REG - Bank of Cyprus Hldgs - 9M2023 Group Financial Results
13/11/2023 07:00
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RNS Number : 2257T Bank of Cyprus Holdings PLC 13 November 2023
Announcement
Group Financial Results for the nine months ended 30 September 2023
Nicosia, 13 November 2023
Key Highlights for the nine months ended 30 September 2023
Resilient economic outlook
· Continued strong economic growth; Cyprus' GDP expanded by 2.3%(1)
in 2Q2023, outperforming the Eurozone average
· New lending of c.€1.6 bn, despite the rising interest rate
environment
· Gross performing loan book at €9.9 bn broadly flat year on year
as repayments continue to offset new lending
Another strong quarterly performance
· NII of €572 mn up 144% year on year; up 9% in 3Q2023 compared
to prior quarter
· Non-NII of €224 mn up 5% year on year, covering 90% of total
operating expenses(2)
· Total operating expenses(2) up 3% year on year with savings
partly offsetting inflationary pressures; cost to income ratio(2) reduced to
31%, down from 54% in prior year
· Profit after tax of €349 mn (vs loss of €19 mn in 9M2022);
3Q2023 profit after tax of €129 mn up 3% on prior quarter
· Earnings per share of €0.78 for 9M2023, of which €0.29 in
3Q2023
· ROTE of 24.6% in 9M2023 and 25.6% in 3Q2023
Liquid and resilient balance sheet
· Asset quality in line with target; NPE ratio at 3.5% (0.8% on net
basis) down 6 p.p. year on year
· NPE Coverage at 77%; Cost of risk at 58 bps
· Sticky, retail funded deposit base at €19.3 bn, up 3% year on
year and broadly flat quarter on quarter
· Highly liquid balance sheet with €9.6 bn placed at the ECB
Robust capital and shareholder focus
· Regulatory CET1 ratio and Total Capital ratio of 15.2%(3) and
20.4%(3) respectively
· Including 3Q2023 profits net of dividend accrual, CET1 ratio at
15.8%(4) and Total Capital ratio at 21.0%(4)
· Organic capital generation of c.345 bps in 9M2023, of which c.125
bps in 3Q2023
Long Term Deposit rating upgraded to Investment grade by Moody's in
October 2023
1. Source: Cyprus' Ministry of Finance
2. Excluding special levy on deposits and other levies/contributions
3. Includes reviewed profits for 1H2023 and a dividend accrual thereon
as per the top end of the Group's dividend policy. Any recommendation for a
dividend is subject to regulatory approval
4. Includes unaudited/unreviewed profits for 3Q2023 and a dividend
accrual thereon as per the top end of the Group's dividend policy. Any
recommendation for a dividend is subject to regulatory approval
*On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. Further
information on IFRS 17 is provided under the sections "Commentary on
Underlying Basis' and to Section F.9 of this announcement.
Group Chief Executive Statement
"We have delivered another quarter of strong profitability, achieving an ROTE
of over 20% for the third consecutive quarter, demonstrating the Group's
continuing ability to generate sustainable profitability and shareholder value
creation. During the nine months of 2023, we recorded a profit after tax of
€349 mn, corresponding to a ROTE of 24.6%, facilitated by strong revenues.
Total income amounted to €796 mn, of which €572 mn related to net interest
income, more than double last year's level, a reflection of the higher
interest rate environment and a well-managed deposit pass-through level.
Non-interest income represents a significant and sustainable contributor to
the Group's profitability and covers c.90% of total operating expenses. Our
cost to income ratio improved further to 31%, driven by higher income, whilst
our cost base remains under control, with savings partly offsetting
inflationary pressures.
Against the backdrop of geopolitical developments and heightened uncertainty,
the Cypriot economy is once again proving resilient with strong economic
growth of 2.3% in 2Q2023, outpacing the Eurozone average. As the largest
financial group in Cyprus, we continue to support the economy by extending
c.€1.6 bn new loans in 9M2023, whilst maintaining prudent underwriting
standards.
Our balance sheet is characterised by ample liquidity as well as strong asset
quality and a robust capital position. Over one third of our assets are cash
balances with central banks, benefitting significantly from higher rates while
our deposit base continued to grow. Our NPE ratio stood at 3.5%, in line with
our target and our coverage stood at 77%. Our cost of risk at 58 bps remains
within our 2023 target range.
In October 2023 Moody's upgraded the Bank's long term deposit rating to
investment grade for the first time in 12 years, confirming this new chapter
of becoming a strong, diversified well-capitalised and sustainably profitable
organisation. With another strong set of results in 3Q2023, the Group's
performance is well ahead of 2023 targets and notwithstanding typical 4Q2023
seasonality, we expect to comfortably exceed our 2023 ROTE target of over 17%.
We continue to execute strategy, with a clear focus on supporting our
customers, delivering shareholder value and assisting the development of the
Cypriot economy."
Panicos Nicolaou
A. Group Financial Results - Underlying Basis
Unaudited Interim Condensed Consolidated Income Statement
€ mn 9M2023 9M2022 3Q2023 2Q2023 qoq +% yoy +%
IFRS 17(1)
Net interest income 572 234 214 196 9% 144%
Net fee and commission income 135 142 45 46 -1% -5%
Net foreign exchange gains and net gains/(losses) on financial instruments 29 14 8 8 -13% 110%
Net insurance result 38 34 13 15 -12% 12%
Net gains/(losses) from revaluation and disposal of investment properties and 7 11 2 3 -25% -34%
on disposal of stock of properties
Other income 15 12 3 9 -68% 27%
Total income 796 447 285 277 3% 78%
Staff costs (141) (139) (48) (47) 2% 2%
Other operating expenses (107) (102) (38) (35) 10% 4%
Special levy on deposits and other levies/contributions (30) (27) (12) (7) 61% 12%
Total expenses (278) (268) (98) (89) 10% 3%
Operating profit 518 179 187 188 -1% 190%
Loan credit losses (44) (36) (20) (13) 49% 24%
Impairments of other financial and non-financial assets (38) (20) (8) (19) -57% 88%
Provisions for pending litigations, regulatory and other provisions (net of (20) (3) (6) (8) -18% -
reversals)
Total loan credit losses, impairments and provisions (102) (59) (34) (40) -14% 73%
Profit before tax and non-recurring items 416 120 153 148 3% 247%
Tax (63) (19) (23) (22) 5% 238%
Profit attributable to non-controlling interests (2) (2) (1) 0 123% -9%
Profit after tax and before non-recurring items (attributable to the owners of 351 99 129 126 2% 253%
the Company)
Advisory and other transformation costs - organic (2) (10) - (1) -100% -77%
Profit after tax - organic (attributable to the owners of the Company) 349 89 129 125 3% 290%
Provisions/net profit/(loss) relating to NPE sales - (1) - - - -100%
Restructuring and other costs relating to NPE sales - (3) - - - -100%
Restructuring costs - Voluntary Staff Exit Plan (VEP) - (104) - - - -100%
Profit/ (loss) after tax (attributable to the owners of the Company) 349 (19) 129 125 3% -
A. Group Financial Results - Underlying Basis (continued)
Unaudited Interim Condensed Consolidated Income Statement- Key performance
Ratios
Key Performance Ratios 9M2023 9M2022 3Q2023 2Q2023 qoq+% yoy+%
IFRS 17(1)
Net Interest Margin (annualised) 3.32% 1.39% 3.63% 3.43% 20 bps 193 bps
Cost to income ratio 35% 60% 34% 32% 2 p.p. -25 p.p.
Cost to income ratio excluding special levy on deposits and other 31% 54% 30% 29% 1 p.p. -23 p.p.
levies/contributions
Operating profit return on average assets (annualised) 2.7% 0.9% 2.9% 3.0% -0.1 p.p. 1.8 p.p.
Basic earnings per share attributable to the owners of the Company (€)(2) 0.78 (0.04) 0.29 0.28 0.01 0.82
Return on tangible equity (ROTE) 24.6% (1.4%) 25.6% 26.6% -1.0 p.p. 26.0 p.p.
Tangible book value per share (€) 4.63 3.81 4.63 4.34 0.29 0.82
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further
details, please refer to Section F.9 of this announcement.
2. The diluted earnings per share attributable to the owners of the Company
for 3Q2023 amounted to 28.9 cents and 78.2 cents for 9M2023
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 2023 on the
'underlying basis' which management believes best fits the true measurement of
the performance and position of the Group, as this presents separately any
non-recurring items and also includes certain reclassifications of items,
other than non-recurring items, which are done for presentational purposes
under the underlying basis for aligning the presentation with items of a
similar nature.
Reconciliations between the statutory basis and the underlying basis to
facilitate the comparability of the underlying basis to the statutory
information, are included in Section F.1 'Reconciliation of Interim Income
statement for the nine months ended 30 September 2023 between statutory basis
and underlying basis' and Section H under 'Alternative Performance Measures'
and Section I under 'Definitions & Explanations'.
Throughout this announcement, financial information in relation to FY2022 and
quarterly 2022 financial information has been restated for the effects of
transition to IFRS 17 which was adopted on 1 January 2023 and applied
retrospectively. As a result, 2022 financial information, ratios and metrics
are presented on a restated basis unless otherwise stated. Further information
on the impact of IFRS 17 transition is provided below and in Section F.9 of
this announcement.
Throughout this announcement, the capital ratios as at 31 December 2022 have
been restated in order to take into consideration the 2022 dividend
declaration. This refers to the proposal by the Board of Directors to the
shareholders of a final dividend in respect of the FY2022 earnings following
the approval by the European Central Bank ('ECB'). The proposed final dividend
was declared at the Annual General Meeting ('AGM') which was held on 26 May
2023. This dividend amounted to €22.3 mn in total and had a negative impact
of 22 bps on the Group's CET1 ratio and Total Capital ratio as at 31 December
2022. As a result, the 31 December 2022 capital ratios are presented as
restated for the 2022 dividend unless otherwise stated. Additionally,
throughout this announcement, the capital ratios as at 30 June 2023 are
presented including 1H2023 reviewed profits and a dividend accrual thereon at
the top end of the payout range of the Group's approved dividend policy in
compliance with the Capital Requirements Regulation and in line with the ECB
Decision EU (2015/656) on the recognition of interim profits in CET1 capital.
Further details are provided in Section 'A.1.1 Capital Base'.
Capital ratios including retained earnings are referred to the CET1 ratio and
Total capital ratios as at 30 September 2023 which include
unaudited/unreviewed profits for the quarter ended 30 September 2023 and a
dividend accrual thereon at the top end of the Group's dividend policy.
Transition to IFRS 17
On 1 January 2023 the Group adopted IFRS 17 'Insurance Contracts' ('IFRS 17')
which replaced IFRS 4 'Insurance contracts. IFRS 17 is an accounting standard
that was implemented on 1 January 2023, with retrospective application and
establishes principles for the recognition, measurement, presentation and
disclosure of insurance contracts issued, investment contracts with
discretionary participation features issued and reinsurance contracts held. In
substance, IFRS 17 impacts the phasing of profit recognition for insurance
contracts as profitability is spread over the lifetime of the contract
compared to being recognised substantially up-front under IFRS 4. This new
accounting standard does not change the economics of the insurance contracts
but decreases the volatility of the Group's insurance companies profitability.
Commentary on Underlying Basis (continued)
Transition to IFRS 17 (continued)
The Group's total equity as at 31 December 2022 as restated for IFRS 17
compared to IFRS 4, was reduced by overall €52 mn (predominantly relating to
the life insurance business of the Group) from the below changes:
· The removal of the present value of in-force life insurance
contracts ('PVIF') asset including the associated deferred tax liability,
resulting in a reduction of c.€101 mn in the Group's total equity.
· The remeasurement of insurance assets and liabilities (including
the impact of the contractual service margin('CSM')) resulting in an increase
in the Group's equity by €49 mn.
The estimated future profit of insurance contracts is included in the
measurement of the insurance contract liabilities as the contractual service
margin ('CSM') and this will be gradually recognised in revenue, as services
are provided over the duration of the insurance contract. A contractual
service margin liability of c.€42 mn was recognised as at 31 December 2022
(reflected in the impact from the remeasurement of insurance liabilities
mentioned above).
With regards to the Group's income statement for the year ended 31 December
2022, as restated for IFRS 17, the profit after tax (attributable to the
owners of the Company) was reduced by €14 mn to €57 mn (vs €71 mn under
IFRS 4) reflecting mainly:
· Profit is deferred and held as CSM liability as mentioned above
to be recognised in the income statement over the contract service period.
· The impact of assumption changes relating to the future service
is also deferred through CSM liability and is recognised in the income
statement over the contract service period.
· There is increased use of current market values in the
measurement of insurance assets and liabilities (for unit-linked business) and
market volatility on unit-linked business is deferred to the CSM, thereby
reducing the volatility in the income statement.
The transition to IFRS 17 had no impact on the Group's regulatory capital.
However, as a result of the benefit arising from the remeasurement of the
insurance assets and liabilities, the life insurance subsidiary distributed
€50 mn as dividend to the Bank in February 2023, which benefited Group
regulatory capital by an equivalent amount on the same date, enhancing CET1
ratio by c.50 bps. Going forward, meaningful dividend generation from the
insurance business is expected to continue.
A. Group Financial Results- Underlying Basis (continued)
Unaudited Interim Condensed Consolidated Balance Sheet
€ mn 30.09.2023 31.12.2022 +%
IFRS 17(1)
Cash and balances with central banks 9,565 9,567 0%
Loans and advances to banks 410 205 100%
Debt securities, treasury bills and equity investments 3,636 2,704 34%
Net loans and advances to customers 9,910 9,953 0%
Stock of property 922 1,041 -11%
Investment properties 71 85 -16%
Other assets 1,838 1,734 6%
Total assets 26,352 25,289 4%
Deposits by banks 443 508 -13%
Funding from central banks 2,023 1,977 2%
Customer deposits 19,267 18,998 1%
Debt securities in issue 644 298 116%
Subordinated liabilities 315 302 4%
Other liabilities 1,294 1,157 12%
Total liabilities 23,986 23,240 3%
Shareholders' equity 2,114 1,807 17%
Other equity instruments 228 220 4%
Total equity excluding non-controlling interests 2,342 2,027 16%
Non-controlling interests 24 22 8%
Total equity 2,366 2,049 15%
Total liabilities and equity 26,352 25,289 4%
Key Balance Sheet figures and ratios 30.09.2023 31.12.2022(1) +
Gross loans (€ mn) 10,167 10,217 0%
Allowance for expected loan credit losses (€ mn) 275 282 -3%
Customer deposits (€ mn) 19,267 18,998 1%
Loans to deposits ratio (net) 51% 52% -1 p.p.
NPE ratio 3.5% 4.0% -50 bps
NPE coverage ratio 77% 69% +8 p.p.
Leverage ratio 8.7% 7.8% +90 bps
Capital ratios and risk weighted assets 30.09.2023 30.09.2023 31.12.2022(2) +
(Basel III) (including Retained Earnings(3))
Common Equity Tier 1 (CET1) ratio (transitional) 15.2% 15.8% 15.2% 60 bps
Total capital ratio (transitional) 20.4% 21.0% 20.4% 60 bps
Risk weighted assets (€ mn) 10,264 10,264 10,114 1%
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. Please refer to
Section F.9 of this announcement.
2. The capital ratios have been restated to take into consideration the
dividend in respect of FY2022 earnings. For further details please refer to
section A.1.1.
3. Includes unaudited/unreviewed profits for 3Q2023 net of dividend accrual
(refer to section A.1.1 'Capital Base'). Any recommendation for a dividend is
subject to regulatory approval. 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 €2,342 mn as at 30
September 2023 compared to €2,220 mn as at 30 June 2023 and to €2,027 mn
as at 31 December 2022. Shareholders' equity totalled to €2,114 mn as at 30
September 2023 compared to €1,984 mn as at 30 June 2023 and to €1,807 mn
as at 31 December 2022.
The regulatory Common Equity Tier 1 capital (CET1) ratio on a transitional
basis stood at 15.2% as at 30 September 2023, compared to 15.6% as at 30 June
2023 and 15.2% as at 31 December 2022, as restated. Throughout this
announcement, the capital ratios as at 30 September 2023 include reviewed
profits for the six months ended 30 June 2023 in line with the ECB Decision
(EU) (2015/656) on the recognition of interim or year-end profits in CET1
capital in accordance with Article 26(2) of the CRR and an accrual thereon of
dividend at the top end of the Group's approved dividend policy in line with
the principles of Commission Delegated Regulation EU No241/2014 (such ratios
are referred as regulatory or Basel III and do not include 3Q2023 profits). As
per the latest SREP decision, any dividend distribution is subject to
regulatory approval. Such dividend accrual does not constitute a binding
commitment for a dividend payment nor does it constitute a warranty or
representation that such a payment will be made. Including the profits for
3Q2023 of c.125 bps, net of dividend accrual at the top end of the Group's
approved dividend policy of c.60 bps, the CET1 ratio on a transitional basis
(including retained earnings) increases to 15.8% as at 30 September 2023. From
3Q2023, the amount corresponding to the Pillar II add-on requirement relating
to ECB's prudential provisioning expectations of 33 bps is deducted from CET1
capital and therefore it is expected to be eliminated from the Pillar II SREP
capital requirements as of 1 January 2024.
The Group had elected to apply the EU transitional arrangements for regulatory
capital purposes (EU Regulation 2017/2395) where the impact on the impairment
amount from the initial application of IFRS 9 on the capital ratios was
phased-in gradually, with the impact being fully phased-in (100%) by 1 January
2023. The final phasing-in of the impact of the impairment amount from the
initial application of IFRS 9 was c.65 bps on the CET1 ratio on 1 January
2023. In addition, a prudential charge in relation to the onsite inspection on
the value of the Group's foreclosed assets is being deducted from own funds
since June 2021, the impact of which is 14 bps on Group's CET1 ratio as at 30
September 2023.
The regulatory Total Capital ratio on a transitional basis stood at 20.4% as
at 30 September 2023, compared to 20.7% as at 30 June 2023 and to 20.4% as at
31 December 2022, as restated. Including the profits for 3Q2023 of c.125 bps,
net of dividend accrual at the top end of the Group's approved dividend policy
of c.60 bps, the total capital ratio (including retained earnings) increases
to 21.0%.
The Group's capital ratios are above the Supervisory Review and Evaluation
Process (SREP) requirements.
In the context of the annual SREP performed by the ECB in 2022 and based on
the final SREP decision received in December 2022, effective from 1 January
2023, the Pillar II requirement has been revised to 3.08%, compared to the
previous level of 3.26%. The Pillar II requirement includes a revised Pillar
II requirement add-on of 0.33% relating to ECB's prudential provisioning
expectations. When disregarding the Pillar II add-on relating to ECB's
prudential provisioning expectations, the Pillar 2 requirement has been
reduced from 3.00% to 2.75%. From 30 September 2023, the Pillar II add-on of
0.33% relating to ECB's prudential provisioning expectations is being deducted
from capital and therefore the Pillar 2 requirement is expected to decrease to
2.75% as of 1 January 2024.
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 currently it
stands at 1.50%. In October 2023, the CBC concluded its reassessment for the
designation of credit institutions that meet the definition of O-SII
institutions and the setting of O-SII buffer to be observed. The Group's O-SII
buffer has been revised to 2.25% (from 1.50%), to be phased in annually by
37.5 bps, to 1.875% on 1 January 2024 and to 2.25% on 1 January 2025.
The Group's minimum phased-in CET1 capital ratio requirement as at 30
September 2023 is set at 10.27%, comprising a 4.50% Pillar I requirement, a
1.73% Pillar II requirement, the Capital Conservation Buffer of 2.50%, the
O-SII Buffer of 1.50% and the CcyB of c.0.04%. The Group's minimum phased-in
Total Capital ratio requirement is set at 15.12%, comprising an 8.00% Pillar I
requirement, of which up to 1.50% can be in the form of AT1 capital and up to
2.00% in the form of T2 capital, a 3.08% Pillar II requirement, the Capital
Conservation Buffer of 2.50%, the O-SII Buffer of 1.50% and the CcyB of
c.0.04%. The ECB has also maintained the non-public guidance for an additional
Pillar II CET1 buffer (P2G) unchanged compared to the previous year.
Own funds held for the purposes of P2G cannot be used to meet any other
capital requirements (Pillar I, Pillar II requirements or the combined buffer
requirement), and therefore cannot be used twice.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.1 Capital Base (continued)
On 30 November 2022, the CBC, following the revised methodology described in
its macroprudential policy, decided to increase the CcyB from 0.00% to 0.50%
of the total risk exposure amounts in Cyprus of each licensed credit
institution incorporated in Cyprus. The new rate of 0.50% must be observed as
from 30 November 2023. Further, in June 2023, the CBC announced an additional
increase of 0.50% in the CcyB of the total risk exposure amounts in Cyprus of
each licensed credit institution incorporated in Cyprus to be observed from
June 2024, increasing the CcyB to 1.00%.
Following the annual SREP performed by the ECB in 2023, and based on the draft
SREP decision received in October 2023, effective from 1 January 2024 (subject
to ECB final confirmation), the Group's minimum phased-in CET1 capital ratio
and Total Capital ratio requirements are expected to decrease, when
disregarding the phasing in of the O-SII buffer and CcyB mentioned above,
reflecting the elimination of the Pillar II add-on relating to ECB's
prudential provisioning expectations, following the Group's decision to
directly deduct from own funds such amount. On 1 January 2024 the Group's
minimum phased-in CET1 capital ratio is expected to be set at c.10.92%,
comprising a 4.50% Pillar I requirement, a 1.55% Pillar II requirement, the
Capital Conservation Buffer of 2.50%, the O-SII Buffer of 1.875% and CcyB of
c.0.50%. On 1 January 2024, the Group's minimum phased-in Total Capital ratio
requirement is expected to be set at c.15.63%, comprising an 8.00% Pillar I
requirement, of which up to 1.50% can be in the form of AT1 capital and up to
2.00% in the form of T2 capital, a 2.75% Pillar II requirement, the Capital
Conservation Buffer of 2.50%, the O-SII Buffer of 1.875% and the CcyB of
0.50%. The ECB has also provided revised lower non-public guidance for an
additional Pillar II CET1 buffer (P2G). From 2 June 2024 both CET1 capital and
Total Capital requirements are expected to increase by c.0.50% as a result of
the increase in the CcyB described above.
The Group participated in the ECB Stress Test of 2023, the results of which
were published by the ECB on 28 July 2023. For further information please
refer to the 'Risk and Capital Management Report' of the 'Interim Financial
Report 2023.
Resumption of dividend payments
Following the 2022 SREP decision, the equity dividend distribution prohibition
was lifted for both the Company and the Bank, with any dividend distribution
being subject to regulatory approval.
In April 2023, the Company obtained the approval of the European Central Bank
to pay a dividend. Following this approval, the Board of Directors of the
Company recommended to the shareholders a final dividend of €0.05 per
ordinary share in respect of earnings for the year ended 31 December 2022
('Dividend'). The proposed final dividend was declared at the Annual General
Meeting ('AGM') which was held on 26 May 2023. The Dividend amounted to
€22.3 mn in total and was equivalent to a payout ratio of 14% of the FY2022
Group's adjusted recurring profitability or 31% based on FY2022 profit after
tax (as reported in the 2022 Annual Financial Report). The Dividend was paid
in cash on 16 June 2023.
The Dividend resulted in a negative capital impact of 22 bps on the Group's
CET1 ratio and Total Capital ratio as at 31 December 2022.
The resumption of dividend payments after 12 years underpins the Group's
position as a strong and well-diversified organisation, capable of delivering
sustainable shareholder returns.
Dividend policy
In April 2023 the Board of Directors approved the Group's dividend policy. The
Group aims to provide a sustainable return to shareholders. Dividend payments
are expected to build prudently and progressively over time, towards a payout
ratio in the range of 30-50% of the Group's adjusted recurring profitability.
Group adjusted recurring profitability is defined as the Group's profit after
tax before non-recurring items (attributable to the owners of the Company)
taking into account distributions under other equity instruments such as the
annual AT1 coupon. The dividend policy takes into consideration market
conditions as well as the outcome of capital and liquidity planning.
Other equity instruments
At 30 September 2023, the Group's other equity instruments relate to
Additional Tier 1 Capital Securities (the "AT1 securities") and amounted to
€228 mn, compared to €236 mn as at 30 June 2023, down 3% on prior quarter,
reflecting the repurchase of c.€7 mn Existing Capital Securities in the open
market by the Company in July 2023.
In June 2023, the Company successfully launched and priced an issue of €220
mn Fixed Rate Reset Perpetual Additional Tier 1 Capital Securities (the 'New
Capital Securities').
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.1 Capital Base (continued)
Other equity instruments (continued)
The New Capital Securities constitute unsecured and subordinated obligations
of the Company, are perpetual and are issued at par. They carry an initial
coupon of 11.875% per annum, payable semi-annually and resettable on 21
December 2028 and every 5 years thereafter. The Company will have the option
to redeem the New Capital Securities from, and including, 21 June 2028 to, and
including, 21 December 2028 and on each interest payment date thereafter,
subject to applicable regulatory consents and the relevant conditions to
redemption.
The issue was met with exceptional demand, attracting interest from c.240
institutional investors, with the final order book over 12 times
over-subscribed and final pricing 62.5 bps tighter than the initial pricing
indication. The pricing also reflects significant improvement in the credit
spread to c.910 bps compared to c.1,260 bps for the previous AT1 issue in 2018
('Existing Capital Securities').
The net proceeds of the issue of the New Capital Securities were on-lent by
the Company to the Bank to be used for general corporate purposes. The on-loan
qualifies as Additional Tier 1 capital for the Bank.
