REG - Bank of Cyprus Hldgs - FY2021 Group Financial Results
30/03/2022 07:00
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RNS Number : 5572G Bank of Cyprus Holdings PLC 30 March 2022
Announcement
Group Financial Results for the year ended 31 December 2021
and Updated Medium Term Strategic Targets
Nicosia, 30 March 2022
Key Highlights for the year ended 31 December 2021
2021 Achievements and Medium Term Strategy
Positive Net Result
· Profit after tax and before non-recurring items of €91 mn
· Profit after tax of €30 mn
Careful Cost management
· Total operating expenses(1) of €347 mn, broadly flat yoy
· Cost to income ratio(1) at 60%, flat yoy
Strong Capital and Initiation of MREL Issuance
· CET1 ratio of 15.8%(2,3) and Total Capital ratio of 20.8%(2,3)
· Successful refinancing of Tier 2 at a significantly lower coupon
rate
· Inaugural issuance of €300 mn Senior Preferred notes; Interim
MREL requirement as at 1 January 2022 achieved
Single Digit NPE ratio achieved a year earlier than anticipated
· NPE ratio reduced to 7.5%(2) (3.1%(2,4) net), following NPE sale
(Helix 3) signed in November 2021
Updated Medium Term Strategic Targets(6)
· ROTE >10% by 2025
· NPE ratio c.5% by end-2022 and <3% by end-2025
· Paving the way for dividend distribution(5) from 2023 onwards
· Announcement of ESG targets; Carbon Neutral by 2030 and Net Zero
by 2050
1. Excluding special levy on deposits and other levies/contributions
2. Pro forma for HFS
3. Allowing for IFRS 9 and temporary treatment for certain FVOCI
instruments transitional arrangements
4. Calculated as NPEs net of provisions over net loans
5. Subject to performance and relevant approvals
6. The macro assumptions applied in updating our business plan
exclude unexpected materially adverse developments such as the Ukrainian
crisis, a situation the Group is closely monitoring.
Key Highlights for the quarter ended 31 December 2021
Strong Recovery Continues
· 6.0%(1) GDP growth in 4Q2021, well above the eurozone average of
4.6%
· New lending of €471 mn in 4Q2021, totalling €1.8 bn for
FY2021, up 33% yoy, recovering towards pre-pandemic levels
Positive Operating Performance
· Total income of €154 mn for 4Q2021, up 11% qoq driven mainly by
higher non-NII
· Operating profit of €55 mn for 4Q2021, up 33% qoq
· Profit after tax and before non-recurring items of €27 mn for
4Q2021
· Small-scale targeted Voluntary Staff Exit Plan with one-off cost
of €16 mn; gross annual savings of c.3%
· Profit after tax of €10 mn for 4Q2021
Operating Efficiency
· Total operating expenses(2) of €87 mn for 4Q2021, broadly flat
qoq
· Cost to income ratio(2) at 57% for 4Q2021, down 7 p.p., supported
by higher non-NII
Strong Capital and Liquidity
· CET1 ratio of 15.8%(3,4) and Total Capital ratio of 20.8%(3,4)
· Deposits at €17.5 bn up 2% qoq; significant surplus liquidity
of €6.3 bn
Single Digit NPE Ratio(4)
· NPE ratio reduced to 7.5%(4) (3.1%(4,5) net)
· €0.6 bn NPE sale (Helix 3) signed in November 2021
· Organic NPE reduction of c.€400 mn in FY2021
· 96% of performing loans(6) under expired payment deferrals with
an instalment due by 15 March 2022, presented no arrears
1. Source: Cyprus Statistical Service, Ministry of Finance
2. Excluding special levy on deposits and other levies/contributions
3. Allowing for IFRS 9 and temporary treatment for certain FVOCI
instruments transitional arrangements
4. Pro forma for HFS
5. Calculated as NPEs net of provisions over net loans
6. As at 31 December 2021
A. Group Financial Results - Statutory Basis
Audited Consolidated Income Statement for the year ended 31 December 2021
2021 2020
€000 €000
Turnover 755,220 765,095
Interest income 360,928 389,179
Income similar to interest income 27,621 47,530
Interest expense (67,057) (61,991)
Expense similar to interest expense (25,192) (44,720)
Net interest income 296,300 329,998
Fee and commission income 180,212 151,091
Fee and commission expense (8,416) (6,417)
Net foreign exchange gains 16,503 16,535
Net (losses)/gains on financial instrument transactions and (22,047) 1,721
disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions 61,044 56,063
Net losses from revaluation and disposal of investment properties (1,828) (1,499)
Net gains on disposal of stock of property 13,296 8,189
Other income 14,831 14,957
549,895 570,638
Staff costs (218,633) (201,052)
Special levy on deposits and other levies/contributions (36,350) (33,656)
Other operating expenses (167,188) (188,560)
127,724 147,370
Net gains on derecognition of financial assets measured at amortised cost 3,859 2,949
Credit losses to cover credit risk on loans and advances to customers (40,341) (275,080)
Credit losses of other financial instruments (5,803) (4,585)
Impairment net of reversals of non-financial assets (49,456) (37,586)
Profit/(loss) before share of profit from associates 35,983 (166,932)
Share of profit from associates 137 69
Profit/(loss) before tax 36,120 (166,863)
Income tax (4,243) (7,920)
Profit/(loss) after tax for the year 31,877 (174,783)
Attributable to:
Owners of the Company 29,709 (171,532)
Non-controlling interests 2,168 (3,251)
Profit/(loss) for the year 31,877 (174,783)
Basic and diluted profit/(loss) per share attributable to the owners of the 6.7 (38.5)
Company (€ cent)
A. Group Financial Results - Statutory Basis (continued)
Audited Consolidated Balance Sheet as at 31 December 2021
2021 2020
Assets €000 €000
Cash and balances with central banks 9,230,883 5,653,315
Loans and advances to banks 291,632 402,784
Derivative financial assets 6,653 24,627
Investments 879,005 1,876,009
Investments pledged as collateral 1,260,158 37,105
Loans and advances to customers 9,836,405 9,886,047
Life insurance business assets attributable to policyholders 551,797 474,187
Prepayments, accrued income and other assets 616,219 249,877
Stock of property 1,111,604 1,349,609
Deferred tax assets 265,481 341,360
Investment properties 117,745 128,088
Property and equipment 252,130 272,474
Intangible assets 184,034 185,256
Investments in associates and joint venture - 2,462
Non-current assets and disposal groups held for sale 358,951 630,931
Total assets 24,962,697 21,514,131
Liabilities
Deposits by banks 457,039 391,949
Funding from central banks 2,969,600 994,694
Derivative financial liabilities 32,452 45,978
Customer deposits 17,530,883 16,533,212
Insurance liabilities 736,201 671,603
Accruals, deferred income, other liabilities and other provisions 361,977 359,892
Pending litigation, claims, regulatory and other matters 104,108 123,615
Loan stock 642,775 272,152
Deferred tax liabilities 46,435 45,982
Total liabilities 22,881,470 19,439,077
Equity
Share capital 44,620 44,620
Share premium 594,358 594,358
Revaluation and other reserves 213,192 209,153
Retained earnings 986,623 982,513
Equity attributable to the owners of the Company 1,838,793 1,830,644
Other equity instruments 220,000 220,000
Total equity excluding non‑controlling interests 2,058,793 2,050,644
Non‑controlling interests 22,434 24,410
Total equity 2,081,227 2,075,054
Total liabilities and equity 24,962,697 21,514,131
B. Group Financial Results - Underlying Basis
Unaudited Consolidated Income Statement
€ mn FY2021 FY2020(1) 4Q2021 3Q2021 2Q2021 1Q2021 qoq +% yoy +%
(4Q vs 3Q) (FY)
Net interest income 296 330 73 71 76 76 2% -10%
Net fee and commission income 172 144 44 44 45 39 -1% 19%
Net foreign exchange gains and net gains/(losses) on financial instrument 24 15 10 6 6 2 87% 65%
transactions and disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions 61 56 18 12 18 13 60% 9%
Net gains from revaluation and disposal of investment properties and on 13 7 5 2 4 2 99% 86%
disposal of stock of properties
Other income 15 15 4 4 3 4 -6% -1%
Total income 581 567 154 139 152 136 11% 2%
Staff costs (202) (195) (50) (51) (51) (50) - 4%
Other operating expenses (145) (145) (37) (38) (38) (32) -3% -1%
Special levy on deposits and other levies/contributions (36) (33) (12) (9) (6) (9) 26% 8%
Total expenses (383) (373) (99) (98) (95) (91) 1% 2%
Operating profit 198 194 55 41 57 45 33% 2%
Loan credit losses (66) (149) (9) (22) (15) (20) -55% -55%
Impairments of other financial and non-financial assets (36) (42) (23) (2) (6) (5) - -15%
Net reversals/(provisions) for litigation, claims, regulatory and other 2 (7) 8 (2) (3) (1) - -
matters
Total loan credit losses, impairments and provisions (100) (198) (24) (26) (24) (26) -7% -50%
Profit/(loss) before tax and non-recurring items 98 (4) 31 15 33 19 96% -
Tax (5) (8) (2) (2) 1 (2) 2% -46%
(Profit)/loss attributable to non-controlling interests (2) 3 (2) (0) (0) (0) - -
Profit/(loss) after tax and before non-recurring items (attributable to the 91 (9) 27 13 34 17 101% -
owners of the Company)
Advisory and other restructuring costs - organic (22) (10) (3) (1) (15) (3) - -
Profit/(loss) after tax - organic (attributable to the owners of the Company) 69 (19) 24 12 19 14 96% -
Provisions/net (loss)/profit relating to NPE sales(2) (7) (120) (1) 10 (14) (2) - -93%
Restructuring and other costs relating to NPE sales(2) (16) (26) 3 (3) (12) (4) - -38%
Restructuring costs - Voluntary Staff Exit Plan (VEP) (16) (6) (16) - - - - -
Profit/(loss) after tax (attributable to the owners of the Company) 30 (171) 10 19 (7) 8 -46% -
B. Group Financial Results - Underlying Basis (continued)
Unaudited Consolidated Income Statement - Key Performance Ratios
Key Performance Ratios(3) FY2021 FY2020(1) 4Q2021 3Q2021 2Q2021 1Q2021 qoq +% yoy +%
(4Q vs 3Q) (FY)
Net Interest Margin (annualised) 1.45% 1.84% 1.34% 1.34% 1.49% 1.63% - -39 bps
Cost to income ratio 66% 66% 65% 71% 62% 67% -6 p.p. -
Cost to income ratio excluding special levy on deposits and other 60% 60% 57% 64% 58% 60% -7 p.p. -
levies/contributions
Operating profit return on average assets (annualised) 0.8% 0.9% 0.9% 0.7% 1.0% 0.8% +0.2 p.p. -0.1 p.p.
Basic earnings/(losses) per share attributable to the owners of the Company 6.66 (38.45) 2.27 4.22 (1.66) 1.83 (1.95) 45.11
(€ cent)
Basic earnings/(losses) after tax and before non-recurring items per share 20.50 (2.12) 6.19 3.08 7.48 3.75 3.11 22.62
attributable to the owners of the Company (€ cent)(4)
Return on tangible equity (ROTE) after tax and before non-recurring items per 5.5% -0.5% 6.6% 3.3% 8.1% 4.1% 3.3 p.p. 6.0 p.p.
share attributable to the owners of the Company (€ cent)(4)
1. Represented for the DTC levy of €3 mn in FY2020 which is now included in
"Special levy on deposits and other levies/contributions" in line with current
year presentation. 2. 'Provisions/net (loss)/profit relating to NPE sales'
refer to the net (loss)/profit on transactions completed during the
year/period and the net loan credit losses on transactions under
consideration, whilst 'Restructuring and other costs relating to NPE sales'
refer mainly to the costs relating to these trades. For further details please
refer to Section B.3.4. 3. Including the NPE portfolios classified as
"Non-current assets and disposal groups held for sale", where relevant. 4. As
of 30 June 2021, the management monitors 'basic earnings/(losses) per share
attributable to the owners of the Company' calculated using 'Profit/(loss)
after tax and before non-recurring items (attributable to the owners of the
Company)', rather than 'Profit/(loss) after tax - organic (attributable to the
owners of the Company)' which was previously the case, as the management
believes it is a more appropriate measure of monitoring recurring performance,
as it excludes 'Advisory and other restructuring costs - organic' which do not
relate to the underlying or recurring business of the Group as a banking and
financial services institution, but mainly to the cost of the Tier 2 Capital
Notes tender offer of €12 mn, as well as certain costs relating to
restructuring activities the Bank has associated with the organic reduction of
NPEs, which have been decreasing as the level of NPEs is being reduced. p.p. =
percentage points, bps = basis points, 100 basis points (bps) = 1 percentage
point
B. Group Financial Results - Underlying Basis (continued)
Unaudited Consolidated Balance Sheet
€ mn 31.12.2021 31.12.2020 +%
Cash and balances with central banks 9,231 5,653 63%
Loans and advances to banks 292 403 -28%
Debt securities, treasury bills and equity investments 2,139 1,913 12%
Net loans and advances to customers 9,836 9,886 -1%
Stock of property 1,112 1,350 -18%
Investment properties 118 128 -8%
Other assets 1,876 1,550 21%
Non-current assets and disposal groups held for sale 359 631 -43%
Total assets 24,963 21,514 16%
Deposits by banks 457 392 17%
Funding from central banks 2,970 995 -
Customer deposits 17,531 16,533 6%
Loan stock 643 272 -
Other liabilities 1,281 1,247 3%
Total liabilities 22,882 19,439 18%
Shareholders' equity 1,839 1,831 -
Other equity instruments 220 220 -
Total equity excluding non-controlling interests 2,059 2,051 -
Non-controlling interests 22 24 -8%
Total equity 2,081 2,075 -
Total liabilities and equity 24,963 21,514 16%
Key Balance Sheet figures and ratios 31.12.2021 31.12.2021 31.12.2020 +(2)
(pro forma)(1) (as reported)(2) (as reported)(2)
Gross loans (€ mn) 10,282 10,856 12,261 -11%
Allowance for expected loan credit losses (€ mn) 467 792 1,902 -58%
Customer deposits (€ mn) 17,531 17,531 16,533 6%
Loans to deposits ratio (net) 56% 57% 63% -6 p.p.
NPE ratio 7.5% 12.4% 25.2% -12.8 p.p.
NPE coverage ratio 61% 59% 62% -3 p.p.
Leverage ratio 7.6% 7.6% 8.8% -1.2 p.p.
Capital ratios and risk weighted assets 31.12.2021 31.12.2021 31.12.2020 +(2)
(pro forma)(1) (as reported)(2) (as reported)(2)
Common Equity Tier 1 (CET1) ratio (transitional)(3) 15.8% 15.1% 14.8% +30 bps
Total capital ratio 20.8% 20.0% 18.4% +160 bps
Risk weighted assets (€ mn) 10,344 10,694 11,636 -8 %
1. Pro forma for HFS (please refer to 'Commentary on Underlying Basis'). 2.
Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant. 3. The CET1 fully loaded ratio as at 31
December 2021 amounts to 13.7% and 14.3% pro forma for HFS (compared to 13.3%
and 13.9% pro forma for HFS as at 30 September 2021 and to 12.9% and 13.3% pro
forma for HFS as at 31 December 2020). p.p. = percentage points, bps = basis
points, 100 basis points (bps) = 1 p.p.
B. Group Financial Results - Underlying Basis (continued)
B.1 Unaudited reconciliation of consolidated income statement
for the year ended 31 December 2021 between statutory basis and underlying
basis
€ mn Underlying basis NPE Other Statutory
basis
Sales
Net interest income 296 - - 296
Net fee and commission income 172 - - 172
Net foreign exchange gains and net gains/(losses) on financial instrument 24 - (30) (6)
transactions and disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions 61 - - 61
Net gains from revaluation and disposal of investment properties and on 13 (1) - 12
disposal of stock of properties
Other income 15 - - 15
Total income 581 (1) (30) 550
Total expenses (383) (16) (23) (422)
Operating profit 198 (17) (53) 128
Loan credit losses (66) 13 17 (36)
Impairments of other financial and non-financial assets (36) (19) - (55)
Reversals net of provisions for litigation, claims, regulatory and other 2 - (2) -
matters
Profit before tax and non-recurring items 98 (23) (38) 37
Tax (5) - - (5)
Profit attributable to non-controlling interests (2) - - (2)
Profit after tax and before non-recurring items (attributable to the owners of 91 (23) (38) 30
the Company)
Advisory and other restructuring costs-organic (22) - 22 -
Profit after tax - organic* (attributable to the owners of the Company) 69 (23) (16) 30
Provisions/net loss relating to NPE sales (7) 7 - -
Restructuring and other costs relating to NPE sales (16) 16 - -
Restructuring costs - Voluntary Staff Exit Plan (VEP) (16) - 16 -
Profit after tax (attributable to the owners of the Company) 30 - - 30
*This is the profit after tax (attributable to the owners of the Company),
before provisions/net loss relating to NPE sales, related restructuring and
other costs, and restructuring costs related to the Voluntary Staff Exit Plan
(VEP).
The reclassification differences between the statutory basis and the
underlying basis mainly relate to the impact from 'non-recurring items' and
are explained as follows:
NPE sales
· Total expenses include restructuring costs of €14 mn and
other expenses of €2 mn relating to the agreements for the sale of
portfolios of NPEs and are presented within 'Restructuring and other costs
relating to NPE sales' under the underlying basis.
· Loan credit losses under the statutory basis include the loan
credit losses relating to Project Helix 2 of c.€1.5 mn, reversal of loan
credit losses relating to Project Helix 3 of €28 mn and an amount of €14
mn which represents the effect of discounting the deferred consideration
receivable from Project Helix 2, and are disclosed under non-recurring items
within 'Provisions/net loss relating to NPE sales' under the underlying basis.
· 'Net gains from revaluation and disposal of investment
properties and on disposal of stock of properties' include a revaluation loss
of €1 mn relating to investment properties of Project Helix 3 and are
presented within 'Provisions/net loss relating to NPE sales' under the
underlying basis.
