REG - Bank of Cyprus Hldgs - 1st Quarter Results
19/05/2022 07:00
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RNS Number : 0772M Bank of Cyprus Holdings PLC 19 May 2022
Announcement
Group Financial Results for the quarter ended 31 March 2022
Nicosia, 19 May 2022
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014.
Key Highlights for the quarter ended 31 March 2022
Supportive Macro, Reflected in Volume Growth
· +5.6%(1) GDP growth in 1Q2022; expected to slow down to +2.7%(2)
in FY2022 due to geopolitical risks
· Loan momentum building up; performing book increased by 2% in
1Q2022 with record new lending of €618 mn
Resilient Underlying Profitability
· Total income of €146 mn, up 7% yoy with net fee and commission
income up 13% yoy and NII down 7% yoy, as expected, reflecting the impact of
NPE trades
· Resilient profit after tax and before non-recurring items of
€27 mn, up 65% yoy; underlying ROTE of 6.7%
· Profit after tax of €21 mn for 1Q2022 vs €8 mn in 1Q2021
Operating Efficiency
· Total operating expenses(3) of €86 mn for 1Q2022, up 4% yoy
· Cost to income ratio(3) at 59% for 1Q2022, down 1 p.p. yoy
Strong Capital and Liquidity
· CET1 ratio of 15.2%(4,5) and Total Capital ratio of 20.3%(4,5);
impacted by the phasing-in of IFRS 9
· Deposits at €17.7 bn up 1% qoq; significant surplus liquidity
of €6.4 bn
Mid - Single Digit NPE Ratio(5)
· NPE ratio reduced to 6.5%(5) (2.7%(5,6) net) down 1 p.p. qoq
· Coverage at 60%(5); cost of risk at 44 bps
1. Source: Cyprus Statistical Service, Ministry of Finance
2. Source: Stability Programme 2022-2025 published on 2 May 2022 by
Ministry of Finance
http://mof.gov.cy/assets/modules/wnp/articles/202205/1115/docs/stability_programme_22_25_en_final.pdf
(http://mof.gov.cy/assets/modules/wnp/articles/202205/1115/docs/stability_programme_22_25_en_final.pdf)
3. Excluding special levy on deposits and other levies/contributions
4. Allowing for IFRS 9 and temporary treatment for certain FVOCI
instruments transitional arrangements
5. Pro forma for HFS
6. Calculated as NPEs net of provisions over net loans
Group Chief Executive Statement
"The first quarter of the year has been characterised by economic growth,
which we have supported, evidenced by a record €618 mn of new loans
extended. This has marked the third consecutive quarter of accelerating loan
growth. New lending reached higher levels than the equivalent period
pre-pandemic, whilst maintaining strict lending criteria. Economic growth is
however expected to slow down to 2.7% for the year, impacted by heightened
geopolitical risks, before accelerating to 3.8% in 2023, both in accordance
with the Ministry of Finance Stability Programme 2022-2025. Increasing energy
prices resulting in inflationary pressures and global supply chain disruptions
have been further exacerbated following the outbreak of the war in Ukraine.
During the first quarter of the year, we generated total income of €146 mn
and a positive operating result of €50 mn. Despite inflationary pressures,
we kept our total operating expenses (excluding levies and contributions)
broadly flat in the quarter at €86 mn, reflecting our on-going efforts to
contain costs. Our quarterly cost of risk increased modestly to 44 bps in the
quarter, reflecting the update in the macroeconomic outlook, but remaining
well within our normalised target range. We delivered a resilient profit after
tax and before non-recurring items of €27 mn, with a corresponding return on
tangible equity of 6.7%. The reported result for the quarter was a net profit
of €21 mn.
The Bank's capital position remains strong and comfortably in excess of our
regulatory requirements. As at 31 March 2022, our Total Capital ratio was
20.3% and our CET1 ratio was 15.2%, on both a transitional and pro forma
basis. Our liquidity position also remains strong and we continue to operate
with over €6 bn surplus liquidity and an LCR at 296%. Deposits on our
balance sheet increased by 1% in the quarter to €17.7 bn.
Balance sheet normalisation continued in the first quarter with further
c.€100 mn of organic NPE reduction, reducing our NPE ratio to 6.5%, pro
forma for NPE sales. We remain on track to achieve our target NPE ratio of
c.5% by the end of this year and less than 3% by the end of 2025.
Our plan for the future is clear. We have a dynamic strategy in place,
leveraging our strong customer base and customer trust, our market leadership
position, and further developing digital knowledge and infrastructure. As a
consequence, we have a clear focus on creating shareholder value and providing
the foundations for a return to dividend distributions. Since we shared our
updated medium term guidance in February this year, the external environment
has changed. As a result, we now expect to deliver a higher return on tangible
equity (ROTE) each year starting in 2023, and to achieve a ROTE in excess of
10% a year ahead of plan."
Panicos Nicolaou
A. Group Financial Results - Underlying Basis
Unaudited Interim Condensed Consolidated Income Statement
€ mn 1Q2022 1Q2021 4Q2021 (1Q2022 vs 4Q2021) +% yoy +%
Net interest income 71 76 73 -2% -7%
Net fee and commission income 44 39 44 0% 13%
Net foreign exchange gains and net gains/(losses) on financial instrument 6 2 10 -47% 124%
transactions and disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions 16 13 18 -11% 24%
Net gains from revaluation and disposal of investment properties and on 5 2 5 13% 116%
disposal of stock of properties
Other income 4 4 4 2% 13%
Total income 146 136 154 -5% 7%
Staff costs (50) (50) (50) -2% -1%
Other operating expenses (36) (32) (37) -3% 11%
Special levy on deposits and other levies/contributions (10) (9) (12) -16% 8%
Total expenses (96) (91) (99) -4% 5%
Operating profit 50 45 55 -7% 12%
Loan credit losses (12) (20) (9) 24% -41%
Impairments of other financial and non-financial assets (5) (5) (23) -77% -4%
(Provisions)/net reversals for litigation, claims, regulatory and other (0) (1) 8 - -72%
matters
Total loan credit losses, impairments and provisions (17) (26) (24) -26% -34%
Profit before tax and non-recurring items 33 19 31 7% 76%
Tax (6) (2) (2) 233% 193%
(Profit)/loss attributable to non-controlling interests 0 (0) (2) - -
Profit after tax and before non-recurring items (attributable to the owners of 27 17 27 0% 65%
the Company)
Advisory and other restructuring costs - organic (1) (3) (3) -56% -52%
Profit after tax - organic (attributable to the owners of the Company) 26 14 24 7% 87%
Provisions/net loss relating to NPE sales(1) (1) (2) (1) -43% -33%
Restructuring and other costs relating to NPE sales(1) (1) (4) 3 - -86%
Restructuring costs - Voluntary Staff Exit Plan (VEP) (3) - (16) -81% -
Profit after tax (attributable to the owners of the Company) 21 8 10 110% 162%
A. Group Financial Results - Underlying Basis (continued)
Unaudited Interim Condensed Consolidated Income Statement - Key Performance
Ratios
Key Performance Ratios(2) 1Q2022 1Q2021 4Q2021 (1Q2022 vs 4Q2021) +% yoy +%
Net Interest Margin (annualised) 1.32% 1.63% 1.34% -2 bps -31 bps
Cost to income ratio 66% 67% 65% +1 p.p. -1 p.p.
Cost to income ratio excluding special levy on deposits and other 59% 60% 57% +2 p.p. -1 p.p.
levies/contributions
Operating profit return on average assets (annualised) 0.8% 0.8% 0.9% -0.1 p.p. -
Basic earnings per share attributable to the owners of the Company (€ cent) 4.78 1.83 2.27 2.51 2.95
Basic earnings after tax and before non-recurring items per share attributable 6.20 3.75 6.19 0.01 2.45
to the owners of the Company (€ cent)
Return on tangible equity (ROTE) after tax and before non-recurring items 6.7% 4.1% 6.6% +0.1 p.p. +2.6 p.p.
(annualised)
1. 'Provisions/net loss relating to NPE sales' refer to the net loss on
transactions completed during the year/period and the net loan credit losses
on transactions under consideration, whilst 'Restructuring and other costs
relating to NPE sales' refer mainly to the costs relating to these trades. For
further details please refer to Section A.2.4. 2. Including the NPE portfolios
classified as "Non-current assets and disposal groups held for sale", where
relevant.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
A. Group Financial Results - Underlying Basis (continued)
Unaudited Interim Condensed Consolidated Balance Sheet
€ mn 31.03.2022 31.12.2021 +%
Cash and balances with central banks 9,330 9,231 1%
Loans and advances to banks 313 292 7%
Debt securities, treasury bills and equity investments 2,066 2,139 -3%
Net loans and advances to customers 10,004 9,836 2%
Stock of property 1,083 1,112 -3%
Investment properties 102 118 -14%
Other assets 1,866 1,876 0%
Non-current assets and disposal groups held for sale 353 359 -2%
Total assets 25,117 24,963 1%
Deposits by banks 533 457 17%
Funding from central banks 2,962 2,970 0%
Customer deposits 17,660 17,531 1%
Loan stock 611 643 -5%
Other liabilities 1,260 1,281 -2%
Total liabilities 23,026 22,882 1%
Shareholders' equity 1,849 1,839 1%
Other equity instruments 220 220 -
Total equity excluding non-controlling interests 2,069 2,059 1%
Non-controlling interests 22 22 -1%
Total equity 2,091 2,081 0%
Total liabilities and equity 25,117 24,963 1%
Key Balance Sheet figures and ratios 31.03.2022 31.03.2022 31.12.2021 +(2)
(pro forma)(1) (as reported)(2) (as reported)(2)
Gross loans (€ mn) 10,389 10,964 10,856 1%
Allowance for expected loan credit losses (€ mn) 406 734 792 -7%
Customer deposits (€ mn) 17,660 17,660 17,531 1%
Loans to deposits ratio (net) 57% 58% 57% +1 p.p.
NPE ratio 6.5% 11.4% 12.4% -1 p.p.
NPE coverage ratio 60% 59% 59% -
Leverage ratio 7.6% 7.6% 7.6% -
Capital ratios and risk weighted assets 31.03.2022 31.03.2022 31.12.2021 +(2)
(pro forma)(1) (as reported)(2) (as reported)(2)
Common Equity Tier 1 (CET1) ratio (transitional)(3) 15.2% 14.6% 15.1% -50 bps
Total capital ratio 20.3% 19.6% 20.0% -40 bps
Risk weighted assets (€ mn) 10,214 10,559 10,694 -1 %
1. Pro forma for HFS (please refer to 'Commentary on Underlying Basis'). 2.
Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant. 3. The CET1 fully loaded ratio as at 31
March 2022 amounts to 13.9% and 14.5% pro forma for HFS (compared to 13.7% and
14.3% pro forma for HFS as at 31 December 2021). p.p. = percentage points, bps
= basis points, 100 basis points (bps) = 1 p.p.
A. Group Financial Results - Underlying Basis (continued)
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 2022 on the
'underlying basis', which the management believes best fits the true
measurement of the performance and position of the Group, as this presents
separately the exceptional and one-off items.
Reconciliations between the statutory basis and the underlying basis are
included in Section F.1 'Reconciliation of interim income statement between
statutory and underlying basis' and in Section H. 'Definitions &
Explanations', to facilitate the comparability of the underlying basis to the
statutory information.
Please note the following in relation to the disclosure of pro forma figures
and ratios throughout this announcement.
References to pro forma figures and ratios as at 31 March 2022 (and 31
December 2021) refer to Project Helix 3 and Project Sinope. They are based on
31 March 2022 (and 31 December 2021) underlying basis figures respectively,
unless otherwise stated, and assume their completion, currently expected to
occur in 2H2022 and 2Q2022 respectively, which remain subject to customary
regulatory and other approvals. As at 31 March 2022 (and 31 December 2021),
the portfolios of loans, as well as the real estate properties included in
Project Helix 3 and Project Sinope, were classified as disposal groups held
for sale.
Any references to pro forma figures and ratios as at 31 March 2021 refer to
Project Helix 2. As at 31 March 2021, the portfolios of loans included in
Project Helix 2 were classified as a disposal group held for sale.
Where numbers are provided on a pro forma basis, this is stated and referred
to as 'Pro forma for held for sale' or 'Pro forma for HFS'.
Project Helix 2 refers to the sale of portfolios of loans with a total gross
book value of €1.3 bn on completion, secured over real estate collateral, to
funds affiliated with Pacific Investment Management Company LLC ("PIMCO"), the
agreements for which were announced on 3 August 2020 and on 18 January 2021.
Project Helix 2 sale was completed in June 2021.
Project Helix 3 refers to the agreement the Group reached in November 2021
with funds affiliated with PIMCO, for the sale of a portfolio of NPEs with
gross book value of €568 mn, as well as real estate properties with book
value of c.€120 mn, as at 30 September 2021.
Project Sinope refers to the agreement the Group reached in December 2021 for
the sale of a portfolio of NPEs with gross book value of €12 mn, as well as
properties in Romania with carrying value €0.6 mn, as at 31 December 2021.
Further details on the NPE trades are provided in Section A.1.5 'Loan
portfolio quality'.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis
A.1.1 Capital Base
Total equity excluding non-controlling interests totalled €2,069 mn at 31
March 2022, compared to €2,059 mn at 31 December 2021. Shareholders' equity
totalled €1,849 mn at 31 March 2022, compared to €1,839 mn at 31 December
2021.
The Common Equity Tier 1 capital (CET1) ratio on a transitional basis stood at
14.6% as at 31 March 2022 and 15.2% pro forma for held for sale portfolios
(referred to as 'pro forma for HFS'), compared to 15.1% as at 31 December 2021
(and 15.8% pro forma for HFS). During 1Q2022, the CET1 ratio was positively
affected mainly by the pre-provision income and the decrease in risk-weighted
assets (RWA), and negatively affected mainly by the phasing-in of IFRS 9 and
other transitional arrangements, provisions and impairments and other
movements. Throughout this announcement, the capital ratios (and pro forma
capital ratios) as at 31 March 2022 include unaudited/unreviewed profits for
1Q2022, unless otherwise stated.
The Group has elected to apply the EU transitional arrangements for regulatory
capital purposes (EU Regulation 2017/2395) where the impact on the impairment
amount from the initial application of IFRS 9 on the capital ratios is
phased-in gradually. The amount added back to CET1 each year decreases based
on a weighting factor until the impact of IFRS 9 is fully absorbed at the end
of the five years. The impact on the capital position for year 2018 was 5% of
the impact on the impairment amount from the initial application of IFRS 9,
increased to 15% (cumulative) for year 2019, 30% (cumulative) for year 2020,
50% (cumulative) for year 2021 and 75% (cumulative) for year 2022. This will
be fully phased-in (100%) by 1 January 2023. The phasing-in of the impairment
amount from the initial application of IFRS 9 had a negative impact of c.60
bps on the CET1 ratio on 1 January 2022.
The CET1 ratio on a fully loaded basis amounted to 13.9% as at 31 March 2022
and 14.5% pro forma for HFS, compared to 13.7% as at 31 December 2021 (and
14.3% pro forma for HFS). On a transitional basis and on a fully phased-in
basis, after the transition period is completed, the impact of IFRS 9 is
expected to be manageable and within the Group's capital plans.
The Total Capital ratio stood at 19.6% as at 31 March 2022 (and 20.3% pro
forma for HFS), compared to 20.0% as at 31 December 2021 (and 20.8% pro forma
for HFS).
The Group's capital ratios are above the Supervisory Review and Evaluation
Process (SREP) requirements.
In the context of the annual SREP conducted by the European Central Bank (ECB)
in 2021, and based on the final 2021 SREP Decision received in February 2022,
the Pillar II requirement has been set at 3.26%, compared to the previous
level of 3.00%. The additional Pillar II requirement add-on of 0.26% relates
to ECB's prudential provisioning expectations as per the 2018 ECB Addendum and
subsequent ECB announcements and press release in July 2018 and August 2019.
This component of the Pillar II requirement add-on takes into consideration
Project Helix 3. It is dynamic and can be reduced during 2022 on the basis of
in-scope NPEs and level of provisioning.
In accordance with the provisions of the Macroprudential Oversight of
Institutions Law of 2015, the Central Bank of Cyprus (CBC) is the responsible
authority for the designation of banks that are Other Systemically Important
Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for
these systemically important banks. The Bank has been designated as an O-SII
and the O-SII buffer was initially set by the CBC at 2.00%. This buffer is
being phased-in gradually, having started from 1 January 2019 at 0.50% and
increasing by 0.50% every year thereafter, until being fully implemented
(2.00%). In April 2020, the CBC decided to delay the phasing-in (0.50%) of the
O-SII buffer on 1 January 2021 and 1 January 2022 by 12 months. Consequently,
the O-SII buffer will be fully phased-in on 1 January 2023, instead of 1
January 2022 as originally set. In November 2021, the Bank received
notification from the CBC that the total O-SII buffer is reduced by 50 bps to
1.50%, therefore the phasing-in of the O-SII buffer on 1 January 2022 and 1
January 2023 has been revised to 0.25% for each period.
As a result, the Group's minimum phased-in CET1 capital ratio has been set at
10.08% compared to the previous level of 9.69% (comprising a 4.50% Pillar I
requirement, a 1.83% Pillar II requirement, the Capital Conservation Buffer of
2.50% and the O-SII Buffer of 1.25%) and the Group's Total Capital requirement
was set at 15.01% compared to the previous level of 14.50% (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 3.26% Pillar II
requirement, the Capital Conservation Buffer of 2.50% and the O-SII Buffer of
1.25%). The ECB has also provided revised lower non-public guidance for an
additional Pillar II CET1 buffer (P2G). Pillar II add-on capital requirements
derive from the SREP, which is a point in time assessment, and are therefore
subject to change over time. The new SREP requirements are effective as from 1
March 2022. The Group's CET1 and Total Capital ratio remain above the new
requirements.
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.1. Balance Sheet Analysis (continued)
A.1.1 Capital Base (continued)
Based on the SREP decision of prior years, the Company (Bank of Cyprus
Holdings PLC) and the Bank are under a regulatory prohibition for equity
dividend distribution and hence no dividends were declared or paid during
2021. Following the final 2021 SREP Decision received in February 2022, the
Company and the Bank still remain under equity dividend distribution
prohibition for 2022. This prohibition does not apply if the distribution is
made via the issuance of new ordinary shares to the shareholders, which are
eligible as CET1 capital. No prohibition applies to the payment of coupons on
any AT1 capital instruments issued by the Company or the Bank. Following the
final 2021 SREP Decision, the previous restriction on variable pay was lifted.
The ECB, as part of its supervisory role, completed an onsite inspection and
review on the value of the Group's foreclosed assets with reference date 30
June 2019. The findings related to a prudential charge which will decrease
based on the Bank's progress in disposing the properties in scope. The amount
is being directly deducted from own funds since 30 June 2021. There is no
significant movement in the amount deducted since 31 December 2021. As a
result of the prudential charge deducted from own funds as at 31 March 2022,
the impact on the Group's CET1 ratio is 36 bps.
The Group is participating in the 2022 ECB supervisory Climate Risk Stress
Test and participated in the 2021 ECB SREP Stress Test. For further
information please refer to the 'Additional Risk and Capital Management
Disclosures' of the 'Annual Financial Report 2021'.
Project Helix 3
In November 2021, the Group reached agreement for the sale of a portfolio of
NPEs with gross book value of €568 mn as at 30 September 2021, as well as
real estate properties with book value of c.€120 mn as at 30 September 2021,
known as Project Helix 3. Further details are provided in Section A.1.5 'Loan
portfolio quality'.
The capital impact of Project Helix 3 on the Group's CET1 ratio was an
increase of 8 bps as at 30 September 2021. Overall, by completion (currently
expected to occur in 2H2022), and including the positive impact already
recorded in the income statement for 3Q2021, the transaction is expected to
have a total positive impact of c.70 bps on the Group's CET1 ratio on the
basis of 31 March 2022 figures.
Pro forma calculations are based on 31 March 2022 financial results, unless
otherwise stated, and assume completion of the transaction, which remains
subject to customary regulatory and other approvals.
Project Helix 2
In June 2021, the Company completed Project Helix 2 (Portfolios A and B),
which refers to the sale of portfolios of loans with a total gross book value
of €1,331 mn on completion (of which €1,305 mn relate to non-performing
exposures), secured over real estate collateral, the agreements for which were
announced on 3 August 2020 and on 18 January 2021. Further details are
provided in Section A.1.5 'Loan portfolio quality'.
The capital impact of Project Helix 2 on the Group's CET1 ratio during 2Q2021
was an increase of c.20 bps, of which c.10 bps arose on completion. Post
completion, upon the full payment of the deferred consideration, the
transaction was expected to have an additional positive capital impact of c.64
bps on the Group's CET1 ratio on the basis of 30 June 2021 figures and without
taking into consideration any positive impact from the earnout, thus making
the transaction overall capital accretive. The first instalment of the
deferred consideration was received in December 2021.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.1 Capital Base (continued)
Tier 2 Capital Notes
In April 2021, the Company issued €300 mn unsecured and subordinated Tier 2
Capital Notes (the 'New T2 Notes').
Immediately after, the Company and the Bank entered into an agreement pursuant
to which the Company on-lent to the Bank the entire €300 mn proceeds of the
issue of the New T2 Notes (the 'Tier 2 Loan') on terms substantially identical
to the terms and conditions of the New T2 Notes. The Tier 2 Loan constitutes
an unsecured and subordinated obligation of the Bank.
The New 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 for the New T2 Notes is 23 October 2031. The Company will have the option
to redeem the New T2 Notes early on any day during the six-month period from
23 April 2026 to 23 October 2026, subject to applicable regulatory consents.
At the same time, the Bank invited the holders of its €250 mn Fixed Rate
Reset Tier 2 Capital Notes due January 2027 (the 'Old T2 Notes') to tender
their Old T2 Notes for purchase by the Bank at a price of 105.50%, after which
Old T2 Notes of €43 mn remained outstanding.
On 19 January 2022, the Bank exercised its option and redeemed the outstanding
€43 mn Old T2 Notes.