The issue of the New Capital Securities maintains the Group's optimised
capital structure and contributed to the Group's Total Capital Ratio by c.215
bps at the time of issuance.
At the same time, the Company invited the holders of its outstanding €220 mn
Fixed Rate Reset Perpetual Additional Tier 1 Capital Securities callable in
December 2023 to tender their Existing Capital Securities at a purchase price
of 103% of the principal amount. The Company received valid tenders of
c.€204 mn in aggregate principal amount, or c.93% of the outstanding
Existing Capital Securities, all of which were accepted by the Company.
As a result, a cost of c.€7 mn was recorded directly in the Company's equity
in 2Q2023, forfeiting the relevant future coupon payments. Transaction costs
of €3.5 mn in relation to the transactions were recorded directly in equity
in June 2023. Existing Capital Securities of c.€8 mn in aggregate principal
amount remained outstanding as at 30 September 2023.
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific deferred tax
assets (DTA) into deferred tax credits (DTC) became effective in March 2019.
The legislative amendments cover the utilisation of income tax losses
transferred from Laiki Bank to the Bank in March 2013. The introduction of the
Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)
IV in January 2014 and its subsequent phasing-in led to a more
capital-intensive treatment of this DTA for the Bank. With this legislation,
institutions are allowed to treat such DTAs as 'not relying on profitability',
according to CRR/CRD IV and as a result not deducted from CET1, hence
improving a credit institution's capital position. The Law provides for a
guarantee fee on annual tax credit is payable annually by the credit
institution to the Government.
Following certain modifications to the Law in May 2022, the annual guarantee
fee is to be determined by the Cyprus Government on an annual basis, providing
however that such fee to be charged is set at a minimum fee of 1.5% of the
annual instalment and can range up to a maximum amount of €10 mn per year,
and also allowing for a higher amount to be charged in the year the amendments
are effective (i.e. in 2022).
The Group estimates that such fees could range up to c.€5 mn per year (for
each tax year in scope i.e. since 2018) although the Group understands that
such fee may fluctuate annually as to be determined by the Ministry of
Finance.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.2 Regulations and Directives
A.1.2.1 The 2021 Banking Package (CRR III and CRD VI and BRRD)
In October 2021, the European Commission adopted legislative proposals for
further amendments to the Capital Requirements Regulation (CRR), CRD IV and
the BRRD (the "2021 Banking Package"). Amongst other things, the 2021 Banking
Package would implement certain elements of Basel III that have not yet been
transposed into EU law. The 2021 Banking Package is subject to amendment in
the course of the EU's legislative process; and its scope and terms may change
prior to its implementation. In addition, in the case of the proposed
amendments to CRD IV and the BRRD, their terms and effect will depend, in
part, on how they are transposed in each member state. The European Council's
proposal on CRR and CRD was published on 8 November 2022. During February
2023, the European Parliament's ECON Committee voted to adopt Parliament's
proposed amendments to the Commission's proposal, and the 2021 Banking Package
is currently in the final stage of the EU legislative process. In June 2023,
negotiators from the Council presidency and the European Parliament reached a
provisional agreement on amendments to the Capital Requirements Regulation and
the Capital Requirements Directive. It is expected that the 2021 Banking
Package will enter into force on 1 January 2025; and certain measures are
expected to be subject to transitional arrangements or to be phased in over
time.
A.1.2.2 Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January
2016, EU member states shall apply the BRRD's provisions requiring EU credit
institutions and certain investment firms to maintain a minimum requirement
for own funds and eligible liabilities (MREL), subject to the provisions of
the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part
of the reform package for strengthening the resilience and resolvability of
European banks, the BRRD ΙΙ came into effect and was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in early May 2021. In addition, certain provisions on MREL have been
introduced in CRR ΙΙ which also came into force on 27 June 2019 as part of
the reform package and took immediate effect.
In February 2023, the Bank received notification from the Single Resolution
Board (SRB) of the 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 2023 MREL decision, the MREL requirement
was set at 24.35% of risk weighted assets and 5.91% of Leverage Ratio Exposure
(LRE) (as defined in the CRR) and must be met by 31 December 2025.
In November 2023, the Bank received draft notification from the SRB regarding
the 2024 MREL decision, by which the final MREL requirement is now set at
25.00% of risk weighted assets and must be met by 31 December 2024, one year
earlier than the previous decision, in light of the Group's progress over the
years of becoming a strong, well-capitalised with sustainable profitability
organisation. The revised MREL requirements remain subject to SRB and CBC
final confirmation.
Furthermore, the binding interim requirement of 1 January 2022 set at 14.94%
of risk weighted assets and 5.91% of LRE must continue to be met. The own
funds used by the Bank to meet the Combined Buffer Requirement (CBR) are not
eligible to meet its MREL requirements expressed in terms of risk-weighted
assets. The Bank must comply with the MREL requirement at the consolidated
level, comprising the Bank and its subsidiaries.
The regulatory MREL ratio as at 30 September 2023, calculated according to the
SRB's eligibility criteria currently in effect and based on internal estimate,
stood at 24.1% of risk weighted assets (RWA) and at 11.0% of LRE. The MREL
ratio expressed as a percentage of risk weighted assets does not include
capital used to meet the CBR requirement, which stood at 4.04% on 30 September
2023 (compared to 3.77% as at 31 December 2022), expected to increase on 30
November 2023 following increase in CcyB from 0.00% to 0.50% of the total risk
exposure amounts in Cyprus and to 1.00% from June 2024 as announced by CBC.
Additionally, the CBR requirement is expected to increase further on 1 January
2024 following an increase in O-SII buffer from 1.50% to 1.875% and
subsequently to 2.25% from 1 January 2025, as announced by CBC.
Throughout this announcement, the MREL ratios as at 30 September 2023 include
reviewed profits for the six months ended 30 June 2023 in line with the ECB
Decision (EU) (2015/656) on the recognition of interim or year-end profits in
CET1 capital in accordance with Article 26(2) of the CRR and an accrual of
dividend at the top end of the Group's approved dividend policy in line with
the principles of Commission Delegated Regulation EU No241/2014. The MREL
ratio expressed as a percentage of RWA and the MREL ratio expressed as a
percentage of LRE as at 30 September 2023 stand at 24.6% and 11.2%
respectively when including the profits for 3Q2023 net of a dividend accrual
at the top end of the Group's approved dividend policy.
The Bank continues to evaluate opportunities to optimise the build-up of its
MREL.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.3 Funding and Liquidity
Funding
Funding from Central Banks
At 30 September 2023, the Bank's funding from central banks amounted to
€2,023 mn, which relates to ECB funding, comprising solely of funding
through the Targeted Longer-Term Refinancing Operations (TLTRO) III, compared
to €2,004 mn at 30 June 2023 and to €1,977 mn at 31 December 2022.
The Bank borrowed an overall amount of €3 bn under TLTRO III by June 2021,
despite its comfortable liquidity position, given the favourable borrowing
terms, in combination with the relaxation of collateral requirements.
Following the changes in the terms of the TLTRO III announced by the ECB in
October 2022, and given the Bank's strong liquidity position, the Bank
proceeded with the repayment of €1 bn TLTRO III funding in December 2022.
The maturity date of the Bank's funding of €1.7 bn under the seventh TLTRO
III operation is in March 2024, whilst the €300 mn under the eighth TLTRO
III operation is in June 2024.
Deposits
Customer deposits totalled €19,267 mn at 30 September 2023 (compared to
€19,166 mn at 30 June 2023 and to €18,998 mn at 31 December 2022) broadly
flat in the third quarter. Customer deposits are mainly retail-funded and 58%
of deposits are protected under the deposit guarantee scheme as at 30
September 2023.
The Bank's deposit market share in Cyprus reached 37.7% as at 30 September
2023, compared to 37.4% as at 30 June 2023 and to 37.2% as at 31 December
2022. Customer deposits accounted for 73% of total assets and 80% of total
liabilities at 30 September 2023 (compared to 75% of total assets and 82% of
total liabilities as at 31 December 2022).
The net loans to deposits (L/D) ratio stood at 51% as at 30 September 2023
(compared to 52% as at 30 June 2023 and 31 December 2022 on the same basis),
down 1 p.p. in the third quarter.
Subordinated liabilities
At 30 September 2023, the carrying amount of the Group's subordinated
liabilities amounted to €315 mn (compared to €309 mn at 30 June 2023 and
to €302 mn at 31 December 2022) and relate to unsecured subordinated Tier 2
Capital Notes ('T2 Notes').
The T2 Notes were priced at par with a fixed coupon of 6.625% per annum,
payable annually in arrears and resettable on 23 October 2026. The maturity
date of the T2 Notes is 23 October 2031. The Company will have the option to
redeem the T2 Notes early on any day during the six-month period from 23 April
2026 to 23 October 2026, subject to applicable regulatory approvals.
Debt securities in issue
At 30 September 2023, the carrying value of the Group's debt securities in
issue amounted to €644 mn (compared to €292 mn at 30 June 2023 and to
€298 mn at 31 December 2022) and relate to senior preferred notes. The
increase of 116% since the beginning of the year, relates to the issuance of
€350 mn senior preferred notes in 3Q2023.
In July 2023, the Bank has successfully launched and priced an issuance of
€350 mn of senior preferred notes (the "Notes"). The Notes were priced at
par with a fixed coupon of 7.375% per annum, payable annually in arrear, until
the Optional Redemption Date i.e. 25 July 2027. The maturity date of the Notes
is 25 July 2028; however, the Bank may, at its discretion, redeem the Notes on
the Optional Redemption Date subject to meeting certain conditions (including
applicable regulatory consents) as specified in the Terms and Conditions. If
the Notes are not redeemed by the Bank, the coupon payable from the Optional
Redemption Date until the Maturity Date will convert from a fixed rate to a
floating rate and will be equal to 3-month Euribor + 409.5 bps, payable
quarterly in arrear. The issuance was met with strong demand, attracting
interest from more than 90 institutional investors, with a peak orderbook of
€950 mn and final pricing 37.5 bps tighter than the initial pricing
indication. The Notes comply with the criteria for the Minimum Requirement for
Own Funds and Eligible Liabilities ("MREL") and contribute towards the Bank's
MREL requirements.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
Debt securities in issue (continued)
In June 2021, the Bank executed its inaugural MREL transaction issuing €300
mn of senior preferred notes (the "SP Notes"). The SP Notes were priced at par
with a fixed coupon of 2.50% per annum, payable annually in arrears and
resettable on 24 June 2026. The maturity date of the SP Notes is 24 June 2027
and the Bank may, at its discretion, redeem the SP Notes on 24 June 2026,
subject to meeting certain conditions as specified in the Terms and
Conditions, including applicable regulatory consents. The SP Notes comply with
the criteria for MREL and contribute towards the Bank's MREL requirements.
Liquidity
At 30 September 2023, the Group Liquidity Coverage Ratio (LCR) stood at 350%
(compared to 316% at 30 June 2023 and to 291% at 31 December 2022), well above
the minimum regulatory requirement of 100%. The LCR surplus as at 30 September
2023 amounted to €8.6 bn (compared to €7.7 bn at 30 June 2023 and to
€7.2 bn at 31 December 2022). The increase in liquidity surplus in 3Q2023
reflects primarily the issuance of €350 mn of senior preferred notes in July
2023 and the increase in deposits. When disregarding the TLTRO III, the
Group's liquidity position remains strong with an LCR of 292% and liquidity
surplus of €6.6 bn.
At 30 September 2023, the Group Net Stable Funding Ratio (NSFR) stood at 162%
(compared to 165% at 30 June 2023 and to 168% at 31 December 2022), well above
the minimum regulatory requirement of 100%.
A.1.4 Loans
Group gross loans totalled €10,167 mn at 30 September 2023, compared to
€10,277 mn at 30 June 2023 and to €10,217 mn at 31 December 2022, broadly
flat yoy as repayments continue to offset new lending.
New lending granted in Cyprus reached €445 mn for 3Q2023 (compared to €494
mn for 2Q2023 and to €624 mn for 1Q2023) down by 10% qoq. New lending in
3Q2023 comprised €190 mn of corporate loans, €167 mn of retail loans (of
which €103 mn were housing loans), €45 mn of SME loans and €43 mn of
shipping and international loans. New lending for 9M2023 stood at €1,563 mn,
despite the rising interest rate environment, driven mainly by corporate
demand.
At 30 September 2023, the Group net loans and advances to customers totalled
€9,910 mn (compared to €10,008 mn at 30 June 2023 and to €9,953 mn at 31
December 2022), flat since the beginning of the year.
The Bank is the largest credit provider in Cyprus with a market share of 42.3%
at 30 September 2023, compared to 42.4% at 30 June 2023 and to 40.9% at 31
December 2022.
A.1.5 Loan portfolio quality
The Group has continued to make steady progress across all asset quality
metrics. Today, the Group's priorities focus mainly on maintaining high
quality new lending with strict underwriting standards and preventing asset
quality deterioration following the ongoing macroeconomic uncertainty.
The loan credit losses for 3Q2023 totalled €20 mn, compared to €13 mn for
2Q2023, and totalled to €44 mn for 9M2023, compared to €36 mn for 9M2022.
Further details regarding loan credit losses are provided in Section A.2.3
'Profit before tax and non-recurring items'.
In 3Q2023 an amount of €37 mn were classified as unlikely to pay exposures
(UTPs), following a deep dive assessment of the Group's portfolio. With the
conclusion of this assessment, expected in 4Q2023, another similar UTP amount
will potentially be recognised. These UTPs are customer specific with
idiosyncratic characteristics and are not linked with the current
macroeconomic environment; they adhere their payment schedule and present no
arrears. The elevated inflation combined with the rising interest rate
environment are expected to weigh on customer behaviour. Despite the higher
interest rates, there are no material signs of asset quality deterioration to
date. While defaults have been limited, the additional monitoring and
provisioning for sectors and individuals vulnerable to the 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.
Non-performing exposures
Non-performing exposures (NPEs) as defined by the European Banking Authority
(EBA) were reduced by €13 mn, or 3% in 3Q2023, compared to a net organic
reduction of €18 mn in 2Q2023, to €358 mn at 30 September 2023 (compared
to €371 mn at 30 June 2023 and €411 mn at 31 December 2022).
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.5 Loan portfolio quality (continued)
Non-performing exposures (continued)
As a result, the NPEs account for 3.5% of gross loans as at 30 September 2023,
compared to 3.6% at 30 June 2023 and to 4.0% at 31 December 2022.
The NPE coverage ratio stands at 77% at 30 September 2023, compared to 78% at
30 June 2023 and to 69% as at 31 December 2022. When taking into account
tangible collateral at fair value, NPEs are fully covered.
Overall, since the peak in 2014, the stock of NPEs has been reduced by €14.6
bn or 98% to below €0.4 bn and the NPE ratio by 59 percentage points, from
63% to below 4%.
Mortgage-To-Rent Scheme ("MTR")
In July 2023, the Mortgage-to-Rent Scheme ('MTR') was approved by the Council
of Ministers and aims for the reduction of NPEs backed by primary residence
and simultaneously protect the primary residence of vulnerable borrowers. The
eligible criteria include:
· Borrowers that were non-performing as at 31 December 2021 and
remained non-performing as at 31 December 2022 with facilities backed by
primary residence with open market value up to €250k;
· Borrowers that that had a fully completed application to Estia
Scheme and were assessed as eligible but not viable with a primary residence
of up to €350k Open Market Value; and
· all applicants that were approved under Estia Scheme but their
inclusion was terminated.
The eligible applicants will be able to reside in their primary residence as
tenants and are exempted from their mortgage loan, as the state will be
covering fully the required rent on their behalf. The eligible applicants will
be able to acquire the primary residence after 5 years at a favourable price,
below the Open Market Value.
The scheme has not been launched yet; it is expected to act as another tool to
address NPEs in the Retail sector.
A.1.6 Fixed income portfolio
Fixed income portfolio amounts to €3,489 mn as at 30 September 2023,
compared to €3,178 mn as at 30 June 2023 and to €2,500 mn as at 31
December 2022, increased by 10% on the prior quarter. As at 30 September 2023,
the portfolio represents 14% of total assets (net of TLTRO III) and comprises
€3,074 mn (88%) measured at amortised cost and €415 mn (12%) at fair value
through other comprehensive income ('FVOCI').
The fixed income portfolio measured at amortised cost is held to maturity and
therefore no fair value gains/losses are recognised in the Group's income
statement or equity. This fixed income portfolio has high average rating at
Aa3 or at Aa2 when Cyprus government bonds are excluded. The fair value of the
amortised cost fixed income portfolio as at 30 September 2023 amounts to
€2,983 mn, reflecting an unrealised fair value loss of €91 mn, equivalent
to c.90 bps of CET1 ratio.
A.1.7 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) is focused on the disposal of
on-boarded properties resulting from debt for asset swaps. Cumulative sales
since the beginning of 2019 amount to €0.9 bn and exceed properties
on-boarded in the same period of €0.5 bn.
During the nine months ended 30 September 2023, the Group completed disposals
of €101 mn (compared to €125 mn in 9M2022), resulting in a profit on
disposal of c.€8 mn for 9M2023 (compared to a profit of c.€12 mn for
9M2022). Asset disposals are across all property classes, with 40% gross sale
value in 9M2023 relating to land.
During the nine months ended 30 September 2023, the Group executed
sale-purchase agreements (SPAs) for disposals of 399 properties with contract
value of €111 mn, compared to SPAs for disposals of 512 properties with
contract value of €142 mn for 9M2022.
In addition, the Group had a strong pipeline of €64 mn by contract value as
at 30 September 2023, of which €49 mn related to SPAs signed (compared to a
pipeline of €82 mn as at 30 September 2022, of which €44 mn related to
SPAs signed).
REMU on-boarded €18 mn of assets in 9M2023 (compared to additions of €84
mn in 9M2022), via the execution of debt for asset swaps and repossessed
properties.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.7 Real Estate Management Unit (REMU) (continued)
As at 30 September 2023, assets held by REMU had a carrying value of €983
mn, of which €947 mn are repossessed properties (comprising properties of
€922 mn classified as 'Stock of property' and €61 mn as 'Investment
properties'), compared to €1,116 mn as at 31 December 2022 (comprising
properties of €1,041 mn classified as 'Stock of property' and €75 mn as
'Investment properties').
Assets held by REMU
Assets held by REMU (Group) 9M2023 9M2022 3Q2023 2Q2023 qoq +% yoy +%
€ mn
Opening balance 1,116 1,215 1,010 1,050 -4% -8%
On-boarded assets 18 84 12 4 172% -77%
Sales (101) (125) (30) (30) 2% -19%
Net impairment loss (32) (13) (9) (15) -43% 139%
Transfer to/from own properties (18) - - 1 -100% -
Closing balance 983 1,161 983 1,010 -3% -15%
Analysis by type and country Cyprus Greece Total
30 September 2023 (€ mn)
Residential properties 54 20 74
Offices and other commercial properties 136 14 150
Manufacturing and industrial properties 47 16 63
Hotels 19 0 19
Land (fields and plots) 453 4 457
Golf courses and golf-related property 220 0 220
Total 929 54 983
Cyprus Greece Total
31 December 2022 (€ mn)
Residential properties 69 21 90
Offices and other commercial properties 180 14 194
Manufacturing and industrial properties 48 19 67
Hotels 24 0 24
Land (fields and plots) 502 4 506
Golf courses and golf-related property 235 0 235
Total 1,058 58 1,116
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis
A.2.1 Total income
€ mn 9M2023 9M2022 3Q2023 2Q2023 qoq +% yoy +%
IFRS 17(1)
Net interest income 572 234 214 196 9% 144%
Net fee and commission income 135 142 45 46 -1% -5%
Net foreign exchange gains and net gains/(losses) on financial instruments 29 14 8 8 -13% 110%
Net insurance result 38 34 13 15 -12% 12%
Net gains/(losses) from revaluation and disposal of investment properties and 7 11 2 3 -25% -34%
on disposal of stock of properties
Other income 15 12 3 9 -68% 27%
Non-interest income 224 213 71 81 -13% 5%
Total income 796 447 285 277 3% 78%
Net Interest Margin (annualised) 3.32% 1.39% 3.63% 3.43% 20 bps 193 bps
Average interest earning assets 23,011 22,470 23,383 22,903 2% 2%
(€ mn)
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further
details, please refer to Section F.9 of this announcement.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Net interest income (NII) for 9M2023 amounted to €572 mn compared to €234
mn for 9M2022, up 144% yoy, benefitting from higher interest rates, growth of
fixed income portfolio and well-managed deposit pass-through, notwithstanding
the foregone NII on the NPE sale Helix 3 portfolio (c.€12 mn in 9M2022) and
end of TLTRO III favourable terms (c.€10 mn in 9M2022).
Net interest income (NII) for 3Q2023 amounted to €214 mn compared to €196
mn for 2Q2023, up 9% qoq, attributable to higher interest rates and the
continued low deposit pass-through, partially offset by increased funding
costs.
Quarterly average interest earning assets (AIEA) for 9M2023 amounted to
€23,011 mn, up 2% yoy driven by the increase in liquid assets mainly as a
result of the increase in deposits by c.€0.48 bn yoy and the issuance of
senior preferred notes of €0.35 bn. Quarterly average interest earning
assets for 3Q2023 was also up by 2% qoq reflecting the increase in liquid
assets and the issuance of senior preferred notes of €0.35 bn in July 2023.
Net interest margin (NIM) for 9M2023 amounted to 3.32% (compared to 1.39% for
9M2022), up 193 bps yoy driven by the continuing interest rate rises. Net
interest margin (NIM) for 3Q2023 stood at 3.63% (compared to 3.43% for 2Q2023)
up 20 bps qoq.
Non-interest income for 9M2023 amounted to €224 mn (compared to €213 mn
for 9M2022, up 5% yoy) comprising net fee and commission income of €135 mn,
net foreign exchange gains and net gains/(losses) on financial instruments of
€29 mn, net insurance result of €38 mn, net gains/(losses) from
revaluation and disposal of investment properties and on disposal of stock of
properties of €7 mn and other income of €15 mn. The yoy increase relates
to higher net foreign exchange gains and net gains/(losses) on financial
instruments, partly offset by lower net fee and commission income.
Non-interest income for 3Q2023 amounted to €71 mn (compared to €81 mn for
2Q2023, down 13% qoq) comprising net fee and commission income of €45 mn,
net foreign exchange gains and net gains/(losses) on financial instruments of
€8 mn, net insurance result of €13 mn, net gains/(losses) from revaluation
and disposal of investment properties and on disposal of stock of properties
of €2 mn and other income of €3 mn. The qoq reduction relates mainly to a
non-recurring insurance receivable of c.€5 mn included in other income and
recognised in the previous quarter. Non-interest income excluding the
non-recurring insurance receivable of c.€5 mn, was down by 7% compared to
the previous quarter, mainly due to higher insurance claims.
Net fee and commission income for 9M2023 amounted to €135 mn (compared to
€142 mn for 9M2022, down 5% yoy); when disregarding the impact of the
liquidity fees and NPE sale-related servicing fee, net fee and commission
income was up 7% yoy, reflecting the introduction of a revised price list in
February 2022 and higher net credit card commissions and transactional fees.
Net fee and commission income for 3Q2023 amounted to €45 mn, broadly flat
qoq.
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
€29 mn for 9M2023 (comprising net foreign exchange gains of €23 mn and net
gains on financial instruments of €6 mn), compared to €14 mn for 9M2022 up
110% yoy, due to higher net gains on financial instruments.
Net foreign exchange gains and net gains/(losses) on financial instruments
amounted to €8 mn for 3Q2023, broadly flat qoq. Net foreign exchange gains
and net gains/(losses) on financial instruments are considered volatile profit
contributors.
Net insurance result amounted to €38 mn for 9M2023, compared to €34 mn for
9M2022, up 12% yoy, driven mainly by healthy growth of new business.
Net insurance result amounted to €13 mn for 3Q2023, compared to €15 mn for
2Q2023, down 12% qoq, impacted by higher insurance claims.
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties for 9M2023 amounted to €7 mn (comprising
net gains on disposal of stock of properties of €6 mn, net gains on disposal
of investment properties of €1.5 mn and net loss from revaluation of
investment properties of €0.5 mn), compared to €11 mn for 9M2022. REMU
profit remains volatile.
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties for 3Q2023 amounted to €2 mn (comprising
net gains on disposal of stock of properties of €2 mn, net gains on disposal
of investment properties of €0.6 mn and net loss from revaluation of
investment properties of €0.4 mn), compared to €3 mn for 2Q2023.
Total income amounted to €796 mn for 9M2023 (compared to €447 mn for
9M2022, up 78% yoy), and to €285 mn for 3Q2023 (compared to €277 mn for
2Q2023, up 3% qoq), driven by strong growth in net interest income, as
explained above.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.2 Total expenses
€ mn 9M2023 9M2022 3Q2023 2Q2023 qoq +% yoy +%
IFRS 17(1)
Staff costs (141) (139) (48) (47) 2% 2%
Other operating expenses (107) (102) (38) (35) 10% 4%
Total operating expenses (248) (241) (86) (82) 5% 3%
Special levy on deposits and other levies/contributions (30) (27) (12) (7) 61% 12%
Total expenses (278) (268) (98) (89) 10% 3%
Cost to income ratio 35% 60% 34% 32% 2 p.p. -25 p.p.
