the current level of 1.875%.
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.
A. Group Financial Results - Underlying Basis (continued)
A.2 Balance Sheet Analysis (continued)
A.2.1 Capital Base (continued)
The Group's minimum phased-in CET1 capital ratio requirement as at 31 December
2023 was set at 10.72%, comprising a 4.50% Pillar I requirement, a 1.73%
Pillar II requirement, the Capital Conservation Buffer of 2.50%, the O-SII
Buffer of 1.50% and the CcyB of c.0.48%. The Group's minimum phased-in Total
Capital ratio requirement was set at 15.56%, comprising an 8.00% Pillar I
requirement, of which up to 1.50% can be in the form of AT1 capital and up to
2.00% in the form of T2 capital, a 3.08% Pillar II requirement, the Capital
Conservation Buffer of 2.50%, the O-SII Buffer of 1.50% and the CcyB of
c.0.48%. Following the annual SREP performed by the ECB in 2022, ECB has also
maintained the non-public guidance for an additional Pillar II CET1 buffer
(P2G) unchanged compared to 2022.
Distributions
Following the 2022 SREP decision, the equity distribution prohibition was
lifted for both the Company and the Bank, with any distribution being subject
to regulatory approval.
In April 2023, the Company obtained the approval of the ECB to pay a dividend
of €0.05 per ordinary share in respect of earnings for the year ended 31
December 2022. This was the first dividend payment after 12 years underpinning
the Group's position as a strong and well-diversified organisation, capable of
delivering sustainable shareholder returns.
In March 2024, the Company obtained the approval of the ECB to pay a cash
dividend and to conduct a share buyback (together the 'Distribution'). The
Distribution corresponded to a 30% payout ratio of FY2023 adjusted recurring
profitability and amounted to €137 mn in total, comprising a cash dividend
of €112 mn and a share buyback of up to €25 mn. The payout ratio for
FY2023 of 30% is in line with the updated Distribution Policy (see below for
further details) and represents a material increase compared to the previous
year (at 14% payout ratio). Following ECB approval, the Board of Directors of
the Company has resolved to propose to the AGM that will be held on 17 May
2024 for approval, a final cash dividend of €0.25 per ordinary share in
respect of earnings for the year ended 31 December 2023, representing a
five-fold increase compared to prior year (€0.05 per ordinary share).
Subject to approval at the AGM, the dividend will be paid in cash on 14 June
2024 to those shareholders on the register on 26 April 2024 ('Record date')
with an Ex-dividend date of 25 April 2024.
In April 2024 the Group launched its inaugural programme to buy back ordinary
shares in the Company for an aggregate consideration of up to €25 mn (the
'Programme'). The purpose of the Programme is to reduce the Company's share
capital and therefore shares purchased under the Programme will be
cancelled. The Company has entered into non-discretionary agreements with
Numis Securities Limited (trading as 'Deutsche Numis') and The Cyprus
Investment and Securities Corporation Ltd ('CISCO') acting as joint lead
managers, to conduct the Programme and to repurchase Shares on the Company's
behalf and to make trading decisions under the Programme independently of the
Company in accordance with certain pre-set parameters. The Programme takes
place on both the London Stock Exchange and the Cyprus Stock Exchange and may
continue until 14 March 2025 subject to market conditions, the ongoing capital
requirements of the business and early termination rights customary for a
transaction of this nature. The implementation of the share buyback programme
complies with the Company's general authority to repurchase the Company's
ordinary shares as approved by shareholders at the Company's AGM on 26 May
2023, which is subject to renewal at the AGM scheduled to take place on 17 May
2024, and with the terms of the approval received from the ECB. The maximum
number of shares that may be repurchased under the ECB Approval is 1.6% of the
total outstanding shares as at 31 December 2023 (i.e. up to 7,343,249 Shares).
The Distribution in respect of 2023 earnings was equivalent to c.130 bps on
CET1 ratio as at 31 December 2023.
Distribution policy
The Group aims to provide a sustainable return to shareholders. In line with
the Group's distribution policy, distributions are expected to build prudently
and progressively over time, towards a payout ratio in the range of 30-50% of
the Group's adjusted recurring profitability, including cash dividends and
buybacks. Group adjusted recurring profitability is defined as the Group's
profit after tax before non-recurring items (attributable to the owners of the
Company) taking into account distributions under other equity instruments such
as the annual AT1 coupon. The distribution policy takes into consideration
market conditions as well as the outcome of capital and liquidity planning.
The distribution level will reflect, amongst other things, the strength of the
Group's capital and capital generation, the Board of Directors' assessment of
the capital required to implement the Group Strategy and any capital the Group
retains to cover uncertainties (e.g. related to the economic outlook) and any
impact from the evolving regulatory and accounting environments.
A. Group Financial Results - Underlying Basis (continued)
A.2 Balance Sheet Analysis (continued)
A.2.1 Capital Base (continued)
Other equity instruments
At 31 March 2024, the Group's other equity instruments relate to Additional
Tier 1 Capital Securities (the "AT1 securities") and amounted to €220 mn,
flat on prior quarter.
In June 2023, the Company successfully launched and priced an issue of €220
mn Fixed Rate Reset Perpetual Additional Tier 1 Capital Securities (the 'New
Capital Securities'). The New Capital Securities constitute unsecured and
subordinated obligations of the Company, are perpetual and are issued at par.
They carry an initial coupon of 11.875% per annum, payable semi-annually and
resettable on 21 December 2028 and every 5 years thereafter. The Company will
have the option to redeem the New Capital Securities from, and including, 21
June 2028 to, and including, 21 December 2028 and on each interest payment
date thereafter, subject to applicable regulatory consents and the relevant
conditions to redemption.
At the same time, the Company invited the holders of its outstanding €220 mn
Fixed Rate Reset Perpetual Additional Tier 1 Capital Securities callable in
December 2023 to tender their Existing Capital Securities at a purchase price
of 103% of the principal amount, after which c.€16 mn Existing Capital
Securities remained outstanding. As a result, a cost of c.€7 mn was recorded
directly in the Company's equity in 2Q2023, forfeiting the relevant future
coupon payments. Transaction costs of €3.5 mn in relation to the
transactions were recorded directly in equity in June 2023.
In July 2023, the Company purchased and cancelled a further c.€7 mn Existing
Capital Securities in the open market. In November 2023, the Board of
Directors resolved to exercise the Company's option to redeem the remaining
c.€8 mn in aggregate principal amount outstanding of the Existing AT1
Capital Securities on 19 December 2023.
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific deferred tax
assets (DTA) into deferred tax credits (DTC) became effective in March 2019.
The legislative amendments cover the utilisation of income tax losses
transferred from Laiki Bank to the Bank in March 2013. The introduction of the
Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)
IV in January 2014 and its subsequent phasing-in led to a more
capital-intensive treatment of this DTA for the Bank. With this legislation,
institutions are allowed to treat such DTAs as 'not relying on future
profitability', according to CRR/CRD IV and as a result not deducted from
CET1, hence improving a credit institution's capital position. The Law
provides that a guarantee fee on annual tax credit is payable annually by the
credit institution to the Government.
Following certain modifications to the Law in May 2022, the annual guarantee
fee is to be determined by the Cyprus Government on an annual basis, providing
however that such fee to be charged is set at a minimum fee of 1.5% of the
annual instalment and can range up to a maximum amount of €10 mn per year,
and also allowing for a higher amount to be charged in the year the amendments
are effective (i.e. in 2022).
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 €5 mn was recorded in FY2023.
A.2.2 Regulations and Directives
A.2.2.1 The 2021 Banking Package (CRR III and CRD VI and BRRD)
In October 2021, the European Commission adopted legislative proposals for
further amendments to the Capital Requirements Regulation (CRR), CRD and the
BRRD (the "2021 Banking Package"). Amongst other things, the 2021 Banking
Package would implement certain elements of Basel III that have not yet been
transposed into EU law. In the case of the proposed amendments to CRD and the
BRRD, their terms and effect will depend, in part, on how they are transposed
in each member state. 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. In June 2023, negotiators from the Council presidency
and the European Parliament reached a provisional agreement on amendments to
the Capital Requirements Regulation and the Capital Requirements Directive. In
December 2023, the preparatory bodies of the Council and European Parliament
have endorsed the amendments to the Capital Requirements Regulation and the
Capital Requirements Directive. With the decisions taken by the Council and
European Parliament preparatory bodies, the legal texts have now been
published on the Council and the Parliament websites. In April 2024, the
European Parliament has voted to adopt the amendments to the Capital
Requirements Regulation and the Capital Requirements Directive and the texts
must now also be confirmed by the Council, after which they will be published
in the EU's official journal. It is expected that they 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. Group Financial Results - Underlying Basis (continued)
A.2 Balance Sheet Analysis (continued)
A.2.2 Regulations and Directives (continued)
A.2.2.2 Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January
2016, EU member states shall apply the BRRD's provisions requiring EU credit
institutions and certain investment firms to maintain a minimum requirement
for own funds and eligible liabilities (MREL), subject to the provisions of
the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part
of the reform package for strengthening the resilience and resolvability of
European banks, the BRRD ΙΙ came into effect and was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in May 2021. In addition, certain provisions on MREL have been introduced
in CRR ΙΙ which also came into force on 27 June 2019 as part of the reform
package and were immediately effective.
In January 2024, the Bank received final notification from the SRB regarding
the 2024 MREL decision, by which the final MREL requirement is now set at
25.0% of risk weighted assets (or 30.4% of risk weighted assets taking into
account the expected prevailing CBR as at 31 December 2024 which needs to be
met with own funds on top of the MREL) and 5.91% of Leverage Ratio Exposure
(as defined in the CRR) and must be met by 31 December 2024.
The Bank must comply with the MREL requirement at the consolidated level,
comprising the Bank and its subsidiaries.
In April 2024 the Bank proceeded with an issue of €300 million green senior
preferred notes (the 'Green Notes'). The Green Notes comply with the MREL
criteria and contribute towards the Bank's MREL requirement.
The MREL ratio as at 31 March 2024, calculated according to the SRB's
eligibility criteria currently in effect and based on internal estimate, stood
at 29.3% of RWAs (including capital used to meet the CBR) and at 12.5% of LRE
(based on the regulatory Total Capital as at 31 March 2024). The CBR stood at
4.86% as at 31 March 2024 (compared to 4.48% as at 31 December 2023),
reflecting the increase of the O-SII buffer from 1.50% to 1.875% on 1 January
2024. The CBR is expected to increase further in June 2024 as a result of the
increase of CcyB to approximately 1.00% and the phasing in of O-SII buffer
from 1.875% to 1.9375% on 1 January 2025 and to 2.00% on 1 January 2026.
The MREL ratio expressed as a percentage of RWAs (including capital used to
meet the CBR) and the MREL ratio expressed as a percentage of LRE as at 31
March 2024 stand at 29.8% and 12.7% respectively when including the profits
for the quarter ended 31 March 2024 and an accrual for a distribution at the
top end of the Group's approved distribution policy in line with Commission
Delegated Regulation (EU) No 241/2014 principles. When accounting for the
Notes issued in April 2024, the MREL ratio expressed as a percentage of RWAs
(including capital used to meet the CBR) and the MREL ratio expressed as a
percentage of LRE improves to 32.7% and 14.0% respectively.
A.2.3 Funding and Liquidity
Funding
Funding from Central Banks
At 31 March 2024, the Bank's funding from central banks amounts to €310 mn
and relates to ECB funding, comprising solely of funding through the Targeted
Longer-Term Refinancing Operations (TLTRO) III, compared to €2,044 mn as at
31 December 2023. The reduction on prior quarter by 85% is due to the
repayment of €1.7 bn under the seventh TLTRO III operation in March 2024.
The maturity date of the remaining €0.3 bn under the eighth TLTRO III
operation is in June 2024.
Deposits
Customer deposits totalled €19,260 mn at 31 March 2024 (compared to
€19,337 mn at 31 December 2023 and €18,974 mn as at 31 March 2023) flat
since the beginning of the year and up by 2% on prior year. Customer deposits
are mainly retail-funded and 58% of deposits are protected under the deposit
guarantee scheme as at 31 March 2024.
The Bank's deposit market share in Cyprus reached 37.5% as at 31 March 2024,
compared to 37.7% as at 31 December 2023. Customer deposits accounted for 77%
of total assets and 86% of total liabilities at 31 March 2024 (compared to 73%
of total assets and 80% of total liabilities as at 31 December 2023). The
increase year on year relates mainly to the repayment of €1.7 bn TLTRO.
A. Group Financial Results - Underlying Basis (continued)
A.2 Balance Sheet Analysis (continued)
A.2.3 Funding and Liquidity (continued)
Funding (continued)
Deposits (continued)
The net loans to deposits (L/D) ratio stood at 52% as at 31 March 2024
(compared to 51% as at 31 December 2023 on the same basis), up by 1 p.p.
since the beginning of the year.
Subordinated liabilities
At 31 March 2024, the carrying amount of the Group's subordinated liabilities
amounted to €309 mn (compared to €307 mn at 31 December 2023 ) and relate
to unsecured subordinated Tier 2 Capital Notes ('T2 Notes').
The T2 Notes were priced at par with a fixed coupon of 6.625% per annum,
payable annually in arrears and resettable on 23 October 2026. The maturity
date of the T2 Notes is 23 October 2031. The Company will have the option to
redeem the T2 Notes early on any day during the six-month period from 23 April
2026 to 23 October 2026, subject to applicable regulatory approvals.
Debt securities in issue
At 31 March 2024, the carrying value of the Group's debt securities in issue
amounted to €673 mn (compared to €672 mn at 31 December 2023, flat qoq)
and relate to senior preferred notes.
In April 2024, the Bank successfully launched and priced an issuance of €300
mn green senior preferred notes ('Green Notes'). The Green Notes were priced
at par with a fixed coupon of 5% per annum, payable in arrear, until the
Option redemption date i.e. 2 May 2028. The maturity date of the Green Notes
is 2 May 2029; however, the Bank may, at its discretion, redeem the Green
Notes on the Optional Redemption Date subject to meeting certain conditions
(including applicable regulatory consents) as specified in the Terms and
Conditions. If the Green Notes are not redeemed by the Bank, the coupon
payable from the Optional Redemption Date until the Maturity Date will convert
from a fixed rate to a floating rate and will be equal to 3-month Euribor +
197.1 bps, payable quarterly in arrear.
The issuance was met with strong demand, attracting interest from more than
120 institutional investors, with a final orderbook over 4 times
over-subscribed at €1.3 bn and final pricing 50 basis points tighter than
the initial pricing indication. The transaction represents the Bank's
inaugural green bond issuance in line with the Group's Beyond Banking
approach, aimed at creating a stronger, safer and future-focused Βank and
leading the transition of Cyprus to a sustainable future. An amount equivalent
to the net proceeds of the Green Notes will be allocated to Eligible Green
Projects as described in the Bank's Sustainable Finance Framework, which
include Green Buildings, Energy Efficiency, Clean Transport and Renewable
Energy.
Post this issuance, the Bank finalizes its MREL build-up and creates a
comfortable buffer over the final requirements of 25% of RWAs (or 30.4% of
RWAs taking into account the prevailing CBR as at 31 December 2023) and
5.91% of LRE which the Bank must meet by 31 December 2024. For further
details, please refer to section A.2.2.2 Minimum Requirement for Own Funds and
Eligible Liabilities (MREL).
In July 2023, the Bank successfully launched and priced an issuance of €350
mn of senior preferred notes (the "Notes"). The Notes were priced at par with
a fixed coupon of 7.375% per annum, payable annually in arrear, until the
Optional Redemption Date i.e. 25 July 2027. The maturity date of the Notes is
25 July 2028; however, the Bank may, at its discretion, redeem the Notes on
the Optional Redemption Date subject to meeting certain conditions (including
applicable regulatory consents) as specified in the Terms and Conditions. If
the Notes are not redeemed by the Bank, the coupon payable from the Optional
Redemption Date until the Maturity Date will convert from a fixed rate to a
floating rate and will be equal to 3-month Euribor + 409.5 bps, payable
quarterly in arrear. The Notes comply with the criteria for the Minimum
Requirement for Own Funds and Eligible Liabilities ("MREL") and contribute
towards the Bank's MREL requirements.
A. Group Financial Results - Underlying Basis (continued)
A.2 Balance Sheet Analysis (continued)
A.2.3 Funding and Liquidity (continued)
Funding (continued)
Debt securities in issue (continued)
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 2024, the Group Liquidity Coverage Ratio (LCR) stood at 315%
(compared to 359% at 31 December 2023 ), well above the minimum regulatory
requirement of 100%. The LCR surplus as at 31 March 2024 amounted to €7.3 bn
(compared to €9.1 bn at 31 December 2023). The reduction in liquidity
surplus in 1Q2024 is due to the repayment of €1.7 bn under the seventh TLTRO
III operation in March 2024. When disregarding the remaining TLTRO III of
€300 mn (which matures in June 2024) and including the issuance of €300 mn
of the green senior preferred notes in April 2024, the Group's liquidity
position remains flat with an LCR of 315% and liquidity surplus of €7.3 bn.
At 31 March 2024, the Group Net Stable Funding Ratio (NSFR) stood at 155%
(compared to 158% at 31 December 2023), well above the minimum regulatory
requirement of 100%.
A.2.4 Loans
Group gross loans totalled €10,276 mn at 31 March 2024, compared to
€10,070 mn at 31 December 2023 up 2% on the prior quarter mainly as new
lending was ahead of repayments and the acquisition of a portfolio of
performing and restructured gross loans of c.€58 mn (with reference date as
at 31 December 2022) which was completed in March 2024.
New lending granted in Cyprus reached €676 mn for 1Q2024 (compared to €462
mn for 4Q2023 and to €624 mn for 1Q2023) up by 46% qoq and 8% yoy. New
lending in 1Q2024 comprised €358 mn of corporate loans, €193 mn of retail
loans (of which €99 mn were housing loans), €61 mn of SME loans and €64
mn of shipping and international loans. New lending for 1Q2024 is driven
mainly by corporate demand.
At 31 March 2024, the Group net loans and advances to customers totalled
€10,028 mn (compared to €9,822 mn at 31 December 2023) up 2% since the
beginning of the year.
The Bank is the largest credit provider in Cyprus with a market share of 42.9%
at 31 March 2024, compared to 42.2% at 31 December 2023.
In December 2023 the Bank entered into an agreement with Cyprus Asset
Management Company ('KEDIPES') to acquire a portfolio of performing and
restructured loans with gross book value of c.€58 mn with reference date 31
December 2022 (the 'Transaction'). The Transaction was broadly neutral to the
Group's income statement and capital position. The Transaction was completed
in March 2024.
A.2.5 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 and geopolitical
uncertainty.
The loan credit losses for 1Q2024 amounted to €7 mn, compared to €19 mn
for 4Q2023 and to €11 mn for 1Q2023. Further details regarding loan credit
losses are provided in Section A.3.3 'Profit before tax and non-recurring
items'.
