REG - Bank of Cyprus Hldgs - 9M2022 Group Financial Results
18/11/2022 07:00
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RNS Number : 8886G Bank of Cyprus Holdings PLC 18 November 2022
Announcement
Group Financial Results for the nine months ended 30 September 2022
Nicosia, 18 November 2022
Key Highlights for the nine months ended 30 September 2022
Resilient economic outlook
· Resilient Cypriot economy supported by strengthened sovereign
· 5.4%(1) GDP growth in 3Q2022; expected to grow by c.6.0%(1) in
2022, and by 3.0%(1) in 2023, both years well above the eurozone average
· Strong new lending of €1.7 bn in 9M2022, up 25% year on year
Strong underlying profitability
· NII of €234 mn up 5% year on year; NII growth continued in
3Q2022, up 19% on the prior quarter supported by rate hikes
· Profit after tax before non-recurring items of €109 mn, of
which €50 mn in 3Q2022, up 71% year on year underpinned by higher revenues
· Underlying ROTE(2) of 8.8% for 9M2022 and 11.7% for 3Q2022
· One-off cost of €101 mn from Voluntary Staff Exit Plan (VEP) in
3Q2022; payback period of 2.7 years
· After one-off VEP cost, loss after tax of €9 mn for 9M2022 vs
profit of €20 mn for 9M2021
Reduced operating expenses on the back of efficiency actions
· Successful completion of Voluntary Staff Exit Plan in 3Q2022;
full time employees to be reduced by 16%; estimated gross saving of c.€37 mn
p.a. (19%) of staff costs
· Cost to income ratio(3) at 54% for 9M2022, down 7 p.p. year on
year and at 47% for 3Q2022, down 10 p.p. on the prior quarter
Robust capital and liquidity
· CET1 ratio of 14.7%(,4,5) and Total Capital ratio of 19.8%(4,5)
· Deposits at €18.8 bn up 2% on the prior quarter and 7% year to
date
· Strong liquidity position of €6.9 bn(6) placed at the ECB; well
positioned to benefit from further interest rate increases
NPE ratio target of below 5% achieved early
· NPE ratio reduced to 4.5%(5) (1.7%(5,7) net) vs 5.7%(5) at the
end of June 2022
· Coverage at 63%(5); cost of risk at 44 bps
· Strong fundamentals with performing loan book better positioned
to face external shocks
1. Source: Ministry of Finance
2. Underlying ROTE is calculated as Profit after Tax and before
non-recurring items divided by (Shareholders' equity minus Intangible assets)
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 Helix 3
6. Excluding TLTRO III of €3.0 bn
7. Calculated as NPEs net of provisions over net loans
Group Chief Executive Statement
"We reported a strong performance in the third quarter of 2022, delivering
tangible results against our strategic targets, and confirming the
sustainability of our business model with well-diversified revenues and tight
cost control. We recorded a 49% increase in profit after tax, before
non-recurring items, corresponding to a return on tangible equity of 11.7%, on
track to achieve an underlying ROTE of c.10% already in 2022, notwithstanding
external uncertainties.
Despite concerns regarding the outlook for global and European economic
growth, the Cypriot economy is proving resilient to external shocks and
continued to grow strongly in the third quarter with GDP increasing by 5.4%.
GDP in Cyprus is forecast to grow by c.6.0% in real terms in 2022, supported
by stronger-than expected tourism performance and then to grow at a slower
pace by 3.0% in 2023, outperforming the eurozone average in both years.
The third quarter of 2022 was marked by the early delivery of our 2022 NPE
ratio target, with the NPE ratio decreasing to 4.5%.
As the largest financial group in Cyprus, we continued to support the economy
by extending €1.7 bn of new loans in the first nine months of 2022, an
increase of 25% on the prior year, whilst maintaining strict lending criteria.
Our performing loan book has strong fundamentals and is well positioned to
face external shocks.
During the third quarter of 2022 we generated total income of €172 mn and a
positive operating result of €81 mn, up 36% on the previous quarter,
underpinned by strong growth in net interest income, with loan and liquid
yields continuing to improve. In this respect, we are upgrading our net
interest income guidance for 2022 to over €350 mn, reflecting the Group's
positive gearing to higher and faster interest rate rises. Operating expenses
were contained in the third quarter, on the back of efficiency actions
undertaken in the current inflationary environment. Our cost to income ratio
stood at 47%, down 10 p.p. on the prior quarter. Our cost of risk stood at 45
bps and remained well within our normalised target range.
In July, we completed a Voluntary Staff Exit Plan (VEP) through which 16% of
the Group's full time employees were approved to leave at a total one-off cost
of €101 mn recorded in the third quarter. The gross annual saving is
estimated at €37 mn or 19% of total staff costs, with a payback period of
2.7 years. As a result, a net loss of €59 mn was reported for the third
quarter and €9 mn for the first nine months of 2022.
The Bank's capital position remains robust and comfortably in excess of our
regulatory requirements, after absorbing in full the cost of the VEP. As at 30
September 2022, our Total Capital ratio was 19.8% and our CET1 ratio was
14.7%, on both a transitional and pro forma basis. Our liquidity position also
remains strong, as such our cash balances with ECB (excluding TLTRO III of
€3.0 bn) amounted to €6.9 bn, leaving the Bank well positioned to benefit
from further interest rate increases. Deposits on our balance sheet increased
by 2% in the quarter and 7% year to date, to €18.8 bn.
Our vision for the future of the Bank is clear; we are determined to continue
the successful execution of our strategy to transform the Group into a
sustainably profitable organisation for banking and broader financial products
and services in Cyprus. We expect the actions we are taking and the momentum
in our business to create shareholder value and we now have the foundations
for meaningful return to dividend distributions from 2023 onwards, subject to
regulatory approval and market conditions."
Panicos Nicolaou
A. Group Financial Results - Underlying Basis
Unaudited Interim Condensed Consolidated Income Statement
€ mn 9M2022 9M2021 3Q2022 2Q2022 qoq +% yoy +%
Net interest income 234 223 89 74 19% 5%
Net fee and commission income 142 128 48 50 -3% 11%
Net foreign exchange gains and net gains/(losses) on financial instruments 24 14 13 5 141% 68%
Insurance income net of claims and commissions 48 43 15 17 -9% 13%
Net gains/(losses) from revaluation and disposal of investment properties and 11 8 4 2 87% 30%
on disposal of stock of properties
Other income 12 11 3 5 -38% 16%
Total income 471 427 172 153 12% 10%
Staff costs (146) (152) (46) (50) -8% -4%
Other operating expenses (108) (108) (35) (37) -5% 1%
Special levy on deposits and other levies/contributions (27) (24) (10) (7) 52% 8%
Total expenses (281) (284) (91) (94) -3% -1%
Operating profit before credit losses and impairments 190 143 81 59 36% 33%
Loan credit losses (36) (57) (13) (11) 11% -37%
Impairments of other financial and non-financial assets (20) (13) (7) (8) -11% 51%
Provisions for litigation, claims, regulatory and other matters (3) (6) (2) (1) - -42%
Total loan credit losses, impairments and provisions (59) (76) (22) (20) 14% -22%
Profit before tax and non-recurring items 131 67 59 39 47% 94%
Tax (20) (3) (8) (6) 36% -
Profit attributable to non-controlling interests (2) (0) (1) (1) 43% 152%
Profit after tax and before non-recurring items (attributable to the owners of 109 64 50 32 49% 71%
the Company)
Advisory and other restructuring costs - organic (10) (19) (5) (4) 14% -48%
Profit after tax - organic (attributable to the owners of the Company) 99 45 45 28 54% 120%
Provisions/net (loss)/profit relating to NPE sales(1) (1) (6) (1) 1 -193% -76%
Restructuring and other costs relating to NPE sales(1) (3) (19) (2) 0 52% -87%
Restructuring costs - Voluntary Staff Exit Plan (VEP) (104) - (101) - - -
(Loss)/profit after tax (attributable to the owners of the Company) (9) 20 (59) 29 - -
A. Group Financial Results - Underlying Basis (continued)
Unaudited Interim Condensed Consolidated Income Statement- Key Performance
Ratios
Key Performance Ratios(2) 9M2022 9M2021 3Q2022 2Q2022 qoq +% yoy +%
Net Interest Margin (annualised) 1.39% 1.49% 1.53% 1.33% 20 bps -10 bps
Cost to income ratio 60% 66% 53% 61% -8 p.p. -6 p.p.
Cost to income ratio excluding special levy on deposits and other 54% 61% 47% 57% -10 p.p. -7 p.p.
levies/contributions
Operating profit return on average assets (annualised) 1.0% 0.8% 1.2% 0.9% 30 bps 20 bps
Basic (losses)/ earnings per share attributable to the owners of the Company (2.04) 4.39 (13.27) 6.45 (19.72) (6.43)
(€ cent)
Basic earnings after tax and before non-recurring items per share attributable 24.42 14.31 10.91 7.31 3.60 10.11
to the owners of the Company (€ cent)
Return on tangible equity (ROTE) after tax and before non-recurring items 8.8% 5.2% 11.7% 7.8% 3.9 p.p. 3.6 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
Commentary on Underlying Basis
The financial information presented in this Section provides an overview of
the Group financial results for the nine months ended 30 September 2022 on an
'underlying basis', which the management believes best fits the true
measurement of the performance and position of the Group, as this presents
separately the exceptional and one-off items.
Reconciliations between the statutory basis and the underlying basis are
included in Section F.1 'Reconciliation of income statement between statutory
and underlying basis' and in Section H 'Definitions and Explanations', to
facilitate the comparability of the underlying basis to the statutory
information.
With respect to the "Balance Sheet Analysis', please note the following in
relation to the disclosure of pro forma figures and ratios with respect to
Project Helix 3. Further details are provided in Section A.1.5. 'Loan
portfolio quality'.
References to pro forma figures and ratios as at 30 September 2022 refer to
Project Helix 3. 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. Numbers on a pro
forma basis are based on 30 September 2022 underlying basis figures and are
adjusted for Project Helix 3 and assume its completion, currently expected to
occur by the end of November 2022, which remains subject to customary
regulatory and other approvals.
Where numbers are provided on a pro forma basis this is stated and referred to
as 'Pro forma for Helix 3'.
Any references to pro forma figures and ratios as at 30 June 2022 refer to
Project Helix 3, Project Sinope and the Voluntary Staff Exit Plan ('VEP') and
is referred to as 'Pro forma for held for sale and Voluntary Staff Exit Plan'
or 'Pro forma for HFS and VEP'. 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
of €0.6 mn as at 31 December 2021. Project Sinope was completed in August
2022. VEP refers to the Voluntary Staff Exit Plan that the Group completed
in July 2022, through which c.550 applicants were approved to leave the Group
at a total cost of €101 mn and was recorded in the 3Q2022 income statement.
A. Group Financial Results - Underlying Basis (continued)
Unaudited Interim Condensed Consolidated Balance Sheet
€ mn 30.9.2022 31.12.2021 +%
Cash and balances with central banks 9,827 9,231 6%
Loans and advances to banks 458 292 57%
Debt securities, treasury bills and equity investments 2,459 2,139 15%
Net loans and advances to customers 10,088 9,836 3%
Stock of property 1,083 1,112 -3%
Investment properties 89 118 -25%
Other assets 1,869 1,876 0%
Non-current assets and disposal groups held for sale 324 359 -10%
Total assets 26,197 24,963 5%
Deposits by banks 519 457 14%
Funding from central banks 2,952 2,970 -1%
Customer deposits 18,792 17,531 7%
Debt securities in issue 299 303 -1%
Subordinated liabilities 317 340 -7%
Other liabilities 1,277 1,281 0%
Total liabilities 24,156 22,882 6%
Shareholders' equity 1,797 1,839 -2%
Other equity instruments 220 220 -
Total equity excluding non-controlling interests 2,017 2,059 -2%
Non-controlling interests 24 22 8%
Total equity 2,041 2,081 -2%
Total liabilities and equity 26,197 24,963 5%
Key Balance Sheet figures and ratios 30.09.2022 30.09.2022 31.12.2021 +(2)
(pro forma)(1) (as reported)(2) (as reported)(2)
Gross loans (€ mn) 10,358 10,913 10,856 1%
Allowance for expected loan credit losses (€ mn) 292 610 792 -23%
Customer deposits (€ mn) 18,792 18,792 17,531 7%
Loans to deposits ratio (net) 54% 55% 57% -2 p.p.
NPE ratio 4.5% 9.3% 12.4% -3.1 p.p.
NPE coverage ratio 63% 60% 59% +1 p.p.
Leverage ratio 7.2% 7.2% 7.6% -40 bps
Capital ratios and risk weighted assets 30.09.2022 30.09.2022 31.12.2021 +(2)
(pro forma)(1) (as reported)(2) (as reported)(2)
Common Equity Tier 1 (CET1) ratio (transitional)(3) 14.7% 14.2% 15.1% -90 bps
Total capital ratio (transitional) 19.8% 19.1% 20.0% -90 bps
Risk weighted assets (€ mn) 10,212 10,538 10,694 -1%
1. Pro forma for Helix 3 (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 30
September 2022 amounts to 13.5% and 13.9% pro forma for Helix 3 (compared to
13.9% and 13.4% pro forma for HFS and VEP as at 30 June 2022 and 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)
A.1. Balance Sheet Analysis
A.1.1 Capital Base
Total equity excluding non-controlling interests totalled €2,017 mn as at 30
September 2022 compared to €2,070 mn as at 30 June 2022, and to €2,059 mn
at 31 December 2021. Shareholders' equity totalled €1,797 mn as at 30
September 2022 compared to €1,850 mn as at 30 June 2022 and to €1,839 mn
at 31 December 2021.
The Common Equity Tier 1 capital (CET1) ratio on a transitional basis stood at
14.2% as at 30 September 2022 and 14.7% pro forma for Helix 3, compared to
14.6% as at 30 June 2022 and 14.2% pro forma for HFS and VEP and to 15.1% as
at 31 December 2021 (and 15.8% pro forma for held for sale portfolios
(referred to as 'pro forma for HFS')). During 3Q2022, the CET1 ratio was
positively affected by the pre-provision income and the decrease in risk
weighted assets, and negatively by provisions and impairments and mainly the
cost of the Voluntary Staff Exit Plan.
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, with the impact being fully phased-in (100%) by 1 January
2023. The phasing-in for 2022 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. In addition, a prudential charge in relation to the onsite
inspection on the value of the Group's foreclosed assets is being deducted
from own funds since June 2021, the impact of which is 33 bps on Group's CET1
ratio as at 30 September 2022.
The CET1 ratio on a fully loaded basis amounted to 13.5% as at 30 September
2022 and 13.9% pro forma for Helix 3 compared to 13.9% as at 30 June 2022 (and
13.4% pro forma for HFS and VEP), and to 13.7% as at 31 December 2021 (and
14.3% pro forma for HFS).
The Total Capital ratio stood at 19.1% as at 30 September 2022 and 19.8% pro
forma for Helix 3 compared to 19.5% as at 30 June 2022 (and 19.3% pro forma
for HFS and VEP), and 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 the 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. The details of the 2022 SREP requirements are
set below.
The Bank has been designated as an Other Systemically Important Institution
(O-SII) by the Central Bank of Cyprus (CBC) in accordance with the provisions
of the Macroprudential Oversight of Institutions Law of 2015, and since
November 2021 the O-SII buffer has been set to 1.50%. This buffer is being
phased-in gradually, having started from 1 January 2019 at 0.50%. Currently
the O-SII buffer stands at 1.25% and will be fully phased-in on 1 January
2023.