Cost to income ratio excluding special levy on deposits and other 31% 54% 30% 29% 1 p.p. -23 p.p.
levies/contributions
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further
details, please refer to Section F.9 of this announcement.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Total expenses for 9M2023 were €278 mn (compared to €268 mn for 9M2022,
moderately up 3% yoy), 51% of which related to staff costs (€141 mn), 38% to
other operating expenses (€107 mn) and 11% to special levy on deposits and
other levies/contributions (€30 mn). Total expenses for 3Q2023 were €98 mn
compared to €89 mn for 2Q2023, up 10% qoq. The yoy and qoq increase relates
to higher other operating expenses and special levy on deposits and other
levies/contributions.
Total operating expenses amounted to €248 mn for 9M2023 (compared to €241
mn for 9M2022, up 3% yoy), with savings partly offsetting inflationary
pressures. Total operating expenses amounted to €86 mn for 3Q2023 (compared
to €82 mn for 2Q2023, up 5% qoq), attributed mainly to higher expenses due
to the Reward Programme launched to reward performer borrowers through
Antamivi Reward Scheme.
Staff costs for 9M2023 were €141 mn (compared to €139 mn for 9M2022, up 2%
yoy) due to the accrual of termination benefit cost of c.€4.5 mn and the
performance related pay accrual of c.€7 mn, partly offset by the savings of
the Voluntary Staff Exit Plan that took place in 3Q2022. The
performance-related pay accrual relates to the Short-Term Incentive Plan and
the Long-Term Incentive Plan. The Short-Term Incentive Plan involves variable
remuneration to selected employees and will be driven by both, delivery of the
Group's strategy as well as individual performance. Staff costs for 3Q2023
were €48 mn, up 2% qoq due to higher performance-related pay accrual
compared to prior quarter.
During December 2022 the Group has granted to eligible employees share awards
under a long-term incentive plan ("2022 LTIP" or the "2022 Plan"). The 2022
Plan involves the granting of share awards and is driven by scorecard
achievement, with measures and targets set to align pay outcomes with the
delivery of the Group's strategy. The employees eligible for the 2022 LTIP are
the members of the Extended EXCO. The 2022 LTIP stipulates that performance
will be measured over a 3 year period and financial and non-financial
objectives to be achieved (driven by both delivery of the Group's strategy as
well as individual performance). At the end of the performance period, the
performance outcome will be used to assess the percentage of the awards that
will vest. In October 2023, the Group has granted to eligible employees share
awards under a long-term incentive plan, the '2023 LTIP'. The 2023 LTIP is
granted under the same terms as the 2022 LTIP (group of eligible participants
and vesting terms and period are the same) however, the performance period
relates to the period 2023-2025 with updated scorecard targets for the said
period.
These shares will then normally vest in six tranches, with the first tranche
vesting after the end of the performance period and the last tranche vesting
on the fifth anniversary of the first vesting date.
In July 2022 the Group completed a VEP which led to the reduction of the
Group's full-time employees by 16%, at a total cost of €101 mn, recorded in
the consolidated income statement in 3Q2022. The gross annual savings were
estimated at c.€37 mn or 19% of staff costs with a payback period of 2.7
years. The estimated savings of the VEP are expected to be partially offset by
the renewal of the collective agreement in 2023 and the increased cost of
living adjustment (COLA).
As at 30 September 2023, the Group employed 2,913 persons compared to 2,902
persons as at 30 June 2023 and to 2,889 persons as at 31 December 2022.
Other operating expenses for 3Q2023 amounted to €38 mn, up 10% qoq and
totaled €107 mn for 9M2023, compared to €102 mn for 9M2022. The qoq and
yoy increase relate mostly to higher expenses due to the Reward Programme
launched to reward Antamivi Reward Scheme performing borrowers.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.2 Total expenses (continued)
Special levy on deposits and other levies/contributions for 9M2023 amounted to
€30 mn compared to €27 mn for 9M2022, up 12% yoy, driven mainly by the
increase of deposits of €0.48 bn yoy. Special levy on deposits and other
levies/contributions for 3Q2023 amounted to €12 mn up by 61% qoq, due to the
c.€4 mn contribution of the Bank to the Deposit Guarantee Fund (DGF)
relating to 2H2023 which was recorded in 3Q2023 (in line with IFRSs).
The cost to income ratio excluding special levy on deposits and other
levies/contributions for 9M2023 was 31% compared to 54% for 9M2022, down 23
p.p. yoy. The yoy decrease is driven by the higher total income. The cost to
income ratio excluding special levy on deposits and other levies/contributions
for 3Q2023 was 30% broadly flat qoq.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.3 Profit before tax and non-recurring items
€ mn 9M2023 9M2022 3Q2023 2Q2023 qoq+% yoy +%
IFRS 17(1)
Operating profit 518 179 187 188 -1% 190%
Loan credit losses (44) (36) (20) (13) 49% 24%
Impairments of other financial and non-financial assets (38) (20) (8) (19) -57% 88%
Provisions for pending litigations, regulatory and other provisions (net of (20) (3) (6) (8) -18% -
reversals)
Total loan credit losses, impairments and provisions (102) (59) (34) (40) -14% 73%
Profit before tax and non-recurring items 416 120 153 148 3% 247%
Cost of risk 0.58% 0.44% 0.76% 0.51% 25 bps 14 bps
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further
details, please refer to Section F.9 of this announcement.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Operating profit for 9M2023 amounted to €518 mn, compared to €179 mn for
9M2022 (up 190% yoy). The yoy increase is driven by the significant increase
in net interest income. Operating profit for 3Q2023 amounted to €187 mn,
broadly flat qoq.
Loan credit losses for 9M2023 were €44 mn, compared to €36 mn for 9M2022
(up 24% yoy). Loan credit losses for 3Q2023 were €20 mn, compared to €13
mn for 2Q2023, up 49% on prior quarter.
Cost of risk for 9M2023 was 58 bps, compared to a cost of risk of 44 bps for
9M2022 (up 14 bps), reflecting higher loan credit losses on specific customers
with idiosyncratic characteristics assessed as 'Unlikely to pay' ('UTPs)
exposures, even though they adhere their repayment schedule and present no
arrears. Cost of risk for 3Q2023 was 76 bps, compared to a cost of risk of 51
bps for 2Q2023, up 25 bps qoq, and includes 43 bps (c.€11 mn) on UTPs and 15
bps (c.€4 mn) management overlays on Stage 1 and Stage 2 exposures to
capture conservative assumptions.
At 30 September 2023, the allowance for expected loan credit losses, including
residual fair value adjustment on initial recognition and credit losses on
off-balance sheet exposures (please refer to Section I. 'Definitions and
Explanations' for definition) totalled €275 mn (compared to €288 mn at 30
June 2023 and to €282 mn at 31 December 2022) and accounted for 2.7% of
gross loans (compared to 2.8% of gross loans for 30 June 2023 and 31 December
2022).
Impairments of other financial and non-financial assets for 9M2023 amounted to
€38 mn, compared to €20 mn for 9M2022, up 88% yoy, driven mainly by higher
impairments on specific, large, illiquid REMU stock properties. Impairments of
other financial and non-financial assets for 3Q2023 amounted to €8 mn
compared to €19 mn for 2Q2023, down 57% qoq.
Provisions for pending litigations, regulatory and other provisions (net of
reversals) for 9M2023 amounted to €20 mn, compared to €3 mn for 9M2022.
The yoy increase is driven mainly by the revised approach on pending
litigation fees and provisions relating to other matters in relation to the
run-down and disposal of legacy and non-core operations of the Group.
Provisions for pending litigations, regulatory and other provisions (net of
reversals) for 3Q2023 amounted to €6 mn compared to €8 mn for 2Q2023.
Profit before tax and non-recurring items for 9M2023 totalled to €416 mn,
compared to €120 mn for 9M2022. Profit before tax and non-recurring items
for 3Q2023 amounted to €153 mn compared to €148 mn for 2Q2023 (up 3% 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 9M2023 9M2022 3Q2023 2Q2023 qoq +% yoy +%
IFRS 17(1)
Profit before tax and non-recurring items 416 120 153 148 3% 247%
Tax (63) (19) (23) (22) 5% 238%
Profit attributable to non-controlling interests (2) (2) (1) 0 123% -9%
Profit after tax and before non-recurring items (attributable to the owners of 351 99 129 126 2% 253%
the Company)
Advisory and other transformation costs - organic (2) (10) - (1) -100% -77%
Profit after tax - organic (attributable to the owners of the Company) 349 89 129 125 3% 290%
Provisions/net profit/(loss) relating to NPE sales - (1) - - - -100%
Restructuring and other costs relating to NPE sales - (3) - - - -100%
Restructuring costs - Voluntary Staff Exit Plan (VEP) - (104) - - - -100%
Profit/(loss) after tax (attributable to the owners of the Company) 349 (19) 129 125 3% -
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further
details, please refer to Section F.9 of this announcement.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
The tax charge for 3Q2023 is €23 mn broadly flat qoq, and totalled to €63
mn for 9M2023, compared to €19 mn for 9M2022.
Profit after tax and before non-recurring items (attributable to the owners of
the Company) for 9M2023 is €351 mn, compared to €99 mn for 9M2022. Profit
after tax and before non-recurring items (attributable to the owners of the
Company) for 3Q2023 is €129 mn, compared to €126 mn for 2Q2023.
Advisory and other transformation costs - organic for 9M2023 are €2 mn,
compared to €10 mn for 9M2022, down 77% yoy. Advisory and other
transformation costs - organic for 3Q2023 are nil compared to €1 mn in
2Q2023.
Profit after tax arising from the organic operations (attributable to the
owners of the Company) for 9M2023 amounted to €349 mn, compared to €89 mn
for 9M2022. Profit after tax arising from the organic operations (attributable
to the owners of the Company) amounted to €129 mn for 3Q2023, compared to
€125 mn for 2Q2023 (up 3% qoq).
Following completion of Helix 3 project, there are no amounts recognised for
provisions/net profit/(loss) relating to NPE sales for 9M2023.
Restructuring and other costs relating to NPE sales for 9M2023 was nil
compared to €3 mn for 9M2022 (relating to the agreements for the sale of
portfolios of NPEs). Restructuring and other costs relating to NPE sales for
3Q2023 was nil, flat qoq.
Restructuring costs relating to the Voluntary Staff Exit Plan (VEP) of €104
mn in 9M2022 mainly related to the Voluntary Staff Exit Plan (VEP) that took
place in 3Q2022. For more details, please refer to the section A.2.2 'Total
expenses'.
Profit/(loss) after tax attributable to the owners of the Company for 9M2023
amounts to a profit of €349 mn, corresponding to a ROTE of 24.6%, compared
to a loss after tax of €19 mn for 9M2022. Profit/(loss) after tax
attributable to the owners of the Company for 3Q2023 amounts to a profit of
€129 mn, compared to a profit of €125 mn for 2Q2023 (up 3% qoq). ROTE
stands at 25.6% for 3Q2023, compared to 26.6% for 2Q2023.
B. Operating Environment
Geopolitical tensions remain high as the war in Ukraine continues and the
latest military conflict in the Middle East rages on, adding considerable
uncertainty to the outlook for the global economy. The wider impact will
depend on how these conflicts evolve in the future.
However, the International Monetary Fund's World Economic Outlook for Autumn
2023 presents a cautiously optimistic baseline scenario. According to the
outlook, no recession is expected in the advanced world until at least 2024,
but there are downside risks. In the baseline scenario, world growth slows
from 3.5% in 2022 to 3.0% in 2023 and 2.9% in 2024. Average growth in
2023-2028 will be below historical averages, but on a par with, and slightly
better than, the previous period 2015-2022.
Headline inflation continues to decline and core inflation, excluding food and
energy prices, is also projected to fall, but more gradually. Most countries
are not expected to return to the 2% inflation target until 2025-2026.
Growth in the Cypriot economy slowed to 2.8% in the first half of 2023 (3.3%
in the first quarter of 2023 and 2.3% in the second quarter of 2023), compared
with 5.1% growth in 2022. According to the IMF's Autumn World Economic
Outlook, growth will average 2.2% in the year and accelerate to 2.7% in 2024
(while the Ministry of Finance projects growth of around 2.4% in 2023 and
almost 3.0% in 2024).
Employment growth remains strong in 2021-2022, averaging 1.2% and 2.8%
respectively, following a 1% decline in 2020. Productivity growth was
particularly strong in the period immediately following the Covid recession
and has slowed in recent quarters. The unemployment rate after rising in 2020
and the first half of 2021, has been declining in the period since, dropping
to 6.5% in the first quarter of 2023 and 6.1% in the second quarter of 2023.
For the euro area as a whole, the seasonally adjusted unemployment rate was
6.6% in the first quarter of 2023 and 6.5% in the second quarter of 2023.
Inflation, as measured by the Harmonised Index of Consumer Prices, averaged
8.1% in 2022, compared with 8.4% in the euro area. Inflation peaked at 10.6%
in July 2022 and has been decelerating since, reaching 2.4% in July 2023,
before rising to 4.3% in September 2023. Overall, inflation averaged 4.4% in
the year to September 2023. The decline in headline inflation has been driven
by the non-core components of energy and food, while core inflation, defined
as total minus energy and food, has been more volatile. In Cyprus, core
inflation fell to 3.8% in August 2023 and to 3.5% in September 2023. In the
euro area, core inflation was 5.5% in August 2023 and 5.4% in September 2023,
close to peak levels. Harmonised inflation is expected to continue to
moderate, but only gradually. Headline inflation in Cyprus is projected to be
around 3.5% in 2023, or 4.1% according to the Ministry of Finance.
Following a strong performance in 2022, tourism activity continued to recover
in the first nine months of the year. Arrivals in January-September 2023 were
up 23.4% on the same period of last year, reaching 96% of arrivals in the same
period in 2019. Similarly, receipts in January-August 2023, were €2.03 bn ,
an increase of 25% year-on-year. Arrivals for the year are expected to be
close to 2019 levels, while receipts are expected to exceed 2019 levels.
Cyprus received a first payment from the Recovery and Resilience Facility of
€157 mn in September 2021, following the approval of the National Recovery
Plan in July 2020. This was pre-financing for 13% of the total disbursements
for the period 2021-2026. Cyprus received its first disbursement of €85 mn
in December 2022, following the adoption of conditional legislation in
Parliament and approval by the European Commission. The release of the funds
is conditional on the strict implementation of the reforms agreed in the
National Recovery Plan. The funds will be used, among other things, to
increase investment in the digital and green transition, to improve the
efficiency of public and local administrations, and to improve the efficiency
of the judicial system.
In the area of public finances, there have been significant improvements in
debt dynamics and debt affordability indicators. The recovery in 2021 was
underpinned by a significant increase in general government revenue and a
relative decrease in government expenditure. The result was a reduction in the
budget deficit to 1.9% of GDP, from a deficit of 5.7% of GDP in 2020. In 2022,
public finances improved further. The budget deficit turned into a surplus of
2.4% of GDP and gross debt dropped from 99.3% of GDP in 2021 to 85.6%. In
2023, according to the Ministry of Finance, the budget surplus will be 2.5% of
GDP and gross debt will fall to 78% of GDP. Debt affordability metrics are
favourable and are expected to remain solid in 2023-2024, as gross financing
needs are moderate, and the cash buffer gives the government a high degree of
financing flexibility.
The ECB left its interest rates unchanged at the Governing Council meeting in
October 2023, after raising them by 25 bps in September 2023. The minimum
refinancing operations rate is now 4.5%, compared with zero at the start of
the tightening cycle in July 2021, while the ECB deposit facility rate is
4.0%, compared with -50 bps in July 2021.
B. Operating environment (continued)
The banking sector has undergone significant restructuring since the financial
crisis in 2013. Total NPEs at the end of June 2023, amounted to €2.1 bn, or
8.7% of gross loans. The NPE ratio in the non-financial corporations segment
was 7.3% at end-June 2023, and that of households was 11.2%. About 45.0% of
total NPEs are restructured facilities and the coverage ratio was 55.6%. In
November 2023, the Cyprus Banking Association, following discussions with the
Cypriot government and parliament, agreed to suspend the foreclosure process
for primary residences with an open market value of up to €350,000 until 31
December 2023.
Sovereign ratings
The sovereign risk ratings of the Cypriot government have improved
significantly in recent years, reflecting reduced banking sector risks,
improved economic resilience and consistent fiscal outperformance. Cyprus has
demonstrated policy commitment to correcting fiscal imbalances through reform
and restructuring of its banking system. Public debt remains high as a share
of GDP, but large-scale asset purchases by the ECB ensure favourable funding
costs for Cyprus and ample liquidity in the government bond market.
In September 2023, Moody's Investors Service upgraded the long-term issuer and
senior unsecured ratings of the Government of Cyprus to Baa2 from Ba1. The
outlook was revised to stable from positive. This is a two-notch upgrade of
Cyprus' ratings, reflecting broad-based and sustained improvements in the
country's credit profile as a result of past and ongoing economic, fiscal and
banking reforms. Economic resilience has improved and medium-term growth
prospects remain strong. Fiscal strength has also improved significantly, with
a positive debt trend and sound debt affordability metrics. The stable outlook
balances the positive credit trends with remaining challenges.
In addition, S&P Global Ratings revised its outlook on Cyprus to positive
from stable in September 2023 and affirmed Cyprus' long-term local and foreign
currency sovereign ratings at BBB. The positive outlook reflects the ongoing
macroeconomic normalisation since the country's financial crisis in 2012-2013,
with the government on track to achieve steady fiscal surpluses and a
declining debt-to-GDP ratio in the coming years. The positive outlook also
reflects the significant progress made in the banking sector.
Also in September 2023, DBRS Ratings GmbH (DBRS Morningstar) upgraded the
long-term foreign and local currency issuer ratings of the Republic of Cyprus
from BBB to BBB (high). The rating action is stable. The upgrade is driven by
the recent decline in government debt and the expectation that public debt
metrics will continue to improve over the next few years, while economic
growth is expected to remain among the strongest in the euro area. The stable
outlook balances the recent favourable fiscal dynamics with downside risks to
the economic outlook.
Fitch Ratings has affirmed Cyprus' long-term foreign currency issuer default
rating at 'BBB' with a stable outlook in June 2023, following the upgrade in
March last year. The upgrade and affirmation reflect the improvement in public
finances and government debt, as well as strong GDP growth, the resilience of
the Cypriot economy to external shocks, and the improvement in the banking
sector's asset quality
C. Business Overview
Credit ratings
The Group's financial performance is highly correlated to the economic and
operating conditions in Cyprus. In November 2023, Fitch Ratings upgraded
long-term issuer default rating to BB from B+, whilst maintaining the positive
outlook. The two notch upgrade reflects a combination of Fitch's improved
assessment of the Cypriot operating environment and continued improvement in
the Bank's credit profile, strengthened capitalisation, reduced stock of
legacy problem assets and structurally improved profitability. In October 2023
Moody's Investors Service upgraded the Bank's long-term deposit rating to the
investment grade Baa3 from Ba1, while the outlook remained positive. The main
drivers for this upgrade are the continued resilience of the Cypriot economy
and credit conditions and the continued improvements in Bank's solvency
profile, with further gradual improvements in asset quality and capital
metrics, and a significant strengthening in the Bank's core profitability. In
April 2023, S&P Global Ratings affirmed the long-term issuer credit rating
of the Bank at BB- and revised the outlook to positive from stable. The
revised outlook reflects the likelihood of further progress in Cyprus'
operating environment, in particular materially easing funding risks.
Financial performance
The Group is a leading, financial and technology hub in Cyprus. During the
quarter ended 30 September 2023, the Group delivered another strong set of
financial results, generating a ROTE of 25.6%, the third consecutive quarter
with a ROTE over 20%. Overall, the Group generated €349 mn profit after tax,
corresponding to a ROTE of 24.6%, supported by strong net interest income
growth and a well-managed deposit pass-through, whilst non-interest income
remained a significant contributor to the Group's profitability and
diversified model, covering around 90% of total operating expenses. The
Group's efficiency ratio was significantly improved on prior year reflecting
continued revenue growth and disciplined cost management amidst persistent
inflationary pressures. Overall, the strong performance is feeding through the
Group's tangible book value growth trajectory, that increased by 22% on prior
year to €4.63 per share. With such strong set of financial results, the
Group is paving the way for delivering a ROTE for 2023 well above the Group's
2023 target (of over 17%), albeit 4Q2023 ROTE is expected to modestly decline
compared to the 9M2023 levels, partly due to typical seasonality in 4Q2023 and
the fact that strong profitability builds into equity.
Favourable interest rate environment
The structure of the Group's balance sheet is geared towards higher interest
rates. As at 30 September 2023, cash balances with ECB (excluding TLTRO III of
c.€2.0 bn) amounted to c.€7.6 bn, reflecting immediate benefit from
interest rate rises. The repricing of the reference rates gradually benefits
the interest income on loans, as over 95% of the Group's loan portfolio is
variable rate as at 30 September 2023. The net interest income for 9M2023
stood at €572 mn, more than double compared to 9M2022. This increase is
underpinned by faster and steeper than expected interest rate rises as well as
a resilient low deposit pass-through.
Net interest income is expected to remain strong on the back of the improved
interest rate environment and well-managed deposit pass-through and hence net
interest income for 4Q2023 is expected to be at similar levels to 3Q2023. At
the same time, the Group is undertaking pro-active solutions to enhance the
resilience of the net interest income to future reduction of interest rates.
These solutions include the increase in investment in fixed rate bonds with
longer duration and high credit, the initiation of use of reverse repos, the
offering of fixed rate lending and the entering into fixed rate receiver
swaps.
Growing revenues in a more capital efficient way
The Group remains focused on growing revenues in a more capital efficient way
through growth of high-quality new lending and the growth in niche areas, such
as insurance and digital products that provide further market penetration and
diversify through non-banking operations.
The Group has continued to provide high quality new lending in 9M2023 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 9M2023, new lending amounted to €1,563 mn, despite the rising
interest rate environment. Gross performing loan book remained broadly flat
yoy as repayments continue to offset new lending. Performing loan book is
expected to remain broadly flat in 2023.
Fixed income portfolio continued to grow in the third quarter of 2023 to
€3,489 mn, and currently represents 14% of total assets (net of TLTRO III).
This portfolio is mostly measured at amortised cost and is characterised with
high average rating at Aa3 (or Aa2 when Cyprus government bonds are excluded).
The mark-to market impact of this amortised cost fixed income portfolio is
€91 mn as at 30 September 2023, corresponding to c.90 bps of CET1 ratio.
Separately, the Group focuses to continue improving revenues through multiple
less capital-intensive initiatives, with a focus on fees and commissions,
insurance and non-banking opportunities, leveraging on the Group's digital
capabilities. During the first nine months of 2023, non-interest income
(excluding an ad-hoc insurance receivable of c.€5 mn) amounted to €219 mn,
remaining an important contributor to the Group's profitability, and
contributing to 90% of the Group's total operating expenses. Going forward,
non-interest income is expected to continue covering c.80% of the Group's
total operating expenses.
C. Business Overview (continued)
Growing revenues in a more capital efficient way (continued)
In 2023, net fee and commission income is negatively affected by the
termination of liquidity fees in December 2022 and an NPE sale-related
servicing fee in mid-February 2023. When disregarding the aforementioned
impact of the liquidity fees and NPE sale-related servicing fee, net fee and
commission income increased by 7% on prior year, reflecting the introduction
of a revised price list in February 2022 and higher net credit card
commissions and transactional fees.
Net fee and commission income is enhanced by transaction fees from the Group's
subsidiary, JCC Payment Systems Ltd (JCC), a leading player in the card
processing business and payment solutions, 75% owned by the Bank. JCC's net
fee and commission income contributed 9% of total non-interest income and
amounted to €21 mn in 9M2023, up 8% yoy, backed by strong transaction
volume.
The Group's insurance companies, EuroLife and GI are respectively leading
players in the life and general insurance business in Cyprus, and have been
providing recurring and improving income, further diversifying the Group's
income streams. The net insurance result for 9M2023 contributed 17% of
non-interest income and amounted to €38 mn, up 12% yoy, reflecting healthy
new business growth; insurance companies remain valuable and sustainable
contributors to the Group's profitability. On 1 January 2023, the Group
adopted IFRS 17, retrospectively, which impacts the profit recognition for
insurance contracts by phasing of profit over their lifetime compared to
recognising profit substantially up-front under IFRS 4. The new accounting
standard does not change the economics of the insurance business and decreases
the volatility of the Group's insurance companies profitability. For further
details please refer to Section F.9 of this announcement.
Finally, the Group through the Digital Economy Platform (Jinius) ('the
Platform') aims to support the national digital economy by optimising
processes in a cost-efficient way, allow the Bank to strengthen its client
relationships, create cross-selling opportunities as well as to generate new
revenue sources over the medium term, leveraging on the Bank's market
position, knowledge and digital infrastructure. The first Business-to-Business
services are already in use by clients and include electronic invoicing,
remittance management, tenders management and ecosystem management. The next
key milestone is the launch of the first Business-to-Consumer service, a
product marketplace, driving opportunities in lifestyle banking and beyond.
Currently, over 1,800 companies are registered in the platform.
Lean operating model
Striving for a lean operating model is a key strategic pillar for the Group in
order to deliver shareholder value, without constraining funding its digital
transformation and investing in the business.
The efficiency actions of the Group in 2022 to maintain operating expenses
under control in an inflationary environment included further branch footprint
optimisation and substantial streamline of workforce. In 2022 the Group
successfully completed a Voluntary Staff Exit Plan (VEP) through which 16% of
the Group's full-time employees were approved to leave at a total cost of
€101 mn. Following the completion of the VEP, the gross annual savings were
estimated at c.€37 mn or 19% of staff costs with a payback period of 2.7
years. Additionally, in January 2022, one of the Bank's subsidiaries completed
a small-scale targeted VEP, through which a small number of full-time
employees were approved to leave at a total cost of €3 mn. In relation to
branch restructuring, during 2022 the Group reduced the number of branches by
20 to 60, a reduction of 25%.