A. Group Financial Results - Underlying Basis (continued)
A.2 Balance Sheet Analysis (continued)
A.2.5 Loan portfolio quality (continued)
Non-performing exposures
In the second half of 2023 a deep dive assessment of the Group's loan
portfolio was completed resulting to a total amount of €90 mn classified as
unlikely to pay exposures ('UTPs'). The vast majority of UTPs are customer
specific with idiosyncratic characteristics and are not linked with the
current macroeconomic environment, they adhere to their payment schedule and
present no arrears. Despite the high interest rates and inflation, there are
no material signs of asset quality deterioration to date. While defaults have
been limited, the additional monitoring and provisioning for sectors and
individuals vulnerable to the macroeconomic environment remain in place to
ensure that potential difficulties in the repayment ability are identified at
an early stage, and appropriate solutions are provided to viable customers.
Non-performing exposures (NPEs) as defined by the European Banking Authority
(EBA) were reduced by €18 mn, or 5% in 1Q2024, compared to a net increase of
€7 mn in 4Q2023, to €347 mn at 31 March 2024 (compared €365 mn at 31
December 2023)
As a result, the NPEs account for 3.4% of gross loans as at 31 March 2024,
compared to 3.6% of gross loans as at 31 December 2023.
The NPE coverage ratio stands at 77% at 31 March 2024, compared to 73% at 31
December 2023. When taking into account tangible collateral at fair value,
NPEs are fully covered.
Overall, since the peak in 2014, the stock of NPEs has been reduced by €14.6
bn or 98% to below €0.4 bn and the NPE ratio by 59 p.p. from 63% to below
4%.
Mortgage-To-Rent Scheme ("MTR")
In July 2023, the Mortgage-to-Rent Scheme ('MTR') was approved by the Council
of Ministers and aims for the reduction of NPEs backed by primary residence
and simultaneously protect the primary residence of vulnerable borrowers. The
eligible criteria include:
· Borrowers that were non-performing as at 31 December 2021,
remained non-performing as at 31 December 2022 and who also received
government allowances during the period January 2021 to December 2022, with
facilities backed by primary residence with Open Market Value up to €250k;
· Borrowers that had a fully completed application to Estia Scheme
and were assessed as eligible but not viable with a primary residence of up to
€350k Open Market Value; and
· all applicants that were approved under Estia Scheme but their
inclusion was terminated.
Under the MTR, eligible property owners will voluntarily surrender ownership
of their residence to Cyprus Asset Management Company ('KEDIPES') which has
been approved by the Government to provide and manage social housing and will
be exempted from their mortgage loan, as the state will be covering fully the
required rent on their behalf. KEDIPES will carry out a new valuation and a
technical due diligence for the eligible applicants' property and if satisfied
will approve the application and pay to the banks an amount equal to 65% of
the Open Market Value of the primary residence in exchange for the mortgage
release, the write off of the NPE loan and the transfer of the property title
deeds.
The eligible applicants will be able to acquire the primary residence after 5
years at a favourable price, below the Open Market Value.
The scheme has been launched in December 2023; it is expected to act as
another tool to address NPEs in the Retail sector.
A. Group Financial Results - Underlying Basis (continued)
A.2 Balance Sheet Analysis (continued)
A.2.6 Fixed income portfolio
Fixed income portfolio amounts to €3,743 mn as at 31 March 2024, compared
€3,548 mn as at 31 December 2023 and to €2,747 mn as at 31 March 2023,
increased by 5% on the prior quarter and by 36% on prior year. As at 31 March
2024, the portfolio represents 15% of total assets (net of TLTRO III) and
comprises €3,317 mn (89%) measured at amortised cost and €426 mn (11%) at
fair value through other comprehensive income ('FVOCI').
The fixed income portfolio measured at amortised cost is held to maturity and
therefore no fair value gains/losses are recognised in the Group's income
statement or equity. This fixed income portfolio has high average rating at
Aa3. The amortised cost fixed income portfolio as at 31 March 2024 has an
unrealised fair value loss of €14 mn, equivalent to c.10 bps of CET1 ratio
(compared to an unrealized fair value gain of €3 mn as at 31 December 2023)
due to an increase in the bond yields.
A.2.7 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 of
repossessed assets since the beginning of 2019 amount to €0.9 bn and exceed
properties on-boarded in the same period of €0.5 bn.
REMU completed disposals of €17 mn in 1Q2024 (compared to €74 mn in 4Q2023
and to €38 mn in 1Q2023), resulting in a profit on disposal of c.€2 mn for
1Q2024 (compared to a profit of c.€3.5 mn for 4Q2023 and to a profit of €2
mn in 1Q2023). Asset disposals are across all property classes, with over 55%
gross sale value in 1Q2024 relating to land.
During the quarter ended 31 March 2024, REMU executed sale-purchase agreements
(SPAs) for disposals of 113 properties with contract value of €23 mn
(including transfer of €3 mn), compared to SPAs for disposals of 138
properties with contract value of €43 mn for 1Q2023.
In addition, REMU had a strong pipeline of €48 mn by contract value as at 31
March 2024, of which €23 mn related to SPAs signed (compared to a pipeline
of €40 mn as at 31 December 2023, of which €29 mn related to SPAs signed).
REMU on-boarded €5 mn of assets in 1Q2024 (compared to additions of €3 mn
in 4Q2023 and €2 mn in 1Q2023), via the execution of debt for asset swaps
and repossessed properties.
As at 31 March 2024, repossessed properties held by REMU had a carrying value
of €836 mn, compared to €862 mn as at 31 December 2023 and €1,013 mn as
at 31 March 2023.
Assets held by REMU
Repossessed Assets held by REMU (Group) 1Q2024 4Q2023 1Q2023 qoq +% yoy +%
€ mn
Opening balance 862 947 1,079 -9% -20%
On-boarded assets 5 3 2 48% 137%
Sales (17) (74) (38) -77% -54%
Net impairment loss (10) (14) (8) -31% 12%
Transfers (3) - (22) - -86%
Closing balance 836 862 1,013 -3% -17%
A. Group Financial Results - Underlying Basis (continued)
A.2 Balance Sheet Analysis (continued)
A.2.7 Real Estate Management Unit (REMU) (continued)
Analysis by type and country of repossessed properties Cyprus Greece Total
31 March 2024 (€ mn)
Residential properties 49 11 60
Offices and other commercial properties 104 12 116
Manufacturing and industrial properties 35 16 51
Hotels 15 0 15
Land (fields and plots) 391 4 395
Golf courses and golf-related property 199 0 199
Total 793 43 836
Cyprus Greece Total
31 December 2023 (€ mn)
Residential properties 50 12 62
Offices and other commercial properties 110 13 123
Manufacturing and industrial properties 36 16 52
Hotels 17 0 17
Land (fields and plots) 405 4 409
Golf courses and golf-related property 199 0 199
Total 817 45 862
A. Group Financial Results - Underlying Basis (continued)
A.3 Income Statement Analysis
A.3.1 Total income
€ mn 1Q2024 4Q2023 1Q2023 qoq +% yoy +%
Net interest income 213 220 162 -3% 31%
Net fee and commission income 42 46 44 -10% -5%
Net foreign exchange gains and net gains on financial instruments 7 8 13 -12% -44%
Net insurance result 10 16 10 -37% 4%
Net gains/(losses) from revaluation and disposal of investment properties and 1 3 2 -81% -65%
on disposal of stock of properties
Other income 3 3 3 -8% 1%
Non-interest income 63 76 72 -18% -12%
Total income 276 296 234 -7% 18%
Net Interest Margin (annualised) 3.70% 3.66% 2.91% 4 bps 79 bps
Average interest earning assets 23,171 23,858 22,638 -3% 2%
(€ mn)
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Net interest income (NII) for 1Q2024 amounted to €213 mn compared to €220
mn for 4Q2023, down 3% qoq, declining less than expected. The reduction qoq
reflects a modest decline in Euribor, marginally higher cost of deposits and
also hedging activity. Net interest income was up by 31% yoy on the back of
higher interest rates on liquid assets and loans partially offset by a
moderate increase in time and notice deposit pass-through and funding costs,
following the issuance of €350 mn senior preferred notes in July 2023.
Quarterly average interest earning assets (AIEA) for 1Q2024 amounted to
€23,171 mn, down 3% qoq mainly due to the repayment of €1.7 bn TLTRO in
March 2024. Quarterly average interest earning assets was up 2% yoy driven
mainly by the increase in liquid assets as a result of the increase in
deposits by c.€0.3 bn.
Net interest margin (NIM) for 1Q2024 amounted to 3.70% (compared to 3.66% for
4Q2023), up 4 bps qoq, benefitting from the reduction of quarterly average
interest earning assets following the repayment of €1.7 bn TLTRO. When
disregarding the impact of TLTRO, NIM is revised to 3.90% for 1Q2024, compared
to 4.00% in the previous quarter. The reduction of 8 bps qoq relating to
modest decline in Euribor and marginally higher cost of deposits.
Non-interest income for 1Q2024 amounted to €63 mn (compared to €76 mn for
4Q2023, and to €72 mn in 1Q2023 down 18% qoq and 12% yoy) comprising net fee
and commission income of €42 mn, net foreign exchange gains and net gains on
financial instruments of €7 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 €1 mn and other income of €3 mn. The
qoq reduction is mainly due to lower net insurance result and net fee and
commission income. The yoy decrease relates to lower net foreign exchange
gains and net gains on financial instruments.
Net fee and commission income for 1Q2024 amounted to €42 mn compared to
€46 mn in prior quarter, down 10% qoq due to lower non-transactional fees
and seasonally lower transactional fees. Net fee and commission income was
down 5% yoy reflecting mainly lower non-card transactional fees.
Net foreign exchange gains and net gains on financial instruments amounted to
€7 mn for 1Q2024 (comprising net foreign exchange gains of c.€6.5 mn and
net gains on financial instruments of c.€0.5 mn), broadly flat on prior
quarter. Net foreign exchange gains and net gains on financial instruments
were reduced by 44% yoy, impacted mainly by lower gains on financial
instruments. Net foreign exchange gains and net gains on financial instruments
are considered volatile profit contributors.
A. Group Financial Results - Underlying Basis (continued)
A.3 Income Statement Analysis (continued)
A.3.1 Total income (continued)
Net insurance result amounted to €10 mn for 1Q2024, compared to €16 mn for
4Q2023, down 37% qoq, reflecting the improved experience variance in life
insurance business in prior quarter. Net insurance result was broadly flat
yoy.
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties of €1 mn for 1Q2024 (comprising net gains
on disposal of stock of properties and investment properties of c.€2 mn, and
net loss from revaluation of investment properties of €1 mn) was down by 81%
qoq and 65% yoy. REMU profit remains volatile.
Total income amounted to €276 mn for 1Q2024 (compared to €296 mn for
4Q2023, down 7% qoq) due to lower net interest income and non interest income
as explained above. Total income improved by 18% yoy driven by strong net
interest income benefitting from favourable interest rate outlook, resiliently
low time and notice deposit pass-through and a slow change in deposit mix
towards time and notice accounts.
A. Group Financial Results - Underlying Basis (continued)
A.3. Income Statement Analysis (continued)
A.3.2 Total expenses
€ mn 1Q2024 4Q2023 1Q2023 qoq +% yoy +%
Staff costs (48) (51) (46) -6% 5%
Other operating expenses (33) (42) (34) -24% -3%
Total operating expenses (81) (93) (80) -14% 2%
Special levy on deposits and other levies/contributions (11) (13) (11) -8% 4%
Total expenses (92) (106) (91) -13% 2%
Cost to income ratio 33% 36% 39% -3 p.p. -6 p.p.
Cost to income ratio excluding special levy on deposits and other 29% 32% 34% -3 p.p. -5 p.p.
levies/contributions
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Total expenses for 1Q2024 were €92 mn (compared to €106 mn for 4Q2023 and
to €91 mn for 1Q2023 down 13% qoq and broadly flat yoy), 52% of which
related to staff costs (€48 mn), 36% to other operating expenses (€33 mn)
and 12% to special levy on deposits and other levies/contributions (€11 mn).
The qoq reduction relates to quarterly seasonality, mainly on other operating
expenses.
Total operating expenses amounted to €81 mn for 1Q2024 (compared to €93 mn
for 4Q2023, down 14% qoq) driven mainly by seasonally lower other operating
expenses. Total operating expenses were broadly flat on prior year.
Staff costs for 1Q2024 were €48 mn (compared to €51 mn for 4Q2023, down 6%
qoq) mainly due to lower performance-related pay accrual and termination costs
this quarter. Staff costs were 5% higher compared to prior year, mainly as a
result of salary increments and higher cost of living adjustments (COLA) and
employer's contributions.
The performance-related pay accrual relates to the Short-Term Incentive Plan
('STIP') and the Long-Term Incentive Plan ('LTIP'). The Short-Term Incentive
Plan involves variable remuneration to selected employees and will be driven
by both, delivery of the Group's strategy as well as individual performance.
The LTIP is a share-based compensation plan and provides for an award in the
form of ordinary shares of the Company based on certain non-market performance
and service vesting conditions.
The LTIP was approved by the 2022 AGM, which took place on 20 May 2022. The
LTIP involves the granting of share awards and is driven by scorecard
achievement, with measures and targets set to align pay outcomes with the
delivery of the Group's strategy. Currently, under the plan, the employees
eligible for LTIP awards are the members of the Extended EXCO, including the
executive directors. The LTIP stipulates that performance will be measured
over a 3-year period and sets financial and non-financial objectives to be
achieved. At the end of the performance period, the performance outcome will
be used to assess the percentage of the awards that will vest. In December
2022 the Group granted 819,860 share awards to 22 eligible employees under the
LTIP, comprising the Extended Executive Committee of the Group. The awards
granted in December 2022 are subject to a three year performance period for
2022-2024 (with all performance conditions being non-market performance
conditions). In October 2023, 479,160 share awards were granted to 21 eligible
employees, comprising the Extended Executive Committee of the Group. The
awards granted in October 2023 are subject to a three-year performance period
2023-2025 (with all performance conditions being non market performance
conditions). In April 2024, 403,990 share awards were granted to 21 eligible
employees, comprising the Extended Executive Committee of the Group. The
awards granted in April 2024 are subject to a three-year performance period
2024-2026 (with all performance conditions being non market performance
conditions).
These shares will then normally vest in six tranches, with the first tranche
vesting after the end of the performance period and the last tranche vesting
on the fifth anniversary of the first vesting date.
As at 31 March 2024, the Group employed 2,847 persons compared to 2,830
persons as at 31 December 2023.
Other operating expenses for 1Q2024 amounted to €33 mn, compared to €42 mn
for 4Q2023, driven mainly by quarterly seasonality on lower marketing and
other professional fees. Other operating expenses remained broadly flat yoy.
A. Group Financial Results - Underlying Basis (continued)
A.3 Income Statement Analysis (continued)
A.3.2 Total expenses (continued)
Special levy on deposits and other levies/contributions for 1Q2024 amounted to
€11 mn compared to €13 mn for 4Q2023, down 8% qoq reflecting mainly the
net impact of a levy in the form of annual guarantee fee relating to the
income tax legislation for conversion of DTA to DTC of c.€5 mn recognised in
4Q2023 (see Section A.2.1 'Capital Base') partially offset by the contribution
of the Bank to the Deposit Guarantee Fund (DGF) of c.€4 mn which relates to
1H2024 and was recorded in 1Q2024 (in line with IFRSs). Special levy on
deposits and other levies/contributions remained broadly flat yoy.
The cost to income ratio excluding special levy on deposits and other
levies/contributions for 1Q2024 was 29% compared to 32% for 4Q2023, and 34%
for 1Q2023 down 3 p.p. qoq and 5 p.p. yoy, benefitting from strong income and
continued focus on costs.
A. Group Financial Results - Underlying Basis (continued)
A.3 Income Statement Analysis (continued)
A.3.3 Profit before tax and non-recurring items
€ mn 1Q2024 4Q2023 1Q2023 qoq+% yoy +%
Operating profit 184 190 143 -3% 28%
Loan credit losses (7) (19) (11) -64% -39%
Impairments of other financial and non-financial assets (8) (15) (11) -45% -22%
Provisions for pending litigations, claims, regulatory and other matters (net (10) (8) (6) 24% 55%
of reversals)
Total loan credit losses, impairments and provisions (25) (42) (28) -40% -12%
Profit before tax and non-recurring items 159 148 115 7% 39%
Cost of risk 0.27% 0.73% 0.44% -46 bps -17 bps
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Operating profit for 1Q2024 amounted to €184 mn, compared to €190 mn for
4Q2023 (down 3% qoq) as the reduction in total income was partially offset by
a reduction in total expenses. Operating profit was up 28% yoy reflecting
mainly the significant increase in net interest income.
Loan credit losses for 1Q2024 were €7 mn compared to €19 mn for 4Q2023 and
€11 mn for 1Q2023, down 64% qoq and 39% yoy, indicative of the robust loan
portfolio performance and stable economic environment. Loan credit losses for
1Q2024 include releases on Stage 1&2 driven by enhanced IFRS 9 model which
allowed the removal of conservative management overlays, partially offset by a
one-off charge on a small part of the NPE legacy portfolio (see Section F6
'Credit losses to cover credit risk on loans and advances to customers').
Additionally, 4Q2023 loan credit losses included a charge of c.€6 mn on
specific customers with idiosyncratic characteristics assessed as 'Unlikely to
Pay' ('UTPs') exposures (even though they adhere to their repayment schedule
and present no arrears).
Cost of risk for 1Q2024 is equivalent to 27 bps, compared to a cost of risk of
73 bps for 4Q2023 and 44 bps for 1Q2023, down 46 bps qoq and 17 bps yoy.
At 31 March 2024, the allowance for expected loan credit losses, including
residual fair value adjustment on initial recognition and credit losses on
off-balance sheet exposures (please refer to Section I. 'Definitions and
Explanations' for definition) totalled €267 mn (compared to €267 mn at 31
December 2023 and to €282 mn at 31 March 2023) and accounted for 2.6% of
gross loans (broadly flat on prior quarter and on prior year).
Impairments of other financial and non-financial assets for 1Q2024 amounted to
€8 mn and relate mainly to REMU stock properties due to the ageing of the
stock, compared to €15 mn for 4Q2023, down by €7 mn on prior quarter as
there were higher impairments on specific, large, illiquid REMU stock
properties in 4Q2023. Impairments of other financial and non-financial assets
was reduced by 22% on prior year.
Provisions for pending litigations, claims, regulatory and other matters (net
of reversals) for 1Q2024 amounted to €10 mn, compared to €8 mn for 4Q2023
and to €6 mn for 1Q2023. The qoq and yoy increase is driven mainly by
additional provisions as a result of the progress of cases on existing
litigations and a one-off provision charge on tax related matters.
Profit before tax and non-recurring items for 1Q2024 totalled to €159 mn,
compared to €148 mn for 4Q2023 and to €115 mn for 1Q2023.
A. Group Financial Results - Underlying Basis (continued)
A.3 Income Statement Analysis (continued)
A.3.4 Profit after tax (attributable to the owners of the Company)
€ mn 1Q2024 4Q2023 1Q2023 qoq +% yoy +%
Profit before tax and non-recurring items 159 148 115 7% 39%
Tax (25) (10) (18) 148% 40%
Profit attributable to non-controlling interests (1) 0 (1) - 5%
Profit after tax and before non-recurring items (attributable to the owners of 133 138 96 -4% 38%
the Company)
Advisory and other transformation costs - organic - - (1) - -100%
Profit after tax (attributable to the owners of the Company) 133 138 95 -4% 40%
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
The tax charge for 1Q2024 amounted to €25 mn compared to €10 mn for
4Q2023, down 148% qoq due to the recognition of deferred tax asses relating to
temporary differences between tax and accounting treatment in the previous
quarter. The tax charge increased by 40% yoy, reflecting mainly higher
profitability.