· 'Impairments of financial and other non-financial assets' under
the statutory basis include an impairment loss of €19 mn relating to stock
of properties of Project Helix 3 and are presented within 'Provisions/net loss
relating to NPE sales' under the underlying basis.
B. Group Financial Results - Underlying Basis (continued)
B.1 Unaudited reconciliation of consolidated income statement
for the year ended 31 December 2021 between statutory basis and underlying
basis (continued)
Other reclassifications
· Net losses on loans and advances to customers at
FVPL of approximately €17.5 mn included in 'Loan credit losses' under the
underlying basis are included in 'Net losses on financial instrument
transactions and disposal/dissolution of subsidiaries and associates' under
the statutory basis. Their classification under the underlying basis is done
in order to align their presentation with the loan credit losses on loans and
advances to customers at amortised cost.
· Net loss on the early redemption of subordinated
loan stock of c.€12.5 mn included in 'Net losses on financial instrument
transactions and disposal/dissolution of subsidiaries and associates' under
the statutory basis is included in 'Advisory and other restructuring
costs‑organic' under the underlying basis, since it represents a one‑off
item.
· Advisory and other restructuring costs of c.€9
mn 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 customer loan restructuring
activities.
· Reversals net of provisions for litigation,
claims, regulatory and other matters amounting to c.€2 mn included in 'Other
operating expenses' under the statutory basis, are separately presented under
the underlying basis, as provisions for litigation, claims, regulatory and
other matters (and reversals thereon) are presented together with impairment
of financial and non-financial assets, below operating profit.
· Total expenses under the statutory basis include
restructuring costs relating to the voluntary staff exit plan (VEP) of c.€16
mn and are separately presented under the underlying basis, since they
represent one-off items.
Commentary on Underlying Basis
The financial information presented in this Section provides an overview of
the Group financial results for the year ended 31 December 2021 on the
'underlying basis', which the management believes best fits the true
measurement of the performance and position of the Group, as this presents
separately the exceptional and one-off items.
Reconciliations between the statutory basis and the underlying basis are
included in Section B.1 'Unaudited reconciliation of consolidated income
statement for the year ended 31 December 2021 between statutory basis and
underlying basis' and will also be available in the Annual Financial Report
for the year ended 31 December 2021 under 'Definitions and Explanations on
Alternative Performance Measures', to facilitate the comparability of the
underlying basis to the statutory information.
Please note the following in relation to the disclosure of pro forma figures
and ratios throughout this announcement.
References to pro forma figures and ratios as at 31 December 2021 refer to
Project Helix 3 and Project Sinope. They are based on 31 December 2021
underlying basis figures, unless otherwise stated, and assume their
completion, currently expected to occur in 1H2022, which remain subject to
customary regulatory and other approvals. As at 31 December 2021, the
portfolios of loans, as well as the real estate properties included in Project
Helix 3 and Project Sinope, were classified as disposal groups held for sale.
References to pro forma figures and ratios as at 31 December 2020 refer to
Project Helix 2. As at 31 December 2020, the portfolios of loans included in
Project Helix 2 were classified as a disposal group held for sale.
Where numbers are provided on a pro forma basis, this is stated and referred
to as 'Pro forma for held for sale' or 'Pro forma for HFS'.
Project Helix 2 refers to the sale of portfolios of loans with a total gross
book value of €1.3 bn on completion, secured over real estate collateral, to
funds affiliated with Pacific Investment Management Company LLC ("PIMCO"), the
agreements for which were announced on 3 August 2020 and on 18 January 2021.
Project Helix 2 sale was completed in June 2021.
Project Helix 3 refers to the agreement the Group reached in November 2021
with funds affiliated with PIMCO, for the sale of a portfolio of NPEs with
gross book value of €568 mn, as well as real estate properties with book
value of c.€120 mn as at 30 September 2021.
Project Sinope refers to the agreement the Group reached in December 2021 for
the sale of a portfolio of NPEs with gross book value of €12 mn as at 31
December 2021, as well as properties in Romania with carrying value €0.6 mn
as at 31 December 2021.
Further details on the NPE trades are provided in Section B.2.5 'Loan
portfolio quality'.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis
B.2.1 Capital Base
Total equity excluding non-controlling interests totalled €2,059 mn at 31
December 2021, compared to €2,066 mn at 30 September 2021 and €2,051 mn at
31 December 2020. Shareholders' equity totalled €1,839 mn at 31 December
2021, compared to €1,846 mn at 30 September 2021 and €1,831 mn at 31
December 2020.
The Common Equity Tier 1 capital (CET1) ratio on a transitional basis stood at
15.1% as at 31 December 2021 and 15.8% pro forma for held for sale portfolios
(referred to as 'pro forma for HFS'), compared to 14.7% as at 30 September
2021 (and 15.3% pro forma for HFS) and to 14.8% as at 31 December 2020 (and
15.2% pro forma for HFS). During 4Q2021, the CET1 ratio was positively
affected mainly by the pre-provision income and the decrease in risk-weighted
assets (RWA), and negatively affected mainly by provisions and impairments and
the cost relating to the Voluntary Staff Exit Plan. Throughout, the capital
ratios (and pro forma capital ratios) as at 31 December 2021 include profits
for FY2021, unless otherwise stated.
The Group has elected to apply the EU transitional arrangements for regulatory
capital purposes (EU Regulation 2017/2395) where the impact on the impairment
amount from the initial application of IFRS 9 on the capital ratios is
phased-in gradually. The amount added back to CET1 each year decreases based
on a weighting factor until the impact of IFRS 9 is fully absorbed at the end
of the five years. The impact on the capital position for year 2018 was 5% of
the impact on the impairment amount from the initial application of IFRS 9,
increased to 15% (cumulative) for year 2019, 30% (cumulative) for year 2020,
50% (cumulative) for year 2021 and 75% (cumulative) for year 2022. This will
be fully phased in (100%) by 1 January 2023. The phasing-in of the impairment
amount from the initial application of IFRS 9 had a negative impact of c.62
bps on the CET1 ratio on 1 January 2022.
The CET1 ratio on a fully loaded basis amounted to 13.7% as at 31 December
2021 and 14.3% pro forma for HFS, compared to 13.3% as at 30 September 2021
(and 13.9% pro forma for HFS), and to 12.9% as at 31 December 2020 (and 13.3%
pro forma for HFS). On a transitional basis and on a fully phased-in basis,
after the transition period is completed, the impact of IFRS 9 is expected to
be manageable and within the Group's capital plans.
The Total Capital ratio stood at 20.0% as at 31 December 2021 and 20.8% pro
forma for HFS, compared to 19.7% as at 30 September 2021 (and 20.4% pro forma
for HFS), and to 18.4% as at 31 December 2020 (and 18.7% pro forma for HFS).
The Group's capital ratios are above the Supervisory Review and Evaluation
Process (SREP) requirements.
The Group's minimum phased-in Common Equity Tier 1 (CET1) capital requirement
as at 31 December 2021 stood at 9.69% (comprising a 4.50% Pillar I
requirement, a 1.69% Pillar II requirement, the Capital Conservation Buffer of
2.50% and the Other Systemically Important Institution Buffer of 1.00%).
The SREP Total Capital Requirement as at 31 December 2021 stood at 14.50%,
comprising an 8.00% Pillar I requirement (of which up to 1.50% can be in the
form of AT1 capital and up to 2.00% in the form of T2 capital), a 3.00% Pillar
II requirement, the Capital Conservation Buffer of 2.50% and the Other
Systemically Important Institution Buffer of 1.00%. The European Central Bank
(ECB) has also provided non-public guidance for an additional Pillar II CET1
buffer. Pillar II add-on capital requirements derive from the SREP, which is a
point in time assessment, and are therefore subject to change over time.
In accordance with the provisions of the Macroprudential Oversight of
Institutions Law of 2015, the Central Bank of Cyprus (CBC) is the responsible
authority for the designation of banks that are Other Systemically Important
Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for
these systemically important banks. The Bank has been designated as an O-SII
and the O-SII buffer was initially set by the CBC at 2.00%. This buffer is
being phased-in gradually, having started from 1 January 2019 at 0.50% and
increasing by 0.50% every year thereafter, until being fully implemented
(2.00%). In April 2020, the CBC decided to delay the phasing-in (0.50%) of the
O-SII buffer on 1 January 2021 and 1 January 2022 by 12 months. Consequently,
the O-SII buffer will be fully phased-in on 1 January 2023, instead of 1
January 2022 as originally set. In November 2021, the Bank received
notification from the CBC that the total O-SII buffer is reduced by 50 bps to
1.50%, therefore the phasing-in of the O-SII buffer on 1 January 2022 and 1
January 2023 has been revised to 0.25% for each period.
In the context of the annual SREP conducted by the ECB in 2021, and based on
the final 2021 SREP Decision received in February 2022, the Pillar II
requirement has been set at 3.26%, compared to the previous level of 3.00%.
The additional Pillar II requirement add-on of 0.26% relates to ECB's
prudential provisioning expectations as per the 2018 ECB Addendum and
subsequent ECB announcements and press release in July 2018 and August 2019.
This component of the Pillar II requirement add-on takes into consideration
Project Helix 3. It is dynamic and can be reduced during 2022 on the basis of
in-scope NPEs and level of provisioning.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
As a result, the Group's minimum phased-in CET1 capital ratio has been set at
10.08% compared to the previous level of 9.69% (comprising a 4.50% Pillar I
requirement, a 1.83% Pillar II requirement, the Capital Conservation Buffer of
2.50% and the O-SII Buffer of 1.25%) and the Group's Total Capital requirement
was set at 15.01% compared to the previous level of 14.50% (comprising an
8.00% Pillar I requirement, of which up to 1.50% can be in the form of AT1
capital and up to 2.00% in the form of T2 capital, a 3.26% Pillar II
requirement, the Capital Conservation Buffer of 2.50% and the O-SII Buffer of
1.25%). The ECB has also provided revised lower non-public guidance for an
additional Pillar II CET1 buffer. The new SREP requirements are effective from
1 March 2022. The Group's CET1 and Total Capital ratio remain above the new
requirements.
Own funds held for the purposes of P2G cannot be used to meet any other
capital requirements (Pillar I, Pillar II requirements or the combined buffer
requirement), and therefore cannot be used twice.
Based on the SREP decision of prior years, the Company (Bank of Cyprus
Holdings PLC) and the Bank are under a regulatory prohibition for equity
dividend distribution and hence no dividends were declared or paid during 2021
or 2020. Following the final 2021 SREP Decision received in February 2022, the
Company and the Bank still remain under equity dividend distribution
prohibition for 2022. This prohibition does not apply if the distribution is
made via the issuance of new ordinary shares to the shareholders, which are
eligible as CET1 capital. No prohibition applies to the payment of coupons on
any AT1 capital instruments issued by the Company or the Bank. Following the
final 2021 SREP Decision, the previous restriction on variable pay was lifted.
The ECB, as part of its supervisory role, has completed an onsite inspection
and review on the value of the Group's foreclosed assets with reference date
30 June 2019. The findings relate to a prudential charge which will decrease
based on the Bank's progress in disposing the properties in scope. The amount
was directly deducted from own funds as at 30 June 2021 resulting in a
decrease in the Group's CET1 ratio by c.44 bps as at 30 June 2021 and reduced
to 32 bps as at 31 December 2021 mainly following impairments taken in 4Q2021.
The Group participated in the ECB SREP Stress Test of 2021, the results of
which were published by the ECB on 30 July 2021. For further information
please refer to the 'Additional Risk and Capital Management Disclosures' of
the 'Interim Financial Report 2021'.
Project Helix 3
In November 2021, the Group reached agreement for the sale of a portfolio of
NPEs with gross book value of €568 mn as at 30 September 2021, as well as
real estate properties with book value of c.€120 mn as at 30 September 2021,
known as Project Helix 3. Further details are provided in Section B.2.5 'Loan
portfolio quality'.
The capital impact of Project Helix 3 on the Group's CET1 ratio was an
increase of 8 bps as at 30 September 2021. Overall, by completion (currently
expected to occur in 1H2022), and including the positive impact already
recorded in the income statement for 3Q2021, the transaction is expected to
have a total positive impact of c.70 bps on the Group's CET1 ratio on the
basis of 31 December 2021 figures.
Pro forma calculations are based on 31 December 2021 financial results, unless
otherwise stated, and assume completion of the transaction, which remains
subject to customary regulatory and other approvals.
Project Helix 2
In June 2021, the Company completed Project Helix 2 (Portfolios A and B),
which refers to the sale of portfolios of loans with a total gross book value
of €1,331 mn on completion (of which €1,305 mn relate to non-performing
exposures), secured over real estate collateral, the agreements for which were
announced on 3 August 2020 and on 18 January 2021. Further details are
provided in Section B.2.5 'Loan portfolio quality'.
The capital impact of Project Helix 2 on the Group's CET1 ratio during 2Q2021
was an increase of c.20 bps, of which c.10 bps arose on completion. Post
completion, the transaction was expected to have an additional positive
capital impact of c.64 bps on the Group's CET1 ratio on the basis of 30 June
2021 figures, upon the full payment of the deferred consideration and without
taking into consideration any positive impact from the earnout, thus making
the transaction overall capital accretive.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
Tier 2 Capital Notes
In April 2021, the Company issued €300 mn unsecured and subordinated Tier 2
Capital Notes (the 'New T2 Notes').
Immediately after, the Company and the Bank entered into an agreement pursuant
to which the Company on-lent to the Bank the entire €300 mn proceeds of the
issue of the New T2 Notes (the 'Tier 2 Loan') on terms substantially identical
to the terms and conditions of the New T2 Notes. The Tier 2 Loan constitutes
an unsecured and subordinated obligation of the Bank.
The New T2 Notes were priced at par with a fixed coupon of 6.625% per annum,
payable annually in arrears and resettable on 23 October 2026. The maturity
date for the New T2 Notes is 23 October 2031. The Company will have the option
to redeem the New T2 Notes early on any day during the six-month period from
23 April 2026 to 23 October 2026, subject to applicable regulatory consents.
At the same time, the Bank invited the holders of its €250 mn Fixed Rate
Reset Tier 2 Capital Notes due January 2027 (the 'Old T2 Notes') to tender
their Old T2 Notes for purchase by the Bank at a price of 105.50%, after which
Old T2 Notes of €43 mn remained outstanding.
At a meeting held on 30 November 2021, the Board of Directors resolved to
exercise the Bank's option to redeem the remaining c.€43 mn nominal amount
outstanding of the Old T2 Notes. The outstanding Old T2 Notes were redeemed on
19 January 2022.
Following the highly successful Tier 2 refinancing in 2021, the Group
continues to monitor opportunities for the optimisation of its capital
position, including Additional Tier 1 capital.
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific deferred tax
assets (DTA) into deferred tax credits (DTC) became effective in March 2019.
The law amendments cover the utilisation of income tax losses transferred from
Laiki Bank to the Bank in March 2013. The introduction of CRD IV in January
2014 and its subsequent phasing-in led to a more capital-intensive treatment
of this DTA for the Bank. With this legislation, institutions are allowed to
treat such DTAs as 'not relying on profitability', according to CRD IV and as
a result not deducted from CET1, hence improving a credit institution's
capital position.
The Group understands that, in response to concerns raised by the European
Commission with regard to the provision of state aid arising out of the
treatment of such tax losses, the Cyprus Government is considering the
adoption of modifications to the Law, including requirements for an additional
annual fee over and above the 1.5% annual guarantee fee already acknowledged,
to maintain the conversion of such DTAs into tax credits.
The Group, in anticipation of modifications in the Law, acknowledges that such
increased annual fee may be required to be recorded on an annual basis until
expiration of such losses in 2028. The determination and conditions of such
amount will be prescribed in the Law to be amended and the amount determined
by the Government on an annual basis. The Group, however, understands that
contemplated amendments to the Law may provide that the minimum fee to be
charged will be 1.5% of the annual instalment and can range up to a maximum
amount of €10 mn per year. The Group estimates that such increased fees
could range up to €5.3 mn per year (for each tax year in scope i.e. since
2018) although the Group understands that such fee may fluctuate annually as
to be determined by the Ministry of Finance. In this respect, an amount of
€5.3 mn was recorded in 4Q2021 and FY2021. In FY2020, an amount of €3 mn
was recorded in 4Q2020 to bring the total amount provided for years 2018-2020
to €16 mn, being the maximum expected increased amount for these years.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.2. Regulations and Directives
B.2.2.1 Revised rules on capital and liquidity (CRR II and CRD V)
On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRD V)
came into force. As this was an amending regulation, the existing provisions
of CRR apply, unless they are amended by CRR II. Being a Regulation, CRR II is
directly applicable in each member state. Member states were required to
transpose the CRD V into national law. CRD V was transposed and implemented in
Cyprus law in early May 2021. Certain provisions took immediate effect
(primarily relating to Minimum Requirement for Own Funds and Eligible
Liabilities, MREL), and most changes became effective as of June 2021. The key
changes introduced consist of, among others, changes to qualifying criteria
for CET1, AT1 and Tier 2 instruments, introduction of MREL requirements and
binding Leverage Ratio (as defined in the CRR) and Net Stable Funding Ratio
(NSFR) requirements.
Some of the amendments were introduced in June 2020 as part of the "CRR
quick-fix" which brought forward certain CRR II changes in light of the
challenges posed to the banking sector by the COVID-19. The key measures in
the CRR quick fix include an extension of the IFRS 9 transitional arrangements
for the dynamic component by 2 years, the introduction of a prudential filter
on exposures to central governments, regional governments or local authorities
at FVOCI, the acceleration of CRR II amendments to exempt certain software
assets from capital deduction and to revise the SME discount factors.
B.2.2.2 The 2021 Banking Package (CRR III and CRD VI and BRRD)
In October 2021, the European Commission adopted legislative proposals for
further amendments to Capital Requirements Regulation (CRR), CRD IV and the
BRRD (the "2021 Banking Package"). Amongst other things, the 2021 Banking
Package would implement certain elements of Basel III that have not yet been
transposed into EU law. The 2021 Banking Package is subject to amendment in
the course of the EU's legislative process; and its scope and terms may change
prior to its implementation. In addition, in the case of the proposed
amendments to CRD IV and the BRRD, their terms and effect will depend, in
part, on how they are transposed in each member state. As a general matter, it
is likely to be several years until the 2021 Banking Package begins to be
implemented; and certain measures are expected to be subject to transitional
arrangements or to be phased in over time.