The Group's total operating expenses for 9M2023 amounted to €248 mn,
moderately up by 3% yoy with savings partly offsetting inflationary pressures.
The cost to income ratio excluding special levy on deposits and other
levies/contributions for 9M2023 was reduced further to 31%, 23 p.p. down
compared to 9M2022, driven mainly by the higher total income. Overall, the
cost to income ratio excluding special levy on deposits and other
levies/contributions for 2023 is expected to be considerably below 2023 target
of <40%, reflecting stronger than expected income, despite seasonally
higher other operating expenses expected in 4Q2023.
During 2022 the Group has established a share awards scheme under a long-term
incentive plan ("the "LTIP Plan"). The LTIP Plan involves the granting of
share awards and is driven by scorecard achievement, with measures and targets
set to align pay outcomes with the delivery of the Group's strategy. The LTIP
stipulates that performance will be measured over a 3 year period and
financial and non-financial objectives to be achieved (driven by both delivery
of the Group's strategy as well as individual performance). At the end of the
performance period, the performance outcome will be used to assess the
percentage of the awards that will vest. The Group proceeded in December 2022
to grant to eligible employees share awards under the established LTIP Plan;
this is the 2022 LTIP and refers to the performance period 2022-2024. Further
in October 2023, the Group has granted a new award, the 2023 LTIP, under the
same LTIP Plan, which refers to the performance period 2023-2025. The
employees eligible for both the 2022 LTIP and 2023 LTIP are the members of the
Extended EXCO. A performance scorecard is set for each annual LTIP award
granted.
These shares will then normally vest in six tranches, with the first tranche
vesting after the end of the performance period and the last tranche vesting
on the fifth anniversary of the first vesting date.
C. Business Overview (continued)
Lean operating model (continued)
In addition, staff costs for 9M2023 include c.€7 mn staff cost rewards,
namely the Short-term Incentive Plan. The Short-term Incentive Plan involves
variable remuneration to selected employees and will be driven by both,
delivery of the Group's strategy as well as individual performance.
Transformation plan
The Group's focus continues on deepening the relationship with its customers
as a customer centric organisation. A transformation plan is already in
progress and aims to enable the shift to modern banking by digitally
transforming customer service, as well as internal operations. The holistic
transformation aims to (i) shift to a more customer-centric operating model by
defining customer segment strategies, (ii) redefine distribution model across
existing and new channels, (iii) digitally transform the way the Group serves
its customers and operates internally, and (iv) improve employee engagement
through a robust set of organisational health initiatives.
Digital transformation
The Bank's digital transformation continues to focus on developing digital
services and products that improve the customer experience, streamlining
internal processes, and introducing new ways for improving the workplace
environment. Furthermore, the Bank's Digital strategy also embraces the
advancement of digital sales, reinforcing our commitment to delivering
exceptional value to our customers.
During 3Q2023, the Bank continued to enrich and improve its digital portfolio
with new innovative services to its customers. The innovative QuickLoan
products have been further enhanced with the integration of Short-Lived
digital signature Certificate (SLC). As a result, BoC customers are offered an
end-to-end digital experience when applying for the new lending products, with
the capability to digitally sign the required documents, related to the quick
loans, conveniently from anywhere at any time via the BoC mobile app/Internet
Banking and not having to visit a BoC branch for this purpose.
The adoption of digital products and services continued to grow and gained
momentum in the third quarter of 2023. As at 30 September 2023, 95.0% of the
number of transactions involving deposits, cash withdrawals and
internal/external transfers were performed through digital channels (up by
11.2 p.p. from 83.8% in June 2020). In addition, 83.5% of individual customers
were digitally engaged (up by 11.1 p.p. from 72.4% in June 2020), choosing
digital channels over branches to perform their transactions.
As at 30 September 2023, active mobile banking users and active QuickPay users
have grown by 15.1% and 22.4% respectively over the last 12 months. The
highest number of QuickPay users to date was recorded in September 2023 with
195.2 thousand active users and 584 thousand transactions (up 28.4% yoy).
Digital offerings via digital channels continued to enhance Group's sales
further in the third quarter of 2023. During 3Q2023, new lending via
Quickloans amounted to €29 mn (compared to new lending of €26 mn in 2Q2023
and €18 mn for 1Q2023) and totalled €73 mn for 9M2023. Deposits in
accounts opened digitally have also shown an increase of 26.3% yoy, reaching
€227 mn at 30 September 2023. 9M2023 digital insurance sales, with two new
products in mobile app (Motor & Home Insurance), have more than tripled
compared to FY2022 sales (€276k in 9M2023 compared to €68k in FY2022).
Asset quality
Balance sheet de-risking was largely completed in 2022, marked by the
completion of Project Helix 3 in November 2022 which refers to the sale of
non-performing exposures with gross book value of c.€550 mn as at the date
of completion. Project Helix 3 represented a further milestone in the delivery
of one of the Group's strategic priorities of improving asset quality through
the reduction of NPEs and delivering NPE ratio at 4% by end-2022. As at 30
September 2023, the Group's NPE ratio stood at 3.5%. The Group's priorities
remain intact, maintaining high quality new lending with strict underwriting
standards and preventing asset quality deterioration in this uncertain
outlook.
Against the backdrop of ongoing macroeconomic uncertainty, the cost of risk
range target of 50-80 bps remains unchanged. The Group expects to end the year
below the NPE ratio target of 4%.
C. Business Overview (continued)
Capital market presence
In June 2023, the Company successfully launched and priced an issue of €220
mn Fixed Rate Reset Perpetual Additional Tier 1 Capital Securities (the 'New
Capital Securities').
The issue was met with exceptional demand, attracting interest from c.240
institutional investors, with the final order book over 12 times
over-subscribed and final pricing 62.5 bps tighter than the initial pricing
indication. This also reflects significant improvement in the credit spread to
c.910 bps compared to c.1,260 bps for the previous AT1 issue in 2018
('Existing Capital Securities').
In July 2023, the Bank has successfully launched and priced an issuance of
€350 mn of senior preferred notes (the "Notes"). The Notes were priced at
par with a fixed coupon of 7.375% per annum, payable annually in arrear, until
the Optional Redemption Date i.e. 25 July 2027. The issuance was met with
strong demand, attracting interest from more than 90 institutional investors,
with a peak orderbook of €950 mn and final pricing 37.5 bps than the initial
pricing indication.
Dividend policy and shareholder value
In April 2023, the Company obtained the approval of the European Central Bank
to pay a dividend out of FY2022 profitability. Following this approval, the
Board of Directors of the Company recommended to the shareholders for approval
at the AGM a final Dividend of €0.05 per ordinary share in respect of
earnings for the year ended 31 December 2022. The Dividend which was declared
at the AGM on 26 May 2023, amounted to €22.3 mn in total and was equivalent
to a payout ratio of 14% of the FY2022 adjusted recurring profitability or 31%
based on FY2022 profit after tax (as reported in 2022 Annual Financial
Report). The dividend was paid in cash on 16 June 2023 and was the first
dividend payment after 12 years, a significant milestone for the Group, as it
represents a new chapter for the Group.
Additionally, the Board of Directors approved the Group's dividend policy in
April 2023. The Group aims to provide a sustainable return to shareholders.
Dividend payments are expected to build prudently and progressively over time,
towards a payout ratio in the range of 30-50% of the Group's profitability
after tax, before non-recurring items, adjusted for AT1 distributions
(referred to as "adjusted recurring profitability"). The dividend policy takes
into consideration market conditions as well as the outcome of capital and
liquidity planning.
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda
Climate change and transition to a sustainable economy is one of the greatest
challenges. As part of its vision to be the leading financial hub in Cyprus,
the Group is determined to lead the transition of Cyprus to a sustainable
future. The Group continuously evolves towards its ESG agenda and continues to
progress towards building a forward-looking organisation embracing ESG in all
aspects of business as usual. In 2022, the Company received a rating of AA (on
a scale of AAA-CCC) in the MSCI ESG Ratings assessment.
The ESG strategy formulated in 2021 is continuously expanding. The Group is
maintaining its leading role in the Social and Governance pillars and focus on
increasing the Group's positive impacts on the Environment by transforming not
only its own operations, but also the operations of its customers.
The Group has committed to the following primary ESG targets, which reflect
the pivotal role of ESG in the Group's strategy:
● Become carbon neutral by 2030
● Become Net Zero by 2050
● Steadily increase Green Asset Ratio
● Steadily increase Green Mortgage Ratio
● ≥30% women in Group's management bodies (defined as the
Executive Committee (EXCO) and the Extended EXCO) by 2030
For the Group to articulate the delivery of its primary ESG targets and
address regulatory expectations, a comprehensive ESG working plan has been
established in 2022. The ESG working plan is closely monitored by the
Sustainability Committee, the Executive Committee and the Board of Directors
at frequent intervals.
C. Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda (continued)
Environmental Pillar
The Group has estimated the Scope 1 and Scope 2 greenhouse gas ('GHG')
emissions of 2021 relating to own operations in order to set the baseline for
carbon neutrality target. The Bank being the main contributor of GHG emissions
of the Group, designed in 2022 the strategy to meet the carbon neutrality
target by 2030 and progress towards Net Zero target of 2050. For the Group to
become carbon neutral by 2030, Scope 1 and Scope 2 emissions should be reduced
by 42% by 2030. The Bank plans to invest in energy efficient installations and
actions as well as replace fuel intensive machineries and vehicles from 2023
to 2025, which would lead to c.5-10% reduction in Scope 1 and Scope 2
emissions by 2025 compared to 2021. The Bank expects that the Scope 2
emissions will be reduced further when the energy market in Cyprus shifts
further towards renewable energy. The Bank achieved a reduction of 18% in
Scope 1 -Mobile and Stationary Combustion GHG emissions and 7% in Scope 2 -
Purchased electricity GHG emissions in 9M2023 compared to 9M2022 due to new
solar panels connected to energy network in 2022 and early 2023 as well as the
reduction of number of branches as part of the digitalisation journey. The
Bank achieved an increase by 61% in renewable energy production, from 129,840
Kwh to 208,651 Kwh, in 9M2023 compared to 9M2022.
The Bank is the first bank in Cyprus to join the Partnership for Carbon
Accounting Financials (PCAF) in October 2022 and is following the recommended
methodology for the estimation of the Financed Scope 3 emissions. The Group
has estimated Financed Scope 3 GHG emissions relating to the loan portfolio
based on PCAF standard and proxies. Following the estimation of Financed Scope
3 GHG emissions derived from its loan portfolio and in conjunction with the
materiality assessment's results on climate and environmental risks the Bank
identified the carbon-concentrated areas so as to take the necessary actions
to minimise the environmental and climate impact associated with its loan
portfolio by offering targeted climate friendly products and engaging with its
customers. In 2023, following the identification of carbon-concentrated
sectors and asset classes, the Group is in the process to set decarbonisation
targets aligned with climate scenario (Science based targets) which will
assist in the formulation of the Group's strategy going forward.
The Bank in 2022 launched a low emission vehicle loan product (either hybrid
or electric) and is working to expand its range of environmentally friendly
products further in 2023. The gross amount of environmentally friendly loans
as at 30 September 2023 was €21.6 mn compared to €20.9 mn as at 31
December 2022.
Moreover, the Bank is making substantial progress in further integrating
climate risk considerations into its risk management approach, as it tries to
integrate climate related risk into its risk culture. The Bank, within the
context of underwriting processes, is currently in the process of
incorporating the assessment of ESG and climate matters and amending its
Policies and Procedures in such a way that potential impact from ESG and
climate is reflected in the fundamental elements of the creditworthiness
assessment. The Bank designed ESG questionnaires for key selected sectors
which will then be leveraged for deriving an ESG classification. In addition,
the Bank is in the process to enhance its risk quantification methodology to
assess how the portfolio is affected by Climate and Environmental (C&E)
risks and will be incorporating the above elements into the stress testing
infrastructure.
During 2023, in order to enhance the awareness and skillset towards the ESG,
the Group performed trainings to the Board of Directors and Senior Management.
Social Pillar
At the centre of the Group's leading social role lie its investments in the
Bank of Cyprus Oncology Centre (with an overall investment of c.€70 mn since
1998, whilst 60% of diagnosed cancer cases in Cyprus are being treated at the
Centre), the immediate and efficient response of Bank of Cyprus' SupportCY
network consisting of companies and organisations, to various needs of the
society and in cases of crises and emergencies, through the activation of
programs, specialied equipment and a highly trained Volunteers Corps, the
contribution of the Bank of Cyprus Cultural Centre in promoting the cultural
heritage of the island, and the work of IDEA Innovation Centre. During 2023,
SupportCY among other initiatives responded to more than 30 fire incidents in
Cyprus and Greece, the deadly floods in Greece and sent support to the
earthquake victims in Syria. The Cultural Centre undertook a number of
innovative projects such as 'AISTHISEIS' - Multi sensory museum experience for
people with disabilities as well as the ReInHerit program facilitating
innovation and research cooperation between European museums and heritage
continuing also into 2023, with 30,456 people participating in events at the
Cultural Foundation between January to September 2023. The IDEA Innovation
Centre, invested c.€4 mn in start-up business creation since its
incorporation, supported creation of 89 new companies to date, and provided
support to 210+ entrepreneurs through its Startup program since incorporation.
Staff have continued to engage in voluntary initiatives to support charities,
foundations, people in need and initiatives to protect the environment.
C. Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda (continued)
The Group has continued to upgrade its staff's skillset by providing training
and development opportunities to all staff and capitalising on modern delivery
methods. In 2023, the Bank's employees attended 53,435 hours of trainings.
In addition, in 2023 the Group launched the BoC Academy to offer up-skilling
short courses for employees with 20 members of staff enrolling on the
Academy's programs to date. In addition, 4 full MBA scholarships were offered
to selected members of staff. Moreover, the Group continues its emphasis on
staff wellness into 2023 by offering webinars, team building activities and
family events with sole purpose to enhance mental, physical, financial and
social health.
Governance Pillar
The Group continues to operate successfully within a complex regulatory
framework of a holding company which is registered in Ireland, listed on two
Stock Exchanges and run in compliance with a number of rules and regulations.
Its governance and management structures enable it to achieve present and
future economic prosperity, environmental integrity and social equity across
its value chain. The Group operates within a framework of prudent and
effective controls, which enable risk assessment and risk management based on
the relevant policies under the leadership of the Board of Directors. The
Group has set up a robust Governance Structure to oversee its ESG agenda.
Progress on the implementation and evolution of the Group's ESG strategy is
monitored by the Sustainability Committee and the Board of Directors. The
Sustainability Committee is a dedicated executive committee set up in early
2021 to oversee the ESG agenda of the Group, review the evolution of the
Group's ESG strategy, monitor the development and implementation of the
Group's ESG objectives and the embedding of ESG priorities in the Group's
business targets. The Group's ESG Governance structure continues to evolve, so
as to better address the Group's evolving ESG needs. The Group's regulatory
compliance continues to be an undisputed priority.
The Board composition of the Company and the Bank is diverse, with 50% of the
Board members being female as at 30 September 2023. The Board displays a
strong skillset stemming from broad international experience. Moreover, the
Group 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 2023, there is a 29% representation of women in Group's
management bodies and a 41% representation of women at key positions below the
Extended EXCO level (defined as positions between Assistant Manager and
Manager).
D. Strategy and Outlook
The vision of the Group is to create a lifelong partnership with its
customers, guiding and supporting them in an evolving world.
The strategic pillars of the Group are:
· Grow revenues in a more capital efficient way; by enhancing
revenue generation via growth in high quality new lending, diversification to
less capital intensive banking and other financial services (such as insurance
and the digital economy) as well as prudent management of the Group's
liquidity
· Achieve a lean operating model; by ongoing focus on efficiency
through further automations facilitated by digitisation
· Maintain robust asset quality; by maintaining high quality new
lending via strict underwriting criteria, normalising cost of risk and
reducing other impairments
· Enhance organisational resilience and ESG (Environmental, Social
and Governance) agenda; by leading the transition of Cyprus to a sustainable
future and building a forward-looking organisation embracing ESG in all
aspects.
The Group's targets for 2023 are set out below:
Key metrics 9M2023 FY2023 targets FY2023 Expectations
(June 2023)
Net interest income €572 mn >€650 mn NII will remain strong with 4Q2023 at similar levels to 3Q2023
Cost to income ratio(1) 31% Sub 40% Reflecting stronger income, cost to income ratio(1) will be considerably
<40%
Return on tangible equity 24.6% >17% FY2023 ROTE to well exceed 2023 target, albeit 4Q2023 expected to decline from
year to date level
NPE ratio 3.5% <4% NPE ratio on track to end the year <4%
Cost of risk 58 bps 50-80 bps Cost of risk outlook remains unchanged
Dividend Building prudently and progressively to 30-50% payout(2)
1. Excluding special levy on deposits and other levies/contributions
2. Payout ratio calculated on adjusted recurring profitability which
refers to profit after tax before non-recurring items (attributable to the
owners of the Company) taking into consideration the distributions from other
equity instruments such as AT1 coupon. Any recommendation for a dividend is
subject to regulatory approval.
The 2024 targets are expected to be updated with FY2023 publication of
financial results.
E. Financial Results - Statutory Basis
Unaudited Interim Consolidated Income Statement
The following financial information for the nine months of 2023 and 2022
within Section E corresponds to the condensed consolidated financial
statements prepared in accordance with the International Financial Reporting
Standards as adopted by the European Union. As a result of the
implementation from 1 January 2023 of IFRS 17, 2022 comparative information
has been restated to reflect the impact of IFRS 17 adoption.
Nine months ended
30 September
2023 2022
(restated)(1)
€000 €000
Turnover 1,022,794 630,326
Interest income 654,637 280,505
Income similar to interest income 43,294 14,692
Interest expense (97,983) (49,779)
Expense similar to interest expense (27,784) (11,037)
Net interest income 572,164 234,381
Fee and commission income 139,854 149,341
Fee and commission expense (5,336) (7,241)
Net foreign exchange gains 22,506 21,464
Net gains/(losses) on financial instruments 6,346 (1,836)
Net gains on derecognition of financial assets measured at amortised cost 6,265 2,179
Net insurance finance income/(expense) and net reinsurance finance 1,281 3,536
income/(expense)
Net insurance service result 51,445 44,256
Net reinsurance service result (14,961) (13,929)
Net gains/(losses) from revaluation and disposal of investment properties 1,031 (583)
Net gains on disposal of stock of property 5,997 11,175
Other income 15,147 11,945
Total operating income 801,739 454,688
Staff costs (141,462) (243,171)
Special levy on deposits and other levies/contributions (29,754) (26,616)
Provisions for pending litigations, regulatory and other provisions (net of (20,595) (3,402)
reversals)
Other operating expenses (107,973) (114,568)
Operating profit before credit losses and impairment 501,955 66,931
Credit losses on financial assets (56,584) (47,525)
Impairment net of reversals on non-financial assets (31,408) (17,474)
Profit before tax 413,963 1,932
Income tax (62,911) (18,605)
Profit/(loss) after tax for the period 351,052 (16,673)
Attributable to:
Owners of the Company 349,363 (18,532)
Non-controlling interests 1,689 1,859
Profit/(loss) for the period 351,052 (16,673)
Basic profit/(loss) per share attributable to the owners of the Company (€ 78.3 (4.2)
cent)
Diluted profit/(loss) per share attributable to the owners of the Company 78.2 (4.2)
(€ cent)
(1. ) 2022 comparative information has been restated to reflect the
impact of IFRS 17. Refer to Section F9.
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Comprehensive Income
Nine months ended
30 September
2023 2022 (restated)(1)
€000 €000
Profit/(loss) for the period 351,052 (16,673)
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in 1,903 (13,471)
subsequent periods
Fair value reserve (debt instruments) 2,002 (11,214)
Net gains/(losses) on investments in debt instruments measured at fair value 2,334 (9,983)
through OCI (FVOCI)
Transfer to the consolidated income statement on disposal (332) (1,231)
Foreign currency translation reserve (99) (2,257)
(Loss)/profit on translation of net investment in foreign subsidiaries (85) 1,822
Loss on hedging of net investments in foreign subsidiaries (14) (4,079)
OCI not to be reclassified in the consolidated income statement in subsequent 1,448 (878)
periods
Fair value reserve (equity instruments) (592) (2,421)
Net losses on investments in equity instruments designated at FVOCI (592) (2,421)
Property revaluation reserve 824 -
Fair value gains before tax 798 -
Deferred tax 26 -
Actuarial gains on the defined benefit plans 1,216 1,543
Remeasurement gains on defined benefit plans 1,216 1,543
Other comprehensive income/(loss) for the period net of taxation 3,351 (14,349)
Total comprehensive income/(loss) for the period 354,403 (31,022)
Attributable to:
Owners of the Company 352,708 (32,881)
Non-controlling interests 1,695 1,859
Total comprehensive income/(loss) for the period 354,403 (31,022)
(1. ) 2022 comparative information has been restated to reflect
the impact of IFRS 17. Refer to Section F9.
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Balance Sheet
30 September 2023 31 December 2022 1 January 2022 (restated)(1)
(restated)(1)
Assets €000 €000
Cash and balances with central banks 9,565,413 9,567,258 9,230,883
Loans and advances to banks 409,903 204,811 291,632
Derivative financial assets 56,383 48,153 6,653
Investments at FVPL 135,138 190,209 199,194
Investments at FVOCI 427,467 467,375 748,695
Investments at amortised cost 3,073,787 2,046,119 1,191,274
Loans and advances to customers 9,910,455 9,953,252 9,836,405
Life insurance business assets attributable to policyholders 610,720 542,321 551,797
Prepayments, accrued income and other assets 620,718 609,054 583,777
Stock of property 922,280 1,041,032 1,111,604
Investment properties 71,205 85,099 117,745
Deferred tax assets 227,953 227,934 265,942
Property and equipment 274,319 253,378 252,130
Intangible assets 45,899 52,546 54,144
Non-current assets and disposal groups held for sale - - 358,951
Total assets 26,351,640 25,288,541 24,800,826
Liabilities
Deposits by banks 442,754 507,658 457,039
Funding from central banks 2,023,424 1,976,674 2,969,600
Derivative financial liabilities 13,875 16,169 32,452
Customer deposits 19,267,145 18,998,319 17,530,883
Insurance liabilities 640,048 599,992 623,791
Accruals, deferred income, other liabilities and other provisions 474,368 379,182 356,697
Provisions for pending litigation, claims, regulatory and other matters 130,873 127,607 104,108
Debt securities in issue 644,281 297,636 302,555
Subordinated liabilities 314,989 302,104 340,220
Deferred tax liabilities 34,618 34,634 39,817
Total liabilities 23,986,375 23,239,975 22,757,162
Equity
Share capital 44,620 44,620 44,620
Share premium 594,358 594,358 594,358
Revaluation and other reserves 79,524 76,939 99,541
Retained earnings 1,394,518 1,090,349 1,062,711
Equity attributable to the owners of the Company 2,113,020 1,806,266 1,801,230
Other equity instruments 228,250 220,000 220,000
Non‑controlling interests 23,995 22,300 22,434
Total equity 2,365,265 2,048,566 2,043,664
Total liabilities and equity 26,351,640 25,288,541 24,800,826
(1. ) 2022 comparative information has been
restated to reflect the impact of IFRS 17. Refer to Section F9.