Following the highly successful Tier 2 refinancing in 2021, the Group
continues to monitor opportunities for the optimisation of its capital
position, including Additional Tier 1 capital.
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 law amendments cover the utilisation of income tax losses transferred from
Laiki Bank to the Bank in March 2013. The introduction of Capital Requirements
Directive (CRD) IV in January 2014 and its subsequent phasing-in led to a more
capital-intensive treatment of this DTA for the Bank. With this legislation,
institutions are allowed to treat such DTAs as 'not relying on profitability',
according to CRD IV and as a result not deducted from CET1, hence improving a
credit institution's capital position.
The Group understands that, in response to concerns raised by the European
Commission with regard to the provision of state aid arising out of the
treatment of such tax losses, the Cyprus Government is considering the
adoption of modifications to the Law, including requirements for an additional
annual fee over and above the 1.5% annual guarantee fee already acknowledged,
to maintain the conversion of such DTAs into tax credits.
The Group, in anticipation of modifications in the Law, acknowledges that such
increased annual fee may be required to be recorded on an annual basis until
expiration of such losses in 2028. The determination and conditions of such
amount will be prescribed in the Law to be amended and the amount determined
by the Government on an annual basis. The Group, however, understands that
contemplated amendments to the Law may provide that the minimum fee to be
charged will be 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. The Group estimates that
such increased fees could range up to €5.3 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. In this
respect, an amount of €5.3 mn was recorded in 4Q2021 and FY2021, bringing
the total amount provided by the Group for such increased fee to €21 mn.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.2. Regulations and Directives
A.1.2.1 Revised rules on capital and liquidity (CRR II and CRD V)
On 27 June 2019, the revised rules on capital and liquidity (Regulation (EU)
2019/876 (Capital Requirements Regulation, CRR II) and Directive (EU) 2019/878
(CRD V)) came into force. As this was an amending regulation, the existing
provisions of CRR apply, unless they are amended by CRR II. Being a
Regulation, CRR II is directly applicable in each member state. Member states
were required to transpose the CRD V into national law. CRD V was transposed
and implemented in Cyprus law in early May 2021. Certain provisions took
immediate effect (primarily relating to Minimum Requirement for Own Funds and
Eligible Liabilities, MREL), and most changes became effective as of June
2021. The key changes introduced consist of, among others, changes to
qualifying criteria for CET1, AT1 and Tier 2 instruments, introduction of MREL
requirements and binding Leverage Ratio (as defined in the CRR) and Net Stable
Funding Ratio (NSFR) requirements.
Some of the amendments were introduced in June 2020 as part of the "CRR
quick-fix" which brought forward certain CRR II changes in light of the
challenges posed to the banking sector by the COVID-19 pandemic. The key
measures in the CRR quick fix include an extension of the IFRS 9 transitional
arrangements for the dynamic component by 2 years, the introduction of a
prudential filter on exposures to central governments, regional governments or
local authorities at FVOCI, the acceleration of CRR II amendments to exempt
certain software assets from capital deduction and to revise the SME discount
factors.
A.1.2.2 The 2021 Banking Package (CRR III and CRD VI and BRRD)
In October 2021, the European Commission adopted legislative proposals for
further amendments to Capital Requirements Regulation (CRR), CRD IV and the
BRRD (the "2021 Banking Package"). Amongst other things, the 2021 Banking
Package would implement certain elements of Basel III that have not yet been
transposed into EU law. The 2021 Banking Package is subject to amendment in
the course of the EU's legislative process; and its scope and terms may change
prior to its implementation. In addition, in the case of the proposed
amendments to CRD IV and the BRRD, their terms and effect will depend, in
part, on how they are transposed in each member state. As a general matter, it
is likely to be several years until the 2021 Banking Package begins to be
implemented (currently expected in 2025); and certain measures are expected to
be subject to transitional arrangements or to be phased in over time.
A.1.2.3 Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January
2016 EU member states shall apply the BRRD's provisions requiring EU credit
institutions and certain investment firms to maintain a minimum requirement
for own funds and eligible liabilities (MREL), subject to the provisions of
the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part
of the reform package for strengthening the resilience and resolvability of
European banks, the BRRD ΙΙ came into effect and was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in early May 2021. In addition, certain provisions on MREL have been
introduced in CRR ΙΙ which also came into force on 27 June 2019 as part of
the reform package and took immediate effect.
In December 2021, the Bank received notification from the Single Resolution
Board (SRB) of the final decision for the binding minimum requirement for own
funds and eligible liabilities (MREL) for the Bank, determined as the
preferred resolution point of entry. As per the decision, the final MREL
requirement was set at 23.74% of risk weighted assets and 5.91% of Leverage
Ratio Exposure (LRE) (as defined in the CRR) and must be met by 31 December
2025. Furthermore, an interim requirement to be met by 1 January 2022 was set
at 14.94% of risk weighted assets and 5.91% of LRE. The own funds used by the
Bank to meet the Combined Buffer Requirement (CBR) will not be eligible to
meet its MREL requirements expressed in terms of risk-weighted assets. The
Bank must comply with the MREL requirement at the consolidated level,
comprising the Bank and its subsidiaries.
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.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.2. Regulations and Directives (continued)
A.1.2.3 Bank Recovery and Resolution Directive (BRRD) (continued)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL) (continued)
The MREL ratio of the Bank as at 31 March 2022, calculated according to the
SRB's eligibility criteria currently in effect and based on the Bank's
internal estimate, stood at 18.69% of risk weighted assets (RWA) and at 9.54%
of LRE. Pro forma for HFS, the MREL ratio of the Bank as at 31 March 2022,
calculated on the same basis, stood at 19.53% of risk weighted assets. The
MREL ratio expressed as a percentage of risk weighted assets does not include
capital used to meet the CBR amount, which stood at 3.5% until 31 December
2021, increased to 3.75% on 1 January 2022 and is expected to increase to 4.0%
on 1 January 2023. Throughout this announcement, the MREL ratios (and MREL
ratios pro forma for HFS) as at 31 March 2022 include unaudited/unreviewed
profits for 1Q2022, unless otherwise stated.
The successful Tier 2 capital refinancing in April 2021 and the inaugural
issuance of MREL-compliant senior notes in June 2021 mark the foundation for
the Bank's plan to meet applicable MREL requirements. The interim MREL
requirement as at 1 January 2022 has been satisfied, and the Bank will
continue to evaluate opportunities to advance the build-up of its MREL
liabilities.
A.1.3 Funding and Liquidity
Funding
Funding from Central Banks
At 31 March 2022, the Bank's funding from central banks amounted to €2,962
mn, which relates to ECB funding, comprising solely of funding through the
Targeted Longer-Term Refinancing Operations (TLTRO) III, compared to €2,970
mn as at 31 December 2021.
In June 2021 the Bank borrowed an amount of €300 mn under the eighth TLTRO
III operation, increasing the borrowing under TLTRO III to €3.0 bn, as the
Bank had already borrowed an amount of €1.7 bn under the seventh TLTRO III
operation in March 2021 and an amount of €1 bn under the fourth TLTRO III
operation in June 2020, despite its comfortable liquidity position, given the
favourable borrowing terms, in combination with the relaxation of collateral
requirements.
The Bank exceeded the benchmark net lending threshold in the period 1 March
2020 - 31 March 2021 and qualified for the beneficial rate of -1% for the
period from June 2020 to June 2021. The NII benefit from its TLTRO III
borrowing for the period from June 2020 to June 2021 stood at c.€7 mn and
was recognised over the respective period in the income statement.
Based on internal estimations (subject to confirmation from the CBC), the Bank
has also exceeded the benchmark net lending threshold in the period 1 October
2020 - 31 December 2021 and is therefore expected to qualify for a beneficial
rate for the period from June 2021 to June 2022. The Bank estimates the NII
benefit from its TLTRO III borrowing for the period from June 2021 to June
2022 at c.€15 mn, recognised over the respective period in the income
statement.
Deposits
Customer deposits totalled €17,660 mn at 31 March 2022 (compared to
€17,531 mn at 31 December 2021) and increased by 1% in the first quarter.
The Bank's deposit market share in Cyprus reached 35.8% as at 31 March 2022,
compared to 34.8% as at 31 December 2021. Customer deposits accounted for 70%
of total assets and 77% of total liabilities at 31 March 2022 (at the same
levels as at 31 December 2021).
The net Loans to Deposits (L/D) ratio stood at 58% as at 31 March 2022
(compared to 57% as at 31 December 2021 on the same basis). Pro forma for HFS,
the L/D ratio as at 31 March 2022 stood at 57%.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.3 Funding and Liquidity (continued)
Funding (continued)
Loan Stock
At 31 March 2022, the Group's loan stock (including accrued interest) amounted
to €611 mn (compared to €643 mn at 31 December 2021) and relates to
unsecured subordinated Tier 2 Capital Notes and senior preferred notes.
For further information please refer to Sections A.1.1 'Capital Base' and
A.1.2.3 'Bank Recovery and Resolution Directive (BRRD) / Minimum Requirement
for Own Funds and Eligible Liabilities (MREL)', respectively.
Liquidity
At 31 March 2022, the Group Liquidity Coverage Ratio (LCR) stood at 296%
(compared to 298% at 31 December 2021), above the minimum regulatory
requirement of 100%. The liquidity surplus in LCR at 31 March 2022 amounted to
€6.4 bn (compared to €6.3 bn at 31 December 2021). The increase in 1Q2022
is mainly driven by the increase in customer deposits.
At 31 March 2022, the Group Net Stable Funding Ratio (NSFR) stood at 145%
(compared to 147% at 31 December 2021), above the minimum regulatory
requirement of 100%, enforced in June 2021 as per CRR II.
A.1.4 Loans
Group gross loans (inclusive of those classified as held for sale) totalled
€10,964 mn at 31 March 2022, compared to €10,856 mn at 31 December 2021,
increased by 1% since the beginning of the year.
New lending granted in Cyprus reached a record €618 mn for 1Q2022 (compared
to €471 mn for 4Q2021 and €487 mn for 1Q2021) up by 31% qoq and 27% yoy,
reaching higher levels than the equivalent period pre-pandemic (1Q2019),
whilst maintaining strict lending criteria. The qoq increase is driven by
increases in lending activity across corporate, shipping and international,
SME and non-housing retail. New lending in 1Q2022 comprised €254 mn of
corporate loans, €196 mn of retail loans (of which €128 mn were housing
loans), €64 mn of SME loans and €104 mn of shipping and international
loans. New corporate loans in 1Q2022 have increased by 18% qoq, as the
economic activity continues to improve.
At 31 March 2022, the Group net loans and advances to customers (excluding
those classified as held for sale) totalled €10,004 mn (compared to €9,836
mn at 31 December 2021).
In addition, at 31 March 2022 net loans and advances to customers of €248 mn
were classified as held for sale in line with IFRS 5 of which €241 mn
related to Project Helix 3 and €7 mn to Project Sinope (see below), compared
to €250 mn as at 31 December 2021 of which €243 mn related to Project
Helix 3 and €7 mn to Project Sinope.
The Bank is the single largest credit provider in Cyprus with a market share
of 41.9% at 31 March 2022, compared to 38.8% at 31 December 2021. The increase
in 1Q2022 is mainly due to a reduction in loans in the banking system.
A.1.5 Loan portfolio quality
The Group has continued to make steady progress across all asset quality
metrics. As the balance sheet de-risking is largely complete, the Group's
priorities include maintaining high quality new lending and normalising the
cost of risk and other impairments.
The loan credit losses for 1Q2022 totalled €12 mn (excluding 'Provisions/net
loss relating to NPE sales'), compared to €9 mn for 4Q2021 and €20 mn for
1Q2021. Further details regarding loan credit losses are provided in Section
A.2.3 'Profit before tax and non-recurring items'.
While defaults have been limited, the additional monitoring and provisioning
for sectors vulnerable under COVID-19 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. In addition, the Group
has enhanced its monitoring to sectors, such as tourism, that are impacted
from the consequences of the Ukrainian crisis (as further discussed in the
Section B. Operating Environment and Section C. Business Overview below).
The Group will continue to monitor the situation, so that any changes arising
from the uncertainty on the macroeconomic outlook and geopolitical
developments, impacted by the implications of the Russian invasion of Ukraine,
as well as the degree of recurrence of the COVID-19 disease due to virus
mutations, and the persistent positive effect of fiscal and monetary policy,
are timely captured.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.5 Loan portfolio quality (continued)
Loan moratorium
As part of the measures to support borrowers affected by COVID-19 and the
wider Cypriot economy, the Cyprus Parliament voted for the suspension of loan
repayments for interest and principal (loan moratorium) for the period to the
end of the year 2020, for all eligible borrowers with no arrears for more than
30 days as at the end of February 2020. The payment holiday for all these
loans expired on 31 December 2020.
Performing loans as at 31 March 2022 under expired payment deferrals amounted
to €4.51 bn (compared to €4.60 bn as at 31 December 2021), of which
€4.49 bn had an instalment due by 11 May 2022 with a strong performance; 96%
presented no arrears (of which c.€0.73 bn have been restructured until 11
May 2022) and only 4% (€190 mn) are in arrears (of which €180 mn are less
than 30 days-past-due). 65% of restructurings took place in 1H2021.
In 1Q2022, net reclassifications of €35 mn of loans under expired payment
deferrals were made from Stage 2 to Stage1, mainly due to improved performance
and updated financial information. In addition, net reclassifications of
c.€5 mn of loans under expired payment deferrals were made mainly from Stage
2 to Stage 3 in 1Q2022. References made to 'loans under expired payment
deferrals' in this paragraph include current accounts and overdrafts.
Following continuing signs of recovery, the majority of COVID-19 related
management overlays applied until 30 June 2021 were subsequently removed in
2H2021, as a result of stronger than expected economic performance. The cost
of risk for 4Q2021 and 1Q2022 did not include any charge or reversal of loan
impairments relating to COVID-19 overlays. Overall, a net reversal of loan
impairments relating to COVID-19 (including related impact on macroeconomic
assumptions) amounting to c.€5 mn (4 bps) are included in FY2021 loan credit
losses of €66 mn (annualised cost of risk of 0.57%). The cost of risk for
1Q2022 of 44 bps (€12 mn) includes 20 bps (c.€5 mn) reflecting the update
in macroeconomic outlook and management overlays on sectors (such as tourism
and private individuals) expected to be impacted by the crisis in Ukraine and
the heightened inflationary pressures. Further details on the cost of risk are
provided in Section A.2.3 'Profit before tax and non-recurring items'.
Close monitoring of the credit quality of these loans continues and customers
with early arrears are offered solutions. The Bank has a strong track record
in dealing with restructurings. Targeted restructuring solutions are offered
to alleviate pandemic-related short-term cash flow burden, following rigorous
assessment of repayment ability. To date, most restructurings relate to the
tourism sector.
As at 31 March 2022, the Group's non-legacy loan book exposure to tourism was
limited to €1.17 bn (out of a total non-legacy loan book of €9.75 bn), of
which c.€0.87 bn of performing loans as at 31 March 2022 were under expired
payment deferrals. 99% of those had an instalment due by 11 May 2022 and of
those almost all presented no arrears (of which c.€350 mn have been
restructured until 11 May 2022 and 80% of these restructurings took place in
1H2021).
Tourism performance in 2021 was better than initially anticipated. There was a
steady monthly recovery of tourist arrivals, as the tourism season extended
until October 2021. Tourist arrivals in 1Q2022 reached 70% of corresponding
levels in 1Q2019. It is important to note, that the majority of
'accommodation' customers entered the crisis with significant liquidity,
following strong performance in recent years and that 98% of the tourism
sector portfolio is secured by property.
The crisis in Ukraine may have an adverse impact on the Cypriot economy,
partly due to a negative impact on tourism. This impact will depend on the
duration and severity of the crisis which remain uncertain at this stage. In
response, the Government is working to replace one third of the expected lost
tourist arrivals from Russia and Ukraine (which amounted to c.20% of 2019
levels) with arrivals from other markets, such as Belgium, Switzerland and
Scandinavia. Close monitoring of exposures to the tourism sector is enhanced
and the Group remains in close contact with customers to offer solutions as
necessary. For further details on the Ukrainian crisis, please refer to
Section C. 'Business Overview'.
For further information please refer to the presentation for the Group
Financial Results for the quarter ended 31 March 2022 (slide 37).
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.5 Loan portfolio quality (continued)
Non-performing exposure reduction
Non-performing exposures (NPEs) as defined by the European Banking Authority
(EBA) were reduced by €96 mn, or 7%, in 1Q2022 (compared to a reduction of
€105 mn in 4Q2021) to €1,247 mn at 31 March 2022 (compared to €1,343 mn
at 31 December 2021). Pro forma for HFS, NPEs are reduced by a further €572
mn to €675 mn on the basis of 31 March 2022 figures.
The NPEs account for 11.4% of gross loans as at 31 March 2022, compared to
12.4% as at 31 December 2021, on the same basis, i.e. including the NPE
portfolios classified as 'Non-current assets and disposal groups held for
sale'. Pro forma for HFS, the NPE ratio is reduced to 6.5% on the basis of 31
March 2022 figures.
The NPE coverage ratio stands at 59% at 31 March 2022, at the same level as at
31 December 2021 on the same basis, i.e. including the NPE portfolios
classified as 'Non-current assets and disposal groups held for sale'. When
taking into account tangible collateral at fair value, NPEs are fully covered.
Pro forma for HFS, NPE coverage ratio is 60% on the basis of 31 March 2022
figures.
As of 1 January 2021, the new regulation on Definition of Default was
implemented, affecting NPE exposures and the calculation of Days-Past-Due
(please refer to Section H. Definitions & Explanations for the changes in
the definition).
31.03.2022 31.03.2022 31.12.2021 31.12.2021
Pro forma for HFS Pro forma for HFS
€ mn % gross loans € mn % gross loans € mn % gross loans € mn % gross loans
NPEs as per EBA definition 675 6.5% 1,247 11.4% 771 7.5% 1,343 12.4%
Of which, in pipeline to exit:
-NPEs with forbearance measures, no arrears(1) 138 1.3% 148 1.4% 142 1.4% 152 1.4%
1. The analysis is performed on a customer basis.
Project Helix 3
In November 2021, the Group reached agreement for the sale of a portfolio of
NPEs with gross book value of €568 mn as at 30 September 2021, as well as
real estate properties with book value of c.€120 mn as at 30 September 2021,
to funds affiliated with Pacific Investment Management Company LLC (PIMCO),
known as Project Helix 3. This portfolio of loans had a contractual balance of
€993 mn as at the reference date of 31 May 2021 and comprises c.20,000
loans, mainly to retail clients. As at 31 March 2022 and 31 December 2021,
this portfolio of loans, as well as the real estate properties included in
Helix 3, were classified as a disposal group held for sale. At completion,
currently expected to occur in 2H2022, the Bank will receive gross cash
consideration of c.€385 mn.
This portfolio of loans (as well as the real estate properties included in
Helix 3) will be transferred to a licensed Cypriot Credit Acquiring Company
(the "CyCAC") by the Bank. The shares of the CyCAC will then be acquired by
certain funds affiliated with Pacific Investment Management Company LLC
(PIMCO), the purchaser of the portfolio.
Following a transitional period where servicing will be retained by the Bank,
it is intended that the servicing of the portfolio of loans and the real
estate properties included in Helix 3 will be carried out by a third party
servicer selected and appointed by the purchaser.
Project Helix 3 represents a milestone in the delivery of one of the Group's
core strategic priorities of improving asset quality through the reduction of
NPEs. Pro forma for HFS, the Group's NPE ratio is in mid-single digit. Helix 3
reduced the stock of NPEs by 46% to €675 mn pro forma on the basis of 31
March 2022 figures, and its NPE ratio by c.5 p.p., to 6.5% pro forma on the
basis of 31 March 2022 figures.
All relevant figures and pro forma calculations are based on 31 March 2022
financial results, unless otherwise stated, and assume completion of the
transaction, which remains subject to customary regulatory and other
approvals.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.5 Loan portfolio quality (continued)
Project Helix 2
In June 2021, the Company completed Project Helix 2 (Portfolios A and B),
which refers to the sale of portfolios of loans with a total gross book value
of €1,331 mn as at the completion date (of which €1,305 mn relate to
non-performing exposures) (Portfolios A and B) secured over real estate
collateral, and stock of properties with carrying value amounting to €73 mn,
to funds affiliated with Pacific Investment Management Company LLC (PIMCO),
the agreements for which were announced on 3 August 2020 and on 18 January
2021. The Bank retained the servicing of these Portfolios for a transitional
period to the end of 3Q2021, against a servicing fee.
The consideration for the sale amounts to c.€560 mn, of which c.€165 mn
were received in cash by completion. The remaining amount is payable in four
instalments up to December 2025 without any conditions attached, of which
c.€85 mn were received in December 2021. The consideration can be increased
through an earnout arrangement, depending on the performance of each of the
Portfolios.
Project Helix 2 represents another milestone in the delivery of one of the
Group's strategic priorities of improving asset quality through the reduction
of NPEs. Project Helix 2 (Portfolios A and B) reduced the NPE ratio by c.9
percentage points, on the basis of 30 June 2021 figures.
Project Sinope
In December 2021, the Bank entered into an agreement for the sale of a
portfolio of NPEs, with a contractual balance of €146 mn and a gross book
value of €12 mn as at 31 December 2021, as well as properties in Romania
with carrying value €0.6 mn as at 31 December 2021 (known as 'Project
Sinope'). The sale is subject to the necessary approvals and is expected to be
completed by the end of 2Q2022. The portfolio has been classified as held for
sale since 31 December 2021.
Overall, since the peak in 2014 and pro forma for HFS, the stock of NPEs has
been reduced by €14.3 bn or 95% to less than €0.7 bn and the NPE ratio by
over 56 percentage points, from 63% to 6.5%.
The Group has an NPE ratio in mid-single digit and is on track to achieve a
target NPE ratio of c.5% by the end of 2022 and less than 3% by the end of
2025.
A.1.6 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) is focused on the disposal of
on-boarded properties resulting from debt for asset swaps. Cumulative sales
since the beginning of 2017 amount to €1.42 bn and exceed properties
on-boarded for the same period of €1.33 bn.