As a result, currently the Group's minimum phased-in CET1 capital ratio
requirement is 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 minimum phased-in Total Capital ratio requirement is 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. These SREP requirements became effective as from 1 March 2022.
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.
Following the annual SREP performed by the ECB in 2022 and based on the draft
SREP decision received in October 2022, expected to be effective from 1
January 2023 (subject to ECB final confirmation) the Pillar II requirement has
been revised to 3.08%, compared to the current level of 3.26%. The Pillar II
requirement includes a revised Pillar II requirement add-on of 0.33% relating
to ECB's prudential provisioning expectations. When ignoring the Pillar II
add-on relating to ECB's prudential provisioning expectations, the Pillar 2
requirement is reduced from 3.00% to 2.75%.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.1 Capital Base (continued)
As a result, the Group's minimum phased-in CET1 capital ratio and Total
Capital ratio requirements, were reduced when ignoring the phasing in of the
Other Systemically Important Institution Buffer. The Group's minimum phased-in
CET1 capital ratio is expected to be set at 10.23%, comprising a 4.50% Pillar
I requirement, a 1.73% Pillar II requirement, the Capital Conservation Buffer
of 2.50% and the O-SII Buffer of 1.50%. The Group's minimum phased-in Total
Capital ratio requirement is expected to be set at 15.08%, comprising an 8.00%
Pillar I requirement, of which up to 1.50% can be in the form of AT1 capital
and up to 2.00% in the form of T2 capital, a 3.08% Pillar II requirement, the
Capital Conservation Buffer of 2.50% and the O-SII Buffer of 1.50%. The ECB
has also maintained the non-public guidance for an additional Pillar II CET1
buffer (P2G) unchanged.
Based on the SREP decision, 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 2021-2022. 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. Based on the final 2021 SREP Decision, the previous
restriction on variable pay was lifted.
Voluntary Staff Exit Plan
In July 2022, the Group completed a Voluntary Staff Exit Plan, resulting in a
negative impact of c.95 bps both on the Group's CET1 and Total Capital ratios
as at 30 September 2022. For further information please refer to Section
A.2.2 "Total expenses".
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".
Project Helix 3 is expected to have a positive capital impact of c.50 bps on
the Group's CET1 ratio on the basis of 30 September 2022 figures.
Pro forma calculations are based on 30 September 2022 financial results,
unless otherwise stated, and assume completion of the transaction, which
remains subject to customary regulatory and other approvals.
The completion of Project Helix 3 is currently expected to occur by the end of
November 2022 and remains subject to customary regulatory and other approvals.
Tier 2 Capital Notes
In April 2021, the Company issued €300 mn unsecured and subordinated Tier 2
Capital Notes (the 'New T2 Notes').
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.
The Group continues to monitor opportunities for the optimisation of its
capital position, including Additional Tier 1 capital.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.1 Capital Base (continued)
Legislative amendments for the conversion of DTA to DTC
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 the Capital
Requirements Regulation (CRR) and Capital Requirements Directive (CRD) IV in
January 2014 and its subsequent phasing-in led to a more capital-intensive
treatment of this DTA for the Bank. With this legislation, institutions are
allowed to treat such DTAs as 'not relying on profitability', according to
CRR/CRD IV and as a result not deducted from CET1, hence improving a credit
institution's capital position.
In response to concerns raised by the European Commission with regard to the
provision of state aid arising out of the treatment of such tax losses, the
Cyprus Government has proceeded with the adoption of modifications to the Law,
including requirements for an additional annual fee over and above the 1.5%
annual guarantee fee already provided for in the Law, to maintain the
conversion of such DTAs into tax credits. In May 2022 the Cyprus Parliament
voted these amendments which became effective since then. As prescribed by the
amendments in the Law, the annual fee is to be determined by the Cyprus
Government on an annual basis, providing however that such fee to be charged
is set at a minimum fee of 1.5% of the annual instalment and can range up to a
maximum amount of €10 mn per year, and also allowing for a higher amount to
be charged in the year the amendments are effective (i.e. in 2022).
The Group since prior years, in anticipation of modifications in the Law,
acknowledged that such increased annual fee may be required to be recorded on
an annual basis until expiration of such losses in 2028. The Group estimates
that such fees could range up to €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. An amount
of €5.3 mn was recorded in FY2021, bringing the total amount provided by the
Group for such increased fee to c.€21 mn for the years 2018-2021. In 3Q2022
the Group has been levied an amount within the provisions level maintained.
A.1.2 Regulations and Directives
A.1.2.1 The 2021 Banking Package (CRR III and CRD VI and BRRD)
In October 2021, the European Commission adopted legislative proposals for
further amendments to the Capital Requirements Regulation (CRR), CRD IV and
the BRRD (the "2021 Banking Package"). Amongst other things, the 2021 Banking
Package would implement certain elements of Basel III that have not yet been
transposed into EU law. The 2021 Banking Package is subject to amendment in
the course of the EU's legislative process; and its scope and terms may change
prior to its implementation. In addition, in the case of the proposed
amendments to CRD IV and the BRRD, their terms and effect will depend, in
part, on how they are transposed in each member state. 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.1.2.2 Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January
2016 EU member states shall apply the BRRD's provisions requiring EU credit
institutions and certain investment firms to maintain a minimum requirement
for own funds and eligible liabilities (MREL), subject to the provisions of
the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part
of the reform package for strengthening the resilience and resolvability of
European banks, the BRRD ΙΙ came into effect and was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in early May 2021. In addition, certain provisions on MREL have been
introduced in CRR ΙΙ which also came into force on 27 June 2019 as part of
the reform package and took immediate effect.
In 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.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.1 Capital Base (continued)
A.1.2.2 Bank Recovery and Resolution Directive (BRRD) (continued)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL) (continued)
In November 2022, the Bank received draft notification from the SRB regarding
the 2023 MREL decision, by which the above requirements and timelines remain
unchanged, except for the final MREL requirement for 31 December 2025 now set
at 24.35% of risk weighted assets. The revised MREL requirements remain
subject to SRB and CBC final confirmation.
The MREL ratio of the Bank as at 30 September 2022, calculated according to
the SRB's eligibility criteria currently in effect and based on the Bank's
internal estimate, stood at 19.87% of risk weighted assets (RWA) and at 9.62%
of LRE. Pro forma for Helix 3, the MREL ratio of the Bank as at 30 September
2022, calculated on the same basis, stood at 20.66% 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 stands at 3.75% since 1
January 2022 and is expected to increase to 4.0% on 1 January 2023.
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 30 September 2022, the Bank's funding from central banks amounted to
€2,952 mn, which relates to ECB funding, comprising solely of funding
through the Targeted Longer-Term Refinancing Operations (TLTRO) III, compared
to €2,955 mn at 30 June 2022 and to €2,970 mn as at 31 December 2021.
The Bank borrowed an overall amount of €3 bn under TLTRO III by June 2021,
despite its comfortable liquidity position, given the favourable borrowing
terms, in combination with the relaxation of collateral requirements.
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.
In addition, the Bank has exceeded the benchmark net lending threshold in the
period 1 October 2020 - 31 December 2021 and qualified for a beneficial rate
for the period from June 2021 to June 2022. The NII benefit from its TLTRO III
borrowing for the period from June 2021 to June 2022 stood at €15 mn and was
recognised over the respective period in the income statement.
The Bank expects an additional net NII benefit from the TLTRO III borrowing
for the period 24 June 2022 to 22 November 2022 of c.€8 mn, of which c.€3
mn was recognised in the income statement in 3Q2022.
Following the changes in the terms of the TLTRO III announced by the ECB in
October 2022, and given the Bank's strong liquidity position, the Bank is
contemplating earlier repayment of the TLTRO III.
Deposits
Customer deposits totalled €18,792 mn at 30 September 2022 (compared to
€18,450 mn at 30 June 2022 and to €17,531 mn at 31 December 2021) and
increased by 2% in the third quarter and by 7% since the year end.
The Bank's deposit market share in Cyprus reached 37.1% as at 30 September
2022, compared to 36.8% as at 30 June 2022 and to 34.8% as at 31 December
2021. Customer deposits accounted for 72% of total assets and 78% of total
liabilities at 30 September 2022 (1 p.p. up since 31 December 2021).
The net loans to deposits (L/D) ratio stood at 55% as at 30 September 2022
(compared to 56% as at 30 June 2022 and to 57% as at 31 December 2021 on the
same basis). Pro forma for Helix 3, the net loans to deposit ratio as at 30
September 2022 stood at 54%.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.3 Funding and Liquidity (continued)
Subordinated liabilities
At 30 September 2022, the Group's subordinated liabilities (including accrued
interest) amounted to €317 mn (compared to €312 mn at 30 June 2022 and
€340 mn at 31 December 2021) and relates to unsecured subordinated Tier 2
Capital Notes.
For further information please refer to Section A.1.1 'Capital Base'.
Debt securities in issue
At 30 September 2022, the Group's debt securities in issue (including accrued
interest) amounted to €299 mn (compared to €299 mn at 30 June 2022 and
€303 mn at 31 December 2021) and relates to senior preferred notes.
In June 2021, the Bank executed its inaugural MREL transaction issuing €300
mn of senior preferred notes (the "SP Notes"). The SP Notes were priced at par
with a fixed coupon of 2.50% per annum, payable annually in arrears and
resettable on 24 June 2026. The maturity date of the SP Notes is 24 June 2027
and the Bank may, at its discretion, redeem the SP Notes on 24 June 2026,
subject to meeting certain conditions as specified in the Terms and
Conditions, including applicable regulatory consents. The SP Notes comply with
the criteria for MREL and contribute towards the Bank's MREL requirements.
Liquidity
At 30 September 2022, the Group Liquidity Coverage Ratio (LCR) stood at 300%
(compared to 299% at 30 June 2022 and to 298% at 31 December 2021), well above
the minimum regulatory requirement of 100%. The LCR surplus as at 30 September
2022 amounted to €6.8 bn (compared to €6.7 bn at 30 June 2022 and €6.3
bn at 31 December 2021), well positioned to benefit from further interest rate
increases. The increase in 3Q2022 is mainly driven by the increase in customer
deposits.
At 30 September 2022, the Group Net Stable Funding Ratio (NSFR) stood at 160%
(compared to 160% at 30 June 2022 and 147% at 31 December 2021), well 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
€10,913 mn at 30 September 2022, compared to €11,047 mn at 30 June 2022
and €10,856 mn at 31 December 2021, increased by 1% since the beginning of
the year.
New lending granted in Cyprus reached €497 mn for 3Q2022 (compared to €537
mn for 2Q2022 and €622 mn for 1Q2022) reflecting seasonal patterns and
totalled €1,656 mn for 9M2022 (compared €1,321 mn for 9M2021) up by 25%
yoy, reaching higher levels than the equivalent period pre-pandemic
(9M2019), whilst maintaining strict lending criteria. The yoy increase is
driven by increase in lending activity across all sectors, with corporate
being the main driver. New lending in 3Q2022 comprised €269 mn of corporate
loans, €155 mn of retail loans (of which €115 mn were housing loans),
€42 mn of SME loans and €31 mn of shipping and international loans.
At 30 September 2022, the Group net loans and advances to customers (excluding
those classified as held for sale) totalled €10,088 mn (compared to
€10,144 mn at 30 June 2022 and €9,836 mn at 31 December 2021), increased
by 3% since the beginning of the year.
In addition, at 30 September 2022 net loans and advances to customers of
€236 mn were classified as held for sale in line with IFRS 5 related to
Project Helix 3 (see below), compared to €247 mn as at 30 June 2022 of which
€241 mn related to Project Helix 3 and €6 mn to Project Sinope.
The Bank is the largest credit provider in Cyprus with a market share of 41.1%
at 30 September 2022, compared to 41.2% at 30 June 2022 and 38.8% at 31
December 2021. The increase in 9M2022 is due to a reduction in loans in the
banking system.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
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 preventing asset
quality deterioration following the deteriorating macroeconomic landscape.
The loan credit losses for 3Q2022 totalled €13 mn (excluding 'Provisions/net
(loss)/profit relating to NPE sales'), compared to €11 mn for 2Q2022 and
totalled €36 mn for 9M2022, compared to €57 mn for 9M2021. 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 to the deteriorated macroeconomic environment remain in
place to ensure that potential difficulties in the repayment ability are
identified at an early stage, and appropriate solutions are provided to viable
customers.
The Group will continue to monitor the situation, so that any changes arising
from the uncertainty on the macroeconomic outlook and geopolitical
developments, are timely captured.
Non-performing exposures reduction
Non-performing exposures (NPEs) as defined by the European Banking Authority
(EBA) were reduced by €150 mn, or 13% in 3Q2022 (comprising net organic NPE
reductions of €133 mn (inflows minus outflows), completion of Project Sinope
of €12 mn and further net NPE reductions of €5 mn relating to the NPE
sales lockbox), compared to a reduction of €79 mn in 2Q2022 to €1,018 mn
at 30 September 2022 (compared to €1,343 mn at 31 December 2021). Pro forma
for Helix 3, NPEs are reduced by further €551 mn to €467 mn on the basis
of 30 September 2022 figures.
The NPEs account for 9.3% of gross loans as at 30 September 2022, compared to
10.6% at 30 June 2022 and 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 Helix 3, the NPE ratio is
reduced to 4.5% on the basis of 30 September 2022 figures, delivering early
the 2022 target NPE ratio of c.5%.
The NPE coverage ratio stands at 60% at 30 September 2022, compared to 58% at
30 June 2022 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 Helix 3, NPE coverage ratio is 63% on the basis of 30 September 2022
figures.
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 30 September 2022, 30 June 2022, 31
March 2022 and 31 December 2021, this portfolio of loans, as well as the real
estate properties included in Helix 3, have been classified as a disposal
group held for sale. At completion, currently expected to occur by the end of
November 2022, 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 Helix 3, the Group's NPE ratio is now below 5%. Helix 3
reduced the stock of NPEs by 54% to €467 mn pro forma on the basis of 30
September 2022 figures, and its NPE ratio by 5 p.p., to 4.5% pro forma on the
basis of 30 September 2022 figures.
The completion of Project Helix 3 is currently expected to occur by the end of
November 2022 and remains subject to customary regulatory and other approvals.
All relevant figures and pro forma calculations are based on 30 September 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 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 portfolio was classified as held for sale since 31 December
2021. Project Sinope was completed in August 2022.
Overall, since the peak in 2014 and pro forma for Helix 3, the stock of NPEs
has been reduced by €14.5 bn or 97% to €0.5 bn and the NPE ratio by over
58 percentage points, from 63% to less than 5%.
The Group has successfully delivered NPE ratio below 5% ahead of plan.
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 €1.50 bn and exceed properties
on-boarded in the same period of €1.41 bn.
During the nine months ended 30 September 2022 the Group completed disposals
of €125 mn (compared to €107 mn in 9M2021), resulting in a profit on
disposal of c.€12 mn for 9M2022 (compared to a profit on disposal of €9.5
mn for 9M2021). Asset disposals are across all property classes, with over
half of sales by value in 9M2022 relating to land.
As at 30 September 2022 the carrying value of assets held by REMU transferred
to "non-current assets and disposal groups held for sale" amounted to €88 mn
(compared to €90 mn at 30 June 2022 and €98 mn at 31 December 2021). They
relate to Project Helix 3 and comprise stock of property of €83 mn and
investment property of €5 mn as at 30 September 2022. The carrying value of
assets held by REMU transferred to "non-current assets and disposal groups"
amounted to €90 mn (stock of property of €85 mn and investment properties
of €5 mn) as at 30 June 2022 and €98 mn (stock of property of €93 mn and
investment properties of €5 mn) as at 31 December 2021 and relate to Project
Helix 3 and Project Sinope.