B.2.2.3 Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January
2016 EU member states shall apply the BRRD's provisions requiring EU credit
institutions and certain investment firms to maintain a minimum requirement
for own funds and eligible liabilities (MREL), subject to the provisions of
the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part
of the reform package for strengthening the resilience and resolvability of
European banks, the BRRD ΙΙ came into effect and was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in early May 2021. In addition, certain provisions on MREL have been
introduced in CRR ΙΙ which also came into force on 27 June 2019 as part of
the reform package and took immediate effect.
In December 2021, the Bank received notification from the Single Resolution
Board (SRB) of the final decision for the binding minimum requirement for own
funds and eligible liabilities (MREL) for the Bank, determined as the
preferred resolution point of entry. As per the decision, the final MREL
requirement was set at 23.74% of risk weighted assets and 5.91% of Leverage
Ratio Exposure (LRE) (as defined in the CRR) and must be met by 31 December
2025. Furthermore, an interim requirement to be met by 1 January 2022 was set
at 14.94% of risk weighted assets and 5.91% of LRE. The own funds used by the
Bank to meet the Combined Buffer Requirement (CBR) will not be eligible to
meet its MREL requirements expressed in terms of risk-weighted assets. The
Bank must comply with the MREL requirement at the consolidated level,
comprising the Bank and its subsidiaries.
In June 2021, the Bank executed its inaugural MREL transaction issuing €300
mn of senior preferred notes (the "SP Notes"). The SP Notes were priced at par
with a fixed coupon of 2.50% per annum, payable annually in arrears and
resettable on 24 June 2026. The maturity date of the SP Notes is 24 June 2027
and the Bank may, at its discretion, redeem the SP Notes on 24 June 2026,
subject to meeting certain conditions as specified in the Terms and
Conditions, including applicable regulatory consents. The SP Notes comply with
the criteria for MREL and contribute towards the Bank's MREL requirements.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.2. Regulations and Directives (continued)
B.2.2.3 Bank Recovery and Resolution Directive (BRRD) (continued)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL) (continued)
The MREL ratio of the Bank as at 31 December 2021, calculated according to the
SRB's eligibility criteria currently in effect and based on the Bank's
internal estimate, stood at 19.31% of risk weighted assets (RWA) and at 9.87%
of LRE. Pro forma for HFS, the MREL ratio of the Bank as at 31 December 2021,
calculated on the same basis, stood at 20.18% of risk weighted assets. As at 1
January 2022, the MREL ratio stood at 18.44% of RWAs and 9.56% of LRE,
calculated on the same basis. Pro forma for HFS, the MREL ratio as at 1
January 2022 stood at 19.30% of RWAs. The MREL ratio expressed as a percentage
of risk weighted assets does not include capital used to meet the CBR amount,
which stood at 3.5% until 31 December 2021, increased to 3.75% on 1 January
2022 and is expected to increase to 4.0% on 1 January 2023. The MREL ratios
(and MREL ratios pro forma for HFS) as at 31 December 2021 and 1 January 2022
include profits for FY2021, unless otherwise stated.
The successful Tier 2 capital refinancing in April 2021 and the inaugural
issuance of MREL-compliant senior notes in June 2021 mark the foundation for
the Bank's plan to meet applicable MREL requirements. The interim MREL
requirement as at 1 January 2022 has been satisfied, and the Bank will
continue to evaluate opportunities to advance the build-up of its MREL
liabilities.
B.2.3 Funding and Liquidity
Funding
Funding from Central Banks
At 31 December 2021, the Bank's funding from central banks amounted to
€2,970 mn, which relates to ECB funding, comprising solely of funding
through the Targeted Longer-Term Refinancing Operations (TLTRO) III, compared
to €2,978 mn as at 30 September 2021 and €995 mn as at 31 December 2020.
In June 2021 the Bank borrowed an amount of €300 mn under the eighth TLTRO
III operation, increasing the borrowing under TLTRO III to €3.0 bn, as the
Bank had already borrowed an amount of €1.7 bn under the seventh TLTRO III
operation in March 2021 and an amount of €1 bn under the fourth TLTRO III
operation in June 2020, despite its comfortable liquidity position, given the
favourable borrowing terms, in combination with the relaxation of collateral
requirements.
The Bank exceeded the benchmark net lending threshold in the period 1 March
2020 - 31 March 2021 and qualified for the beneficial rate of -1% for the
period from June 2020 to June 2021. The NII benefit from its TLTRO III
borrowing for the period from June 2020 to June 2021 stood at c.€7 mn and
was recognised over the respective period in the income statement.
Based on internal estimations (subject to confirmation from the CBC), the Bank
has also exceeded the benchmark net lending threshold in the period 1 October
2020 - 31 December 2021 and is therefore expected to qualify for a beneficial
rate for the period from June 2021 to June 2022. The Bank estimates the NII
benefit from its TLTRO III borrowing for the period from June 2021 to June
2022 at c.€15 mn, recognised over the respective period in the income
statement.
It is expected that the favourable borrowing terms will not be extended post
June 2022.
Deposits
Customer deposits totalled €17,531 mn at 31 December 2021 (compared to
€17,128 mn at 30 September 2021 and €16,533 mn at 31 December 2020) and
increased by 2% in the fourth quarter and by 6% since the year end.
The Bank's deposit market share in Cyprus reached 34.8% as at 31 December
2021, compared to 34.8% as at 30 September 2021 and 35.0% at 31 December 2020.
Customer deposits accounted for 70% of total assets and 77% of total
liabilities at 31 December 2021 (compared to 77% of total assets and 85% of
total liabilities at 31 December 2020).
The net Loans to Deposits (L/D) ratio stood at 57% as at 31 December 2021
(compared to 58% as at 30 September 2021 and 63% as at 31 December 2020 on the
same basis). The decrease of 6 p.p. in the year ended 31 December 2021 is
mainly due to the completion of Project Helix 2 in June 2021 and the increase
in deposits in FY2021. Pro forma for HFS, the L/D ratio as at 31 December 2021
stood at 56%.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.3 Funding and Liquidity (continued)
Funding (continued)
Loan Stock
At 31 December 2021, the Group's loan stock (including accrued interest)
amounted to €643 mn (compared to €649 mn at 30 September 2021 and €272
mn at 31 December 2020) and relates to unsecured subordinated Tier 2 Capital
Notes and senior preferred notes.
For further information please refer to Sections B.2.1 'Capital Base' and
B.2.2.3 'Bank Recovery and Resolution Directive (BRRD) / Minimum Requirement
for Own Funds and Eligible Liabilities (MREL)', respectively.
Liquidity
At 31 December 2021, the Group Liquidity Coverage Ratio (LCR) stood at 298%
(compared to 294% at 30 September 2021 and 254% at 31 December 2020), above
the minimum regulatory requirement of 100%. The liquidity surplus in LCR at 31
December 2021 amounted to €6.3 bn (compared to €6.0 bn at 30 September
2021 and €4.2 bn at 31 December 2020). The increase in 4Q2021 (and 3Q2021)
is mainly driven by the increase in customer deposits.
At 31 December 2021, the Group Net Stable Funding Ratio (NSFR) stood at 147%
(compared to 148% at 30 September 2021 and 139% at 31 December 2020), above
the minimum regulatory requirement of 100%, enforced in June 2021 as per CRR
II.
B.2.4 Loans
Group gross loans (inclusive of those classified as held for sale) totalled
€10,856 mn at 31 December 2021, compared to €10,864 mn at 30 September
2021 and €12,261 mn at 31 December 2020, reduced by 11% since the beginning
of the year mainly due to the completion of Project Helix 2.
New lending granted in Cyprus reached €471 mn for 4Q2021 (compared to €427
mn for 3Q2021, €407 mn for 2Q2021 and €487 mn for 1Q2021) and totalled
€1,792 mn for FY2021 (up by 33% yoy and approaching FY2019 pre-pandemic
levels). New lending in 4Q2021 comprised €215 mn of corporate loans, €173
mn of retail loans (of which €140 mn were housing loans), €45 mn of SME
loans and €38 mn of shipping and international loans. New corporate loans in
4Q2021 have increased by c.24% yoy, as the economic activity continues to
improve. At the same time, demand for retail housing loans remained strong,
supported by the Government interest rate scheme (expired on 31 December
2021).
At 31 December 2021, the Group net loans and advances to customers (excluding
those classified as held for sale) totalled €9,836 mn (compared to €9,787
mn at 30 September 2021 and €9,886 mn at 31 December 2020).
In addition, at 31 December 2021 net loans and advances to customers of €250
mn were classified as held for sale in line with IFRS 5 of which €243 mn
related to Project Helix 3 and €7 mn to Project Sinope (see below), compared
to €250 mn as at 30 September 2021 which related to Project Helix 3 and to
€493 mn as at 31 December 2020, of which €485 mn related to Project Helix
2 and €8 mn to Helix Tail.
The Bank is the single largest credit provider in Cyprus with a market share
of 38.8% at 31 December 2021, compared to 39.1% at 30 September 2021 and 30
June 2021, and to 42.4% at 31 March 2021 and 41.9% at 31 December 2020. The
decrease in 2Q2021 is mainly due to the completion of Project Helix 2.
B.2.5 Loan portfolio quality
The Group has continued to make steady progress across all asset quality
metrics. As the balance sheet de-risking is largely complete, the Group's
priorities include maintaining high quality new lending and normalising the
cost of risk and other impairments, whilst managing the post-pandemic NPE
inflows.
The loan credit losses for 4Q2021 totalled €9 mn (excluding 'Provisions/net
(loss)/profit relating to NPE sales'), compared to €22 mn for 3Q2021 and
totalled €66 mn for FY2021, compared to €149 mn in FY2020. Further details
regarding loan credit losses are provided in Section B.3.3 'Profit/(loss)
before tax and non-recurring items'.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
While defaults have been limited, the additional monitoring and provisioning
for sectors vulnerable under COVID-19 remain in place to ensure that potential
difficulties in the repayment ability are identified at an early stage, and
appropriate solutions are provided to viable customers. In addition, the Group
has enhanced its monitoring to sectors, such as tourism, that are impacted
from the consequences of the Ukrainian crisis (as further discussed in the
Section C. Operating Environment and Section D. Business Overview below).
The Group will continue to monitor the situation, so that any changes arising
from the uncertainty on the macroeconomic outlook and geopolitical
developments, impacted by the implications of the Russian invasion of Ukraine,
as well as the degree of recurrence of the COVID-19 disease due to virus
mutations, and the persistent positive effect of fiscal and monetary policy,
are timely captured.
Loan moratorium
As part of the measures to support borrowers affected by COVID-19 and the
wider Cypriot economy, the Cyprus Parliament voted for the suspension of loan
repayments for interest and principal (loan moratorium) for the period to the
end of the year 2020, for all eligible borrowers with no arrears for more than
30 days as at the end of February 2020. The payment holiday for all these
loans expired on 31 December 2020.
Performing loans as at 31 December 2021 under expired payment deferrals
amounted to €4.60 bn (compared to €4.8 bn as at 30 September 2021 and
€5.3 bn as at 31 December 2020), of which €4.58 bn had an instalment due
by 15 March 2022 with a strong performance; 96% presented no arrears (of which
c.€0.73 bn have been restructured until 15 March 2022) and only 4% (€196
mn) are in arrears (of which €192 mn are less than 30 days-past-due). 65% of
restructurings took place in 1H2021.
Performing loans to private individuals as at 31 December 2021 under expired
payment deferrals amounted to €1.7 bn, of which almost all had an instalment
due by 15 March 2022. Of those, 91% presented no arrears (of which c.€34 mn
have been restructured until 15 March 2022) and only 9% (€151 mn) are in
arrears (of which €148 mn are less than 30 days-past-due).
Similarly, performing loans to businesses as at 31 December 2021 under expired
payment deferrals amounted to €2.9 bn, of which 99% had an instalment due by
15 March 2022. Of those, 98% presented no arrears (of which c.€0.69 bn have
been restructured until 15 March 2022, mostly in the tourism sector) and only
2% (€45 mn) are in arrears.
In 4Q2021, net reclassifications of €64 mn of loans under expired payment
deferrals were made from Stage 2 to Stage1, mainly due to updated financial
information. In addition, net reclassifications of c.€1 mn of loans under
expired payment deferrals were made mainly from Stage 2 to Stage 3 in 4Q2021.
References made to 'loans under expired payment deferrals' in this paragraph
include current account and overdrafts.
The provision coverage of Stage 3 loans under expired payment deferrals of
c.32% as at 31 December 2021 is considered to be adequate, as it is higher
than the coverage of re-performing NPEs (NPEs in the pipeline to exit, subject
to meeting all exit criteria) of 28%.
Following continuing signs of recovery, the majority of COVID-19 related
management overlays applied in FY2020 and 1H2021 were removed in 3Q2021. A
reversal of loan impairments relating to COVID-19 amounting to €17 mn (62
bps) was included in 3Q2021 loan credit losses of €22 mn (cost of risk of 78
bps for 3Q2021) as a result of stronger than expected economic performance.
The cost of risk for 4Q2021 did not include any charge or reversal of loan
impairments relating to COVID-19 overlays. Overall, a net reversal of loan
impairments relating to COVID-19 (including related impact on macroeconomic
assumptions) amounting to c.€5 mn (4 bps) are included in FY2021 loan credit
losses of €66 mn (annualised cost of risk of 0.57%). In FY2020, the impact
of IFRS 9 Forward Looking Information (FLI) driven by the update of the
macroeconomic assumptions resulted in a €54 mn charge (43 bps) included in
loan credit losses of €149 mn (cost of risk of 1.18%). Further details on
the cost of risk are provided in Section B.3.3 'Profit/(loss) before tax and
non-recurring items'.
Close monitoring of the credit quality of these loans continues and customers
with early arrears are offered solutions. The Bank has a strong track record
in dealing with restructurings. Targeted restructuring solutions are offered
to alleviate pandemic-related short-term cash flow burden, following rigorous
assessment of repayment ability. To date, most restructurings relate to the
tourism sector.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
Loan moratorium (continued)
As at 31 December 2021, the Group's non-legacy loan book exposure to tourism
was limited to €1.15 bn (out of a total non-legacy loan book of €9.5 bn),
of which c.€0.87 bn of performing loans as at 31 December 2021 were under
expired payment deferrals. 99% of those had an instalment due by 15 March 2022
and of those almost all presented no arrears (of which €350 mn have been
restructured until 15 March 2022 and 80% of these restructurings took place in
1H2021).
Tourism performance in 2021 was better than initially anticipated. There was a
steady monthly recovery of tourist arrivals, as the tourism season extended
until October. Tourist arrivals in October 2021 reached 90% of corresponding
levels in 2019, whilst tourist arrivals in 2H2021 reached c.70% of
corresponding levels in 2019. It is important to note, that the majority of
'accommodation' customers entered the crisis with significant liquidity,
following strong performance in recent years and that 98% of the tourism
sector portfolio is secured by property.
The crisis in Ukraine may have an adverse impact on the Cypriot economy,
partly due to a negative impact on tourism. This impact will depend on the
duration and severity of the crisis which remain uncertain at this stage. In
response, the Government is working to replace tourist arrivals from Russia
and Ukraine (which amounted to c.20% of 2019 levels) through the promotion of
domestic tourism and arrivals from other markets, such as Germany, Israel,
Poland, Austria, Switzerland, Italy, France, Sweden and Hungary. Close
monitoring of exposures to the tourism sector is enhanced and the Group
remains in close contact with customers to offer solutions as necessary. For
further details on the Ukrainian crisis, please refer to Section D. 'Business
Overview'.
Respectively, as at 31 December 2021 the Group's non-legacy loan book exposure
to trade was €0.94 bn, of which €0.29 bn of performing loans as at 31
December 2021 were under expired payment deferrals. Almost all had an
instalment due by 15 March 2022 and of those, 98% presented no arrears (of
which €18 mn have been restructured) and only 2% presented arrears.
The table below presents the loans under expired payment deferrals, by IFRS 9
staging.
IFRS 9 staging for loans under expired payment deferrals (€ bn)
€ bn 31.12.2021 30.09.2021 31.12.2020
3.51 3.61 3.96
Stage 1
1.37 1.46 1.58
Stage 2
0.22 0.23 0.33
Stage 3
5.10(1) 5.30(1) 5.87(1)
Total
1 Includes overdrafts and current accounts of c.€0.26 bn (30 September 2021:
c.€0.25 bn and 31 December 2021: c.€0.36 bn)
A second scheme for the suspension of loan repayments for interest and
principal (loan moratorium) was launched in January 2021 for customers
impacted by the second lockdown. Payment deferrals were offered to the end of
June 2021, however, the total months under loan moratorium, including the loan
moratorium offered in 2020, cannot exceed a total of nine months. The
application period expired on 31 January 2021 and loans of c.€20 mn were
approved for the second moratorium. Close monitoring of the credit quality of
loans in moratoria continues.
For further information please refer to the presentation for the Group
Financial Results for the year ended 31 December 2021 (slides 10 and 11).
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
Non-performing exposure reduction
Non-performing exposures (NPEs) as defined by the European Banking Authority
(EBA) were reduced by €105 mn, or 7%, in 4Q2021 comprising net organic NPE
reductions of €98 mn and further net NPE reductions of c.€7 mn relating to
Project Helix 3 loans during 4Q2021 (compared to a reduction of €140 mn in
3Q2021) to €1,343 mn at 31 December 2021 (compared to €1,449 mn at 30
September 2021 and €3,086 mn at 31 December 2020). Pro forma for HFS, NPEs
are reduced by a further €572 mn to €771 mn on the basis of 31 December
2021 figures. Overall in FY2021, NPEs were reduced by 75% on pro forma basis.
The NPEs account for 12.4% of gross loans as at 31 December 2021, compared to
13.3% as at 30 September 2021 and 25.2% as at 31 December 2020, on the same
basis, i.e. including the NPE portfolios classified as 'Non-current assets and
disposal groups held for sale'. The reduction in NPE ratio by c.13 p.p. in the
year is driven by the completion of Project Helix 2. Pro forma for HFS, the
NPE ratio is reduced to 7.5% on the basis of 31 December 2021 figures.