On 22 December 2022, the European Commission approved Directive 2022/2523
which provides for a minimum effective tax rate of 15% for the global
activities of large multinational groups (Pillar Two tax). The Directive that
follows closely the OECD Inclusive Framework on Base Erosion and Profit
Shifting should be transposed by the Member States throughout 2023, entering
into force on 1 January 2024. In Cyprus, the legislation has not been
substantively enacted at the balance sheet date however it is expected to be
enacted within 2024. The Group expects to be in scope of the draft legislation
and has performed an assessment of the impact of Pillar Two tax currently
estimated to be in the range of up to 2% of profit before tax. However, the
actual impact will depend on the Group's consolidated income statement
variables at the time of implementation of the relevant legislation. Because
of the calculation complexity resulting from these rules and as the final
legislation has yet to be implemented, the effects of this reform are still
being examined and the Group will further refine the quantification upon the
enactment of relevant legislation.
Profit after tax and before non-recurring items (attributable to the owners of
the Company) for 1Q2024 is €133 mn, compared to €138 mn for 4Q2023 and
€96 mn for 1Q2023.
Advisory and other transformation costs - organic for 1Q2024 are nil, flat qoq
and compared to €1 mn for 1Q2023.
Profit after tax attributable to the owners of the Company for 1Q2024 amounts
to €133 mn, corresponding to a ROTE of 23.6%, compared to €138 mn for
4Q2023 and €95 mn for 1Q2023 (compared to a ROTE of 25.6% for 4Q2023 and
21.3% for 1Q2023). ROTE on 15% CET1 ratio for 1Q2024 increases to 29.1%,
compared to a ROTE of 28.8% for 4Q2023 and 21.9% for 1Q2023, calculated on the
same basis. The adjusted recurring profitability used for the Group's
distribution policy (i.e. defined as the Group's profit after tax before
non-recurring items (attributable to the owners of the Company) taking into
account distributions under other equity instruments such as the annual AT1
coupon which is paid semi-annually) amounted to €133 mn for 1Q2024 compared
to €125 mn for 4Q2023 and €96 mn for 1Q2023.
B. Operating Environment
Despite headwinds from persistently high interest rates, economic weakness in
Europe, and rising geopolitical tensions, growth in Cyprus in 2023 averaged
2.5% which surpassed most peers and the Eurozone average as a whole and grew
further by 3.3% in the first quarter of 2024. Accommodation, which is tourist
driven, continued to reflect the recovery from the Covid collapse, and the
respective contribution to the overall growth of the economy was higher than
normal. Other important contributions came from the sectors of information and
communications, industry and public administration, education and health.
Financial services and professional services made small negative
contributions. The former reflect slower volume growth and continuing
deleveraging. The latter reflects an accumulated weakness related to the
Ukraine war related sanctions. The information and communication technology
sector in particular, is growing strongly, and financial services are becoming
more diversified. Growth in 2024 is expected to be around 3% (as projected by
Ministry of Finance) aided by rising real incomes, foreign direct investment
flows and the flow of investment funds from EU Recovery and Resilience
Program.
Labour markets have strengthened and expected to remain strong in the medium
term. Employment growth slowed to 1.5% in 2023 from 2.9% the year before and
the unemployment rate dropped to 6.0% in the fourth quarter of 2023,
seasonally adjusted, from 7.0% in the fourth quarter 2022.
Headline inflation measured by the Harmonised Index of Consumer Prices,
dropped to 2.0% in the first quarter of 2024, in Cyprus, compared with 3.9%
yearly average in 2023 and 8.1% in 2022. At the same time, core inflation,
which excludes food and energy prices, was modestly higher, at 2.7% in the
first quarter of 2024, 3.8% yearly average in 2023 and 5.0% in 2022. In the
Euro area, headline inflation was 2.6% in the first quarter of 2024 and 5.4%
yearly average in 2023. Core inflation in the Euro area was 3.1% in the first
quarter of 2024 from 4.9% yearly average in 2023. The decline in headline
inflation was driven by falling energy prices and tighter monetary policy with
core inflation more persistent in comparison. Higher commodity prices and
higher energy costs, which might be the consequence of war related factors,
entail the risk that inflation may prove more persistent than initially
anticipated.
Tourist activity continued to improve in 2023 after a strong performance in
2022. Arrivals increased by 20.1% from a year earlier, reaching 3.8 million
persons, which corresponds to 97% of arrivals in 2019 before Covid. Likewise,
receipts increased by an estimated 22.6% reaching an estimated €3.0 billion
for the year, 11% higher than total receipts in the respective period in 2019.
Tourist arrivals in the first quarter of 2024 continued to rise modestly by
5.4% from the same period a year earlier.
In public finances, there have been significant improvements in budget and
debt dynamics including debt affordability indicators. The recovery in 2021
was underpinned by a significant increase in general government revenue and a
decrease in government expenditure. The result was a reduction in the budget
deficit to -1.8% of GDP, from a deficit of -5.7% of GDP in 2020. In 2022 the
budget surplus rose to 2.7% of GDP and 3.1% of GDP in 2023. Gross debt was
114.9% of GDP in 2020, and was dropping since, successively, to 85.6% and then
77.3% of GDP in 2022 and 2023 respectively. The budget balance is forecast to
remain in surplus at 2.9% of GDP in 2024 according to the Ministry of Finance
Stability Programme 2024-2027, and gross debt will continue to decline below
60% of GDP in 2026. Debt affordability metrics are favourable and are expected
to remain solid in the medium term, as gross financing needs are moderate, and
the cash buffer gives the government a high degree of financing flexibility.
The ECB left its interest rates unchanged at the latest Governing Council
meeting on 11 April 2024. The minimum refinancing operations rate remained at
4.5%, compared with zero at the start of the tightening cycle in July 2021,
while the ECB deposit facility rate is at 4.0%, compared with -50 bps in July
2021. The ECB's policy remains focussed on ensuring that inflation returns to
the 2% medium-term target in a timely manner, and so interest rates will
remain at sufficiently restrictive levels for as long as necessary. Monetary
policy remains restrictive and ECB staff have revised down their growth
projection in the Euro area for 2024, to 0.6%. Growth is below potential and
there is the expectation that the ECB will start cutting its interest rates in
June.
Banks are well capitalized and remain resilient under stress tests. Despite
higher interest rates, asset quality has not deteriorated. Non-performing
exposures (NPE) were €1.9 billion or 7.9% of gross loans at the end of
December 2023, compared with 9.5% of gross loans a year earlier, at the end of
December 2022, according to the Central Bank of Cyprus. The NPE ratio in the
non-financial companies' segment was 6.6% at the end of December 2023 and that
of households was 10.2%. About 45.0% of total NPEs are restructured facilities
and the coverage ratio was 54.9%.
Risks remain to the downside. In the short-term, a slowing of economic
activity in main tourism markets and an escalation of regional conflicts could
slow Cyprus's efforts to reorient its services exports.
Β. Operating environment (continued)
Sovereign ratings
The sovereign risk ratings of the Cypriot government have improved
significantly in recent years, reflecting reduced banking sector risks,
improved economic resilience and consistent fiscal outperformance. Cyprus has
demonstrated policy commitment to correcting fiscal imbalances through reform
and restructuring of its banking system.
In December 2023, Fitch Ratings has affirmed Cyprus' long-term foreign
currency issuer default rating at 'BBB' and revised its outlook from stable to
positive. This follows an affirmation of Cyprus' long-term foreign currency
issuer default rating with a stable outlook in June 2023, and the upgrade in
March 2023. The upgrade and affirmation reflect the improvement in public
finances and government debt, as well as strong GDP growth, the resilience of
the Cypriot economy to external shocks, and the improvement in the banking
sector's asset quality.
In September 2023, Moody's Investors Service upgraded the long-term issuer and
senior unsecured ratings of the Government of Cyprus to Baa2 from Ba1. The
outlook was revised to stable from positive. This is a two-notch upgrade of
Cyprus' ratings, reflecting broad-based and sustained improvements in the
country's credit profile as a result of past and ongoing economic, fiscal, and
banking reforms. Economic resilience has improved, and medium-term growth
prospects remain strong. Fiscal strength has also improved significantly, with
a positive debt trend and sound debt affordability metrics. The stable outlook
balances the positive credit trends with remaining challenges.
In addition, S&P Global Ratings revised its outlook on Cyprus to positive
from stable in September 2023 and affirmed Cyprus' long-term local and foreign
currency sovereign ratings at BBB. The positive outlook reflects the ongoing
macroeconomic normalisation since the country's financial crisis in 2012-2013,
with the government on track to achieve steady fiscal surpluses and a
declining debt-to-GDP ratio in the coming years. The positive outlook also
reflects the significant progress made in the banking sector.
DBRS Ratings GmbH (DBRS Morningstar) confirmed the Republic of Cyprus'
Long-Term Foreign and Local Currency - Issuer Ratings at BBB (high) in March
2024. DBRS Ratings had upgraded the long-term foreign and local currency
issuer ratings of the Republic of Cyprus from BBB to BBB (high) in September
2023. The rating action is stable. The upgrade was driven by the recent
decline in government debt and the expectation that public debt metrics will
continue to improve over the next few years, while economic growth is expected
to remain among the strongest in the euro area. The stable outlook balances
the recent favourable fiscal dynamics with downside risks to the economic
outlook.
C. Business Overview
Credit ratings
The Group's financial performance is highly correlated to the economic and
operating conditions in Cyprus. In December 2023, S&P Global Ratings
upgraded the long-term issuer credit rating of the Bank to BB and maintained a
positive outlook. The upgrade by one notch reflects the significant progress
Cypriot banks have made toward rebalancing their funding profiles, reducing
the dependence on non-resident deposits, the improved operating environment
and the profitability prospects due to higher interest rates, improved
efficiency and contained credit losses. In November 2023, Fitch Ratings
upgraded long-term issuer default rating to BB from B+, whilst maintaining the
positive outlook. The two notch upgrade reflects a combination of Fitch's
improved assessment of the Cypriot operating environment and continued
improvement in the Bank's credit profile, strengthened capitalisation, reduced
stock of legacy problem assets and structurally improved profitability. In
October 2023 Moody's Investors Service upgraded the Bank's long-term deposit
rating to the investment grade Baa3 from Ba1, while the outlook remained
positive. The main drivers for this upgrade are the continued resilience of
the Cypriot economy and credit conditions and the continued improvements in
Bank's solvency profile, with further gradual improvements in asset quality
and capital metrics, and a significant strengthening in the Bank's core
profitability.
FY2023 Distribution at 30% payout ratio
The Group's strong financial performance in 2023 facilitated a rapid capital
build-up, unlocking c.480s bps organic capital generation during the year and
as a result, accelerating shareholder value. In March 2024, the Company
obtained the approval of the ECB to pay a cash dividend and to conduct a share
buyback (together the 'Distribution'). The Distribution corresponds to a 30%
payout ratio on FY2023 adjusted recurring profitability and amounts to €137
mn in total, comprising a cash dividend of €112 mn and a share buyback of up
to €25 mn. The payout ratio for FY2023 of 30% is in line with the updated
Distribution Policy (refer to A.2.1 'Capital Base') and represents a material
increase compared to the previous year (at 14% payout ratio).
Following ECB approval, the Board of Directors of the Company has resolved to
propose to the AGM that will be held on 17 May 2024 for approval, a final cash
dividend of €0.25 per ordinary share in respect of earnings for the year
ended 31 December 2023, a five-fold increase compared to €0.05 in prior
year. Subject to approval at the AGM, the dividend will be paid in cash on 14
June 2024 to those shareholders on the register on 26 April 2024 ('Record
date') with an Ex-dividend date of 25 April 2024. Further in April 2024 the
Group launched its inaugural programme to buy back ordinary shares in the
Company for an aggregate consideration of up to €25 mn (the 'Programme').
The purpose of the Programme is to reduce the Company's share capital and
therefore shares purchased under the Programme will be cancelled. The
Company has entered into non-discretionary agreements with Numis Securities
Limited (trading as 'Deutsche Numis') and The Cyprus Investment and Securities
Corporation Ltd ('CISCO') acting as joint lead managers, to conduct the
Programme and to repurchase Shares on the Company's behalf and to make trading
decisions under the Programme independently of the Company in accordance with
certain pre-set parameters. The Programme takes place on both the London Stock
Exchange and the Cyprus Stock Exchange and may continue until 14 March 2025
subject to market conditions, the ongoing capital requirements of the business
and early termination rights customary for a transaction of this nature. The
implementation of the share buyback programme complies with the Company's
general authority to repurchase the Company's ordinary shares as approved by
shareholders at the Company's AGM on 26 May 2023, which is subject to renewal
at the AGM scheduled to take place on 17 May 2024, and with the terms of the
approval received from the ECB. The maximum number of shares that may be
repurchased under the ECB Approval is 1.6% of the total outstanding shares as
at 31 December 2023 (i.e. up to 7,343,249 Shares).
Financial performance
The Group is a leading, financial and technology hub in Cyprus. During the
quarter ended 31 March 2024, the Group generated a profit after tax of €133
mn, corresponding to a ROTE of 23.6%, delivering a ROTE of over 20% for five
consecutive quarters. This performance was underpinned by strong net interest
income and a well-disciplined cost base and demonstrates that the Group
remains well on track of its 2024 targets it set in February 2024. The Group's
tangible book value per share improved by 26% yoy to €5.23.
Interest rate environment
The structure of the Group's balance sheet is highly liquid, and hence
benefitted immediately from the high interest rate environment. As at 31 March
2024, cash balances with ECB amounted to c.€7.2 bn whereas the Group's loan
portfolio is mainly floating rate, with almost half of the loan portfolio
being Euribor based. Net interest income for the quarter ended 31 March 2024
stood at €213 mn (after peaking in the previous quarter), declining less
than expected, on the back of favourable interest rate outlook, resiliently
low time and notice deposit pass-through and slower than anticipated change in
deposit mix towards time and notice accounts. The modest reduction on prior
previous quarter is as a result of modest Euribor declines and hedging
activity and marginally higher cost of deposits.
C. Business Overview (continued)
Interest rate environment (continued)
Overall, the Group intends to increase its hedging position in FY2024 by
further €4-5 bn compared to FY2023 (with average duration of 3-4 years),
subject to market conditions, via hedging of non-rate sensitive deposits
through receive fixed rate swaps, further investment in fixed rate bonds,
additional reverse repos and continuing offering fixed rate loans.
In the first quarter of 2024, the Group carried out hedging of €2.1 bn, on
track to meet its 2024 target of €4-5 bn. The increase was mainly attributed
to the hedging of non rate sensitive deposits through receive fixed rate
swaps, investing in fixed rate bonds, entering into reverse repos and offering
fixed rate loans. Simultaneously, about a quarter of the Group's loan
portfolio is linked with the Bank's base rate which provides a natural hedge
against the cost of deposits. Overall, these actions have led to a reduction
in the net interest income sensitivity (to a parallel shift in interest rates
by 100 bps) by €20 mn compared to prior quarter.
Growing revenues in a more capital efficient way
The Group remains focused on growing revenues in a more capital efficient way
through growth of high-quality new lending and the growth in niche areas, such
as insurance and digital products that provide further market penetration and
diversify through non-banking operations.
The Group has continued to provide high quality new lending in 1Q2024 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 2024, new lending was strong at €676 mn,
up 46% on prior quarter, driven mainly by business demand. Gross performing
loan book increased by 2% on prior quarter to €10 bn as new lending was
ahead of ongoing repayments and benefitted also from the acquisition of a
portfolio of performing and restructured gross loans of c.€58 mn (with
reference date as of 31 December 2022).
Fixed income portfolio continued to grow in 1Q2024 to €3,743 mn, and
currently represents 15% of total assets (net of TLTRO III). This portfolio is
mostly measured at amortised cost and is highly rated with average rating at
Aa3. The amortised cost fixed income portfolio as at 31 March 2024 has an
unrealised fair value loss of €14 mn, equivalent to c.10 bps of CET1 ratio
(compared to an unrealized fair value gain of €3 mn as at 31 December 2023)
due to an increase in the bond yield.
Separately, the Group focuses to continue improving revenues through multiple
less capital-intensive initiatives, with a focus on fees and commissions,
insurance and non-banking opportunities, leveraging on the Group's digital
capabilities. During the quarter ended 31 March 2024, non-interest income
amounted to €63 mn, covering almost 80% of the Group's total operating
expenses.
In the first quarter of 2024 net fee and commission income of €42 mn was
down by 10% compared to the previous quarter, due to lower non-transactional
fees and seasonally lower transactional fees. Net fee and commission income is
enhanced by transaction fees from the Group's subsidiary, JCC Payment Systems
Ltd (JCC), a leading player in the card processing business and payment
solutions, 75% owned by the Bank. During the quarter ended 31 March 2024,
JCC's net fee and commission income contributed 11% of total non-interest
income and amounted to c.€7 mn, up 9% yoy, backed by strong transaction
volume.
The Group's insurance companies, EuroLife and GI are respectively leading
players in the life and general insurance business in Cyprus, and have been
providing recurring and improving income, further diversifying the Group's
income streams. The net insurance result for the quarter ended 31 March 2024
contributed c.15% of non-interest income and amounted to €10 mn, flat yoy;
insurance companies remain valuable and sustainable contributors to the
Group's profitability.
Finally, the Group through the Digital Economy Platform (Jinius) ('the
Platform') aims to support the national digital economy by optimising
processes in a cost-efficient way, allow the Bank to strengthen its client
relationships, create cross-selling opportunities as well as to generate new
revenue sources over the medium term, leveraging on the Bank's market
position, knowledge and digital infrastructure. The first Business-to-Business
services are already in use by clients and include invoice, remittance, tender
and ecosystem management. Currently, c.2,100 companies are registered in the
platform and over €500 mn cash were exchanged via the platform since 2023
through invoicing and remittance services.
In February 2024 the Business-to-Consumer service was launched, a Product
Marketplace aiming to increase the touch points with customers. Currently
c.100 retailers were onboarded in fashion, technology and beauty sectors and
over 150k products were embedded in the Marketplace.
Lean operating model
Striving for a lean operating model is a key strategic pillar for the Group in
order to deliver shareholder value, without constraining funding its digital
transformation and investing in the business.
C. Business Overview (continued)
Lean operating model (continued)
In 2023 the Group completed a small-scale, targeted VEP through which 50
full-time employees were approved to leave at a total cost of c.€7.5 mn,
recorded in staff costs in FY2023. During the quarter ended 31 March 2024,
there was further branch footprint as the Group reduced the number of branches
by 5 to 55, a reduction of 8% on prior quarter.
The Group's total operating expenses for the quarter ended amounted to €81
mn, broadly flat yoy despite inflation. The cost to income ratio excluding
special levy on deposits and other levies/contributions for the quarter ended
31 March 2024 was reduced to 29%, 5 p.p. down compared to 1Q2023, on the back
of strong total income and disciplined cost management.
Transformation plan
The Group's focus continues on deepening 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
In the dynamic world of banking, the Group stands as a pioneer of digital
banking innovation in Cyprus, reshaping the banking experience into something
more intuitive, more responsive, and more aligned with the contemporary needs
of its customers, consistently pushing the boundaries to offer unparalleled
banking services. The Group aims to continue to innovate, and simplify the
banking journey, providing a unique and personalised experience to each of its
customers.