During the nine months ended 30 September 2022, the Group executed
sale-purchase agreements (SPAs) for disposals of 512 properties with contract
value of €142 mn, compared to SPAs for disposals of 553 properties (with
contract value of €113 mn) for 9M2021.
In addition, the Group had a strong pipeline of €82 mn by contract value as
at 30 September 2022, of which €44 mn related to SPAs signed (compared to a
pipeline of €82 mn as at 30 September 2021, of which €53 mn related to
SPAs signed).
REMU on-boarded €84 mn of assets in 9M2022 (compared to additions of €29
mn in 9M2021), via the execution of debt for asset swaps and repossessed
properties.
As at 30 September 2022, assets held by REMU (excluding assets classified as
held for sale) had a carrying value of €1,161 mn (comprising properties of
€1,083 mn classified as 'Stock of property' and €78 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').
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
Assets held by REMU (Group) 9M2022 9M2021 3Q2022 2Q2022 qoq +% yoy +%
€ mn
Opening balance 1,215 1,473 1,146 1,174 -2% -17%
On-boarded assets 84 29 58 18 223% 183%
Sales (125) (107)(1) (38) (43) -13% 17%
Net impairment loss (13) (30) (5) (3) 45% -56%
Transfer to non-current assets and disposal groups held for sale - (101) - - - -100%
Closing balance 1,161 1,264 1,161 1,146 1% -8%
1 . Sales in 9M2021
have been adjusted to include properties of €5 mn relating to Project Helix
2 that had been transferred to non-current assets and disposal groups held for
sale in 1Q2021.
Analysis by type and country Cyprus Greece Romania Total
30 September 2022 (€ mn)
Residential properties 75 21 0 96
Offices and other commercial properties 187 14 0 201
Manufacturing and industrial properties 53 23 0 76
Hotels 24 0 0 24
Land (fields and plots) 517 5 0 522
Golf courses and golf-related property 242 0 0 242
Total 1,098 63 0 1,161
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 9M2022 9M2021 3Q2022 2Q2022 qoq +% yoy +%
Net interest income 234 223 89 74 19% 5%
Net fee and commission income 142 128 48 50 -3% 11%
Net foreign exchange gains and net gains/(losses) on financial instruments 24 14 13 5 141% 68%
Insurance income net of claims and commissions 48 43 15 17 -9% 13%
Net gains/(losses) from revaluation and disposal of investment properties and 11 8 4 2 87% 30%
on disposal of stock of properties
Other income 12 11 3 5 -38% 16%
Non-interest income 237 204 83 79 6% 16%
Total income 471 427 172 153 12% 10%
Net Interest Margin (annualised)(1) 1.39% 1.49% 1.53% 1.33% 20 bps -10 bps
Average interest earning assets 22,470 20,087 22,997 22,436 3% 12%
(€ 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 9M2022 amounted to €234 mn, compared to €223
mn in 9M2021, up 5% yoy, marking continuing NII progress attributable to the
improvement of the effective yield of loans and liquid assets and the growth
of the performing (non-legacy) loan book, despite the foregone NII on the
Helix 2 portfolio (c.€15 mn in 9M2021). Net interest income (NII) for 3Q2022
amounted to €89 mn, compared to €74 mn for 2Q2022, up 19% qoq, positively
impacted by the increase in interest rates and the effect of one additional
calendar day in this quarter.
Quarterly average interest earning assets (AIEA) for 9M2022 amounted to
€22,470 mn, up by 12% yoy driven by the increase in liquid assets following
the increase in deposits by €1.7 bn yoy. Quarterly average interest earning
assets for 3Q2022 increased by 3%.
Net interest margin (NIM) for 9M2022 amounted to 1.39% (compared to 1.49% for
9M2021) negatively impacted by the corresponding increase in average interest
earning assets. Net interest margin (NIM) for 3Q2022 stood at 1.53%, up 20 bps
qoq, supported by the rising interest rate environment. Excluding TLTRO of
€3.0 bn, NIM stood at 1.69%.
Non-interest income for 9M2022 amounted to €237 mn (compared to €204 mn
for 9M2021, up by 16% yoy), comprising net fee and commission income of €142
mn, net foreign exchange gains and net gains/(losses) on financial instruments
of €24 mn, net insurance income of €48 mn, net gains/(losses) from
revaluation and disposal of investment properties and on disposal of stock of
properties of €11 mn and other income of €12 mn. The yoy increase is
driven by higher net fee and commission income, higher net foreign exchange
gains and net gains/(losses) on financial instruments and higher insurance
income net of claims and commissions.
Non-interest income for 3Q2022 amounted to €83 mn (compared to €79 mn for
2Q2022, up by 6% qoq), comprising net fee and commission income of €48 mn,
net foreign exchange gains and net gains/(losses) on financial instruments of
€13 mn, net insurance income of €15 mn, net gains/(losses) from
revaluation and disposal of investment properties and on disposal of stock of
properties of €4 mn and other income of €3 mn. The qoq increase relates to
higher net foreign exchange gains and net gains/(losses) on financial
instruments.
Net fee and commission income for 9M2022 amounted to €142 mn, (compared to
€128 mn for 9M2021, up 11% yoy), driven mainly by the introduction of a
revised price list in February 2022 and the extension of liquidity fees to a
wider customer group in March 2022. Net fee and commission income for 3Q2022
amounted to €48 mn, down 3% qoq (compared to €50 mn for 2Q2022) due to
lower non-transactional fees but seasonally higher transaction fees and higher
credit card commissions.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.1 Total income (continued)
Net foreign exchange gains and net gains/(losses) on financial instruments of
€24 mn for 9M2022 (comprising net foreign exchange gains of €21 mn and net
gains on financial instruments of €3 mn), compared to €14 mn for 9M2021
(comprising net foreign exchange gains of €12 mn and net gains on financial
instruments of €2 mn) and increased by 68% yoy. The increase yoy reflects
higher foreign exchange gains through FX swaps.
Net foreign exchange gains and net gains/(losses) on financial instruments
amounted to €13 mn for 3Q2022, compared to €5 mn in the previous quarter,
reflecting higher foreign exchange gain through FX swaps and one-off gain of
c.€5.5 mn of a financial instrument.
Net insurance income amounted to €48 mn for 9M2022, compared to €43 mn for
9M2021. The increase of 13% yoy is mainly due to increased new business and
the positive changes in valuation assumptions, partially offset by higher
insurance claims.
Net insurance income amounted to €15 mn for 3Q2022, down 9% qoq, impacted by
the changes in the valuation assumptions of interest and higher insurance
claims.
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties for 9M2022 amounted to €11 mn (comprising
net gains on disposal of stock of properties of €12 mn, and net losses from
revaluation of investment properties of €1 mn), compared to €8 mn in
9M2021.
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties for 3Q2022 amounted to €4 mn, compared to
€2 mn for 2Q2022. REMU profit remains volatile.
Total income for 9M2022 amounted to €471 mn, compared to €427 mn for
9M2021 (up 10% yoy), mainly driven by the changes in the net interest income
and net fee and commission income as explained above. Total income for 3Q2022
stood at €172 mn, compared to €153 mn for 2Q2022, up by 12% qoq,
reflecting the increased net interest income by 19% qoq.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.2 Total expenses
€ mn 9M2022 9M2021 3Q2022 2Q2022 qoq +% yoy +%
Staff costs (146) (152) (46) (50) -8% -4%
Other operating expenses (108) (108) (35) (37) -5% 1%
Total operating expenses (254) (260) (81) (87) -7% -2%
Special levy on deposits and other levies/contributions (27) (24) (10) (7) 52% 8%
Total expenses (281) (284) (91) (94) -3% -1%
Cost to income ratio(1) 60% 66% 53% 61% -8 p.p. -6 p.p.
Cost to income ratio excluding special levy on deposits and other 54% 61% 47% 57% -10 p.p. -7 p.p.
levies/contributions(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
Total expenses for 9M2022 were €281 mn (compared to €284 mn for 9M2021),
broadly flat yoy, 52% of which related to staff costs (€146 mn), 39% to
other operating expenses (€108 mn) and 9% to special levy on deposits and
other levies/contributions (€27 mn). Total expenses for 3Q2022 were €91
mn, compared to €94 mn for 2Q2022, down by 3% qoq. The qoq decrease is
driven by the 8% qoq reduction in staff costs and lower other operating
expenses partially offset by the increase in special levy on deposits and
other levies/contributions.
Total operating expenses for 3Q2022 were €81 mn (compared to €87 mn for
2Q2022) down 7% qoq and totalled €254 mn for 9M2022, compared to €260 mn
for 9M2021 (down by 2% yoy).
Staff costs for 9M2022 were €146 mn, compared to €152 mn for 9M2021, down
4% yoy, resulting from the Voluntary Staff Exit Plans that took place in the
latest quarters, the renewal of the collective agreement, and despite rising
inflation. Staff costs for 3Q2022 amounted to €46 mn down 8% qoq mainly
driven by the completion of the VEP in July 2022, leading to the reduction of
the Group's full time employees by 16%, at a total cost of €101 mn, recorded
in the consolidated income statement in 3Q2022. Following the completion of
the VEP, the gross annual savings are estimated at c.€37 mn or 19% of staff
costs with a payback period of 2.7 years. The estimated savings of the VEP are
expected to be partially offset by the renewal of the collective agreement and
cost of living adjustments in 2023.
The Group employed 2,955 persons as at 30 September 2022 compared to 3,422
persons as at 30 June 2022 and 3,438 persons as at 31 December 2021.
In addition, in January 2022 the Group through one of its subsidiaries
completed a Voluntary Staff Exit Plan (VEP), through which a small number of
its employees were approved to leave at a total cost of €3 mn, recorded in
the consolidated income statement in 1Q2022 as a non-recurring item in the
underlying basis.
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.
Other operating expenses for 9M2022 were €108 mn, broadly flat yoy. Other
operating expenses for 3Q2022 amounted to €35 mn, compared to €37 mn for
2Q2022, down by 5% qoq driven by lower marketing, IT and other professional
expenses.
Special levy on deposits and other levies/contributions for 9M2022 amounted to
€27 mn (compared to €24 mn for 9M2021) up 8% yoy, driven by the increase
in deposits of €1.7 bn yoy. Special levy on deposits and other
levies/contributions for 3Q2022 were €10 mn up by 52% qoq, owing to the €3
mn contribution of the Bank to the Deposit Guarantee Fund (DGF) which relates
to 2H2022 and was recorded in 3Q2022, in line with IFRSs.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.2 Total expenses (continued)
The cost to income ratio excluding special levy on deposits and other
levies/contributions for 9M2022 was 54%, compared to 61% for 9M2021. The cost
to income ratio excluding special levy on deposits and other
levies/contributions for 3Q2022 was 47%, compared to 57% for 2Q2022. The qoq
decrease of 10 p.p. is driven by the combined effect of higher total income
and lower total operating expenses.
The cost to income ratio excluding special levy on deposits and other
levies/contributions for the financial year 2022 is revised downwards to low
50s from the previous guidance of 55-60% (announced in August 2022),
reflecting mainly the rising revenue on improving interest rate environment
and management's ongoing efforts to contain costs. The efficiency actions
undertaken on the reduction of employees and branches are expected to unlock
meaningful savings from 2023, although these are expected to be partly offset
by high inflation.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.3 Profit before tax and non-recurring items
€ mn 9M2022 9M2021 3Q2022 2Q2022 qoq+% yoy +%
Operating profit before credit losses and impairments 190 143 81 59 36% 33%
Loan credit losses (36) (57) (13) (11) 11% -37%
Impairments of other financial and non-financial assets (20) (13) (7) (8) -11% 51%
Provisions for litigation, claims, regulatory and other matters (3) (6) (2) (1) - -42%
Total loan credit losses, impairments and provisions (59) (76) (22) (20) 14% -22%
Profit before tax and non-recurring items 131 67 59 39 47% 94%
Cost of risk(1) 0.44% 0.66% 0.45% 0.41% +4 bps -22 bps
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
Operating profit before credit losses and impairments for 9M2022 was €190
mn, compared to €143 mn for 9M2021 (up by 33% yoy). Operating profit before
credit losses and impairments for 3Q2022 amounted to €81 mn, compared to
€59 mn for 2Q2022, up by 36% qoq driven by the increase in total income qoq.
Loan credit losses for 9M2022 totalled €36 mn, compared to €57 mn for
9M2021 (down by 37% yoy). Loan credit losses for 3Q2022 amounted to €13 mn
compared to €11 mn for 2Q2022, up 11% qoq.
Cost of risk for 9M2022 was 44 bps, compared to a cost of risk of 66 bps for
9M2021, down by 22 bps reflecting strong asset quality in 2022 but also
impacted by a one-off prior year charge. Cost of risk for 3Q2022 accounted for
45 bps broadly flat on the prior quarter.
At 30 September 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 €610 mn (compared to €677 mn at 30
June 2022 and €792 mn at 31 December 2021) and accounted for 5.6% of gross
loans including portfolios held for sale (compared to 6.1% and 7.3% of gross
loans including portfolios held for sale at 30 June 2022 and 31 December 2021
respectively).
Impairments of other financial and non-financial assets for 9M2022 amounted to
€20 mn, compared to €13 mn for 9M2021, (up by 51%) driven mainly by higher
impairment charges on net legacy overseas exposures. Impairments of other
financial and non-financial assets for 3Q2022 amounted to €7 mn, compared to
€8 mn for 2Q2022, broadly flat qoq and includes an impairment charge of
c.€4 mn relating to a specific, large, illiquid REMU stock property.
Provisions for litigation, claims, regulatory and other matters for 9M2022
amounted to €3 mn, compared to €6 mn for 9M2021. Provisions for
litigation, claims, regulatory and other matters for 3Q2022 amounted to €2
mn in line with the previous quarter.
Profit before tax and non-recurring items for 9M2022 totalled €131 mn,
compared to €67 mn for 9M2021 (up by 94% yoy). Profit before tax and
non-recurring items for 3Q2022 amounted to €59 mn compared to €39 mn for
2Q2022 (up by 47% qoq).
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 9M2022 9M2021 3Q2022 2Q2022 qoq +% yoy +%
Profit before tax and non-recurring items 131 67 59 39 47% 94%
Tax (20) (3) (8) (6) 36% -
Profit attributable to non-controlling interests (2) (0) (1) (1) 43% 152%
Profit after tax and before non-recurring items (attributable to the owners of 109 64 50 32 49% 71%
the Company)
Advisory and other restructuring costs - organic (10) (19) (5) (4) 14% -48%
Profit after tax - organic (attributable to the owners of the Company) 99 45 45 28 54% 120%
Provisions/net (loss)/profit relating to NPE sales(1) (1) (6) (1) 1 -193% -76%
Restructuring and other costs relating to NPE sales(1) (3) (19) (2) 0 52% -87%
Restructuring costs - Voluntary Staff Exit Plan (VEP) (104) - (101) - - -
(Loss)/profit after tax (attributable to the owners of the Company) (9) 20 (59) 29 - -
1. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant.
The tax charge for 3Q2022 is €8 mn, up 36% qoq and totalled to €20 mn for
9M2022, compared to €3 mn for 9M2021.
Profit after tax and before non-recurring items (attributable to the owners of
the Company) for 9M2022 is €109 mn, compared to €64 mn for 9M2021. 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 8.8% for 9M2022, compared to 5.2% for 9M2021. Profit
after tax and before non-recurring items (attributable to the owners of the
Company) for 3Q2022 amounted to €50 mn, reflecting a ROTE before
non-recurring items of 11.7%, compared to €32 mn for 2Q2022 (and a ROTE
before non-recurring items of 7.8%).