The Group completed disposals of €44 mn in 1Q2022 (compared to €33 mn in
4Q2021 and €24 mn in 1Q2021), resulting in a profit on disposal of c.€6 mn
for 1Q2022 (compared to a profit on disposal of €4 mn for 4Q2021 and €3 mn
for 1Q2021), following the relaxation of restrictive measures. Asset disposals
are across all property classes, with two thirds of sales by value in 1Q2022
relating to land.
As at 31 March 2022 the carrying value of assets held by REMU transferred to
"non-current assets and disposal groups held for sale" amounted to €94 mn
(compared to €98 mn as at 31 December 2021). They relate to Project Helix 3
and Project Sinope and comprise stock of property of €89 mn and investment
property of €5 mn as at 31 March 2022 (compared to stock of property of
€93 mn and investment properties of €5 mn as at 31 December 2021).
During 1Q2022, the Group executed sale-purchase agreements (SPAs) for
disposals of 161 properties (with contract value of €51 mn), compared to
SPAs for disposals of 164 properties (with contract value of €28 mn) for
1Q2021.
In addition, the Group had a strong pipeline of €105 mn by contract value as
at 31 March 2022, of which €54 mn related to SPAs signed (compared to a
pipeline of €109 mn as at 31 December 2021, of which €47 mn related to
SPAs signed).
REMU on-boarded €8 mn of assets in 1Q2022 (compared to additions of €5 mn
in 4Q2021 and €11 mn in 1Q2021), via the execution of debt for asset swaps
and repossessed properties.
Details with respect to the prudential charge relating to the onsite
inspection findings are provided in Section A.1.1 'Capital Base'.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.6 Real Estate Management Unit (REMU) (continued)
Assets held by REMU
As at 31 March 2022, assets held by REMU (excluding assets classified as held
for sale) had a carrying value of €1,174 mn (comprising properties of
€1,083 mn classified as 'Stock of property' and €91 mn as 'Investment
properties'), compared to €1,215 mn as at 31 December 2021 (comprising
properties of €1,112 mn classified as 'Stock of property' and €103 mn as
'Investment properties').
In addition to assets held by REMU, properties classified as 'Investment
properties' with carrying value of €11 mn as at 31 March 2022 (compared to
€15 mn as at 31 December 2021) are not managed by REMU. These relate mainly
to legacy properties held by the Group before the set-up of REMU in January
2016 and to assets classified as 'Investment properties' following a change in
use.
Assets held by REMU (Group) 1Q2022 1Q2021 4Q2021 qoq +% yoy +%
€ mn
Opening balance 1,215 1,457 1,264 -4% -17%
On-boarded assets 8 11 5 -69% -30%
Sales (44) (24) (33) 34% 81%
Net impairment loss (5) (6) (20) -76% -21%
Transfer to non-current assets and disposal groups held for sale - (5) (1) - -
Closing balance 1,174 1,433 1,215 -3% -18%
Analysis by type and country Cyprus Greece Romania Total
31 March 2022 (€ mn)
Residential properties 79 22 0 101
Offices and other commercial properties 203 19 - 222
Manufacturing and industrial properties 52 24 0 76
Hotels 25 0 - 25
Land (fields and plots) 499 5 0 504
Golf courses and golf-related property 246 - - 246
Total 1,104 70 0 1,174
Cyprus Greece Romania Total
31 December 2021 (€ mn)
Residential properties 82 23 0 105
Offices and other commercial properties 208 23 0 231
Manufacturing and industrial properties 54 24 0 78
Hotels 25 - - 25
Land (fields and plots) 524 5 1 530
Golf courses and golf-related property 246 - - 246
Total 1,139 75 1 1,215
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis
A.2.1 Total income
€ mn 1Q2022 1Q2021 4Q2021 (1Q2022 vs 4Q2021) +% yoy +%
Net interest income 71 76 73 -2% -7%
Net fee and commission income 44 39 44 0% 13%
Net foreign exchange gains and net gains/(losses) on financial instrument 6 2 10 -47% 124%
transactions and disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions 16 13 18 -11% 24%
Net gains from revaluation and disposal of investment properties and on 5 2 5 13% 116%
disposal of stock of properties
Other income 4 4 4 2% 13%
Non-interest income 75 60 81 -8% 24%
Total income 146 136 154 -5% 7%
Net Interest Margin (annualised)(1) 1.32% 1.63% 1.34% -2 bps -31 bps
Average interest earning assets 21,942 18,978 21,613 2% 16%
(€ mn)(1)
1. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant. p.p. = percentage points, bps = basis
points, 100 basis points (bps) = 1 percentage point
Net interest income (NII) for 1Q2022 amounted to €71 mn, broadly flat qoq.
Net interest income (NII) for 1Q2022 was down by 7% yoy, mainly reflecting the
foregone interest income on the Helix 2 portfolios.
Quarterly average interest earning assets (AIEA) for 1Q2022 amounted to
€21,942 mn, up by 16% yoy driven by the increase in liquid assets following
the increase in the borrowing under TLTRO III, as well as the increase in
deposits by €1.3 bn yoy. Quarterly average interest earning assets for
1Q2022 increased by 2% qoq, mainly due to the increase in liquid assets
following the increase in customer deposits by c.€130 mn.
Net interest margin (NIM) for 1Q2022 amounted to 1.32% (compared to 1.34% for
4Q2021 and 1.63% for 1Q2021) negatively impacted by the corresponding decrease
in NII and the increase in average interest earning assets.
Non-interest income for 1Q2022 amounted to €75 mn (compared to €81 mn for
4Q2021, down by 8% qoq and compared to €60 mn for 1Q2021, up by 24% yoy),
comprising net fee and commission income of €44 mn, net foreign exchange
gains and net gains/(losses) on financial instrument transactions and
disposal/dissolution of subsidiaries and associates of €6 mn, net
insurance income of €16 mn, net gains from revaluation and disposal of
investment properties and on disposal of stock of properties of €5 mn and
other income of €4 mn. The qoq decrease is mainly due to higher revaluation
gains on financial instruments in the previous quarter. The yoy increase is
mainly due to an increase in net fee and commission income and net insurance
income, as 1Q2021 was affected by the pandemic-related lockdown.
Net fee and commission income for 1Q2022 amounted to €44 mn, flat qoq,
following the introduction of a revised price list in February 2022 and the
extension of liquidity fees to a wider customer group in March 2022, offset by
seasonally lower transactional income. Net fee and commission income for
1Q2022 of €44 mn was up 13% yoy (compared to €39 mn for 1Q2021), due to
lower transactional fees in 1Q2021 impacted by the pandemic-related lockdown.
Net foreign exchange gains and net gains/(losses) on financial instrument
transactions and disposal/dissolution of subsidiaries and associates of €6
mn for 1Q2022 (comprising mainly net foreign exchange gains), compared to
€10 mn for 4Q2021 (down 47% qoq) and to €2 mn for 1Q2021. The decrease qoq
is mainly due to higher revaluation gains from financial instruments in the
previous quarter. The increase yoy is mainly due to the lower net foreign
exchange gains in 1Q2021, impacted by the lockdown.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.1 Total income (continued)
Net insurance income of €16 mn for 1Q2022, compared to €13 mn for 1Q2021
and €18 mn for 4Q2021. The decrease of 11% qoq is mainly due to a lower
level of positive changes in valuation assumptions and seasonally lower
premiums, partially offset by lower insurance claims.
Net gains from revaluation and disposal of investment properties and on
disposal of stock of properties for 1Q2022 amounted to €5 mn (comprising net
gains on disposal of stock of properties of c.€5.5 mn, net gains on disposal
of investment properties of c.€0.5 mn and net losses from revaluation of
investment properties of c.€1 mn), flat qoq and compared to €2 mn in
1Q2021 which was impacted by the lockdown. REMU profit remains volatile.
Total income for 1Q2022 amounted to €146 mn, compared to €154 mn for
4Q2021 (down 5% qoq) and to €136 mn for 1Q2021 (up 7% yoy), mainly driven by
the changes in the non-interest income as explained above.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.2 Total expenses
€ mn 1Q2022 1Q2021 4Q2021 (1Q2022 vs 4Q2021) +% yoy +%
Staff costs (50) (50) (50) -2% -1%
Other operating expenses (36) (32) (37) -3% 11%
Total operating expenses (86) (82) (87) -2% 4%
Special levy on deposits and other levies/contributions (10) (9) (12) -16% 8%
Total expenses (96) (91) (99) -4% 5%
Cost to income ratio(1) 66% 67% 65% +1 p.p. -1 p.p.
Cost to income ratio excluding special levy on deposits and other 59% 60% 57% +2 p.p. -1 p.p.
levies/contributions(1)
1. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale".
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Total expenses for 1Q2022 were €96 mn (compared to €99 mn for 4Q2021 and
€91 mn for 1Q2021, down by 4% qoq and up by 5% yoy), 52% of which related to
staff costs (€50 mn), 38% to other operating expenses (€36 mn) and 10%
(€10 mn) to special levy on deposits and other levies/contributions. The yoy
increase of 5% is driven by the 11% yoy increase in other operating expenses.
The qoq decrease of 4% is driven by the 16% qoq decrease in special levy on
deposits and other levies/contributions. Further details are provided below.
Total operating expenses for 1Q2022 were €86 mn, compared to €87 mn for
4Q2021 (down by 2% qoq) and to €82 mn for 1Q2021 (up by 4% yoy).
Staff costs for 1Q2022 were €50 mn, flat qoq and yoy, resulting from the
combined impact of the voluntary staff exit plans, the renewal of the
collective agreement, and despite the inflation in 1Q2022.
In July 2021, the Bank reached agreement with the Cyprus Union of Bank
Employees for the renewal of the collective agreement for the years 2021 and
2022. The agreement related to certain changes including the introduction of a
new pay grading structure linked to the value of each position of employment,
and of a performance-related pay component as part of the annual salary
increase, both of which have been long-standing objectives of the Bank and are
in line with market best-practice. The expected impact of the renewal was an
increase in staff costs for 2021 and 2022 by 3-4% per annum, in line with the
impact of renewals in previous years.
The Group employed 3,395 persons as at 31 March 2022, compared to 3,438
persons as at 31 December 2021. In 1Q2022, the Group, through one of its
subsidiaries, completed a voluntary staff exit plan (VEP), through which a
small number of its employees were approved to leave at a total cost of €3
mn, recorded in the consolidated income statement in 1Q2022 as a non-recurring
item in the underlying basis (compared to a VEP with a total cost of €16 mn
recorded in 4Q2021, through which c.100 of the Group's full time employees
were approved to leave, with gross annual savings estimated at c.3% of staff
costs).
Other operating expenses for 1Q2022 were €36 mn, compared to €37 mn in
4Q2021 (down 3% qoq mainly due to lower marketing expenses) and to €32 mn in
1Q2021 (up 11% yoy, reflecting the lockdown in 1Q2021).
Special levy on deposits and other levies/contributions for 1Q2022 amounted to
€10 mn (compared to €12 mn for 4Q2021 and €9 mn for 1Q2021) and includes
the contribution of the Bank to the Deposit Guarantee Fund (DGF) of €3 mn
which relates to 1H2022 and was recorded in 1Q2022. The 4Q2021 charge includes
a levy in the form of an annual guarantee fee relating to the expected revised
Income Tax legislation of €5.3 mn (see Section A.1.1 'Capital Base').
As from 1 January 2020 and until 3 July 2024 the Bank is subject to
contribution to the Deposit Guarantee Fund (DGF) on a semi-annual basis. The
contributions are calculated based on the Risk Based Methodology (RBM) as
approved by the management committee of the Deposit Guarantee and Resolution
of Credit and Other Institutions Schemes (DGS) and is publicly available on
the CBC's website. In line with the RBM, the contributions are broadly
calculated on the covered deposits of all authorised institutions and the
target level is to reach at 0.8% of these deposits by 3 July 2024.
The cost to income ratio excluding special levy on deposits and other
levies/contributions for 1Q2022 was 59%, compared to 57% for 4Q2021 and 60%
for 1Q2021. The qoq increase of 2 p.p. is driven by the qoq decrease in total
income.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.3 Profit before tax and non-recurring items
€ mn 1Q2022 1Q2021 4Q2021 (1Q2022 vs 4Q2021) +% yoy +%
Operating profit 50 45 55 -7% 12%
Loan credit losses (12) (20) (9) 24% -41%
Impairments of other financial and non-financial assets (5) (5) (23) -77% -4%
(Provisions)/net reversals for litigation, claims, regulatory and other (0) (1) 8 - -72%
matters
Total loan credit losses, impairments and provisions (17) (26) (24) -26% -34%
Profit before tax and non-recurring items 33 19 31 7% 76%
Cost of risk (annualised)(1) 0.44% 0.66% 0.35% +9 bps -22 bps
1. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale".
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Operating profit for 1Q2022 was €50 mn, compared to €55 mn for 4Q2021
(down by 7% qoq, driven by the decrease in total income qoq) and to €45 mn
for 1Q2021 (up by 12% yoy, as 1Q2021 was impacted by the lockdown).
Loan credit losses for 1Q2022 totalled €12 mn, compared to €9 mn for
4Q2021 (up by 24% qoq) and to €20 mn for 1Q2021 (down by 41% yoy).
The annualised loan credit losses charge (cost of risk) for 1Q2022 amounted to
44 bps (€12 mn), compared to a cost of risk of 35 bps (€9 mn) for 4Q2021
and 66 bps (€20 mn) for 1Q2021. The cost of risk for 1Q2022 includes 20 bps
(c.€5 mn) reflecting the update in macroeconomic outlook and management
overlays on sectors (such as tourism and private individuals) expected to be
impacted by the crisis in Ukraine and the heightened inflationary pressures.
The cost of risk for 4Q2021 of 35 bps (€9 mn) included a reversal of 46 bps
(€12 mn) from Stages 1 and 2 mainly due to improved cash collections and
updated financial information. The cost of risk for 1Q2021 of 66 bps (€20
mn) included 29 bps reflecting loan impairments relating to COVID-19. Further
details are provided in Section A.1.5 'Loan portfolio quality'.
At 31 March 2022, the allowance for expected loan credit losses, including
residual fair value adjustment on initial recognition and credit losses on
off-balance sheet exposures (please refer to Section H. 'Definitions &
Explanations' for definition) totalled €734 mn (compared to €792 mn at 31
December 2021) and accounted for 6.7% of gross loans including portfolios held
for sale (compared to 7.3% of gross loans including portfolios held for sale
at 31 December 2021 respectively).
Impairments of other financial and non-financial assets for 1Q2022 amounted to
€5 mn, at the same level as for 1Q2021 and compared to €23 mn for 4Q2021
(which was driven by impairments of non-financial assets of €20 mn relating
mainly to specific, large, illiquid REMU assets).
Provisions for litigation, claims, regulatory and other matters for 1Q2022
were minimal, compared to €1 mn for 1Q2021 and compared to reversals net of
provisions for 4Q2021 of €8 mn, which resulted from revised estimates for
cases and matters provided for.
Profit before tax and non-recurring items for 1Q2022 totalled €33 mn,
compared to €31 mn for 4Q2021 (up by 7% qoq) and to €19 mn for 1Q2021 (up
by 76% yoy).
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.4 Profit after tax (attributable to the owners of the Company)
€ mn 1Q2022 1Q2021 4Q2021 (1Q2022 vs 4Q2021) +% yoy +%
Profit before tax and non-recurring items 33 19 31 7% 76%
Tax (6) (2) (2) 233% 193%
(Profit)/loss attributable to non-controlling interests 0 (0) (2) - -
Profit after tax and before non-recurring items (attributable to the owners of 27 17 27 0% 65%
the Company)
Advisory and other restructuring costs - organic (1) (3) (3) -56% -52%
Profit after tax - organic (attributable to the owners of the Company) 26 14 24 7% 87%
Provisions/net loss relating to NPE sales(1) (1) (2) (1) -43% -33%
Restructuring and other costs relating to NPE sales(1) (1) (4) 3 - -86%
Restructuring costs - Voluntary Staff Exit Plan (VEP) (3) - (16) -81% -
Profit after tax (attributable to the owners of the Company) 21 8 10 110% 162%
The tax charge for 1Q2022 is €6 mn, compared to €2 mn for 4Q2021 and for
1Q2021.
Profit after tax and before non-recurring items (attributable to the owners of
the Company) for 1Q2022 was €27 mn at the same levels as for 4Q2021 and
compared to €17 mn for 1Q2021. Return on Tangible Equity (ROTE) before
non-recurring items calculated using 'profit after tax and before
non-recurring items (attributable to the owners of the Company)' amounts to
6.7% for 1Q2022, compared to 6.6% for 4Q2021 and to 4.1% for 1Q2021.
Advisory and other restructuring costs - organic for 1Q2022 amounted to €1
mn, compared to €3 mn for 4Q2021 and for 1Q2021.
Profit after tax arising from the organic operations (attributable to the
owners of the Company) for 1Q2022 amounted to €26 mn, compared to €24 mn
for 4Q2021 and to €14 mn for 1Q2021.
Provisions/net loss relating to NPE sales for 1Q2022 was €1 mn relating to
Helix 3, compared to €1 mn for 4Q2021 and to €2 mn for 1Q2021.
Restructuring and other costs relating to NPE sales for 1Q2022 was €1 mn,
compared to a credit of €3 mn for 4Q2021 (relating to the agreements for the
sale of portfolios of NPEs) and to costs of €4 mn for 1Q2021.
Restructuring costs relating to the Voluntary Staff Exit Plan (VEP) amounted
to €3 mn for 1Q2022, compared to €16 mn for 4Q2021 and Nil for 1Q2021. For
further details please refer to Section A.2.2 'Total expenses'.
Profit after tax attributable to the owners of the Company for 1 Q2022 was
€21 mn, compared to €10 mn for 4Q2021 and to €8 mn for 1Q2021.
B. Operating Environment
The outlook of the global economy has changed profoundly as a result of the
war in Ukraine and sanctions imposed on Russia and related entities. The war
is prolonged, and sanctions will likely remain in place for a long period of
time, thus decoupling Russia from the west. Russia is expected to have to go
through a deep restructuring of its economy and reorient it eastward. The west
is expected to adjust their commodity supply chains away from Russia. The
result will be more uncertainty for longer.
Consumer inflation has been accelerating from the third quarter of 2021
onward, as a result of supply chain disruptions, the resulting higher energy
and food prices, and other shortages in commodities and industrial goods. The
harmonised index of consumer prices increased by 7.5% in the Euro area in
April after rising by 6.1% in the first quarter. In Cyprus inflation
accelerated to 8.6% in April after rising by 5.7% in the first quarter. Prices
for energy and unprocessed food in the first quarter of 2021 increased
respectively by 26.6% and 18.7% in Cyprus. Inflation was 3.5% when energy is
excluded and 2.6% when both energy and unprocessed foods are excluded. This
core inflation is considerably lower than headline inflation, but still higher
than in previous periods.
The war and the energy crisis it generated, changes the monetary landscape
abruptly. The energy price shock is effectively a terms of trade shock which
is simultaneously inflationary and recessionary. The higher cost of energy
imports means that the terms of trade deteriorate. More domestic production
will be required for the same quantity of imports than before. The resulting
inflation leads to a drop in real disposable income. Thus, tightening monetary
policy and raising the cost of money, will tend to slow the growth of
aggregate demand. There are inflation and recessionary forces operating at the
same time, which means there are large monetary policy trade-offs. To reduce
inflation interest rates will have to rise which will be slowing economic
activity.
The ECB in their April meetings of the Governing Council, decided to end its
asset purchase programme in the third quarter, faster than anticipated. This
suggests that the Governing Council sees the downside growth risks being less
pronounced than the inflation risks. The ECB thus can be expected to start
raising interest rates later in the year and to continue raising them through
2023. The ECB will be more cautious than other central banks like the Federal
Reserve and the Bank of England, both having already raised their policy rates
by 75 basis points. Financing conditions across Europe will tighten through
2022 but will remain largely favourable. Long-term interest rates are rising
largely reflecting increased inflation expectations. Real yields continue to
be negative.
The role of the ECB in maintaining financial stability has been instrumental
in recent years. The ECB has been the most prominent buyer of sovereign bonds
through its asset purchase programmes. Through these purchases the ECB was
able to absorb market pressures and to prevent the fragmentation of bond
markets. The ECB will keep the volume of its asset holdings unchanged until
the end of 2024, thus refinancing maturing bonds. The ECB is mindful of the
uncertainties and will be data driven in its decisions and promised to act
with 'optionality' and 'flexibility' to limit the risk of fragmentation.
Cyprus received the first disbursement from the Recovery and Resilience
Facility of €157 mn in September 2021 following the approval of the national
recovery plan the previous July. This was pre-financing for 13% of total
disbursements over the period 2021-2026. As a reminder, the allocation in
grants and loans amount to €1.2 bn in total (€1 bn in grants and €200 mn
in loans) and will be conditional on the implementation of the reforms agreed
in the national recovery plan. The plan allocates 41% of the funds to green
investments and an additional 23% to digital investments. Reforms include
increasing the efficiency of the public sector and local government; improving
the governments of state-owned enterprises; improving the efficiency of the
judicial system; and accelerating anti-corruption reforms.
In the banking sector there has been significant progress since the 2013
financial crisis. Banks have reduced their foreign exposure; the regulatory
framework and prudential oversight have been strengthened; a new legal
framework for foreclosures and insolvencies has been implemented.
Non-performing exposures have been reduced from €28.4 bn in 2014 to €3 bn
as at the end of January 2022. The ratio of non-performing exposures to gross
loans dropped from 47.8% to 11.7% in the same period and the coverage ratio of
provisions to non-performing exposures was 49.5%. The ratio of non-performing
exposures still remains elevated when compared with an EU average of just over
2%. Total loans to the private sector also declined steeply in the same
period. Loans to residents excluding the government, dropped to €22.8 bn at
the end of March 2022, including the non-performing loans, which is 97% of GDP
in 2021.