The Group's digital channels continue to grow. As at 31 March 2024, the
Group's digital community has increased to more than 459K active subscribers,
both on Internet Banking and the BoC Mobile App, improving by 7% yoy.
Likewise, the BoC Mobile App, had more than 420K active subscribers as at 31
March 2024 and increased by 11.2% yoy.
During 1Q2024, the Group continued to enrich and improve its digital portfolio
with new innovative services to its customers. Two new QuickPay features
'Split the Bill" and "Request Payments" were launched in the BOC Mobile App
empowering users to share the cost with others or request payments by adding
just the contact number and the relevant amount. Customers can track payments,
send reminders and cancel a request anytime. Additionally, the ability to get
a Car Loan for used cars have been added in QuickCar Loans.
One of the Group's latest digital innovations, Quickloans, accessible through
both the BoC Mobile App and Internet Banking, has transformed the traditional
loan process, enabling customers to obtain a credit facility decision
instantly, without the need to visit a branch. Since the beginning of the year
2024, over 9k applications were processed, granting €23 mn new loans in
1Q2024.
The digital signing feature, launched in July 2023 further simplified the
process of allowing customers to apply, sign, and disburse loans up to €15k
and car loans up to €35k efficiently. In collaboration with Genikes
Insurance, an insurance plan purchase was integrated into the BOC Mobile App,
enabling customers to access car or home insurance plans through the app at
lower rates than branch prices. Digital insurance sales for the first quarter
of 2024 amounted to €144k, compared to €62.5k in prior year, reflecting
457 policies in 1Q2024 compared to 213 policies during the same period last
year.
In addition, 84.6% of individual customers were digitally engaged as at 31
March 2024 (up by 4.2 p.p. from 72.4% in June 2020), choosing digital channels
over branches to perform their transactions. Furthermore, digital account
openings increased by 67% in 1Q2024 to 4,171 from 2,502 during the same period
last year and new debit cards increased by 133% yoy to 4,617 in 1Q2024
compared to 1,979 during the same period last year.
Asset quality
Balance sheet de-risking was largely completed in 2022, marked by the
completion of Project Helix 3 in November 2022 which refers to the sale of
non-performing exposures with gross book value of c.€550 mn as at the date
of completion. As at 31 March 2024, the Group's NPE ratio stood at 3.4%, in
line with its target of an NPE ratio of c.3% by end-2024. The Group's
priorities remain intact, maintaining high quality new lending with strict
underwriting standards and preventing asset quality deterioration.
C. Business Overview (continued)
Capital market presence
In April 2024, the Bank successfully launched and priced an issuance of €300
mn green senior preferred notes ('Green Notes'). The Green Notes were priced
at par with a fixed coupon of 5% per annum, payable in arrear, until the
Option redemption date i.e. 2 May 2028. The maturity date of the Green Notes
is 2 May 2029; however, the Bank may, at its discretion, redeem the Green
Notes on the Optional Redemption Date subject to meeting certain conditions
(including applicable regulatory consents) as specified in the Terms and
Conditions. If the Green Notes are not redeemed by the Bank, the coupon
payable from the Optional Redemption Date until the Maturity Date will convert
from a fixed rate to a floating rate and will be equal to 3-month Euribor +
197.1 bps, payable quarterly in arrear.
The issuance was met with strong demand, attracting interest from more than
120 institutional investors, with a final orderbook over 4 times
over-subscribed at €1.3 bn and final pricing 50 basis points tighter than
the initial pricing indication. The transaction represents the Bank's
inaugural green bond issuance in line with the Group's Beyond Banking
approach, aimed at creating a stronger, safer and future-focused Βank and
leading the transition of Cyprus to a sustainable future. An amount equivalent
to the net proceeds of the Green Notes will be allocated to Eligible Green
Projects as described in the Bank's Sustainable Finance Framework, which
include Green Buildings, Energy Efficiency, Clean Transport and Renewable
Energy.
Post this issuance, the Bank finalises its MREL build-up and creates a
comfortable buffer over the final requirements of 25% of RWAs (or 30.4% of
risk weighted assets taking into account the expected prevailing CBR as at 31
December 2024) and 5.91% of LRE which the Bank must meet by 31 December 2024.
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda
Climate change and transition to a sustainable economy is one of the greatest
challenges. As part of its vision to be the leading financial hub in Cyprus,
the Group is determined to lead the transition of Cyprus to a sustainable
future. The Group continuously evolves towards its ESG agenda and continues to
progress towards building a forward-looking organisation embracing ESG in all
aspects of business as usual. In 2024, the Company received a rating of AA (on
a scale of AAA-CCC) in the MSCI ESG Ratings assessment.
Reaffirming its strong commitment to sustainability and to the long term value
creation for all its stakeholders, in November 2023, the Bank was the first
Bank in Cyprus to become an official signatory of the United Nations
Principles for Responsible Banking representing a single framework for a
sustainable banking industry developed through a collaboration between banks
worldwide and the United Nations Environment Programme Finance Initiative
(UNEP FI).
In line with the Group's Beyond Banking approach and its commitment to create
a stronger, safer and future-focused organisation the Bank proceeded, in 2024,
with the issuance of an inaugural green bond. An amount equivalent to the net
proceeds of the notes will be allocated to eligible green projects as
described in the Bank's sustainable finance framework, which includes green
buildings, energy efficiency, clean transport and renewable energy.
The ESG strategy formulated in 2021 is continuously expanding. The Group is
maintaining its leading role in the Social and Governance pillars and focus on
increasing the Group's positive impacts on the Environment by transforming not
only its own operations, but also the operations of its customers.
The Group has committed to the following primary ESG targets, which reflect
the pivotal role of ESG in the Group's strategy:
● Become carbon neutral by 2030
● Become Net Zero by 2050
● Steadily increase Green Asset Ratio
● Steadily increase Green Mortgage Ratio
● ≥30% women in Group's management bodies (defined as the
Executive Committee (EXCO) and the Extended EXCO) by 2030
For the Group to continue its progress against its primary ESG targets and
address the evolving regulatory expectations, it further enhanced in 2024, its
ESG working plan which was established in 2022. Progress on the ESG working
plan is closely monitored by the Sustainability Committee, the Executive
Committee and the Board Committees on a quarterly basis.
Environmental Pillar
The Group has estimated the Scope 1 and Scope 2 greenhouse gas (GHG) emissions
of 2021 relating to own operations in order to set the baseline for carbon
neutrality target. The Bank being the main contributor of GHG emissions of the
Group, designed in 2022 the strategy to meet the carbon neutrality target by
2030 and progress towards Net Zero target of 2050. For the Group to become
carbon neutral by 2030, Scope 1 and Scope 2 emissions should be reduced by 42%
by 2030. The Bank, following the implementation of various energy upgrade
actions in 2022 and 2023, achieved a c.18% reduction in Scope 1 and Scope 2
GHG emissions in 2023 compared to the baseline of 2021.
C. Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda (continued)
Environmental Pillar (continued)
The Group plans to invest in energy efficient installations and actions as
well as replace fuel intensive machineries and vehicles from 2024 to 2025,
which would lead to c.3-4% reduction in Scope 1 and Scope 2 emissions by 2025
compared to 2021. The Group expects that the Scope 2 emissions will be reduced
further when the energy market in Cyprus shifts further towards renewable
energy. The Bank achieved a reduction of c.7% in Scope 1 and Scope 2 GHG
emissions in 1Q2024 compared to 1Q2023 due to new solar panels connected to
energy network in 2022 and early 2023 as well as branch and building
rationalisation as part of the digitalization journey. The Bank achieved an
increase of 24% in renewable energy production, from 52,274 Kwh to 64,664 Kwh,
in 1Q2024 compared to 1Q2023.
The Group is gradually integrating climate-related and environmental (C&E)
risks into its Business Strategy. The Bank was the first bank in Cyprus to
join the Partnership for Carbon Accounting Financials (PCAF) in October 2022,
and has estimated and published the Financed Scope 3 GHG emissions associated
with its loan and investment portfolio as well as Insurance associated GHG
emissions using the PCAF standards, methodology and proxies. Following the
estimation of Financed Scope 3 GHG emissions of loan portfolio, the Bank
established a decarbonization target on Mortgage loan portfolio. The
decarbonization target on Mortgage portfolio was established by applying the
International Energy Agency's Below 2 Degree Scenario. For the Bank's Mortgage
loan portfolio to be aligned with the climate scenario and effectively be
associated with lower transition risks, the baseline as at 31 December 2022 of
53.5 kgCO(2)e/m(2) should be reduced by 43% by 31 December 2030. The carbon
intensity of the Mortgage loan portfolio as at 31 December 2023 was estimated
at 50.73 kgCO(2)e/m(2) achieving a c.5% reduction compared to baseline, due to
increased installation of solar panels in residential properties in 2023. A
Green Housing product was launched at the end of 2023 to support the Bank to
meet the decarbonization target on Mortgage loans and effectively limit the
level of climate transition risk that is exposed to. In addition, the Bank has
set lending and investment limits on specific carbon intensive sectors which
are widely considered to be associated with high climate transition risk.
Further, having introduced and implementing a Business Environment Scan
process, the Bank developed green/transition new lending targets in certain
sectors to support its customer's transition to a low carbon economy and
effectively manage climate transition risks.
During 2023, the Bank has made considerable progress in integrating
climate-related and environmental risks into its risk management approach and
risk culture. The Bank revised and enhanced the Materiality assessment process
on C&E risks. The Bank has carried out a comprehensive identification and
assessment of C&E risks as drivers of existing financial and non-financial
risks considering its business profile and loan portfolio composition. As part
of this process, the Bank has identified the risk drivers, both physical and
transition, which could potentially have an impact on its risk profile and
operations and has assessed the severity of each risk driver for all the
existing categories of risks. The Bank has implemented an ESG Due Diligence
process designed to enhance data collection, score customers on their
performance against various aspects around C&E risks and provide guidance
on remediation actions. This process involves the utilization of structured
ESG questionnaires applied at the individual company level for customers of
the Corporate Division to derive an ESG score. The Bank established a
structure and detailed Business Environment Scan process to monitor the impact
of C&E risks on its business environment in the short, medium and
long-term. The results of the preliminary (quarterly) and final (annual)
impact assessment have been incorporated in the Materiality assessment of
C&E risks as well as informed the Bank's Business Strategy.
The Bank offers a range of environmentally friendly products to manage
transition risk and help its customers become more sustainable. Specifically,
the Bank offers loans for energy upgrades of homes, installation of solar
panels, acquisition of new hybrid or electric car as well as financing of
renewable energy projects. In addition, following the Energy performance
certificate gathering exercise, in 2024, the Bank identified a pool of
€265.7 mn gross loans, as at 31 March 2024, financing properties with EPC
Category A. The gross amount of environmentally friendly loans (including
financing properties with EPC Category A) as at 31 March 2024 was €291.3 mn
compared to €263.6 mn as at 31 December 2023.
During 1Q2024, in order to enhance the awareness and skillset on ESG matters,
the Group performed relevant trainings to control functions and plans to
perform trainings to the Board of Directors and Senior Management as well as
to other members of staff.
C. Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda (continued)
Social Pillar
At the centre of the Group's leading social role lie its investments in the
Bank of Cyprus Oncology Centre (with an overall investment of c.€70 mn since
1998, whilst 55% of diagnosed cancer cases in Cyprus are being treated at the
Centre), the immediate and efficient response of Bank of Cyprus' SupportCY
network consisting of companies and organisations, to various needs of the
society and in cases of crises and emergencies, through the activation of
programs, specialized equipment and a highly trained Volunteers Corps, the
contribution of the Bank of Cyprus Cultural Foundation in promoting the
cultural heritage of the island, and the work of IDEA Innovation Centre.
The ReInHerit program facilitating innovation and research cooperation between
European museums and heritage was successfully concluded In February 2024. The
physical attendees of Cultural foundation events reached 4,062 in 1Q2024.
The IDEA Innovation Centre, invested c.€4 mn in start-up business creation
since its incorporation, supported creation of 95 new companies to date,
provided support to 210+ entrepreneurs through its Startup program since
incorporation, and provided education to 7,000 entrepreneurs. Staff continued
to engage in voluntary initiatives to support charities, foundations, people
in need and initiatives to protect the environment.
The Group has continued to upgrade its staff's skillset by providing training
and development opportunities to all staff and capitalising on modern delivery
methods. In 1Q2024, the Bank's employees attended 8,812 hours of trainings. In
addition, in 2024 the Group announced 2 full scholarships for a master's
degree in "MSc in Governance, Risk & Compliance" offered by EIMF.
Moreover, the Group continued its emphasis on staff wellness during 2024 by
offering webinars, team building activities and family events with sole
purpose to enhance mental, physical, financial and social health, attended by
c.250 employees through its Well at Work program.
Governance Pillar
The Group continues to operate successfully within a complex regulatory
framework of a holding company which is registered in Ireland, listed on two
Stock Exchanges and run in compliance with a number of rules and regulations.
Its governance and management structures enable it to achieve present and
future economic prosperity, environmental integrity and social equity across
its value chain. The Group operates within a framework with adequate control
environment, which enable risk assessment and risk management based on the
relevant policies under the leadership of the Board of Directors. The Group
has set up a Governance Structure to oversee its ESG agenda. Progress on the
implementation and evolution of the Group's ESG strategy is monitored by the
Sustainability Committee and the Board of Directors. The Sustainability
Committee is a dedicated executive committee set up in early 2021 to oversee
the ESG agenda of the Group, review the evolution of the Group's ESG strategy,
monitor the development and implementation of the Group's ESG objectives and
the embedding of ESG priorities in the Group's business targets. The Group's
ESG Governance structure continues to evolve, so as to better address the
Group's evolving ESG needs. The Group's regulatory compliance continues to be
an undisputed priority.
The Board composition of the Company and the Bank is diverse, with 43% of the
Board members being female as at 31 March 2024. The Board displays a strong
skillset stemming from broad international experience. Moreover, the Group's
aspiration to achieve a representation of at least 30% women in Group's
management bodies (Defined as the EXCO and the Extended EXCO) by 2030, has
been reached earlier with 33% representation of women, as at 31 March 2024, in
Group's management bodies, following the appointment of two female General
Managers in Eurolife and General Insurance of Cyprus. As at 31 December 2024,
there is a 40% representation of women at key positions below the Extended
EXCO level (defined as positions between Assistant Manager and Manager).
D. Strategy and Outlook
The vision of the Group is to create a lifelong partnership with its
customers, guiding and supporting them in an evolving world.
The strategic pillars of the Group remain intact:
· Grow revenues in a more capital efficient way; by enhancing
revenue generation via growth in high quality new lending, diversification to
less capital intensive banking and other financial services (such as insurance
and the digital economy) as well as prudent management of the Group's
liquidity
· Achieve a lean operating model; by ongoing focus on efficiency
through further automations facilitated by digitisation
· Maintain robust asset quality; by maintaining high quality new
lending via strict underwriting criteria, normalising cost of risk and
reducing other impairments
· Enhance organisational resilience and ESG (Environmental, Social
and Governance) agenda; by leading the transition of Cyprus to a sustainable
future and building a forward-looking organisation embracing ESG in all
aspects.
The Group's net interest income was targeted to exceed €670 mn for FY2024
with a quarterly declining trend. The main drivers for this guidance were:
· Forward curves as of January 2024 indicated that the ECB deposit
facility rate and 6m Euribor averaged 3.4% and 3.2% respectively for 2024
· Time and notice deposit pass-through to increase to an average of
40% in 2024.
· Gradual change in deposit mix towards time and notice deposits to
c.45% by 31 December 2024;
· Low single-digit loan growth
· Fixed income portfolio to continue to grow, subject to market
conditions, so that it represents c.16% of total assets by end-2024,
benefitting also from rollover to higher rates and;
· Higher wholesale funding costs, reflecting the full year impact
of the 2023 senior preferred issuance and the April 2024 issuance in order to
meet the 2024 MREL requirement.
In the first quarter of 2024, the interest rate outlook was more favourable
than initially anticipated with average market forward rates for April 2024
indicate that ECB depo rate is expected to average to 3.7% for 2024 whilst 6m
Euribor rate to average to 3.5% in 2024. On the other hand, time and notice
deposit pass-through remained resiliently low in 1Q2024 as they averaged to
22% (compared to 18% in 4Q2023) reflecting a marginally higher cost of
deposits. Simultaneously, the deposit mix towards time and notice accounts has
not changed materially compared to prior quarter. All the above contribute to
a strong net interest income in 1Q2024, demonstrating that the Group is on a
path to exceed its 2024 NII target, with the current forward curves could
potentially improve the Group's net interest income for FY2024 by c.€40 mn,
compared to the expectations announced in February 2024.
Additionally, as the Group's majority of interest earning assets are floating,
the Group is undertaking solutions in order to reduce its net interest income
sensitivity, converting some of its assets from floating rate to fixed. In the
first quarter of 2024, the Group carried out additional hedging of €2.1 bn,
on track to meet its 2024 target of €4-5 bn (with average duration of 3-4
years), through receive fixed rate swaps, investing in fixed rate bonds,
entering into reverse repos and offering fixed rate loans. Simultaneously,
about a quarter of the Group's loan portfolio is linked with the Bank's base
rate which provides a natural hedge against the cost of deposits. Overall,
these actions have led to a reduction in the net interest income sensitivity
(to a parallel shift in interest rates by 100 bps) by €20 mn compared to
prior quarter. Post 1Q2024,the NII sensitivity is expected to decrease further
by c.€20 mn by the end of 2024.
Separately, the Group continues to focus on improving revenues through
multiple less capital-intensive initiatives, with a focus on net fee and
commission income, insurance and non-banking activities, enhancing the Group's
diversified business
model further. Non-interest income is an important contributor to the Group's
profitability and historically covered on average
around 80% of its total operating expenses and this is expected to continue
covering around 70-80% of the Group's total operating expenses for 2024-2025,
supported by a growing net fee and commission income in line with economic
growth.
Maintaining cost discipline management remains an ongoing focus for the Group.
The cost to income ratio excluding special levy on deposits or other
levies/contributions is expected at c.40% for 2024, reflecting mainly lower
income on gradually declining interest rates.
In terms of asset quality, the NPE ratio target by end-2024 is expected to
stand at c.3% and below 3% by end-2025. The cost of risk for 2024-2025 is
expected to trend towards normalised levels of 40-50 bps.
Since 2019, the Real Estate Management Unit (REMU) stock has been consistently
reducing, with properties sold exceeding the book value of properties
acquired, while inflows remain substantially reduced following balance sheet
derisking. Going forward, REMU sales are expected to continue, with expected
inflows to remain at limited levels. Therefore, REMU portfolio is expected to
reduce to c.€0.5 bn by end-2025.
D. Strategy and Outlook (continued)
Overall, the Group continues to expect that to deliver a ROTE of over 17% on
15% CET1 ratio (excluding amounts reserved for distribution) for 2024
corresponding to a CET1 generation of between 200-250 bps pre-distributions.
Additionally, the ROTE target for 2025 is expected to exceed 16% on 15% CET1
ratio (excluding amounts reserved for distribution), reflecting lower interest
rates.