Advisory and other restructuring costs - organic for 9M2022 amounted to €10
mn, compared to €19 mn for 9M2021, down by 48% mainly due to ad-hoc cost
related to the tender offer for Existing Tier 2 Capital Notes amounting to
€12 mn in 9M2021. Advisory and other restructuring costs - organic for
3Q2022 amounted to €5 mn, compared to €4 mn for 2Q2022 and relate to the
transformation programme and other strategic projects of the Group.
Profit after tax arising from the organic operations (attributable to the
owners of the Company) for 9M2022 amounted to €99 mn, compared to €45 mn
for 9M2021. Profit after tax arising from the organic operations
(attributable to the owners of the Company) for 3Q2022 is €45 mn, compared
to €28 mn for 2Q2022, up 54% qoq.
Provisions/net (loss)/profit relating to NPE sales for 9M2022 amounted to €1
mn relating to Helix 3, compared to €6 mn for 9M2021 (relating to Helix 2
and Helix 3). Provisions/net (loss)/profit relating to NPE sales for 3Q2022
was a net loss of €1 mn, compared to a net profit of €1 mn in 2Q2022.
Restructuring and other costs relating to NPE sales for 9M2022 was €3 mn,
compared to €19 mn for 9M2021 (relating to the agreements for the sale of
portfolios of NPEs). Restructuring and other costs relating to NPE sales for
3Q2022 is €2 mn compared to less than €1 mn for 2Q2022.
Restructuring costs relating to the Voluntary Staff Exit Plan (VEP) amounted
to €104 mn for 9M2022, compared to Nil for 9M2021. For further details
please refer to Section A.2.2 'Total expenses'.
Loss after tax attributable to the owners of the Company for 9M2022 was €9
mn, compared to a profit of €20 mn for 9M2021. Loss after tax attributable
to the owners of the Company for 3Q2022 amounted to €59 mn, compared to a
profit of €29 mn for 2Q2022.
B. Operating Environment
The effects from the war in Ukraine, the energy crisis, high inflation, and
global monetary tightening are weighing on the global economy. Europe faces
energy shortages, and possible disruptions in energy intensive sectors in the
coming winter. The ECB forecasts 0.9% growth in the Euro area in 2023 with
inflation expected to average 8.1% in 2022 and 5.5% in 2023. Oil and gas
prices are expected to remain elevated as long as the war in Ukraine rages on.
Major central banks are raising rates aggressively to try to contain
inflation. Price rises are expected to start to slow later this year but
remain high in level terms.
Against a challenging international environment, the Cyprus economy has shown
considerable resilience. The 4.4% contraction in 2020 was modest in comparison
with other southern countries. The economy rebounded strongly in 2021 with
real GDP growing by 6.6%. Growth remained strong in the first three quarters
of 2022, averaging 6.1% year-on-year and expected to average c.6.0% for the
year 2022, outperforming the eurozone average. However, growth will slow in
2023, towards 3% according to the Ministry of Finance.
On the supply side, growth in the first half, for which data is available was
almost entirely attributable to the services sectors. More than half of growth
in the period came from trade, transport, and accommodation services.
Information and communication, and the professional and administrative
services sectors, also made significant contributions. In the industrial
sector growth originated from the utilities, electricity, and water sectors,
with manufacturing making only a marginal contribution. Construction activity
dropped modestly and made a negative contribution.
On the demand side, growth in the first half was attributable to both
consumption and investment expenditures with the external sector making a
negative contribution due to faster rising imports. Total investment was
driven by transport equipment which includes ship registrations, as well as
inventory adjustments.
Tourist activity has rebounded strongly in the year to September 2022.
Arrivals reached 2.5 million persons, or 78% of corresponding arrivals in
2019. Receipts reached €1.6 billion in the year to August 2022, or 87% of
the corresponding receipts in 2019, and an increase of 108% year on year.
Travel from Russia and Ukraine is impacted from the war and sanctions, but
arrivals in the period exceeded expectations significantly.
Surging energy costs that have been exacerbated by the war in Ukraine, are
impacting both consumers and businesses. The government took initial measures
to mitigate the consequences. The government reduced the value added tax rates
on electricity and also reduced excise duties on gasoline and diesel for a
fixed period until June 2022. The latter will remain in place until the end of
January 2023. In September 2022, the government introduced a tiered system of
subsidies for electricity consumption in place of the reduced values-added
tax. The cost of reduced taxes and targeted support amounts to €350 million
or 1.3% of GDP.
Cyprus received the first disbursement from the recovery and resilience
facility of €157 million 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 2021-26. The government also submitted its
application to the European Commission for the first disbursement of €85 mn,
in July 2022, following the passage of conditional legislation in parliament.
The release of the funds is conditional on the strict implementation of
reforms agreed in the national recovery plan. Funds will be used to increase
investment in the digital and green transition, to increase the efficiency of
public and local administrations, and to improve the efficiency of the
judicial system among others.
In the banking sector there has been significant restructuring since the 2013
financial crisis. Banks have reduced their foreign exposures, reduced their
balance sheets substantially, raised their capital buffers, and restructured
and refocussed their operations domestically. Prudential oversight has been
strengthened and a new legal framework for private-debt restructuring is now
in place, including for the sale of loans. Total non-performing exposures at
the end of August 2022, were €2.8 billion or 10.9% of gross loans. The
corresponding ratio in the non-financial companies' segment was 8.3% and that
of households 13.3%. The coverage ratio was 51.4%. In November 2022, the
Cyprus Parliament voted the suspension of the foreclosure process until 31
January 2023.
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 5.8% of GDP in 2020, which
reflected government measures to support the economy amidst a deep recession
induced from the Covid pandemic.
Developments in the first half of 2022, were favourable for public finances.
Revenues increased by 16.8% and expenditures dropped marginally by 1.2%. The
budget in the first half is back to near balance, and a surplus of 1.2% of GDP
is expected for the year 2022 according to the Ministry of Finance. The public
debt is sustainable and firmly on a downward path. With the budget balanced in
the year, and inflation at about 8.0% estimated for the year, debt to GDP will
fall toward 90% at year-end, according to the Ministry of Finance.
As expected, the ECB raised its interest rate by 75 basis points at its most
recent meeting, on 27 October 2022, after raising it also by 75 basis points
in September 2022. The bank's main refinancing operations rate is now at 2%
from zero at the beginning of the year.
B. Operating Environment (continued)
Consumer inflation continued to accelerate in 2022 driven mainly by energy
prices but also food prices. The harmonised index of consumer prices increased
by 8.8% in the second quarter and, by 9.7% in the third quarter and by 8.6% in
October 2022. On average in the ten months January-October 2022, the
harmonised inflation was 8.1% (8.1% also in the euro area). This compares with
harmonised inflation of 3.9% in the second half of 2021 and 2.3% for the whole
year. Core inflation was lower. Excluding energy, harmonised inflation was
5.4% in January-October 2022. Excluding energy and food, inflation was 5.0%.
Non-energy industrial goods increased by 4.1% in the period and all-services
increased by 5.3%. Hence, second round effects have started to show from the
first quarter of 2022 and continued to affect final prices at an increasing
pace.
Cyprus' current-account deficit narrowed from 10.1% in 2020 to 6.8% in 2021
and is estimated at 9.6% in 2022 according to the autumn forecasts of the
European Commission. The deficit is expected to shrink gradually from 2023
onwards as services earnings recover and EU recovery funds are credited in the
secondary income account. However, the current-account deficit will remain
larger than pre-pandemic levels in the medium term owing in part to strong
import growth linked to higher energy prices and EU investment plans, which
will weigh on the trade balance. The size of the country's deficits is partly
structural, a consequence of special-purpose entities domiciled in Cyprus.
Sovereign ratings
The sovereign risk ratings of the Cyprus Government improved considerably in
recent years reflecting reduced banking sector risks, and improvements in
economic resilience and consistent fiscal outperformance. Cyprus demonstrated
policy commitment to correcting fiscal imbalances through reform and
restructuring of its banking system. Public debt remains high in relation to
GDP but large-scale asset purchases from the ECB ensure favourable funding
costs for Cyprus and ample liquidity in the sovereign bond market.
Most recently, in October 2022, DBRS Morningstar affirmed the Republic of
Cyprus's Long-Term Foreign and Local Currency - Issuer Ratings at BBB (low)
and maintained the trend Stable. The affirmation is supported by a stable
political environment, the government's sound fiscal and economic policies and
the favourable government debt profile. The stable outlook balances recent
favourable fiscal dynamics against downside risks for the economic outlooks
(including further escalation of the crisis in Ukraine).
In September 2022, S&P Global Ratings upgraded Cyprus' investment grade
rating of BBB/A-2 and has changed the outlook from positive to stable. The
upgrade reflects the resiliency of the Cypriot economy to recent external
shock (including the COVID-19 pandemic). The stable outlook balances risks
from the crisis in Ukraine and the economy's diversified structure and the
expectation that the government's fiscal position will continue to improve.
In September 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).
In August 2022, Moody's Investors Service affirmed the Government of Cyprus'
long-term issuer and senior unsecured ratings to Ba1 and changed the outlook
from stable to positive. The key drivers reflecting the affirmation are the
strong reduction in Cyprus' public debt ratio in 2022, stronger-than expected
economic resilience to Russia's invasion of Ukraine and the COVID-19 pandemic
as well the ongoing strengthening of the banking sector.
C. Business Overview
Credit ratings
The Group's financial performance is highly correlated to the economic and
operating conditions in Cyprus. In October 2022, Moody's Investors Service
upgraded the Bank's long-term deposit rating to Ba2 from Ba3, maintaining the
positive outlook. The main drivers for this upgrade are the resilience of the
Cypriot economy, that is supporting the operating conditions of the banking
system to external shocks and the gradual improvement in credit conditions. In
September 2022, Standard and Poor's raised the long-term issuer credit rating
of the Bank to BB- from B+ and revised the outlook to stable from positive.
The upgrade reflects the improvement in asset quality and easing economic
risks. 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 for 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.
Near-term strategic priorities and outlook
The Group is a diversified, leading, financial and technology hub in Cyprus.
The prolonged geopolitical crisis in Ukraine has changed the economic
landscape, reflecting potential slowdown in economic growth impacted by the
escalating inflationary pressures and rising interest rate outlook. Against
this backdrop, the Group is determined to deliver on the levers under its
control in order to face external shocks from a strong position. The Group's
diversified business model, its significantly improved asset quality and
efficiency as well as its ability to maintain healthy capital and liquidity
buffers, all play a vital role as it heads towards these uncertain times.
Additionally, as a result of the changing and dynamic economic outlook, the
Group will benefit substantially from the interest rate hikes, setting NII to
growth trajectory and outweighing potential pressures on total operating costs
and cost of risk. This facilitates a clear path to a recurring ROTE of c.10%,
already in 2022, supporting the ability to make meaningful dividend
distributions from 2023 onwards, subject to regulatory approvals and market
conditions. This increases the confidence of delivering a double-digit ROTE in
2023.
Favourable interest rate environment
The structure of the Group's balance sheet is geared towards higher interest
rates facilitating immediate growth in net interest income. As at 30 September
2022, cash balances with ECB (excluding TLTRO of c.€3.0 bn) amounted to
c.€6.9 bn. The repricing of the reference rates will gradually benefit the
interest income on loans, as almost half of the loan book is priced on
Euribor. The interest rates increased faster than expected in August 2022,
with immediate benefits from liquid assets and variable rate loans (over 90%
of the Group's loan portfolio is variable rate). Factoring in the current
expectations for interest rates, the net interest income guidance for 2022 is
upgraded and is now expected to exceed €350 mn. In 2023, NII is expected to
be significantly higher compared to 2022, demonstrating the faster and higher
repricing of loans and liquids, partially offset by increased costs of
funding, gradual increase in cost of deposits from 2023 and gradual change in
deposit mix towards term deposits.
Growing revenues in a more capital efficient way
The Group remains focused on growing revenues in a more capital efficient way.
The Group aims to continue to grow its high-quality new lending, drive growth
in niche areas for further market penetration and diversify through
non-banking services, such as insurance and digital products.
The Group has continued to provide high quality new lending in 9M2022 via
prudent underwriting standards. Growth in new lending in Cyprus has been
focused on selected industries in line with the Bank's target risk profile.
During the first nine months of 2022, new lending amounted to €1.7 bn, up by
25% yoy, returning to pre-pandemic levels. The yoy increase is driven by
increased activity across all sectors. As a result, the net performing loan
book expanded to €9.7 bn up by 4% during the nine months 2022, although it
remained flat on the prior quarter due to high repayments. The short-term
net interest income is expected to be supported primarily by asset repricing
and higher security investments.
As at 30 September 2022, the bond portfolio of the Group amounted to €2.3
bn, up by 17% in 9M2022 and represents 10% of total assets (excluding TLTRO
III of €3.0 bn). The completion of the balance sheet de-risking and the
Group's comfortable liquidity position, allow the Group to meaningfully grow
its bond portfolio in 2023, subject to market conditions. The portfolio
comprises highly rated fixed rate bonds with low average duration, giving the
Group the flexibility to take advantage of rising interest rates.
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. As a result, net fee and commission income for 9M2022 remained strong
at €142 mn, reflecting an increase of 11% yoy. Net fee and commission income
is likely to be under pressure in the near term mainly due to the phasing out
of liquidity fees in December 2022 (amounting to c.€4 mn per quarter).
C. Business Overview (continued)
Near-term strategic priorities and outlook (continued)
Growing revenues in a more capital efficient way (continued)
Net fee and commission income is also enhanced by transaction fees from the
Group's subsidiary, JCC Payment Systems Ltd (JCC), a leading player in the
card processing business and payment solutions, 75% owned by the Bank. JCC's
net fee and commission income contributed 8% of total non interest income and
amounted to €19 mn in 9M2022, up 23% yoy, backed by strong transaction
volume.
The Group's insurance companies, EuroLife Ltd and General Insurance of Cyprus
Ltd (GI) 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 for 9M2022 contributed 20% of
non-interest income and amounted to €48 mn, up 13% yoy, driven by increased
new business and the positive changes in valuation assumptions, partially
offset by higher insurance claims. Specifically, Eurolife increased its total
regular income by 16% yoy, whilst GI increased its gross written premiums by
11% yoy. For information on IFRS 17 please refer to the relevant subsection
below.
Finally, the Group through the Digital Economy Platform (Jinius) aims to
generate new revenue sources over the medium term, leveraging on the Bank's
market position, knowledge and digital infrastructure. The Platform aims to
bring stakeholders together, link businesses with each other and with
consumers and to drive opportunities in lifestyle banking and beyond. The
platform is expected to allow the Bank to enhance the engagement of its
customer base, attract new customers, optimise the cost of the Bank's own
processes, and position the Bank next to the customer at the point and time of
need. Currently, around 1,500 companies were registered in the platform.
Lean operating model
Striving for a lean operating model is a key strategic pillar for the Group in
order to deliver shareholder value 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.
The efficiency actions of the Group in 2022 to maintain operating expenses
under control in an inflationary environment included further branch
footprint optimisation and substantial streamline of workforce. In July 2022
the Group successfully completed a Voluntary Staff Exit Plan (VEP) through
which 16% of the Group's full-time employees were approved to leave at a total
cost of €101 mn. Following the completion of the Plan, the gross annual
savings are estimated at c.€37 mn or 19% of staff costs with a payback
period of 2.7 years. Additionally in January 2022 one of the Bank's
subsidiaries completed a small-scale targeted Voluntary Staff Exit Plan (VEP),
through which a small number of full-time employees were approved to leave at
a total cost of €3 mn. In relation to branch restructuring, the Group has
reduced the number of branches by 20 year-to-date to 60, a reduction of 25%.