The recovery in 2021 underpinned a significant increase in general government
revenue and a relative drop in government spending. As a result, the budget
deficit narrowed to 1.7% of GDP from a deficit of 5.7% of GDP in 2020
reflecting government measures to support the economy amidst a deep recession
induced from the COVID-19 pandemic. The public debt to GDP ratio dropped to
104% in 2021 from a bloated 115% in 2020. As long as interest payments on
public debt remain low in relation to GDP growth, the debt to GDP ratio will
continue its downward trajectory.
The economic recovery following the country's financial crisis of 2012-2014
was strong with real GDP growing by 5.3% annually on average in the period
2015-2019. This compares with the previous growth period of 1996-2008, when
real GDP was growing at an annual average pace of 4.4%. However, there were
distinct qualitative differences in the two growth periods. Growth in the
latter period had stronger base effects after the 11% cumulative contraction
that had occurred in the period 2009-2014. The pandemic led to a deep
recession in 2020, and real GDP dropped by 5%. However, the contraction was
less severe than the 6.3% drop in the Eurozone despite Cyprus' high dependence
on tourism that was particularly hit by the pandemic. Tourist arrivals and
revenues dropped by about 85% in 2020. The economy recovered swiftly in 2021
and real GDP increased by 5.5% to its pre-pandemic levels in 2021.
B. Operating Environment (continued)
The war in Ukraine and the sanctions on Russia will cut growth substantially
in 2022. Reliance on Russia has dropped significantly since the home financial
crisis of 2012-2014, but total linkages remained large. The export services
trade on a net basis, and after adjusting for special purpose entities, was a
little less than 5% of GDP in 2021. This consisted of tourism services,
shipping, and business services to local subsidiaries of Russian companies
which may be affected by the sanctions. Cyprus will also be affected by the
higher inflation fuelled by high oil and commodity prices including wheat.
Russian tourists in a normal year would make about 20% of total arrivals. In
the first quarter of the year, real GDP increased by 5.6% year-on-year
seasonally adjusted, compared with an increase of 5.1% in the Euro area.
However, real GDP growth is expected to slow in 2022 to 2.7%, before
accelerating to 3.8% in 2023, both in accordance with the Ministry of Finance
Stability Programme 2022-2025.
Sovereign ratings
The sovereign risk ratings of the Cyprus Government improved considerably in
recent years reflecting reduced banking sector risks, and improvements in
economic resilience and consistent fiscal outperformance. Cyprus demonstrated
policy commitment to correcting fiscal imbalances through reform and
restructuring of its banking system. Public debt remains high in relation to
GDP but large-scale asset purchases from the ECB ensure favourable funding
costs for Cyprus and ample liquidity in the sovereign bond market.
Most recently, in March 2022, Fitch Ratings affirmed Cyprus' Long-Term Issuer
Default rating at investment grade BBB- since November 2018 and stable
outlook. The stable outlook reflects the view that despite Cyprus' exposure to
Russia through its tourism and investment linkages, near-term risks are
mitigated by a strengthened government fiscal position, and continued
normalisation of spending after the pandemic shock. Meanwhile, medium-term
growth prospects remain positive on the back of the government's Recovery and
Resilience Plan (RRP).
Also in March 2022, S&P Global Ratings affirmed Cyprus' investment grade
rating of BBB- and positive outlook. The positive outlook reflects the view
that Cyprus' sovereign rating could be upgraded within the next 24 months if
the country's economic and budgetary performance continues to strengthen,
supported by the Government's implementation of structural reforms. While the
crisis in Ukraine weighs on Cyprus' economic performances via the sanctions
imposed on Russia, medium-term economic prospects remain solid according to
S&P.
In July 2021, Moody's Investors Service upgraded the Government of Cyprus'
long-term issuer and senior unsecured ratings to Ba1 from Ba2 (since July
2018) and changed the outlook from positive to stable. The primary driver for
the upgrade was the material improvement in the underlying credit strength of
the domestic banking system, which also reduces the risks of a systemic
banking crisis. In a credit opinion published in April 2022 the rating agency
affirmed Cyprus rating and outlook citing increased macroeconomic uncertainty
stemming from the war in Ukraine.
In April 2022, DBRS Morningstar upgraded the Republic of Cyprus's Long-Term
Foreign and Local Currency - Issuer Ratings from BBB (low) to BBB and changed
the trend from Positive to Stable. The rating upgrades reflect Cyprus'
stronger-than-anticipated economic and public finance performance during 2021
and the expectation of DBRS Morningstar that medium term conditions remain
supportive of Cyprus' debt reduction efforts, despite risks posed by Russia's
invasion of Ukraine and the pandemic.
C. Business Overview
Credit ratings
The Group's financial performance is highly correlated to the economic and
operating conditions in Cyprus. In February 2022, Standard and Poor's affirmed
their long-term issuer credit rating on the Bank of B+, maintaining the
positive outlook. In December 2021, Moody's Investors Service upgraded the
Bank's long-term deposit rating to Ba3 from B1, maintaining the positive
outlook. The upgrade reflects significant ongoing improvement in the Bank's
asset quality following the agreement reached in Project Helix 3 in November
2021. In December 2021, Fitch Ratings affirmed the Bank's long-term issuer
default rating of B- and revised the outlook to positive from negative. The
revision of the outlook reflects significant improvement in asset quality
following the agreement reached in Project Helix 3, as well as in organically
reducing problem assets since the end of 2019, despite an adverse operating
environment in Cyprus, together with an expectation that this trend will
continue in the near future.
Strategic priorities for the medium term
The Group is a diversified, leading, financial and technology hub in Cyprus.
In February 2022, the Group updated its medium term strategic targets with an
increased focus on creating shareholder value and increased its medium term
return on tangible equity (ROTE) target to over 10% (2025), providing the
foundations for a return to dividend distributions, subject to performance and
relevant approvals. Since then, the external environment has changed. As a
result, a higher return on tangible equity (ROTE) is now expected for each
year starting in 2023, and a ROTE in excess of 10% is expected in 2024, a year
ahead of plan.
The Bank's medium term strategic priorities are clear, with a renewed focus on
growing revenues in a more capital efficient way, whilst striving for a leaner
operating model. In addition, the Group continues to focus on further
strengthening its asset quality, whilst maintaining a good capital position,
in order to continue to play a vital role in supporting the recovery of the
Cypriot economy. Moreover, the Group has set the foundations to enhance its
organisational resilience and ESG (Environmental, Social and Governance)
agenda and continues to work towards building a forward-looking organisation
with a clear strategy supported by effective corporate governance aligned with
ESG agenda priorities. Delivery on the Bank's medium term strategic priorities
is enabled by the Group's transformation plan.
Growing revenues in a more capital efficient way
The Group has a renewed focus on growing revenues in a more capital efficient
way. It aims to grow its high quality new lending, drive growth in niche areas
for further market penetration and diversify through non-banking services,
such as insurance and digital products.
The Group has continued to provide high quality new loans via prudent
underwriting standards. Growth in new lending in Cyprus has been focused on
selected industries more in line with the Bank's target risk profile. During
1Q2022, new lending amounted to €618 mn, increased by 27% compared to
1Q2021, reaching higher levels than the equivalent period pre-pandemic, whilst
maintaining strict lending criteria. Demand for new loans is picking up, as
economic activity continues to improve. Aiming at supporting investments by
SMEs and Mid-Caps, the Bank continues its collaboration with the European
Investment Bank (EIB), the European Investment Fund (EIF) and the Cyprus
Government.
Separately, the Group aims to increase revenues over the medium term through
multiple less capital-intensive initiatives, with a focus on fees and
commissions, insurance and non-banking opportunities, leveraging on the
Group's digital capabilities. In 1Q2022, a revised price list for charges and
fees was implemented and liquidity fees were extended to a wider customer
group.
Management is placing emphasis on diversifying income streams by optimising
fee income from international transaction services, wealth management and
insurance. The Group's insurance companies, EuroLife Ltd and General Insurance
of Cyprus Ltd (GIC) operating in the sectors of life and general insurance
respectively, are leading players in the insurance business in Cyprus, and
have been providing a stable, recurring income, further diversifying the
Group's income streams. The insurance income net of claims and commissions for
1Q2022 contributed to 22% of non-interest income and amounted to €16 mn, up
24% yoy, as 1Q2021 had been impacted by the lockdown. Specifically, Eurolife
increased its total regular income by 26% yoy, whilst GIC increased its gross
written premiums by 10% yoy. Furthermore, there are initiatives underway to
further enhance the value of the insurance companies by business growth
supported by digitisation and a lean operating structure. For information on
IFRS 17 please refer to the relevant subsection below.
C. Business Overview (continued)
Strategic priorities for the medium term (continued)
Growing revenues in a more capital efficient way (continued)
Finally, the Group aims to introduce the Digital Economy Platform (Jinius) to
generate new revenue sources over the medium term, leveraging on the Bank's
market position, knowledge and digital infrastructure. The Platform aims to
bring stakeholders together, link businesses with each other and with
consumers and to drive opportunities in lifestyle banking and beyond. This
platform is expected to allow the Bank to enhance the engagement of its
customer base, attract new customers, optimise the cost of the Bank's own
processes, and position the Bank next to the customer at the point and time of
need.
Lean operating model
Striving for a lean operating model is a key strategic pillar for the Group in
order to deliver shareholder value in the medium term, whilst funding its
digital transformation and investing in the business. Management also expects
that restructuring costs will be effectively eliminated as balance sheet
de-risking is largely complete.
Management remains focused on further improvement in efficiency, through for
example further branch footprint optimisation and further exit solutions to
release full time employees. Specifically, further branch restructuring is
currently underway with an aim to achieve a reduction in the number of
branches of over 25% in the first six months of 2022. In relation to further
exit solutions to release full time employees, one of the Bank's subsidiaries
completed a small-scale targeted voluntary staff exit plan (VEP) in 1Q2022,
through which a small number of full-time employees were approved to leave at
a total cost of €3 mn. Additionally, the workforce is expected be
substantially streamlined in 2022 with a target to reduce the number of
employees by c.15%.
The cost to income ratio is expected to rise in 2022 as revenues remain under
pressure and operating expenses increase due to higher IT/digitisation
investment costs, before improving to 50%-55% by FY2025.
Transformation plan
The Group continues to work towards becoming a more 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 our distribution model across existing and new
channels, (iii) digitally transform the way we serve our customers and operate
internally, and (iv) improve employee engagement through a robust set of
organisational health initiatives.
Digital transformation
The Bank's digital transformation focuses on developing digital services and
products that improve the customer experience, streamlining internal
processes, and introducing new ways of working to improve the workplace
environment.
The Bank continued to invest in its digital offerings in 1Q2022, enhancing its
competitive advantage even further. MoneyFit, Bank of Cyprus' new innovative
solution that gives consumers a better view and insights over their finances,
is now available to clients via the BoC mobile app. In addition, towards the
end of the quarter, 1bank launched its renewed internet banking platform.
Through the new platform the Bank has the ability to offer enhanced services
and products to the bank's customers. Furthermore, the bank's digital
onboarding functionality has been improved to better accommodate IBU
(International Business Unit) customers through a new flow and expansion to
four new countries. Finally, the Bank's youth product is now provided to
customers aged 18 to 25 who onboard digitally.
The adoption of digital products and services continued to grow and gained
momentum in the first quarter of 2022 and beyond. As at the end of April 2022,
92.5% of the number of transactions involving deposits, cash withdrawals and
internal/external transfers were performed through digital channels (up by
26.1 p.p. from 66.4% in September 2017 when the digital transformation
programme was initiated). In addition, 79.6% of individual customers were
digitally engaged (up by 19.4 p.p. from 60.2% in September 2017), choosing
digital channels over branches to perform their transactions. As at the end of
April 2022, active mobile banking users and active QuickPay users have grown
by 22.3% and 40.0% respectively in the last 12 months. The highest number of
QuickPay users to date was recorded in April 2022 with 138 thousand active
users. Likewise, the highest number of QuickPay payments was recorded in April
2022 with 402 thousand transactions. New features, such as managing fixed
deposits accounts, as well as depositing a cheque via Mobile app and the
opening of new lending products entirely through the Group's digital channels
will soon be available to customers.
C. Business Overview (continued)
Strategic priorities for the medium term (continued)
Strengthening asset quality
Ensuring the Bank's loan portfolio quality remains healthy is a priority for
the Group. Whilst maintaining high quality new lending, the Bank aims to
complete legacy de-risking, normalise cost of risk and reduce (other)
impairments.
Balance sheet normalisation continued in the first quarter with further
c.€100 mn of organic NPE reduction, reducing the Group's NPE ratio to 6.5%,
pro forma for NPE sales. During 2021, the Group completed Project Helix 2 and
agreed on Project Helix 3. Overall, in the 15 months since the beginning of
2021, and including organic NPE reductions of c.€500 mn, the Group reduced
its NPEs by 78% and its NPE ratio from 25.2% to 6.5%, on a pro forma basis.
For further information please refer to Section A.1.5 'Loan portfolio
quality'.
The Group has a mid-single digit NPE ratio and is on track to achieve a target
ratio of c.5% by the end of 2022 and less than 3% by the end of 2025.
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda
Moving to a sustainable economy is the challenge of our time. As part of its
vision to be the leading financial hub in Cyprus, the Bank is determined to
lead the transition of Cyprus to a sustainable future.
The Group has set the foundations to enhance its organisational resilience and
ESG (Environmental, Social and Governance) agenda and continues to work
towards building a forward-looking organisation with a clear strategy
supported by effective corporate governance aligned with ESG agenda
priorities.
In 2022, the Company received a rating of AA (on a scale of AAA-CCC) in the
MSCI ESG Ratings assessment. In 2020, the Bank received a rating of A in the
MSCI ESG Ratings assessment.
In 2021, the first ESG strategy of the Group was formulated, whereby, in
addition to maintaining its leading role in the social and governance pillars,
there will be a shift of focus on increasing the Bank's positive impact on the
environment by transforming not only its own operations, but also of its
client chain.
The Bank has committed to the following primary ESG targets, which reflect the
pivotal role of ESG in the Bank' 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
The Board composition of the Company and the Bank is diverse, with one third
of the Board members being female as at 31 March 2022. The Board displays a
strong skill set stemming from broad international experience. Moreover, the
Bank aspires to achieve a representation of at least 30% women in Group's
management bodies (defined as the EXCO and the Extended EXCO) by 2030. As at
31 March 2022, there is a 24% representation of women in Group's management
bodies and 41% representation of women at key positions below the Extended
EXCO level (defined as positions between Assistant Manager and Manager A).
C. Business Overview (continued)
Ukrainian crisis
In light of the recent developments in respect of the Russian invasion of
Ukraine that started at the end of February 2022, the Group is closely
monitoring the developments and utilising dedicated governance structures
including a Crisis Management Committee as required.
In response to the crisis in Ukraine, the EU, UK and the US, in a coordinated
effort joined by several other countries, imposed a variety of new sanctions
with respect to Russia, Belarus and certain regions of Ukraine, as well as
various related entities and individuals.
Direct impact
The Group does not have any banking operations in Russia or Ukraine, following
the sale of its operations in Ukraine in 2014 and in Russia in 2015. The Group
has a legacy net exposure of less than €5 mn as at 31 March 2022 in Russia
which is being run down.
The Group has no exposure to Russian bonds or banks which are the subject of
sanctions.
The Group has limited direct exposure to loans related to Ukraine, Russia and
Belarus, representing c.0.4% of total assets or c.1% of net loans as at 31
March 2022. The net book value of these loans stood at c.€100 mn as at 31
March 2022, of which c.€90 mn are performing, whilst the remaining were
classified as NPEs well before the current crisis. The portfolio is granular
and secured mainly by real estate properties in Cyprus.
Customer deposits related to Ukrainian, Russian and Belarusian customers
account for only 6% of total customer deposits as at 31 March 2022. This
exposure is not material, given the Group's strong liquidity position. The
Group operates with a significant surplus liquidity of €6.4 bn (LCR ratio of
296%) as at 31 March 2022.
Only c.3% of the Group's 2021 net fee and commission income is derived from
Ultimate Beneficiary Owners (UBOs) from Ukraine, Russia or Belarus.
Indirect impact
Although the Group's direct exposure to Ukraine, Russia or Belarus is limited,
the crisis in Ukraine may have an adverse impact on the Cypriot economy,
mainly due to a negative impact on the tourism and professional services
sectors, increasing energy prices resulting in inflationary pressures, and
disruptions to global supply chains. In the event that a significant decrease
in the number and volume of transactions occur as a result of the crisis, this
may adversely impact transactional net fee and commission income for the
Group, particularly in international banking services.
At this stage, it is considered that the impact on the Cypriot economy is
expected to come from higher inflation and a consequential slowdown in
economic activity, with the tourist sector to be likely most impacted. In
response, the Government is working to replace one third of the expected lost
tourist arrivals from Russia and Ukraine (which amounted to c.20% of 2019
levels) with arrivals from other markets, such as Belgium, Switzerland and
Scandinavia. Close monitoring of exposures to the tourism sector is enhanced
and the Group remains in close contact with customers to offer solutions as
necessary.
Cyprus is not an importer of Russian oil or gas, however it is indirectly
affected by the intensifying pricing pressures in the international energy
markets. Cyprus mainly imports oil from other countries, such as Greece,
Italy, the Netherlands.
Professional services account for c.10% of GDP (based on FY2020) of which some
relate to Russia or Ukraine and thus expected to be adversely impacted. There
is however no credit risk exposure as the sector is not levered.
Between 2018-2020, Cyprus recorded net foreign direct investment (FDI) outflow
to Russia. While Russian gross FDI flows in and out of Cyprus may be quite
large, these often reflect the typical set-up of Special Purpose Entities,
with limited actual impact on the Cypriot economy, hence likely to have
limited impact on domestic activity levels.
Conclusion
Overall, the Group expects limited impact from its direct exposure, while any
indirect impact will depend on the duration and severity of the crisis and its
impact on the Cypriot economy, which remains uncertain at this stage.
The Group will continue to closely monitor the situation, taking all necessary
and appropriate measures to minimise the impact on its operations and
financial performance, as well as to manage all related risks and comply with
the applicable sanctions.
C. Business Overview (continued)
IFRS 17
IFRS 17, an accounting standard that will be effective from 1 January 2023,
impacts the phasing of profit recognition for insurance contracts. Upon
implementation, the Group's insurance-related retained earnings will be
restated and the reporting of insurance new business revenue will be spread
over time, as the Group provides service to its policyholders (versus
recognised up front under current accounting standards), with the quantum and
timing of the impact dependent on, inter alia, the amount and mix of new
business and extent of assumption changes in any given year following
implementation. As highlighted in our 2021 Annual Financial Report, IFRS 17
requires a number of key changes compared with our current accounting policies
for insurance.
· Under IFRS 17, there will be no present value of in-force
insurance contracts ('PVIF') asset recognised. Instead, the estimated future
profit will be included in the measurement of the insurance contract liability
as the contractual service margin ('CSM') and this will be gradually
recognised in revenue as services are provided over the duration of the
insurance contract. While the profit over the life of an individual contract
will be unchanged, its emergence will be later under IFRS 17.
· IFRS 17 requires the increased use of current market values in
the measurement of insurance assets and liabilities hence insurance
liabilities and related assets will be adjusted to reflect IFRS 17 measurement
requirements.
· In accordance with IFRS 17, directly attributable costs will be
incorporated in the CSM and, as recognised, will be presented as a deduction
to reported revenue. This will result in a reduction in operating expenses.
The Group is in the process of implementing IFRS 17, and industry practice and
interpretation of the standard are still developing. Additionally, the
impact on the forecast future returns of our insurance business is dependent
on the growth, duration and composition of our insurance contract portfolio.
These estimates are subject to change in the period up to adoption of the
standard.
For the purposes of planning the Group's financial resources, our initial
estimate is that the accounting changes will result in:
a) the removal of value in force from the Insurance business (including
associated deferred tax liability) of c.€110 mn which will reduce Group
accounting equity by a respective amount (with no impact on the Group
regulatory capital or tangible equity), and
b) the remeasurement of insurance liabilities and the creation of a
contractual service margin (CSM) liability which will increase both the
insurance business and Group equity by an amount c.€50 mn, predominantly
relating to the life business of the Group.
The adoption of IFRS 17 may result in a modest annual negative impact on the
contribution to profits of the Group's insurance business in the near term and
is incorporated in the Group business plan.
The day 1 benefit from IFRS 17 arising from the net remeasurement of insurance
liabilities of c.€50 mn (including the creation of the CSM liability),
referred to (b) above, enables an equivalent dividend distribution to the Bank
which would benefit Group regulatory capital by an equivalent amount (upon
the payment of dividend by the subsidiary), enhancing CET1 ratio by c.50 bps.
D. Strategy and Outlook
The strategic objectives for the Group are to become a stronger, safer and a
more efficient institution capable of supporting the recovery of the Cypriot
economy and delivering appropriate shareholder returns in the medium term.