The NPE coverage ratio stands at 59% at 31 December 2021, at the same level as
at 30 September 2021 and compared to 62% at 31 December 2020 on the same
basis, i.e. including the NPE portfolios classified as 'Non-current assets and
disposal groups held for sale'. When taking into account tangible collateral
at fair value, NPEs are fully covered. Pro forma for HFS, NPE coverage ratio
is 61% on the basis of 31 December 2021 figures.
As of 1 January 2021, the new regulation on Definition of Default has been
implemented, affecting NPE exposures and the calculation of Days-Past-Due
(please refer to Section F. Definitions & Explanations for the changes in
the definition).
31.12.2021 31.12.2021 31.12.2020 31.12.2020
Pro forma for HFS Pro forma for HFS
€ mn % gross loans € mn % gross loans € mn % gross loans € mn % gross loans
NPEs as per EBA definition 771 7.5% 1,343 12.4% 1,760 16.1% 3,086 25.2%
Of which, in pipeline to exit:
-NPEs with forbearance measures, no arrears(1) 142 1.4% 152 1.4% 245 2.2% 303 2.5%
1. The analysis is performed on a customer basis.
Project Helix 3
In November 2021, the Group reached agreement for the sale of a portfolio of
NPEs with gross book value of €568 mn as at 30 September 2021, as well as
real estate properties with book value of c.€120 mn as at 30 September 2021,
to funds affiliated with Pacific Investment Management Company LLC (PIMCO),
known as Project Helix 3. This portfolio of loans had a contractual balance of
€993 mn as at the reference date of 31 May 2021 and comprises c.20,000
loans, mainly to retail clients. As at 31 December 2021, this portfolio of
loans, as well as the real estate properties included in Helix 3, were
classified as a disposal group held for sale. At completion, currently
expected to occur in 1H2022, the Bank will receive gross cash consideration of
c.€385 mn.
This portfolio of loans (as well as the real estate properties included in
Helix 3) will be transferred to a licensed Cypriot Credit Acquiring Company
(the "CyCAC") by the Bank. The shares of the CyCAC will then be acquired by
certain funds affiliated with Pacific Investment Management Company LLC
(PIMCO), the purchaser of the portfolio.
Following a transitional period where servicing will be retained by the Bank,
it is intended that the servicing of the portfolio of loans and the real
estate properties included in Helix 3 will be carried out by a third party
servicer selected and appointed by the purchaser.
Project Helix 3 represents a milestone in the delivery of one of the Group's
core strategic priorities of improving asset quality through the reduction of
NPEs. Pro forma for HFS, the Group's NPE ratio is in single digit. Helix 3
reduced the stock of NPEs by c.42% to €771 mn pro forma on the basis of 31
December 2021 figures, and its NPE ratio by c.5 p.p., to 7.5% pro forma on the
basis of 31 December 2021 figures. Overall, since the peak in 2014 and pro
forma for HFS, the stock of NPEs has been reduced by €14.2 bn or 95% to
€0.8 bn and the NPE ratio by 55 percentage points, from 63% to less than 8%.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
Project Helix 3 (continued)
All relevant figures and pro forma calculations are based on 31 December 2021
financial results, unless otherwise stated, and assume completion of the
transaction, which remains subject to customary regulatory and other
approvals.
Project Helix 2
In June 2021, the Company completed Project Helix 2 (Portfolios A and B),
which refers to the sale of portfolios of loans with a total gross book value
of €1,331 mn as at the completion date (of which €1,305 mn relate to
non-performing exposures) (Portfolios A and B) secured over real estate
collateral, and stock of properties with carrying value amounting to €73 mn,
to funds affiliated with Pacific Investment Management Company LLC (PIMCO),
the agreements for which were announced on 3 August 2020 and on 18 January
2021. The Bank retained the servicing of these Portfolios for a transitional
period to the end of 3Q2021, against a servicing fee (see Section B.3.1 'Total
income').
The consideration for the sale amounts to c.€560 mn, of which c.€165 mn
were received in cash by completion. The remaining amount is payable in four
instalments up to December 2025 without any conditions attached, of which
c.€85m were received in December 2021. The consideration can be increased
through an earnout arrangement, depending on the performance of each of the
Portfolios.
Project Helix 2 represents another milestone in the delivery of one of the
Group's strategic priorities of improving asset quality through the reduction
of NPEs. Project Helix 2 (Portfolios A and B) reduced the NPE ratio by c.9
percentage points, on the basis of 30 June 2021 figures.
The Group has early achieved its previous 2022 target for a single digit NPE
ratio and is on track to achieve an NPE ratio of c.5% by the end of 2022 and
less than 3% by the end of 2025.
Project Sinope
In December 2021, the Bank entered into an agreement for the sale of a
portfolio of NPEs, with a contractual balance of €146 mn and a gross book
value of €12 mn as at 31 December 2021, as well as properties in Romania
with carrying value €0.6 mn as at 31 December 2021 (known as 'Project
Sinope'). The Sale is subject to the necessary approvals and is expected to be
completed within the first half of 2022. The portfolio has been classified as
held for sale as at 31 December 2021.
B.2.6 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) is focused on the disposal of
on-boarded properties resulting from debt for asset swaps. Cumulative sales
since the beginning of 2017 amount to €1.37 bn and exceed properties
on-boarded for the same period of €1.32 bn.
The Group completed disposals of €140 mn in FY2021 including disposals of
c.€6 mn relating to completed NPE sales (compared to €80 mn in FY2020),
resulting in a profit on disposal of €14 mn for FY2021 (compared to a profit
on disposal of €9 mn for FY2020), following the relaxation of restrictive
measures. Asset disposals are across all property classes, with c.50% of sales
by value in FY2021 relating to land. The Group completed disposals of €33 mn
in 4Q2021 resulting in a profit on disposal of €4 mn for 4Q2021, compared to
disposals of €26 mn in 3Q2021, resulting in a profit on disposal of €2 mn
for 3Q2021.
During FY2021, assets held by REMU with carrying value of €102 mn were
transferred to "non-current assets and disposal groups held for sale" as they
were included in Project Helix 3 and Project Sinope. As at 31 December 2021,
the carrying value of these assets stood at €98 mn (comprising stock of
property of €93 mn and investment properties of €5 mn). Pro forma for HFS,
assets held by REMU were reduced by 17% in FY2021.
During FY2021, the Group executed sale-purchase agreements (SPAs) for
disposals of 703 properties (with contract value of €149 mn), compared to
SPAs for disposals of 492 properties (with contract value of €91 mn) for
FY2020. Pro forma for HFS, the Group executed SPAs of 1,130 properties with
contract value of c.€250 mn during FY2021, representing an increase (by
contact value) of over 170% yoy.
In addition, the Group had a strong pipeline of €109 mn by contract value as
at 31 December 2021, of which €47 mn related to SPAs signed (compared to a
pipeline of €81 mn as at 31 December 2020, of which €53 mn related to SPAs
signed).
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.6 Real Estate Management Unit (REMU) (continued)
REMU on-boarded €34 mn of assets in FY2021 (compared to additions of €146
mn in FY2020, including €22 mn transferred from own use properties), via the
execution of debt for asset swaps and repossessed properties.
Details with respect to the prudential charge relating to the onsite
inspection findings are provided in Section B.2.1 'Capital Base'.
Assets held by REMU
As at 31 December 2021, assets held by REMU (excluding assets classified as
held for sale) had a carrying value of €1,215 mn (comprising properties of
€1,112 mn classified as 'Stock of property' and €103 mn as 'Investment
properties'), compared to €1,473 mn as at 31 December 2020 (comprising
properties of €1,350 mn classified as 'Stock of property' and €123 mn as
'Investment properties').
In addition to assets held by REMU, properties classified as 'Investment
properties' with carrying value of €15 mn as at 31 December 2021 (compared
to €5 mn as at 31 December 2020) are not managed by REMU. These relate
mainly to legacy properties held by the Group before the set-up of REMU in
January 2016 and to assets classified as 'Investment properties' following a
change in use.
Assets held by REMU (Group) FY2021 FY2020 4Q2021 3Q2021 qoq +% yoy +%
€ mn
Opening balance 1,473(1) 1,506(1) 1,264 1,404 -10% -3%
On-boarded assets 34 146 5 8 -40% -76%
Sales (140) (80) (33) (26) 32% 74%
Net impairment loss (50) (40) (20) (21) -11% 25%
Transfer to non-current assets and disposal groups held for sale (102) (59) (1) (101) -98% 75%
Closing balance 1,215 1,473(1) 1,215 1,264 -4% -17%
1 Following certain segmental reclassifications to better align with current
management information, investment properties of €16 mn as at 30 June 2021
(31 December 2020: €16 mn) relating to land, were transferred under REMU.
Comparative information was restated to account for this change.
Analysis by type and country Cyprus Greece Romania Total
31 December 2021 (€ mn)
Residential properties 82 23 0 105
Offices and other commercial properties 208 23 0 231
Manufacturing and industrial properties 54 24 0 78
Hotels 25 - - 25
Land (fields and plots) 524 5 1 530
Golf courses and golf-related property 246 - - 246
Total 1,139 75 1 1,215
Cyprus Greece Romania Total
31 December 2020 (restated)(1) (€ mn)
Residential properties 158 24 0 182
Offices and other commercial properties 240 26 5 271
Manufacturing and industrial properties 74 29 0 103
Hotels 24 1 - 25
Land (fields and plots) 622 6 2 630
Golf courses and golf-related property 262 - - 262
Total 1,380 86 7 1,473
1 Following certain segmental reclassifications to better align with current
management information, investment properties of €16 mn as at 30 June 2021
(31 December 2020: €16 mn) relating to land, were transferred under REMU.
Comparative information was restated to account for this change.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis
B.3.1 Total income
€ mn FY2021 FY2020 4Q2021 3Q2021 2Q2021 1Q2021 qoq +% yoy +%
(4Q vs 3Q) (FY)
Net interest income 296 330 73 71 76 76 2% -10%
Net fee and commission income 172 144 44 44 45 39 -1% 19%
Net foreign exchange gains and net gains/(losses) on financial instrument 24 15 10 6 6 2 87% 65%
transactions and disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions 61 56 18 12 18 13 60% 9%
Net gains/(losses) from revaluation and disposal of investment properties and 13 7 5 2 4 2 99% 86%
on disposal of stock of properties
Other income 15 15 4 4 3 4 -6% -1%
Non-interest income 285 237 81 68 76 60 20% 20%
Total income 581 567 154 139 152 136 11% 2%
Net Interest Margin (annualised)(1) 1.45% 1.84% 1.34% 1.34% 1.49% 1.63% - -39 bps
Average interest earning assets 20,436 17,931 21,613 21,195 20,381 18,978 2% 14%
(€ mn)(1)
1. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Net interest income (NII) for FY2021 amounted to €296 mn, compared to €330
mn in FY2020, down by 10% yoy mainly due to the continuing pressure from the
low interest rate environment and the completion of Helix 2, partially
offset by the increase in TLTRO III in FY2021 and the reduction in the cost of
deposits. Net interest income (NII) for 4Q2021 amounted to €73 mn, compared
to €71 mn for 3Q2021, mainly due to higher volume on loans and higher
interest collections.
The NII for FY2021 includes an amount of c.€15 mn which relates to the NII
of the loans included in Project Helix 2 (Portfolios A and B) recognised up to
30 June 2021, before completion in June 2021. The reduction in NII as a result
of the completion of Project Helix 2 has been partially offset by an amount of
€5 mn in 2H2021 relating to the unwinding of the net present value and
interest income of the deferred consideration, which is expected to continue
until 2023, on the basis of repayments and assuming no early repayment in
2023.
Average interest earning assets (AIEA) for FY2021 amounted to €20,436 mn, up
by 14% yoy driven by the increase in liquid assets following the increase in
the borrowing under TLTRO III by €2.0 bn, as well as the increase in
deposits by €1 bn yoy. Quarterly average interest earning assets for 4Q2021
amounted to €21,613 mn, up by 2% qoq, mainly due to the increase in liquid
assets following the increase in customer deposits by c.€400 mn.
Net interest margin (NIM) for FY2021 amounted to 1.45% (compared to 1.84% for
FY2020) negatively impacted by the decrease in NII and the increase in average
interest earning assets. Net interest margin (NIM) for 4Q2021 amounted to
1.34% flat qoq.
Non-interest income for FY2021 amounted to €285 mn (compared to €237 mn
for FY2020), up by 20% yoy, comprising net fee and commission income of €172
mn, net foreign exchange gains and net gains/(losses) on financial instrument
transactions and disposal/dissolution of subsidiaries and associates of €24
mn, net insurance income of €61 mn, net gains/(losses) from revaluation and
disposal of investment properties and on disposal of stock of properties of
€13 mn and other income of €15 mn. The yoy increase is driven by higher
net fee and commission income, higher net foreign exchange gains and net
gains/(losses) on financial instrument transactions and disposal/dissolution
of subsidiaries and associates, higher net insurance income, as well as higher
REMU disposal gains and lower revaluation losses on investment properties.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.1 Total income (continued)
Non-interest income for 4Q2021 amounted to €81 mn (compared to €68 mn for
3Q2021), up 20% qoq, comprising net fee and commission income of €44 mn, net
foreign exchange gains and net gains/(losses) on financial instrument
transactions and disposal/dissolution of subsidiaries and associates of €10
mn, net insurance income of €18 mn, net gains/(losses) from revaluation and
disposal of investment properties and on disposal of stock of properties of
€5 mn and other income of €4 mn. The qoq increase is mainly due to higher
net insurance income, higher net foreign exchange gains and net gains/(losses)
on financial instrument transactions and disposal/dissolution of subsidiaries
and associates, as well as higher REMU disposal gains.
Net fee and commission income for FY2021 amounted to €172 mn, compared to
€144 mn for FY2020, up by 19% yoy, and above pre-pandemic levels, reflecting
higher volume of transactions, as well as the extension of liquidity fees to a
broader group of corporate clients and the introduction of a revised price
list for charges and fees, both implemented as of 1 February 2021. Net fee and
commission income for FY2021 includes an amount of c.€7 mn relating to an
NPE sales-related servicing fee, for a transitional period that ended at the
end of 3Q2021. Net fee and commission income for 4Q2021 amounted to €44 mn,
flat qoq.
Net foreign exchange gains and net gains/(losses) on financial instrument
transactions and disposal/dissolution of subsidiaries and associates of €24
mn for FY2021 (comprising net foreign exchange gains of €16 mn and net gains
on financial instrument transactions of €8 mn), compared to €15 mn for
FY2020 (up 65% yoy).
Net foreign exchange gains and net gains/(losses) on financial instrument
transactions and disposal/dissolution of subsidiaries and associates of €10
mn for 4Q2021 (comprising net foreign exchange gains of €5 mn and net gains
on financial instrument transactions of c.€5 mn), compared to €6 mn for
3Q2021 (up by 87% qoq).
Net insurance income of €61 mn for FY2021, compared to €56 mn for FY2020,
up by 9% yoy, mainly due to higher gross written premiums, partly offset by
the net impact from the changes in the discount rate in the life insurance
business and by higher costs and claims in the general insurance business (as
claims in FY2020 had been positively impacted by lockdowns). Net insurance
income of €18 mn in 4Q2021, compared to €12 mn in 3Q2021, up by 60% qoq,
resulting from higher claims in the previous quarter, seasonality and
valuation assumptions.
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties for FY2021 amounted to €13 mn (comprising
net gains on disposal of stock of properties of €13 mn, net gains on
disposal of investment properties of €1 mn and net losses from revaluation
of investment properties of €1 mn), compared to €7 mn in FY2020 which had
been impacted by the lockdown measures.
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties for 4Q2021 amounted to €5 mn (relating
mainly to a profit on disposal of stock of properties of €4 mn), compared to
€2 mn in 3Q2021 (relating mainly to a profit on disposal of stock of
properties of €2 mn). REMU profit remains volatile.
Total income for FY2021 amounted to €581 mn, compared to €567 mn for
FY2020 (up 2% yoy). Total income for 4Q2021 amounted to €154 mn, compared to
€139 mn for 3Q2021 (up by 11% qoq) following increase in non-interest income
as explained above.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.2 Total expenses
€ mn FY2021 FY2020(1) 4Q2021 3Q2021 2Q2021 1Q2021 qoq +% yoy +%
(4Q vs 3Q) (FY)
Staff costs (202) (195) (50) (51) (51) (50) - 4%
Other operating expenses (145) (145) (37) (38) (38) (32) -3% -1%
Total operating expenses (347) (340) (87) (89) (89) (82) -1% 2%
Special levy on deposits and other levies/contributions (36) (33) (12) (9) (6) (9) 26% 8%
Total expenses (383) (373) (99) (98) (95) (91) 1% 2%
Cost to income ratio(2) 66% 66% 65% 71% 62% 67% -6 p.p. -
Cost to income ratio excluding special levy on deposits and other 60% 60% 57% 64% 58% 60% -7 p.p. -
levies/contributions(2)
1. Represented for the DTC levy of €3 mn in FY2020 which is now included in
"Special levy on deposits and other levies/contributions" in line with current
year presentation.
2. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant. p.p. = percentage points, bps = basis
points, 100 basis points (bps) = 1 percentage point
Total expenses for FY2021 were €383 mn (compared to €373 mn for FY2020, up
by 2% yoy), 53% of which related to staff costs (€202 mn), 38% to other
operating expenses (€145 mn) and 9% (€36 mn) to special levy on deposits
and other levies/contributions. Total expenses for 4Q2021 were €99 mn
compared to €98 mn for 3Q2021, up by 1% qoq. The yoy increase of 2% is
driven by the 4% yoy increase in staff costs. The qoq increase of 1% is driven
by the 26% qoq increase in special levy on deposits and other
levies/contributions. Further details are provided below.
Total operating expenses for FY2021 were €347 mn, compared to €340 mn for
FY2020 (up by 2% yoy). Total operating expenses for 4Q2021 were €87 mn,
compared to €89 mn for 3Q2021 (down by 1% qoq).
Staff costs for FY2021 were €202 mn (compared to €195 mn for FY2020) up by
4% yoy in line with the renewal of the collective agreement for 2021 (see
below). Staff costs for 4Q2021 were €50 mn (compared to €51 mn for 3Q2021)
broadly flat qoq.