Through these successful initiatives, the Group has delivered ahead of
schedule on its commitment to reduce its workforce by c.15% and its number of
branches by 25%. As a result, the cost to income ratio excluding special levy
on deposits and other levies/contributions for 9M2022 was reduced to 54%, 7
p.p. down compared to previous year. In 2023 the renewal of the collective
agreement and the adjustment of cost of living are expected to partially
offset the gross savings derived from the recent VEPs.
The cost to income ratio excluding special levy on deposits and other
levies/contributions for the financial year 2022 is revised downwards to low
50s from the previous guidance of 55-60% (announced in August 2022),
reflecting mainly the rising revenue on improving interest rate environment
and management's ongoing efforts to contain costs. The efficiency actions
undertaken on the reduction of employees and branches are expected to unlock
meaningful savings from 2023, although these are expected to be partly offset
by high inflation.
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 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.
C. Business Overview (continued)
Near-term strategic priorities and outlook (continued)
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.
In October 2022, the Bank continued to enrich and improve its digital
portfolio launching a new innovative service to its customers, the QuickLoans.
Four new lending products are now available through the Group's digital
channels (Mobile App and Internet Banking), which allows the Bank's retail
customers to apply for a loan and have an instant update of the approval
status of their application. This solution further differentiates the Bank
within the Cypriot market and enhances its status as a digital leader in
banking.
The adoption of digital products and services continued to grow and gained
momentum in the third quarter of 2022 and beyond. As at the end of October
2022, 94.0% of the number of transactions involving deposits, cash withdrawals
and internal/external transfers were performed through digital channels (up by
27.6 p.p. from 66.4% in September 2017 when the digital transformation
programme was initiated). In addition, 81.3% of individual customers were
digitally engaged (up by 21.1 p.p. from 60.2% in September 2017), choosing
digital channels over branches to perform their transactions. As at the end of
October 2022, active mobile banking users and active QuickPay users have grown
by 14.5% and 33.1% respectively in the last 12 months. The highest number of
QuickPay users to date was recorded in October 2022 with 162 thousand active
users. Likewise, the highest number of QuickPay payments was recorded in
October 2022 with 477 thousand transactions. New features, such as Google Pay,
as well as management of fixed deposits accounts will soon be available to
customers.
Strengthening asset quality
Ensuring the Bank's loan portfolio quality remains healthy is a priority for
the Group.
Balance sheet de-risking continued in the first nine months of 2022 with
further c.€300 mn of organic NPE reduction, reducing the Group's NPE ratio
to 4.5%, pro forma for Helix 3, delivering early the NPE ratio target of c.5%.
During 2021, the Group completed Project Helix 2 and reached an agreement for
Project Helix 3. Overall, since the beginning of 2021, and including organic
NPE reductions of c.€700 mn, the Group reduced its NPEs by 85% and its NPE
ratio from 25.2% to 4.5%, on a pro forma basis. For further information please
refer to Section A.1.5 'Loan portfolio quality'.
The cost of risk for 2022 is revised and is currently expected to be around
mid-40s, reflecting strong loan portfolio performance. The cost of risk target
of 50-80 bps for 2023 remains unchanged, reflecting the prevailing uncertainty
on macroeconomic outlook.
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 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 the
operations 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
C. Business Overview (continued)
Near-term strategic priorities and outlook (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda (continued)
The Bank has recently initiated the measurement of financed emissions derived
from its loan portfolio (Scope 3) and is working towards the finalisation of
Sustainable Finance Framework for green bonds.
The Bank is the first bank in Cyprus joining the Partnership for Carbon
Accounting Financials (PCAF).
The Board composition of the Company and the Bank is diverse, with 40% of the
Board members being female as at 30 September 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
30 September 2022, there is a 27% representation of women in Group's
management bodies and a 39% representation of women at key positions below the
Extended EXCO level (defined as positions between Assistant Manager and
Manager).
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 life
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 continues to make progress on the implementation of IFRS 17 and
preliminary management estimate on the impact is as previously communicated
and included below. However, industry practice and interpretation of the
standard are still developing, hence uncertainty remains as to the final
transition impact. Additionally, the impact on the forecast future returns of
the Group's insurance business is dependent on the growth, duration and
composition of its insurance contract portfolio. These estimates are also
impacted by the effect of market related conditions and are therefore subject
to change in the period up to adoption of the standard.
For the purposes of planning the Group's financial resources, the initial
estimate is that the accounting changes will result in:
a) the removal of value in force from the life insurance business (including
associated deferred tax liability) of c.€102 mn as per the Group's
consolidated balance sheet as at 30 September 2022, 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 assets and liabilities and the creation of a
contractual service margin (CSM) liability which will increase both the
insurance business and the Group's equity by an amount of 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
which has been 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 in (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.
C. Business Overview (continued)
Ukrainian crisis
The economic environment has evolved rapidly since February 2022 following
Russia's invasion in Ukraine. In response to the war in Ukraine, the EU, the
UK and the US, in a coordinated effort joined by several other countries
imposed a variety of financial sanctions and export controls on Russia,
Belarus and certain regions of Ukraine as well as various related entities and
individuals. As the war is prolonged, geopolitical tension persists and
inflation accelerates, impacted by the soaring energy prices and disruptions
in supply chains. The escalating inflation weighs on business confidence and
consumers' purchasing power. In this context the Group is closely monitoring
the developments, utilising dedicated governance structures including a Crisis
Management Committee as required and has assessed the impact it has on the
Group's operations and financial performance.
Direct impact
The Group does not have any banking operations in Russia or Ukraine, following
the sale of its operations in Ukraine in 2014 and in Russia in 2015. The Group
has run down its legacy net exposure to less than €1 mn as at 30 September
2022 in Russia through write-offs and provisions.
The Group has no exposure to Russian bonds or banks which are subject to
sanctions.
The Group has limited direct exposure with loans related to Ukraine, Russia
and Belarus, representing 0.5% of total assets or c.1% of net loans as at 30
September 2022. The net book value of these loans stood at €118 mn as at 30
September 2022, of which €106 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 5% of total customer deposits as at 30 September 2022. This
exposure is not material, given the Group's strong liquidity position. The
Group operates with a significant surplus liquidity of €6.8 bn (LCR ratio of
300%) as at 30 September 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.
The impact on the Cypriot economy is expected to come from higher inflation
and a consequential slowdown in economic activity. The performance of tourism
sector in the first nine months of 2022 is better than initially anticipated
and represents 78% of 2019 respective levels, despite the loss of tourist
arrivals from Russia and Ukraine. The Group continues to monitor the exposures
in sectors likely impacted by the prolonged geopolitical uncertainty and
persistent inflationary pressures and remains in close contact with customers
to offer solutions as necessary.
Cyprus has no energy dependence on Russia as it imports oil from Greece, Italy
and the Netherlands; however it is indirectly affected by pricing pressures in
the international energy markets.
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.
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.
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 9M2022 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 • The structure of the Group's balance sheet is geared towards higher
generation via growth in performing book, and less capital-intensive banking February 2022 interest rates facilitating immediate growth in net interest income
and financial services operations (Insurance and Digital Economy)
• Liquidity fees were extended to a wider customer group in March • Grow performing book and increase in new lending over the medium
2022 term
• Net performing loan book grew to €9.7 bn, an increase of 4% in • Expand bond portfolio in 2023, subject to market conditions, to take
9M2022 advantage of the rising yields
• Bond portfolio grew to €2.3 bn, an increase of 17% in 9M2022 • Enhance fee and commission income, e.g. on-going review of price
list for charges and fees, increase average product holding through cross
• For further information, please refer to Section A.1.5 'Loan selling, new sources of revenue through introduction of Digital Economy
portfolio quality' and Section C 'Business Overview' Platform
• Phasing out of liquidity fees in December 2022
• 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 VEP in July 2022, through which c.550 applicants • Effectively eliminate restructuring costs as de-risking is largely
digitisation and automation were approved to leave the Group; estimated gross annual saving of c.€37 mn complete
(19%) of staff costs
• Enhance procurement control
• Rationalisation of branch footprint as 15 branches closed down in
July 2022
• Completion of a small-scale targeted VEP in 1Q2022, by one of the Cost to income ratio (excluding special levy on deposits and other
Bank's subsidiaries, through which a small number of the Group's employees levies/contributions) revised downwards to low 50s for 2022
were approved to leave
• Further developments in the Transformation Plan and the
digitisation of the Bank
D. Strategy and Outlook (continued)
KEY STRATEGIC PILLARS ACTION TAKEN IN 9M2022 and to date PLAN OF ACTION
Strengthening asset quality • Balance sheet de-risking continued in 9M2022 with further c.€300 • Prevent asset quality deterioration following the deteriorating
mn of organic NPE reduction macroeconomic landscape
• NPE ratio (pro forma for Helix 3) reduced to 4.5% as at 30 • Helix 3 expected to be completed by the end of November 2022
September 2022, delivering early the 2022 NPE ratio target of c.5%
• 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 • First Bank in Cyprus joining the Partnership for Carbon Accounting • Implement ESG strategy with a shift of focus on environment
Governance) agenda; by continuing to work towards building a forward-looking Financials (PCAF)
organisation with a clear strategy supported by effective corporate governance
• Embed ESG sustainability in the Bank's culture
aligned with ESG agenda priorities • Initiation of ESG training to Board of Directors and staff to
increase awareness • Continuous enhancement of structure and corporate governance
• Initiation of decarbonisation of the Group's operations • Invest in people and promote talent
• Approval of Green Lending Policy based on the Green Loan
Principles (GLPs)
• Environmental products launched e.g. under the Fil-eco product
scheme
• For further information, please refer to Section C. 'Business
Overview'
The third quarter of 2022 was marked by the achievements of key milestones of
the Group. In summary, these were:
· NPE ratio below 5% delivering early the 2022 target;
· Cost to income ratio excluding special levies and other
levies/contributions below 50% (47%), 10 percentage points lower on the
previous quarter and well below the previous 2022 guidance of 55% to 60% and;
· Return on tangible equity before non-recurring items (ROTE) of
11.7%, increasing confidence of achieving a recurring ROTE of c.10% already in
2022.
As a result, the Group is on a clear path to achieve a double-digit ROTE in
2023, laying the foundations for a meaningful return to dividend distributions
from 2023 onwards, subject to regulatory approvals and market conditions.
The financial targets are expected to be updated post the publication of
FY2022 Financial Results.
D. Strategy and Outlook (continued)
Key Metrics 9M2022 FY2022 Previous guidance FY2022 Updated guidance FY2023 Guidance
NII €234 mn c.€320 mn >€350 mn +€100-€120 mn
Cost to income ratio(1) 54% 55-60% Low-50s c.50%
Return on Tangible Equity (ROTE)(2) 8.8% (recurring) n/a c.10% (recurring) >10%
NPE ratio 4.5%(3) c.5% <5% <5%
Cost of risk 44 bps c.50 bps Mid-40 bps 50-80 bps
CET1 ratio 14.7%(3,4) Supported by CET1 ratio of 13.5%-14.5%
1. Calculated using total operating expenses which comprise staff
costs and other operating expenses. Total operating expenses do not include
the special levy on deposits or other levies/contributions and do not include
any advisory or other restructuring costs.
2. Return on Tangible Equity (ROTE) is calculated as Profit after Tax
(annualised) divided by Shareholders' equity minus intangible assets.
3. Pro forma for Helix 3
4. Allowing for IFRS 9 and temporary treatment for certain FVOCI
instruments transitional arrangements
E. Financial Results - Statutory Basis
Unaudited Interim Consolidated Income Statement
Nine months ended
30 September
2022 2021
(restated)*
€000 €000
Turnover 630,326 566,148
Interest income 280,505 269,395
Income similar to interest income 14,692 22,761
Interest expense (49,826) (47,828)
Expense similar to interest expense (11,037) (20,776)
Net interest income 234,334 223,552
Fee and commission income 149,341 134,287
Fee and commission expense (7,241) (6,235)
Net foreign exchange gains 21,464 11,572
Net gains/(losses) on financial instruments 8,529 (18,277)
Net gains/(losses) on derecognition of financial assets measured at amortised 2,179 (2,718)
cost
Insurance from assets under insurance and reinsurance contracts 61,030 146,906
Expenses from liabilities under insurance and reinsurance contracts (13,061) (104,308)
Net losses from revaluation and disposal of investment properties (583) (2,329)
Net gains on disposal of stock of property 11,175 9,481
Other income 11,945 10,317
Total operating income 479,112 402,248
Staff costs (250,532) (151,709)
Special levy on deposits and other levies/contributions (26,616) (24,603)
Other operating expenses (124,166) (139,757)
Operating profit before credit losses and impairment 77,798 86,179
Credit losses on financial assets (47,764) (33,744)
Impairment net of reversals on non-financial assets (17,474) (29,543)
Profit before tax 12,560 22,892
Income tax (19,819) (2,589)
(Loss)/profit after tax for the period (7,259) 20,303
Attributable to:
Owners of the Company (9,118) 19,566
Non-controlling interests 1,859 737
(Loss)/profit for the period (7,259) 20,303
Basic and diluted (loss)/profit per share attributable to the owners of the (2.0) 4.4
Company (€ cent)
* Comparative information was restated following certain changes in the
presentation of the primary statements, as further explained in Note 3.1 of
the Interim Financial Report 2022.