The Group aims to provide sustainable shareholder returns. Distributions are
expected to build prudently and progressively over time, towards a payout
ratio in the range of 30-50% of the Group's adjusted recurring profitability,
including cash dividends and share buybacks.
A summary of the targets as announced in February 2024 is shown below:
Key metrics 1Q2024 FY2024
(February 2024)
Net interest income € 213 mn >€670 mn
Average ECB Deposit facility rate 4.0% 3.4%
Cost to income ratio(1) 29% c.40s
Return on tangible equity 23.6% >17%(2)
(or 29.1% on 15% CET1 ratio) On 15% CET1 ratio
NPE ratio 3.4% c.3%
Cost of risk 27 bps Trending towards normalised levels of 40-50 bps
Capital c.90 bps CET1 generation(3) +200-250 bps CET1 generation(3)
Distributions Building prudently and progressively to 30-50% payout ratio(4); including cash
dividends and buybacks
1. Excluding special levy on deposits and other levies/contributions
2. Excluding amounts reserved for future distributions and after
deducting the excess CET1 capital on a 15% CET1 ratio from the tangible book
value
3. Yoy increase in CET1 ratio pre-distributions
4. Calculated on adjusted recurring profitability: Profit after tax
before non-recurring items (attributable to the owners of the Company) taking
into consideration the distributions from other equity instruments such as AT1
coupon. Any recommendation for a distribution is subject to regulatory
approval
The Financial targets will reviewed with the publication of 1H2024 Financial
results.
E. Financial Results - Statutory Basis
Interim Consolidated Income Statement
The following financial information for the first three months of 2024 and
2023 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.
Three months ended
31 March
2024 2023
€000 €000
Interest income 258,617 181,828
Income similar to interest income 27,029 9,373
Interest expense (49,255) (24,557)
Expense similar to interest expense (23,141) (4,393)
Net interest income 213,250 162,251
Fee and commission income 44,080 46,962
Fee and commission expense (2,063) (2,751)
Net foreign exchange gains 6,747 8,112
Net gains on financial instruments 892 5,928
Net gains on derecognition of financial assets measured at amortised cost 2,062 255
Net insurance finance income/(expense) and net reinsurance finance (330) 1,298
income/(expense)
Net insurance service result 16,417 12,320
Net reinsurance service result (6,172) (4,064)
Net losses from revaluation and disposal of investment properties (1,094) (443)
Net gains on disposal of stock of property 1,648 2,013
Other income 2,935 2,917
Total operating income 278,372 234,798
Staff costs (47,903) (45,637)
Special levy on deposits and other levies/contributions (11,577) (11,088)
Provisions for pending litigations, claims, regulatory and other matters (net (9,795) (6,315)
of reversals)
Other operating expenses (32,948) (35,159)
Operating profit before credit losses and impairment 176,149 136,599
Credit losses on financial assets (9,266) (15,499)
Impairment net of reversals on non-financial assets (8,550) (8,033)
Profit before tax 158,333 113,067
Income tax (24,929) (17,786)
Profit after tax for the period 133,404 95,281
Attributable to:
Owners of the Company 132,826 94,728
Non-controlling interests 578 553
Profit for the period 133,404 95,281
Basic profit per share attributable to the owners of the Company (€ cent) 29.8 21.2
Diluted profit per share attributable to the owners of the Company (€ cent) 29.7 21.2
E. Financial Results - Statutory Basis (continued)
Interim Consolidated Statement of Comprehensive Income
Three months ended
31 March
2024 2023
€000 €000
Profit for the period 133,404 95,281
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in (139) (1,930)
subsequent periods
Fair value reserve (debt instruments) (142) (1,912)
Net losses on investments in debt instruments measured at fair value through (142) (1,762)
OCI (FVOCI)
Transfer to the consolidated income statement on disposal - (150)
Foreign currency translation reserve 3 (18)
Profit/(loss) on translation of net investment in foreign subsidiaries 4 (33)
(Loss)/profit on hedging of net investments in foreign subsidiaries (1) 15
OCI not to be reclassified in the consolidated income statement in subsequent 844 (24)
periods
Fair value reserve (equity instruments) 241 -
Net gains on investments in equity instruments designated at FVOCI 241 -
Property revaluation reserve (86) 26
Deferred tax (86) 26
Actuarial gains/(losses) on the defined benefit plans 689 (50)
Remeasurement gains/(losses) on defined benefit plans 689 (50)
Other comprehensive income/(loss) for the period net of taxation 705 (1,954)
Total comprehensive income for the period 134,109 93,327
Attributable to:
Owners of the Company 133,552 92,768
Non-controlling interests 557 559
Total comprehensive income for the period 134,109 93,327
E. Financial Results - Statutory Basis (continued)
Interim Consolidated Balance Sheet
31 March 2024 31 December 2023
Assets €000 €000
Cash and balances with central banks 7,217,046 9,614,502
Loans and advances to banks 383,707 384,802
Reverse repurchase agreements 707,526 403,199
Derivative financial assets 63,529 51,055
Investments at FVPL 120,455 135,275
Investments at FVOCI 438,265 443,420
Investments at amortised cost 3,317,166 3,116,714
Loans and advances to customers 10,027,893 9,821,788
Life insurance business assets attributable to policyholders 691,047 649,212
Prepayments, accrued income and other assets 575,409 584,919
Stock of property 803,646 826,115
Investment properties 62,321 62,105
Deferred tax assets 201,996 201,268
Property and equipment 284,057 285,568
Intangible assets 46,609 48,635
Total assets 24,940,672 26,628,577
Liabilities
Deposits by banks 395,790 471,556
Funding from central banks 310,308 2,043,868
Derivative financial liabilities 6,587 17,980
Customer deposits 19,259,888 19,336,915
Insurance contract liabilities 689,747 658,424
Accruals, deferred income, other liabilities and other provisions 505,972 469,265
Provisions for pending litigations, claims, regulatory and other matters 135,839 131,503
Debt securities in issue 672,542 671,632
Subordinated liabilities 308,841 306,787
Deferred tax liabilities 32,464 32,306
Total liabilities 22,317,978 24,140,236
Equity
Share capital 44,620 44,620
Share premium 594,358 594,358
Revaluation and other reserves 90,201 89,920
Retained earnings 1,651,697 1,518,182
Equity attributable to the owners of the Company 2,380,876 2,247,080
Other equity instruments 220,000 220,000
Non‑controlling interests 21,818 21,261
Total equity 2,622,694 2,488,341
Total liabilities and equity 24,940,672 26,628,577
E. Financial Results - Statutory Basis (continued)
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 Foreign currency translation reserve Total
capital premium capital reserves
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2024 44,620 594,358 (21,463) 917 1,518,182 84,239 9,553 16,674 2,247,080 220,000 21,261 2,488,341
Profit for the period - - - - 132,826 - - - 132,826 - 578 133,404
Other comprehensive income/(loss) after tax for the period - - - - 689 (65) 99 3 726 - (21) 705
Total comprehensive income/(loss) after tax for the period - - - - 133,515 (65) 99 3 133,552 - 557 134,109
Share-based benefits - cost - - - 244 - - - - 244 - - 244
31 March 2024 44,620 594,358 (21,463) 1,161 1,651,697 84,174 9,652 16,677 2,380,876 220,000 21,818 2,622,694
E. Financial Results - Statutory Basis (continued)
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 Other Retained earnings Property revaluation reserve Financial instruments fair value reserve Foreign currency translation reserve Total
capital premium capital reserves
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
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
F. Notes
F.1 Reconciliation of Interim Consolidated Income Statement for
the three months ended 31 March 2024 between the statutory and underlying
basis
€ million Underlying basis Other Statutory
basis
Net interest income 213 - 213
Net fee and commission income 42 - 42
Net foreign exchange gains and net gains on financial instruments 7 - 7
Net gains on derecognition of financial assets measured at amortised cost - 2 2
Net insurance result* 10 - 10
Net gains from revaluation and disposal of investment properties and on 1 - 1
disposal of stock of properties
Other income 3 - 3
Total income 276 2 278
Total expenses (92) (10) (102)
Operating profit 184 (8) 176
Loan credit losses (7) 7 -
Impairment of other financial and non-financial assets (8) 8 -
Provisions for pending litigations, claims, regulatory and other matters (net (10) 10 -
of reversals)
Credit losses on financial assets and impairment net of reversals of - (17) (17)
non-financial assets
Profit before tax and non-recurring items 159 - 159
Tax (25) - (25)
Profit attributable to non-controlling interests (1) - (1)
Profit after tax (attributable to the owners of the Company) 133 - 133
* Net insurance result per underlying basis comprises the aggregate of
captions 'Net insurance finance income/(expense) and net reinsurance finance
income/(expense)', 'Net insurance service result' and 'Net reinsurance service
result' per the statutory basis.
The reclassification differences between the statutory basis and the
underlying basis are explained below:
· 'Net gains on derecognition of financial assets
measured at amortised cost' of €2 million under the statutory basis comprise
net gains on derecognition of loans and advances to customers included in
'Loan credit losses' under the underlying basis as to align their presentation
with the loan credit losses on loans and advances to customers.
· Provisions for pending litigations, claims, regulatory
and other matters amounting to €10 million presented within 'Operating
profit before credit losses and impairment' under the statutory basis, are
presented under the underlying basis in conjunction with loan credit losses
and impairments.
'Credit losses on financial assets' and 'Impairment net of reversals on
non-financial assets' under the statutory basis include: i) credit losses to
cover credit risk on loans and advances to customers of €9 million, which
are included in 'Loan credit losses' under the underlying basis, and ii)
credit losses of other financial assets of €0.1 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 2023
2024
By type of deposit €000 €000
Demand 9,998,284 10,167,622
Savings 2,948,639 2,979,275
Time or notice 6,311,396 6,190,018
Changes in the fair value of hedged items in portfolio hedges of interest rate 1,569 -
risk
19,259,888 19,336,915
Deposits by geographical area presented in the table below are based on the
country of residence of the Ultimate Beneficial Owner.
31 March 31 December 2023
2024
By geographical area €000 €000
Cyprus 15,285,862 15,355,445
Greece 1,486,363 1,473,491
United Kingdom 398,418 386,057
United States 163,705 166,673
Germany 76,701 77,288
Romania 25,790 29,729
Russia 108,760 128,489
Ukraine 207,382 183,316
Belarus 3,426 3,762
Israel 169,703 195,580
Other countries 1,332,209 1,337,085
Changes in the fair value of hedged items in portfolio hedges of interest rate 1,569 -
risk
19,259,888 19,336,915
31 March 2024 31 December 2023
By currency €000 €000
Euro 17,421,578 17,514,400
US Dollar 1,455,424 1,448,753
British Pound 316,677 300,867
Russian Rouble 1,291 1,322
Swiss Franc 9,135 8,947
Other currencies 54,214 62,626
Changes in the fair value of hedged items in portfolio hedges of interest rate 1,569 -
risk
19,259,888 19,336,915
F. Notes (continued)
F.2 Customer deposits (continued)
31 March 2024 31 December 2023
(restated)
By business line €000 €000
Corporate 2,050,013 2,086,753
IBU & International corporate
- IBU 3,788,916 3,779,571
- International corporate 123,462 121,454
SMEs 1,015,720 1,019,245
Retail 12,150,406 12,216,209
Restructuring
- corporate 7,950 12,565
- SMEs 3,861 5,954
- retail other 7,680 9,428
Recoveries
- corporate 1,037 1,098
Institutional Wealth Management and Custody 109,274 84,638
Changes in the fair value of hedged items in portfolio hedges of interest rate 1,569 -
risk
19,259,888 19,336,915
Following an internal re-organisation, the activities previously reported
under segment 'Wealth Management' were reorganised and are now reported as
follows: the activities of the newly set up unit Affluent Banking were
transferred, and are now presented and monitored under 'Retail' and the
Institutional Wealth Management and Custody was transferred and is now
presented and monitored under 'Treasury'. As a result of the changes,
'Wealth Management' no longer represents a separate segment, and the
activities of the subsidiary companies of the Group, CISCO and its subsidiary,
whose activities relate to investment banking, brokerage, discretionary asset
management and investment advice services and do not qualify as a material
segment, are now presented under 'Other'. Comparative information in the 'By
business line' analysis in Sections F.2 'Customer deposits', F.4 'Credit risk
concentration of loans and advances to customers' and F.5 'Analysis of loans
and advances to customers by stage' was restated to reflect this change.
F.3 Loans and advances to customers
31 March 31 December 2023
2024
€000 €000
Gross loans and advances to customers at amortised cost 10,074,522 9,862,514
Allowance for ECL for loans and advances to customers (181,701) (179,453)
9,892,821 9,683,061
Loans and advances to customers measured at FVPL 135,072 138,727
10,027,893 9,821,788
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers
The credit risk concentration, which is based on industry (economic activity)
and business line, as well as the geographical concentration, is presented
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, according to 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 2024 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000
Trade 913,378 9,028 40 - 15,052 937,498
Manufacturing 294,963 43,677 210 - 36,769 375,619
Hotels and catering 1,000,210 33,611 37,311 - 39,366 1,110,498
Construction 480,302 8,465 7 - 315 489,089
Real estate 863,667 109,519 1,900 - 34,280 1,009,366
Private individuals 4,561,106 9,377 51,797 11,762 47,454 4,681,496
Professional and other services 583,480 553 5,245 6 50,968 640,252
Shipping 20,335 16 - - 221,595 241,946
Other sectors 558,349 1 1 5 30,402 588,758
9,275,790 214,247 96,511 11,773 476,201 10,074,522
31 March 2024 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000
Corporate 3,492,339 34,617 214 - 175 3,527,345
IBU & International corporate
- IBU 88,257 2,093 5,861 7,385 18,373 121,969
- International corporate 132,105 172,928 44,048 - 423,812 772,893
SMEs 964,432 688 1,158 - 2,282 968,560
Retail
- housing 3,376,399 2,103 25,521 85 16,861 3,420,969
- consumer, credit cards and other 982,422 1,748 442 - 5,492 990,104
Restructuring
- corporate 45,109 - 616 15 27 45,767
- SMEs 29,267 - 168 - 29 29,464
- retail housing 55,626 - 1,785 122 675 58,208
- retail other 18,189 1 4 - 23 18,217
Recoveries
- corporate 4,571 - 176 175 274 5,196
- SMEs 12,346 1 1,133 1,622 1,135 16,237
- retail housing 48,067 51 14,242 2,111 6,737 71,208
- retail other 26,661 17 1,143 258 306 28,385
9,275,790 214,247 96,511 11,773 476,201 10,074,522
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to customers
(continued)
31 December 2023 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000
Trade 868,039 277 40 - 15,340 883,696
Manufacturing 287,524 43,971 192 - 31,194 362,881
Hotels and catering 928,910 29,454 36,704 - 39,368 1,034,436
Construction 486,622 8,332 14 - 331 495,299
Real estate 871,544 108,635 1,863 - 51,349 1,033,391
Private individuals 4,543,985 9,680 56,074 12,075 48,080 4,669,894
Professional and other services 535,994 572 5,242 352 54,846 597,006
Shipping 20,622 15 - - 222,422 243,059
Other sectors 512,666 - - 2 30,184 542,852
9,055,906 200,936 100,129 12,429 493,114 9,862,514
31 December 2023 (restated) Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000
Corporate 3,326,556 30,487 193 324 185 3,357,745
IBU & International corporate
- IBU 87,127 1,688 6,544 6,901 18,618 120,878
- International corporate 115,212 164,103 43,401 - 439,512 762,228
SMEs 945,018 482 1,177 - 2,316 948,993
Retail
- housing 3,369,111 2,320 27,728 86 17,634 3,416,879
- consumer, credit cards and other 956,834 1,775 480 - 4,953 964,042
Restructuring
- corporate 48,440 - 611 - - 49,051
- SMEs 33,212 - 261 532 61 34,066
- retail housing 57,685 - 2,468 122 212 60,487
- retail other 19,164 22 2 - 23 19,211
Recoveries
- corporate 6,079 - 182 173 911 7,345
- SMEs 13,419 1 1,173 1,623 1,183 17,399
- retail housing 50,927 50 14,718 2,399 7,231 75,325
- retail other 27,122 8 1,191 269 275 28,865
9,055,906 200,936 100,129 12,429 493,114 9,862,514
The loans and advances to customers include lending exposures in Cyprus with
collaterals in Greece with a carrying value as at 31 March 2024 of €128,943
thousand (31 December 2023: €128,705 thousand).
The loans and advances to customers reported within 'Other countries' as at 31
March 2024 include exposures of €1,7 million in Ukraine (31 December 2023:
€1,7 million) and €4,8 million in Israel (31 December 2023: €4,9
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 2024 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 8,620,865 1,109,806 310,658 101,183 10,142,512
recognition
Residual fair value adjustment on initial recognition (54,627) (10,853) (923) (1,587) (67,990)
Gross loans at amortised cost 8,566,238 1,098,953 309,735 99,596 10,074,522
Cyprus 8,566,082 1,098,953 309,539 99,596 10,074,170
Other countries 156 - 196 - 352
8,566,238 1,098,953 309,735 99,596 10,074,522
31 December 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 8,334,929 1,168,745 328,177 100,197 9,932,048
recognition
Residual fair value adjustment on initial recognition (59,340) (7,474) (1,294) (1,426) (69,534)
Gross loans at amortised cost 8,275,589 1,161,271 326,883 98,771 9,862,514
Cyprus 8,275,416 1,161,271 326,363 98,771 9,861,821
Other countries 173 - 520 - 693
8,275,589 1,161,271 326,883 98,771 9,862,514
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 2024 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate 2,888,062 510,908 93,108 35,267 3,527,345
IBU & International corporate
- IBU 93,868 27,639 366 96 121,969
- International corporate 749,613 23,226 40 14 772,893
SMEs 854,964 98,536 5,783 9,277 968,560
Retail
- housing 3,085,312 304,425 21,336 9,896 3,420,969
- consumer, credit cards and other 873,197 93,751 9,547 13,609 990,104
Restructuring
- corporate 2,073 20,443 13,335 9,916 45,767
- SMEs 9,893 7,059 10,134 2,378 29,464
- retail housing 7,178 10,581 39,104 1,345 58,208
- retail other 2,026 2,385 13,084 722 18,217
Recoveries
- corporate - - 4,275 921 5,196
- SMEs - - 14,763 1,474 16,237
- retail housing - - 61,331 9,877 71,208
- retail other 52 - 23,529 4,804 28,385
8,566,238 1,098,953 309,735 99,596 10,074,522
31 December 2023 Stage 1 Stage 2 Stage 3 POCI Total
(restated)
By business line €000 €000 €000 €000 €000
Corporate 2,709,523 519,134 96,289 32,799 3,357,745
IBU & International corporate
- IBU 99,009 21,409 320 140 120,878
- International corporate 744,955 17,220 38 15 762,228
SMEs 824,503 109,865 5,583 9,042 948,993
Retail
- housing 3,038,339 345,135 23,508 9,897 3,416,879
- consumer, credit cards and other 836,679 103,710 9,814 13,839 964,042
Restructuring
- corporate 3,770 21,747 13,461 10,073 49,051
- SMEs 9,831 8,089 13,715 2,431 34,066
- retail housing 6,450 12,429 39,696 1,912 60,487
- retail other 2,471 2,533 13,474 733 19,211
Recoveries
- corporate - - 6,378 967 7,345
- SMEs - - 15,812 1,587 17,399
- retail housing - - 65,070 10,255 75,325
- retail other 59 - 23,725 5,081 28,865
8,275,589 1,161,271 326,883 98,771 9,862,514
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers
Three months ended
31 March
2024 2023
€000 €000
Impairment loss net of reversals on loans and advances to customers 11,777 17,693
Recoveries of loans and advances to customers previously written off (2,190) (3,918)
Changes in expected cash flows (502) (1,571)
Financial guarantees and commitments 67 266
9,152 12,470
The movement in ECL of loans and advances to customers and the analysis of the
balance by stage is as follows:
Three months ended
31 March
2024 2023
€000 €000
1 January 179,453 178,442
Foreign exchange and other adjustments (77) (50)
Write offs (10,853) (10,650)
Interest (provided) not recognised in the income statement 1,401 898
Charge for the period 11,777 17,693
31 March 181,701 186,333
Stage 1 9,861 16,531
Stage 2 29,738 31,594
Stage 3 119,177 120,249
POCI 22,925 17,959
31 March 181,701 186,333
The charge for the period on loans and advances to customers by stage is
presented in the table below:
Three months ended
31 March
2024 2023
€000 €000
Stage 1 (20,397) (10,476)
Stage 2 3,897 9,262
Stage 3 28,277 18,907
11,777 17,693
During the three months ended 31 March 2024 the total non‑contractual
write‑offs recorded by the Group amounted to €6,718 thousand (three months
ended 31 March 2023: €4,465 thousand). The contractual amount outstanding on
financial assets that were written off during the three months ended 31 March
2024 and that are still subject to enforcement activity is €40,250 thousand
(31 December 2023: €566,451 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 qualitative adjustments or
overlays were applied to the projected future property value increases to
restrict the level of future property price growth to 0% for all scenarios for
loans and advances to customers which are secured by property collaterals.