The key pillars of the Group's strategy are to:
· Grow revenues in a more capital efficient way; by enhancing
revenue generation via growth in performing book
and less capital-intensive banking and financial services operations
(Insurance and Digital Economy)
· Improve operating efficiency; by achieving leaner operations
through digitisation and automation
· Strengthen asset quality; maintaining high quality new lending,
completing legacy de-risking, normalising cost of risk and reducing (other)
impairments
· Enhance organisational resilience and ESG (Environmental, Social
and Governance) agenda; by continuing to work towards building a
forward-looking organisation with a clear strategy supported by effective
corporate governance aligned with ESG agenda priorities
KEY STRATEGIC PILLARS ACTION TAKEN IN 1Q2022 and to date PLAN OF ACTION
Growing revenues in a more capital efficient way; by enhancing revenue • A revised price list for charges and fees was implemented in • Grow net performing book and increase in new lending over the medium
generation via growth in performing book, and less capital-intensive banking February 2022 term.
and financial services operations (Insurance and Digital Economy)
• Liquidity fees were extended to a wider customer group in March • Enhance fee and commission income, e.g. on-going review of price
2022 list for charges and fees, increase average product holding through cross
selling, new sources of revenue through introduction of Digital Economy
• For further information, please refer to Section C. 'Business Platform
Overview'
• Profitable insurance business with further opportunities to grow,
e.g. focus on high margin products, leverage on Bank's strong franchise and
customer base for more targeted cross selling enabled by digital
transformation
Improving operating efficiency; by achieving leaner operations through • Completion of a small-scale targeted voluntary staff exit plan • Offer exit solutions to release full time employees, with a target
digitisation and automation (VEP) in 1Q2022, by one of the Bank's subsidiaries, through which a small to reduce the workforce by c.15% in 2022
number of the Group's full-time employees were approved to leave at a total
cost of €3 mn • Achieve further branch footprint rationalization, to achieve a
reduction in number of branches of over 25% in 1H2022
• Further developments in the Transformation Plan and the
digitisation of the Bank • Effectively eliminate restructuring costs as de-risking is largely
complete
• For further information, please refer to Section C. 'Business
Overview' • Enhance procurement control
• Cost to income ratio (excluding special levy on deposits and other
levies/contributions) expected to rise in 2022 as revenues remain under
pressure and operating expenses increase due to higher IT/digitisation
investment costs, before improving to 50%-55% by FY2025
D. Strategy and Outlook (continued)
KEY STRATEGIC PILLARS ACTION TAKEN IN 1Q2022 and to date PLAN OF ACTION
Strengthening asset quality • Balance sheet normalisation continued in 1Q2022 with further • The Group is on track to achieve a target NPE ratio of c.5% by the
c.€100 mn of organic NPE reduction end of 2022 and of less than 3% by the end of 2025.
• NPE ratio (pro forma for HFS) reduced to mid-single digit of 6.5%
as at 31 March 2022
• For further information, please refer to Section A.1.5 'Loan
portfolio quality' and Section C. 'Business Overview'
Enhancing organisational resilience and ESG (Environmental, Social and • Initiation of decarbonisation of the Group's operations and • Implement ESG strategy with a shift of focus on environment
Governance) agenda; by continuing to work towards building a forward-looking portfolio
organisation with a clear strategy supported by effective corporate governance
• Embed ESG sustainability in the Bank's culture
aligned with ESG agenda priorities • Approval of Green Lending Policy based on the Green Loan
Principles (GLPs) • Continuous enhancement of structure and corporate governance
• Environmental products launched e.g. under the Fil-eco product • Invest in people and promote talent
scheme
• For further information, please refer to Section C. 'Business
Overview'
• Please refer to slide 62 of the 1Q2022 Group Financial Results
Presentation
In February 2022, the Group updated its medium term strategic targets with an
increased focus on creating shareholder value and increased its medium term
return on tangible equity (ROTE) target to over 10% (2025), providing the
foundations for a return to dividend distributions from 2023 onwards, subject
to performance and relevant approvals.
Since then, the external environment has changed. The macroeconomic
environment is now characterised by higher inflation and slower economic
growth in the near term, offset by a significant positive shift in most
interest rate curves.
The net effect of these changes on the Group is positive on both financial
performance and capital.
The Group's total income is expected to benefit from higher net interest
margins from 2023, more than offsetting an expected slow down in volume and
net fee and commission income. Higher inflation may lead to modestly higher
costs; there are however plans in place to mitigate this impact. Some upward
pressure on the cost of risk is expected in the near term, but the normalised
cost of risk target of 40-50 bps remains unchanged.
Overall, as a result, a higher return on tangible equity (ROTE) is now
expected for each year starting in 2023, and a ROTE in excess of 10% is
expected in 2024, a year ahead of plan.
Also, higher profitability will be positive for the Group's CET1 ratio, which
is expected to be further increased following the adoption of IFRS 17 on 1
January 2023. Specifically, we estimate a day 1 benefit from IFRS 17 on Group
regulatory capital by c.€50 mn, thereby enhancing Group CET1 ratio by c.50
bps.
As a result, there is increasing confidence in resuming meaningful dividends
earlier, subject to regulatory approvals.
D. Strategy and Outlook (continued)
The Group's medium term strategic targets are set out below
Key Metrics 1Q2022 2023 Medium Term Strategic Targets Progress
2025
Profitability Return on Tangible Equity (ROTE)(1) 5.5% >10% · Uplift in ROTE each year starting in 2023
(6.7% recurring) Mid-single digit · Currently expect to achieve a ROTE >10% from 2024, a year ahead of
plan
On trajectory to consider dividend distribution(4)
Cost to income ratio(2) 59% 50%-55% · On track
Asset Quality NPE ratio 6.5%(3) <5% <3% · On track
Cost of risk 44 bps 40-50 bps · Some upward pressure in the near term, normalised cost of risk remains
unchanged
Capital CET1 ratio Supported by CET1 ratio of 13.5%-14.5% · Increased confidence in resuming meaningful dividends earlier, subject to
regulatory approvals
15.2%(3) transitional (14.5%(3) FL)
Paving the way for dividend distribution from 2023 onwards(4)
1. Return on Tangible Equity (ROTE) is calculated as Profit after Tax
(annualised) divided by Shareholders' equity minus intangible assets.
2. Calculated using total operating expenses which comprise staff
costs and other operating expenses. Total operating expenses do not include
the special levy on deposits or other levies/contributions and do not include
any advisory or other restructuring costs.
3. Pro forma for HFS
4. Subject to performance and relevant approvals
E. Financial Results - Statutory Basis
Unaudited Interim Consolidated Income Statement
Three months ended
31 March
2022 2021
€000 €000
Turnover 201,133 189,420
Interest income 89,143 88,602
Income similar to interest income 4,606 10,629
Interest expense (18,391) (13,229)
Expense similar to interest expense (4,011) (9,646)
Net interest income 71,347 76,356
Fee and commission income 45,953 40,412
Fee and commission expense (2,227) (1,865)
Net foreign exchange gains 5,502 3,630
Net losses on financial instrument transactions and disposal/dissolution of (2,267) (647)
subsidiaries and associates
Insurance income net of claims and commissions 16,327 13,159
Net losses from revaluation and disposal of investment properties (527) (857)
Net gains on disposal of stock of property 5,400 3,111
Other income 4,073 3,606
143,581 136,905
Staff costs (52,851) (50,049)
Special levy on deposits and other levies/contributions (9,857) (9,104)
Other operating expenses (38,167) (39,740)
42,706 38,012
Net (losses)/gains on derecognition of financial assets measured at amortised (237) 1,465
cost
Credit losses to cover credit risk on loans and advances to customers (10,708) (24,128)
Credit losses of other financial instruments (282) (280)
Impairment net of reversals of non-financial assets (4,822) (5,015)
Profit before share of profit from associates 26,657 10,054
Share of profit from associates - 137
Profit before tax 26,657 10,191
Income tax (5,505) (1,878)
Profit after tax for the period 21,152 8,313
Attributable to:
Owners of the Company 21,329 8,153
Non-controlling interests (177) 160
Profit for the period 21,152 8,313
Basic and diluted profit per share attributable to the owners of the Company 4.8 1.8
(€ cent)
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Comprehensive Income
Three months ended
31 March
2022 2021
€000 €000
Profit for the period 21,152 8,313
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in
subsequent periods
Fair value reserve (debt instruments)
Net (losses)/gains on investments in debt instruments measured at fair value (5,932) 858
through OCI (FVOCI)
Transfer to the consolidated income statement on disposal (488) -
(6,420) 858
Foreign currency translation reserve
Profit/(loss) on translation of net investment in foreign branches and 4,089 (3,204)
subsidiaries
(Loss)/profit on hedging of net investments in foreign branches and (4,079) 2,160
subsidiaries
Transfer to the consolidated income statement on dissolution of foreign - (26)
subsidiary
10 (1,070)
Total OCI that may be reclassified in the consolidated income statement in (6,410) (212)
subsequent periods
OCI not to be reclassified in the consolidated income statement in subsequent
periods
Fair value reserve (equity instruments)
Net gains on investments in equity instruments designated at FVOCI 43 27
Property revaluation reserve
Deferred tax - (40)
Actuarial gains/(losses) on the defined benefit plans
Remeasurement gains on defined benefit plans 515 4,945
Total OCI not to be reclassified in the consolidated income statement in 558 4,932
subsequent periods
Other comprehensive (loss)/income for the period net of taxation (5,852) 4,720
Total comprehensive income for the period 15,300 13,033
Attributable to:
Owners of the Company 15,477 12,888
Non-controlling interests (177) 145
Total comprehensive income for the period 15,300 13,033
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Balance Sheet
31 March 2022 31 December 2021
Assets €000 €000
Cash and balances with central banks 9,329,711 9,230,883
Loans and advances to banks 312,967 291,632
Derivative financial assets 11,706 6,653
Investments 882,731 879,005
Investments pledged as collateral 1,182,653 1,260,158
Loans and advances to customers 10,004,197 9,836,405
Life insurance business assets attributable to policyholders 547,333 551,797
Prepayments, accrued income and other assets 616,617 616,219
Stock of property 1,083,314 1,111,604
Deferred tax assets 265,481 265,481
Investment properties 101,813 117,745
Property and equipment 248,537 252,130
Intangible assets 177,612 184,034
Non-current assets and disposal groups held for sale 352,638 358,951
Total assets 25,117,310 24,962,697
Liabilities
Deposits by banks 532,516 457,039
Funding from central banks 2,962,100 2,969,600
Derivative financial liabilities 22,495 32,452
Customer deposits 17,659,505 17,530,883
Insurance liabilities 719,869 736,201
Accruals, deferred income, other liabilities and other provisions 368,683 361,977
Pending litigation, claims, regulatory and other matters 103,569 104,108
Loan stock 611,137 642,775
Deferred tax liabilities 45,892 46,435
Total liabilities 23,025,766 22,881,470
Equity
Share capital 44,620 44,620
Share premium 594,358 594,358
Revaluation and other reserves 203,025 213,192
Retained earnings 1,007,284 986,623
Equity attributable to the owners of the Company 1,849,287 1,838,793
Other equity instruments 220,000 220,000
Total equity excluding non‑controlling interests 2,069,287 2,058,793
Non‑controlling interests 22,257 22,434
Total equity 2,091,544 2,081,227
Total liabilities and equity 25,117,310 24,962,697
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Changes in Equity
Attributable to the owners of the Company Other equity instruments Non- controlling interests Total
equity
Share Share Treasury shares Retained earnings Property revaluation reserve Financial instruments fair value reserve Life insurance Foreign currency translation reserve Total
capital premium in-force
business
reserve
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2022 44,620 594,358 (21,463) 986,623 80,060 23,285 113,651 17,659 1,838,793 220,000 22,434 2,081,227
Profit/(loss) for the period - - - 21,329 - - - - 21,329 - (177) 21,152
Other comprehensive income/ (loss) after tax for the period - - - 515 - (6,377) - 10 (5,852) - - (5,852)
Total comprehensive income/(loss) after tax for the period - - - 21,844 - (6,377) - 10 15,477 - (177) 15,300
Decrease in value of in-force life insurance business - - - 4,343 - - (4,343) - - - - -
Tax on decrease in value of in-force life insurance business - - - (543) - - 543 - - - - -
Defence contribution - - - (4,983) - - - - (4,983) - - (4,983)
31 March 2022 44,620 594,358 (21,463) 1,007,284 80,060 16,908 109,851 17,669 1,849,287 220,000 22,257 2,091,544
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Changes in Equity (continued)
Attributable to the owners of the Company Other equity instruments Non- controlling interests Total
equity
Share Share Treasury shares Retained earnings Property revaluation reserve Financial instruments fair value reserve Life insurance Foreign currency translation reserve Total
capital premium in-force
business
reserve
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2021 44,620 594,358 (21,463) 982,513 79,515 22,894 110,401 17,806 1,830,644 220,000 24,410 2,075,054
Profit for the period - - - 8,153 - - - - 8,153 - 160 8,313
Other comprehensive income/ (loss) after tax for the period - - - 4,945 (30) 890 - (1,070) 4,735 - (15) 4,720
Total comprehensive income/(loss) after tax for the period - - - 13,098 (30) 890 - (1,070) 12,888 - 145 13,033
Increase in value of in-force life insurance business - - - (1,828) - - 1,828 - - - - -
Tax on increase in value of in-force life insurance business - - - 228 - - (228) - - - - -
Transfer of OCI reserve upon disposal of investments in equity instruments - - - (50) - 50 - - - - - -
designated as at FVOCI
31 March 2021 44,620 594,358 (21,463) 993,961 79,485 23,834 112,001 16,736 1,843,532 220,000 24,555 2,088,087
F. Notes
F.1 Reconciliation of interim income statement between
statutory and underlying basis
€ million Underlying basis NPE Other Statutory
basis
Sales
Net interest income 71 - - 71
Net fee and commission income 44 - - 44
Net foreign exchange gains and net losses on financial instrument transactions 6 - (2) 4
and disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions 16 - - 16
Net gains from revaluation and disposal of investment properties and on 5 - - 5
disposal of stock of properties
Other income 4 - - 4
Total income 146 - (2) 144
Total expenses (96) (1) (4) (101)
Operating profit 50 (1) (6) 43
Loan credit losses (12) (1) 2 (11)
Impairments of other financial and non-financial assets (5) - - (5)
Profit before tax and non-recurring items 33 (2) (4) 27
Tax (6) - - (6)
Profit after tax and before non-recurring items (attributable to the owners of 27 (2) (4) 21
the Company)
Advisory and other restructuring costs-organic (1) - 1 0
Profit after tax - organic* (attributable to the owners of the Company) 26 (2) (3) 21
Provisions/net loss relating to NPE sales (1) 1 - 0
Restructuring and other costs relating to NPE sales (1) 1 - 0
Restructuring costs - Voluntary Staff Exit Plan (VEP) (3) - 3 0
Profit after tax (attributable to the owners of the Company) 21 0 0 21
*This is the profit after tax (attributable to the owners of the Company),
before the provisions/net loss relating to NPE sales, related restructuring
and other costs, and restructuring costs related to the Voluntary Staff Exit
Plan (VEP).
The reclassification differences between the statutory basis and the
underlying basis mainly relate to the impact from 'non-recurring items' and
are explained as follows:
NPE sales
· Total expenses include restructuring costs of
€1 million relating to the agreements for the sale of portfolios of NPEs and
are presented within 'Restructuring and other costs relating to NPE sales '
under the underlying basis.
· Loan credit losses under the statutory basis
include the loan credit losses relating to Project Helix 3 of approximately
€1 million and are disclosed under non-recurring items within
'Provisions/net loss relating to NPE sales' under the underlying basis.
Other reclassifications
· Net losses on loans and advances to customers at
FVPL of €2 million included in 'Loan credit losses' under the underlying
basis are included in 'Net losses on financial instrument transactions and
disposal/dissolution of subsidiaries and associates' under the statutory
basis. Their classification under the underlying basis is done in order to
align their presentation with the loan credit losses on loans and advances to
customers at amortised cost.
· Advisory and other restructuring costs of
approximately €1 million included in 'Other operating expenses' under the
statutory basis are separately presented under the underlying basis since they
comprise mainly fees to external advisors in relation to the transformation
programme of BOC PCL.
· Total expenses under the statutory basis include
restructuring costs relating to the voluntary staff exit plan (VEP) of JCC
Payment Systems Ltd of €3 million and are separately presented under the
underlying basis, since they represent one-off items.
F. Notes (continued)
F.2 Customer deposits
The analysis of customer deposits is presented below:
31 March 31 December 2021
2022
By type of deposit €000 €000
Demand 9,318,829 9,221,791
Savings 2,517,088 2,423,086
Time or notice 5,823,588 5,886,006
17,659,505 17,530,883
By geographical area
Cyprus 12,193,655 11,992,960
Greece 1,871,104 1,906,854
United Kingdom 758,416 713,621
Romania 52,202 54,306
Russia 619,219 661,820
Ukraine 279,487 276,248
Belarus 56,598 55,738
Other countries 1,828,824 1,869,336
17,659,505 17,530,883
Deposits by geographical area are based on the country of passport of the
Ultimate Beneficial Owner
31 March 31 December 2021
2022
By currency €000 €000
Euro 15,864,621 15,736,030
US Dollar 1,390,888 1,373,584
British Pound 316,653 312,918
Russian Rouble 11,888 28,539
Swiss Franc 13,431 10,865
Other currencies 62,024 68,947
17,659,505 17,530,883
By customer sector
Corporate 1,122,474 1,117,148
Global corporate 650,124 631,002
SMEs 851,966 866,860
Retail 11,211,238 11,051,397
Restructuring
- corporate 22,223 21,658
- SMEs 11,944 13,091
- retail other 9,201 9,862
Recoveries
- corporate 1,222 1,383
International banking services 3,467,506 3,500,183
Wealth management 311,607 318,299
17,659,505 17,530,883
F. Notes (continued)
F.3 Loans and advances to customers
31 March 31 December 2021
2022
€000 €000
Gross loans and advances to customers at amortised cost 9,976,915 9,840,535
Allowance for ECL for impairment of loans and advances to customers (253,846) (285,998)
9,723,069 9,554,537
Loans and advances to customers measured at FVPL 281,128 281,868
10,004,197 9,836,405
F.4 Credit risk concentration of loans and advances to
customers
The credit risk concentration, which is based on industry (economic activity)
and by business line, as well as the geographical concentration, is presented
in the tables below. The geographical concentration, for credit risk
concentration purposes, is based on the Group's Country Risk Policy which is
followed for monitoring the Group's exposures, in accordance with which
exposures are analysed by country of risk based on the country of residency
for individuals and the country of registration for companies.
31 March 2022 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000 €000
Trade 957,718 468 71 2 3,192 67 961,518
Manufacturing 310,847 41,525 10 - 1,156 29,722 383,260
Hotels and catering 901,800 33,495 36,942 - - 40,107 1,012,344
Construction 573,664 9,083 99 1,998 616 49 585,509
Real estate 900,038 96,807 1,928 11,064 - 48,648 1,058,485
Private individuals 4,419,056 8,779 98,119 1,213 30,584 67,254 4,625,005
Professional and other services 646,425 1,007 5,413 889 15,233 24,923 693,890
Other sectors 430,047 6 34 - 2 226,815 656,904
9,139,595 191,170 142,616 15,166 50,783 437,585 9,976,915
The basis of the exposure as disclosed in Section 'C. Business Overview' is
expanded compared to the country risk exposure as included in the table above
which is disclosed by reference to the country of residency/country of
registration, to also include exposures for loans and advances to customers
with passport of origin in these countries and/or business activities within
these countries and/or where the UBO has passport of origin or residency in
these countries.
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
31 March 2022 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000 €000
Corporate 2,094,542 9,449 57 - 15,634 109 2,119,791
Global corporate 1,426,478 172,748 44,257 11,764 - 359,637 2,014,884
SMEs 1,038,066 727 2,358 2,036 4,505 2,294 1,049,986
Retail
- housing 3,123,352 3,272 43,724 867 3,962 26,823 3,202,000
- consumer, credit cards and other 900,030 1,091 717 141 202 2,107 904,288
Restructuring
- corporate 51,785 - 526 - 32 61 52,404
- SMEs 61,249 - 170 - 166 445 62,030
- retail housing 79,644 152 1,731 - 362 704 82,593
- retail other 27,543 4 116 1 2 43 27,709
Recoveries
- corporate 34,424 - 4 86 222 260 34,996
- SMEs 32,577 - 1,855 59 2,240 2,095 38,826
- retail housing 107,286 250 29,921 76 6,393 12,035 155,961
- retail other 55,143 27 2,613 4 247 800 58,834
International banking services 77,017 2,137 14,567 132 16,816 23,703 134,372
Wealth management 30,459 1,313 - - - 6,469 38,241
9,139,595 191,170 142,616 15,166 50,783 437,585 9,976,915
31 December 2021 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000 €000
Trade 977,703 505 122 60 3,351 146 981,887
Manufacturing 303,372 179 - - 1,212 25,674 330,437
Hotels and catering 881,205 33,422 37,450 - - 40,123 992,200
Construction 510,928 9,005 108 2,108 646 58 522,853
Real estate 959,891 125,123 1,950 11,443 - 49,293 1,147,700
Private individuals 4,379,843 9,185 121,260 1,057 37,315 73,997 4,622,657
Professional and other services 543,424 1,007 5,516 875 16,492 35,142 602,456
Other sectors 458,005 7 40 - 8 182,285 640,345
9,014,371 178,433 166,446 15,543 59,024 406,718 9,840,535
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
31 December 2021 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000 €000
Corporate 2,018,926 9,430 60 99 15,778 113 2,044,406
Global corporate 1,417,643 159,349 44,132 11,742 - 320,730 1,953,596
SMEs 1,038,599 773 1,869 2,047 4,701 2,345 1,050,334
Retail
- housing 3,068,097 3,466 47,742 629 4,513 26,819 3,151,266
- consumer, credit cards and other 884,231 1,101 760 126 237 2,232 888,687
Restructuring
- corporate 60,446 - 526 - 32 1,213 62,217
- SMEs 69,501 - 338 - - 340 70,179
- retail housing 80,730 152 3,058 - 392 752 85,084
- retail other 32,611 14 132 - 3 238 32,998
Recoveries
- corporate 35,010 - - 589 219 256 36,074
- SMEs 30,505 - 2,557 2 3,699 2,554 39,317
- retail housing 109,945 382 45,158 167 9,254 18,213 183,119
- retail other 54,959 30 4,356 4 1,557 1,304 62,210
International banking services 76,314 2,402 15,211 138 18,639 23,214 135,918
Wealth management 36,854 1,334 547 - - 6,395 45,130
9,014,371 178,433 166,446 15,543 59,024 406,718 9,840,535
The loans and advances to customers include lending exposures in Cyprus with
collaterals in Greece with a carrying value as at 31 March 2022 of €102,287
thousand (31 December 2021: €100,039 thousand).
The loan and advances to customers reported within 'Other countries' as at 31
March 2022 include exposures of €3,4 million in Ukraine (31 December 2021:
€3,6 million).