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Comprehensive Income
Nine months ended
30 September
2022 2021
€000 €000
(Loss)/profit for the period (7,259) 20,303
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in (13,471) 2,533
subsequent periods
Fair value reserve (debt instruments) (11,214) 3,406
Net (losses)/gains on investments in debt instruments measured at fair value (9,983) 3,406
through OCI (FVOCI)
Transfer to the consolidated income statement on disposal (1,231) -
Foreign currency translation reserve (2,257) (873)
Profit/(loss) on translation of net investment in foreign branches and 1,822 (8,045)
subsidiaries
(Loss)/profit on hedging of net investments in foreign branches and (4,079) 7,235
subsidiaries
Transfer to the consolidated income statement on dissolution/disposal of - (63)
foreign branches and subsidiaries
OCI not to be reclassified in the consolidated income statement in subsequent (878) 6,554
periods
Fair value reserve (equity instruments) (2,421) 739
Net (losses)/gains on investments in equity instruments designated at FVOCI (2,421) 739
Property revaluation reserve - (40)
Deferred tax - (40)
Actuarial gains on the defined benefit plans 1,543 5,855
Remeasurement gains on defined benefit plans 1,543 5,855
Other comprehensive (loss)/income for the period net of taxation (14,349) 9,087
Total comprehensive (loss)/income for the period (21,608) 29,390
Attributable to:
Owners of the Company (23,467) 28,669
Non-controlling interests 1,859 721
Total comprehensive (loss)/income for the period (21,608) 29,390
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Balance Sheet
30 September 2022 31 December 2021 (restated)
Assets €000 €000
Cash and balances with central banks 9,827,431 9,230,883
Loans and advances to banks 457,598 291,632
Derivative financial assets 65,986 6,653
Investments at FVPL 187,387 199,194
Investments at FVOCI 495,608 748,695
Investments at amortised cost 1,775,714 1,191,274
Loans and advances to customers 10,087,680 9,836,405
Life insurance business assets attributable to policyholders 532,229 551,797
Prepayments, accrued income and other assets 585,906 616,219
Stock of property 1,082,662 1,111,604
Deferred tax assets 265,430 265,481
Investment properties 88,514 117,745
Property and equipment 254,143 252,130
Intangible assets 166,426 184,034
Non-current assets and disposal groups held for sale 324,325 358,951
Total assets 26,197,039 24,962,697
Liabilities
Deposits by banks 518,859 457,039
Funding from central banks 2,951,594 2,969,600
Derivative financial liabilities 8,353 32,452
Customer deposits 18,792,065 17,530,883
Insurance liabilities 682,336 736,201
Accruals, deferred income, other liabilities and other provisions 437,230 361,977
Pending litigation, claims, regulatory and other matters 104,593 104,108
Debt securities in issue 299,465 302,555
Subordinated liabilities 316,859 340,220
Deferred tax liabilities 44,799 46,435
Total liabilities 24,156,153 22,881,470
Equity
Share capital 44,620 44,620
Share premium 594,358 594,358
Revaluation and other reserves 185,850 213,192
Retained earnings 971,765 986,623
Equity attributable to the owners of the Company 1,796,593 1,838,793
Other equity instruments 220,000 220,000
Non‑controlling interests 24,293 22,434
Total equity 2,040,886 2,081,227
Total liabilities and equity 26,197,039 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
(Loss)/profit for the period - - - (9,118) - - - - (9,118) - 1,859 (7,259)
Other comprehensive income/ (loss) after tax for the period - - - 1,543 - (13,635) - (2,257) (14,349) - - (14,349)
Total comprehensive (loss)/income after tax for the period - - - (7,575) - (13,635) - (2,257) (23,467) - 1,859 (21,608)
Decrease in value of in-force life insurance business - - - 13,086 - - (13,086) - - - - -
Tax on decrease in value of in-force life insurance business - - - (1,636) - - 1,636 - - - - -
Defense contribution - - - (4,983) - - - - (4,983) - - (4,983)
Payment of coupon to AT1 holders - - - (13,750) - - - - (13,750) - - (13,750)
30 September 2022 44,620 594,358 (21,463) 971,765 80,060 9,650 102,201 15,402 1,796,593 220,000 24,293 2,040,886
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 - - - 19,566 - - - - 19,566 - 737 20,303
Other comprehensive income/ (loss) after tax for the period - - - 5,855 (30) 4,145 - (867) 9,103 - (16) 9,087
Total comprehensive income/(loss) after tax for the period - - - 25,421 (30) 4,145 - (867) 28,669 - 721 29,390
Increase in value of in-force life insurance business - - - (5,600) - - 5,600 - - - - -
Tax on increase in value of in-force life insurance business - - - 700 - - (700) - - - - -
Payment of coupon to AT1 holders - - - (13,750) - - - - (13,750) - - (13,750)
30 September 2021 44,620 594,358 (21,463) 989,284 79,485 27,039 115,301 16,939 1,845,563 220,000 25,131 2,090,694
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 234 - - 234
Net fee and commission income 142 - - 142
Net foreign exchange gains and net gains on financial instruments 24 - 6 30
Net gains on derecognition of financial assets measured at amortised cost - - 2 2
Insurance income net of claims and commissions 48 - - 48
Net gains from revaluation and disposal of investment properties and on 11 - - 11
disposal of stock of properties
Other income 12 - - 12
Total income 471 - 8 479
Total expenses (281) (3) (117) (401)
Operating profit before credit losses and impairments 190 (3) (109) 78
Loan credit losses (36) (1) 37 -
Impairments of other financial and non-financial assets (20) - 20 -
Provision for litigation, claims, regulatory and other matters (3) - 3 -
Credit losses on financial assets and impairment net of reversals of - - (65) (65)
non-financial assets
Profit before tax and non-recurring items 131 (4) (114) 13
Tax (20) - - (20)
Profit attributable to non-controlling interests (2) - - (2)
Profit after tax and before non-recurring items (attributable to the owners of 109 (4) (114) (9)
the Company)
Advisory and other restructuring costs - organic (10) - 10 -
Profit/(loss) after tax - organic* (attributable to the owners of the Company) 99 (4) (104) (9)
Provisions/net loss relating to NPE sales (1) 1 - -
Restructuring and other costs relating to NPE sales (3) 3 - -
Restructuring costs - Voluntary Staff Exit Plans (VEP) (104) - 104 -
Loss after tax (attributable to the owners of the Company) (9) - - (9)
*This is the profit/(loss) 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 Voluntary
Staff Exit Plans (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 €3
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
loan credit losses relating to Project Helix 3 of approximately €1 million
and are disclosed within 'Provisions/net loss relating to NPE sales' under the
underlying basis.
Other reclassifications
· Net gains on loans and advances to customers at FVPL of
€5 million included in 'Loan credit losses' under the underlying basis are
included in 'Net gains/(losses) on financial instruments' under the statutory
basis. Their classification under the underlying basis is done to align their
presentation with the loan credit losses on loans and advances to customers at
amortised cost.
· 'Net gains/(losses) on derecognition of financial assets
measured at amortised cost' of approximately €2 million under the statutory
basis comprise of the below items which are reclassified accordingly under the
underlying basis as follows:
· €3 million net gains on derecognition of loans and advances to customers
included in 'Loan credit losses' under the underlying basis as to align to the
presentation of the loan credit losses arising from loans and advances to
customers.
F. Notes (continued)
F.1 Reconciliation of interim income statement between
statutory and underlying basis (continued)
· Net losses on derecognition of debt securities measured
at amortised cost of approximately €1 million included in 'Net foreign
exchange gains and net losses on financial instruments' under the underlying
basis in order to align their presentation with the gains/(losses) arising on
financial instruments.
· Provision for litigation, claims, regulatory and
other matters amounting to €3 million included in 'Other operating expenses'
under the statutory basis, is separately presented under the underlying basis,
since it mainly relates to cases that arose outside the normal activities of
the Group.
· Advisory and other restructuring costs of
approximately €10 million included in 'Other operating expenses' under the
statutory basis are separately presented under the underlying basis since they
comprise mainly fees to external advisors in relation to the transformation
programme and other strategic projects of the Group.
· Total expenses under the statutory basis include
restructuring costs relating to voluntary staff exit plans (VEP) of €104
million and are separately presented under the underlying basis, since they
represent one-off items.
· 'Credit losses on financial assets' and 'Impairment
net of reversals of non-financial assets' under the statutory basis include:
i) credit losses to cover credit risk on loan and advances to customers of
€45 million, which are included in 'Loan credit losses' under the underlying
basis, and ii) credit losses of other financial instruments of €3 million
and impairment net of reversals of non-financial assets of €17 million which
are included in 'Impairments of other financial and non-financial assets'
under the underlying basis, as to be presented separately from loan credit
losses.
F. Notes (continued)
F.2 Customer deposits
The analysis of customer deposits is presented below:
30 September 31 December 2021
2022
By type of deposit €000 €000
Demand 10,405,645 9,221,791
Savings 2,705,401 2,423,086
Time or notice 5,681,019 5,886,006
18,792,065 17,530,883
By geographical area
Cyprus 12,846,826 11,992,960
Greece 1,912,857 1,906,854
United Kingdom 717,241 713,621
Romania 67,210 54,306
Russia 689,839 661,820
Ukraine 304,754 276,248
Belarus 79,550 55,738
Other countries 2,173,788 1,869,336
18,792,065 17,530,883
Deposits by geographical area are based on the country of passport of the
Ultimate Beneficial Owner
30 September 31 December 2021
2022
By currency €000 €000
Euro 16,686,152 15,736,030
US Dollar 1,705,240 1,373,584
British Pound 318,757 312,918
Russian Rouble 8,417 28,539
Swiss Franc 11,879 10,865
Other currencies 61,620 68,947
18,792,065 17,530,883
By customer sector
Corporate 1,347,862 1,117,148
Large and international corporate 770,146 631,002
SMEs 943,336 866,860
Retail 11,113,118 11,051,397
Restructuring
- Corporate 16,183 21,658
- SMEs 10,065 13,091
- Retail other 11,922 9,862
Recoveries
- Corporate 1,279 1,383
International banking services 3,913,177 3,500,183
Wealth management 664,977 318,299
18,792,065 17,530,883
F. Notes (continued)
F.3 Loans and advances to customers
30 September 31 December 2021
2022
€000 €000
Gross loans and advances to customers at amortised cost 10,033,870 9,840,535
Allowance for ECL for impairment of loans and advances to customers (172,593) (285,998)
9,861,277 9,554,537
Loans and advances to customers measured at FVPL 226,403 281,868
10,087,680 9,836,405
F.4 Credit risk concentration of loans and advances to
customers
Industry (economic activity), business line and geographical concentrations of
the Group's gross loans and advances to customers at amortised cost excluding
loans and advances at amortised cost classified as held for sale, are
presented in the tables below.
The geographical concentration, for credit risk concentration purposes, is
based on the Group's Country Risk Policy, which is followed for monitoring the
Group's exposures, in accordance with which exposures are analysed by country
of risk based on the country of residency for individuals and the country of
registration for companies.
30 September 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 964,663 403 51 2 - 34 965,153
Manufacturing 325,217 45,044 - - - 41,416 411,677
Hotels and catering 916,559 32,286 35,586 - - 40,059 1,024,490
Construction 552,236 9,165 26 1,984 - 21 563,432
Real estate 930,814 94,867 1,851 10,941 - 47,170 1,085,643
Private individuals 4,481,816 10,398 78,903 408 21,269 55,553 4,648,347
Professional and other services 526,993 1,018 5,340 892 350 36,839 571,432
Other sectors 519,721 3 - - 2 243,970 763,696
9,218,019 193,184 121,757 14,227 21,621 465,062 10,033,870
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
30 September 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 2,099,908 9,009 52 - 344 117 2,109,430
Large and international corporate 1,461,020 176,957 42,319 11,800 - 398,862 2,090,958
SMEs 1,037,165 1,059 2,311 2,022 - 2,193 1,044,750
Retail
- housing 3,227,194 2,007 38,846 222 308 19,081 3,287,658
- consumer, credit cards and other 898,355 933 618 11 2 1,054 900,973
Restructuring
- corporate 58,719 - 527 - 33 62 59,341
- SMEs 51,444 - 166 - 1,491 385 53,486
- retail housing 81,228 106 1,532 - 294 114 83,274
- retail other 25,636 3 20 - 190 15 25,864
Recoveries
- corporate 19,568 - 6 (4) 136 34 19,740
- SMEs 26,432 - 1,347 - 1,801 1,780 31,360
- retail housing 70,679 267 21,437 65 3,555 9,944 105,947
- retail other 33,521 18 1,314 - 34 277 35,164
International banking services 86,233 1,774 11,262 111 13,433 24,745 137,558
Wealth management 40,917 1,051 - - - 6,399 48,367
9,218,019 193,184 121,757 14,227 21,621 465,062 10,033,870
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
Large and international 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 30 September 2022 of
€100,842 thousand (31 December 2021: €100,039 thousand).
The loan and advances to customers reported within 'Other countries' as at 30
September 2022 include exposures of €2.7 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 concentrations of
the Group's gross loans and advances to customers at amortised cost classified
as held for sale are presented in the tables below:
30 September 2022 Cyprus United Kingdom Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000
Trade 56,114 - 3 - 56,117
Manufacturing 24,555 16 - - 24,571
Hotels and catering 15,043 4 - - 15,047
Construction 27,721 - - - 27,721
Real estate 6,173 - - - 6,173
Private individuals 364,689 1,211 854 3,328 370,082
Professional and other services 26,528 7 - - 26,535
Other sectors 10,874 - - - 10,874
531,697 1,238 857 3,328 537,120
30 September 2022 Cyprus United Kingdom Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000
Restructuring
- corporate 363 - - - 363
- SMEs 3,729 - - - 3,729
- retail housing 16,932 590 - 126 17,648
- retail other 5,187 - - - 5,187
Recoveries
- corporate 8,354 - - 49 8,403
- SMEs 14,979 - 815 398 16,192
- retail housing 244,165 620 39 2,667 247,491
- retail other 237,988 28 3 88 238,107
531,697 1,238 857 3,328 537,120
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
Large and international 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.
30 September 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 7,864,682 1,728,709 409,864 126,387 10,129,642
recognition
Residual fair value adjustment on initial recognition (72,307) (18,222) (2,893) (2,350) (95,772)
Gross loans at amortised cost 7,792,375 1,710,487 406,971 124,037 10,033,870
Cyprus 7,792,136 1,710,487 404,844 124,037 10,031,504
Other countries 239 - 2,127 - 2,366
7,792,375 1,710,487 406,971 124,037 10,033,870
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
30 September 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 92 3,061 456,740 95,043 554,936
recognition
Residual fair value adjustment on initial recognition - (74) (1,521) (16,221) (17,816)
Gross loans at amortised cost 92 2,987 455,219 78,822 537,120
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
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:
30 September 2022 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate 1,681,773 404,995 2,689 19,973 2,109,430
Large and international corporate 1,574,419 437,022 56,614 22,903 2,090,958
SMEs 798,283 231,266 5,486 9,715 1,044,750
Retail
- housing 2,898,604 339,655 37,944 11,455 3,287,658
- consumer, credit cards and other 683,726 182,970 18,253 16,024 900,973
Restructuring
- corporate 2,616 22,526 24,152 10,047 59,341
- SMEs 11,877 13,916 24,489 3,204 53,486
- retail housing 4,380 25,539 49,165 4,190 83,274
- retail other 1,683 5,193 17,888 1,100 25,864
Recoveries
- corporate - - 18,327 1,413 19,740
- SMEs - - 28,456 2,904 31,360
- retail housing - - 91,166 14,781 105,947
- retail other 117 - 29,491 5,556 35,164
International banking services 95,391 39,165 2,838 164 137,558
Wealth management 39,506 8,240 13 608 48,367
7,792,375 1,710,487 406,971 124,037 10,033,870
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
Large and international 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.
30 September 2022 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Restructuring
- corporate - - 363 - 363
- SMEs - 819 2,237 673 3,729
- retail housing 92 2,010 14,610 936 17,648
- retail other - 158 4,451 578 5,187
Recoveries
- corporate - - 7,767 636 8,403
- SMEs - - 14,967 1,225 16,192
- retail housing - - 208,441 39,050 247,491
- retail other - - 202,383 35,724 238,107
92 2,987 455,219 78,822 537,120
31 December 2021 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Large and international 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
Nine months ended
30 September
2022 2021
€000 €000
Impairment loss net of reversals on loans and advances to customers 49,101 24,437
Recoveries of loans and advances to customers previously written off (9,392) (8,644)
Changes in expected cash flows 6,221 12,018
Financial guarantees and commitments (998) 2,608
44,932 30,419
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:
Nine months ended
30 September
2022 2021
€000 €000
1 January 591,417 1,652,635
Foreign exchange and other adjustments 3,718 1,753
Write offs (180,187) (224,122)
Interest (provided) not recognised in the income statement 14,466 42,295
Disposal of Sinope portfolio (2021: Helix 2 portfolio) (5,191) (851,093)
Charge for the period 49,101 24,437
30 September 473,324 645,905
Stage 1 17,871 16,167
Stage 2 26,826 33,920
Stage 3 370,194 523,279
POCI 58,433 72,539
30 September 473,324 645,905
The allowance for ECL, included above, for loans and advances to customers
held for sale as at 30 September 2022 amounted to €300,731 thousand (30
September 2021: €299,848 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:
Nine months ended
30 September
2022 2021
€000 €000
Stage 1 (4,183) (16,145)
Stage 2 1,200 969
Stage 3 52,084 39,613
49,101 24,437
During the nine months ended 30 September 2022 the total non‑contractual
write‑offs recorded by the Group amounted to €128,264 thousand (nine
months ended 30 September 2021: €204,095 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 nine months
ended 30 September 2022 and that are still subject to enforcement activity is
€958,820 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 30 September 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 favourable and 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 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 takes into consideration the timing of the
expected sale and the estimated sale proceeds in determining the ECL.