At 31 March 2024, 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 41.65% under the baseline
scenario (31 December 2023: approximately 32.5%). The increase in the weighted
average haircut during the three months ended 31 March 2024 was driven by the
calibration of the IFRS 9 models, as explained further below.
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 (2023:
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.
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.
Calibration of IFRS 9 models and removal of overlays in relation to economic
conditions
During the three months ended 31 March 2024, the Group performed a calibration
of its IFRS 9 models which involved the reassessment and update of the ECL
model parameters and SICR thresholds so as to embed in the models the effects
of the recent economic and geopolitical developments, which were previously
reflected in the ECL through the use of overlays. In addition, the LGD model
parameter was updated to incorporate an additional settlement path. More
specifically, the Group proceeded with four model calibrations affecting the
probability of default parameter (the 'PD-macro'), the significant increase in
credit risk parameter ('SICR'), the probability of cure model and the
collateral realisation model. The calibration of the PD-macro model included
the introduction of inflation related variables and the inclusion of
post-COVID period data to capture the low-default environment as well as the
integration of a dynamic adjustment which enables timely detection of
structural breaks; the impact of this calibration was €8.3 million ECL
release for the three months ended 31 March 2024. As a result of the PD-macro
calibration, the SICR model was revisited following a statistical model
development methodology whilst introducing an absolute threshold to increase
stability and accuracy; the corresponding impact was €0.8 million ECL
release for the three months ended 31 March 2024. With respect to the
probability of cure model, a different curability period was introduced for
each macro-economic scenario following a thorough statistical analysis; the
respective impact was an ECL charge of €2.2 million for the three months
ended 31 March 2024. For the collateral realisation model, the Group
incorporated a path of portfolio sales; the resulting impact was an ECL charge
of €19.7 million for the three months ended 31 March 2024. As at 31 March
2024, the Group did not identify any additional downside risk or uncertainty
not captured by the models and withdrew the prior year overlays; the resulting
impact was €16.5 million ECL release for the three months ended 31 March
2024. The overall impact on the ECL from the calibration of the IFRS 9 models
and the removal of prior year overlays was €3.8 million ECL release for the
three months ended 31 March 2024.
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 2024. 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, are timely captured.
Portfolio segmentation
The individual assessment is performed not only for individually significant
assets but also for other exposures meeting specific criteria determined by
management. The selection criteria for the individually assessed exposures are
based on management judgement and are reviewed on a quarterly basis by the
Risk Management Division and are adjusted or enhanced, if deemed necessary.
Following the wars in Ukraine and the Middle East, the selection criteria were
further enhanced to include significant exposures to customers with passport
of origin or residency in Russia, Ukraine or Belarus and/or business activity
within these countries and significant exposures with repayment deriving from
Israel.
F. Notes (continued)
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 2024 31 December 2023
€000 €000
Stage 1 - -
Stage 2 229,447 261,091
Stage 3 162,828 173,728
POCI 20,926 20,921
413,201 455,740
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 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, reporting
and information security requirements 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 2024 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 2023 Annual Financial Report.
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 2024 Gross loans and advances to customers Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
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 80,244 - - - 8 - - -
Other financial corporations 239,447 818 1,207 455 2,386 383 306 303
Non-financial corporations 5,100,779 148,294 231,063 92,098 81,956 63,302 39,640 37,248
Of which: Small and Medium sized Enterprises(3) (SMEs) 3,054,855 119,051 153,335 66,604 57,749 48,088 25,298 23,879
Of which: Commercial real estate(3) 3,709,224 131,488 203,503 88,670 62,813 52,828 37,542 35,824
Non-financial corporations by sector
Construction 481,010 25,355 7,290
Wholesale and retail trade 923,805 35,340 18,304
Accommodation and food service activities 1,241,558 12,617 9,093
Real estate activities 995,935 38,987 22,667
Manufacturing 372,229 3,658 2,594
Other sectors 1,086,242 32,337 22,008
Households 4,789,124 196,802 180,931 87,921 97,351 74,595 34,369 29,582
Of which: Residential mortgage loans(3) 3,722,866 160,252 159,787 76,302 68,292 54,191 29,028 24,779
Of which: Credit for consumption(3) 604,969 28,902 19,849 11,863 19,760 15,096 5,440 4,821
Total on-balance sheet 10,209,594 345,914 413,201 180,474 181,701 138,280 74,315 67,133
(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 2023 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 35,249 - - - 6 - - -
Other financial corporations 253,077 805 1,201 448 4,247 378 308 305
Non-financial corporations 4,931,801 155,212 258,469 95,156 91,640 61,097 37,355 33,472
Of which: Small and Medium sized Enterprises(3) (SMEs) 3,017,909 125,600 161,086 69,551 66,104 48,370 25,743 22,814
Of which: Commercial real estate(3) 3,567,684 136,152 228,516 90,842 66,458 50,862 33,774 31,716
Non-financial corporations by sector
Construction 484,893 24,873 8,585
Wholesale and retail trade 869,753 37,739 22,936
Accommodation and food service activities 1,169,399 14,310 9,657
Real estate activities 1,019,544 40,296 23,461
Manufacturing 359,874 3,852 4,589
Other sectors 1,028,338 34,142 22,412
Households 4,781,114 207,883 196,070 96,019 83,560 58,962 30,330 25,227
Of which: Residential mortgage loans(3) 3,726,056 169,734 173,407 83,445 52,863 39,732 25,119 20,849
Of which: Credit for consumption(3) 590,945 29,347 21,312 12,704 21,108 13,357 4,897 4,157
Total on-balance sheet 10,001,241 363,900 455,740 191,623 179,453 120,437 67,993 59,004
(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, 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, 50% in 2023 and 75% in 2024) and advancing the application of prudential
treatment of software assets as amended by CRR II (which came into force in
December 2020).
In October 2021, the European Commission adopted legislative proposals for
further amendments to the 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. 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.
In December 2023 the preparatory bodies of the Council and European Parliament
endorsed the amendments to the Capital Requirements Regulation and the Capital
Requirements Directive and the legal texts have now been published on the
Council and the Parliament websites. In April 2024, the European Parliament
has voted to adopt the amendments to the Capital Requirements Regulation and
the Capital Requirements Directive and the texts must now also be confirmed by
the Council, after which they will be published in the EU's official journal.
It is expected that the provisions will come into force on 1 January 2025; and
certain measures are expected to be subject to transitional arrangements or to
be phased-in over time.
The Regulatory CET1 ratio of the Group as at 31 March 2024 stands at 17.1% and
the Total Capital ratio at 22.0%. Including profits for the three months ended
31 March 2024 and an accrual for a distribution at a payout ratio of 50% of
the Group's adjusted recurring profitability for the period, which represents
the top-end range of the Group's approved distribution policy in line with the
principles of Commission Delegated Regulation (EU) (241/2014) for foreseeable
dividends and charges, the CET1 ratio and Total Capital ratio of the Group
stand at 17.6% and 22.5% respectively, as further described in Section
'Distributions' in Section 'A. Group Financial Results - Underlying Basis'.
G. Additional Risk and Capital Management disclosures (continued)
G.2 Capital management (continued)
The Group's minimum capital requirements are presented below:
Minimum CET1 Regulatory Capital Requirements 31 March 31 December
2024 2023
Pillar I - CET1 Requirement 4.50% 4.50%
Pillar II - CET1 Requirement 1.55% 1.73%
Capital Conservation Buffer (CCB)* 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer** 1.875% 1.50%
Countercyclical Buffer (CcyB) 0.49% 0.48%
Minimum CET1 Regulatory Requirements 10.91% 10.72%
* Fully phased-in as of 1 January 2019
** Increasing by 0.0625%. every year thereafter, until being fully implemented
on 1 January 2026 at 2.00%.
Minimum Total Capital Regulatory Requirements 31 March 31 December
2024 2023
Pillar I - Total Capital Requirement 8.00% 8.00%
Pillar II - Total Capital Requirement 2.75% 3.08%
Capital Conservation Buffer (CCB)* 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer** 1.875% 1.50%
Countercyclical Buffer (CcyB) 0.49% 0.48%
Minimum Total Capital Regulatory Requirements 15.61% 15.56%
* Fully phased-in as of 1 January 2019
** Increasing by 0.0625% every year thereafter, until being fully implemented
on 1 January 2026 at 2.00%.
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.
The capital position of the Group and BOC PCL as at 31 March 2024 exceeds both
their Pillar I and their Pillar II add-on capital requirements. However, the
Pillar II add-on capital requirements are a point-in-time assessment and
therefore are subject to change over time.
The CBC, in accordance with the Macroprudential Oversight of Institutions Law
of 2015, sets, on a quarterly basis, the CcyB rates in accordance with the
methodology described in this law. The CcyB for the Group as at 31 March 2024
has been calculated at approximately 0.49% (31 December 2023: 0.48%).
On 30 November 2022, the CBC, following the revised methodology described in
its macroprudential policy, decided to increase the CcyB 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% became applicable as
from 30 November 2023. Moreover, on 2 June 2023, the CBC, announced its
decision to raise the CcyB rate to 1.00% of the total risk exposure amount in
Cyprus to be observed as from 2 June 2024. Based on the above, the CcyB for
the Group is expected to increase further.
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 had 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 and as at 31 December 2023 stood at 1.50%. In October 2023, the
CBC concluded its reassessment for the designation of credit institutions that
meet the definition of O-SII institutions and the setting of O-SII buffer to
be observed. The Group's O-SII buffer was revised to 2.25% (from 1.50%), to be
phased-in annually by 37.5 bps to 1.875% on 1 January 2024 and by another 37.5
bps to 2.25% on 1 January 2025.
In April 2024, following a revision by the CBC of its policy for the
designation of credit institutions that meet the definition of O-SII
institutions and the setting of an O-SII buffer to be observed, the Group's
O-SII buffer has been reduced to 2.00% on 1 January 2026 (from the previous
assessment of 2.25% on 1 January 2025) to be phased-in by 6.25 bps annually to
1.9375% on 1 January 2025 and 2.00% as of 1 January 2026 from the current
level of 1.875%.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management (continued)
As at 31 March 2024, the Group's minimum phased-in CET1 capital ratio
requirement was set at approximately 10.91%, comprising a 4.50% Pillar I
requirement, a 1.55% Pillar II requirement, the Capital Conservation Buffer of
2.50%, the O-SII Buffer of 1.875% and CcyB of approximately 0.49%. As at 31
March 2024, the Group's minimum phased-in Total Capital ratio requirement was
set at approximately 15.61%, comprising an 8.00% Pillar I requirement, of
which up to 1.50% can be in the form of AT1 capital and up to 2.00% in the
form of T2 capital, a 2.75% Pillar II requirement, the Capital Conservation
Buffer of 2.50%, the O-SII Buffer of 1.875% and the CcyB of approximately
0.49%. The ECB has also provided revised lower non-public guidance for an
additional Pillar II CET1 buffer (P2G). From 2 June 2024 both CET1 and Total
Capital minimum requirements are expected to increase by approximately 0.50%
as a result of the increase in the CcyB described above.
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 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 (CBR)), and therefore cannot be used twice.
The regulatory 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
2024(1) 2023(2) 2024(1) 2023(2)
€000 €000 €000 €000
Common Equity Tier 1 (CET1)(3) 1,803,347 1,798,015 1,770,437 1,766,707
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 2,323,347 2,318,015 2,290,437 2,286,707
Risk weighted assets - credit risk(4) 9,220,413 9,013,267 9,180,411 9,005,552
Risk weighted assets - market risk - - - -
Risk weighted assets - operational risk 1,327,871 1,327,871 1,292,350 1,292,350
Total risk weighted assets 10,548,284 10,341,138 10,472,761 10,297,902
Transitional % % % %
Common Equity Tier 1 (CET1) ratio 17.1 17.4 16.9 17.2
Total capital ratio 22.0 22.4 21.9 22.2
Leverage ratio 8.2 7.6 8.1 7.5
(1.) Profits for the three months ended 31 March 2024 are not included. The
CET1 ratio, the Total Capital ratio and the Leverage ratio as at 31 March 2024
stand at 17.6%, 22.5% and 8.4% respectively for the Group and at 17.4%, 22.4%
and 8.3% respectively for BOC PCL, when including the profits for the quarter
ended 31 March 2024 and an accrual for a distribution at a payout ratio of 50%
of the Group's adjusted recurring profitability for the period, which
represents the top-end range of the Group's approved distribution policy in
line with the principles of Commission Delegated Regulation (EU) (241/2014)
for foreseeable dividends and charges. As per the latest SREP decision, any
distribution is subject to regulatory approval. Such distribution accrual does
not constitute a binding commitment for a distribution payment nor does it
constitute a warranty or representation that such a payment will be made.
(2.) Includes profits for the year ended 31 December 2023 and a deduction for
the distribution in respect of 2023 earnings of €137 million, following
approval received by the ECB in March 2024 and relevant recommendation by the
Board of Directors to the shareholders for a final cash dividend of €112
million and in principle approval by the Board to undertake a share buyback of
ordinary shares of the Company for an aggregate consideration of up to €25
million and in compliance with the terms of the ECB approval. Similarly, for
BOC PCL amounts include profits for the year ended 31 December 2023 and a
deduction for the distribution in respect of 2023 earnings following approval
received by the ECB in March 2024 and relevant recommendation by the Board of
Directors to the shareholders for a final cash dividend of €137 million.
(3.) CET1 includes regulatory deductions, comprising, amongst others,
intangible assets amounting to €21,230 thousand for the Group and €15,212
thousand for BOC PCL as at 31 March 2024 (31 December 2023: €24,337 thousand
for the Group and €16,861 thousand for BOC PCL). As at 31 March 2024 an
amount of €17,017 thousand, for the Group and €12,840 thousand for BOC
PCL, relating to intangible assets, is considered prudently valued for CRR
purposes and is not deducted from CET1 (31 December 2023: €15,337 thousand
for the Group and €12,643 thousand for BOC PCL).
(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
2024(1,3) 2023(2,3) 2024(1,3) 2023(2,3)
% % % %
Common Equity Tier 1 ratio 17.1 17.3 16.9 17.1
Total capital ratio 22.0 22.4 21.9 22.2
Leverage ratio 8.2 7.6 8.1 7.5
(1) Profits for the three months ended 31 March 2024 are not included. The
CET1 ratio, the Total Capital ratio and the Leverage ratio as at 31 March 2024
stand at 17.6%, 22.5% and 8.4% respectively for the Group and at 17.4%, 22.4%
and 8.3% respectively for BOC PCL, when including the profits for the quarter
ended 31 March 2024 and an accrual for a distribution at a payout ratio of 50%
of the Group's adjusted recurring profitability for the period, which
represents the top-end range of the Group's approved distribution policy in
line with the principles of Commission Delegated Regulation (EU) (241/2014)
for foreseeable dividends and charges. As per the latest SREP decision, any
distribution is subject to regulatory approval. Such distribution accrual does
not constitute a binding commitment for a distribution payment nor does it
constitute a warranty or representation that such a payment will be made.
(2) Includes profits for the year ended 31 December 2023 and a deduction for
the distribution in respect of 2023 earnings of €137 million, following
approval received by the ECB in March 2024 and relevant recommendation by the
Board of Directors to the shareholders for a final cash dividend of €112
million and in principle approval by the Board to undertake a share buyback of
ordinary shares of the Company for an aggregate consideration of up to €25
million and in compliance with the terms of the ECB approval. Similarly, for
BOC PCL amounts include profits for the year ended 31 December 2023 and a
deduction for the distribution in respect of 2023 earnings following approval
received by the ECB in March 2024 and relevant recommendation by the Board of
Directors to the shareholders for a final cash dividend of €137 million.
(3) IFRS 9 fully loaded as applicable.
During the three months ended 31 March 2024, the regulatory CET1 was mainly
affected by movement in risk-weighted assets. Including the profits for the
three months ended 31 March 2024, net of a distribution at the top-end range
of the Group's distribution policy, the CET1 ratio, on a transitional basis,
increases to 17.6%.
A charge of 32 bps is deducted from own funds in relation to ECB expectations
for NPEs. 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 10 bps on the Group's
CET1 ratio as at 31 March 2024. Furthermore, the Group is subject to increased
capital requirements in relation to its real estate repossessed portfolio
which follow a SREP provision to ensure minimum capital levels retained on
long-term holdings of real estate assets, with such requirements being dynamic
by reference to the in-scope REMU assets remaining on the balance sheet of the
Group and the value of such assets. As at 31 March 2024 the impact of these
requirements was 41 bps on the Group's CET1 ratio compared to 24 bps on 31
December 2023. The above-mentioned requirements are within the capital plans
of the Group and incorporated within its capital projections.
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 Cyprus
Investment Firm (CIF) of the Group, The Cyprus Investment and Securities
Corporation Ltd (CISCO), complies with the minimum capital adequacy ratio
requirements. In 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 a Non-Systemic 'Class 2' company and is subject
to the new IFR/IFD regime in full. The payment services subsidiary of the
Group, JCC Payment Systems 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 were immediately effective.
In January 2024, BOC PCL received final notification from the SRB regarding
the 2024 MREL decision, by which the final MREL requirement is now set at
25.00% of risk weighted assets (30.4% of risk-weighted assets when taking into
account the expected prevailing CBR as at 31 December 2024 which needs to be
met with own funds on top of the MREL) and 5.91% of Leverage Ratio Exposure
(LRE) (as defined in the CRR) and must be met by 31 December 2024.