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
Loans and advances to customers classified as held for sale
Industry (economic activity), business line and geographical concentration of
the Group's gross loans and advances to customers at amortised cost classified
as held for sale is presented in the tables below:
31 March 2022 Cyprus United Romania Russia Other countries Gross loans at amortised cost
Kingdom
By economic activity €000 €000 €000 €000 €000 €000
Trade 57,260 - 522 1 - 57,783
Manufacturing 25,097 1 112 - - 25,210
Hotels and catering 15,036 3 283 - - 15,322
Construction 28,460 - 244 - - 28,704
Real estate 4,662 - 9,461 - - 14,123
Private individuals 369,171 1,080 55 817 4,617 375,740
Professional and other services 26,701 2 1,477 - - 28,180
Other sectors 11,620 - 69 - - 11,689
538,007 1,086 12,223 818 4,617 556,751
31 March 2022 Cyprus United Romania Russia Other countries Gross loans at amortised cost
Kingdom
By business line €000 €000 €000 €000 €000 €000
Global corporate - - 10,568 - - 10,568
SMEs - - 247 - - 247
Restructuring
- corporate 370 - - - - 370
- SMEs 5,185 - - - - 5,185
- retail housing 17,888 498 - - 34 18,420
- retail other 7,117 - - - - 7,117
Recoveries
- corporate 8,177 - 1,098 - - 9,275
- SMEs 17,647 1 310 779 385 19,122
- retail housing 245,761 577 - 38 3,679 250,055
- retail other 235,862 10 - 1 519 236,392
538,007 1,086 12,223 818 4,617 556,751
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
Loans and advances to customers classified as held for sale (continued)
31 December 2021 Cyprus United Romania Russia Other countries Gross loans at amortised cost
Kingdom
By economic activity €000 €000 €000 €000 €000 €000
Trade 56,859 - 514 - - 57,373
Manufacturing 24,688 1 110 - - 24,799
Hotels and catering 14,794 1 278 - - 15,073
Construction 28,226 - 231 - - 28,457
Real estate 4,575 - 9,395 - - 13,970
Private individuals 369,182 1,070 55 804 4,087 375,198
Professional and other services 27,866 2 1,466 - - 29,334
Other sectors 11,476 - 77 - 32 11,585
537,666 1,074 12,126 804 4,119 555,789
31 December 2021 Cyprus United Romania Russia Other countries Gross loans at amortised cost
Kingdom
By business line €000 €000 €000 €000 €000 €000
Global corporate - - 10,441 - 32 10,473
SMEs - - 231 - - 231
Retail
- housing 153 - - - - 153
- consumer, credit cards and other 2 - - - - 2
Restructuring
- corporate 374 - - - - 374
- SMEs 5,301 - - - - 5,301
- retail housing 23,769 501 - - 34 24,304
- retail other 12,702 - - - - 12,702
Recoveries
- corporate 8,090 - 1,111 - - 9,201
- SMEs 17,923 1 343 766 381 19,414
- retail housing 238,791 566 - 38 3,210 242,605
- retail other 230,561 6 - - 462 231,029
537,666 1,074 12,126 804 4,119 555,789
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 at amortised
cost before residual fair value adjustment on initial recognition and at
amortised cost, by stage.
31 March 2022 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on initial 7,712,357 1,699,878 523,228 140,911 10,076,374
recognition
Residual fair value adjustment on initial recognition (69,560) (21,272) (2,816) (5,811) (99,459)
Gross loans at amortised cost 7,642,797 1,678,606 520,412 135,100 9,976,915
Cyprus 7,642,545 1,678,606 498,489 135,100 9,954,740
Other countries 252 - 21,923 - 22,175
7,642,797 1,678,606 520,412 135,100 9,976,915
31 December 2021 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on initial 7,488,354 1,721,231 576,873 159,755 9,946,213
recognition
Residual fair value adjustment on initial recognition (69,659) (22,051) (3,530) (10,438) (105,678)
Gross loans at amortised cost 7,418,695 1,699,180 573,343 149,317 9,840,535
Cyprus 7,418,432 1,699,180 545,327 149,317 9,812,256
Other countries 263 - 28,016 - 28,279
7,418,695 1,699,180 573,343 149,317 9,840,535
Loans and advances to customers classified as held for sale
31 March 2022 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on initial - 2,960 476,622 96,261 575,843
recognition
Residual fair value adjustment on initial recognition - (62) (2,218) (16,812) (19,092)
Gross loans at amortised cost - 2,898 474,404 79,449 556,751
Cyprus - 2,898 474,157 79,449 556,504
Other countries - - 247 - 247
- 2,898 474,404 79,449 556,751
31 December 2021 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 - 2,132 476,538 96,209 574,879
recognition
Residual fair value adjustment on initial recognition - (57) (2,079) (16,954) (19,090)
Gross loans at amortised cost - 2,075 474,459 79,255 555,789
Cyprus - 2,075 463,774 79,255 545,104
Other countries - - 10,685 - 10,685
- 2,075 474,459 79,255 555,789
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 2022 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate 1,637,888 436,810 21,854 23,239 2,119,791
Global corporate 1,452,059 484,240 56,829 21,756 2,014,884
SMEs 834,784 193,220 11,441 10,541 1,049,986
Retail
- housing 2,813,424 335,206 41,381 11,989 3,202,000
- consumer, credit cards and other 749,548 117,430 21,264 16,046 904,288
Restructuring
- corporate 10,733 29,039 12,459 173 52,404
- SMEs 13,706 15,492 28,727 4,105 62,030
- retail housing 3,344 18,510 57,076 3,663 82,593
- retail other 1,681 4,515 20,449 1,064 27,709
Recoveries
- corporate - - 29,179 5,817 34,996
- SMEs - - 34,796 4,030 38,826
- retail housing - - 133,357 22,604 155,961
- retail other 72 - 49,220 9,542 58,834
International banking services 88,279 43,557 2,380 156 134,372
Wealth management 37,279 587 - 375 38,241
7,642,797 1,678,606 520,412 135,100 9,976,915
31 December 2021 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate 1,569,699 430,865 22,357 21,485 2,044,406
Global corporate 1,374,550 501,092 55,159 22,795 1,953,596
SMEs 812,211 215,012 12,522 10,589 1,050,334
Retail
- housing 2,769,274 320,473 49,633 11,886 3,151,266
- consumer, credit cards and other 732,154 116,983 23,361 16,189 888,687
Restructuring
- corporate 6,092 35,613 14,255 6,257 62,217
- SMEs 14,016 16,417 34,083 5,663 70,179
- retail housing 3,075 15,528 62,934 3,547 85,084
- retail other 1,409 5,701 24,838 1,050 32,998
Recoveries
- corporate - - 29,600 6,474 36,074
- SMEs - - 35,685 3,632 39,317
- retail housing - - 154,469 28,650 183,119
- retail other 114 - 51,672 10,424 62,210
International banking services 92,193 40,715 2,775 235 135,918
Wealth management 43,908 781 - 441 45,130
7,418,695 1,699,180 573,343 149,317 9,840,535
F. Notes (continued)
F.5 Analysis of loans and advances to customers by stage
(continued)
Loans and advances to customers classified as held for sale
The following tables present the Group's gross loans and advances to customers
at amortised cost classified as held for sale by stage and by business line
concentration.
31 March 2022 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Global corporate - - 10,568 - 10,568
SMEs - - 247 - 247
Restructuring
- corporate - - 370 - 370
- SMEs - 1,552 2,897 736 5,185
- retail housing - 797 16,663 960 18,420
- retail other - 549 5,997 571 7,117
Recoveries
- corporate - - 8,576 699 9,275
- SMEs - - 17,637 1,485 19,122
- retail housing - - 210,857 39,198 250,055
- retail other - - 200,592 35,800 236,392
- 2,898 474,404 79,449 556,751
31 December 2021 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Global corporate - - 10,470 3 10,473
SMEs - - 231 - 231
Retail
- housing - - 153 - 153
- consumer, credit cards and other - - 2 - 2
Restructuring
- corporate - - 374 - 374
- SMEs - 718 3,842 741 5,301
- retail housing - 804 22,113 1,387 24,304
- retail other - 553 11,543 606 12,702
Recoveries
- corporate - - 8,507 694 9,201
- SMEs - - 17,653 1,761 19,414
- retail housing - - 204,956 37,649 242,605
- retail other - - 194,615 36,414 231,029
- 2,075 474,459 79,255 555,789
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers
Three months ended
31 March
2022 2021
€000 €000
Impairment loss net of reversals on loans and advances to customers 14,132 23,327
Recoveries of loans and advances to customers previously written off (4,066) (2,370)
Changes in expected cash flows 912 2,787
Financial guarantees and commitments (270) 384
10,708 24,128
The movement in ECL of loans and advances to customers, including the loans
and advances to customers held for sale, and the analysis of the balance by
stage is as follows:
Three months ended
31 March
2022 2021
€000 €000
1 January 591,417 1,652,635
Foreign exchange and other adjustments (840) 58
Write offs (45,959) (73,554)
Interest (provided) not recognised in the income statement 4,012 20,994
Charge for the period 14,132 23,327
31 March 562,762 1,623,460
Stage 1 16,630 25,954
Stage 2 28,852 38,097
Stage 3 456,473 1,357,549
POCI 60,807 201,860
31 March 562,762 1,623,460
The allowance for ECL, included above, for loans and advances to customers
held for sale as at 31 March 2022 amounted to €308,916 thousand (31 March
2021: €822,767 thousand).
The charge on loans and advances to customers, including the loans and
advances to customers held for sale, by stage for the period is presented in
the table below:
Three months ended
31 March
2022 2021
€000 €000
Stage 1 (1,215) (2,777)
Stage 2 (48) (5,247)
Stage 3 15,395 31,351
14,132 23,327
During the three months ended 31 March 2022 the total non‑contractual
write‑offs recorded by the Group amounted to €36,921 thousand (three
months ended 31 March 2021: €51,219 thousand). The contractual amount
outstanding on financial assets (including loans and advances to customers
classified as held for sale) that were written off during the three months
ended 31 March 2022 and that are still subject to enforcement activity is
€348,911 thousand (31 December 2021: €984,329 thousand).
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers (continued)
Assumptions have been made about the future changes in property values, as
well as the timing for the realisation of collateral, taxes and expenses on
the repossession and subsequent sale of the collateral as well as any other
applicable haircuts. Indexation has been used as the basis to estimate updated
market values of properties supplemented by management judgement where
necessary given the difficulty in differentiating between short term impacts
and long-term structural changes and the shortage of market evidence for
comparison purposes. Assumptions were made on the basis of a macroeconomic
scenario for future changes in property prices, and these are capped to zero,
for all scenarios, in case of any future projected increase, whereas any
future projected decrease is taken into consideration.
At 31 March 2022 the weighted average haircut (including liquidity haircut and
selling expenses) used in the collectively assessed provision calculation for
loans and advances to customers excluding those classified as held for sale is
approximately 32% under the baseline scenario (31 December 2021: approximately
32%).
The timing of recovery from real estate collaterals used in the collectively
assessed provision calculation for loans and advances to customers, excluding
those classified as held for sale, has been estimated to be on average seven
years under the baseline scenario (31 December 2021: average seven years).
For the calculation of individually assessed allowances for ECL, the timing of
recovery of collaterals as well as the haircuts used are based on the specific
facts and circumstances of each case.
For the calculation of expected credit losses three scenarios were used; base,
adverse and favourable with 50%, 30% and 20% probability respectively.
For Stage 3 customers, the base scenario focuses on the following variables,
which are based on the specific facts and circumstances of each customer: the
operational cash flows, the timing of recovery of collaterals and the haircuts
from the realisation of collateral. The base scenario is used to derive
additional more favourable or more adverse scenarios. Under the adverse
scenario operational cash flows are decreased by 50%, applied haircuts on real
estate collateral are increased by 50% and the timing of recovery of
collaterals is increased by 1 year with reference to the baseline scenario.
Under the favourable scenario, applied haircuts are decreased by 5%, with no
change in the operational cash flows and in the recovery period with reference
to the baseline scenario. Assumptions used in estimating expected future cash
flows (including cash flows that may result from the realisation of
collateral) reflect current and expected future economic conditions and are
generally consistent with those used in the Stage 3 collectively assessed
exposures. In the case of loans and advances to customers held for sale the
Group has taken into consideration the timing of the expected sale and the
estimated sale proceeds in determining the ECL. Amounts previously written off
which are expected to be recovered through sale are included in 'Recoveries of
loans and advances to customers previously written off'.
The above assumptions are also influenced by the ongoing regulatory dialogue
BOC PCL maintains with its lead regulator, the ECB, and other regulatory
guidance and interpretations issued by various regulatory and industry bodies
such as the ECB and the EBA, which provide guidance and expectations as to
relevant definitions and the treatment/classification of certain
parameters/assumptions used in the estimation of allowance for ECL.
Any changes in these assumptions or differences between assumptions made and
actual results could result in significant changes in the estimated amount of
expected credit losses of loans and advances to customers.
Overlays in the context of COVID‑19 and the Ukraine crisis
The majority of COVID‑19 pandemic related management overlays that were
applied up to the first six months of 2021 were removed in the third quarter
of 2021, except for the overlay for exposures in the hotel and catering
industry, which applies stricter customers' credit ratings thresholds for
customers in this industry sector, which remains in place.
In addition, the Group has enhanced provisioning for exposures that could be
impacted from the consequences of the Ukrainian crisis, by establishing two
new overlays, in the collectively assessed population, to address the
increased uncertainties from the geopolitical instability, trade restrictions,
disruptions in the global supply chains, increases in the energy prices and
their potential negative impact in the domestic cost of living. The impact on
the ECL from the application of these overlays was approximately a €3m
charge in the first quarter of 2022.
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 2022. The Group will continue
to evaluate the ECL allowance and the related economic outlook each quarter,
so that any changes arising from the uncertainty on the macroeconomic outlook
and geopolitical developments, impacted by the implications of the Russian
invasion of Ukraine, as well as the degree of recurrence of the COVID-19
pandemic due to virus mutations, are timely captured.
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers (continued)
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.
The selection criteria were further enhanced during the three months ended 31
March 2022, to include significant exposures to customers with passport of
origin or residency in Russia, Ukraine or Belarus and/or business activity
within these countries.
F.7 Rescheduled loans and advances to customers
The below table presents the Group's rescheduled loans and advances to
customers by stage, excluding those classified as held for sale.
31 March 2022 31 December 2021
€000 €000
Stage 1 - 6,883
Stage 2 821,997 828,849
Stage 3 326,075 348,385
POCI 30,521 39,613
1,178,593 1,223,730
F.8 Pending litigation, claims, regulatory and other matters
The Group, in the ordinary course of business, is involved in various disputes
and legal proceedings and is subject to enquiries and examinations, requests
for information, audits, investigations, legal and other proceedings by
regulators, governmental and other public bodies, actual and threatened,
relating to the suitability and adequacy of advice given to clients or the
absence of advice, lending and pricing practices, selling and disclosure
requirements, record keeping, filings and a variety of other matters. In
addition, as a result of the deterioration of the Cypriot economy and banking
sector in 2012 and the subsequent restructuring of BOC PCL in 2013 as a result
of the bail-in Decrees, BOC PCL is subject to a large number of proceedings
and investigations that either precede, or result from the events that
occurred during the period of the bail‑in Decrees. There are also situations
where the Group may enter into a settlement agreement. This may occur only if
such settlement is in BOC PCL's interest (such settlement does not constitute
an admission of wrongdoing) and only takes place after obtaining legal advice
and all approvals by the appropriate bodies of management.
Provisions have been recognised for those cases where the Group is able to
estimate probable losses. Where an individual provision is material, the fact
that a provision has been made is stated. Any provision recognised does not
constitute an admission of wrongdoing or legal liability. While the outcome of
these matters is inherently uncertain, management believes that, based on the
information available to it, appropriate provisions have been made in respect
of legal proceedings and regulatory and other matters as at 31 March 2022 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 2021 Annual Financial Report.
The Association for the Protection of Bank Borrowers (CYPRODAT) filed a
complaint with the Commission for the Protection of Competition (CPC) in
January 2022, claiming that BOC PCL and another bank have concerted in
practices regarding the recent revisions of their commissions and charges. It
also filed an application for an interim order which, if successful, would
essentially freeze the implementation of the revised commissions and charges.
The application for interim order was rejected by the CPC, however, the CPC
reverted in April 2022 to inform BOC PCL of the initiation of an investigation
with respect to this matter. This investigation is currently at a very early
stage to predict its outcome.
G. Additional Risk & 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 2022 Gross loans and advances to customers Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
Group gross customer Of which NPEs Of which exposures with forbearance measures Accumulated impairment, accumulated negative changes in fair value due to Of which NPEs Of which exposures with forbearance measures
credit risk and provisions
loans and advances(1,2)
Total exposures with forbearance measures Of which NPEs Total exposures with forbearance measures Of which on NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 47,524 - - - 34 - - -
Other financial corporations 160,168 3,598 11,586 3,469 4,522 1,546 1,671 1,444
Non-financial corporations 5,315,131 266,452 1,015,983 205,241 142,704 116,205 87,096 79,127
Of which: Small and Medium sized Enterprises(3)(SMEs) 4,202,199 117,419 729,967 65,973 79,479 58,558 35,742 29,771
Of which: Commercial real estate(3) 3,945,007 157,068 888,216 125,956 93,769 78,546 67,161 62,146
Non-financial corporations by sector
Construction 576,899 28,025 22,734
Wholesale and retail trade 944,739 35,785 24,879
Accommodation and food service activities 1,157,721 4,298 4,594
Real estate activities 1,123,074 103,789 32,283
Manufacturing 379,496 15,802 8,842
Other sectors 1,133,202 78,753 49,372
Households 4,753,135 380,226 380,275 220,005 124,501 106,179 63,902 57,710
Of which: Residential mortgage loans(3) 3,739,377 321,182 329,433 192,014 85,084 77,337 49,514 45,458
Of which: Credit for consumption(3) 570,915 51,636 57,083 30,323 27,463 20,779 12,779 11,138
10,275,958 650,276 1,407,844 428,715 271,761 223,930 152,669 138,281
Loans and advances to customers classified as held for sale 556,751 553,780 245,561 242,804 308,916 308,022 119,661 118,803
Total on-balance sheet 10,832,709 1,204,056 1,653,405 671,519 580,677 531,952 272,330 257,084
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 & 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 2021
Group gross customer Of which NPEs Of which exposures with forbearance measures Accumulated impairment, accumulated negative changes in fair value due to Of which NPEs Of which exposures with forbearance measures
credit risk and provisions
loans and advances(4,5)
Total exposures with forbearance measures Of which NPEs Total exposures with forbearance measures Of which on NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 45,357 - - - 29 - - -
Other financial corporations 127,889 4,771 12,759 4,487 3,393 1,909 1,948 1,658
Non-financial corporations 5,209,599 277,309 1,009,094 215,157 144,252 115,869 86,847 79,329
Of which: Small and Medium sized Enterprises(6) 4,052,571 123,558 734,362 71,269 83,757 60,892 39,263 32,499
Of which: Commercial real estate(6) 3,968,375 171,215 900,697 136,257 100,301 82,872 69,309 64,282
Non-financial corporations by sector
Construction 512,952 28,418 21,224
Wholesale and retail trade 964,891 40,457 28,586
Accommodation and food service activities 1,137,443 4,323 3,351
Real estate activities 1,210,664 106,841 31,821
Manufacturing 326,535 14,354 8,094
Other sectors 1,057,114 82,916 51,176
Households 4,755,100 434,041 430,007 238,066 153,865 136,902 70,667 64,589
Of which: Residential mortgage loans(6) 3,734,448 369,147 372,141 208,387 112,711 105,764 56,145 52,219
Of which: Credit for consumption(6) 581,197 54,238 61,824 31,165 28,824 22,167 13,290 11,430
10,137,945 716,121 1,451,860 457,710 301,539 254,680 159,462 145,576
Loans and advances to customers classified as held for sale 555,789 553,619 245,452 243,495 305,419 304,665 118,094 117,377
Total on-balance sheet 10,693,734 1,269,740 1,697,312 701,205 606,958 559,345 277,556 262,953
4 Excluding loans and advances to central banks and credit institutions.
5 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.
6 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 & Capital Management disclosures
(continued)
G.2 Capital management
The primary objective of the Group's capital management is to ensure
compliance with the relevant regulatory capital requirements and to maintain
healthy capital adequacy ratios to cover the risks of its business and support
its strategy and maximise shareholders' value.
The capital adequacy framework, as in force, was incorporated through the
Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)
which came into effect on 1 January 2014 with certain specified provisions
implemented gradually. The CRR and CRD transposed the new capital, liquidity
and leverage standards of Basel III into the European Union's legal framework.
CRR establishes the prudential requirements for capital, liquidity and
leverage for credit institutions. It is directly applicable in all EU member
states. CRD governs access to deposit-taking activities and internal
governance arrangements including remuneration, board composition and
transparency. Unlike the CRR, member states were required to transpose the CRD
into national law and national regulators were allowed to impose additional
capital buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (Regulation (EU)
2019/876 (CRR II) and Directive (EU) 2019/878 (CRD V)) came into force. As an
amending regulation, the existing provisions of CRR apply, unless they are
amended by CRR II. Certain provisions took immediate effect (primarily
relating to Minimum Requirement for Own Funds and Eligible Liabilities
(MREL)), but most changes became effective as of June 2021. The key changes
introduced consist of, among others, changes to qualifying criteria for Common
Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2 (T2) instruments,
introduction of requirements for MREL and a binding Leverage Ratio requirement
(as defined in the CRR) and a Net Stable Funding Ratio (NSFR).
The amendments that came into effect on 28 June 2021 are in addition to those
introduced in June 2020 through Regulation (EU) 2020/873, which among other,
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
and advancing the application of prudential treatment of software assets as
amended by CRR II (which came into force in December 2020). In addition,
Regulation (EU) 2020/873 introduced a temporary treatment of unrealized gains
and losses on exposures to central governments, to regional governments or to
local authorities measured at fair value through other comprehensive income
which the Group elected to apply and implemented from the third quarter of
2020.
In October 2021, the European Commission adopted legislative proposals for
further amendments to CRR, CRD IV and the BRRD (the '2021 Banking Package').