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 current economic conditions
COVID-19 related management overlays applied in 2020 and 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 sector (which applied stricter
customer's credit ratings thresholds in this industry sector) that was removed
in the second quarter of 2022 following the introduction of the new overlays
described below. The impact on the ECL, from the removal of the overlay, was a
release of €146 thousand and a transfer of €46 million loans from Stage 2
to Stage 1 as at 30 September 2022.
During 2022, 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 on the domestic cost of living. The impact on
the ECL from the application of these overlays was approximately €9 million
charge for the nine months ended 30 September 2022 and a transfer of €177
million loans from Stage 1 to Stage 2 as at 30 September 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 30 September 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 disease due to virus mutations, are timely captured.
F. Notes (continued)
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.
30 September 2022 31 December 2021
€000 €000
Stage 1 - 6,883
Stage 2 849,156 828,849
Stage 3 248,270 348,385
POCI 24,873 39,613
1,122,299 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 30 September 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
and within the 2022 Interim Financial Report.
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.
30 September 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:
NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 48,102 - - - 32 - - -
Other financial corporations 170,546 3,809 11,912 3,445 5,522 2,117 2,219 2,044
Non-financial corporations 5,280,641 173,681 962,404 109,269 106,199 78,709 55,079 47,454
Of which: Small and Medium sized Enterprises(3) (SMEs) 3,892,919 94,664 658,055 44,532 56,371 38,229 23,137 18,207
Of which: Commercial real estate(3) 3,943,730 138,710 907,237 99,065 72,849 58,605 48,579 43,703
Non-financial corporations by sector
Construction 556,473 10,906 12,466
Wholesale and retail trade 950,495 22,040 16,932
Accommodation and food service activities 1,170,375 21,322 8,219
Real estate activities 1,084,768 47,502 30,944
Manufacturing 408,199 10,488 5,423
Other sectors 1,110,331 61,423 32,215
Households 4,767,843 286,349 311,983 165,705 67,699 50,981 36,808 31,934
Of which: Residential mortgage loans(3) 3,771,309 243,516 271,772 145,763 41,036 33,858 28,413 24,774
Of which: Credit for consumption(3) 563,959 41,136 48,259 24,389 21,163 14,707 9,227 8,043
10,267,132 463,839 1,286,299 278,419 179,452 131,807 94,106 81,432
Loans and advances to customers classified as held for sale 537,120 533,728 227,952 224,760 300,731 299,955 110,598 109,856
Total on-balance sheet 10,804,252 997,567 1,514,251 503,179 480,183 431,762 204,704 191,288
(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: Of which exposures with forbearance measures
credit risk and provisions
loans and advances(1,2) NPEs
Total exposures with forbearance measures Of which: NPEs Total exposures with forbearance measures Of which:
NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 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(3) (SMEs) 4,052,571 123,558 734,362 71,269 83,757 60,892 39,263 32,499
Of which: Commercial real estate(3) 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 4,755,100 434,040 430,007 238,066 153,865 136,902 70,667 64,589
Of which: Residential mortgage loans(3) 3,734,448 369,147 372,141 208,387 112,711 105,764 56,145 52,219
Of which: Credit for consumption(3) 581,197 54,238 61,824 31,165 28,824 22,167 13,290 11,430
10,137,945 716,120 1,451,860 457,710 301,539 254,680 159,462 145,576
Loans and advances to customers classified as held for sale 555,789 553,620 245,452 243,495 305,419 304,665 118,094 117,377
Total on-balance sheet 10,693,734 1,269,740 1,697,312 701,205 606,958 559,345 277,556 262,953
(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.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 (phasing‑in at 25%
in 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 and the BRRD (the '2021 Banking Package').
Amongst other things, the 2021 Banking Package would implement certain
elements of Basel III that have not yet been transposed into EU law. The 2021
Banking Package includes:
· a proposal for a Regulation (sometimes known as 'CRR III') to make
amendments to CRR with regard to (amongst other things) requirements on credit
risk, credit valuation adjustment risk, operational risk, market risk and the
output floor;
· a proposal for a Directive (sometimes known as 'CRD VI') to make
amendments to CRD with regard to (amongst other things) requirements on
supervisory powers, sanctions, third-country branches and ESG risks; and
· a proposal for a Regulation to make amendments to CRR and the BRRD with
regard to (amongst other things) requirements on the prudential treatment of
G-SII groups with a multiple point of entry resolution strategy and a
methodology for the indirect subscription of instruments eligible for meeting
the MREL requirements.
The 2021 Banking Package is subject to amendment in the course of the EU's
legislative process; and its scope and terms may change prior to its
implementation. In addition, in the case of the proposed amendments to CRD and
the BRRD, their terms and effect will depend, in part, on how they are
transposed in each member state. 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 30 September 2022 stands at 14.18% and the
Total Capital ratio at 19.12% on a transitional basis.
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 ECB has also provided non-public guidance for an additional Pillar II CET1
buffer (P2G).
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.
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, effective from 1 March
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 vary 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
(P2G).
Following the annual SREP performed by the ECB in 2022 and based on the draft
SREP decision received in October 2022 expected to be effective from 1 January
2023, (subject to ECB final confirmation), the P2R has been revised to 3.08%,
compared to the current level of 3.26%. The revised P2R includes a revised P2R
add-on of 0.33% relating to ECB's prudential provisioning expectations. When
ignoring the P2R II add-on relating to ECB's prudential provisioning
expectations, the P2R is reduced from 3.00% to 2.75%. As a result, the Group's
minimum phased in CET1 capital ratio and Total Capital ratio requirements were
reduced when ignoring the phasing in of the O-SII Buffer. The Group's minimum
phased-in CET1 capital ratio requirement is expected to be set at
approximately 10.23%, comprising a 4.50% Pillar I requirement, a P2R of
approximately 1.73%, the CCB of 2.50% and the O-SII Buffer of 1.50% (to be
fully phased in 1 January 2023). The Group's minimum phased-in Total Capital
requirement is expected to be set at approximately 15.08%, comprising an 8.00%
Pillar I requirement, of which up to 1.50% can be in the form of AT1 capital
and up to 2.00% in the form of T2 capital, a P2R of approximately 3.08%, the
CCB of 2.50% and the O-SII Buffer of 1.50%. The ECB has also maintained the
P2G unchanged.
The Group is subject to a 3% Pillar I Leverage Ratio requirement.
The above minimum ratios apply for both BOC PCL and the Group.
The capital position of the Group and BOC PCL as at 30 September 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 years 2021 and 2022.
The CCyB for the Group as at 30 September 2022 has been calculated at 0.00%.
G. Additional Risk & Capital Management disclosures
(continued)
G.2 Capital management (continued)
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%
on 1 January 2020 and by 0.25% on 1 January 2022, until being fully
implemented on 1 January 2023 with the phasing-in by another 0.25%.
The EBA final guidelines on SREP and supervisory stress testing and the Single
Supervisory Mechanism's (SSM) 2018 SREP methodology provide that the own funds
held for the purposes of Pillar II Guidance (P2G) cannot be used to meet any
other capital requirements (Pillar I, 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 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
30 September 31 December 30 September 31 December
2022 2021(1) 2022 2021(1)
€000 €000 €000 €000
Transitional Common Equity Tier 1 (CET1)(2) 1,494,568 1,619,559 1,462,282 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 2,014,568 2,139,559 1,982,282 2,112,455
Risk weighted assets - credit risk(3) 9,522,270 9,678,741 9,538,145 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 10,537,758 10,694,229 10,533,595 10,692,801
Transitional % % % %
Common Equity Tier 1 ratio 14.18 15.14 13.88 14.89
Total capital ratio 19.12 20.01 18.82 19.76
Leverage ratio 6.63 7.45 6.52 7.35
(1) As per 2021 Annual Financial Report and Pillar III Disclosures for the
year ended December 2021.
(2.)CET1 includes regulatory deductions, comprising, amongst others,
intangible assets amounting to €29,260 thousand for the Group and €24,741
thousand for BOC PCL as at 30 September 2022 (31 December 2021: €30,032
thousand for the Group and €26,452 thousand for BOC PCL). As at 30 September
2022 an amount of €11,802 thousand is considered prudently valued for CRR
purposes and it is not deducted from CET1 (31 December 2021: €15,394
thousand).
(3.)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
30 September 31 December 30 September 31 December
2022(1) 2021(1,2) 2022(1) 2021(1,2)
% % % %
Common Equity Tier 1 ratio 13.47 13.75 13.17 13.49
Total capital ratio 18.44 18.69 18.14 18.43
Leverage ratio 6.32 6.80 6.20 6.70
(1.)IFRS 9 and application of the temporary treatment of certain FVOCI
instruments in accordance with Article 468 of CRR fully loaded.
(2.)As per 2021 Annual Financial Report and Pillar III Disclosures for the
year ended December 2021.
During the nine months ended 30 September 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, the cost of VEP, the payment of
AT1 interest, the movement in the fair value through OCI reserves 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 96 bps
during the nine months ended 30 September 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. As a result
of the prudential charge deducted from own funds as at 30 September 2022, the
impact on the Group's CET1 ratio is 33 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 since 1 January 2022 at 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. This
will be fully phased in (100%) by 1 January 2025. 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.
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.
Capital requirements of subsidiaries
The insurance subsidiaries of the Group, the General Insurance of Cyprus Ltd
and Eurolife Ltd, comply with the requirements of the Superintendent of
Insurance including the minimum solvency ratio. The regulated 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 and is subject to the new IFR/IFD
regime in full. The payment services subsidiary of the Group, JCC Payment
Services Ltd, complies with the regulatory capital requirements.
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January
2016 EU member states shall apply the BRRD's provisions requiring EU credit
institutions and certain investment firms to maintain a minimum requirement
for own funds and eligible liabilities (MREL), subject to the provisions of
the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part
of the reform package for strengthening the resilience and resolvability of
European banks, the BRRD ΙΙ came into effect and was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in 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, 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 since 1 January 2022 with an interim
requirement of 14.94% of risk weighted assets and 5.91% of LRE. The own funds
used by BOC PCL to meet the Combined Buffer Requirement (CBR) are not eligible
to meet its MREL requirements expressed in terms of risk weighted assets. BOC
PCL must comply with the MREL requirement at the consolidated level,
comprising BOC PCL and its subsidiaries. The decision is subject to annual
review by the competent authorities, updated also as changes in capital
requirements become effective.
In November 2022, BOC PCL received a draft notification from the SRB regarding
the 2023 MREL decision, by which the above requirements and timelines remain
unchanged, except for the final MREL requirement for 31 December 2025 now set
at 24.35% of risk weighted assets. 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. The revised MREL
requirements remain subject to SRB and CBC final confirmation.
As at 30 September 2022, the MREL ratio calculated according to the SRB's
eligibility criteria currently in effect, and based on internal estimate,
stood at 19.87% of RWAs and at 9.62% of LRE. 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 30 September 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. Additional Risk & Capital Management disclosures
(continued)
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. The annual ICAAP for 2021
and the quarterly ICAAP reviews undertaken in 2022 indicated that the Group
has sufficient capital and available mitigants to support its risk profile and
its business and to enable it to meet its regulatory requirements, both under
a baseline and stress conditions scenarios.
The Group also undertakes quarterly reviews of the ILAAP through quarterly
stress tests submitted to the ALCO and the Risk Committee of the Board of
Directors. In these reviews actual and forecasted information are
considered. Any material changes since the year-end are assessed in terms of
liquidity and funding. The quarterly review assessment identifies whether the
Group has an adequate liquidity buffer to cover the stress outflows. The
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 2022, indicated that BOC PCL's
liquidity position is at a very comfortable level. BOC PCL maintains liquidity
resources which are adequate to ensure its ability to meet obligations as they
fall due under ordinary and stressed conditions.
The 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.
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 30 September 2022, the Group was in compliance with all regulatory
liquidity requirements. As at 30 September 2022, the LCR stood at 300% for the
Group (compared to 298% as at 31 December 2021). As at 30 September 2022 the
Group's NSFR was 160% (compared to 147% as at 31 December 2021).
G.5 Liquidity reserves
The below table sets out the Group's liquidity reserves:
Composition of the liquidity reserves 30 September 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 Level 1 Level
2A & 2B 2A & 2B
€000 €000 €000 €000 €000 €000
Cash and balances with central banks 9,644,926 9,644,926 - 9,064,840 9,064,840 -
Placements with banks 304,877 - - 118,752 - -
Liquid investments 690,362 407,546 172,297 500,930 304,758 147,562
Available ECB Buffer 99,474 - 80,786 - -
Total 10,739,639 10,052,472 172,297 9,765,308 9,369,598 147,562
G. Additional Risk & Capital Management disclosures
(continued)
G.5 Liquidity reserves (continued)
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.
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
30 September 31 December 2021
2022
€000 €000
Gross loans and advances to customers as per the underlying basis (as defined 10,913,369 10,856,660
below)
Reconciling items:
Residual fair value adjustment on initial recognition (Note 1 after table 3 (95,772) (105,678)
below) (Section F.5)
Gross loans and advances to customers at amortised cost classified as held for (537,120) (555,789)
sale (Section F.4)
Residual fair value adjustment on initial recognition on loans and advances to (17,816) (19,090)
customers classified as held for sale (Note 1 after table 3 below) (Section
F.5)
Loans and advances to customers measured at fair value through profit or loss (226,403) (281,868)
(Section F.3)
Aggregate fair value adjustment on loans and advances to customers measured at (2,388) (53,700)
fair value through profit or loss
Gross loans and advances to customers at amortised cost as per Section F.3 10,033,870 9,840,535
1. (b) Reconciliation of Gross loans and advances to customers
classified as held for sale
30 September 31 December 2021
2022
€000 €000
Gross loans and advances to customers classified as held for sale as per the 554,936 574,879
underlying basis
Reconciling items:
Residual fair value adjustment on initial recognition on loans and advances to (17,816) (19,090)
customers classified as held for sale (Note 1 after table 3 below) (Section
F.5)
Loans and advances to customers classified as held for sale as per Section F.4 537,120 555,789
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)
30 September 31 December 2021
2022
€000 €000
Allowance for expected credit losses on loans and advances to customers (ECL) 610,247 791,830
as per the underlying basis (as defined below)
Reconciling items:
Residual fair value adjustment on initial recognition (Note 1 after table 3 (95,772) (105,678)
below)
Aggregate fair value adjustment on loans and advances to customers measured at (2,388) (53,700)
fair value through profit or loss
Allowance for expected credit losses on loans and advances to customers (300,731) (305,419)
classified as held for sale (Section F.6)
Residual fair value adjustment on initial recognition on loans and advances to (17,816) (19,090)
customers classified as held for sale (Note 1 after table 3 below)
Provisions for financial guarantees and commitments (20,947) (21,945)
Allowance for ECL for impairment of loans and advances to customers as per 172,593 285,998
Section F.3
2. (b) Reconciliation of Allowance for expected credit losses
on loans and advances to customers classified as held for sale (ECL)
30 September 31 December 2021
2022
€000 €000
Allowance for expected credit losses on loans and advances to customers (ECL) 318,547 324,509
classified as held for sale as per the underlying basis
Reconciling items:
Residual fair value adjustment on initial recognition on loans and advances to (17,816) (19,090)
customers classified as held for sale (Note 1 after table 3 below)
Allowance for ECL for impairment of loans and advances to customers classified 300,731 305,419
as held for sale as per Section F.6
3. Reconciliation of NPEs
30 September 31 December 2021
2022
€000 €000
NPEs as per the underlying basis (as defined below) 1,018,464 1,343,308
Reconciling items:
Loans and advances to customers (NPEs) classified as held for sale (Note 2 (533,728) (553,619)
below)
Residual fair value adjustment on initial recognition on loans and advances to (17,741) (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 (16,342) (122,972)
(NPEs)
POCI (NPEs) (Note 4 below) (40,789) (70,814)
Residual fair value adjustment on initial recognition on loans and advances to (2,893) (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 406,971 573,343
F.5
NPE ratio
NPEs (as per table above) (€000) 1,018,464 1,343,308
Gross loans and advances to customers (as per table above) (€000) 10,913,369 10,856,660
Ratio of NPE/Gross loans (%) 9.3% 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
€455,219 thousand Stage 3 loans (31 December 2021: €474,459 thousand
Stage 3 loans) and an amount of €78,509 thousand POCI - NPEs loans (out of a
total of €78,822 thousand POCI loans) (31 December 2021: €79,160 thousand
POCI - NPEs 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
€1,521 thousand for Stage 3 loans (31 December 2021: €2,079 thousand for
Stage 3 loans) and an amount of €16,220 thousand POCI - NPEs loans (out of a
total of €16,221 thousand POCI loans) (31 December 2021: €16,951 thousand
for POCI - NPEs 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
€40,789 thousand POCI - NPEs loans (out of a total of €126,387 thousand
POCI loans) (31 December 2021: €70,814 thousand POCI - NPEs loans (out of a
total of €159,755 thousand POCI loans)) as disclosed in Section F.5.