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Changes in Equity
Attributable to the owners of the Company Other equity instruments Non- controlling interests Total
equity
Share Share Treasury shares Other Retained earnings Property revaluation reserve Financial instruments fair value reserve Life insurance Foreign currency translation reserve Total
capital premium capital reserves in-force
business
reserve
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
31 December 2022 44,620 594,358 (21,463) 322 1,041,152 74,170 7,142 101,301 16,768 1,858,370 220,000 22,300 2,100,670
Impact of retrospective application of IFRS 17 adoption - - - - 49,197 - - (101,301) - (52,104) - - (52,104)
31 December 2022 (restated) / 1 January 2023 44,620 594,358 (21,463) 322 1,090,349 74,170 7,142 - 16,768 1,806,266 220,000 22,300 2,048,566
Profit for the period - - - - 349,363 - - - - 349,363 - 1,689 351,052
Other comprehensive income/(loss) after tax for the period - - - - 1,216 818 1,410 - (99) 3,345 - 6 3,351
Total comprehensive income/(loss) after tax for the period - - - - 350,579 818 1,410 - (99) 352,708 - 1,695 354,403
Dividends - - - - (22,310) - - - - (22,310) - - (22,310)
Share-based benefits-cost - - - 456 - - - - - 456 - - 456
Payment of coupon to AT1 holders - - - - (13,750) - - - - (13,750) - - (13,750)
Issue of other equity instruments - - - - (3,530) - - - - (3,530) 220,000 - 216,470
Repurchase of other equity instruments - - - - (6,820) - - - - (6,820) (211,750) - (218,570)
30 September 2023 44,620 594,358 (21,463) 778 1,394,518 74,988 8,552 - 16,669 2,113,020 228,250 23,995 2,365,265
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Changes in Equity (continued)
Attributable to the owners of the Company Other equity instruments Non- controlling interests Total
equity
Share Share Treasury shares Retained earnings Property revaluation reserve Financial instruments fair value reserve Life insurance Foreign currency translation reserve Total
capital premium in-force
business
reserve
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2022 44,620 594,358 (21,463) 986,623 80,060 23,285 113,651 17,659 1,838,793 220,000 22,434 2,081,227
Impact of retrospective application of IFRS 17 adoption - - - 76,088 - - (113,651) - (37,563) - - (37,563)
Restated balance at 1 January 2022 44,620 594,358 (21,463) 1,062,711 80,060 23,285 - 17,659 1,801,230 220,000 22,434 2,043,664
(Loss)/profit for the period - - - (18,532) - - - - (18,532) - 1,859 (16,673)
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 - - - (16,989) - (13,635) - (2,257) (32,881) - 1,859 (31,022)
Defence 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) 1,026,989 80,060 9,650 - 15,402 1,749,616 220,000 24,293 1,993,909
F. Notes
F.1 Reconciliation of Interim Income Statement for the nine
months ended 30 September 2023 between the statutory and underlying basis
€ million Underlying basis Other Statutory
basis
Net interest income 572 - 572
Net fee and commission income 135 - 135
Net foreign exchange gains and net gains on financial instruments 29 - 29
Net gains on derecognition of financial assets measured at amortised cost - 6 6
Net insurance result* 38 - 38
Net gains from revaluation and disposal of investment properties and on 7 - 7
disposal of stock of properties
Other income 15 - 15
Total income 796 6 802
Total expenses (278) (22) (300)
Operating profit 518 (16) 502
Loan credit losses (44) 44 -
Impairment of other financial and non-financial assets (38) 38 -
Provisions for litigation, claims, regulatory and other matters (net of (20) 20 -
reversals)
Credit losses on financial assets and impairment net of reversals of - (88) (88)
non-financial assets
Profit before tax and non-recurring items 416 (2) 414
Tax (63) - (63)
Profit attributable to non-controlling interests (2) - (2)
Profit after tax and before non-recurring items (attributable to the owners of 351 (2) 349
the Company)
Advisory and other transformation costs - organic (2) 2 -
Profit after tax (attributable to the owners of the Company) 349 - 349
* Net insurance result per underlying basis comprises the aggregate of
captions 'Net insurance finance income/(expense) and net reinsurance finance
income/(expense)', 'Net insurance service result' and 'Net reinsurance service
result' per the statutory basis.
The reclassification differences between the statutory basis and the
underlying basis are explained below:
· Net gains on loans and advances to customers at FVPL
(30 September 2023: nil) included in 'Loan credit losses' under the underlying
basis are included in 'Net gains/(losses) on financial instruments' under the
statutory basis. Their classification under the underlying basis is done to
align their presentation with the loan credit losses on loans and advances to
customers at amortised cost.
· 'Net gains on derecognition of financial assets
measured at amortised cost' of approximately €6 million under the statutory
basis comprise net gains on derecognition of loans and advances to customers
included in 'Loan credit losses' under the underlying basis as to align their
presentation with the loan credit losses on loans and advances to customers.
· Provisions for litigation, claims, regulatory and other
matters amounting to €20 million presented within 'Operating profit before
credit losses and impairment' under the statutory basis, are presented under
the underlying basis in conjunction with loan credit losses and impairments.
· Advisory and other restructuring costs of approximately
€2 million included in 'Other operating expenses' under the statutory basis
are separately presented under the underlying basis since they comprise mainly
fees to external advisors in relation to the transformation programme and
other strategic projects of the Group.
· 'Credit losses on financial assets' and 'Impairment net
of reversals on non-financial assets' under the statutory basis include: i)
credit losses to cover credit risk on loans and advances to customers of €51
million, which are included in 'Loan credit losses' under the underlying
basis, and ii) credit losses of other financial assets of €6 million and
impairment net of reversals of non-financial assets of €31 million, which
are included in 'Impairment of other financial and non-financial assets' under
the underlying basis, as to be presented separately from loan credit losses.
F. Notes (continued)
F.2 Customer deposits
The analysis of customer deposits is presented below:
30 September 31 December 2022
2023
By type of deposit €000 €000
Demand 10,376,781 10,561,724
Savings 2,933,744 2,840,346
Time or notice 5,956,620 5,596,249
19,267,145 18,998,319
By geographical area
Cyprus 13,439,298 13,019,109
Greece 1,841,915 1,933,771
United Kingdom 678,061 706,233
United States 170,306 178,962
Germany 127,612 168,785
Romania 62,856 69,514
Russia 606,593 700,465
Ukraine 297,038 290,050
Belarus 75,568 83,299
Other countries 1,967,898 1,848,131
19,267,145 18,998,319
Deposits by geographical area are based on the country of passport of the
Ultimate Beneficial Owner.
30 September 2023 31 December 2022
By currency €000 €000
Euro 17,354,605 17,067,299
US Dollar 1,529,637 1,529,548
British Pound 318,810 333,458
Russian Rouble 1,470 3,466
Swiss Franc 7,986 11,796
Other currencies 54,637 52,752
19,267,145 18,998,319
By customer sector
Corporate and Large corporate 1,984,991 1,915,300
International corporate 138,589 139,898
SMEs 1,006,880 1,007,555
Retail 11,670,190 11,333,783
Restructuring
- Corporate 14,700 16,017
- SMEs 6,993 6,375
- Retail other 11,866 10,152
Recoveries
- Corporate 1,060 1,262
International business unit 3,861,918 3,957,050
Wealth management 569,958 610,927
19,267,145 18,998,319
F. Notes (continued)
F.3 Loans and advances to customers
30 September 2023 31 December 2022
€000 €000
Gross loans and advances to customers at amortised cost 9,894,927 9,917,335
Allowance for ECL of loans and advances to customers (190,234) (178,442)
9,704,693 9,738,893
Loans and advances to customers measured at FVPL 205,762 214,359
9,910,455 9,953,252
F.4 Credit risk concentration of loans and advances to
customers
The credit risk concentration, which is based on industry (economic activity)
and business line, as well as the geographical concentration, is presented
below.
The geographical concentration, for credit risk concentration purposes, is
based on the Group's Country Risk Policy, which is followed for monitoring the
Group's exposures, 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 2023 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000
Trade 919,670 322 39 - 15,212 935,243
Manufacturing 296,285 44,022 94 - 23,508 363,909
Hotels and catering 934,001 26,954 36,864 - 39,865 1,037,684
Construction 511,802 8,831 14 - 348 520,995
Real estate 918,931 101,234 1,939 - 51,749 1,073,853
Private individuals 4,535,036 10,384 59,856 13,399 49,679 4,668,354
Professional and other services 503,535 550 5,241 312 41,950 551,588
Shipping 22,410 3 - - 226,465 248,878
Other sectors 466,865 1 - 2 27,555 494,423
9,108,535 192,301 104,047 13,713 476,331 9,894,927
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
30 September 2023 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000
Corporate and Large corporate 3,361,298 28,076 97 311 184 3,389,966
International corporate 120,718 157,522 43,632 - 420,945 742,817
SMEs 962,748 517 1,196 - 2,344 966,805
Retail
- housing 3,324,919 2,397 29,623 87 17,672 3,374,698
- consumer, credit cards and other 943,249 766 507 - 786 945,308
Restructuring
- corporate 51,716 - 627 - - 52,343
- SMEs 35,136 - 494 71 - 35,701
- retail housing 56,959 - 2,659 157 100 59,875
- retail other 19,889 25 3 - 22 19,939
Recoveries
- corporate 7,163 - 172 169 975 8,479
- SMEs 14,759 1 919 2,056 1,163 18,898
- retail housing 54,552 202 15,847 2,498 7,184 80,283
- retail other 28,811 7 1,173 227 255 30,473
International business unit 87,701 1,630 7,005 8,137 19,383 123,856
Wealth management 38,917 1,158 93 - 5,318 45,486
9,108,535 192,301 104,047 13,713 476,331 9,894,927
31 December 2022 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000
Trade 922,093 384 37 - 35 922,549
Manufacturing 323,074 44,978 - - 27,943 395,995
Hotels and catering 928,346 16,565 35,614 - 40,086 1,020,611
Construction 545,421 8,955 23 1 1,985 556,385
Real estate 978,708 94,823 1,866 - 51,617 1,127,014
Private individuals 4,496,081 11,146 73,120 19,103 54,985 4,654,435
Professional and other services 551,269 980 5,311 313 37,830 595,703
Shipping 13,338 - - - 173,830 187,168
Other sectors 427,535 2 - 3 29,935 457,475
9,185,865 177,833 115,971 19,420 418,246 9,917,335
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
31 December 2022 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000
Corporate and Large corporate 3,380,542 17,781 50 312 102 3,398,787
International corporate 139,813 152,143 42,327 - 351,025 685,308
SMEs 1,021,950 1,036 1,451 - 4,174 1,028,611
Retail
- housing 3,272,253 2,450 36,839 186 18,906 3,330,634
- consumer, credit cards and other 885,558 856 576 1 905 887,896
Restructuring
- corporate 66,151 - 869 - 932 67,952
- SMEs 48,027 - 432 158 384 49,001
- retail housing 70,283 104 1,841 291 114 72,633
- retail other 24,093 16 21 192 21 24,343
Recoveries
- corporate 19,063 - 452 172 32 19,719
- SMEs 26,150 - 1,117 2,664 1,774 31,705
- retail housing 69,790 260 19,778 3,431 9,736 102,995
- retail other 31,967 12 1,265 49 337 33,630
International business unit 90,652 1,722 8,953 11,964 24,583 137,874
Wealth management 39,573 1,453 - - 5,221 46,247
9,185,865 177,833 115,971 19,420 418,246 9,917,335
The loans and advances to customers include lending exposures in Cyprus with
collaterals in Greece with a carrying value as at 30 September 2023 of
€132,553 thousand (31 December 2022: €106,701 thousand).
The loans and advances to customers reported within 'Other countries' as at 30
September 2023 include exposures of €1.8 million in Ukraine (31 December
2022: €2.6 million).
F. Notes (continued)
F.5 Analysis of loans and advances to customers by stage
The following tables present the Group's gross loans and advances to customers
at amortised cost by staging and by geographical analysis (based on the
country in which the loans are managed).
30 September 2023 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on initial 8,140,690 1,387,591 324,192 112,014 9,964,487
recognition
Residual fair value adjustment on initial recognition (60,284) (7,827) (59) (1,390) (69,560)
Gross loans at amortised cost 8,080,406 1,379,764 324,133 110,624 9,894,927
Cyprus 8,080,222 1,379,764 323,626 110,624 9,894,236
Other countries 184 - 507 - 691
8,080,406 1,379,764 324,133 110,624 9,894,927
31 December 2022 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on initial 7,931,511 1,586,488 372,821 115,544 10,006,364
recognition
Residual fair value adjustment on initial recognition (64,255) (20,885) (1,803) (2,086) (89,029)
Gross loans at amortised cost 7,867,256 1,565,603 371,018 113,458 9,917,335
Cyprus 7,867,037 1,565,603 368,922 113,458 9,915,020
Other countries 219 - 2,096 - 2,315
7,867,256 1,565,603 371,018 113,458 9,917,335
F. Notes (continued)
F.5 Analysis of loans and advances to customers by stage
(continued)
The following tables present the Group's gross loans and advances to customers
at amortised cost by stage and by business line concentration:
30 September 2023 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate and Large corporate 2,597,281 669,211 82,170 41,304 3,389,966
International corporate 735,542 7,216 39 20 742,817
SMEs 836,601 117,865 3,873 8,466 966,805
Retail
- housing 2,957,665 381,284 24,658 11,091 3,374,698
- consumer, credit cards and other 792,916 127,547 10,712 14,133 945,308
Restructuring
- corporate 3,800 19,439 19,062 10,042 52,343
- SMEs 9,167 10,997 13,063 2,474 35,701
- retail housing 4,444 16,172 37,208 2,051 59,875
- retail other 2,362 3,079 13,733 765 19,939
Recoveries
- corporate - - 7,330 1,149 8,479
- SMEs - - 17,270 1,628 18,898
- retail housing - - 69,225 11,058 80,283
- retail other 71 - 24,659 5,743 30,473
International business unit 99,005 23,564 1,125 162 123,856
Wealth management 41,552 3,390 6 538 45,486
8,080,406 1,379,764 324,133 110,624 9,894,927
31 December 2022 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate and Large corporate 2,502,630 807,282 54,259 34,616 3,398,787
International corporate 685,099 150 35 24 685,308
SMEs 825,123 189,825 3,299 10,364 1,028,611
Retail
- housing 2,982,436 305,714 30,071 12,413 3,330,634
- consumer, credit cards and other 704,959 152,815 14,376 15,746 887,896
Restructuring
- corporate 2,842 34,246 20,689 10,175 67,952
- SMEs 12,643 10,603 23,374 2,381 49,001
- retail housing 5,168 22,018 42,155 3,292 72,633
- retail other 1,713 5,364 16,237 1,029 24,343
Recoveries
- corporate - - 18,403 1,316 19,719
- SMEs - - 29,339 2,366 31,705
- retail housing - - 88,956 14,039 102,995
- retail other 108 - 28,569 4,953 33,630
International business unit 104,539 31,934 1,254 147 137,874
Wealth management 39,996 5,652 2 597 46,247
7,867,256 1,565,603 371,018 113,458 9,917,335
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers
Nine months ended
30 September
2023 2022
€000 €000
Impairment loss net of reversals on loans and advances to customers 62,374 49,101
Recoveries of loans and advances to customers previously written off (10,310) (9,392)
Changes in expected cash flows (2,272) 6,221
Financial guarantees and commitments 540 (998)
50,332 44,932
The movement in ECL of loans and advances to customers, (30 September 2022:
including ECL for 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
2023 2022
€000 €000
1 January 178,442 591,417
Foreign exchange and other adjustments 35 3,718
Write offs (54,260) (180,187)
Interest (provided) not recognised in the income statement 3,643 14,466
Disposal of Sinope portfolio - (5,191)
Charge for the period 62,374 49,101
30 September 190,234 473,324
Stage 1 24,473 17,871
Stage 2 35,462 26,826
Stage 3 110,966 370,194
POCI 19,333 58,433
30 September 190,234 473,324
As at 30 September 2022 the allowance for ECL, included above, for loans and
advances to customers held for sale amounted €300,731 thousand. There were
no loans and advances to customers classified as held for sale as at 30
September 2023.
The charge for the period on loans and advances to customers, (30 September
2022: including charge for the loans and advances to customers held for sale),
by stage is presented in the table below:
Nine months ended
30 September
2023 2022
€000 €000
Stage 1 (5,242) (4,183)
Stage 2 16,485 1,200
Stage 3 51,131 52,084
62,374 49,101
During the nine months ended 30 September 2023 the total non‑contractual
write‑offs recorded by the Group amounted to €39,663 thousand (nine months
ended 30 September 2022: €128,264 thousand). The contractual amount
outstanding on financial assets that were written off during the nine months
ended 30 September 2023 and that are still subject to enforcement activity is
€491,976 thousand (31 December 2022: €972,621 thousand).
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers (continued)
Assumptions have been made about the future changes in property values, as
well as the timing for the realisation of collateral, taxes and expenses on
the repossession and subsequent sale of the collateral as well as any other
applicable haircuts. Indexation has been used as the basis to estimate updated
market values of properties, supplemented by management judgement where
necessary, given the difficulty in differentiating between short-term impacts
and long-term structural changes and the shortage of market evidence for
comparison purposes. Assumptions were made on the basis of a macroeconomic
scenario for future changes in property prices and qualitative adjustments or
overlays were applied to the projected future property value increases to
restrict the level of future property price growth to 0% for all scenarios for
loans and advances to customers which are secured by property collaterals.
At 30 September 2023 the weighted average haircut (including liquidity haircut
and selling expenses) used in the collectively assessed provision calculation
for loans and advances to customers is approximately 32% under the baseline
scenario (31 December 2022: approximately 32%).
The timing of recovery from real estate collaterals used in the collectively
assessed provision calculation for loans and advances to customers has been
estimated to be on average seven years under the baseline scenario (31
December 2022: average seven years).
For the calculation of individually assessed provisions, the timing of
recovery of collaterals as well as the haircuts used are based on the specific
facts and circumstances of each case. For specific cases judgement may also be
exercised over staging during the individual assessment.
The above assumptions are also influenced by the ongoing regulatory dialogue
the Group maintains with its lead regulator, the ECB, and other regulatory
guidance and interpretations issued by various regulatory and industry bodies
such as the ECB and the EBA, which provide guidance and expectations as to
relevant definitions and the treatment/classification of certain
parameters/assumptions used in the estimation of provisions.
Any changes in these assumptions or differences between assumptions made and
actual results could result in significant changes in the estimated amount of
expected credit losses of loans and advances to customers.
Overlays in the context of current economic conditions
The two overlays introduced in 2022 in response to uncertainties from the
consequences of the Ukrainian crisis, in the collectively assessed population
for exposures that were considered to be the most vulnerable to the
implications of the crisis, continued to be in effect during the nine months
ended 30 September 2023. These were introduced to address the increased
uncertainties from the geopolitical instability, trade restrictions,
disruptions in the global supply chains, increases in the energy prices, the
continuously rising interest rates environment and their potential negative
impact on the domestic cost of living. The impact on the ECL from the
application of these overlays was approximately €3.5 million release for the
nine months ended 30 September 2023 (following an update of the assessment of
the sectors classified as High Risk and/or Early Warning) and a net transfer
of €25 million loans from Stage 1 to Stage 2 as at 30 September 2023.
Specifically, the first overlay relates to private individuals that are
expected to be affected by the increased cost of living in order to reflect
the future vulnerabilities to inflation, where a scenario with higher
percentage increase is applied for the cost of living. A one-notch downgrade
is applied to the identified portfolio, reflecting the expected impact of
inflation to their credit quality. The second overlay relates to sectors that
have been classified as High Risk or Early Warning to reflect the expected
Gross Value Added (GVA) outlook of these sectors, where this has deteriorated.
Specifically, the sector risk classification is carried out by comparing the
projected GVA outlook of each sector with its past performance (intrinsic) and
its performance vis-a-vis other sectors (systemic). In cases where both
systemic and intrinsic indicators are found to have deteriorated, the relevant
sector is classified as 'High Risk', whereas if only one of the two has
deteriorated, then the sector is classified as 'Early Warning'. A one-notch
downgrade is applied to 'Early Warning' sectors whereas for 'High Risk'
sectors a more severe downgrade is applied accordingly.
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers (continued)
In addition, the overlay on the probability of default (PD), introduced in
the fourth quarter of 2022 to address specifically the high inflation
environment affecting the economy, continued to be in effect during the nine
months ended 30 September 2023. With this overlay the PDs were floored to the
maximum of 2018/2019 level on the basis that these years are considered as
closer to a business-as-usual environment in terms of default rates. The
impact on the ECL from the application of this overlay was €7.2 million
charge for the nine months ended 30 September 2023, as a result of multiple
components including updated ratings, macro variable inputs, PD and thresholds
calibrations and stage migrations.
In addition, in the nine months ended 30 September 2023, for the LGD
parameter, the overlay has been integrated through reduced curability period
for Stage 2 and Stage 3 exposures (i.e., the maximum curability period
considered for a customer has been reduced). The impact on the ECL was €8.7
million charge for the nine months ended 30 September 2023.
The Group has exercised critical judgement on a best effort basis, to consider
all reasonable and supportable information available at the time of the
assessment of the ECL allowance as at 30 September 2023. The Group will
continue to evaluate the ECL allowance and the related economic outlook each
quarter, so that any changes arising from the uncertainty on the macroeconomic
outlook and geopolitical developments, are timely captured.
Portfolio segmentation
The individual assessment is performed not only for individually significant
assets but also for other exposures meeting specific criteria determined by
management. The selection criteria for the individually assessed exposures are
based on management judgement and are reviewed on a quarterly basis by the
Risk Management Division and are adjusted or enhanced, if deemed necessary.
The selection criteria were further enhanced in 2022 to include significant
exposures to customers with passport of origin or residency in Russia, Ukraine
or Belarus and/or business activity within these countries.
F.7 Rescheduled loans and advances to customers
The below table presents the Group's forborne loans and advances to customers
by staging.
30 September 2023 31 December 2022
€000 €000
Stage 1 - -
Stage 2 443,265 857,356
Stage 3 177,587 215,730
POCI 22,815 33,212
643,667 1,106,298
F.8 Pending litigation, claims, regulatory and other matters
The Group, in the ordinary course of business, is involved in various disputes
and legal proceedings and is subject to enquiries and examinations, requests
for information, audits, investigations, legal and other proceedings by
regulators, governmental and other public bodies, actual and threatened,
relating to the suitability and adequacy of advice given to clients or the
absence of advice, lending and pricing practices, selling practices and
disclosure requirements, record keeping, filings and a variety of other
matters. In addition, as a result of the deterioration of the Cypriot economy
and banking sector in 2012 and the subsequent restructuring of BOC PCL in 2013
as a result of the bail-in Decrees, BOC PCL is subject to a large number of
proceedings and investigations that either precede or result from the events
that occurred during the period of the bail‑in Decrees. There are also
situations where the Group may enter into a settlement agreement. This may
occur only if such settlement is in BOC PCL's interest (such settlement does
not constitute an admission of wrongdoing) and only takes place after
obtaining legal advice and all approvals by the appropriate bodies of
management.
Provisions have been recognised for those cases where the Group is able to
estimate probable losses. Any provision recognised does not constitute an
admission of wrongdoing or legal liability. While the outcome of these matters
is inherently uncertain, management believes that, based on the information
available to it, appropriate provisions have been made in respect of legal
proceedings, regulatory and other matters as at 30 September 2023 and hence it
is not believed that such matters, when concluded, will have a material impact
upon the financial position of the Group. Details on the material ongoing
cases are disclosed within the 2023 Interim Financial Report.
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts'
Overview
On 1 January 2023 the Group adopted IFRS 17 'Insurance Contracts' (IFRS 17)
and as required by the standard, the Group applied the requirements
retrospectively with comparative information restated from the transition
date, 1 January 2022 as further explained in the 'Transition application'
section below.
IFRS 17 is a comprehensive new accounting standard for insurance contracts
which replaces IFRS 4 Insurance Contracts. In contrast to the requirements in
IFRS 4, IFRS 17 provides a comprehensive model (the general measurement model
or 'GMM') for insurance contracts, supplemented by the variable fee approach
('VFA') for contracts with direct participation features that are
substantially investment-related service contracts, and the premium allocation
approach ('PAA') mainly for short duration insurance contracts. The main
features of the new accounting standard for insurance contracts are the
following:
i. The measurement of the present value of future cash flows, incorporating
an explicit risk adjustment, remeasured every reporting period (the fulfilment
cash flows)
ii. A Contractual Service Margin (CSM) that is equal and opposite to any day
one gain in the fulfilment cash flows of a group of contracts. The CSM
represents the unearned profitability of the insurance contracts and is
recognised in profit or loss over the service period (i.e., the coverage
period)
iii. Certain changes in the expected present value of future cash flows are
adjusted against the CSM and thereby recognised in profit or loss over the
remaining contractual service period
iv. The recognition of insurance revenue and insurance service
expenses in the consolidated income statement is based on the concept of
services provided during the period
v. Insurance service result (earned revenue less incurred claims) is presented
separately from the insurance finance income or expense
vi. Extensive disclosures to provide information on the recognised
amounts from insurance contracts and the nature and extent of the risks
arising from these contracts.
Transition application
The standard is applied retrospectively using a fully retrospective approach
('FRA') as if it had always been applied, unless it is impracticable to so, in
which case either a modified retrospective approach ('MRA') or a fair value
approach ('FVA') can be selected. Impracticability assessments were performed
based on the requirements of IFRS 17 and considered the availability of data
and systems and the requirement not to apply hindsight within the measurement.
Following the completion of impracticability assessments, the Group applied
the following approaches:
· The FRA for all non-life groups of insurance contracts and
non-individual life groups of insurance contracts, irrespective of issue date.
· The MRA for groups of life insurance contracts issued between
2016 and 2021.
· The FVA for groups of life insurance contracts issued prior to
2016.
F.9.1 Transition impact
On transition on 1 January 2022, consistent with the disclosures in the 2022
Annual Financial Report, the Group's Total Equity and Equity attributable to
the owners of the Company were reduced by €37,563 thousand, reflecting the
aggregate impact of the elimination of the present value of in-force life
insurance business asset (PVIF) and the remeasurement of insurance assets and
liabilities, both net of associated tax impact. Similarly, adjusting for the
impact of IFRS 17 on the profit for the year ended 31 December 2022, the
Group's Total Equity and Equity attributable to the owners of the Company at
31 December 2022 as reported under IFRS 4 were reduced by €52,104 thousand,
as analysed below.
At 1 January At 31 December
2022 2022
€000 €000
IFRS 4 Total Equity 2,081,227 2,100,670
IFRS 4 Equity attributable to the owners of the Company 1,838,793 1,858,370
Removal of PVIF asset (129,890) (115,776)
Contractual service margin (43,731) (41,863)
Removal of IFRS 4 assets and liabilities and recording of IFRS 17 fulfilment 129,255 97,028
cash flows and risk adjustment
Tax effect (including the PVIF tax effect) 7,079 9,601
Other (276) (1,094)
Total impact of IFRS 17 restatements (37,563) (52,104)
IFRS 17 Equity attributable to the owners of the Company 1,801,230 1,806,266
IFRS 17 Total Equity 2,043,664 2,048,566
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.1 Transition impact (continued)
The reduction of the Group's equity by €52,104 thousand as at 31 December
2022 comprises the elimination of the in-force life insurance business asset
(PVIF) and the associated deferred tax liability, resulting in a net decrease
of €101,301 thousand and the remeasurement of insurance assets and
liabilities (including the impact of the contractual service margin) resulting
in a net increase in equity by €49,197 thousand.