Amongst other things, the 2021 Banking Package would implement certain
elements of Basel III that have not yet been transposed into EU law. The
2021 Banking Package 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 IV with regard to (amongst other things) requirements
on supervisory powers, sanctions, third-country branches and ESG risks; and
· a proposal for a Regulation to make amendments to CRR and the
BRRD with regard to (amongst other things) requirements on the prudential
treatment of G-SII groups with a multiple point of entry resolution strategy
and a methodology for the indirect subscription of instruments eligible for
meeting the MREL requirements.
The 2021 Banking Package is subject to amendment in the course of the EU's
legislative process; and its scope and terms may change prior to its
implementation. In addition, in the case of the proposed amendments to CRD IV
and the BRRD, their terms and effect will depend, in part, on how they are
transposed in each member state. As a general matter, it is likely to be
several years until the 2021 Banking Package begins to be implemented
(currently expected in 2025); and certain measures are expected to be subject
to transitional arrangements or to be phased in over time.
The CET1 ratio of the Group as at 31 March 2022 stands at 14.64% and the Total
Capital ratio at 19.56% on a transitional basis. The ratios as at 31 March
2022 include unaudited/un-reviewed profits for the three months ended 31 March
2022.
G. Additional Risk & Capital Management disclosures
(continued)
G.2 Capital management (continued)
Minimum CET1 Regulatory Capital Requirements 2022 2021
Pillar I - CET1 Requirement 4.50% 4.50%
Pillar II - CET1 Requirement 1.83% 1.69%
Capital Conservation Buffer (CCB)* 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer 1.25% 1.00%
Minimum CET1 Regulatory Requirements 10.08% 9.69%
* Fully phased in as of 1 January 2019
Minimum Total Capital Regulatory Requirements 2022 2021
Pillar I - Total Capital Requirement 8.00% 8.00%
Pillar II - Total Capital Requirement 3.26% 3.00%
Capital Conservation Buffer (CCB)* 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer 1.25% 1.00%
Minimum Total Capital Regulatory Requirements 15.01% 14.50%
* Fully phased in as of 1 January 2019
The minimum Pillar I total capital requirement ratio is 8.00% and 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 ECB has also provided non-public guidance for an additional Pillar II CET1
buffer (P2G).
In the context of the annual SREP conducted by the ECB in 2021 and based on
the final 2021 SREP decision received in February 2022, the P2R was set at
3.26%, compared to the previous level of 3.00%. The additional P2R add-on of
0.26% relates to ECB's prudential provisioning expectations as per the 2018
ECB Addendum and subsequent ECB announcements and press release in July 2018
and August 2019. This component of the P2R add-on takes into consideration
Project Helix 3. It is dynamic and can be reduced during 2022 on the basis of
in-scope NPEs and level of provisioning. The ECB has also provided revised
lower non-public guidance for an additional Pillar II CET1 buffer. The new
SREP requirements are effective from 1 March 2022.
The Group is subject to a 3% Pillar I Leverage Ratio requirement.
The above minimum ratios apply for both BOC PCL and the Group.
The capital position of the Group and BOC PCL as at 31 March 2022 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 CBC has set the level of the CCyB rate
for risk weighted exposures in Cyprus at 0.00% for the year 2021 as well as
for the six months up to June 2022. The CCyB for the Group as at 31 March 2022
has been calculated at 0.00%.
In accordance with the provisions of this law, the CBC is also the responsible
authority for the designation of banks that are Other Systemically Important
Institutions (O-SIIs) and for the setting of the O-SII Buffer requirement for
these systemically important banks. BOC PCL has been designated as an O-SII
and the CBC initially set the O-SII Buffer at 2.00%, revised to 1.50% in
November 2021 with effect from 1 January 2022. This buffer is being phased in
gradually, having started from 1 January 2019 at 0.50% and increasing by 0.50%
every year thereafter, until being fully implemented. In April 2020, the CBC
decided to delay the phasing in of the O-SII Buffer on 1 January 2021 and 1
January 2022 by 12 months. Consequently, and following the revision to 1.50%,
the O-SII Buffer will be fully phased in on 1 January 2023, instead of 1
January 2022 as originally set, by 0.25% each year.
G. Additional Risk & Capital Management disclosures
(continued)
G.2 Capital management (continued)
The EBA final guidelines on SREP and supervisory stress testing and the Single
Supervisory Mechanism's (SSM) 2018 SREP methodology provide that own funds
held for the purposes of Pillar II Guidance (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.
As part of the relaxation measures following the COVID-19 outbreak, on 12
March 2020, the ECB and the EBA also announced that banks are temporarily
allowed to operate below the level of capital defined by Pillar II Guidance
(P2G), the CCB and the CCyB. In July 2020, the ECB committed to allow banks to
operate below P2G and the CBR until end of 2022, without automatically
triggering supervisory actions. In February 2022, the ECB announced that it
will not allow banks to operate below the level of capital defined by their
P2G beyond December 2022.
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 UCITS management
company of the Group, BOC Asset Management Ltd, complies with the regulatory
capital requirements of the Cyprus Securities & Exchange Commission
(CySEC) laws and regulations. The regulated investment firm (CIF) of the
Group, The Cyprus Investment and Securities Corporation Ltd (CISCO), complies
with the minimum capital adequacy ratio requirements. From 2021 the new
prudential regime for Investment Firms ('IFs') as per the Investment Firm
Regulation (EU) 2019/2033 ('IFR') on the prudential requirements of IFs and
the Investment Firm Directive (EU) 2019/2034 ('IFD') on the prudential
supervision of IFs came into effect. Under the new regime CISCO has been
classified as Non-Systemic 'Class 2' company. Class 2 IFs are subject to the
new IFR/IFD regime in full.
The capital position of the Group and BOC PCL as at the reporting date (after
applying the transitional arrangements) is presented below:
Regulatory capital Group BOC PCL
31 March 31 December 31 March 31 December
2022(7) 2021(8) 2022(7) 2021(8)
€000 €000 €000 €000
Transitional Common Equity Tier 1 (CET1)(9) 1,545,521 1,619,559 1,528,089 1,592,455
Transitional Additional Tier 1 capital (AT1) 220,000 220,000 220,000 220,000
Tier 2 capital (T2) 300,000 300,000 300,000 300,000
Transitional total regulatory capital 2,065,521 2,139,559 2,048,089 2,112,455
Risk weighted assets - credit risk(10) 9,543,190 9,678,741 9,570,794 9,697,351
Risk weighted assets - market risk - - - -
Risk weighted assets - operational risk 1,015,488 1,015,488 995,450 995,450
Total risk weighted assets 10,558,678 10,694,229 10,566,244 10,692,801
Transitional % % % %
Common Equity Tier 1 ratio 14.64 15.14 14.46 14.89
Total Capital ratio 19.56 20.01 19.38 19.76
Leverage ratio 7.12 7.45 7.05 7.35
7 Includes unaudited/un-reviewed profits for the three months ended 31 March
2022.
8 As per 2021 Annual Financial Report and Pillar III Disclosures for the year
ended December 2021.
9 CET1 includes regulatory deductions, comprising, amongst others, intangible
assets amounting to €28,921 thousand for the Group and €25,221 thousand
for BOC PCL as at 31 March 2022 (31 December 2021: €30,032 thousand for the
Group and €26,452 thousand for BOC PCL). As at 31 March 2022 an amount of
€14,669 thousand is considered prudently valued for CRR purposes and it is
not deducted from CET1 (31 December 2021: €15,394 thousand).
10 Includes Credit Valuation Adjustments (CVA).
G. Additional Risk & 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
2022(7,11) 2021(8,11) 2022(7,11) 2021(8,11)
% % % %
Common Equity Tier 1 ratio 13.92 13.75 13.74 13.49
Total capital ratio 18.88 18.69 18.70 18.43
Leverage ratio 6.79 6.80 6.72 6.70
During the three months ended 31 March 2022 CET1 ratio was negatively affected
mainly by the phasing in of IFRS 9 and other transitional adjustments on 1
January 2022, provisions and impairments and other movements, and was
positively affected by pre-provision income and the decrease in risk-weighted
assets. As a result, the CET1 ratio has decreased by 50 bps during the three
months ended 31 March 2022.
The ECB, as part of its supervisory role, completed an onsite inspection and
review on the value of the Group's foreclosed assets with reference date 30
June 2019. The findings relate to a prudential charge which will decrease
based on BOC PCL's progress in disposing the properties in scope. The amount
is being directly deducted from own funds since 30 June 2021. There was no
significant movement in the amount deducted since 31 December 2021. As a
result of the prudential charge deducted from own funds as at 31 March 2022,
the impact on the Group's CET1 ratio is 36 bps.
In April 2021, the Company issued €300 million unsecured and subordinated
Tier 2 Capital Notes (the 'New T2 Notes') and immediately after, the Company
and BOC PCL entered into an agreement pursuant to which the Company on-lent to
BOC PCL the entire €300 million proceeds of the issue of the New T2 Notes on
terms substantially identical to the terms and conditions of the New T2 Notes.
At the same time, BOC PCL invited the holders of its €250 million Fixed Rate
Reset Tier 2 Capital Notes due January 2027 (the 'Old T2 Notes') to tender
their Old T2 Notes for purchase by BOC PCL, after which Old T2 Notes of €43
million remained outstanding.
At a meeting held on 30 November 2021, the Board of Directors resolved to
exercise BOC PCL's option to redeem the remaining nominal amount outstanding
of the Old T2 Notes. The outstanding Old T2 Notes were redeemed on 19 January
2022.
Transitional arrangements
The Group has elected in prior years to apply the 'static-dynamic' approach in
relation to the transitional arrangements for the initial application of IFRS
9 for regulatory capital purposes, where the impact on the impairment amount
from the initial application of IFRS 9 on the capital ratios is phased in
gradually. The 'static-dynamic' approach allows for recalculation of the
transitional adjustment periodically on Stage 1 and Stage 2 loans, to reflect
the increase of the ECL provisions within the transition period. The Stage 3
ECL remains static over the transition period as per the impact upon initial
recognition.
The amount added each year for the 'static component' decreases based on a
weighting factor until the impact of IFRS 9 is fully absorbed back to CET1 at
the end of the five years. The cumulative impact on the capital position as at
31 December 2021 was 50% and as at 31 March 2022 was 75% of the impact on the
impairment amounts from the initial application of IFRS 9. This will be fully
phased in (100%) by 1 January 2023.
Following the June 2020 amendments to the CRR in relation to the dynamic
component a 100% add back of IFRS 9 provisions was allowed for the years 2020
and 2021, reducing to 75% in 2022, to 50% in 2023 and to 25% in 2024. The
calculation at each reporting period is made against Stage 1 and Stage 2
provisions as at 1 January 2020, instead of 1 January 2018. The calculation of
the 'static component' has not been amended.
11 IFRS 9 and application of the temporary treatment of certain FVOCI
instruments in accordance with Article 468 of CRR fully loaded.
G. Additional Risk & Capital Management disclosures
(continued)
G.2 Capital management (continued)
In relation to the temporary treatment of unrealized gains and losses for
certain exposures measured at fair value through other comprehensive income,
Regulation EU 2020/873 allows institutions to remove from their CET1 the
amount of unrealized gains and losses accumulated since 31 December 2019,
excluding those of financial assets that are credit-impaired. The relevant
amount is removed at a scaling factor of 100% from January to December 2020,
reduced to 70% from January to December 2021 and to 40% from January to
December 2022. The Group applies the temporary treatment from the third
quarter of 2020.
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
In December 2021, BOC PCL received notification from the SRB and CBC of the
final decision for the binding MREL for BOC PCL, determined as the preferred
resolution point of entry. As per the decision, the final MREL requirement is
set at 23.74% of risk weighted assets and 5.91% of Leverage Ratio Exposure
(LRE) (as defined in the CRR) and must be met by 31 December 2025.
Furthermore, BOC PCL must comply by 1 January 2022 with an interim requirement
of 14.94% of risk weighted assets and 5.91% of LRE. The own funds used by BOC
PCL to meet the Combined Buffer Requirement (CBR) are not eligible to meet its
MREL requirements expressed in terms of risk weighted assets. BOC PCL must
comply with the MREL requirement at the consolidated level, comprising BOC PCL
and its subsidiaries. The decision is subject to annual review by the
competent authorities.
The MREL ratio calculated according to the SRB's eligibility criteria
currently in effect, and based on internal estimate, stood at 18.69% of RWAs
as at 31 March 2022 and at 9.54% of LRE as at 31 March 2022. The ratios as at
31 March 2022 include unaudited/un-reviewed profits for the three months ended
31 March 2022. The MREL ratio expressed as a percentage of RWAs does not
include capital used to meet the CBR amount which stood at 3.75% as at 31
March 2022 and is expected to increase to 4.00% on 1 January 2023.
The MREL requirement is in line with BOC PCL's expectations and funding plans.
G.3 Internal Capital Adequacy Assessment Process (ICAAP),
Internal Liquidity Assessment Process (ILAAP), Pillar II and Supervisory
Review and Evaluation Process (SREP)
The Group prepares annual ICAAP and ILAAP packages. Both reports for 2021 have
been completed and submitted to the ECB at the end of April 2022 following
approval by the Board of Directors.
The Group also undertakes quarterly reviews of its ICAAP results (with
reference date 30 June and 30 September) as well as on an ad-hoc basis if
needed, which are submitted to the ALCO and the Risk Committee of the Board of
Directors, considering the latest actual and forecasted information. During
the quarterly review, the Group's risk profile and risk management policies
are reviewed and any material changes/developments since the annual ICAAP
exercise are assessed in terms of capital adequacy. Both the annual ICAAP for
2021 and the quarterly ICAAP reviews, undertaken in 2021, 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 a baseline and stress conditions scenarios.
The Group also undertakes a quarterly review for the ILAAP through quarterly
stress tests submitted to the ALCO and the Risk Committee of the Board of
Directors. Any material changes since the year-end are assessed in terms of
liquidity and funding. The quarterly review identifies whether the Group has
an adequate liquidity buffer to cover the stress outflows. The Group's ILAAP
analysis demonstrates that the volume and capacity of liquidity resources
available to the Group are adequate. Both the annual ILAAP for 2021 and the
quarterly ILAAP reviews, undertaken in 2021, indicated that BOC PCL's
liquidity position is at a very comfortable level. BOC PCL maintains liquidity
resources which are adequate to ensure its ability to meet obligations as they
fall due under ordinary and stressed conditions.
The 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-ons capital requirements are a point-in-time assessment and therefore
subject to change over time.
The Group is participating in 2022 in the ECB supervisory Climate Risk Stress
Test that will assess how prepared banks are for dealing with financial and
economic shocks stemming from climate risk. ECB considers the test as a
learning exercise for banks and supervisors alike. It aims to identify
vulnerabilities, best practices and challenges banks face when managing
climate-related risk. This is not a pass-or-fail exercise, nor does it have
direct implications for banks' capital levels. The results will feed into the
Supervisory Review and Evaluation Process (SREP) from a qualitative point of
view.
G. Additional Risk & Capital Management disclosures
(continued)
G.4 Liquidity regulation
The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR)
under CRD IV/CRR (as supplemented by Delegated Regulations (EU) 2015/61), with
the limit set at 100%. The Group has to also comply with the Net Stable
Funding Ratio (NSFR) calculated as per the Capital Requirements Regulation II
(CRR II), with the limit set at 100%.
The LCR is designed to promote the short-term resilience of a Group's
liquidity risk profile by ensuring that it has sufficient high-quality liquid
resources to survive an acute stress scenario lasting for 30 days. The NSFR
has been developed to promote a sustainable maturity structure of assets and
liabilities.
As at 31 March 2022, the Group was in compliance with all regulatory liquidity
requirements. As at 31 March 2022, the LCR stood at 296% for the Group
(compared to 298% at 31 December 2021) and was in compliance with the minimum
regulatory requirement of 100%. As at 31 March 2022 the Group's NSFR was 145%
(compared to 147% at 31 December 2021) and was in compliance with the minimum
regulatory requirement of 100%.
G.5 Liquidity reserves
The below table sets out the Group's liquidity reserves:
Composition of the liquidity reserves 31 March 2022 31 December 2021
Internal Liquidity reserves as per LCR Delegated Reg (EU) Internal Liquidity reserves as per LCR Delegated Reg (EU)
Liquidity reserves 2015/61 LCR eligible Liquidity reserves 2015/61 LCR eligible
Level 1 Level 2A Level 1 Level 2A
€000 €000 €000 €000 €000 €000
Cash and balances with central banks 9,163,111 9,163,111 - 9,064,840 9,064,840 -
Placements with banks 105,865 - - 118,752 - -
Liquid investments 511,099 358,882 97,699 500,930 304,758 147,562
Available ECB Buffer 44,851 - - 80,786 - -
Total 9,824,926 9,521,993 97,699 9,765,308 9,369,598 147,562
Internal Liquidity Reserves present the total liquid assets as defined in BOC
PCL's Liquidity Policy. Liquidity reserves as per LCR Delegated Regulation
(EU) 2015/61 present the liquid assets as per the definition of the
aforementioned regulation i.e. High-Quality Liquid Assets (HQLA).
Under Liquidity reserves as per LCR, balances in Nostro accounts and
placements with banks are not included, as they are not considered HQLA (they
are part of the LCR Inflows).
Liquid investments under the Liquidity reserves as per LCR are shown at market
values reduced by standard weights as prescribed by the LCR regulation. Liquid
investments under Internal Liquidity Reserves include additional unencumbered
liquid bonds and are shown at market values net of haircuts based on ECB
methodology and haircuts.
Current available ECB buffer is not part of the Liquidity reserves as per LCR.
Following the outbreak of COVID-19, the ECB has adopted a broad set of policy
measures to mitigate the economic impact of the crisis and to ensure that its
directly supervised banks can continue to fulfill their role in funding the
real economy. A high-level description of the main measures which have a
direct or indirect impact on the liquidity position of banks is set out
below.
One of the measures announced, was that ECB would allow banks to operate below
the defined level of 100% of the LCR. This measure was abolished at the end of
2021. The set of collateral easing measures adopted, resulted in increasing
BOC PCL's borrowing capacity from the ECB operations and improving the
liquidity buffers due to the lower haircuts applied to the ECB eligible
collateral, that comprises of bonds and Additional Credit Claims (ACC). In
relation to existing collateral, the ECB announced changes in collateral
rules, temporarily accepting collaterals with a rating below investment grade,
setting however a minimum acceptable rating level. The collateral easing
packages are designed as temporary measures, with the exception of part of the
haircut reduction on ACCs which is permanent. In March 2022, the ECB announced
the steps for the gradual phasing out of the temporary pandemic collateral
easing measures. The phasing out will be concluded in three steps starting
from July 2022 and will be completed by March 2024.
G. Additional Risk & Capital Management disclosures
(continued)
G.5 Liquidity reserves (continued)
The package also contained measures that provided liquidity support to the
euro area financial system, such as significant favourable amendments in the
terms and characteristics of TLTRO III. The favourable TLTRO III borrowing
terms are not expected to be extended post June 2022. Furthermore, a new
series of additional longer-term refinancing operations, called Pandemic
Emergency Longer-Term Refinancing Operations (PELTROs), was introduced. The
last TLTRO III and PELTROs operations took place in December 2021.
H. Definitions & Explanations
Reconciliations of Alternative Performance Measures
Reconciliations between the calculations of non-IFRS performance measures and
the most directly comparable IFRS measures which allow for the comparability
of the underlying basis to statutory information are disclosed below:
1. (a) Reconciliation of Gross loans and advances to
customers
31 March 31 December 2021
2022
€000 €000
Gross loans and advances to customers as per the underlying basis (as defined 10,964,417 10,856,660
below)
Reconciling items:
Residual fair value adjustment on initial recognition (Note 1 below) (99,459) (105,678)
Gross loans and advances to customers at amortised cost classified as held for (556,751) (555,789)
sale
Residual fair value adjustment on initial recognition on loans and advances to (19,092) (19,090)
customers classified as held for sale (Note 1 below)
Loans and advances to customers measured at fair value through profit or loss (281,128) (281,868)
(Section F.3)
Aggregate fair value adjustment on loans and advances to customers measured at (31,072) (53,700)
fair value through profit or loss
Gross loans and advances to customers at amortised cost as per Section F.3 9,976,915 9,840,535
1. (b) Reconciliation of Gross Loans and advances to customers
classified as held for sale
31 March 31 December 2021
2022
€000 €000
Gross loans and advances to customers classified as held for sale as per the 575,843 574,879
underlying basis
Reconciling items:
Residual fair value adjustment on initial recognition on loans and advances to (19,092) (19,090)
customers classified as held for sale (Note 1 below)
Loans and advances to customers classified as held for sale as per Section F.4 556,751 555,789
H. Definitions & Explanations (continued)
Reconciliations of Alternative Performance Measures (continued)
2. (a) Reconciliation of Allowance for expected credit
losses on loans and advances to customers (ECL)
31 March 31 December 2021
2022
€000 €000
Allowance for expected credit losses on loans and advances to customers (ECL) 734,060 791,830
as per the underlying basis (as defined below)
Reconciling items:
Residual fair value adjustment on initial recognition (Note 1 below) (99,459) (105,678)
Aggregate fair value adjustment on loans and advances to customers measured at (31,072) (53,700)
fair value through profit or loss
Allowance for expected credit losses on loans and advances to customers (308,916) (305,419)
classified as held for sale (Section F.6)
Residual fair value adjustment on initial recognition on loans and advances to (19,092) (19,090)
customers classified as held for sale (Note 1 below)
Provisions for financial guarantees and commitments (21,675) (21,945)
Allowance for ECL for impairment of loans and advances to customers as per 253,846 285,998
Section F.3
2. (b) Reconciliation of Allowance for expected credit losses
on loans and advances to customers classified as held for sale (ECL)
31 March 31 December 2021
2022
€000 €000
Allowance for expected credit losses on loans and advances to customers (ECL) 328,008 324,509
classified as held for sale as per the underlying basis
Reconciling items:
Residual fair value adjustment on initial recognition on loans and advances to (19,092) (19,090)
customers classified as held for sale (Note 1 below)
Allowance for ECL for impairment of loans and advances to customers classified 308,916 305,419
as held for sale as per Section F.6
3. Reconciliation of NPEs
31 March 31 December 2021
2022
€000 €000
NPEs as per the underlying basis (as defined below) 1,247,315 1,343,308
Reconciling items:
Loans and advances to customers (NPEs) classified as held for sale (Note 2 (553,780) (553,619)
below)
Residual fair value adjustment on initial recognition on loans and advances to (19,029) (19,030)
customers (NPEs) classified as held for sale (Note 3 below)
Loans and advances to customers measured at fair value through profit or loss (99,093) (122,972)
(NPEs)
POCI (NPEs) (Note 4 below) (52,185) (70,814)
Residual fair value adjustment on initial recognition on loans and advances to (2,816) (3,530)
customers (NPEs) classified as Stage 3 (Section F.5)
Stage 3 gross loans and advances to customers at amortised cost as per Section 520,412 573,343
F.5
NPE ratio
NPEs (as per table above) (€000) 1,247,315 1,343,308
Gross loans and advances to customers (as per table above) (€000) 10,964,417 10,856,660
Ratio of NPE/Gross loans (%) 11.4% 12.4%
H. Definitions & Explanations (continued)
Reconciliations of Alternative Performance Measures (continued)
3. Reconciliation of NPEs (continued)
Note 1: Residual fair value adjustment
The residual fair value adjustment mainly relates to the loans and advances to
customers acquired as part of the acquisition of certain operations of Laiki
Bank in 2013. In accordance with the provisions of IFRS 3, this adjustment
decreased the gross balance of loans and advances to customers. The residual
fair value adjustment is included within the gross balance of loans and
advances to customers as at each balance sheet date. However, for credit risk
monitoring, the residual fair value adjustment as at each balance sheet date
is presented separately from the gross balance of loans and advances to
customers.