4. Reconciliation of Gross Loans - Pro forma
30 September
2022
€000
Gross Loans (as per table 1 (a) above) 10,913,369
Reconciling items:
Gross loans and advances to customers classified as held for sale (554,936)
(Project Helix 3) (as per table 1 (b) above)
Gross loans and advances to customers - pro forma 10,358,433
5. Reconciliation of NPEs - Pro forma
30 September
2022
€000
NPEs (as per table 3 above) 1,018,464
Reconciling items:
Gross loans and advances to customers (NPEs) classified as held for sale (533,728)
(Project Helix 3) (Note 2 of table 3 above)
Residual fair value adjustment on initial recognition on loans and advances to (17,741)
customers (NPEs) classified as held for sale (Project Helix 3) (Note 3 of
table 3 above)
NPEs - pro forma 466,995
NPE ratio - Pro forma 30 September
2022
€000
NPEs - Pro forma (as per table above) (€000) 466,995
Gross loans and advances to customers - Pro forma (as per table above) 10,358,433
(€000)
Ratio of NPE/Gross loans - Pro forma (%) 4.5%
H. Definitions & Explanations (continued)
Reconciliations of Alternative Performance Measures (continued)
6. Reconciliation of Loan credit losses
Nine months ended
30 September
2022 2021
€000 €000
Loan credit losses as per the underlying basis 35,559 56,700
Reconciling items:
Loan credit losses relating to NPE sales, disclosed under non-recurring items 1,314 (15,014)
within 'Provisions/net loss relating to NPE sales' under the underlying basis
36,873 41,686
Loan credit losses (as defined) are reconciled to the statutory basis as
follows:
Credit losses to cover credit risk on loans and advances to customers 44,932 30,419
Net (gains)/losses on derecognition of financial assets measured at amortised (3,372) 2,718
cost - loans and advances to customers (see further below)
Net (gains)/losses on loans and advances to customers at FVPL (4,687) 8,549
36,873 41,686
Net gains on derecognition of financial assets measured at amortised cost on
the Unaudited Interim Consolidated Income Statement amounts to €2,179
thousand and comprises €3,372 thousand net gains on derecognition of loans
and advances to customers and €1,193 thousand net losses on derecognition of
debt securities measured at amortised cost for the nine months ended 30
September 2022 (30 September 2021: €2,718 thousand net losses on
derecognition of loans and advances to customers).
H. Definitions & Explanations (continued)
Ratios Information
1. Net Interest Margin
Nine months ended
30 September
2022 2021
a. Net interest income used in the calculation of NIM €000 €000
Net interest income as per the underlying basis/statutory basis (Section E 234,334 223,552
Unaudited Interim Consolidated Income Statement)
Net interest income used in the calculation of NIM (annualised) 313,304 298,888
1.2. Interest earning assets 30 September 2022 30 June 31 March 31 December
2022 2022 2021
€000 €000
Cash and balances with central banks 9,827,431 9,904,549 9,329,711 9,230,883
Loans and advances to banks 457,598 312,308 312,967 291,632
Loans and advances to customers 10,087,680 10,144,099 10,004,197 9,836,405
Loans and advances to customers held for sale 236,389 247,207 247,836 250,370
Prepayments, accrued income and other assets - Deferred consideration 306,236 304,268 302,036 299,766
receivable ('DPP')
Investments
Debt securities 2,270,359 1,913,771 1,860,853 1,930,388
Less: Investments which are not interest bearing (11,732) (5,476) (5,790) (5,534)
Total interest earning assets 23,173,961 22,820,726 22,051,810 21,833,910
1.3. Quarterly average interest earning assets (€000)
- as at 30 September 2022 22,470,102
- as at 30 September 2021 20,086,645
1.2.
1.4. Net interest margin (NIM) Nine months ended
30 September
2022 2021
Net interest income (annualised) (as per table 1.1. above) (€000) 313,304 298,888
Quarterly average interest earning assets (as per table 1.3. above) (€000) 22,470,102 20,086,645
NIM (%) 1.39% 1.49%
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:
30 September 2022 30 June 31 March 31 December
2022 2022 2021
€000 €000 €000 €000
Total assets used in the computation of the operating profit return on average 26,197,039 25,843,732 25,117,310 24,962,697
assets per the statutory basis (Section E Unaudited Interim Consolidated
Balance Sheet)
Quarterly average total assets (€000)
- as at 30 September 2022 25,530,195
- as at 30 September 2021 23,330,003
2022 2021
(restated)
Annualised total income for the nine months ended 30 September (as per 629,799 570,883
underlying basis in Section F.1) (€000)
Annualised total expenses for the nine months ended 30 September (as per (375,925) (379,397)
underlying basis in Section F.1) (€000)
Annualised operating profit for the nine months ended 30 September (€000) 253,874 191,486
Quarterly average total assets as at 30 September (€000) 25,530,195 23,330,003
Operating profit return on average assets (annualised) (%) 1.0% 0.8%
3. Basic earnings after tax and before non-recurring items per
share attributable to the owners of the Company
The various components used in the determination of the 'Basic earnings after
tax and before non-recurring items per share attributable to the owners of the
Company (€ cent)' are provided below:
2022 2021
Profit after tax and before non-recurring items (attributable to the owners of 108,941 63,840
the Company) per the underlying basis for the nine months ended 30 September
(Section F.1) (€000)
Weighted average number of shares in issue during the period, excluding 446,058 446,058
treasury shares (€000)
Basic earnings after tax and before non-recurring items per share attributable 24,42 14,31
to the owners of the Company (€ cent)
H. Definitions & Explanations (continued)
Ratios Information (continued)
4. 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:
2022 2021
Annualised profit after tax and before non-recurring items (attributable to 145,654 85,353
the owners of the Company) per the underlying basis for the nine months ended
30 September (Section F.1) (€000)
Quarterly average tangible total equity as at 30 September (as per table 4.2 1,658,681 1,651,998
below) (€000)
ROTE after tax and before non-recurring items (annualised) (%) 8.8% 5.2%
4.1 Tangible total equity 30 September 2022 30 June 2022 31 March 2022 31 December 2021
Equity attributable to the owners of the Company (as per the statutory basis) 1,796,593 1,849,525 1,849,287 1,838,793
Less: Intangible assets (as per the statutory basis) (166,426) (171,403) (177,612) (184,034)
Total tangible equity 1,630,167 1,678,122 1,671,675 1,654,759
4.2 Quarterly average tangible total equity (€000)
- as at 30 September 2022 1,658,681
- as at 30 September 2021 1,651,998
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 November 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 €116 mn as at 30 September 2022 (compared to
€145 mn as at 30 June 2022, €149 mn at 31 March 2022 and €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 €229 mn as at 30 September 2022 (compared to €313
mn as at 30 June 2022, €312 mn at 31 March 2022 and €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 41.1%
as at 30 September 2022 compared to 41.2% as at 30 June 2022, 41.9% at 31
March 2022 and 38.8% at 31 December 2021. The increase during the first nine
months 2022 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 performing loan book Net performing loan book is the total net loans and advances to customers (as
defined) excluding the legacy exposures (as defined).
Net Stable Funding Ratio (NSFR) The NSFR is calculated as the amount of "available stable funding" (ASF)
relative to the amount of "required stable funding" (RSF). The regulatory
limit, enforced in June 2021, has been set at 100% as per the CRR II.
Net zero emissions The reduction of greenhouse gas emissions to net zero through a combination of
reduction activities and offsetting investments
New lending New lending includes the disbursed amounts of the new and existing
non-revolving facilities (excluding forborne or re-negotiated accounts) as
well as the average year-to-date change (if positive) of the current accounts
and overdraft facilities between the balance at the beginning of the period
and the end of the period. Recoveries are excluded from this calculation since
their overdraft movement relates mostly to accrued interest and not to new
lending.
Non-interest income Non-interest income comprises Net fee and commission income, Net foreign
exchange gains/(losses) and net gains/(losses) on financial instruments and
(excluding net gains on loans and advances to customers at FVPL), 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 '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 before credit losses and impairments The operating profit before credit losses and impairments 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 before credit losses and impairments 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) and VEP (Voluntary Staff Exit Plan) References to pro forma figures and ratios as at 30 June 2022 refer to Project
Helix 3, Project Sinope and to VEP. They are based on 30 June 2022 underlying
basis figures and assume their completion, currently expected to occur in
2H2022. The completion of Project Helix 3 remains subject to customary
regulatory and other approvals. Project Sinope was completed in August 2022.
VEP refers to the Voluntary Staff Exit Plan that the Group completed in July
2022, through which c.550 applicants were approved to leave at a total cost of
€101 mn, recorded in the 3Q2022 income statement.
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.2.5 '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.2.5 Loan portfolio quality.
H. Definitions & Explanations (continued)
Project Sinope Project Sinope refers to the agreement the Group reached in December 2021 for
the sale of a portfolio of NPEs with gross book value of €12 mn as at 31
December 2021, as well as properties in Romania with carrying value €0.6 mn
as at 31 December 2021. Project Sinope was completed in August 2022.
Quarterly average interest earning assets This relates to the average of 'interest earning assets' as at the beginning
and end of the relevant quarter. Average interest earning assets exclude
interest earning assets of any discontinued operations at each quarter end, if
applicable. Interest earning assets include: cash and balances with central
banks (including cash and balances with central banks classified as
non-current assets held for sale), plus loans and advances to banks, plus net
loans and advances to customers (including loans and advances to customers
classified as non-current assets held for sale), plus 'deferred consideration
receivable' included within 'other assets', plus investments (excluding
equities and mutual funds).
Qoq Quarter on quarter change
Return on Tangible equity (ROTE) after tax and before non-recurring items Return on Tangible Equity (ROTE) after tax and before non-recurring items is
calculated as Profit/(loss) after tax and before non-recurring items
(attributable to the owners of the Company) (as defined) (annualised), -
(based on year to date days)), divided by the quarterly average of
Shareholders' equity minus intangible assets at each quarter end
Return on Tangible equity (ROTE) Return on Tangible Equity (ROTE) is calculated as Profit/(loss) after tax
(attributable to the owners of the Company) (as defined) (annualised - (based
on year to date days)), divided by the quarterly average of Shareholders'
equity minus intangible assets at each quarter end
Special levy on deposits and other levies/contributions Relates to the special levy on deposits of credit institutions in Cyprus,
contributions to the Single Resolution Fund (SRF), contributions to the
Deposit Guarantee Fund (DGF), as well as the DTC levy, where applicable.
Total Capital ratio Total capital ratio is defined in accordance with the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II applicable as at the
reporting date.
Total expenses Total expenses comprise staff costs, other operating expenses and the special
levy on deposits and other levies/contributions. It does not include (i)
'advisory and other restructuring costs-organic', (ii) restructuring 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 €5 mn for 3Q2022 (compared to €4 mn for 2Q2022 and €1 mn for 1Q2022
(ii) Restructuring costs relating to NPE sales for 3Q2022 amounted to €1 mn
(compared to €0.8 mn for 2Q2022 and €1 mn for 1Q2022 and €0.2 mn for
4Q2021), and (iii) Restructuring costs relating to the Voluntary Staff Exit
Plan (VEP) for 3Q2022 was €101 mn (compared to nil for 2Q2022 and €3 mn
for 1Q2022).
Total income Total income comprises net interest income and non-interest income (as
defined).
Total loan credit losses, impairments and provisions Total loan credit losses, impairments and provisions comprises loan credit
losses (as defined), plus impairments of other financial and non-financial
assets, plus (provisions)/net reversals for litigation, claims, regulatory and
other matters.
Underlying basis This refers to the statutory basis after being adjusted for certain items as
explained in the Basis of Presentation.
Write offs Loans together with the associated loan credit losses are written off when
there is no realistic prospect of future recovery. Partial write-offs,
including non-contractual write-offs, may occur when it is considered that
there is no realistic prospect for the recovery of the contractual cash flows.
In addition, write-offs may reflect restructuring activity with customers and
are part of the terms of the agreement and subject to satisfactory
performance.
Yoy Year on year change
Basis of Presentation
This announcement covers the results of Bank of Cyprus Holdings Public Limited
Company, "BOC Holdings" or "the Company", its subsidiary Bank of Cyprus Public
Company Limited, the "Bank" or "BOC PCL", and together with the Bank's
subsidiaries, the "Group", for the nine months ended 30 September 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
nine months ended 30 September 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 have
been annexed to the annual return and delivered to the Registrar of Companies
of Ireland. The Board of Directors approved the Group statutory financial
statements for the nine months ended 30 September 2022 on 17 November 2022.
Statutory basis: Statutory information is set out on pages 31-35. 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 nine months
ended 30 September 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
5. The statutory results are adjusted for certain items (as described on pages
36-37) 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
nine months ended 30 September 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 nine months ended 30 September 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. 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 on the market and macroeconomic conditions,
including in ways that cannot be anticipated. This creates significantly
greater uncertainty about forward-looking statements. Should any one or more
of these or other factors materialise, or should any underlying assumptions
prove to be incorrect, the actual results or events could differ materially
from those currently being anticipated as reflected in such forward looking
statements. The forward-looking statements made in this document are only
applicable as at the date of publication of this document. Except as required
by any applicable law or regulation, the Group expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward looking statement contained in this document to reflect any change in
the Group's expectations or any change in events, conditions or circumstances
on which any statement is based.
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial services group
in Cyprus, providing a wide range of financial products and services which
include retail and commercial banking, finance, factoring, investment banking,
brokerage, fund management, private banking, life and general insurance. At 30
September 2022, the Bank of Cyprus Group operated through a total of 64
branches in Cyprus, of which 4 operated as cash offices. The Bank of Cyprus
Group employed 2,955 staff worldwide. At 30 September 2022, the Group's Total
Assets amounted to €26.2 bn and Total Equity was €2.0 bn. The Bank of
Cyprus Group comprises Bank of Cyprus Holdings Public Limited Company, its
subsidiary Bank of Cyprus Public Company Limited and its subsidiaries.
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