BOC PCL must comply with the MREL requirement at the consolidated level,
comprising BOC PCL and its subsidiaries.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management (continued)
In April 2024, BOC PCL proceeded with an issue of €300 million green senior
preferred notes (the 'Notes'). The Notes comply with the MREL criteria and
contribute towards BOC PCL's MREL requirement.
The MREL ratio as at 31 March 2024, calculated according to the SRB's
eligibility criteria currently in effect and based on internal estimate, stood
at 29.3% of RWAs (including capital used to meet the CBR) and at 12.5% of LRE
(based on the regulatory Total Capital as at 31 March 2024). The CBR stood at
4.86% as at 31 March 2024 (compared to 4.48% as at 31 December 2023),
reflecting the increase of the O-SII buffer from 1.50% to 1.875% on 1 January
2024. The CBR is expected to increase further in June 2024 as a result of the
increase of CcyB to approximately 1.00% and the phasing-in of O-SII buffer
from 1.875% to 1.9375% on 1 January 2025 and to 2.00% on 1 January 2026.
The MREL ratio expressed as a percentage of RWAs (including capital used to
meet the CBR) and the MREL ratio expressed as a percentage of LRE as at 31
March 2024 stand at 29.8% and 12.7% respectively when including the profits
for the quarter ended 31 March 2024 and an accrual for a distribution at a
payout ratio of 50% of the Group's adjusted recurring profitability for the
period. When accounting for the Notes issued in April 2024, the MREL ratio
expressed as a percentage of RWAs (including capital used to meet the CBR) and
the MREL ratio expressed as a percentage of LRE improve to 32.7% and 14.0%
respectively.
G.3 Internal Capital Adequacy Assessment Process (ICAAP),
Internal Liquidity Adequacy Assessment Process (ILAAP) and Pillar II
Supervisory Review and Evaluation Process (SREP)
The Group prepares annual ICAAP and ILAAP packages. Both reports for 2023 have
been completed and submitted to the ECB at the end of March 2024 following
approval by the Board of Directors. The 2023 ICAAP 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 stressed conditions scenarios. The 2023 ILAAP indicated that the
Group maintains liquidity resources which are adequate to ensure its ability
to meet obligations as they fall due under ordinary and stressed conditions.
The Group 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 RC,
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 undertakes quarterly reviews of its ILAAP results through quarterly
liquidity stress tests which are submitted to the ALCO and the RC, where
actual and forecasted information is considered. Any material changes since
the year-end are assessed in terms of liquidity and funding.
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.
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 Regulation (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 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 2024, the Group was in compliance with all regulatory liquidity
requirements. As at 31 March 2024, the Group's LCR stood at 315% (compared to
359% as at 31 December 2023), the reduction of which was mainly driven by the
repayment of the TLTRO of an amount of €1,700 thousand. As at 31 March 2024
the Group's NSFR was 155% (compared to 158% as at 31 December 2023).
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 2024 31 December 2023
Internal Liquidity Reserves Liquidity reserves as per LCR Delegated Regulation (EU) Internal Liquidity Reserves Liquidity reserves as per LCR Delegated Regulation (EU)
2015/61 LCR eligible 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 6,999,096 6,999,096 - 9,428,052 9,428,052 -
Placements with banks 233,321 - - 214,588 - -
Liquid investments 3,912,374 3,307,976 368,887 3,299,967 2,801,667 354,128
Available ECB Buffer 1,609,933 - - 92,088 - -
Total 12,754,724 10,307,073 368,887 13,034,695 12,229,719 354,128
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. Liquidity investments under Internal Liquidity Reserves are
shown at market values net of haircuts based on the ECB haircut methodology
for the ECB eligible bonds, while for the non-ECB eligible bonds, a more
conservative internally developed haircut methodology is applied.
Current available ECB buffer is not part of the Liquidity reserves as per LCR.
H. Alternative Performance Measures
Reconciliations
Reconciliation between the Interim Consolidated Income Statement under the
statutory basis in Section E and the underlying basis in Section A is included
in Section 'F.1 Reconciliation of Interim Consolidated Income Statement for
the three months ended 31 March 2024 between the statutory and underlying
basis' .
Reconciliations between the non-IFRS performance measures and the most
directly comparable IFRS measures which allow for the comparability of the
underlying basis to the statutory basis are disclosed below.
1. Reconciliation of Gross loans and advances to customers
31 March 31 December 2023
2024
€000 €000
Gross loans and advances to customers as per the underlying basis (as defined 10,276,347 10,069,828
in Section I)
Reconciling items:
Residual fair value adjustment on initial recognition (Section F.5) (67,990) (69,534)
Loans and advances to customers measured at FVPL (Section F.3) (135,072) (138,727)
Aggregate fair value adjustment on loans and advances to customers measured at 1,237 947
FVPL
Gross loans and advances to customers at amortised cost as per Section F.3 10,074,522 9,862,514
2. Reconciliation of Allowance for expected credit losses
(ECL) on loans and advances to customers
31 March 31 December 2023
2024
€000 €000
Allowance for expected credit losses on loans and advances to customers (ECL) 267,420 267,232
as per the underlying basis (as defined in Section I)
Reconciling items:
Residual fair value adjustment on initial recognition (Section F.5) (67,990) (69,534)
Aggregate fair value adjustment on loans and advances to customers measured at 1,237 947
FVPL
Provisions for financial guarantees and commitments (18,966) (19,192)
Allowance for ECL for loans and advances to customers as per Section F.3 181,701 179,453
H. Alternative Performance Measures (continued)
Reconciliations (continued)
3. Reconciliation of NPEs
31 March 31 December 2023
2024
€000 €000
NPEs as per the underlying basis (as defined in Section I) 347,218 365,450
Reconciling items:
POCI (NPEs) (Note 1 below) (36,560) (37,273)
Residual fair value adjustment on initial recognition on loans and advances to (923) (1,294)
customers (NPEs) classified as Stage 3 (Section F.5)
Stage 3 gross loans and advances to customers at amortised cost as per Section 309,735 326,883
F.5
NPE ratio
NPEs (as per table above) (€000) 347,218 365,450
Gross loans and advances to customers (as per table 1 above) (€000) 10,276,347 10,069,828
Ratio of NPE/Gross loans (%) 3.4% 3.6%
NPE Coverage ratio 31 March 31 December 2023
2024
Allowance for expected credit losses (ECL) on loans and advances to customers 267,420 267,232
(as per table 2 above) (€000)
NPEs (as per table above) (€000) 347,218 365,450
NPE Coverage ratio (%) 77% 73%
Note 1: Gross loans and advances to customers at amortised cost before
residual fair value adjustment on initial recognition include an amount of
€36,560 thousand POCI - NPEs (out of a total of €101,183 thousand POCI
loans) (31 December 2023: €37,273 thousand POCI - NPEs (out of a total of
€100,197 thousand POCI loans)) as disclosed in Section F.5.
4. Reconciliation of Loan credit losses
Three months ended
31 March
2024 2023
€000 €000
Loan credit losses as per the underlying basis 6,801 11,207
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 (Section 9,152 12,470
F.6)
Net gains on derecognition of financial assets measured at amortised cost - (2,062) (255)
loans and advances to customers
Net gains on loans and advances to customers measured at FVPL (289) (1,008)
6,801 11,207
H. Alternative Performance Measures (continued)
Reconciliations (continued)
5. Reconciliation of Adjusted recurring profitability to
Profit after tax for the period attributable to the owners of the Company
Three months ended
31 March
2024 2023
€000 €000
Adjusted recurring profitability as per the underlying basis (as defined in 132,826 95,954
Section I)
Reconciling items:
Advisory and other transformation costs - (1,226)
Profit after tax for the period attributable to the owners of the Company as 132,826 94,728
per the Interim Consolidated Income Statement
Key Performance Ratios Information
1. Net Interest Margin (NIM)
The components for the calculation of net interest margin are provided below:
Three months ended
31 March
2024 2023
1.1. Net interest income used in the calculation of NIM €000 €000
Net interest income as per the underlying basis/statutory basis 213,250 162,251
Net interest income used in the calculation of NIM (annualised) 857,687 658,018
1.2. Interest earning assets 31 March 31 December
2024 2023
€000 €000
Cash and balances with central banks 7,217,046 9,614,502
Loans and advances to banks 383,707 384,802
Reverse repurchase agreements 707,526 403,199
Loans and advances to customers 10,027,893 9,821,788
Prepayments, accrued income and other assets - Deferred consideration 247,107 243,013
receivable ('DPP')
Investments
Debt securities 3,742,838 3,547,782
Total interest earning assets 22,326,117 24,015,086
1.3. Quarterly average interest earning assets (€000)
- as at 31 March 2024 23,170,602
- as at 31 March 2023 22,637,964
H. Alternative Performance Measures (continued)
Key Performance Ratios Information (continued)
1. Net Interest Margin (NIM) (continued)
1.2.
1.4. Net Interest Margin (NIM) Three months ended
31 March
2024 2023
Net interest income (annualised) (as per table 1.1. above) (€000) 857,687 658,018
Quarterly average interest earning assets (as per table 1.3. above) (€000) 23,170,602 22,637,964
NIM (%) 3.70% 2.91%
2. Cost to income ratio
2.1 Reconciliation of the components of total expenses used in the
cost to income ratio calculation from the underlying basis to the statutory
basis is provided below:
2.1.1.
2.1.1.
2.1.1 Reconciliation of Staff costs Three months ended
31 March
2024 2023
€000 €000
Staff costs as per the underlying basis/statutory basis 47,903 45,637
2.1.2 Reconciliation of Other operating expenses Three months ended
31 March
2024 2023
€000 €000
Other operating expenses as per the underlying basis 32,948 33,933
Reclassifications for:
Advisory and other transformation costs - organic, separately presented under - 1,226
the underlying basis
Other operating expenses as per the statutory basis 32,948 35,159
2.1.3 Total Expenses as per the underlying basis Three months ended
31 March
2024 2023
€000 €000
Staff costs as per the underlying basis/statutory basis (as per table 2.1.1 47,903 45,637
above)
Special levy on deposits and other levies/contributions as per the underlying 11,577 11,088
basis/statutory basis
Other operating expenses as per the underlying basis (as per table 2.1.2 32,948 33,933
above)
Total Expenses as per the underlying basis 92,428 90,658
H. Alternative Performance Measures (continued)
Key Performance Ratios Information (continued)
2. Cost to income ratio (continued)
2.2 Reconciliation of the components of total income
used in the cost to income ratio calculation from the underlying basis to the
statutory basis is provided below:
2.2.1 Total Income as per the underlying basis Three months ended
31 March
2024 2023
€000 €000
Net interest income as per the underlying basis/statutory basis (as per table 213,250 162,251
1.1 above)
Net fee and commission income as per the underlying basis/statutory basis 42,017 44,211
Net foreign exchange gains, Net gains on financial instruments and Net gains 7,350 13,032
on derecognition of financial assets measured at amortised cost as per the
underlying basis (as per table 2.2.2 below)
Net insurance result* 9,915 9,554
Net losses from revaluation and disposal of investment properties and Net 554 1,570
gains on disposal of stock of properties (as per the statutory basis)
Other income (as per the statutory basis) 2,935 2,917
Total Income as per the underlying basis 276,021 233,535
*Net insurance result 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.
2.2.2.
2.2.2 Reconciliation of Net foreign exchange gains, Net gains on financial Three months ended
instruments and Net gains on derecognition of financial assets measured at
amortised cost between the statutory basis and the underlying basis 31 March
2024 2023
€000 €000
Net foreign exchange gains, Net gains on financial instruments and Net gains 7,350 13,032
on derecognition of financial assets measured at amortised cost as per the
underlying basis
Reclassifications for:
Net gains on loans and advances to customers measured at FVPL disclosed within 289 1,008
'Loan credit losses' per the underlying basis (as per table 4 in Section
'Reconciliations' above)
Net gains on derecognition of financial assets measured at amortised 2,062 255
cost-loans and advances to customers, disclosed within 'Loan credit losses'
per the underlying basis (as per table 4 in Section 'Reconciliations' above)
Net foreign exchange gains, Νet gains on financial instruments and Net gains 9,701 14,295
on derecognition of financial assets measured at amortised cost as per the
statutory basis (see below)
Net foreign exchange gains, Net gains on financial instruments and Net gains
on derecognition of financial assets measured at amortised cost (as per table
above) are reconciled to the statutory basis as follows:
Net foreign exchange gains 6,747 8,112
Net gains on financial instruments 892 5,928
Net gains on derecognition of financial assets measured at amortised cost 2,062 255
9,701 14,295
H. Alternative Performance Measures (continued)
Key Performance Ratios Information (continued)
2. Cost to income ratio (continued)
Three months ended
31 March
2024 2023
Cost to income ratio
Total expenses (as per table 2.1.3 above) (€000) 92,428 90,658
Total income (as per table 2.2.1 above) (€000) 276,021 233,535
Total expenses/Total income (%) 33% 39%
Cost to income ratio excluding special levy on deposits and other Three months ended
levies/contributions
31 March
2024 2023
Total expenses (as per table 2.1.3 above) (€000) 92,428 90,658
Less: Special levy on deposits and other levies/contributions (as per table (11,577) (11,088)
2.1.3 above) (€000)
Total expenses excluding special levy on deposits and other 80,851 79,570
levies/contributions
Total income (as per table 2.2.1 above) (€000) 276,021 233,535
Total expenses excluding special levy on deposits and other 29% 34%
levies/contributions/Total income (%)
3. Operating profit return on average assets
The components used in the determination of the operating profit return on
average assets are provided below:
31 March 31 December
2024 2023
€000 €000
Total assets used in the computation of the operating profit return on average 24,940,672 26,628,577
assets per the statutory basis (Section E Interim Consolidated Balance Sheet)
Quarterly average total assets (€000)
- as at 31 March 2024 25,784,625
- as at 31 March 2023 25,337,673
2024 2023
Total income for the three months ended 31 March (as per table 2.2.1 above) - 1,110,150 947,114
annualised (€000)
Total expenses for the three months ended 31 March (as per table 2.1.3 above) (371,743) (367,669)
- annualised (€000)
Operating profit (€000) 738,407 579,445
Quarterly average total assets as at 31 March (as per table above) (€000) 25,784,625 25,337,673
Operating profit return on average assets (annualized) (%) 2.9% 2.3%
H. Alternative Performance Measures (continued)
Key Performance Ratios Information (continued)
4. Cost of Risk
Three months ended
31 March
2024 2023
€000 €000
Loan credit losses (as per table 4 in Section 'Reconciliation' above) - 27,353 45,451
annualised
Average gross loans (as defined) (as per table 1 in Section 'Reconciliation 10,173,088 10,247,637
above)
Cost of Risk (CoR) % 0.27% 0.44%
5. Basic earnings per share attributable to the owners of
the Company
The components used in the determination of the 'Basic earnings per share
attributable to the owners of the Company (€ cent)' are provided below:
2024 2023
Profit after tax (attributable to the owners of the Company) per the 132,826 94,728
underlying basis/statutory basis for the three months ended 31 March (€000)
Weighted average number of shares in issue during the period, excluding 446,058 446,058
treasury shares (thousand)
Basic earnings per share attributable to the owners of the Company for the 29.8 21.2
three months ended 31 March (€ cent)
6. Return on tangible equity (ROTE)
The components used in the determination of 'Return on tangible equity (ROTE)'
are provided below:
2024 2023
Annualised profit after tax (attributable to the owners of the Company) per 534,223 384,175
the underlying basis/statutory basis for the three months ended 31 March
(€000)
Quarterly average tangible shareholders' equity as at 31 March (as per table 2,266,356 1,801,746
6.2 below) (€000)
ROTE after tax (annualised) (%) 23.6% 21.3%
6.1 Tangible shareholders' equity 31 March 31 December 2023
2024
€000 €000
Equity attributable to the owners of the Company (as per the statutory basis) 2,380,876 2,247,080
Less: Intangible assets (as per the statutory basis) (46,609) (48,635)
Total tangible shareholders' equity 2,334,267 2,198,445
6.2 Quarterly average tangible shareholders' equity (€000)
- as at 31 March 2024 2,266,356
- as at 31 March 2023 1,801,746
H. Alternative Performance Measures (continued)
Key Performance Ratios Information (continued)
7. Return on tangible equity (ROTE) on 15% CET1 ratio
The components used in the determination of 'Return on tangible equity (ROTE)
on 15% CET1 ratio', are provided below:
2024 2023
Annualised profit after tax (attributable to the owners of the Company) per 534,223 384,175
the underlying basis/statutory basis for the three months ended 31 March
(€000)
Quarterly average total tangible shareholders' equity adjusted for excess CET1 1,835,460 1,756,116
capital on a 15% CET1 ratio as at 31 March (as per table 7.2 below) (€000)
ROTE (after tax), on 15% CET1 (%) 29.1% 21.9%
7.1 Tangible shareholders' equity on 15% CET1 ratio 31 March 31 December
2024 2023
€000 €000
Equity attributable to the owners of the Company (as per the statutory basis) 2,380,876 2,247,080
Less: Intangible assets (as per the statutory basis) (46,609) (48,635)
Less: approved FY2023 distribution (136,590) (136,590)
Less: excess CET1 capital* on a 15% CET1 ratio (341,460) (247,153)
Total tangible shareholders' equity on 15% CET1 ratio 1,856,217 1,814,702
*Includes amount of foreseeable charge for shareholders' distribution accrual
at the top-end range of the Group's approved distribution policy deducted from
CET1 ratio of 17.6%.
7.2 Quarterly average tangible shareholders' equity on 15% CET1 ratio
(€000)
- as at 31 March 2024 1,835,460
- as at 31 December 2023 1,837,463
- as at 31 March 2023 1,756,116
8. Tangible book value per share
31 March 31 March
2024 2023
€000 €000
Tangible shareholder's equity (as per table 6.1 above) (€000) 2,334,267 1,849,772
Number of shares in issue during the period, excluding treasury shares (as per 446,058 446,058
table 5 above) (thousand)
Tangible book value per share (€) 5.23 4.15
Tangible book value per share (€) excluding the FY2023 proposed cash 4.98 4.10
dividend of €0.25 per share (31 March 2023: excluding the FY2022 cash
dividend of €0.05 per share)
9. Leverage ratio
31 March 31 December
2024 2023
Tangible total equity (including Other equity instruments) (as per table 9.1 2,554,267 2,418,445
below) (€000)
Total assets as per the statutory basis (€000) 24,940,672 26,628,577
Leverage ratio 10.2% 9.1%
9.1 Tangible total equity 31 March 31 December
2024 2023
€000 €000
Equity attributable to the owners of the Company (as per the statutory basis) 2,380,876 2,247,080
Other equity instruments 220,000 220,000
Less: Intangible assets (as per the statutory basis) (46,609) (48,635)
Tangible total equity 2,554,267 2,418,445
I. Definitions and Explanations
Adjusted recurring profitability The Group's profit after tax before non-recurring items (attributable to the
owners of the Company) taking into account distributions under other equity
instruments such as the annual AT1 coupon.
Advisory and other transformation costs Comprise mainly of fees of external advisors in relation to: (i) the
transformation program and other strategic projects of the Group and (ii)
customer loan restructuring activities, where applicable.