Note 2: Gross loans at amortised cost after residual fair value adjustment on
initial recognition classified as held for sale include an amount of
€474,404 thousand Stage 3 loans (31 December 2021: €474,459 thousand
Stage 3 loans) and an amount of €79,376 thousand POCI - Stage 3 loans (out
of a total of €79,449 thousand POCI loans) (31 December 2021: €79,160
thousand POCI - Stage 3 loans (out of a total of €79,255 thousand POCI
loans)), as disclosed in Section F.5.
Note 3: Residual fair value adjustment on initial recognition of loans and
advances to customers classified as held for sale includes an amount of
€2,218 thousand for Stage 3 loans (31 December 2021: €2,079 thousand for
Stage 3 loans) and an amount of €16,811 thousand POCI - Stage 3 loans (out
of a total of €16,812 thousand POCI loans) (31 December 2021: €16,951
thousand for POCI - Stage 3 loans (out of a total of €16,954 thousand POCI
loans)), as disclosed in Section F.5.
Note 4: Gross loans and advances to customers at amortised cost before
residual fair value adjustment on initial recognition include an amount of
€52,185 thousand POCI - Stage 3 loans (out of a total of €140,911 thousand
POCI loans) (31 December 2021: €70,814 thousand POCI - Stage 3 loans (out of
a total of €159,755 thousand POCI loans)) as disclosed in Section F.5.
4. Reconciliation of Gross Loans - Pro forma
31 March 31 December 2021
2022
€000 €000
Gross loans and advances to customers (as per table 1 (a) above) 10,964,417 10,856,660
Gross loans and advances to customers classified as held for sale (575,843) (574,879)
(Project Helix 3 and Sinope) (as per table 1 (b) above)
Gross loans and advances to customers - pro forma 10,388,575 10,281,781
5. Reconciliation of NPEs - Pro forma
31 March 31 December 2021
2022
€000 €000
NPEs (as per table 3 above) 1,247,315 1,343,308
Reconciling items:
Gross loans and advances to customers (NPEs) classified as held for sale (553,780) (553,619)
(Project Helix 3 and Sinope) (Note 2 of table 3 above)
Residual fair value adjustment on initial recognition on loans and advances to (19,029) (19,030)
customers (NPEs) classified as held for sale (Project Helix 3 and Sinope)
(Note 3 of table 3 above)
NPEs - pro forma 674,506 770,659
NPE ratio - Pro forma 31 March 31 December 2021
2022
€000 €000
NPEs - Pro forma (as per table above) (€000) 674,506 770,659
Gross loans and advances to customers - Pro forma (as per table above) 10,388,575 10,281,781
(€000)
Ratio of NPE/Gross loans - Pro forma (%) 6.5% 7.5%
H. Definitions & Explanations (continued)
Ratios Information
1. Net Interest Margin
Three months ended
31 March
2022 2021
1.1. Reconciliation of Net interest income €000 €000
Net interest income as per the underlying basis/Unaudited Interim Consolidated 71,347 76,356
Income Statement
Net interest income used in the calculation of NIM (annualised) 289,352 309,666
1.2. Interest earning assets 31 March 2022 31 December
2021
€000 €000
Cash and balances with central banks 9,329,711 9,230,883
Loans and advances to banks 312,967 291,632
Loans and advances to customers 10,004,197 9,836,405
Loans and advances to customers held for sale 247,836 250,370
Prepayments, accrued income and other assets - Deferred consideration 302,036 299,766
receivable ('DPP')
Investments
Debt securities 1,860,853 1,930,388
Less: Investments which are not interest bearing (5,790) (5,534)
Total interest earning assets 22,051,810 21,833,910
1.3. Quarterly average interest earning assets (€000)
- as at 31 March 2022 21,942,860
- as at 31 March 2021 18,978,032
1.2.
1.2.
1.4. Net interest margin Three months ended
31 March
2022 2021
Net interest income (annualised) (as per table 1.1. above) (€000) 289,352 309,666
Quarterly average interest earning assets (as per table 1.3. above) (€000) 21,942,860 18,978,032
NIM (%) 1.32% 1.63%
H. Definitions & Explanations (continued)
Ratios Information (continued)
2. Operating profit return on average assets
The various components used in the determination of the operating profit
return on average assets are provided below:
31 March 2022 31 December
2021
€000 €000
Total assets used in the computation of the operating profit return on average 25,117,310 24,962,697
assets per the Unaudited Interim Consolidated Balance Sheet
31 March 2022 31 March 2021
Annualised operating profit (€000) 203,802 181,875
Quarterly average total assets (€000) 25,040,003 22,278,861
Operating profit return on average assets (annualised) (%) 0.8% 0.8%
2. Return on tangible equity (ROTE) after tax and before
non-recurring items
The various components used in the determination of 'Return on tangible equity
(ROTE) after tax and before non-recurring items' are provided below:
31 March 2022 31 March
2021
Profit after tax and before non-recurring items (attributable to the owners of 112,201 67,914
the Company) per the underlying basis (annualized) (€000)
Quarterly average tangible total equity (as per table 3.2 below) (€000) 1,663,217 1,652,342
ROTE after tax and before non-recurring items (annualised) (%) 6.7% 4.1%
3.1 Tangible total equity 31 March 2022 31 December
2021
€000 €000
Equity attributable to the owners of the Company (as per the statutory basis) 1,849,287 1,838,793
Less: Intangible assets (as per the statutory basis) (177,612) (184,034)
Tangible total equity 1,671,675 1,654,759
3.2 Quarterly average tangible total equity (€000)
- as at 31 March 2022 1,663,217
- as at 31 March 2021 1,652,342
H. Definitions & Explanations (continued)
Advisory and other restructuring costs Comprise mainly (a) fees of external advisors in relation to: (i) disposal of
operations and non-core assets, and (ii) customer loan restructuring
activities, and (b) the cost of the tender offer for the Old T2 Capital Notes,
where applicable.
Allowance for expected loan credit losses (previously 'Accumulated Comprises (i) allowance for expected credit losses (ECL) on loans and advances
provisions') to customers (including allowance for expected credit losses on loans and
advances to customers held for sale), (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), (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/(losses) after tax and before non-recurring items per share Basic earnings/(losses) after tax and before non-recurring items per share
(attributable to the owners of the Company) (attributable to the owners of the Company) is the Profit/(loss) after tax and
before non-recurring items (as defined below) (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) ratio 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 17 May 2022.
Digital transactions ratio This is the ratio of the number of digital transactions performed by
individuals and legal entity customers to the total number of transactions.
Transactions include deposits, withdrawals, internal and external transfers.
Digital channels include mobile, browser and ATMs.
Digitally engaged customers ratio This is the ratio of digitally engaged individual customers to the total
number of individual customers. Digitally engaged customers are the
individuals who use the digital channels of the Bank (mobile banking app,
browser and ATMs) to perform banking transactions, as well as digital enablers
such as a bank-issued card to perform online card purchases, based on an
internally developed scorecard.
ECB European Central Bank
H. Definitions & Explanations (continued)
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) 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 €149 mn at 31 March 2022 (compared to €178
mn at 31 December 2021).
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 €312 mn at 31 March 2022 (compared to €336 mn at
31 December 2021).
Group The Group consists οf Bank of Cyprus Holdings Public Limited Company, "BOC
Holdings" or the "Company", its subsidiary Bank of Cyprus Public Company
Limited, the "Bank" and the Bank's subsidiaries.
Legacy exposures Legacy exposures are exposures relating to (i) Restructuring and Recoveries
Division (RRD), (ii) Real Estate Management Unit (REMU), and (iii) non-core
overseas exposures.
Leverage ratio The leverage ratio is the ratio of tangible total equity (including Other
equity instruments) to total assets as presented on the balance sheet.
Tangible total equity comprises of equity attributable to the owners of the
Company minus intangible assets.
Leverage Ratio Exposure (LRE) Leverage Ratio Exposure (LRE) is defined in accordance with the Capital
Requirements Regulation (EU) No 575/2013, as amended.
Loan credit losses (PL) (previously 'Provision charge') Loan credit losses comprise: (i) credit losses to cover credit risk on loans
and advances to customers, (ii) net gains on derecognition of financial assets
measured at amortised cost and (iii) net gains on loans and advances to
customers at FVPL, for the reporting period/year.
Loan credit losses charge (previously 'Provisioning charge') (cost of risk) Loan credit losses charge (cost of risk) (year to date) is calculated as the
annualised 'loan credit losses' (as defined) divided by average gross loans.
The average gross loans are calculated as the average of the opening balance
and the closing balance, for the reporting period/year.
Market Shares Both deposit and loan market shares are based on data from the CBC. The Bank
is the single largest credit provider in Cyprus with a market share of 41.9%
at 31 March 2022, compared to 38.8% at 31 December 2021. The increase in 1Q is
mainly due to a reduction in loans in the banking system.
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 fee and commission income over total income Fee and commission income less fee and commission expense divided by total
income (as defined).
Net Interest Margin Net interest margin is calculated as the net interest income (annualised)
divided by the 'quarterly average interest earning assets' (as defined).
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.
H. Definitions & Explanations (continued)
Net Stable Funding Ratio (NSFR) The NSFR is calculated as the amount of "available stable funding" (ASF)
relative to the amount of "required stable funding" (RSF). The regulatory
limit, enforced in June 2021, has been set at 100% as per the CRR II.
Net zero emissions The reduction of greenhouse gas emissions to net zero through a combination of
reduction activities and offsetting investments
New lending New lending includes the disbursed amounts of the new and existing
non-revolving facilities (excluding forborne or re-negotiated accounts) as
well as the average year to date change (if positive) of the current accounts
and overdraft facilities between the balance at the beginning of the period
and the end of the period. Recoveries are excluded from this calculation since
their overdraft movement relates mostly to accrued interest and not to new
lending.
Non-interest income Non-interest income comprises Net fee and commission income, Net foreign
exchange gains/(losses) and net gains/(losses) on financial instrument
transactions and disposal/dissolution of subsidiaries and associates
(excluding net gains on loans and advances to customers at FVPL), Insurance
income net of claims and commissions, Net gains/(losses) from revaluation and
disposal of investment properties and on disposal of stock of properties, and
Other income.
Non-performing exposures (NPEs) 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.
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%.
For further information please refer to the Annual Financial Report 2021.
H. Definitions & Explanations (continued)
Non-recurring items Non-recurring items as presented in the 'Unaudited Interim Condensed
Consolidated Income Statement - Underlying basis' relate to the following
items, as applicable: (i) Advisory and other restructuring costs - organic,
(ii) Provisions/net loss relating to NPE sales, (iii) Restructuring and other
costs relating to NPE sales, and (iv) Restructuring costs relating to the
Voluntary Staff Exit Plan.
NPE coverage ratio (previously 'NPE Provisioning coverage ratio') The NPE coverage ratio is calculated as the allowance for expected loan credit
losses (as defined) over NPEs (as defined).
NPE ratio NPEs ratio is calculated as the NPEs as per EBA (as defined) divided by gross
loans (as defined).
NPE sales NPE sales refer to sales of NPE portfolios completed, as well as contemplated
and potential future sale transactions, irrespective of whether or not they
met the held for sale classification criteria at the reporting dates.
Operating profit The operating profit comprises profit before Total loan credit losses,
impairments and provisions (as defined), tax, (profit)/loss attributable to
non-controlling interests and non-recurring items (as defined).
Operating profit return on average assets Operating profit return on average assets is calculated as the annualised
operating profit (as defined) divided by the quarterly average of total assets
for the relevant period. Average total assets exclude total assets of
discontinued operations at each quarter end, if applicable.
Phased-in Capital Conservation Buffer (CCB) In accordance with the legislation in Cyprus which has been set for all credit
institutions, the applicable rate of the CCB is 1.25% for 2017, 1.875% for
2018 and 2.5% for 2019 (fully phased-in).
Profit/(loss) after tax and before non-recurring items (attributable to the This refers to the profit or loss after tax (attributable to the owners of the
owners of the Company) Company), excluding any 'non-recurring items' (as defined).
Profit/(loss) after tax - organic (attributable to the owners of the Company) This refers to the profit or loss after tax (attributable to the owners of the
Company), excluding any 'non-recurring items' (as defined, except for the
'advisory and other restructuring costs - organic').
Pro forma for HFS (held for sale) References to pro forma figures and ratios as at 31 March 2022 (and 31
December 2021) refer to Project Helix 3 and Project Sinope. They are based on
31 March 2022 (and 31 December 2021) underlying basis figures and assume their
completion, currently expected to occur in 2H2022 and 2Q2022 respectively,
which remain subject to customary regulatory and other approvals. References
to pro forma figures and ratios as at 31 March 2021 (and 31 December 2020)
refer to Project Helix 2, which was completed in June 2021.
Project Helix Project Helix refers to the sale of a portfolio of loans with a gross book
value of €2.8 bn completed in June 2019.
Project Helix 2 Project Helix 2 refers to the sale of portfolios of loans with a total gross
book value of €1.3 bn completed in June 2021. For further information please
refer to section A.1.5 'Loan portfolio quality'.
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 €568 mn, as well as
real estate properties with book value of c.€120 mn as at 30 September 2021.
For further information please refer to section A.1.5 Loan portfolio quality.
Project Sinope Project Sinope refers to the agreement the Group reached in December 2021 for
the sale of a portfolio of NPEs with gross book value of €12 mn as at 31
December 2021, as well as properties in Romania with carrying value €0.6 mn
as at 31 December 2021. For further information please refer to section A.1.5
'Loan portfolio quality'.
H. Definitions & Explanations (continued)
Quarterly average interest earning assets This relates to the average of 'interest earning assets' as at the beginning
and end of the relevant quarter. Average interest earning assets exclude
interest earning assets of any discontinued operations at each quarter end, if
applicable. Interest earning assets include: cash and balances with central
banks (including cash and balances with central banks classified as
non-current assets held for sale), plus loans and advances to banks, plus net
loans and advances to customers (including loans and advances to customers
classified as non-current assets held for sale), plus 'deferred consideration
receivable' included within 'other assets', plus investments (excluding
equities and mutual funds).
Qoq Quarter on quarter change
Special levy on deposits and other levies/contributions Relates to the special levy on deposits of credit institutions in Cyprus,
contributions to the Single Resolution Fund (SRF), contributions to the
Deposit Guarantee Fund (DGF), as well as the DTC levy, where applicable.
Total Capital ratio Total capital ratio is defined in accordance with the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II applicable as at the
reporting date.
Total expenses Total expenses comprise staff costs, other operating expenses and the special
levy on deposits and other levies/contributions. It does not include (i)
'advisory and other restructuring costs-organic', (ii) restructuring costs
relating to NPE sales, or (iii) restructuring costs relating to the Voluntary
Staff Exit Plan. (i) 'Advisory and other restructuring costs-organic' amounted
to €1 mn for 1Q2022 (compared to €3 mn for 4Q2021 and €3 mn for 1Q2021),
(ii) Restructuring costs relating to NPE sales for 1Q2022 amounted to €1 mn
(compared to €0.2 mn for 4Q2021 and €4 mn for 1Q2021), and (iii)
Restructuring costs relating to the Voluntary Staff Exit Plan (VEP) for 1Q2022
amounted to €3 mn (compared to €16 mn for 4Q2021).
Total income Total income comprises net interest income and non-interest income (as
defined).
Total loan credit losses, impairments and provisions Total loan credit losses, impairments and provisions comprises loan credit
losses (as defined), plus impairments of other financial and non-financial
assets, plus (provisions)/net reversals for litigation, claims, regulatory and
other matters.
Underlying basis This refers to the statutory basis after being adjusted for certain items as
explained in the Basis of Presentation.
Write offs Loans together with the associated loan credit losses are written off when
there is no realistic prospect of future recovery. Partial write-offs,
including non-contractual write-offs, may occur when it is considered that
there is no realistic prospect for the recovery of the contractual cash flows.
In addition, write-offs may reflect restructuring activity with customers and
are part of the terms of the agreement and subject to satisfactory
performance.
Yoy Year on year change
Basis of Presentation
This announcement covers the results of Bank of Cyprus Holdings Public Limited
Company, "BOC Holdings" or "the Company", its subsidiary Bank of Cyprus Public
Company Limited, the "Bank" or "BOC PCL", and together with the Bank's
subsidiaries, the "Group", for the quarter ended 31 March 2022.
At 31 December 2016, the Bank was listed on the Cyprus Stock Exchange (CSE)
and the Athens Exchange. On 18 January 2017, BOC Holdings, incorporated in
Ireland, was introduced in the Group structure as the new holding company of
the Bank. On 19 January 2017, the total issued share capital of BOC Holdings
was admitted to listing and trading on the LSE and the CSE.
Financial information presented in this announcement is being published for
the purposes of providing an overview of the Group financial results for the
quarter 31 March 2022.
The financial information in this announcement does not constitute statutory
financial statements of BOC Holdings within the meaning of section 340 of the
Companies Act 2014. The Group statutory financial statements for the year
ended 31 December 2021, upon which the auditors have given an unqualified
report, were published on 30 March 2022 and are expected to be delivered to
the Registrar of Companies of Ireland within 56 days of 30 September 2022. The
Board of Directors approved the Group statutory financial statements for the
quarter ended 31 March 2022 on 18 May 2022.
Statutory basis: Statutory information is set out on pages 33-37. 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 2022, which the management believes best fits the true
measurement of the financial performance and position of the Group. For
further information, please refer to 'Commentary on Underlying Basis' on page
7. The statutory results are adjusted for certain items (as described on page
38) to allow a comparison of the Group's underlying financial position and
performance, as set out on pages 4-6.
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 2022 have been posted on the Group's website
www.bankofcyprus.com (Group/Investor Relations/Financial Results).
Definitions: The Group uses definitions in the discussion of its business
performance and financial position which are set out in section H, together
with explanations.
The Group Financial Results for the quarter ended 31 March 2022 are presented
in Euro (€) and all amounts are rounded as indicated. A comma is used to
separate thousands and a dot is used to separate decimals.
Forward Looking Statements
This document contains certain forward-looking statements which can usually be
identified by terms used such as "expect", "should be", "will be" and similar
expressions or variations thereof or their negative variations, but their
absence does not mean that a statement is not forward-looking. Examples of
forward-looking statements include, but are not limited to, statements
relating to the Group's near term, medium term and longer term future capital
requirements and ratios, intentions, beliefs or current expectations and
projections about the Group's future results of operations, financial
condition, expected impairment charges, the level of the Group's assets,
liquidity, performance, prospects, anticipated growth, provisions,
impairments, business strategies and opportunities. By their nature,
forward-looking statements involve risk and uncertainty because they relate to
events, and depend upon circumstances, that will or may occur in the future.
Factors that could cause actual business, strategy and/or results to differ
materially from the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements made by the Group include, but
are not limited to: general economic and political conditions in Cyprus and
other European Union (EU) Member States, interest rate and foreign exchange
fluctuations, legislative, fiscal and regulatory developments, information
technology, litigation and other operational risks, adverse market conditions,
the impact of outbreaks, epidemics or pandemics, such as the COVID-19 pandemic
and ongoing challenges and uncertainties posed by the COVID-19 pandemic for
businesses and governments around the world. The Russian invasion of Ukraine
has led to heightened volatility across global markets and to the coordinated
implementation of sanctions on Russia, Russian entities and nationals. The
Russian invasion of Ukraine has already caused significant population
displacement, and as the conflict continues, the disruption will likely
increase. The scale of the conflict and the speed and extent of sanctions, as
well as the uncertainty as to how the situation will develop, may have
significant adverse effects to the market and macroeconomic conditions,
including in ways that cannot be anticipated. This creates significantly
greater uncertainty about forward-looking statements. Should any one or more
of these or other factors materialise, or should any underlying assumptions
prove to be incorrect, the actual results or events could differ materially
from those currently being anticipated as reflected in such forward looking
statements. The forward-looking statements made in this document are only
applicable as at the date of publication of this document. Except as required
by any applicable law or regulation, the Group expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward looking statement contained in this document to reflect any change in
the Group's expectations or any change in events, conditions or circumstances
on which any statement is based.
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 2022, the Bank of Cyprus Group operated through a total of 86 branches
in Cyprus, of which 11 operated as cash offices. Bank of Cyprus also has
representative offices in Russia, Ukraine and China. At 31 March 2022, the
Group's Total Assets amounted to €25.1 bn and Total Equity was €2.1 bn.
The Bank of Cyprus Group employed 3,395 staff worldwide. 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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