In July 2021, the Bank reached agreement with the Cyprus Union of Bank
Employees for the renewal of the collective agreement for the years 2021 and
2022. The agreement related to certain changes including the introduction of a
new pay grading structure linked to the value of each position of employment,
and of a performance-related pay component as part of the annual salary
increase, both of which have been long-standing objectives of the Bank and are
in line with market best-practice. The expected impact of the renewal was an
increase in staff costs for 2021 and 2022 by 3-4% per annum, in line with the
impact of renewals in previous years.
The Group employed 3,438 persons as at 31 December 2021, compared to 3,573 as
at 31 December 2020. At the end of 3Q2021, 96 persons relating to Project
Helix 2 were transferred to the buyer upon full migration. In December 2021,
the Group completed a small-scale targeted voluntary staff exit plan (VEP),
through which c.100 of the Group's full-time employees were approved to leave
at a total cost of €16 mn, recorded in the consolidated income statement in
4Q2021 as a non-recurring item in the underlying basis (compared to a total
cost of €6 mn for a targeted voluntary staff exit plan completed in December
2020). Following the completion of the VEP in December 2021, the gross annual
savings are estimated at c.3% of staff costs.
Other operating expenses for FY2021 were €145 mn, down 1% yoy. Other
operating expenses for 4Q2021 were €37 mn, compared to €38 mn for 3Q2021
(down by 3% qoq).
Special levy on deposits and other levies/contributions for FY2021 amounted to
€36 mn, compared to €33 mn for FY2020 (up by 8% yoy). Special levy on
deposits and other levies/contributions for 4Q2021 amounted to €12 mn
(compared to €9 mn for 3Q2021), up by 26% qoq, owing to the net impact of a
levy in the form of an annual guarantee fee relating to the expected revised
Income Tax legislation of €5.3 mn recorded in 4Q2021 (see Section B.2.1
'Capital Base') and the contribution of the Bank to the Deposit Guarantee Fund
(DGF) of €3 mn which relates to 2H2021 and was recorded in 3Q2021, in line
with IFRSs.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.2 Total expenses (continued)
As from 1 January 2020 and until 3 July 2024 the Bank is subject to
contribution to the Deposit Guarantee Fund (DGF) on a semi-annual basis. The
contributions are calculated based on the Risk Based Methodology (RBM) as
approved by the management committee of the Deposit Guarantee and Resolution
of Credit and Other Institutions Schemes (DGS) and is publicly available on
the CBC's website. In line with the RBM, the contributions are broadly
calculated on the covered deposits of all authorised institutions and the
target level is to reach at 0.8% of these deposits by 3 July 2024.
The cost to income ratio excluding special levy on deposits and other
levies/contributions for FY2021 was 60%, flat yoy. The cost to income ratio
excluding special levy on deposits and other levies/contributions for 4Q2021
was 57%, compared to 64% for 3Q2021, with the reduction of 7 p.p. qoq driven
by the increase in total income.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.3 Profit/(loss) before tax and non-recurring items
€ mn FY2021 FY2020(1) 4Q2021 3Q2021 2Q2021 1Q2021 qoq +% yoy +%
(4Q vs 3Q) (FY)
Operating profit 198 194 55 41 57 45 33% 2%
Loan credit losses (66) (149) (9) (22) (15) (20) -55% -55%
Impairments of other financial and non-financial assets (36) (42) (23) (2) (6) (5) - -15%
Net reversals/(provisions) for litigation, claims, regulatory and other 2 (7) 8 (2) (3) (1) - -
matters
Total loan credit losses, impairments and provisions (100) (198) (24) (26) (24) (26) -7% -50%
Profit/(loss) before tax and non-recurring items 98 (4) 31 15 33 19 96% -
Cost of risk(2) 0.57% 1.18% 0.35% 0.78% 0.52% 0.66% -43 bps -61 bps
1. Represented for the DTC levy of €3 mn in FY2020 which is now included in
"Special levy on deposits and other levies/contributions" in line with current
year presentation.
2. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant. p.p. = percentage points, bps = basis
points, 100 basis points (bps) = 1 percentage point
Operating profit for FY2021 was €198 mn, compared to €194 mn for FY2020
(up by 2% yoy). Operating profit for 4Q2021 was €55 mn, compared to €41 mn
for 3Q2021 (up by 33% qoq), driven by an increase in total income qoq.
Loan credit losses for FY2021 totalled €66 mn, compared to €149 mn for
FY2020 (down by 55% yoy). Loan credit losses for 4Q2021 totalled €9 mn,
compared to €22 mn for 3Q2021 (down by 55% qoq).
The annualised loan credit losses charge (cost of risk) for FY2021 accounted
for 0.57% of gross loans and includes a net reversal of loan impairments
relating to COVID-19 (including related impact on macroeconomic assumptions)
of 4 bps (compared to an annualised loan credit losses charge of 1.18% for
FY2020, of which 43 bps reflect loan impairments relating to COVID-19). Cost
of risk for 4Q2021 amounted to 35 bps (€9 mn), without any charge or
reversal of loan impairments relating to COVID-19 overlays, compared to a cost
of risk of 78 bps (€22 mn) for 3Q2021, which included a reversal of loan
impairments relating to COVID-19 of 62 bps (€17 mn) as a result of stronger
than expected economic performance and partly offsetting the impact of model
recalibration to address the new default definition, and updated
default/curing experience. Further details are provided in Section B.2.5 'Loan
portfolio quality'.
Cost of risk for 4Q2021 amounting to 35 bps (€9 mn), includes a reversal of
46 bps (€12 mn) from Stages 1 and 2 mainly due to improved cash collections
and updated financial information.
At 31 December 2021, the allowance for expected loan credit losses, including
residual fair value adjustment on initial recognition and credit losses on
off-balance sheet exposures totalled €792 mn (compared to €849 mn at 30
September 2021 and €1,902 mn at 31 December 2020) and accounted for 7.3% of
gross loans including portfolios held for sale (compared to 7.8% and 15.5% of
gross loans including portfolios held for sale at 30 September 2021 and at 31
December 2020 respectively).
Impairments of other financial and non-financial assets for FY2021 amounted to
€36 mn, compared to €42 mn for FY2020 (down by 15% yoy), driven by lower
revaluation losses on properties yoy. Impairments of other financial and
non-financial assets for 4Q2021 amounted to €23 mn (compared to €2 mn for
3Q2021), driven by impairments of non-financial assets of €20 mn relating
mainly to specific, large, illiquid REMU assets.
Reversals net of provisions for litigation, claims, regulatory and other
matters for FY2021 amounted to €2 mn, compared to provisions of €7 mn for
FY2020. Reversals net of provisions for litigation, claims, regulatory and
other matters for 4Q2021 amounted to €8 mn, mainly resulting from revised
estimates for cases and matters provided for (compared to provisions of €2
mn for 3Q2021).
Profit before tax and non-recurring items for FY2021 totalled €98 mn,
compared to a loss of €4 mn for FY2020. Profit before tax and non-recurring
items for 4Q2021 totalled €31 mn, compared to €15 mn for 3Q2021 (up by 96%
qoq).
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.4 Profit/(loss) after tax (attributable to the owners of the Company)
€ mn FY2021 FY2020(1) 4Q2021 3Q2021 2Q2021 1Q2021 qoq +% yoy +%
(4Q vs 3Q) (FY)
Profit/(loss) before tax and non-recurring items 98 (4) 31 15 33 19 96% -
Tax (5) (8) (2) (2) 1 (2) 2% -46%
(Profit)/loss attributable to non-controlling interests (2) 3 (2) (0) (0) (0) - -
Profit/(loss) after tax and before non-recurring items (attributable to the 91 (9) 27 13 34 17 101% -
owners of the Company)
Advisory and other restructuring costs - organic (22) (10) (3) (1) (15) (3) - -
Profit/(loss) after tax - organic (attributable to the owners of the Company) 69 (19) 24 12 19 14 96% -
Provisions/net (loss)/profit relating to NPE sales(2) (7) (120) (1) 10 (14) (2) - -93%
Restructuring and other costs relating to NPE sales(2) (16) (26) 3 (3) (12) (4) - -38%
Restructuring costs - Voluntary Staff Exit Plan (VEP) (16) (6) (16) - - - - -
Profit/(loss) after tax (attributable to the owners of the Company) 30 (171) 10 19 (7) 8 -46% -
1. Represented for the DTC levy of €3 mn in FY2020 which is now included in
"Special levy on deposits and other levies/contributions" in line with current
year presentation.
2. 'Provisions/net (loss)/profit relating to NPE sales' refer to the net
(loss)/profit on transactions completed during the year/period and the net
loan credit losses on transactions under consideration, whilst 'Restructuring
and other costs relating to NPE sales' refer mainly to the costs relating to
these trades. For further details please see below. p.p. = percentage points,
bps = basis points, 100 basis points (bps) = 1 percentage point
The tax charge for FY2021 is €5 mn, compared to €8 mn for FY2020. The tax
charge for 4Q2021 is €2 mn, flat qoq.
Profit after tax and before non-recurring items (attributable to the owners of
the Company) for FY2021 was €91 mn, compared to a loss of €9 mn for
FY2020. Profit after tax and before non-recurring items (attributable to the
owners of the Company) for 4Q2021 was €27 mn, compared to €13 mn for
3Q2021. Return on Tangible Equity (ROTE) before non-recurring items calculated
using 'profit after tax and before non-recurring items (attributable to the
owners of the Company)' amounts to 5.5% for FY2021 and 6.6% for 4Q2021.
Advisory and other restructuring costs - organic for FY2021 amounted to €22
mn (compared to €10 mn for FY2020), mainly driven by an amount of €12 mn
which related to the cost of the tender offer for the 'Old T2 Notes', thereby
forfeiting the relevant obligation for future coupon payments. Advisory and
other restructuring costs - organic for 4Q2021 amounted to €3 mn, compared
to €1 mn for 3Q2021.
Profit after tax arising from the organic operations (attributable to the
owners of the Company) for FY2021 amounted to €69 mn, compared to a loss of
€19 mn for FY2020. Profit after tax arising from the organic operations
(attributable to the owners of the Company) for 4Q2021 amounted to €24 mn,
compared to €12 mn for 3Q2021.
Provisions/net loss relating to NPE sales for FY2021 were €7 mn (compared to
€120 mn for FY2020). Provisions/net loss relating to NPE sales for 4Q2021
was €1 mn relating to Helix 3 (compared to a net profit for 3Q2021 of €10
mn).
Restructuring and other costs relating to NPE sales for FY2021 was €16 mn
(compared to €26 mn for FY2020). Restructuring and other costs relating to
NPE sales for 4Q2021 was a credit of €3 mn relating to the agreements for
the sale of portfolios of NPEs (compared to costs of €3 mn for 3Q2021).
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.4 Profit/(loss) after tax (attributable to the owners of the Company)
(continued)
Restructuring costs relating to the Voluntary Staff Exit Plan (VEP) amounted
to €16 mn for the 4Q2021 and the FY2021 (compared to €6 mn for FY2020).
For further details please refer to Section B.3.2 'Total expenses'.
Profit after tax attributable to the owners of the Company for FY2021 was
€30 mn (compared to a loss of €171 mn for FY2020). Profit after tax
attributable to the owners of the Company for 4Q2021 was €10 mn (compared to
€19 mn for 3Q2021).
C. Operating Environment
Economic activity recovered strongly in 2021, driven by domestic demand in
1H2021 and by external demand in 2H2021 reflecting a strong recovery in
tourist activity in the period. Government support to businesses and
households remained substantial in the year but the budget deficit narrowed
substantially driven by increased revenues. Inflation accelerated in 2H2021
and unemployment remained largely unchanged from the previous year. Over the
medium term, prospects remain positive aided also by the Recovery and
Resilience Fund of Next Generation EU, however the crisis in Ukraine has
increased downside risks.
The Russian invasion of Ukraine and the sanctioning of Russia are expected to
have profound impact on the Russian economy, and serious macroeconomic
implications for the European Union and the global economy. The war and
sanctions constitute a major shock both in supply chains and in energy prices.
Supply chains have been disrupted causing shortages in agricultural
commodities and metals. Energy prices have risen and are expected to remain
elevated for longer. Inflationary pressures that were building before the
outbreak of the war have escalated and central banks have started their
tightening cycles. The Bank of England raised its policy rates three times in
the first quarter to 0.75% and inflation increased to 5.5% in February 2022.
In the USA, the Federal Reserve raised interest rates by 25 bps in mid-March
2022 and indicated another six hikes in 2022 and three more in 2023 before
pausing. In March 2022 the ECB maintained its main refinance rate unchanged at
zero, but indicated that quantitative easing will likely end sooner rather
than later, and that interest rates may start to rise earlier than
anticipated. Raising interest rates to contain inflation would be adding to
uncertainty and negatively impacting the growth outlook.
The crisis in Ukraine may have an adverse impact on the Cypriot economy,
mainly due to a negative impact on the tourism and professional services
sectors, increasing energy prices resulting in inflationary pressures, and
disruptions to global supply chains. The impact on the Cypriot economy remains
uncertain and will depend on the duration and severity of the crisis.
The European Union is expected to absorb the cost from the influx of refugees
who are expected to be in the millions and undertake short-term measures to
lessen the impact of higher inflation on the most vulnerable segments of the
population. In the short-term fiscal expansion is expected to be debt financed
but longer-term structural changes to be needed.
The Next Generation EU is a significant initiative and countries may need to
utilise additional resources still available in the form of loans, given the
uncertainties associated with the crisis in Ukraine. The purpose of Next
Generation EU is ultimately about the future, to help fund the key investments
that will be needed for the green and digital transitions, and so enhance the
potential and economic resilience of member states. Structural reform is an
integral part of this process, and ultimately a critical factor that will
determine the effectiveness of the investments.
Cyprus received €157 mn in EU recovery fund pre-financing in September 2021
(13% of the total allocated amount), following the approval of its national
recovery plan in July 2021. The bulk of the funds are expected to be released
in 2022-2024 depending on the strict implementation of reform priorities
agreed with the EU. These include, increasing the efficiency of public and
local administrations; improving the government of state-owned enterprises;
reducing further the levels of non-performing loans in the banking sector;
improving the efficiency of the judicial system; and accelerating
anti-corruption reforms.
The COVID-19 pandemic had a significant impact on the economy with real GDP
dropping by 5.0% in 2020 compared with an average drop of 6.4% in the
Eurozone. The recovery in 2021 was relatively strong with real GDP rising by
5.5% according to the Cyprus Statistical Service, fully recovering the lost
output from the previous year. Tourist arrivals recovered strongly in the
year, particularly in the second half. On average for 2021, tourist arrivals
were c.50% of 2019 levels, but reached c.70% of the corresponding 2019 levels
in the second half. The crisis in Ukraine may have an adverse impact on the
Cypriot economy, partly due to a negative impact on tourism. This impact will
depend on the duration and severity of the crisis which remain uncertain at
this stage. In response, the Government is working to replace tourist arrivals
from Russia and Ukraine (which amounted to c.20% of 2019 levels) through the
promotion of domestic tourism and arrivals from other markets, such as
Germany, Israel, Poland, Austria, Switzerland, Italy, France, Sweden and
Hungary. Close monitoring of exposures to the tourism sector is enhanced and
the Group remains in close contact with customers to offer solutions as
necessary. For further details on the Ukrainian crisis, please refer to
Section D. 'Business Overview'.
The unemployment rate has been declining since its peak in 2014, to 7.7% in
2020 and to 7.8% in the first three quarters of 2021. The labour market is
gradually tightening because employment volumes are rising faster than
increases in the labour force. On the supply side of the labour market, the
labour force is constrained by slowing population growth, skill mismatches
especially after the pandemic crisis, and low participation rates in segments
of the population.
Consumer prices accelerated from the second quarter onwards, and more steeply
in the second half of the year. In total for 2021, consumer prices increased
by 2.4% and by 4.4% in the second half alone. Consumer price inflation in
Cyprus has followed a similar trend to that in the euro area. The acceleration
largely reflects higher global prices for energy and transport goods, which
were driven by recovering aggregate demand against supply-chain bottlenecks.
There were also structural factors at play. The end of the temporary VAT
reduction in January 2021 resulted in stronger price growth in a year-on-year
comparison from July 2021.
C. Operating Environment (continued)
The current account deficit deteriorated in 2020-2021 due to the loss of
revenues from export services, mainly tourism. The current account deficit was
10.1% of GDP in 2020 and it is estimated at 9.1% of GDP in 2021 (European
Commission). The size of Cyprus' current account deficit reflects
special-purpose vehicles domiciled in Cyprus through which foreign enterprises
register ships in Cyprus which adds to fixed investment and imports.
Cyprus is an exports oriented, services-based economy, driven by tourism,
shipping and professional and financial services. Total services account for
more than 80% of total gross value added. The primary and secondary sectors
are relatively small. This means that Cyprus is also a large importer of
goods, relative to the size of the economy and tends to have large trade
deficits which are offset by large services surpluses in the current account.
In the banking sector there has been significant progress since the 2013
financial crisis. Banks have reduced their foreign exposure; the regulatory
framework and prudential oversight have been strengthened; a new legal
framework for foreclosures and insolvencies has been implemented.
Non-performing exposures have been reduced from €28.4 bn in 2014 to €4.3
bn as at the end of October 2021. The ratio of non-performing exposures to
gross loans dropped from 47.8% to 15.2% in the same period and the coverage
ratio of provisions to non-performing exposures increased slightly to 50.6%.
The ratio of non-performing exposures still remains elevated when compared
with an EU average of just over 2%. Total loans to the private sector also
declined steeply in the same period. Loans to residents excluding the
government, dropped to €23.3 bn at the end of December 2021, including the
non-performing loans, which is c.100% of GDP in 2021.
Cyprus public finances deteriorated sharply in 2020 as a result of the
recession and the fiscal measures that were implemented to support the economy
against COVID-19. The budget deteriorated from a surplus of 1.3% of GDP in
2019 to a deficit of 5.6% of GDP in 2020. Public finances strengthened in 2021
despite substantial government support measures and the budget deficit dropped
to 1.8% of GDP. This was driven primarily by sharp increases in tax revenues
and social security contributions in the second and third quarters.