Allowance for expected loan credit losses (previously 'Accumulated Comprises (i) allowance for expected credit losses (ECL) on loans and advances
provisions') to customers (including allowance for expected credit losses on loans and
advances to customers held for sale where applicable), (ii) the residual fair
value adjustment on initial recognition of loans and advances to customers
(including residual fair value adjustment on initial recognition on loans and
advances to customers classified as held for sale where applicable), (iii)
allowance for expected credit losses for off-balance sheet exposures
(financial guarantees and commitments) disclosed on the balance sheet within
other liabilities, and (iv) the aggregate fair value adjustment on loans and
advances to customers classified and measured at FVPL.
AT1 AT1 (Additional Tier 1) is defined in accordance with the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II applicable as at the
reporting date.
Basic earnings per share (attributable to the owners of the Company) Basic earnings after tax per share (attributable to the owners of the Company)
is the Profit/(loss) after tax (attributable to the owners of the Company)
divided by the weighted average number of shares in issue during the period,
excluding treasury shares.
Carbon neutral The reduction and balancing (through a combination of offsetting investments
or emission credits) of greenhouse gas emissions from own operations.
CET1 capital ratio (transitional basis) CET1 capital ratio (transitional basis) is defined in accordance with the
Capital Requirements Regulation (EU) No 575/2013, as amended by CRR II
applicable as at the reporting date.
CET1 Fully loaded (FL) The CET1 fully loaded (FL) ratio is defined in accordance with the Capital
Requirements Regulation (EU) No 575/2013, as amended by CRR II applicable as
at the reporting date.
Cost to Income ratio Cost-to-income ratio comprises total expenses (as defined) divided by total
income (as defined).
Data from the Statistical Service The latest data from the Statistical Service of the Republic of Cyprus, Cyprus
Statistical Service, was published on 15 May 2024.
Digitally engaged customers ratio This is the ratio of digitally engaged individual customers to the total
number of individual customers. Digitally engaged customers are the
individuals who use the digital channels of the Bank (mobile banking app,
browser and ATMs) to perform banking transactions, as well as digital enablers
such as a bank-issued card to perform online card purchases, based on an
internally developed scorecard.
Diluted earnings per share Diluted earnings per share is the Profit/(loss) after tax (attributable to the
owners of the Company) divided by the weighted average number of ordinary
shares in issue adjusted for the ordinary shares that may arise in respect of
share awards granted to executive directors and senior management of the Group
under the Long-Term Incentive Plans (LTIP)
ECB European Central Bank
I. Definitions and Explanations (continued)
Green Asset ratio The proportion of the share of a credit institution's assets financing and
invested in EU Taxonomy-aligned economic activities as a share of total
covered assets.
Green Mortgage ratio The proportion of the share of a credit institution's assets financing EU
Taxonomy-aligned mortgages (acquisition, construction or renovation of
buildings) as a share of total mortgages assets.
Gross loans Gross loans comprise: (i) gross loans and advances to customers measured at
amortised cost before the residual fair value adjustment on initial
recognition (including loans and advances to customers classified as
non-current assets held for sale where applicable) and (ii) loans and advances
to customers classified and measured at FVPL adjusted for the aggregate fair
value adjustment.
Gross loans are reported before the residual fair value adjustment on initial
recognition relating mainly to loans acquired from Laiki Bank (calculated as
the difference between the outstanding contractual amount and the fair value
of loans acquired) amounting to €67 mn as at 31 March 2024 (compared to to
€69 mn as at 31 December 2023).
Additionally, gross loans include loans and advances to customers classified
and measured at fair value through profit or loss adjusted for the aggregate
fair value adjustment of €134 mn as at 31 March 2024 (compared to €138 mn
as at 31 December 2023).
Group The Group consists οf Bank of Cyprus Holdings Public Limited Company, "BOC
Holdings" or the "Company", its subsidiary Bank of Cyprus Public Company
Limited, the "Bank" and the Bank's subsidiaries.
Legacy exposures Legacy exposures are exposures relating to (i) Restructuring and Recoveries
Division (RRD), (ii) Real Estate Management Unit (REMU), and (iii) non-core
overseas exposures.
Leverage ratio The leverage ratio is the ratio of tangible total equity to total assets as
presented on the balance sheet. Tangible total equity comprises of equity
attributable to the owners of the Company and Other equity instruments minus
intangible assets.
Leverage Ratio Exposure (LRE) Leverage Ratio Exposure (LRE) is defined in accordance with the Capital
Requirements Regulation (EU) No 575/2013, as amended.
Loan credit losses (PL) (previously 'Provision charge') Loan credit losses comprise: (i) credit losses to cover credit risk on loans
and advances to customers, (ii) net gains on derecognition of financial assets
measured at amortised cost relating to loans and advances to customers and
(iii) net gains on loans and advances to customers at FVPL, for the reporting
period/year.
Loan credit losses charge (previously 'Provisioning charge') (cost of risk) Loan credit losses charge (cost of risk) (year-to-date) is calculated as the
annualised 'loan credit losses' (as defined) divided by average gross loans.
The average gross loans are calculated as the average of the opening balance
and the closing balance of Gross loans (as defined), for the reporting
period/year.
Market Shares Both deposit and loan market shares are based on data from the CBC. The Bank
is the single largest credit provider in Cyprus with a market share of 42.9%
as at 31 March 2024 (compared to 42.2% as at 31 December 2023). The Bank's
deposit market share in Cyprus reached 37.5% as at 31 March 2024 (compared to
37.7% as at 31 December 2023).
MSCI ESG Rating The use by the Company and the Bank of any MSCI ESG Research LLC or its
affiliates ('MSCI') data, and the use of MSCI Logos, trademarks, service marks
or index names herein, do not constitute a sponsorship, endorsement,
recommendation or promotion of the Company or the Bank by MSCI. MSCI Services
and data are the property of MSCI or its information providers and are
provided "as-is" and without warranty. MSCI Names and logos are trademarks or
service marks of MSCI.
Net Interest Margin Net interest margin is calculated as the net interest income (annualised)
divided by the 'quarterly average interest earning assets' (as defined).
I. Definitions and Explanations (continued)
Net loans and advances to customers Net loans and advances to customers comprise gross loans (as defined) net of
allowance for expected loan credit losses (as defined, but excluding allowance
for expected credit losses on off-balance sheet exposures disclosed on the
balance sheet within other liabilities).
Net loans to deposits ratio Net loans to deposits ratio is calculated as gross loans (as defined) net of
allowance for expected loan credit losses (as defined) divided by customer
deposits.
Net performing loan book Net performing loan book is the total net loans and advances to customers (as
defined) excluding net loans included in the legacy exposures (as defined).
Net Stable Funding Ratio (NSFR) The NSFR is calculated as the amount of "available stable funding" (ASF)
relative to the amount of "required stable funding" (RSF). The regulatory
limit, enforced in June 2021, has been set at 100% as per the CRR II.
Net zero emissions The reduction of greenhouse gas emissions to net zero through a combination of
reduction activities and offsetting investments
New lending New lending includes the disbursed amounts of the new and existing
non-revolving facilities (excluding forborne or re-negotiated accounts) as
well as the average year-to-date change (if positive) of the current accounts
and overdraft facilities between the balance at the beginning of the period
and the end of the period. Recoveries are excluded from this calculation since
their overdraft movement relates mostly to accrued interest and not to new
lending.
Non-interest income Non-interest income comprises Net fee and commission income, Net foreign
exchange gains/(losses) and net gains on financial instruments and (excluding
net gains on loans and advances to customers at FVPL), Net insurance result,
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties, and Other income.
Non-performing exposures (NPEs) As per the European Banking Authorities (EBA) standards and European Central
Bank's (ECB) Guidance to Banks on Non-Performing Loans (which was published in
March 2017), non-performing exposures (NPEs) are defined as those exposures
that satisfy one of the following conditions:
(i) The borrower is assessed as unlikely to pay its credit obligations in
full without the realisation of the collateral, regardless of the existence of
any past due amount or of the number of days past due.
(ii) Defaulted or impaired exposures as per the approach provided in the
Capital Requirement Regulation (CRR), which would also trigger a default under
specific credit adjustment, diminished financial obligation and obligor
bankruptcy.
(iii) Material exposures as set by the CBC, which are more than 90 days past
due.
(iv) Performing forborne exposures under probation for which additional
forbearance measures are extended.
(v) Performing forborne exposures previously classified as NPEs that present
more than 30 days past due within the probation period.
From 1 January 2021 two regulatory guidelines came into force that affect NPE
classification and Days-Past-Due calculation. More specifically, these are the
RTS on the Materiality Threshold of Credit Obligations Past-Due
(EBA/RTS/2016/06), and the Guideline on the Application of the Definition of
Default under article 178 (EBA/RTS/2016/07).
The Days-Past-Due (DPD) counter begins counting DPD as soon as the arrears or
excesses of an exposure reach the materiality threshold (rather than as of the
first day of presenting any amount of arrears or excesses). Similarly, the
counter will be set to zero when the arrears or excesses drop below the
materiality threshold. Payments towards the exposure that do not reduce the
arrears/excesses below the materiality threshold, will not impact the counter.
For retail debtors, when a specific part of the exposures of a customer that
fulfils the NPE criteria set out above is greater than 20% of the gross
carrying amount of all on balance sheet exposures of that customer, then the
total customer exposure is classified as non performing; otherwise only the
specific part of the exposure is classified as non performing. For non retail
debtors, when an exposure fulfils the NPE criteria set out above, then the
total customer exposure is classified as non performing.
I. Definitions and Explanations (continued)
Material arrears/excesses are defined as follows: (a) Retail exposures: Total
arrears/excess amount greater than €100, (b) Exposures other than retail:
Total arrears/excess amount greater than €500 and the amount in
arrears/excess in relation to the customer's total exposure is at least 1%.
The NPEs are reported before the deduction of allowance for expected loan
credit losses (as defined).
Non-recurring items Non-recurring items as presented in the 'Unaudited Interim Condensed
Consolidated Income Statement-Underlying basis' relate to 'Advisory and other
transformation costs - organic'.
NPE coverage ratio (previously 'NPE Provisioning coverage ratio') The NPE coverage ratio is calculated as the allowance for expected loan credit
losses (as defined) over NPEs (as defined).
NPE ratio NPEs ratio is calculated as the NPEs as per EBA (as defined) divided by gross
loans (as defined).
Operating profit Operating profit comprises profit before loan credit losses (as defined),
impairments of other financial and non-financial assets, Provisions for
pending litigations, claims regulatory and other matters (net of reversals),
tax, profit attributable to non-controlling interests and non-recurring items
(as defined).
Operating profit return on average assets Operating profit return on average assets is calculated as the annualised
operating profit (as defined) divided by the quarterly average of total assets
for the relevant period. Average total assets exclude total assets of
discontinued operations at each quarter end, if applicable.
Phased-in Capital Conservation Buffer (CCB) In accordance with the legislation in Cyprus which has been set for all credit
institutions, the applicable rate of the CCB is 1.25% for 2017, 1.875% for
2018 and 2.5% for 2019 (fully phased-in).
Profit after tax and before non-recurring items (attributable to the owners of This refers to the profit after tax (attributable to the owners of the
the Company) Company), excluding any 'non-recurring items' (as defined).
Profit/(loss) after tax - organic (attributable to the owners of the Company) This refers to the profit or loss after tax (attributable to the owners of the
Company), excluding any 'non-recurring items' (as defined, except for the
'advisory and other transformation costs - organic').
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.
Quarterly average interest earning assets This relates to the average of 'interest earning assets' as at the beginning
and end of the relevant quarter. Interest earning assets include: cash and
balances with central banks (including cash and balances with central banks
classified as non-current assets held for sale), plus reverse purchase
agreements (reverse repos) plus loans and advances to banks, plus net loans
and advances to customers (including loans and advances to customers
classified as non-current assets held for sale), plus 'deferred consideration
receivable' included within 'other assets', plus investments (excluding
equities, mutual funds and other non interest bearing investments).
I. Definitions and Explanations (continued)
Qoq Quarter on quarter change
Return on Tangible equity (ROTE) Calculated as Profit/(loss) after tax (attributable to the owners of the
Company) (as defined) (annualised - (based on year - to - date days)), divided
by the quarterly average of Shareholders' equity minus intangible assets at
each quarter end.
Return on Tangible equity (ROTE) on 15% CET1 ratio Calculated as Profit/(loss) after tax (attributable to the owners of the
Company) (as defined) (annualised - (based on year - to - date days)), divided
by the quarterly average of Shareholders' equity minus intangible assets and
after deducting the excess CET1 capital on a 15% CET1 ratio from the tangible
book value.
Return on Tangible equity (ROTE) on 15% CET1 ratio, excluding reserved Calculated as Profit/(loss) after tax (attributable to the owners of the
distributions Company) (as defined) (annualised - (based on year - to - date days)), divided
by the quarterly average of Shareholders' equity minus intangible assets and
reserves for future distributions and after deducting the excess CET1 capital
on a 15% CET1 ratio from the tangible book value.
Shareholders' equity Shareholders' equity comprise total equity adjusted for non-controlling
interest and other equity instruments.
Special levy on deposits and other levies/contributions Relates to the special levy on deposits of credit institutions in Cyprus,
contributions to the Single Resolution Fund (SRF), contributions to the
Deposit Guarantee Fund (DGF), as well as the DTC levy, where applicable.
Tangible book value per share Calculated as the total equity attributable to the owners of the Company,
(i.e. not including other equity instruments, such as AT1) less intangible
assets at each quarter end divided by the number of ordinary shares of the
Group.
Tangible book value per share excluding the cash dividend Calculated as the total equity attributable to the owners of the Company,
(i.e. not including other equity instruments, such as AT1) less intangible
assets at each quarter/year end and the amounts of cash dividend recommended
for distribution in respect of earnings of the relevant year the dividend
relates to, divided by the number of ordinary shares.
Time deposit Calculated as a percentage of the cost (interest expense) of Time and Notice
deposits over the average 6-month Euribor rate of the period.
pass-through
Total Capital ratio Total capital ratio is defined in accordance with the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II applicable as at the
reporting date.
Total expenses Total expenses comprise staff costs, other operating expenses and the special
levy on deposits and other levies/contributions. It does not include 'advisory
and other transformation costs-organic', where applicable. (i) 'Advisory and
other transformation costs-organic' amounted to nil for 1Q2024 (compared to
nil for 4Q2023, €1 mn for for 1Q2023).
Total income Total income comprises net interest income and non-interest income (as
defined).
Total loan credit losses, impairments and provisions Total loan credit losses, impairments and provisions comprise loan credit
losses (as defined), plus impairments of other financial and non-financial
assets, plus provisions for pending litigations, claims regulatory and other
matters net of reversals).
Underlying basis This refers to the statutory basis after being adjusted for reclassification
of certain items as explained in the Basis of Presentation.
Write offs Loans together with the associated loan credit losses are written off when
there is no realistic prospect of recovery. Partial write-offs, including
non-contractual write-offs, may occur when it is considered that there is no
realistic prospect for the recovery of the contractual cash flows. In
addition, write-offs may reflect restructuring activity with customers and are
part of the terms of the agreement and subject to satisfactory performance.
Yoy Year on year change
Basis of Presentation
This announcement covers the results of Bank of Cyprus Holdings Public Limited
Company, "BOC Holdings" or "the Company", its subsidiary Bank of Cyprus Public
Company Limited, the "Bank" or "BOC PCL", and together with the Bank's
subsidiaries, the "Group", for the three months ended 31 March 2024.
At 31 December 2016, the Bank was listed on the Cyprus Stock Exchange (CSE)
and the Athens Exchange. On 18 January 2017, BOC Holdings, incorporated in
Ireland, was introduced in the Group structure as the new holding company of
the Bank. On 19 January 2017, the total issued share capital of BOC Holdings
was admitted to listing and trading on the LSE and the CSE.
Financial information presented in this announcement is being published for
the purposes of providing an overview of the Group financial results for the
three months ended 31 March 2024.
The financial information in this announcement is not audited and does not
constitute statutory financial statements of BOC Holdings within the meaning
of section 340 of the Companies Act 2014. The Group statutory financial
statements for the year ended 31 December 2023, upon which the auditors have
given an unqualified opinion are expected to be delivered to the Registrar of
Companies of Ireland within 56 days of 30 September 2024. The Board of
Directors approved this financial information on 28 March 2024. The Board of
Directors approved the Group statutory financial statements for the quarter
ended 31 March 2024 on 15 May 2024.
Statutory basis: Statutory information is set out on pages 32-36. 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 2024, which the management believes best fits the true
measurement of the financial performance and position of the Group. For
further information, please refer to 'Commentary on Underlying Basis' on page
5. The statutory results are adjusted for certain items (as described on
section F.1) to allow a comparison of the Group's underlying financial
position and performance.
The financial information included in this announcement is neither reviewed
nor audited by the Group's external auditors.
This announcement and the presentation for the Group Financial Results for the
quarter ended 31 March 2024 have been posted on the Group's website
www.bankofcyprus.com
(file:///Q:/IRD/Attachments/2023/Unpublished/20230809%201H2023%20Resutls/ENG/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 2024 are presented
in Euro (€) and all amounts are rounded as indicated. A comma is used to
separate thousands and a dot is used to separate decimals.
Forward Looking Statements
This document contains certain forward-looking statements which can usually be
identified by terms used such as "expect", "should be", "will be" and similar
expressions or variations thereof or their negative variations, but their
absence does not mean that a statement is not forward-looking. Examples of
forward-looking statements include, but are not limited to, statements
relating to the Group's near term, medium term and longer term future capital
requirements and ratios, intentions, beliefs or current expectations and
projections about the Group's future results of operations, financial
condition, expected impairment charges, the level of the Group's assets,
liquidity, performance, prospects, anticipated growth, provisions,
impairments, business strategies and opportunities. By their nature,
forward-looking statements involve risk and uncertainty because they relate to
events, and depend upon circumstances, that will or may occur in the future.
Factors that could cause actual business, strategy and/or results to differ
materially from the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements made by the Group include, but
are not limited to: general economic and political conditions in Cyprus and
other European Union (EU) Member States, interest rate and foreign exchange
fluctuations, legislative, fiscal and regulatory developments, information
technology, litigation and other operational risks, adverse market conditions,
the impact of outbreaks, epidemics or pandemics and geopolitical developments.
This creates significantly greater uncertainty about forward-looking
statements. Should any one or more of these or other factors materialise, or
should any underlying assumptions prove to be incorrect, the actual results or
events could differ materially from those currently being anticipated as
reflected in such forward-looking statements. The forward-looking statements
made in this document are only applicable as at the date of publication of
this document. Except as required by any applicable law or regulation, the
Group expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statement contained in this
document to reflect any change in the Group's expectations or any change in
events, conditions or circumstances on which any statement is based. Changes
in our reporting frameworks and accounting standards, which may have a
material impact on the way we prepare our financial statements and may
negatively affect the profitability of Group's insurance business.
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial services group
in Cyprus, providing a wide range of financial products and services which
include retail and commercial banking, finance, factoring, investment banking,
brokerage, fund management, private banking, life and general insurance. At 31
March 2024, the Bank of Cyprus Group operated through a total of 58 branches
in Cyprus, of which 3 operated as cash offices. The Bank of Cyprus Group
employed 2,847 staff worldwide. At 31 March 2024, the Group's Total Assets
amounted to €24.9 bn and Total Equity was €2.6 bn. The Bank of Cyprus
Group comprises Bank of Cyprus Holdings Public Limited Company, its subsidiary
Bank of Cyprus Public Company Limited and its subsidiaries.
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