On transition on 1 January 2022, the Group's Tangible Equity attributable to
the owners of the Company was increased by €92,327 thousand. Adjusting for
the impact of IFRS 17 on the profit for the year ended 31 December 2022, the
Group's Tangible Equity attributable to the owners of the Company as at 31
December 2022 as restated under IFRS 17 was increased by €63,672 thousand as
analysed below.
At 1 January At 31 December 2022
2022
€000 €000
IFRS 4 Group's Tangible Equity attributable to the owners of the Company 1,654,759 1,690,048
Contractual service margin (43,731) (41,863)
Removal of IFRS 4 assets and liabilities and recording of IFRS 17 fulfilment 129,255 97,028
cash flows and risk adjustment
Tax effect (including the PVIF tax effect) 7,079 9,601
Other (276) (1,094)
Total impact of IFRS 17 restatements 92,327 63,672
IFRS 17 Group's Tangible Equity attributable to the owners of the Company 1,747,086 1,753,720
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.1 Transition impact (continued)
Consolidated Income Statement for the year ended 31 December 2022 under the
statutory basis as restated for IFRS 17 and as previously reported under IFRS
4 is presented below.
Year ended
31 December 2022
IFRS 17 IFRS 4
(restated) (as previously presented)
€000 €000
Interest income 428,849 428,849
Income similar to interest income 22,119 22,119
Interest expense (65,721) (65,821)
Expense similar to interest expense (14,840) (14,840)
Net interest income 370,407 370,307
Fee and commission income 202,583 202,583
Fee and commission expense (10,299) (10,299)
Net foreign exchange gains 31,291 31,291
Net (losses)/ gains on financial instruments (614) 10,052
Net gains on derecognition of financial assets measured at amortised cost 5,235 5,235
Net insurance finance income/(expense) and net reinsurance finance 4,075 -
income/(expense)
Net insurance service result 60,530 -
Net reinsurance service result (20,039) -
Income from assets under insurance and reinsurance contracts - 114,681
Expenses from liabilities under insurance and reinsurance contracts - (43,542)
Net losses from revaluation and disposal of investment properties (999) (999)
Net gains on disposal of stock of property 13,970 13,970
Other income 16,681 16,681
Total operating income 672,821 709,960
Staff costs (285,154) (294,361)
Special levy on deposits and other levies/contributions (38,492) (38,492)
Provisions for pending litigations, regulatory and other provisions (net of (11,880) (11,880)
reversals)
Other operating expenses (157,916) (166,365)
Operating profit before credit losses and impairment 179,379 198,862
Credit losses on financial assets (59,087) (59,529)
Impairment net of reversals on non-financial assets (29,549) (29,549)
Profit before tax 90,743 109,784
Income tax (31,312) (35,812)
Profit after tax for the year 59,431 73,972
Attributable to:
Owners of the Company 56,565 71,106
Non-controlling interests 2,866 2,866
Profit for the year 59,431 73,972
Basic and diluted profit per share attributable to the owners of the Company 12.7 15.9
(€ cent)
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.1 Transition impact (continued)
Consolidated Balance Sheet at transition date and at 31 December 2022 as
restated under IFRS 17 and as previously reported under IFRS 4 is presented
below.
IFRS 17 IFRS 4
(restated) (as previously presented)
31 December 1 January 31 December 2022 1 January 2022
2022 2022
Assets €000 €000 €000 €000
Cash and balances with central banks 9,567,258 9,230,883 9,567,258 9,230,883
Loans and advances to banks 204,811 291,632 204,811 291,632
Derivative financial assets 48,153 6,653 48,153 6,653
Investments at FVPL 190,209 199,194 190,209 199,194
Investments at FVOCI 467,375 748,695 467,375 748,695
Investments at amortised cost 2,046,119 1,191,274 2,046,119 1,191,274
Loans and advances to customers 9,953,252 9,836,405 9,953,252 9,836,405
Life insurance business assets attributable to policyholders 542,321 551,797 542,321 551,797
Prepayments, accrued income and other assets 609,054 583,777 639,765 616,219
Stock of property 1,041,032 1,111,604 1,041,032 1,111,604
Investment properties 85,099 117,745 85,099 117,745
Deferred tax assets 227,934 265,942 227,521 265,481
Property and equipment 253,378 252,130 253,378 252,130
Intangible assets 52,546 54,144 168,322 184,034
Non-current assets and disposal groups held for sale - 358,951 - 358,951
Total assets 25,288,541 24,800,826 25,434,615 24,962,697
Liabilities
Deposits by banks 507,658 457,039 507,658 457,039
Funding from central banks 1,976,674 2,969,600 1,976,674 2,969,600
Derivative financial liabilities 16,169 32,452 16,169 32,452
Customer deposits 18,998,319 17,530,883 18,998,319 17,530,883
Insurance liabilities 599,992 623,791 679,952 736,201
Accruals, deferred income, other liabilities and other provisions 379,182 356,697 384,004 361,977
Provisions for pending litigation, claims, regulatory and other matters 127,607 104,108 127,607 104,108
Debt securities in issue 297,636 302,555 297,636 302,555
Subordinated liabilities 302,104 340,220 302,104 340,220
Deferred tax liabilities 34,634 39,817 43,822 46,435
Total liabilities 23,239,975 22,757,162 23,333,945 22,881,470
Equity
Share capital 44,620 44,620 44,620 44,620
Share premium 594,358 594,358 594,358 594,358
Revaluation and other reserves 76,939 99,541 178,240 213,192
Retained earnings 1,090,349 1,062,711 1,041,152 986,623
Equity attributable to the owners of the Company 1,806,266 1,801,230 1,858,370 1,838,793
Other equity instruments 220,000 220,000 220,000 220,000
Non‑controlling interests 22,300 22,434 22,300 22,434
Total equity 2,048,566 2,043,664 2,100,670 2,081,227
Total liabilities and equity 25,288,541 24,800,826 25,434,615 24,962,697
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.1 Transition impact (continued)
The Consolidated Income Statement for the nine months ended 30 September 2022
under the statutory basis, as restated for IFRS 17 and as reported under IFRS
4 is presented below:
Nine months ended
30 September 2022
IFRS 4 IFRS 17 IFRS 17
(as previously presented) adjustments (restated)
€000 €000 €000
Turnover 630,326 - 630,326
Interest income 280,505 - 280,505
Income similar to interest income 14,692 - 14,692
Interest expense (49,826) 47 (49,779)
Expense similar to interest expense (11,037) - (11,037)
Net interest income 234,334 47 234,381
Fee and commission income 149,341 - 149,341
Fee and commission expense (7,241) - (7,241)
Net foreign exchange gains 21,464 - 21,464
Net gains/(losses) on financial instruments 8,529 (10,365) (1,836)
Net gains on derecognition of financial assets measured at amortised cost 2,179 - 2,179
Net insurance finance income/(expense) and net reinsurance finance - 3,536 3,536
income/(expense)
Net insurance service result - 44,256 44,256
Net reinsurance service result - (13,929) (13,929)
Income from assets under insurance and reinsurance contracts 61,030 (61,030) -
Expenses from liabilities under insurance and reinsurance contracts (13,061) 13,061 -
Net losses from revaluation and disposal of investment properties (583) - (583)
Net gains on disposal of stock of property 11,175 - 11,175
Other income 11,945 - 11,945
Total operating income 479,112 (24,424) 454,688
Staff costs (250,532) 7,361 (243,171)
Special levy on deposits and other levies/contributions (26,616) - (26,616)
Provisions for pending litigations, regulatory and other provisions (net of (3,402) - (3,402)
reversals)
Other operating expenses (120,764) 6,196 (114,568)
Operating profit before credit losses and impairment 77,798 (10,867) 66,931
Credit losses on financial assets (47,764) 239 (47,525)
Impairment net of reversals on non-financial assets (17,474) - (17,474)
Profit before tax 12,560 (10,628) 1,932
Income tax (19,819) 1,214 (18,605)
Profit after tax for the period (7,259) (9,414) (16,673)
Attributable to:
Owners of the Company (9,118) (9,414) (18,532)
Non-controlling interests 1,859 - 1,859
Profit for the period (7,259) (9,414) (16,673)
Basic profit per share attributable to the owners of the Company (€ cent) (2.0) (2.2) (4.2)
Diluted profit per share attributable to the owners of the Company (€ cent) (2.0) (2.2) (4.2)
F. Notes (continued)
F.9 IFRS 17 'Insurance Contracts' (continued)
F.9.1 Transition impact (continued)
Details on the accounting policies and judgements and further analysis on the
quantitative impact of transition to IFRS 17 are disclosed within the 2023
Interim Financial Report in Note 3.3.1 of the Consolidated Interim Financial
Statements.
G. Additional Risk and Capital Management disclosures
G.1 Additional Credit risk disclosures
The tables below present the analysis of loans and advances to customers in
accordance with the EBA standards.
30 September 2023 Gross loans and advances to customers Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
Group gross customer Of which: NPEs Of which exposures with forbearance measures Accumulated impairment, accumulated negative changes in fair value due to Of which: NPEs Of which exposures with forbearance measures
credit risk and provisions
loans and advances(1,2)
Total exposures with forbearance measures Of which: NPEs Total exposures with forbearance measures Of which:
NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 42,713 - - - 8 - - -
Other financial corporations 224,913 1,062 16,614 695 4,276 478 408 404
Non-financial corporations 5,054,068 142,125 413,657 90,941 105,298 72,386 54,682 50,095
Of which: Small and Medium sized Enterprises(3) (SMEs) 3,114,416 83,427 170,658 32,531 50,733 31,155 12,094 9,148
Of which: Commercial real estate(3) 3,796,121 120,465 379,362 84,708 82,977 63,337 51,977 48,621
Non-financial corporations by sector
Construction 511,360 4,602 8,917
Wholesale and retail trade 921,394 28,686 20,473
Accommodation and food service activities 1,175,864 15,098 8,186
Real estate activities 1,060,237 29,954 21,770
Manufacturing 361,165 5,997 4,398
Other sectors 1,024,048 57,788 41,554
Households 4,778,995 214,646 213,396 104,942 80,652 51,515 29,884 23,583
Of which: Residential mortgage loans(3) 3,745,519 176,666 188,388 91,366 47,285 32,579 23,870 18,598
Of which: Credit for consumption(3) 591,728 31,542 23,697 14,282 23,672 13,439 5,344 4,462
Total on-balance sheet 10,100,689 357,833 643,667 196,578 190,234 124,379 84,974 74,082
(1.) Excluding loans and advances to central banks and credit institutions.
2(.) The residual fair value adjustment on initial recognition (which relates
mainly to loans acquired from Laiki Bank and is calculated as the difference
between the outstanding contractual amount and the fair value of loans
acquired and bears a negative balance) is considered as part of the gross
loans, therefore decreases the gross balance of loans and advances to
customers.
3 The analysis shown in lines 'non-financial corporations' and 'households' is
non-additive across categories as certain customers could be in both
categories.
G. Additional Risk and Capital Management disclosures
(continued)
G.1 Additional Credit risk disclosures (continued)
Gross loans and advances to customers Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
31 December 2022
Group gross customer Of which: NPEs Of which exposures with forbearance measures Accumulated impairment, accumulated negative changes in fair value due to Of which: Of which exposures with forbearance measures
credit risk and provisions
loans and advances(1,2) NPEs
Total exposures with forbearance measures Of which: NPEs Total exposures with forbearance measures Of which:
NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 39,766 - - - 25 - - -
Other financial corporations 186,281 3,202 11,665 2,825 6,008 2,332 2,453 2,250
Non-financial corporations 5,134,784 144,522 950,499 91,100 100,265 69,212 53,940 44,957
Of which: Small and Medium sized Enterprises(3) (SMEs) 3,492,414 84,493 449,891 33,140 53,939 33,882 17,643 11,683
Of which: Commercial real estate(3) 3,975,290 120,445 895,971 80,980 76,385 58,414 47,047 41,152
Non-financial corporations by sector
Construction 549,921 11,949 13,319
Wholesale and retail trade 909,438 20,783 15,907
Accommodation and food service activities 1,164,979 20,824 9,543
Real estate activities 1,108,581 20,281 19,738
Manufacturing 392,843 9,429 4,033
Other sectors 1,009,022 61,256 37,725
Households 4,770,863 260,629 290,556 143,140 72,144 54,643 37,362 32,087
Of which: Residential mortgage loans(3) 3,785,834 220,354 253,794 125,994 45,805 37,616 29,759 25,751
Of which: Credit for consumption(3) 547,490 37,622 42,719 21,235 20,355 14,628 8,543 7,486
Total on-balance sheet 10,131,694 408,353 1,252,720 237,065 178,442 126,187 93,755 79,294
(1)(.) Excluding loans and advances to central banks and credit institutions.
2(.) The residual fair value adjustment on initial recognition (which relates
mainly to loans acquired from Laiki Bank and is calculated as the difference
between the outstanding contractual amount and the fair value of loans
acquired and bears a negative balance) is considered as part of the gross
loans, therefore decreases the gross balance of loans and advances to
customers.
3(.) The analysis shown in lines 'non-financial corporations' and 'households'
is non-additive across categories as certain customers could be in both
categories.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management
The primary objective of the Group's capital management is to ensure
compliance with the relevant regulatory capital requirements and to maintain
healthy capital adequacy ratios to cover the risks of its business and support
its strategy and maximise shareholders' value.
The capital adequacy framework, as in force, was incorporated through the
Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)
which came into effect on 1 January 2014 with certain specified provisions
implemented gradually. The CRR and CRD transposed the new capital, liquidity
and leverage standards of Basel III into the European Union's legal framework.
CRR establishes the prudential requirements for capital, liquidity and
leverage for credit institutions. It is directly applicable in all EU member
states. CRD governs access to deposit-taking activities and internal
governance arrangements including remuneration, board composition and
transparency. Unlike the CRR, member states were required to transpose the CRD
into national law and national regulators were allowed to impose additional
capital buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (Regulation (EU)
2019/876 (CRR II) and Directive (EU) 2019/878 (CRD V)) came into force. As an
amending regulation, the existing provisions of CRR apply, unless they are
amended by CRR II. Certain provisions took immediate effect (primarily
relating to Minimum Requirement for Own Funds and Eligible Liabilities
(MREL)), but most changes became effective as of June 2021. The key changes
introduced consist of, among others, changes to qualifying criteria for Common
Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2 (T2) instruments,
introduction of requirements for MREL and a binding Leverage Ratio requirement
(as defined in the CRR) and a Net Stable Funding Ratio (NSFR).
The amendments that came into effect on 28 June 2021 are in addition to those
introduced in June 2020 through Regulation (EU) 2020/873, which among others,
brought forward certain CRR II changes in light of the COVID-19 pandemic. The
main adjustments of Regulation (EU) 2020/873 that had an impact on the Group's
capital ratio relate to the acceleration of the implementation of the new SME
discount factor (lower RWAs), extending the IFRS 9 transitional arrangements
and introducing further relief measures to CET1 allowing to fully add back to
CET1 any increase in ECL recognised in 2020 and 2021 for non-credit impaired
financial assets and phasing in this starting from 2022 (phasing in at 25% in
2022 and 50% in 2023) and advancing the application of prudential treatment of
software assets as amended by CRR II (which came into force in December 2020).
In addition, Regulation (EU) 2020/873 introduced a temporary treatment of
unrealized gains and losses on exposures to central governments, to regional
governments or to local authorities measured at fair value through other
comprehensive income which the Group elected to apply and implemented from the
third quarter of 2020. This temporary treatment was in effect until 31
December 2022.
In October 2021, the European Commission adopted legislative proposals for
further amendments to the CRR, CRD and the BRRD (the '2021 Banking Package').
Amongst other things, the 2021 Banking Package would implement certain
elements of Basel III that have not yet been transposed into EU law. The 2021
Banking Package includes:
· a proposal for a Regulation (sometimes known as 'CRR III') to make
amendments to CRR with regard to (amongst other things) requirements on credit
risk, credit valuation adjustment risk, operational risk, market risk and the
output floor;
· a proposal for a Directive (sometimes known as 'CRD VI') to make
amendments to CRD with regard to (amongst other things) requirements on
supervisory powers, sanctions, third-country branches and ESG risks; and
· a proposal for a Regulation to make amendments to CRR and the BRRD with
regard to (amongst other things) requirements on the prudential treatment of
G-SII groups with a multiple point of entry resolution strategy and a
methodology for the indirect subscription of instruments eligible for meeting
the MREL requirements.
The 2021 Banking Package is subject to amendment in the course of the EU's
legislative process; and its scope and terms may change prior to its
implementation. In addition, in the case of the proposed amendments to CRD and
the BRRD, their terms and effect will depend, in part, on how they are
transposed in each member state.
The European Council's proposal on CRR and CRD was published on 8 November
2022. During February 2023, the European Parliament's ECON Committee voted to
adopt Parliament's proposed amendments to the Commission's proposal, and the
2021 Banking Package is currently in the final stage of the EU legislative
process. In June 2023, negotiators from the Council presidency and the
European Parliament reached a provisional agreement on amendments to the
Capital Requirements Regulation and the Capital Requirements Directive. It is
expected that the 2021 Banking Package will come into force on 1 January 2025;
and certain measures are expected to be subject to transitional arrangements
or to be phased in over time.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management (continued)
The Regulatory CET1 ratio of the Group as at 30 September 2023 stands at 15.2%
and the Total Capital ratio at 20.4% on a transitional basis. Including
unreviewed profits for the quarter ended 30 September 2023 and an accrual for
an estimated final dividend at a payout ratio of 50% of the Group Adjusted
Profit after tax for the period, which represents the high-end range of the
Group's approved dividend policy in line with the principles of Commission
Delegated Regulation (EU) (241/2014) for foreseeable dividends and charges,
the CET1 ratio and Total Capital ratio of the Group stand at 15.8% and 21.0%
respectively. As per the latest SREP decision, any dividend distribution is
subject to regulatory approval. Such dividend accrual does not constitute a
binding commitment for a dividend payment nor does it constitute a warranty or
representation that such a payment will be made. Group Adjusted Profit after
tax is defined as the Group's profit after tax before non-recurring items
(attributable to the owners of the Company) taking into account distributions
under other equity instruments, such as the annual AT1 coupon.
Minimum CET1 Regulatory Capital Requirements 30 September 2023 2022
Pillar I - CET1 Requirement 4.50% 4.50%
Pillar II - CET1 Requirement 1.73% 1.83%
Capital Conservation Buffer (CCB)* 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer** 1.50% 1.25%
Countercyclical Buffer (CcyB) 0.04% 0.02%
Minimum CET1 Regulatory Requirements 10.27% 10.10%
* Fully phased in as of 1 January 2019
** Increasing by 0.375%. every year thereafter, until being fully implemented
on 1 January 2025 at 2.25%.
Minimum Total Capital Regulatory Requirements 30 September 2023 2022
Pillar I - Total Capital Requirement 8.00% 8.00%
Pillar II - Total Capital Requirement 3.08% 3.26%
Capital Conservation Buffer (CCB)* 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer** 1.50% 1.25%
Countercyclical Buffer (CcyB) 0.04% 0.02%
Minimum Total Capital Regulatory Requirements 15.12% 15.03%
* Fully phased in as of 1 January 2019
** Increasing by 0.375%. every year thereafter, until being fully implemented
on 1 January 2025 at 2.25%.
The minimum Pillar I total capital requirement ratio of 8.00% may be met, in
addition to the 4.50% CET1 requirement, with up to 1.50% by AT1 capital and
with up to 2.00% by T2 capital.
The Group is also subject to additional capital requirements for risks which
are not covered by the Pillar I capital requirements (Pillar II add-ons).
Applicable Regulation allows a part of the said Pillar II Requirements (P2R)
to be met also with AT1 and T2 capital and does not require solely the use of
CET1.
The capital position of the Group and BOC PCL as at 30 September 2023 exceeds
both their Pillar I and their Pillar II add-on capital requirements. However,
the Pillar II add-on capital requirements are a point-in-time assessment and
therefore are subject to change over time.
In the context of the annual SREP conducted by the ECB in 2022 and based on
the final SREP decision received in December 2022 effective from 1 January
2023, the P2R has been revised to 3.08%, compared to the previous level of
3.26%. The revised P2R includes a revised P2R add-on of 0.33%, compared to the
previous level of 0.26%, relating to ECB's prudential provisioning
expectations. The P2R add-on is dynamic and can vary on the basis of in-scope
NPEs and level of provisioning. When disregarding the P2R add-on relating to
ECB's prudential provisioning expectations, the P2R is reduced from 3.00% to
2.75%. As a result, the Group's minimum phased in CET1 capital ratio and Total
Capital ratio requirements were reduced when disregarding the phasing in of
the O-SII Buffer. The ECB has also maintained the P2G unchanged.
As of 30 September 2023, the amount corresponding to the abovementioned Pillar
II add-on of 0.33% relating to ECB's prudential provisioning expectations is
being deducted from CET1 capital and therefore the Pillar II requirement is
expected to decrease to 2.75% as of 1 January 2024. As at 30 September 2023,
the capital deduction taken corresponds to 33 bps.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management (continued)
The CBC, in accordance with the Macroprudential Oversight of Institutions Law
of 2015, sets, on a quarterly basis, the CcyB rates in accordance with the
methodology described in this law. The CcyB for the Group as at 30 September
2023 has been calculated at approximately 0.04%.
On 30 November 2022, the CBC, following the revised methodology described in
its macroprudential policy, decided to increase the CcyB rate from 0.00% to
0.50% of the total risk exposure amount in Cyprus of each licensed credit
institution incorporated in Cyprus. The new rate of 0.50% must be observed as
from 30 November 2023. Moreover, on 2 June 2023, the CBC, announced its
decision to raise the CcyB rate to 1.00% of the total risk exposure amount in
Cyprus of each authorised credit institution incorporated in Cyprus. The said
increase of the CcyB is effective as from 2 June 2024. Based on the above, the
CcyB for the Group is expected to increase further.
In accordance with the provisions of this law, the CBC is also the responsible
authority for the designation of banks that are Other Systemically Important
Institutions (O-SIIs) and for the setting of the O-SII Buffer requirement for
these systemically important banks. BOC PCL has been designated as an O-SII
and since November 2021 the O-SII Buffer had been set to 1.50%. This buffer
was phased in gradually, having started from 1 January 2019 at 0.50%. The
O-SII Buffer as at 31 December 2022 stood at 1.25% and was fully phased in on
1 January 2023 and currently stands at 1.50%. In October 2023, the CBC
concluded its reassessment for the designation of credit institutions that
meet the definition of O-SII institutions and the setting of O-SII buffer to
be observed. The Group's O-SII buffer has been revised to 2.25% to be phased
in annually by 37.5 bps to 1.875% on 1 January 2024 and by another 37.5 bps to
2.25% on 1 January 2025.
The Group's minimum phased in CET1 capital ratio requirement as at 30
September is set at 10.27%, comprising a 4.50% Pillar I requirement, a P2R of
1.73%, the CCB of 2.50%, the O-SII Buffer of 1.50% (to be fully phased in at
2.25% on 1 January 2025, as aforementioned) and the CcyB of 0.04%. The Group's
minimum phased in Total Capital requirement was set at 15.12%, comprising an
8.00% Pillar I requirement, of which up to 1.50% can be in the form of AT1
capital and up to 2.00% in the form of T2 capital, a P2R of 3.08%, the CCB of
2.50%, the O-SII Buffer of 1.50% and the CcyB of 0.04%.
The Group is subject to a 3% Pillar I Leverage Ratio requirement.
The above minimum ratios apply for both BOC PCL and the Group.
Following the annual SREP performed by the ECB in 2023, and based on the draft
SREP decision received in October 2023, effective from 1 January 2024,
(subject to ECB final confirmation), the Group's minimum phased-in CET1
capital ratio and Total Capital ratio requirements effective from 1 January
2024 are expected to decrease, when disregarding the phasing in of the O-SII
buffer and CcyB, mentioned above, reflecting the elimination of the Pillar II
add-on relating to ECB's prudential provisioning expectations following the
Group's decision to directly deduct from own funds such amount. On 1 January
2024, the Group's minimum phased-in CET1 capital ratio requirement is expected
to be set at approximately 10.92%, comprising a 4.50% Pillar I requirement, a
1.55% Pillar II requirement, the Capital Conservation Buffer of 2.50%, the
O-SII Buffer of 1.88% and CcyB of approximately 0.50%. On 1 January 2024, the
Group's minimum phased-in Total Capital ratio requirement is expected to be
set at approximately 15.63%, comprising an 8.00% Pillar I requirement, of
which up to 1.50% can be in the form of AT1 capital and up to 2.00% in the
form of T2 capital, a 2.75% Pillar II requirement, the Capital Conservation
Buffer of 2.50%, the O-SII Buffer of 1.88% and the CcyB of approximately
0.50%. The ECB has also provided revised lower non-public guidance for an
additional Pillar II CET1 buffer (P2G). From 2 June 2024 both CET1 capital and
Total Capital requirements are expected to increase by approximately 0.50% as
a result of the increase in the CcyB described above.
The EBA final guidelines on SREP and supervisory stress testing and the Single
Supervisory Mechanism's (SSM) 2018 SREP methodology provide that the own funds
held for the purposes of Pillar II Guidance (P2G) cannot be used to meet any
other capital requirements (Pillar I requirement, P2R or the Combined Buffer
Requirement (CBR)), and therefore cannot be used twice.