Expenditures rose at a much slower pace in the period following sharp
increases the year before. General government debt remained almost unchanged
in 2021 and the debt-to-GDP ratio declined from 115% at end-2020 to 103.9% at
end-2021.
Sovereign ratings
The sovereign risk ratings of the Cyprus Government improved considerably in
recent years reflecting reduced banking sector risks, and improvements in
economic resilience and consistent fiscal outperformance. Cyprus demonstrated
policy commitment to correcting fiscal imbalances through reform and
restructuring of its banking system. Public debt remains high in relation to
GDP but large-scale asset purchases from the ECB ensure favourable funding
costs for Cyprus and ample liquidity in the sovereign bond market.
Most recently, in March 2022, Fitch Ratings affirmed Cyprus' Long-Term Issuer
Default rating at investment grade BBB- since November 2018 and stable
outlook. The stable outlook reflects the view that despite Cyprus' exposure to
Russia through its tourism and investment linkages, near-term risks are
mitigated by a strengthened government fiscal position, and continued
normalisation of spending after the pandemic shock. Meanwhile, medium-term
growth prospects remain positive on the back of the government's Recovery and
Resilience Plan (RRP).
Also in March 2022, S&P Global Ratings affirmed Cyprus' investment grade
rating of BBB- and positive outlook. The positive outlook reflects the view
that Cyprus' sovereign rating could be upgraded within the next 24 months if
the country's economic and budgetary performance continues to strengthen,
supported by the Government's implementation of structural reforms. While the
crisis in Ukraine weighs on Cyprus' economic performances via the sanctions
imposed on Russia, medium-term economic prospects remain solid according to
S&P.
In July 2021, Moody's Investors Service upgraded the Government of Cyprus'
long-term issuer and senior unsecured ratings to Ba1 from Ba2 (since July
2018) and changed the outlook from positive to stable. The primary driver for
the upgrade was the material improvement in the underlying credit strength of
the domestic banking system, which also reduces the risks of a systemic
banking crisis.
In October 2021, DBRS Morningstar confirmed Cyprus' Long-Term Foreign and
Local Currency Issuer Ratings at BBB (low) and upgraded its outlook from
stable to positive trend. This reflects the expectation that Cyprus's public
debt ratio will most likely return to its pre-pandemic downward path starting
from 2021, supported by a solid economic growth and fiscal repair. In a March
2022 commentary, DBRS Morningstar noted that Russia's invasion of Ukraine
increases downside risks to otherwise strong medium term economic prospects.
D. Business Overview
Credit ratings
The Group's financial performance is highly correlated to the economic and
operating conditions in Cyprus. In February 2022, Standard and Poor's affirmed
their long-term issuer credit rating on the Bank of B+, maintaining the
positive outlook. In December 2021, Moody's Investors Service upgraded the
Bank's long-term deposit rating to Ba3 from B1, maintaining the positive
outlook. The upgrade reflects significant ongoing improvement in the Bank's
asset quality following the agreement reached in Project Helix 3 in November
2021. In December 2021, Fitch Ratings affirmed the Bank's long-term issuer
default rating of B- and revised the outlook to positive from negative. The
revision of the outlook reflects significant improvement in asset quality
following the agreement reached in Project Helix 3, as well as in organically
reducing problem assets since the end of 2019, despite an adverse operating
environment in Cyprus, together with an expectation that this trend will
continue in the near future.
Strategic priorities for the medium term
The Group is a diversified, leading, financial and technology hub in Cyprus.
It has delivered significant progress against its strategy announced in
November 2020 and this has allowed the Group to update its medium term
strategic targets with an increased focus on creating shareholder value. In
February 2022, the Group increased its medium term return on tangible equity
(ROTE) target to over 10%, providing the foundations for a return of dividend
distributions, subject to performance and relevant approvals.
The Bank's medium term strategic priorities are clear, with a renewed focus on
growing revenues in a more capital efficient way, whilst striving for a leaner
operating model. In addition, the Group continues to focus on further
strengthening its asset quality, whilst maintaining a good capital position,
in order to continue to play a vital role in supporting the recovery of the
Cypriot economy. Moreover, the Group has set the foundations to enhance its
organisational resilience and ESG (Environmental, Social and Governance)
agenda and continues to work towards building a forward-looking organisation
with a clear strategy supported by effective corporate governance aligned with
ESG agenda priorities. Delivery on the Bank's medium term strategic priorities
is enabled by the Group's transformation plan.
Despite the uncertainties associated with the Ukrainian crisis (for further
details please see below), the Group intends to continue executing its
strategy in a disciplined manner in 2022 and beyond, focusing on improving
sustainable profitability by growing revenues, while remaining disciplined on
costs and capital.
Growing revenues in a more capital efficient way
The Group has a renewed focus on growing revenues in a more capital efficient
way. It aims to grow its high quality new lending, drive growth in niche areas
for further market penetration and diversify through non-banking services,
such as insurance and digital products.
The accelerated de-risking of the balance sheet and the expectation that the
favourable TLTRO borrowing terms will not be extended post June 2022 are
expected to increase pressure on net interest income (NII) in the near term.
This is expected to gradually recover from 2023 onwards as loan expansion and
margin stabilisation more than offset the foregone NII.
Separately, the Group aims to increase 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.
Gradual recovery of NII
Over the medium term, the Group aims to improve its NII through the growth of
its net performing book by c.6% per annum and margin stabilisation, with an
expected contribution to return on tangible equity (ROTE) in FY2025 of an
increase of c.1%.
The Group has continued to provide high quality new loans via prudent
underwriting standards. Growth in new lending in Cyprus has been focused on
selected industries more in line with the Bank's target risk profile. During
the year ended 31 December 2021, new lending amounted to €1.8 bn, increased
by 33% on the prior year and recovering towards pre-pandemic levels (at c.90%
of FY2019 levels). Demand for new loans is picking up, driven mainly by
corporate (up by 34% yoy for FY2021 and up by c.24% yoy for 4Q2021), as
economic activity continues to improve. At the same time, the demand for
retail housing loans remained strong, supported by the Government interest
rate subsidy scheme (expired on 31 December 2021). New housing loans of
c.€355 mn were approved by the Bank under the Scheme. Aiming at supporting
investments by SMEs and Mid-Caps, the Bank continues its collaboration with
the European Investment Bank (EIB), the European Investment Fund (EIF) and the
Cyprus Government.
D. Business Overview (continued)
Strategic priorities for the medium term (continued)
Growing revenues in a more capital efficient way (continued)
Gradual recovery of NII (continued)
Over the medium term, high quality new lending is expected to reach c.€9 bn,
as economic growth is expected to continue in 2022-2025. Significant
deleveraging of the Cyprus economy of the past seven years is coming to an
end. The Group aims to benefit from its strong market position; to help deploy
the Cyprus Recovery and Resilience Fund; to grow shipping and international
corporate lending with prudency; and to explore market opportunities in trades
of performing loans in Cyprus. At the same time, it aims to support its
customers in the transition to a sustainable future through, for example, the
provision of environmentally friendly products.
The growth of net interest income over the medium term is expected to be
further supported by margin stabilisation. The Group uses conservative
interest rate assumptions in its business plan and is well positioned for
rising rates given high levels of liquidity. It also applies conservative
assumptions for fixed income investments. It has factored in the increased
funding cost resulting from further MREL issuances and the expectation that
the favourable TLTRO borrowing terms will not be extended post June 2022.
Non-NII: growth in a more capital efficient way
Over the medium term, the Group aims to increase revenues other than net
interest income, 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, with an expected contribution
to return on tangible equity (ROTE) in FY2025 of an increase of c.1.5%-2.0%.
In FY2021, net fee and commission income amounted to €172 mn, increased by
19% on the prior year and exceeded pre-pandemic levels in 2019. The increase
reflects higher volume of transactions, as well as the extension of liquidity
fees to a broader group of corporate clients and the introduction of a revised
price list for charges and fees, both implemented as of 1 February 2021.
Over the medium term, net fee and commission income from banking activities is
expected to increase at a rate of 4% per annum, supported by price adjustments
and increased activity as the economy recovers. Liquidity fees are expected to
be applied to an amended universe of deposits, whilst the Bank will pursue to
convert deposits to products with a higher return for customers mainly through
its Wealth services.
In addition, the Group aims to increase the average product holding per retail
customer over the medium term through further cross-selling of cards, digital
loans, wealth and insurance products, to the under-penetrated customer base
via re-designing the operational model, client segmentation and catering to
different customer niches.
Management is placing emphasis on diversifying income streams by optimising
fee income from international transaction services, wealth management and
insurance. The Group's insurance companies, EuroLife Ltd and General Insurance
of Cyprus Ltd (GIC) operating in the sectors of life and general insurance
respectively, are leading players in the insurance business in Cyprus, and
have been providing a stable, recurring income, further diversifying the
Group's income streams. The insurance income net of claims and commissions for
FY2021 contributed to 21% of non-interest income and amounted to €61 mn, up
9% yoy, mainly due to higher gross written premiums, partly offset by the net
impact from the changes in the discount rate in the life insurance business
and by higher costs and claims in the general insurance business (as claims in
FY2020 had been positively impacted by lockdowns). Specifically, Eurolife
increased its total regular income by 8% yoy, whilst GIC increased its gross
written premiums by 8% yoy.
Furthermore, there are initiatives underway to enhance revenues from the
insurance business in the medium term. The Group currently has sustainable
healthy profitability from its insurance business and it is aiming for further
growth leveraging on the Bank's strong market share. The impact of IFRS 17 as
of 1 January 2023 remains uncertain, but it is not expected to significantly
impact the return on tangible equity in the medium term.
In the life insurance business, further growth is expected to be driven
through the pursuit of new market segments with higher margin potential (such
as business insurance, or income protection), exploring opportunities in the
occupational pensions market and the launch of new products and investment
funds. At the same time, Eurolife Ltd is expected to widen its target market
leveraging on its revamped bancassurance model. Internally, Eurolife Ltd aims
to strengthen its agency force organically and improve productivity through
digitisation and campaigns. Leveraging on the Group's digital capabilities,
the customer experience is expected to be upgraded via enhanced self-service
capabilities, such as the myeurolife portal.
D. Business Overview (continued)
Strategic priorities for the medium term (continued)
Non-NII: growth in a more capital efficient way (continued)
In the general insurance business, further growth is expected through widening
the target market leveraging on the revamped bancassurance model, exploiting
synergies with the life insurance agency force and focusing on profitable
business segments (such as fire and liability). GIC also aims to strengthen
its penetration in the profitable segments of the market's motor sector.
Centralisation and automation of the claims handling process, as well as
further digital growth will be enabled by further digitisation.
Finally, the Group aims to introduce the Digital Economy Platform to generate
new revenue sources over the medium term, leveraging on the Bank's market
position, knowledge and digital infrastructure. The Platform aims to bring
stakeholders together to drive opportunities in lifestyle banking and beyond.
This platform is expected to allow the Bank to enhance the engagement of its
customer base, attract new customers, optimise the cost of the Bank's own
processes, and position the Bank next to the customer at the point and time of
need.
Lean operating model
Striving for a lean operating model is a key strategic pillar for the Group in
order to deliver shareholder value in the medium term. Management also expects
that restructuring costs will be effectively eliminated as balance sheet
de-risking is largely complete. These actions are expected to contribute an
increase of c.2.5%-3.0% to return on tangible equity (ROTE) in FY2025. The
Group focuses on continuing to deliver on the cost agenda, as well as
improving operating efficiency, whilst funding its digital transformation and
investing in the business.
The digital transformation of the Group that started in 2017 has begun to
deliver an improved customer experience, whilst the branch footprint
rationalisation to date, has further improved the Bank's operating model. The
branch network is now less than half the size it was in 2013.
Management remains focused on further improvement in efficiency over the
medium term, through for example further branch footprint optimisation and
further exit solutions to release full time employees.
It is expected that total operating expenses will remain below €350 mn in
FY2025, despite inflationary pressures, whilst continuing to fund digitisation
and further investing in the business. The cost to income ratio is expected to
rise in 2022 as revenues remain under pressure and operating expenses increase
due to higher IT/digitisation investment costs, before improving to 50%-55% by
FY2025.
Transformation plan
The Group continues to work towards becoming a more customer centric
organisation. A transformation plan is in progress to enable modern banking by
digitally transforming customer service, as well as internal operations. The
transformation plan will enable delivery on the Group's strategic pillars,
with key shifts focusing on a leaner and more efficient operating model,
profitability and optimisation of the client service and distribution models
with an emphasis on the customer. For further details on examples of the
transformation that is expected to be achieved please refer to slide 36 of the
presentation for the Group Financial Results for the year ended 31 December
2021.
Digital transformation
The Bank's digital transformation focuses on developing digital services and
products that improve the customer experience, streamlining internal
processes, and introducing new ways of working to improve the workplace
environment.
In 4Q2021, the Bank continued to invest in its digital products, further
strengthening its competitive advantage. Among new digital capabilities, a new
service was added in the Bank's digital portfolio, that allows online identity
verification for legal entity-related individuals to assist the process of
onboarding those entities in the Bank. The whole activity can be now completed
by the customers and the IBU (International Banking Unit) staff in a faster,
more efficient way. Furthermore, the Bank invested in the enhancement of the
usage and transaction security through the introduction of a new user
verification and transaction monitoring mechanisms in its mobile app and web
channels.
D. Business Overview (continued)
Strategic priorities for the medium term (continued)
Lean operating model
Digital transformation (continued)
The adoption of digital products and services continued to grow and gained
momentum in the fourth quarter of 2021 and in January 2022. As at the end of
January 2022, 89.4% of the number of transactions involving deposits, cash
withdrawals and internal/external transfers were performed through digital
channels (up by c.23.0 p.p. from 66.4% in September 2017 when the digital
transformation programme was initiated). In addition, 78.8% of individual
customers were digitally engaged (up by 18.6 p.p. from 60.2% in September
2017), choosing digital channels over branches to perform their transactions.
As at the end of January 2022, active mobile banking users and active QuickPay
users have grown by 20% and 43% respectively in the last 12 months. The
highest number of QuickPay users to date was recorded in January 2022 with 131
thousand active users. Likewise, the highest number of QuickPay payments was
recorded in December 2021 with 395 thousand transactions. The transition to
the new renewed Internet Banking platform was launched in March 2022, offering
customers a fresh banking experience. New tools, such as defining and managing
budgets, as well as the ability to have an overall view of finances, and the
opening of new lending products entirely through the Group's digital channels
will soon be available to customers.
Moreover, significant changes are being implemented to enable a more modern
and efficient workplace. New technologies and tools have been introduced that
will significantly improve employee collaboration and knowledge sharing across
the organisation.
Strengthening asset quality
Ensuring the Bank's loan portfolio quality remains healthy is a priority for
the Group. Whilst maintaining high quality new lending, the Bank aims to
complete legacy de-risking, normalise cost of risk and reduce (other)
impairments, whilst managing post-pandemic NPE inflows. Collectively these
de-risking actions are expected to contribute an increase of c.2.5%-3.0% to
return on tangible equity (ROTE) in FY2025.
During 2021, the Group completed Project Helix 2 and agreed on Project Helix
3. Overall in 2021, and including organic NPE reductions of c.€400 mn, the
Group reduced its NPEs by 75% and its NPE ratio to 7.5%, on a pro forma basis.
For further information please refer to Section B.2.5 'Loan portfolio
quality'.
The Group has early achieved its previous 2022 target for a single digit NPE
ratio and has updated its strategic target of achieving an NPE ratio of c.5%
by the end of 2022 and of less than 3% by the end of 2025. At the same time,
the Group will continue to closely monitor the performance of loans under
expired payment deferrals and a year after deferral expiry, the performance is
better than initially expected.
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda
Moving to a sustainable economy is the challenge of our time. As part of its
vision to be the leading financial hub in Cyprus, the Bank is determined to
lead the transition of Cyprus to a sustainable future.
The Group has set the foundations to enhance its organisational resilience and
ESG (Environmental, Social and Governance) agenda and continues to work
towards building a forward-looking organisation with a clear strategy
supported by effective corporate governance aligned with ESG agenda
priorities.
In 2022, the Company received a rating of AA (on a scale of AAA-CCC) in the
MSCI ESG Ratings assessment. In 2020, the Bank received a rating of A in the
MSCI ESG Ratings assessment.
In 2021, the first ESG strategy of the Group was formulated, whereby, in
addition to maintaining its leading role in the social and governance pillars,
there will be a shift of focus on increasing the Bank's positive impact on the
environment by transforming not only its own operations, but also of its
client chain.
The Bank has committed to the following primary ESG targets, which reflect the
pivotal role of ESG in the Bank' strategy:
● Become carbon neutral by 2030
● Become Net Zero by 2050
● Steadily increase Green Asset Ratio
● Steadily increase Green Mortgage Ratio
● ≥30% women in Group's management bodies (defined as the
Executive Committee (EXCO) and the extended EXCO) by 2030
D. Business Overview (continued)
Strategic priorities for the medium term (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda (continued)
Environment
An ESG roadmap has been established to seize new opportunities, reduce risk
and comply with regulatory requirements and market expectations.
To ensure delivery on its ambition, the Bank is in the process of formulating
a long-term working plan that covers areas such as decarbonisation of the
Bank's own operations and portfolio, risk identification and impact
assessment, and streamlining of the Bank's policies with the ESG strategy.
More specifically, the decarbonisation initiative has commenced in 2022. As a
first step the Bank will calculate its own carbon footprint and formulate a
decarbonisation plan to become carbon neutral by 2030. A road map with
specific carbon reduction targets and KPIs will be established that will
enable the Bank to achieve its decarbonisation goals.
Work is already underway on data requirements and policy updates. The Bank is
in the process of identifying its ESG data needs and their availability based
on upcoming regulatory requirements, as well as its ESG strategic goals, with
the objective to address these needs in due time. Work has also been initiated
and will continue into 2022, to determine the climate related and
environmental risks the Bank is exposed to, so that these can be integrated
into the existing risk taxonomy and risk registry of the Bank and inform its
various business processes. Finally, several policies have been updated, and
this effort will continue in the coming years, as it will be conducive in
streamlining operations and culture with the Bank's ESG ambition.