G. Additional Risk and Capital Management (continued)
G.2 Capital management (continued)
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
2023(1) 2022 2023(1) 2022 (restated)(2)
(restated)(2)
€000 €000 €000 €000
Transitional Common Equity Tier 1 (CET1)(3) 1,564,886 1,540,292 1,527,825 1,509,056
Transitional Additional Tier 1 capital (AT1) 228,250 220,000 228,250 220,000
Tier 2 capital (T2) 300,000 300,000 300,000 300,000
Transitional total regulatory capital 2,093,136 2,060,292 2,056,075 2,029,056
Risk weighted assets - credit risk(4) 9,252,780 9,103,330 9,240,080 9,150,831
Risk weighted assets - market risk - - - -
Risk weighted assets - operational risk 1,010,885 1,010,885 997,720 997,720
Total risk weighted assets 10,263,665 10,114,215 10,237,800 10,148,551
Transitional % % % %
Common Equity Tier 1 ratio 15.2 15.2 14.9 14.9
Total capital ratio 20.4 20.4 20.1 20.0
Leverage ratio 6.9 7.0 6.7 6.9
(1.) Includes reviewed profits for the six months ended 30 June 2023 in line
with the ECB Decision (EU) (2015/656) on the recognition of interim or
year-end profits in CET1 capital in accordance with Article 26(2) of the CRR
and an accrual for an estimated final dividend at a payout ratio of 50% of the
Group Adjusted Profit after tax for the period, which represents the high-end
range of the Group's approved dividend policy, in line with the principles of
Commission Delegated Regulation (EU) (241/2014) for foreseeable dividends and
charges. As per the latest SREP decision, any dividend distribution is subject
to regulatory approval. Such dividend accrual does not constitute a binding
commitment for a dividend payment nor does it constitute a warranty or
representation that such a payment will be made. The CET1 ratio, the Total
Capital ratio and the Leverage ratio as at 30 September 2023 stand at 15.8%,
21.0% and 7.1% respectively for the Group and 15.5%, 20.7% and 7.0%
respectively for BOC PCL, when including the profits for the quarter ended 30
September 2023 and an accrual for an estimated final dividend at a payout
ratio of 50% of the Group Adjusted Profit after tax for the nine months ended
30 September 2023.
(2.) The 2022 capital ratios as previously reported in the 2022 Annual
Financial Report and 2022 Pillar III Disclosures have been restated following
the approval by the ECB for the payment of a dividend in April 2023 and
recommendation by the Board of Directors to the shareholders for approval at
the Annual General Meeting on 26 May 2023, of a final dividend in respect of
earnings for the year ended 31 December 2022 which amounts to an aggregate
distribution of €22,310 thousand.
(3.) CET1 includes regulatory deductions, comprising, amongst others,
intangible assets amounting to €26,910 thousand for the Group and €17,786
thousand for BOC PCL as at 30 September 2023 (31 December 2022: €30,421
thousand for the Group and €25,445 thousand for BOC PCL). As at 30 September
2023 an amount of €10,645 thousand, relating to intangible assets, is
considered prudently valued for CRR purposes and is not deducted from CET1 (31
December 2022: €12,934 thousand).
(4.) Includes Credit Valuation Adjustments (CVA).
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 2023(1,2) 31 December 30 September 2023(1,2) 31 December
2022(3,4) 2022(3,4)
(restated) (restated)
% % % %
Common Equity Tier 1 ratio 15.2 14.5 14.8 14.1
Total capital ratio 20.3 19.6 20.0 19.3
Leverage ratio 6.8 6.7 6.7 6.5
(1) Includes reviewed profits for the six months ended 30 June 2023 in line
with the ECB Decision (EU) (2015/656) on the recognition of interim or
year-end profits in CET1 capital in accordance with Article 26(2) of the CRR
and an accrual for an estimated final dividend at a payout ratio of 50% of the
Group Adjusted Profit after tax for the period, which represents the high-end
range of the Group's approved dividend policy, in line with the principles of
Commission Delegated Regulation (EU) (241/2014) for foreseeable dividends and
charges. As per the latest SREP decision, any dividend distribution is subject
to regulatory approval. Such dividend accrual does not constitute a binding
commitment for a dividend payment nor does it constitute a warranty or
representation that such a payment will be made. The CET1 ratio, the Total
Capital ratio and the Leverage ratio as at 30 September 2023 stand at
15.7%, 20.9% and 7.0% respectively for the Group and at 15.5%, 20.6% and 6.9%
respectively for BOC PCL, when including the profits for the quarter ended 30
September 2023 and an accrual for an estimated final dividend at a payout
ratio of 50% of the Group Adjusted Profit after tax for the nine months ended
30 September 2023.
(2) IFRS 9 fully loaded as applicable.
(3) IFRS 9 and application of the temporary treatment of certain FVOCI
instruments in accordance with Article 468 of CRR fully loaded as applicable.
(4) The 2022 capital ratios as previously reported in the 2022 Annual
Financial Report and 2022 Pillar III Disclosures have been restated following
the approval by the ECB for the payment of a dividend in April 2023 and
recommendation by the Board of Directors to the shareholders for approval at
the Annual General Meeting on 26 May 2023, of a final dividend in respect of
earnings for the year ended 31 December 2022 which amounts to an aggregate
distribution of €22,310 thousand.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management (continued)
During the nine months ended 30 September 2023, CET1 ratio was negatively
affected mainly by the phasing in of IFRS 9 and other transitional adjustments
on 1 January 2023, provisions and impairments, the payment of AT1 coupon, AT1
refinancing costs, the Capital deduction of 0.33% in relation to the ECB
prudential expectations for NPEs, other movements and the increase in
risk-weighted assets and was positively affected by pre-provision income as
well as the €50 million dividend distributed to BOC PCL in February 2023 by
the life insurance subsidiary. As a result, the CET1 ratio including
unreviewed profits for the nine months ended 30 September 2023, the CET1 ratio
(on a transitional basis) has increased by c.60 bps during the nine months
ended 30 September 2023, whereas on a fully loaded basis the ratio has
increased by c.130 bps.
In addition, a prudential charge in relation to the onsite inspection on the
value of the Group's foreclosed assets is being deducted from own funds since
June 2021, the impact of which is 14 bps on the Group's CET1 ratio as at 30
September 2023, decreased from 26bps on 31 December 2022 mainly due to
impairment recognised during the period.
In June 2023, the Company successfully launched and priced an issue of €220
million Fixed Rate Reset Perpetual Additional Tier 1 Capital Securities (the
'New Capital Securities').
The proceeds of the issue of the New Capital Securities were on-lent by the
Company to BOC PCL to be used for general corporate purposes. The on-loan
qualifies as Additional Tier 1 capital for BOC PCL.
At the same time, the Company invited the holders of its outstanding €220
million Fixed Rate Reset Perpetual Additional Tier 1 Capital Securities
callable in December 2023 to tender the previous AT1 issue in 2018 ('Existing
Capital Securities') at a purchase price of 103% of the principal amount. As
at 30 September 2023 Existing Capital Securities of a nominal amount of
approximately €8 million remaining outstanding, are included in Tier 1 and
Total Capital, the impact of which is c.8 bps on the Group's Total Capital
Ratio as at 30 September 2023.
Capital requirements of subsidiaries
The insurance subsidiaries of the Group, the General Insurance of Cyprus Ltd
and Eurolife Ltd, comply with the requirements of the Superintendent of
Insurance including the minimum solvency ratio. The regulated investment firm
(CIF) of the Group, The Cyprus Investment and Securities Corporation Ltd
(CISCO), complies with the minimum capital adequacy ratio requirements. From
2021 the new prudential regime for Investment Firms ('IFs') as per the
Investment Firm Regulation (EU) 2019/2033 ('IFR') on the prudential
requirements of IFs and the Investment Firm Directive (EU) 2019/2034 ('IFD')
on the prudential supervision of IFs came into effect. Under the new regime
CISCO has been classified as Non-Systemic 'Class 2' company and is subject to
the new IFR/IFD regime in full. In February 2023, the activities of the
regulated UCITS management company of the Group, BOC Asset Management Ltd,
were absorbed by CISCO and BOC Asset Management Ltd was dissolved without
liquidation. The payment services subsidiary of the Group, JCC Payment
Services Ltd, complies with the regulatory capital requirements.
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January
2016 EU member states shall apply the BRRD's provisions requiring EU credit
institutions and certain investment firms to maintain a minimum requirement
for own funds and eligible liabilities (MREL), subject to the provisions of
the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part
of the reform package for strengthening the resilience and resolvability of
European banks, the BRRD ΙΙ came into effect and was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in May 2021. In addition, certain provisions on MREL have been introduced
in CRR ΙΙ which also came into force on 27 June 2019 as part of the reform
package and took immediate effect.
In February 2023, BOC PCL received notification from the Single Resolution
Board (SRB) of the final decision for the binding MREL for BOC PCL, determined
as the preferred resolution point of entry. As per the 2023 MREL decision, the
final MREL requirement was set at 24.35% of risk weighted assets and 5.91% of
Leverage Ratio Exposure (LRE) (as defined in the CRR) and must be met by 31
December 2025. Furthermore, the binding interim requirement of 1 January 2022
set at 14.94% of risk weighted assets and 5.91% of LRE must continue to be
met. The own funds used by BOC PCL to meet the 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.
In November 2023, BOC PCL received draft notification from the SRB regarding
the 2024 MREL decision, by which the final MREL requirement is now set at
25.00% of risk weighted assets and must be met by 31 December 2024, one year
earlier than the previous decision. The revised MREL requirements remain
subject to SRB and CBC final confirmation.
In July 2023, BOC PCL proceeded with an issue of €350 million senior
preferred notes (the 'Notes'). The Notes comply with the MREL criteria and
contribute towards BOC PCL's MREL requirements.
G. Additional Risk and Capital Management disclosures
(continued)
G.2 Capital management (continued)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL) (continued)
The MREL ratio as at 30 September 2023, calculated according to the SRB's
eligibility criteria currently in effect and based on internal estimate, stood
at 24.1% of RWAs and at 11.0% of LRE (based on the regulatory Total Capital as
at 30 September 2023). The MREL ratio as at 30 September 2023, includes an
amount of approximately €8 million that remained following the tender offer
and open market purchases of the Existing Capital Securities. The impact of
this amount is contributing approximately 8 basis points to the MREL ratio
expressed as a percentage of RWA and approximately 3 basis points to the MREL
ratio expressed as a percentage of LRE. The MREL ratio expressed as a
percentage of risk weighted assets does not include capital used to meet the
CBR requirement, which stood at 4.04% on 30 September 2023 (compared to 3.77%
as at 31 December 2022), expected to increase further on 30 November 2023
following increase in CcyB from 0.00% to 0.50% of the total risk exposure
amounts in Cyprus and to 1.00% from June 2024 as announced by CBC and the
phasing in of the O-SII buffer by 0.375% on 1 January 2024 and a further
0.375% on 1 January 2025.
The MREL ratio expressed as a percentage of RWA and the MREL ratio expressed
as a percentage of LRE as at 30 September 2023 stand at 24.6% and 11.2%
respectively when including the profits for the quarter ended 30 September
2023 and an accrual for an estimated final dividend at a payout ratio of 50%
of the Group Adjusted Profit after tax for the nine months ended 30 September
2023.
BOC PCL continues to evaluate opportunities to optimise the build-up of its
MREL.
G.3 Internal Capital Adequacy Assessment Process (ICAAP),
Internal Liquidity Adequacy Assessment Process (ILAAP) and Pillar II
Supervisory Review and Evaluation Process (SREP)
The Group prepares annual ICAAP and ILAAP packages. Both reports for 2022 have
been completed and submitted to the ECB at the end of March 2023 following
approval by the Board of Directors. The 2022 ICAAP indicated that the Group
has sufficient capital and available mitigants to support its risk profile and
its business and to enable it to meet its regulatory requirements, both under
baseline and stressed conditions scenarios. The 2022 ILAAP indicated that the
Group maintains liquidity resources which are adequate to ensure its ability
to meet obligations as they fall due under ordinary and stressed conditions
scenarios scenarios.
The Group undertakes quarterly reviews of its ICAAP results as well as on an
ad-hoc basis if needed, which are submitted to the ALCO and the Risk Committee
of the Board of Directors, considering the latest actual and forecasted
information. During the quarterly review, the Group's risk profile is reviewed
and any material changes/developments since the annual ICAAP exercise are
assessed in terms of capital adequacy.
The Group undertakes quarterly reviews of its ILAAP through quarterly
liquidity stress tests which are submitted to the ALCO and the Risk Committee
of the Board of Directors. In these reviews actual and forecasted information
is considered. Any material changes since the year-end are assessed in terms
of liquidity and funding. The quarterly review assessment identifies whether
the Group has an adequate liquidity buffer to cover the stress outflows.
The ECB, as part of its supervisory role, has been conducting the SREP and
other inspections (onsite/ off-site/ targeted reviews/ deep-dives) on the
Group. SREP is a holistic assessment of, amongst other things, the Group's
business model, internal governance and institution-wide control arrangements,
risks to capital and adequacy of capital to cover these risks and risks to
liquidity and adequacy of liquidity resources to cover these risks. The
objective of the SREP is for the ECB to form an up-to-date supervisory view of
the Group's risks and viability and to form the basis for supervisory measures
and dialogue with the Group. As a result of these supervisory processes,
additional capital and other requirements could be imposed on the Group,
including a revision of the level of Pillar II add-ons, as the Pillar II
add-on capital requirements are a point-in-time assessment and therefore
subject to change over time.
The Group participated in the 2023 SSM Stress Test as one of the 'Other
Systematically Important Institutions (O-SII)'. The exercise assesses EU
banks' resilience to an adverse economic shock and informs the 2023 SREP. The
stress test results are used to update each bank's Pillar 2 Guidance in the
context of the SREP. Qualitative findings on weaknesses in the Group's stress
testing practices could also affect Pillar 2 Requirements and inform other
supervisory activities. The ECB published on 28 July 2023 the results of the
stress test. As per the relevant ECB press release 'Capital depletion at the
end of the three-year horizon was lower than in previous stress tests. This
was mainly due to banks overall being in better shape going into the exercise,
with higher-quality assets and stronger profitability'. The results for the
Group, as published by the ECB, are presented in the Interim Financial Report
2023.
G. Additional Risk and Capital Management disclosures
(continued)
G.4 Liquidity regulation
The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR)
under CRD IV/CRR (as supplemented by Delegated Regulations (EU) 2015/61), with
the limit set at 100%. The Group has to also comply with the Net Stable
Funding Ratio (NSFR) calculated as per the 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 2023, the Group was in compliance with all regulatory
liquidity requirements. As at 30 September 2023, the Group's LCR stood at 350%
(compared to 291% as at 31 December 2022). As at 30 September 2023 the Group's
NSFR was 162% (compared to 168% as at 31 December 2022).
G.5 Liquidity reserves
The below table sets out the Group's liquidity reserves:
Composition of the liquidity reserves 30 September 2023 31 December 2022
Internal Liquidity reserves as per LCR Delegated Regulation (EU) Internal Liquidity reserves as per LCR Delegated Regulation (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 9,380,315 9,380,315 - 9,379,888 9,379,888 -
Placements with banks 265,339 - - 55,825 - -
Liquid investments 2,742,689 2,218,784 377,154 1,827,698 1,344,032 214,800
Available ECB Buffer 65,087 - - 147,844 - -
Total 12,453,429 11,599,099 377,154 11,411,255 10,723,920 214,800
Internal Liquidity Reserves present the total liquid assets as defined in the
Liquidity Policy. Liquidity reserves as per LCR Delegated Regulation (EU)
2015/61 present the liquid assets as per the definition of the aforementioned
regulation i.e., High-Quality Liquid Assets (HQLA).
Balances in Nostro accounts and placements with banks are not included in
Liquidity reserves as per LCR, as they are not considered HQLA (they are part
of the LCR Inflows).
Liquid investments under the Liquidity reserves as per LCR are shown at market
values reduced by standard weights as prescribed by the LCR regulation. Liquid
investments under Internal Liquidity Reserves include additional unencumbered
liquid bonds which are shown at market values net of haircuts based on the ECB
haircut methodology for the ECB eligible bonds, while for the ECB non-eligible
bonds, a more conservative internally developed haircut methodology is
applied.
Current available ECB buffer is not part of the Liquidity reserves as per LCR.
In March 2022, the ECB announced the steps for the gradual phasing out of the
temporary pandemic collateral easing measures implemented during the COVID-19
breakout. The gradual phasing out is scheduled to be concluded in three steps
having started from July 2022 and will be completed by March 2024 and gives
banks time to adapt to the adjustments to the collateral framework. In the
first step in July 2022, the ECB halved the temporary reduction in collateral
valuation haircuts across all assets from the previous 20% adjustment to 10%.
In the second step, in June 2023, the ECB implemented a new valuation haircut
schedule based on its pre-pandemic risk tolerance level for credit operations,
phasing out the temporary reduction in collateral valuation haircuts
completely. In the third and final step, in March 2024, the ECB will, in
principle, phase out the remaining pandemic collateral easing measures.
H. Alternative Performance Measures
Reconciliations
Reconciliation between the Interim Consolidated Income Statement under the
statutory basis in Section E and the underlying basis in Section A is included
in Section 'F.1 Reconciliation of Interim Income Statement for the nine months
ended 30 September 2023 between the statutory and underlying basis' .
Reconciliations between the non-IFRS performance measures and the most
directly comparable IFRS measures which allow for the comparability of the
underlying basis to statutory basis are disclosed below.
On 1 January 2023, the Group adopted IFRS 17 'Insurance Contracts'. As
required by the standard, the Group applied the requirements retrospectively
with comparative information previously published under IFRS 4 'Insurance
Contracts' restated from 1 January 2022, the transition date, and therefore
reconciliations of alternative performance measures have also been restated
where applicable.
1. Reconciliation of Gross loans and advances to customers
30 September 2023 31 December 2022
€000 €000
Gross loans and advances to customers as per the underlying basis (as defined 10,167,022 10,217,453
in Section I)
Reconciling items:
Residual fair value adjustment on initial recognition (Section F.5) (69,560) (89,029)
Loans and advances to customers measured at FVPL (Section F.3) (205,762) (214,359)
Aggregate fair value adjustment on loans and advances to customers measured at 3,227 3,270
FVPL
Gross loans and advances to customers at amortised cost as per Section F.3 9,894,927 9,917,335
2. Reconciliation of Allowance for expected credit losses on
loans and advances to customers (ECL)
30 September 2023 31 December 2022
€000 €000
Allowance for expected credit losses on loans and advances to customers (ECL) 274,536 281,630
as per the underlying basis (as defined in Section I)
Reconciling items:
Residual fair value adjustment on initial recognition (Section F.5) (69,560) (89,029)
Aggregate fair value adjustment on loans and advances to customers measured at 3,227 3,270
FVPL
Provisions for financial guarantees and commitments (17,969) (17,429)
Allowance for ECL of loans and advances to customers as per Section F.3 190,234 178,442
H. Alternative Performance Measures (continued)
Reconciliations (continued)
3. Reconciliation of NPEs
30 September 2023 31 December 2022
€000 €000
NPEs as per the underlying basis (as defined in Section I) 358,386 410,563
Reconciling items:
POCI (NPEs) (Note 1 below) (34,194) (37,742)
Residual fair value adjustment on initial recognition on loans and advances to (59) (1,803)
customers (NPEs) classified as Stage 3 (Section F.5)
Stage 3 gross loans and advances to customers at amortised cost as per Section 324,133 371,018
F.5
NPE ratio
NPEs (as per table above) (€000) 358,386 410,563
Gross loans and advances to customers (as per table above) (€000) 10,167,022 10,217,453
Ratio of NPE/Gross loans (%) 3.5% 4.0%
Note 1: Gross loans and advances to customers at amortised cost before
residual fair value adjustment on initial recognition include an amount of
€34,194 thousand POCI - NPEs (out of a total of €112,014 thousand POCI
loans) (31 December 2022: €37,742 thousand POCI - NPEs (out of a total of
€115,544 thousand POCI loans)) as disclosed in Section F.5.
4. Reconciliation of Loan credit losses
Nine months ended
30 September
2023 2022
€000 €000
Loan credit losses as per the underlying basis 44,069 35,559
Reconciling items:
Loan credit losses relating to NPE sales, disclosed under non-recurring items - 1,314
within 'Provisions/net loss relating to NPE sales' under the underlying basis
44,069 36,873
Loan credit losses (as defined) are reconciled to the statutory basis as
follows:
Credit losses to cover credit risk on loans and advances to customers (Section 50,332 44,932
F.6)
Net gains on derecognition of financial assets measured at amortised cost - (6,306) (3,372)
loans and advances to customers (see further below)
Net losses/(gains) on loans and advances to customers at FVPL 43 (4,687)
44,069 36,873
Net gains on derecognition of financial assets measured at amortised cost in
the Unaudited Interim Consolidated Income Statement amount to €6,265
thousand (30 September 2022: €2,179 thousand) and comprise €6,306 thousand
(30 September 2022: €3,372 thousand) net gains on derecognition of loans and
advances to customers and €41 thousand (30 September 2022: €1,193
thousand) net losses on derecognition of debt securities measured at amortised
cost.
H. Alternative Performance Measures (continued)
Key Performance Ratios Information
1. Net Interest Margin (NIM)
The various components for the calculation of net interest margin are provided
below:
Nine months ended
30 September
2023 2022
(restated)
a. Net interest income used in the calculation of NIM €000 €000
Net interest income as per the underlying basis/statutory basis 572,164 234,381
Net interest income used in the calculation of NIM (annualised) 764,981 313,367
1.2. Interest earning assets 30 September 2023 30 June 2023 31 March 2023 31 December
2022
€000 €000 €000 €000
Cash and balances with central banks 9,565,413 9,127,429 9,247,705 9,567,258
Loans and advances to banks 409,903 431,812 415,832 204,811
Loans and advances to customers 9,910,455 10,007,819 10,013,108 9,953,252
Prepayments, accrued income and other assets - Deferred consideration 325,990 320,655 315,755 311,523
receivable ('DPP')
Investments
Debt securities 3,488,862 3,178,127 2,746,790 2,499,894
Total interest earning assets 23,700,623 23,065,842 22,739,190 22,536,738
1.3. Quarterly average interest earning assets (€000)
- as at 30 September 2023 23,010,598
- as at 30 September 2022 22,470,102
1.2.
1.4. Net Interest Margin (NIM) Nine months ended
30 September
2023 2022
(restated)
Net interest income (annualised) (as per table 1.1. above) (€000) 764,981 313,367
Quarterly average interest earning assets (as per table 1.3. above) (€000) 23,010,598 22,470,102
NIM (%) 3.32% 1.39%
H. Alternative Performance Measures (continued)
Key Performance Ratios Information (continued)
2. Cost to income ratio
2.1 Reconciliation of the various components of total expenses used
in the cost to income ratio calculation from the underlying basis to the
statutory basis is provided below:
2.1.1.
2.1.1.
2.1.1 Reconciliation of Staff costs Nine months ended
30 September
2023 2022
(restated)
€000 €000
Staff costs as per the underlying basis 141,462 138,937
Reclassifications for:
Restructuring costs - voluntary exit plan and other termination benefits, n/a 104,234
separately presented under the underlying basis
Staff costs as per the statutory basis 141,462 243,171
2.1.2 Reconciliation of Other operating expenses Nine months ended
30 September
2023 2022 (restated)
€000 €000
Other operating expenses as per the underlying basis 105,723 102,058
Reclassifications for:
Operating expenses and restructuring costs relating to NPE sales, presented n/a 2,650
within 'Restructuring and other costs relating to NPE sales' under the
underlying basis
Advisory and other transformation costs - organic, separately presented under 2,250 9,860
the underlying basis
Other operating expenses as per the statutory basis 107,973 114,568
Reconciliation of the various components of total income used in the cost to
income ratio calculation from the underlying basis to the statutory basis is
provided below:
2.2 Total Income as per the underlying basis Nine months ended
30 September
2023 2022 (restated)
€000 €000
Net interest income as per the underlying basis/statutory basis (as per table 572,164 234,381
1.1 above)
Net fee and commission income as per the underlying basis/statutory basis 134,518 142,100
Net foreign exchange gains, Net gains/(losses) on financial instruments and 28,854 13,748
Net gains on derecognition of financial assets measured at amortised cost as
per the underlying basis (as per table 2.3 below)
Net insurance result* 37,765 33,863
Net gains/(losses) from revaluation and disposal of investment properties and 7,028 10,592
Net gains on disposal of stock of properties (as per the statutory basis)
Other income (as per the statutory basis) 15,147 11,945
Total Income as per the underlying basis 795,476 446,629
*Net insurance result comprises the aggregate of captions 'Net insurance
finance income/(expense) and net reinsurance finance income/(expense)', 'Net
insurance service result' and 'Net reinsurance service result' per the
statutory basis.
H. Alternative Performance Measures (continued)
Key Performance Ratios Information (continued)
2. Cost to income ratio(continued)
2.2.2.