At the same time, the Bank will intensify its support to its clients and
communities in becoming increasingly sustainable and will respond to the
heightened importance the Bank's investors and shareholders attach to ESG
matters. The Bank has the commitment, the scale and the reach to deliver the
desired change across Cyprus in the coming years. Environmentally friendly
products have been launched, and the Bank will continue to enrich its products
and services in line with its ESG Strategy and the Recovery and Resilience
Plan for Cyprus.
Social Pillar
At the centre of the Bank's leading social role lie its investments in the
Bank of Cyprus Oncology Centre (with an overall investment of c.€70 mn since
1998, whilst 60% of diagnosed cancer cases in Cyprus are being treated at the
Centre), the work of SupportCY Network developed in 2020 and expanded further
in 2021, the contribution of the Bank of Cyprus Cultural Centre in promoting
the cultural heritage of the island, and the education of over 30
entrepreneurs and financial support of €60.000 provided via the IDEA
Innovation Centre in 2021. Staff have continued to engage in voluntary
initiatives to support charities, foundations and people in need.
The Bank's staff members remain a key factor in achieving its objectives. In
order to maintain its high-performance culture, the Bank has continued to
upgrade its staff's skill set by providing training and development
opportunities to all staff, and capitalising on modern delivery methods. In
2021, the Bank continued to place special emphasis on staff wellness offering
seminars on Healthy Eating, Mental Health in the workplace and Financial
Planning to 630 employees, through its 'Well at Work program'.
The Group's commitment in safeguarding gender equality in the workplace has
been translated into policies and practices over the years. In 2021, the
Group received a Certificate by the Ministry of Labour, Welfare and Social
Insurance for applying good practices for gender equality in the working
environment.
Governance Pillar
The Bank 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 by 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 Bank 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 Bank 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 Bank's regulatory compliance continues to be an
undisputed priority.
D. Business Overview (continued)
Strategic priorities for the medium term (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda (continued)
Governance Pillar (continued)
The Board composition of the Company and the Bank is diverse, with one third
of the Board members being female as at 31 December 2021. The Board displays a
strong skill set stemming from broad international experience. Moreover, the
Bank aspires to achieve a representation of at least 30% women in Group's
management bodies (defined as the EXCO and the Extended EXCO) by 2030. As at
31 December 2021, there is a 24% representation of women in Group's management
bodies and 38% representation of women at key positions below the Extended
EXCO level (defined as positions between Assistant Manager and Manager A).
COVID-19 impact
The Group continues to closely monitor developments in, and the effects of
COVID-19 on both the global and Cypriot economy. Strong recovery in economic
activity marked the second half of the year, against the backdrop of
increasing vaccination coverage across Cyprus and relaxation of restrictions.
At the same time, the Group has continued its focus on providing support to
its customers, staff and community. The Group will continue to monitor the
situation for any changes that may arise from the uncertainty on the
macroeconomic outlook, impacted by the additional progress in vaccinations and
medication, degree of recurrence of the disease due to virus mutations, and
the persistent positive effect of fiscal and monetary policy.
Upon the outbreak of COVID-19 in March 2020, the Pandemic Incident Management
Plan of the Group was invoked and a dedicated team (Pandemic Incident
Management Team) has been monitoring the situation domestically and globally
and providing guidance on health and safety measures, travel advice and
business continuity for the Group. Local government guidelines are being
followed in response to the pandemic.
In accordance with the Pandemic Plan, the Group adopted a set of measures,
which are still in place according to the current pandemic status, to ensure
minimum disruption to its operations. The Pandemic Incident Management Team
and the Crisis Management Committee continue to closely monitor the dynamic
COVID-19 pandemic developments and status. The Group replaced face-to-face
meetings with telecommunications, adjusting the customary etiquette of
personal contact, including those with customers. Staff of critical functions
have been split into separate locations. In addition, to ensure continuity of
business, a number of employees have been working from home and the remote
access capability has been upgraded significantly, whilst at the same time
maintaining relevant control procedures to ensure authorisation in line with
the Group's governance structure. Additionally, the Group follows strict rules
of hygiene, increased intensity of cleaning and disinfection of spaces, and
other measures to protect the health and safety of staff and customers.
The potential economic implications for the sectors in which the Group is
active have been assessed and possible mitigating actions for supporting the
economy have been identified, such as supporting viable affected businesses
and households with new lending to cover liquidity, working capital, capital
expenditure and investments related to the activity of the borrower.
The package of policy measures announced by the ECB and the European
Commission, as well as the unprecedented fiscal and other measures of the
Cyprus Government, have helped and should continue to help reduce the negative
impact and support the recovery of the Cypriot economy.
As part of the measures to support borrowers affected by COVID-19 and the
wider Cypriot economy, the Cyprus Parliament voted for the suspension of loan
repayments for interest and principal (loan moratorium) for the period to the
end of the year 2020, for all eligible borrowers with no arrears for more than
30 days as at the end of February 2020. The payment holiday for all these
loans expired on 31 December 2020. Further details are provided in Section
B.2.5 'Loan portfolio quality'.
Ukrainian crisis
In light of the recent developments in respect of the Russian invasion of
Ukraine that started at the end of February 2022, the Group is closely
monitoring the developments and utilising dedicated governance structures
including Crisis Management Committee as required.
In response to the crisis in Ukraine, the EU, UK and the US, in a coordinated
effort joined by several other countries, imposed a variety of new sanctions
with respect to Russia, Belarus and certain regions of Ukraine, as well as
various related entities and individuals.
D. Business Overview (continued)
Ukrainian crisis (continued)
Direct impact
The Group does not have any banking operations in Russia or Ukraine, following
the sale of its operations in Ukraine in 2014 and in Russia in 2015. The Group
has a legacy net exposure of c.€10 mn as at 31 December 2021 in Russia which
is being run down.
The Group has limited direct exposure to loans related to Russia, Ukraine and
Belarus, representing c.0.4% of total assets or c.1% of net loans as at 31
December 2021. The net book value of these loans stood at c.€110 mn as at 31
December 2021, of which c.€94 mn are performing, whilst the remaining
c.€16 mn were classified as NPEs well before the current crisis. The
portfolio is granular and secured mainly by real estate properties in Cyprus.
Furthermore, the Group had credit balances in nostro accounts held with
subsidiaries of European banks in Russia of c.€9 mn as at 21 March 2022. The
Group's investments at amortised cost included Euro denominated debt
securities of a carrying amount of €12 mn as at mid-March 2022 relating to
debt securities of an EU country issuer with significant exposure in Russia
and Ukraine. There were no other investments relating to issuers with
significant exposure to Russia and/or Ukraine. The Group has no exposure to
Russian bonds or banks which are the subject of sanctions.
Customer deposits related to Russian, Ukrainian and Belarusian customers
account for only 6% of total customer deposits as at 31 December 2021. This
exposure is not material, given the Group's strong liquidity position. The
Group operates with a significant surplus liquidity of over €6 bn (LCR ratio
of c.300%) as at 31 December 2021.
Indirect impact
Although the Group's direct exposure to Russia, Ukraine or Belarus is limited,
the crisis in Ukraine may have an adverse impact on the Cypriot economy,
mainly due to a negative impact on the tourism and professional services
sectors, increasing energy prices resulting in inflationary pressures, and
disruptions to global supply chains. In the event that a significant decrease
in the number and volume of transactions occur as a result of the crisis, this
may adversely impact transactional net fee and commission income for the
Group, particularly in international banking services.
Overall, the Group expects limited impact from its direct exposure, while any
indirect impact will depend on the duration and severity of the crisis and its
impact on the Cypriot economy, which remains uncertain at this stage.
The Group will continue to closely monitor the situation, taking all necessary
and appropriate measures to minimise the impact on its operations and
financial performance, as well as to manage all related risks and comply with
the applicable sanctions.
E. Strategy and Outlook
The strategic objectives for the Group are to become a stronger, safer and a
more efficient institution capable of supporting the recovery of the Cypriot
economy and delivering appropriate shareholder returns in the medium term.
The key pillars of the Group's strategy are to:
· Grow revenues in a more capital efficient way; by enhancing
revenue generation via growth in performing book
and less capital-intensive banking and financial services operations
(Insurance and Digital Economy)
· Improve operating efficiency; by achieving leaner operations
through digitisation and automation
· Strengthen asset quality; maintaining high quality new lending,
completing legacy de-risking, normalising cost of risk and reducing (other)
impairments, whilst managing post pandemic NPE inflows
· Enhance organisational resilience and ESG (Environmental, Social
and Governance) agenda; by continuing to work towards building a
forward-looking organisation with a clear strategy supported by effective
corporate governance aligned with ESG agenda priorities
KEY STRATEGIC PILLARS ACTION TAKEN IN FY2021 and to date PLAN OF ACTION
Growing revenues in a more capital efficient way; by enhancing revenue • Liquidity fees to a broader group of corporate clients was • Grow net performing book by c.6% p.a. and extend new lending by
generation via growth in performing book, and less capital-intensive banking introduced as of 1 February 2021 c.€9 bn over the medium term.
and financial services operations (Insurance and Digital Economy)
• New price list for charges and fees was implemented as of 1 • Enhance fee and commission income, e.g. on-going review of price
February 2021 list for charges and fees, increase average product holding through cross
selling, new sources of revenue through introduction of Digital Economy
• For further information, please refer to Section D. 'Business Platform
Overview'
• Profitable insurance business with further opportunities to grow,
e.g. focus on high margin products, leverage on Bank's strong franchise and
customer base for more targeted cross selling enabled by digital
transformation
Improving operating efficiency; by achieving leaner operations through • Completion of a small-scale targeted voluntary staff exit plan • Offer exit solutions to release full time employees
digitisation and automation (VEP) in December 2021, through which c.100 of the Group's full-time employees
were approved to leave at a total cost of €16 mn; gross annual savings • Achieve further branch footprint rationalisation
estimated at c.3% of staff costs
• Effectively eliminate restructuring costs as de-risking is largely
• Renewal of collective agreement for 2021-2022 with an expected complete
increase in staff costs for 2021 and 2022 by 3-4% per annum, in line with the
impact of renewals in previous years. • Enhance procurement control
• Further developments in the Transformation Plan and the • Contain total operating expenses to less than €350 mn in FY2025,
digitisation of the Bank despite inflationary pressures, whilst funding digitisation and further
investment in the business
• For further information, please refer to Section D. 'Business
Overview'
E. Strategy and Outlook (continued)
KEY STRATEGIC PILLARS ACTION TAKEN IN FY2021 and to date PLAN OF ACTION
Strengthening asset quality • Completion of Project Helix 2 (sale of NPE portfolios with gross • The Group is on track to achieve an updated strategic target of NPE
book value of €1.3 bn) in June 2021 ratio of c.5% by the end of 2022 and of less than 3% by the end of 2025.
• Agreement for the sale of NPE portfolio with gross book value of
€0.6 bn in Project Helix 3.
• On a pro forma basis, in 2021 the NPE stock reduced by €2.3 bn
to €0.8 bn, and the NPE ratio to 7.5%, including Helix 3, Helix 2 and
organic reductions.
• Single digit NPE ratio (pro forma for HFS) achieved earlier than
initially anticipated
• For further information, please refer to Section B.2.5 'Loan
portfolio quality' and Section D. 'Business Overview'
Enhancing organisational resilience and ESG (Environmental, Social and • The Bank reached agreement with the Cyprus Union of Bank Employees • Implement ESG strategy with a shift of focus on environment
Governance) agenda; by continuing to work towards building a forward-looking for the renewal of the collective agreement in respect of 2021 and 2022. The
organisation with a clear strategy supported by effective corporate governance agreement relates to certain changes including the introduction of a new pay • Embed ESG sustainability in the Bank's culture
aligned with ESG agenda priorities grading structure linked to the value of each position of employment, and of a
performance-related pay component as part of the annual salary increase, both • Continuous enhancement of structure and corporate governance
of which have been long-standing objectives of the Bank and are in line with
market best-practice. • Invest in people and promote talent
• First ESG strategy approved at Board level
• For further information, please refer to Section D. 'Business
Overview'
• Please refer to slide 29 of the FY2021 Group Financial Results
Presentation
The Group has delivered significant progress against its strategy communicated
in November 2020, setting the path to normalising the balance sheet and
achieving adequate sustainable returns. The single digit NPE ratio has been
reached a year ahead of plan, whilst strengthening capital well above
regulatory requirements. The post-moratoria performance has exceeded
expectations, allowing for a swifter normalisation in cost of risk.
This delivery has allowed the Group to update its business plan and upgrade
its medium term strategic targets with an increased focus on creating
shareholder value. The macro assumptions applied in updating our business
plan exclude unexpected materially adverse developments such as the Ukrainian
crisis, a situation the Group is closely monitoring.
The Group has a renewed focus on growing revenues in a more capital efficient
way. It aims to grow its high quality new lending, drive growth in niche areas
for further market penetration and diversify through non-banking services,
such as insurance and digital products.
E. Strategy and Outlook (continued)
The Group focuses on continuing to deliver on the cost agenda, as well as
improving operating efficiency, despite inflationary pressures, whilst funding
its digital transformation and further investing in the business. The cost to
income ratio is expected to rise in 2022 as revenues remain under pressure and
operating expenses increase due to higher IT/digitisation investment costs,
before improving to 50%-55% by FY2025.
As the balance sheet de-risking is largely complete, the Group's priorities
include maintaining high quality new lending and normalising the cost of risk
and other impairments, whilst managing the post-pandemic NPE inflows.
Sustainability will continue to be emdedded in the Group's culture, as the
Bank aims to lead the transition to a sustainable future. The Bank has the
commitment, the scale and the reach to deliver the desired change across
Cyprus in the coming years.
The Group has a clear strategy in place, leveraging on its strong customer
base, its renewed customer trust, its market leadership position, and further
developing digital knowledge and infrastructure, with a clear focus on
creating shareholder value. The Group now increases its medium term return on
tangible equity (ROTE) target to over 10%, providing the foundations for a
return of dividend distributions, subject to performance and relevant
approvals.
The Group's updated medium term strategic targets are set out below
Updated Medium Term Strategic Targets
Key Metrics 2021 2023 2025
Profitability Return on Tangible Equity (ROTE)(1) 1.8% >10%
Mid-single digit
On trajectory to consider dividend distribution(4)
Cost to income ratio(2) 60% 50%-55%
Asset Quality NPE ratio 7.5%(3) <5% <3%
Cost of risk 57 bps 40-50 bps
Capital CET1 ratio Supported by CET1 ratio of 13.5%-14.5%
15.8%(3) transitional (14.3%(3) FL)
1. Return on Tangible Equity (ROTE) is calculated as Profit after Tax
(annualised) divided by Shareholders' equity minus intangible assets.
2. Calculated using total operating expenses which comprise staff
costs and other operating expenses. Total operating expenses do not include
the special levy on deposits or other levies/contributions and do not include
any advisory or other restructuring costs.
3. Pro forma for HFS
4. Subject to performance and relevant approvals
Maintaining a strong capital base has been a key priority for management over
the past few years and this remains equally important for the Group going
forward. The Group currently maintains a robust capital position; as at 31
December 2021, the Group's pro forma capital ratios were 15.8% for the CET1
ratio on a transitional basis and 14.3% on a fully loaded basis. The Group
considers that a CET1 ratio of 13.5%-14.5% would be appropriate for a
normalised Bank of Cyprus Group. The Group's organic capital generation is to
be supported by the improving Return on Tangible Equity (ROTE). Going forward,
capital will be deployed for organic growth of the loan book, investment in
the business, against regulatory impacts and one-off cost optimisation
charges.
E. Strategy and Outlook (continued)
Despite the remaining challenges associated with the COVID-19 pandemic and the
uncertainties associated with the Ukrainian crisis, the Group intends to
continue executing its strategy in a disciplined manner in 2022 and beyond,
focusing on improving sustainable profitability by growing revenues, while
remaining disciplined on costs and capital. The Group continues to work
towards its 2025 financial targets, supported by its ongoing strategy
execution.
F. Definitions & Explanations
Advisory and other restructuring costs Comprise mainly (a) fees of external advisors in relation to: (i) disposal of
operations and non-core assets, and (ii) customer loan restructuring
activities, and (b) the cost of the tender offer for the Old T2 Capital Notes.
Allowance for expected loan credit losses (previously 'Accumulated Comprises (i) allowance for expected credit losses (ECL) on loans and advances
provisions') to customers (including allowance for expected credit losses on loans and
advances to customers held for sale), (ii) the residual fair value adjustment
on initial recognition of loans and advances to customers (including residual
fair value adjustment on initial recognition on loans and advances to
customers classified as held for sale), (iii) allowance for expected credit
losses for off-balance sheet exposures (financial guarantees and commitments)
disclosed on the balance sheet within other liabilities, and (iv) the
aggregate fair value adjustment on loans and advances to customers classified
and measured at FVPL.
AT1 AT1 (Additional Tier 1) is defined in accordance with the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II applicable as at the
reporting date.
Basic earnings/(losses) after tax and before non-recurring items per share Basic earnings/(losses) after tax and before non-recurring items per share
(attributable to the owners of the Company) (attributable to the owners of the Company) is the Profit/(loss) after tax and
before non-recurring items (as defined below) (attributable to the owners of
the Company) divided by the weighted average number of shares in issue during
the period, excluding treasury shares.
Carbon neutral The reduction and balancing (through a combination of offsetting investments
or emission credits) of greenhouse gas emissions from own operations.
CET1 capital ratio (transitional basis) CET1 capital ratio (transitional basis) is defined in accordance with the
Capital Requirements Regulation (EU) No 575/2013, as amended by CRR II
applicable as at the reporting date.
CET1 fully loaded (FL) ratio The CET1 fully loaded (FL) ratio is defined in accordance with the Capital
Requirements Regulation (EU) No 575/2013, as amended by CRR II applicable as
at the reporting date.
Cost to Income ratio Cost-to-income ratio comprises total expenses (as defined) divided by total
income (as defined).
Data from the Statistical Service The latest data from the Statistical Service of the Republic of Cyprus, Cyprus
Statistical Service, was published on 15 February 2022.
Digital transactions ratio This is the ratio of the number of digital transactions performed by
individuals and legal entity customers to the total number of transactions.