2.3 Reconciliation of Net foreign exchange gains, Net gains/ (losses) on Nine months ended
financial instruments and Net gains on derecognition of financial assets
measured at amortised cost between the statutory basis and the underlying 30 September
basis
2023 2022 (restated)
€000 €000
Net foreign exchange gains, Net gains/(losses) on financial instruments and 28,854 13,748
Net gains on derecognition of financial assets measured at amortised cost as
per the underlying basis
Reclassifications for:
Net (losses)/gains on loans and advances to customers FVPL disclosed within (43) 4,687
'Loan credit losses' per the underlying basis (as per table 4 in Section
'Reconciliations' above)
Net gains on derecognition of financial assets measured at amortised 6,306 3,372
cost-loans and advances to customers, disclosed within 'Loan credit losses'
per the underlying basis (as per table 4 in Section 'Reconciliations' above)
Net foreign exchange gains, Νet gains/(losses) on financial instruments and 35,117 21,807
Net gains on derecognition of financial assets measured at amortised cost as
per the statutory basis (see below)
Net foreign exchange gains, Net gains/(losses) on financial instruments and
Net gains on derecognition of financial assets measured at amortised cost (as
per table above) are reconciled to the statutory basis as follows:
Net foreign exchange gains 22,506 21,464
Net gains/(losses) on financial instruments 6,346 (1,836)
Net gains on derecognition of financial assets measured at amortised cost 6,265 2,179
35,117 21,807
2.4 Total Expenses as per the underlying basis Nine months ended
30 September
2023 2022 (restated)
€000 €000
Staff costs as per the underlying basis (as per table 2.1.1 above) 141,462 138,937
Special levy on deposits and other levies/contributions as per the underlying 29,754 26,616
basis/statutory basis
Other operating expenses as per the underlying basis (as per table 2.1.2 105,723 102,058
above)
Total Expenses as per the underlying basis 276,939 267,611
Cost to income ratio
Total expenses (as per table 2.4 above) (€000) 276,939 267,611
Total income (as per table 2.2 above) (€000) 795,476 446,629
Total expenses/Total income (%) 35% 60%
H. Alternative Performance Measures (continued)
Key Performance Ratios Information (continued)
3. Operating profit return on average assets
The various components used in the determination of the operating profit
return on average assets are provided below:
30 September 2023 30 June 31 March 31 December
2023 2023 2022
(restated)
€000 €000 €000 €000
Total assets used in the computation of the operating profit return on average 26,351,640 25,706,637 25,386,804 25,288,541
assets per the statutory basis (Section E Unaudited Interim Consolidated
Balance Sheet)
Quarterly average total assets (€000)
- as at 30 September 2023 25,683,406
- as at 30 September 2022 (restated) 25,372,928
2023 2022
(restated)
Annualised total income for the nine months ended 30 September (as per table 1,063,548 597,141
2.2 above) (€000)
Annualised total expenses for the nine months ended 30 September (as per table (370,266) (357,795)
2.4 above) (€000)
Annualised operating profit for the nine months ended 30 September (€000) 693,282 239,346
Quarterly average total assets as at 30 September (as per table above) 25,683,406 25,372,928
(€000)
Operating profit return on average assets (annualised) (%) 2.7% 0.9%
4. Cost of Risk
Nine months ended
30 September
2023 2022
€000 €000
Annualised loan credit losses (as per table 4 in Section 'Reconciliation' 58,920 47,542
above)
Average gross loans (as defined) (as per table 1 in Section 'Reconciliation 10,192,238 10,885,015
above)
Cost of Risk (CoR) % 0.58% 0.44%
5. Basic earnings/(losses) per share attributable to the
owners of the Company
The various components used in the determination of the 'Basic
earnings/(losses) per share attributable to the owners of the Company (€
cent)' are provided below:
2023 2022
(restated)
Profit/(loss) after tax (attributable to the owners of the Company) per the 349,363 (18,532)
underlying basis/statutory basis for the nine months ended 30 September
(€000)
Weighted average number of shares in issue during the period, excluding 446,058 446,058
treasury shares (thousand)
Basic earnings/(losses) per share attributable to the owners of the Company 78.3 (4.2)
for the nine months ended 30 September (€ cent)
H. Alternative Performance Measures (continued)
Key Performance Ratios Information (continued)
6. Return on tangible equity (ROTE)
The various components used in the determination of 'Return on tangible equity
(ROTE) are provided below:
2023 2022
(restated)
Annualised profit/(loss) after tax (attributable to the owners of the Company) 467,097 (24,777)
per the underlying basis/statutory basis (€000)
Quarterly average tangible total equity as at 30 September (as per table 6.2 1,901,882 1,738,899
below) (€000)
ROTE after tax (annualised) (%) 24.6% (1.4%)
6.1 Tangible shareholder's equity 30 September 2023 30 June 31 March 31 December 2022
2023 2023 (restated)
€000 €000 €000 €000
Equity attributable to the owners of the Company (as per the statutory basis) 2,113,020 1,984,459 1,899,202 1,806,266
Less: Intangible assets (as per the statutory basis) (45,899) (47,546) (49,430) (52,546)
Total tangible shareholder's equity 2,067,121 1,936,913 1,849,772 1,753,720
6.2 Quarterly average tangible shareholder's equity (€000)
- as at 30 September 2023 1,901,882
- as at 30 September 2022 (restated) 1,738,899
7. Leverage ratio
30 September 31 December
2023 2022
(restated)
Tangible total equity (including Other equity instruments) (as per table 7.1 2,295,371 1,973,720
below) (€000)
Total assets (€000) 26,351,640 25,288,541
Leverage ratio 8.7% 7.8%
7.1 Tangible total equity 30 September 2023 31 December
2022
(restated)
€000 €000
Equity attributable to the owners of the Company (as per the statutory basis) 2,113,020 1,806,266
Other equity instruments 228,250 220,000
Less: Intangible assets (as per the statutory basis) (45,899) (52,546)
Tangible total equity 2,295,371 1,973,720
8. Tangible book value per share
30 September 2023 30 September
2022
(restated)
€000 €000
Tangible shareholder's equity (as per table 6.1 above) (€000) 2,067,121 1,699,992
Weighted average number of shares in issue during the period, excluding 446,058 446,058
treasury shares (as per table 5 above) (thousand)
Tangible book value per share (€) 4.63 3.81
I. Definitions and Explanations
Adjusted recurring profitability The Group's profit after tax before non-recurring items (attributable to the
owners of the Company) taking into account distributions under other equity
instruments such as the annual AT1 coupon.
Advisory and other transformation costs Comprise mainly of fees of external advisors in relation to: (i) the
transformation program and other strategic projects of the Group and (ii)
customer loan restructuring activities, where applicable.
Allowance for expected loan credit losses (previously 'Accumulated Comprises (i) allowance for expected credit losses (ECL) on loans and advances
provisions') to customers (including allowance for expected credit losses on loans and
advances to customers held for sale where applicable), (ii) the residual fair
value adjustment on initial recognition of loans and advances to customers
(including residual fair value adjustment on initial recognition on loans and
advances to customers classified as held for sale where applicable), (iii)
allowance for expected credit losses for off-balance sheet exposures
(financial guarantees and commitments) disclosed on the balance sheet within
other liabilities, and (iv) the aggregate fair value adjustment on loans and
advances to customers classified and measured at FVPL.
AT1 AT1 (Additional Tier 1) is defined in accordance with the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II applicable as at the
reporting date.
Basic earnings per share (attributable to the owners of the Company) Basic earnings after tax per share (attributable to the owners of the Company)
is the Profit/(loss) after tax (attributable to the owners of the Company)
divided by the weighted average number of shares in issue during the period,
excluding treasury shares.
Carbon neutral The reduction and balancing (through a combination of offsetting investments
or emission credits) of greenhouse gas emissions from own operations.
CET1 capital ratio (transitional basis) CET1 capital ratio (transitional basis) is defined in accordance with the
Capital Requirements Regulation (EU) No 575/2013, as amended by CRR II
applicable as at the reporting date.
CET1 Fully loaded (FL) The CET1 fully loaded (FL) ratio is defined in accordance with the Capital
Requirements Regulation (EU) No 575/2013, as amended by CRR II applicable as
at the reporting date.
Cost to Income ratio Cost-to-income ratio comprises total expenses (as defined) divided by total
income (as defined).
Data from the Statistical Service The latest data from the Statistical Service of the Republic of Cyprus, Cyprus
Statistical Service, was published on 3 November 2023.
Digital transactions ratio This is the ratio of the number of digital transactions performed by
individuals and legal entity customers to the total number of transactions.
Transactions include deposits, withdrawals, internal and external transfers.
Digital channels include mobile, browser and ATMs.
Digitally engaged customers ratio This is the ratio of digitally engaged individual customers to the total
number of individual customers. Digitally engaged customers are the
individuals who use the digital channels of the Bank (mobile banking app,
browser and ATMs) to perform banking transactions, as well as digital enablers
such as a bank-issued card to perform online card purchases, based on an
internally developed scorecard.
Diluted earnings per share Diluted earnings per share is the Profit/(loss) after tax (attributable to the
owners of the Company) divided by the weighted average number of ordinary
shares in issue adjusted for the ordinary shares that may arise in respect of
share awards granted to executive directors and senior management of the Group
under the Long-Term Incentive Plan (2022 LTIP).
ECB European Central Bank
I. Definitions and Explanations (continued)
Green Asset ratio The proportion of the share of a credit institution's assets financing and
invested in EU Taxonomy-aligned economic activities as a share of total
covered assets.
Green Mortgage ratio The proportion of the share of a credit institution's assets financing EU
Taxonomy-aligned mortgages (acquisition, construction or renovation of
buildings) as a share of total mortgages assets.
Gross loans Gross loans comprise: (i) gross loans and advances to customers measured at
amortised cost before the residual fair value adjustment on initial
recognition (including loans and advances to customers classified as
non-current assets held for sale where applicable) and (ii) loans and advances
to customers classified and measured at FVPL adjusted for the aggregate fair
value adjustment.
Gross loans are reported before the residual fair value adjustment on initial
recognition relating mainly to loans acquired from Laiki Bank (calculated as
the difference between the outstanding contractual amount and the fair value
of loans acquired) amounting to €69 mn as at 30 September 2023 (compared to
€72 mn as at 30 June 2023, €78 mn as at 31 March 2023 and to €86 mn as
at 31 December 2022).
Additionally, gross loans include loans and advances to customers classified
and measured at fair value through profit or loss adjusted for the aggregate
fair value adjustment of €203 mn at 30 September 2023 (compared to €207 mn
as at 30 June 2023, €208 mn as at 31 March 2023 and to €211 mn as at 31
December 2022).
Group The Group consists οf Bank of Cyprus Holdings Public Limited Company, "BOC
Holdings" or the "Company", its subsidiary Bank of Cyprus Public Company
Limited, the "Bank" and the Bank's subsidiaries.
Legacy exposures Legacy exposures are exposures relating to (i) Restructuring and Recoveries
Division (RRD), (ii) Real Estate Management Unit (REMU), and (iii) non-core
overseas exposures.
Leverage ratio The leverage ratio is the ratio of tangible total equity to total assets as
presented on the balance sheet. Tangible total equity comprises of equity
attributable to the owners of the Company and Other equity instruments minus
intangible assets.
Leverage Ratio Exposure (LRE) Leverage Ratio Exposure (LRE) is defined in accordance with the Capital
Requirements Regulation (EU) No 575/2013, as amended.
Loan credit losses (PL) (previously 'Provision charge') Loan credit losses comprise: (i) credit losses to cover credit risk on loans
and advances to customers, (ii) net gains on derecognition of financial assets
measured at amortised cost relating to loans and advances to customers and
(iii) net gains on loans and advances to customers at FVPL, for the reporting
period/year.
Loan credit losses charge (previously 'Provisioning charge') (cost of risk) Loan credit losses charge (cost of risk) (year-to-date) is calculated as the
annualised 'loan credit losses' (as defined) divided by average gross loans.
The average gross loans are calculated as the average of the opening balance
and the closing balance of Gross loans (as defined), for the reporting
period/year.
Market Shares Both deposit and loan market shares are based on data from the CBC. The Bank
is the single largest credit provider in Cyprus with a market share of 42.3%
as at 30 September 2023 compared to 42.4% as at 30 June 2023 and 31 March 2023
and to 40.9% as at 31 December 2022. The Bank's deposit market share in Cyprus
reached 37.7% as at 30 September 2023 compared to 37.4% in 30 June 2023, to
37.3% as at 31 March 2023 and to 37.2% as at 31 December 2022.
MSCI ESG Rating The use by the Company and the Bank of any MSCI ESG Research LLC or its
affiliates ('MSCI') data, and the use of MSCI Logos, trademarks, service marks
or index names herein, do not constitute a sponsorship, endorsement,
recommendation or promotion of the Company or the Bank by MSCI. MSCI Services
and data are the property of MSCI or its information providers and are
provided "as-is" and without warranty. MSCI Names and logos are trademarks or
service marks of MSCI.
I. Definitions and Explanations (continued)
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.
Net performing loan book Net performing loan book is the total net loans and advances to customers (as
defined) excluding net loans included in the legacy exposures (as defined).
Net Stable Funding Ratio (NSFR) The NSFR is calculated as the amount of "available stable funding" (ASF)
relative to the amount of "required stable funding" (RSF). The regulatory
limit, enforced in June 2021, has been set at 100% as per the CRR II.
Net zero emissions The reduction of greenhouse gas emissions to net zero through a combination of
reduction activities and offsetting investments
New lending New lending includes the disbursed amounts of the new and existing
non-revolving facilities (excluding forborne or re-negotiated accounts) as
well as the average year-to-date change (if positive) of the current accounts
and overdraft facilities between the balance at the beginning of the period
and the end of the period. Recoveries are excluded from this calculation since
their overdraft movement relates mostly to accrued interest and not to new
lending.
Non-interest income Non-interest income comprises Net fee and commission income, Net foreign
exchange gains/(losses) and net gains/(losses) on financial instruments and
(excluding net gains on loans and advances to customers at FVPL), Net
insurance result, Net gains/(losses) from revaluation and disposal of
investment properties and on disposal of stock of properties, and Other
income.
Non-performing exposures (NPEs) As per the European Banking Authorities (EBA) standards and European Central
Bank's (ECB) Guidance to Banks on Non-Performing Loans (which was published in
March 2017), non-performing exposures (NPEs) are defined as those exposures
that satisfy one of the following conditions:
(i) The borrower is assessed as unlikely to pay its credit obligations in
full without the realisation of the collateral, regardless of the existence of
any past due amount or of the number of days past due.
(ii) Defaulted or impaired exposures as per the approach provided in the
Capital Requirement Regulation (CRR), which would also trigger a default under
specific credit adjustment, diminished financial obligation and obligor
bankruptcy.
(iii) Material exposures as set by the CBC, which are more than 90 days past
due.
(iv) Performing forborne exposures under probation for which additional
forbearance measures are extended.
(v) Performing forborne exposures previously classified as NPEs that present
more than 30 days past due within the probation period.
From 1 January 2021 two regulatory guidelines came into force that affect NPE
classification and Days-Past-Due calculation. More specifically, these are the
RTS on the Materiality Threshold of Credit Obligations Past-Due
(EBA/RTS/2016/06), and the Guideline on the Application of the Definition of
Default under article 178 (EBA/RTS/2016/07).
The Days-Past-Due (DPD) counter begins counting DPD as soon as the arrears or
excesses of an exposure reach the materiality threshold (rather than as of the
first day of presenting any amount of arrears or excesses). Similarly, the
counter will be set to zero when the arrears or excesses drop below the
materiality threshold. Payments towards the exposure that do not reduce the
arrears/excesses below the materiality threshold, will not impact the counter.
For retail debtors, when a specific part of the exposures of a customer that
fulfils the NPE criteria set out above is greater than 20% of the gross
carrying amount of all on balance sheet exposures of that customer, then the
total customer exposure is classified as non performing; otherwise only the
specific part of the exposure is classified as non performing. For non retail
debtors, when an exposure fulfils the NPE criteria set out above, then the
total customer exposure is classified as non performing.
I. Definitions and Explanations (continued)
Material arrears/excesses are defined as follows: (a) Retail exposures: Total
arrears/excess amount greater than €100, (b) Exposures other than retail:
Total arrears/excess amount greater than €500 and the amount in
arrears/excess in relation to the customer's total exposure is at least 1%.
The NPEs are reported before the deduction of allowance for expected loan
credit losses (as defined).
Non-recurring items Non-recurring items as presented in the 'Unaudited Interim Condensed
Consolidated Income Statement - Underlying basis' relate to 'Advisory and
other transformation costs - organic'. 2022 Non-recurring items relate to: (i)
Advisory and Other transformation costs - ongoing (ii) Provisions/net loss
relating to NPE sales, (iii) Restructuring and other costs relating to NPE
sales, and (iv) Restructuring costs - Voluntary Staff Exit Plan (VEP).
NPE coverage ratio (previously 'NPE Provisioning coverage ratio') The NPE coverage ratio is calculated as the allowance for expected loan credit
losses (as defined) over NPEs (as defined).
NPE ratio NPEs ratio is calculated as the NPEs as per EBA (as defined) divided by gross
loans (as defined).
Operating profit Operating profit comprises profit before loan credit losses (as defined),
impairments of other financial and non-financial assets, Provisions for
pending litigations, regulatory and other provisions (net of reversals), tax,
profit attributable to non-controlling interests and non-recurring items (as
defined).
Operating profit return on average assets Operating profit return on average assets is calculated as the annualised
operating profit (as defined) divided by the quarterly average of total assets
for the relevant period. Average total assets exclude total assets of
discontinued operations at each quarter end, if applicable.
Phased-in Capital Conservation Buffer (CCB) In accordance with the legislation in Cyprus which has been set for all credit
institutions, the applicable rate of the CCB is 1.25% for 2017, 1.875% for
2018 and 2.5% for 2019 (fully phased-in).
Profit after tax and before non-recurring items (attributable to the owners of This refers to the profit after tax (attributable to the owners of the
the Company) Company), excluding any 'non-recurring items' (as defined).
Profit/(loss) after tax - organic (attributable to the owners of the Company) This refers to the profit or loss after tax (attributable to the owners of the
Company), excluding any 'non-recurring items' (as defined, except for the
'advisory and other transformation costs - organic').
Project Helix 3 Project Helix 3 refers to the agreement the Group reached in November 2021 for
the sale of a portfolio of NPEs with gross book value of €551 mn, as well as
real estate properties with book value of c.€88 mn as at 30 September 2022.
Project Helix 3 was completed in November 2022.
I. Definitions and 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. 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, mutual funds and other non interest bearing investments).
Qoq Quarter on quarter change
Return on Tangible equity (ROTE) Return on Tangible Equity (ROTE) is calculated as Profit/(loss) after tax
(attributable to the owners of the Company) (as defined) (annualised - (based
on year - to - date days)), divided by the quarterly average of Shareholders'
equity minus intangible assets at each quarter end.
Shareholders' equity Shareholders' equity comprise total equity adjusted for non-controlling
interest and other equity instruments.
Special levy on deposits and other levies/contributions Relates to the special levy on deposits of credit institutions in Cyprus,
contributions to the Single Resolution Fund (SRF), contributions to the
Deposit Guarantee Fund (DGF), as well as the DTC levy, where applicable.
Time deposit Calculated as a percentage of the cost (interest expense) of Time and Notice
deposits over the average 6-month Euribor rate of the period.
pass-through
Total Capital ratio Total capital ratio is defined in accordance with the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II applicable as at the
reporting date.
Total expenses Total expenses comprise staff costs, other operating expenses and the special
levy on deposits and other levies/contributions. It does not include (i)
'advisory and other transformation costs-organic', (ii) restructuring and
other costs relating to NPE sales, or (iii) restructuring costs relating to
the Voluntary Staff Exit Plan, where applicable. (i) 'Advisory and other
transformation costs-organic' amounted to nil for 3Q2023 (compared to €1
mn for 2Q2023, €1 mn for 1Q2023 and to €1 mn for 4Q2022), (ii)
Restructuring costs relating to NPE sales for 3Q2023 amounted to nil (compared
to a gain of €0.2 mn for 2Q2023, a loss of €0.2 mn for 1Q2023 and to a
loss of €0.3 mn for 4Q2022), and (iii) Restructuring costs relating to the
Voluntary Staff Exit Plan (VEP) for 3Q2023 was nil (compared to nil for
2Q2023, 1Q2023 and 4Q2022).
Total income Total income comprises net interest income and non-interest income (as
defined).
Total loan credit losses, impairments and provisions Total loan credit losses, impairments and provisions comprise loan credit
losses (as defined), plus impairments of other financial and non-financial
assets, plus provisions for pending litigations, regulatory and other
provisions net of reversals).
Underlying basis This refers to the statutory basis after being adjusted for reclassification
of certain items as explained in the Basis of Presentation.
Write offs Loans together with the associated loan credit losses are written off when
there is no realistic prospect of recovery. Partial write-offs, including
non-contractual write-offs, may occur when it is considered that there is no
realistic prospect for the recovery of the contractual cash flows. In
addition, write-offs may reflect restructuring activity with customers and are
part of the terms of the agreement and subject to satisfactory performance.
Yoy Year on year change
Basis of Presentation
This announcement covers the results of Bank of Cyprus Holdings Public Limited
Company, "BOC Holdings" or "the Company", its subsidiary Bank of Cyprus Public
Company Limited, the "Bank" or "BOC PCL", and together with the Bank's
subsidiaries, the "Group", for the nine months ended 30 September 2023.
At 31 December 2016, the Bank was listed on the Cyprus Stock Exchange (CSE)
and the Athens Exchange. On 18 January 2017, BOC Holdings, incorporated in
Ireland, was introduced in the Group structure as the new holding company of
the Bank. On 19 January 2017, the total issued share capital of BOC Holdings
was admitted to listing and trading on the LSE and the CSE.
Financial information presented in this announcement is being published for
the purposes of providing an overview of the Group financial results for the
nine months ended 30 September 2023.
The financial information in this announcement is not audited and does not
constitute statutory financial statements of BOC Holdings within the meaning
of section 340 of the Companies Act 2014. The Group statutory financial
statements for the year ended 31 December 2022, upon which the auditors have
given an unqualified opinion, were published on 31 March 2023 and are expected
to be delivered to the Registrar of Companies of Ireland within 56 days of 30
September 2023. The Board of Directors approved the Group statutory financial
statements for the nine months ended 30 September 2023 on 10 November 2023.
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 2023, which the management believes best fits the true
measurement of the financial performance and position of the Group. For
further information, please refer to 'Commentary on Underlying Basis' on pages
5 and 6. The statutory results are adjusted for certain items (as described on
page 36) to allow a comparison of the Group's underlying financial position
and performance, as set out on pages 4 and 7.
The financial information included in this announcement is neither reviewed
nor audited by the Group's external auditors.
This announcement and the presentation for the Group Financial Results for the
nine months ended 30 September 2023 have been posted on the Group's website
www.bankofcyprus.com
(file:///Q%3A/IRD/Attachments/2023/Unpublished/20230809%201H2023%20Resutls/ENG/www.bankofcyprus.com)
(Group/Investor Relations/Financial Results).
Definitions: The Group uses definitions in the discussion of its business
performance and financial position which are set out in section I, together
with explanations.
The Group Financial Results for the nine months ended 30 September 2023 are
presented in Euro (€) and all amounts are rounded as indicated. A comma is
used to separate thousands and a dot is used to separate decimals.
Forward Looking Statements
This document contains certain forward-looking statements which can usually be
identified by terms used such as "expect", "should be", "will be" and similar
expressions or variations thereof or their negative variations, but their
absence does not mean that a statement is not forward-looking. Examples of
forward-looking statements include, but are not limited to, statements
relating to the Group's near term, medium term and longer term future capital
requirements and ratios, intentions, beliefs or current expectations and
projections about the Group's future results of operations, financial
condition, expected impairment charges, the level of the Group's assets,
liquidity, performance, prospects, anticipated growth, provisions,
impairments, business strategies and opportunities. By their nature,
forward-looking statements involve risk and uncertainty because they relate to
events, and depend upon circumstances, that will or may occur in the future.
Factors that could cause actual business, strategy and/or results to differ
materially from the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements made by the Group include, but
are not limited to: general economic and political conditions in Cyprus and
other European Union (EU) Member States, interest rate and foreign exchange
fluctuations, legislative, fiscal and regulatory developments, information
technology, litigation and other operational risks, adverse market conditions,
the impact of outbreaks, epidemics or pandemics, such as the COVID-19
pandemic. The Russian invasion of Ukraine has led to heightened volatility
across global markets and to the coordinated implementation of sanctions on
Russia, Russian entities and nationals. The Russian invasion of Ukraine has
caused significant population displacement, and as the conflict continues, the
disruption will likely increase. The scale of the conflict and the extent of
sanctions, as well as the uncertainty as to how the situation will develop,
may have significant adverse effects on the market and macroeconomic
conditions, including in ways that cannot be anticipated. This creates
significantly greater uncertainty about forward-looking statements. Should any
one or more of these or other factors materialise, or should any underlying
assumptions prove to be incorrect, the actual results or events could differ
materially from those currently being anticipated as reflected in such
forward-looking statements. The forward-looking statements made in this
document are only applicable as at the date of publication of this document.
Except as required by any applicable law or regulation, the Group expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statement contained in this document to
reflect any change in the Group's expectations or any change in events,
conditions or circumstances on which any statement is based. Changes in our
reporting frameworks and accounting standards, including the recently
announced reporting changes and the implementation of IFRS 17 'Insurance
Contracts', which may have a material impact on the way we prepare our
financial statements and (with respect to IFRS 17) may negatively affect the
profitability of Group's insurance business.
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial services group
in Cyprus, providing a wide range of financial products and services which
include retail and commercial banking, finance, factoring, investment banking,
brokerage, fund management, private banking, life and general insurance. At 30
September 2023, the Bank of Cyprus Group operated through a total of 64
branches in Cyprus, of which 4 operated as cash offices. The Bank of Cyprus
Group employed 2,913 staff worldwide. At 30 September 2023, the Group's Total
Assets amounted to €26.4 bn and Total Equity was €2.4 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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. END QRTBJBFTMTIBMJJRecent news on Bank of Cyprus Holdings
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