Transactions include deposits, withdrawals, internal and external transfers.
Digital channels include mobile, browser and ATMs. Digital transactions have
been adjusted to include Payroll & Group Transfers performed through 1Bank
at transaction level. Historical values have been adjusted accordingly for
this change.
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. Digital engagement has been adjusted to
include Standing Orders & Group Transfers performed through 1Bank at
transaction level. Historical values have been adjusted accordingly for this
change.
ECB European Central Bank
F. Definitions & Explanations (continued)
Gross loans Gross loans comprise: (i) gross loans and advances to customers measured at
amortised cost before the residual fair value adjustment on initial
recognition (including loans and advances to customers classified as
non-current assets held for sale) and (ii) loans and advances to customers
classified and measured at FVPL adjusted for the aggregate fair value
adjustment
Gross loans are reported before the residual fair value adjustment on initial
recognition relating mainly to loans acquired from Laiki Bank (calculated as
the difference between the outstanding contractual amount and the fair value
of loans acquired) amounting to €178 mn at 31 December 2021 (compared to
€181 mn at 30 September 2021 and €230 mn at 31 December 2020).
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 €336 mn at 31 December 2021 (compared to €334 mn
at 30 September 2021 and €326 mn at 31 December 2020).
Group The Group consists οf Bank of Cyprus Holdings Public Limited Company, "BOC
Holdings" or the "Company", its subsidiary Bank of Cyprus Public Company
Limited, the "Bank" and the Bank's subsidiaries.
Legacy exposures Legacy exposures are exposures relating to (i) Restructuring and Recoveries
Division (RRD), (ii) Real Estate Management Unit (REMU), and (iii) non-core
overseas exposures.
Leverage ratio The leverage ratio is the ratio of tangible total equity (including Other
equity instruments) to total assets as presented on the balance sheet.
Tangible total equity comprises of equity attributable to the owners of the
Company minus intangible assets.
Leverage Ratio Exposure (LRE) Leverage Ratio Exposure (LRE) is defined in accordance with the Capital
Requirements Regulation (EU) No 575/2013, as amended.
Loan credit losses (PL) (previously 'Provision charge') Loan credit losses comprise: (i) credit losses to cover credit risk on loans
and advances to customers, (ii) net gains on derecognition of financial assets
measured at amortised cost and (iii) net gains on loans and advances to
customers at FVPL, for the reporting period/year.
Loan credit losses charge (previously 'Provisioning charge') (cost of risk) Loan credit losses charge (cost of risk) (year to date) is calculated as the
annualised 'loan credit losses' (as defined) divided by average gross loans.
The average gross loans are calculated as the average of the opening balance
and the closing balance, for the reporting period/year.
Market Shares Both deposit and loan market shares are based on data from the CBC. The Bank
is the single largest credit provider in Cyprus with a market share of 38.8%
at 31 December 2021, compared to 39.1% at 30 September 2021 and 30 June 2021,
42.4% at 31 March 2021 and 41.9% at 31 December 2020. The decrease in 2Q2021
is mainly due to the completion of Project Helix 2.
MSCI ESG Rating The use by the Company and the Bank of any MSCI ESG Research LLC or its
affiliates ('MSCI') data, and the use of MSCI Logos, trademarks, service marks
or index names herein, do not constitute a sponsorship, endorsement,
recommendation or promotion of the Company or the Bank by MSCI. MSCI Services
and data are the property of MSCI or its information providers and are
provided "as-is" and without warranty. MSCI Names and logos are trademarks or
service marks of MSCI.
Net fee and commission income over total income Fee and commission income less fee and commission expense divided by total
income (as defined).
Net Interest Margin Net interest margin is calculated as the net interest income (annualised)
divided by the 'quarterly average interest earning assets' (as defined).
Net loans and advances to customers Net loans and advances to customers comprise gross loans (as defined) net of
allowance for expected loan credit losses (as defined, but excluding allowance
for expected credit losses on off-balance sheet exposures disclosed on the
balance sheet within other liabilities).
Net loans to deposits ratio Net loans to deposits ratio is calculated as gross loans (as defined) net of
allowance for expected loan credit losses (as defined) divided by customer
deposits.
F. Definitions & Explanations (continued)
Net Stable Funding Ratio (NSFR) The NSFR is calculated as the amount of "available stable funding" (ASF)
relative to the amount of "required stable funding" (RSF). The regulatory
limit, enforced in June 2021, has been set at 100% as per the CRR II. The NSFR
weights under CRR II do not have material deviations from those under Basel
III guidelines which the Group followed prior to CRR II enforcement.
Net zero emissions The reduction of greenhouse gas emissions to net zero through a combination of
reduction activities and offsetting investments
New lending New lending includes the disbursed amounts of the new and existing
non-revolving facilities (excluding forborne or re-negotiated accounts) as
well as the average year to date change (if positive) of the current accounts
and overdraft facilities between the balance at the beginning of the period
and the end of the period. Recoveries are excluded from this calculation since
their overdraft movement relates mostly to accrued interest and not to new
lending.
Non-interest income Non-interest income comprises Net fee and commission income, Net foreign
exchange gains/(losses) and net gains/(losses) on financial instrument
transactions and disposal/dissolution of subsidiaries and associates
(excluding net gains on loans and advances to customers at FVPL), Insurance
income net of claims and commissions, Net gains/(losses) from revaluation and
disposal of investment properties and on disposal of stock of properties, and
Other income.
Non-performing exposures (NPEs) As per the European Banking Authorities (EBA) standards and European Central
Bank's (ECB) Guidance to Banks on Non-Performing Loans (which was published in
March 2017), non-performing exposures (NPEs) are defined as those exposures
that satisfy one of the following conditions:
(i) The borrower is assessed as unlikely to pay its credit obligations in
full without the realisation of the collateral, regardless of the existence of
any past due amount or of the number of days past due.
(ii) Defaulted or impaired exposures as per the approach provided in the
Capital Requirement Regulation (CRR), which would also trigger a default under
specific credit adjustment, diminished financial obligation and obligor
bankruptcy.
(iii) Material exposures as set by the CBC, which are more than 90 days past
due.
(iv) Performing forborne exposures under probation for which additional
forbearance measures are extended.
(v) Performing forborne exposures previously classified as NPEs that present
more than 30 days past due within the probation period.
From 1 January 2021 two regulatory guidelines came into force that affect NPE
classification and Days-Past-Due calculation. More specifically, these are the
RTS on the Materiality Threshold of Credit Obligations Past-Due
(EBA/RTS/2016/06), and the Guideline on the Application of the Definition of
Default under article 178 (EBA/RTS/2016/07).
The Days-Past-Due (DPD) counter begins counting DPD as soon as the arrears or
excesses of an exposure reach the materiality threshold (rather than as of the
first day of presenting any amount of arrears or excesses). Similarly, the
counter will be set to zero when the arrears or excesses drop below the
materiality threshold. Payments towards the exposure that do not reduce the
arrears/excesses below the materiality threshold, will not impact the counter.
For retail debtors, when a specific part of the exposures of a customer that
fulfils the NPE criteria set out above is greater than 20% of the gross
carrying amount of all on balance sheet exposures of that customer, then the
total customer exposure is classified as non‑performing; otherwise only the
specific part of the exposure is classified as non‑performing. For
non‑retail debtors, when an exposure fulfils the NPE criteria set out above,
then the total customer exposure is classified as non‑performing.
Material arrears/excesses are defined as follows: (a) Retail exposures: Total
arrears/excess amount greater than €100, (b) Exposures other than retail:
Total arrears/excess amount greater than €500 and the amount in
arrears/excess in relation to the customer's total exposure is at least 1%.
For further information please refer to the Annual Financial Report 2021.
F. Definitions & Explanations (continued)
Non-recurring items Non-recurring items as presented in the 'Unaudited Consolidated Income
Statement - Underlying basis' relate to the following items, as applicable:
(i) Advisory and other restructuring costs - organic, (ii) Provisions/net
(loss)/profit relating to NPE sales, and (iii) Restructuring and other costs
relating to NPE sales.
NPE coverage ratio (previously 'NPE Provisioning coverage ratio') The NPE coverage ratio is calculated as the allowance for expected loan credit
losses (as defined) over NPEs (as defined).
NPE ratio NPEs ratio is calculated as the NPEs as per EBA (as defined) divided by gross
loans (as defined).
NPE sales NPE sales refer to sales of NPE portfolios completed, as well as contemplated
and potential future sale transactions, irrespective of whether or not they
met the held for sale classification criteria at the reporting dates.
Operating profit The operating profit comprises profit before Total loan credit losses,
impairments and provisions (as defined), tax, (profit)/loss attributable to
non-controlling interests and non-recurring items (as defined).
Operating profit return on average assets Operating profit return on average assets is calculated as the annualised
operating profit (as defined) divided by the quarterly average of total assets
for the relevant period. Average total assets exclude total assets of
discontinued operations at each quarter end, if applicable.
Phased-in Capital Conservation Buffer (CCB) In accordance with the legislation in Cyprus which has been set for all credit
institutions, the applicable rate of the CCB is 1.25% for 2017, 1.875% for
2018 and 2.5% for 2019 (fully phased-in).
Profit/(loss) after tax and before non-recurring items (attributable to the This refers to the profit or loss after tax (attributable to the owners of the
owners of the Company) Company), excluding any 'non-recurring items' (as defined).
Profit/(loss) after tax - organic (attributable to the owners of the Company) This refers to the profit or loss after tax (attributable to the owners of the
Company), excluding any 'non-recurring items' (as defined, except for the
'advisory and other restructuring costs - organic').
Pro forma for HFS (held for sale) References to pro forma figures and ratios as at 31 December 2021 refer to
Project Helix 3 and Project Sinope. They are based on 31 December 2021
underlying basis figures and assume their completion, currently expected to
occur in 1H2022, which remain subject to customary regulatory and other
approvals. References to pro forma figures and ratios as at 31 December 2020
refer to Project Helix 2, which was completed in June 2021.
Project Helix Project Helix refers to the sale of a portfolio of loans with a gross book
value of €2.8 bn completed in June 2019.
Project Helix 2 Project Helix 2 refers to the sale of portfolios of loans with a total gross
book value of €1.3 bn completed in June 2021. For further information please
refer to section B.2.5 'Loan portfolio quality'.
Project Helix 3 Project Helix 3 refers to the agreement the Group reached in November 2021 for
the sale of a portfolio of NPEs with gross book value of €568 mn, as well as
real estate properties with book value of c.€120 mn as at 30 September 2021.
For further information please refer to section B.2.5 Loan portfolio quality.
Project Sinope Project Sinope refers to the agreement the Group reached in December 2021 for
the sale of a portfolio of NPEs with gross book value of €12 mn as at 31
December 2021, as well as properties in Romania with carrying value €0.6 mn
as at 31 December 2021. For further information please refer to section B.2.5
'Loan portfolio quality'.
F. Definitions & Explanations (continued)
Quarterly average interest earning assets This relates to the average of 'interest earning assets' as at the beginning
and end of the relevant quarter. Average interest earning assets exclude
interest earning assets of any discontinued operations at each quarter end, if
applicable. Interest earning assets include: cash and balances with central
banks (including cash and balances with central banks classified as
non-current assets held for sale), plus loans and advances to banks, plus net
loans and advances to customers (including loans and advances to customers
classified as non-current assets held for sale), plus 'deferred consideration
receivable' included within 'other assets', plus investments (excluding
equities and mutual funds).
Qoq Quarter on quarter change
Special levy on deposits and other levies/contributions Relates to the special levy on deposits of credit institutions in Cyprus,
contributions to the Single Resolution Fund (SRF), contributions to the
Deposit Guarantee Fund (DGF), as well as the DTC levy.
Total Capital ratio Total capital ratio is defined in accordance with the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II applicable as at the
reporting date.
Total expenses Total expenses comprise staff costs, other operating expenses and the special
levy on deposits and other levies/contributions. It does not include (i)
'advisory and other restructuring costs-organic', or (ii) restructuring costs
relating to NPE sales. (i) 'Advisory and other restructuring costs-organic'
amounted to €3 mn for 4Q2021 (compared to €1 mn for 3Q2021, €15 mn for
2Q2021, €3 mn for 1Q2021 and €1 mn for 4Q2020), (ii) Restructuring costs
relating to NPE sales for 4Q2021 amounted to €0.2 mn (compared to €3 mn
for 3Q2021, €6 mn for 2Q2021, €4 mn for 1Q2021 and c.€1.5 mn for
4Q2020).
Total income Total income comprises net interest income and non-interest income (as
defined).
Total loan credit losses, impairments and provisions Total loan credit losses, impairments and provisions comprises loan credit
losses (as defined), plus impairments of other financial and non-financial
assets, plus net reversals/(provisions) for litigation, claims, regulatory and
other matters.
Underlying basis This refers to the statutory basis after being adjusted for certain items as
explained in the Basis of Presentation.
Write offs Loans together with the associated loan credit losses are written off when
there is no realistic prospect of future recovery. Partial write-offs,
including non-contractual write-offs, may occur when it is considered that
there is no realistic prospect for the recovery of the contractual cash flows.
In addition, write-offs may reflect restructuring activity with customers and
are part of the terms of the agreement and subject to satisfactory
performance.
Yoy Year on year change
Basis of Presentation
This announcement covers the results of Bank of Cyprus Holdings Public Limited
Company, "BOC Holdings" or "the Company", its subsidiary Bank of Cyprus Public
Company Limited, the "Bank" or "BOC PCL", and together with the Bank's
subsidiaries, the "Group", for the year ended 31 December 2021.
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
year ended 31 December 2021. This announcement includes an update of the
performance of loans under payment deferrals that expired on 31 December 2020.
The financial information in this announcement does not constitute statutory
financial statements of BOC Holdings within the meaning of section 340 of the
Companies Act 2014. The Group statutory financial statements for the year
ended 31 December 2021, upon which the auditors have given an unqualified
report, are expected to be published today and delivered to the Registrar of
Companies of Ireland within 56 days of 30 September 2022. The Board of
Directors approved the Group statutory financial statements for the year ended
31 December 2021 on 29 March 2022. BOC Holdings' statutory financial
statements for the purposes of Chapter 4 of Part 6 of the Companies Act 2014
of Ireland for the year ended 31 December 2020, upon which the auditors had
given an unqualified audit report, were published on 30 March 2021 and were
annexed to the annual return and delivered to the Registrar of Companies of
Ireland.
There were no meaningful divergences from the Preliminary Group Financial
Results for the year ended 31 December 2021 published on 21 February 2022.
Statutory basis: Audited statutory information is set out on pages 4-5.
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 year ended
31 December 2021, which the management believes best fits the true measurement
of the financial performance and position of the Group. For further
information, please refer to 'Commentary on Underlying Basis' on page 10. The
statutory results are adjusted for certain items (as described on pages 9-10)
to allow a comparison of the Group's underlying financial position and
performance, as set out on pages 6-8.
This announcement and the presentation for the Group Financial Results for the
year ended 31 December 2021 have been posted on the Group's website
www.bankofcyprus.com (Group/Investor Relations/Financial Results).
Definitions: The Group uses definitions in the discussion of its business
performance and financial position which are set out in section F, together
with explanations.
The Group Financial Results for the year ended 31 December 2021 are presented
in Euro (€) and all amounts are rounded as indicated. A comma is used to
separate thousands and a dot is used to separate decimals.
Forward Looking Statements
This document contains certain forward-looking statements which can usually be
identified by terms used such as "expect", "should be", "will be" and similar
expressions or variations thereof or their negative variations, but their
absence does not mean that a statement is not forward-looking. Examples of
forward-looking statements include, but are not limited to, statements
relating to the Group's near term, medium term and longer term future capital
requirements and ratios, intentions, beliefs or current expectations and
projections about the Group's future results of operations, financial
condition, expected impairment charges, the level of the Group's assets,
liquidity, performance, prospects, anticipated growth, provisions,
impairments, business strategies and opportunities. By their nature,
forward-looking statements involve risk and uncertainty because they relate to
events, and depend upon circumstances, that will or may occur in the future.
Factors that could cause actual business, strategy and/or results to differ
materially from the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements made by the Group include, but
are not limited to: general economic and political conditions in Cyprus and
other European Union (EU) Member States, interest rate and foreign exchange
fluctuations, legislative, fiscal and regulatory developments, information
technology, litigation and other operational risks, adverse market conditions,
the impact of outbreaks, epidemics or pandemics, such as the COVID-19 pandemic
and ongoing challenges and uncertainties posed by the COVID-19 pandemic for
businesses and governments around the world. The Russian invasion of Ukraine
has led to heightened volatility across global markets and to the coordinated
implementation of sanctions on Russia, Russian entities and nationals. The
Russian invasion of Ukraine has already caused significant population
displacement, and as the conflict continues, the disruption will likely
increase. The scale of the conflict and the speed and extent of sanctions, as
well as the uncertainty as to how the situation will develop, may have
significant adverse effects to the market and macroeconomic conditions,
including in ways that cannot be anticipated. This creates significantly
greater uncertainty about forward-looking statements. Should any one or more
of these or other factors materialise, or should any underlying assumptions
prove to be incorrect, the actual results or events could differ materially
from those currently being anticipated as reflected in such forward looking
statements. The forward-looking statements made in this document are only
applicable as at the date of publication of this document. Except as required
by any applicable law or regulation, the Group expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward looking statement contained in this document to reflect any change in
the Group's expectations or any change in events, conditions or circumstances
on which any statement is based.
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial services group
in Cyprus, providing a wide range of financial products and services which
include retail and commercial banking, finance, factoring, investment banking,
brokerage, fund management, private banking, life and general insurance. At 31
December 2021, the Bank of Cyprus Group operated through a total of 90
branches in Cyprus, of which 10 operated as cash offices. Bank of Cyprus also
has representative offices in Russia, Ukraine and China. At 31 December 2021,
the Group's Total Assets amounted to €25.0 bn and Total Equity was €2.1
bn. The Bank of Cyprus Group employed 3,438 staff worldwide. The Bank of
Cyprus Group comprises Bank of Cyprus Holdings Public Limited Company, its
subsidiary Bank of Cyprus Public Company Limited and its subsidiaries.
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