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RNS Number : 0068U Bank of Cyprus Holdings PLC 30 November 2021
Announcement
Group Financial Results for the nine months ended 30 September 2021
Nicosia, 30 November 2021
Key Highlights for the nine months ended 30 September 2021
Strong Recovery Continues
· 5.3% GDP growth in 3Q2021, well above the eurozone average of
3.7%
· GDP expected to grow by c.5.5%(1) in FY2021 and recover to
pre-pandemic levels by year-end
· Continuing to support the recovery; new lending of €1.3 bn in
9M2021, up 35% yoy
Positive Operating Performance
· Total income of €139 mn for 3Q2021, down 8% qoq, partly
impacted by Helix 2 completion; operating profit of €41 mn for 3Q2021
· Strong net fees and commissions at €44 mn for 3Q2021; 32% of
total income
· Profit after tax and before non-recurring items of €13 mn for
3Q2021 and €64 mn for 9M2021
· Profit after tax of €19 mn for 3Q2021 and €20 mn for 9M2021
Operating Efficiency
· Total operating expenses(2) of €89 mn for 3Q2021, flat qoq
· Cost to income ratio(2) at 64% for 3Q2021, up 6 p.p. qoq, mainly
impacted by Helix 2 completion
Strong Capital and Liquidity
· CET1 ratio of 15.3%(3,4) and Total Capital ratio of 20.4%(3,4)
· Deposits at €17.1 bn up 2% qoq; significant surplus liquidity
of €6.0 bn (LCR 294%)
Single Digit NPE Ratio(4)
· NPE sale signed in November 2021 (Helix 3), reducing NPE ratio to
8.6%(4) (3.6%(4) net), already in line with 2022 target
· NPEs reduced to €0.9 bn(4) (€0.4 bn(4) net)
· Organic NPE reduction of c.€300 mn in 9M2021
· 96% of performing loans(5) under expired payment deferrals with
an instalment due by 22 November 2021, presented no arrears
On-track to achieve our medium term targets
1. Source: 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 Helix 3
5. As at 30 September 2021
Group Chief Executive Statement
"As the strong recovery in economic activity continued into the third quarter
of the year, we continued to deliver against our medium term strategic
targets.
Earlier this month, we reached a milestone agreement for the sale of €0.6 bn
NPEs in Project Helix 3, reducing our pro forma NPE ratio to single digit of
8.6%, a year earlier than anticipated, in a profitable and capital accretive
transaction. Overall, since the peak in 2014, we have now reduced the stock of
NPEs by €14.1 bn or 94% to less than €1 bn and the NPE ratio by 54
percentage points, from 63% to less than 9% on a pro forma basis.
Our cost of risk stood at 66 bps year to date and the performance of the loans
under expired payment deferrals remains strong. Our remaining stock of NPEs at
the quarter end amounts to €0.9 bn pro forma for Helix 3 and we remain on
track to achieve an NPE ratio of c.5% in the medium term.
We recorded a reported profit of €20 mn for the first nine months of the
year, impacted by NPE sales and restructuring expenses. Recurring profit - a
more indicative measure of our performance - totalled €64 mn year to date.
Revenues remain stable despite the impact of the derecognition of
non-performing loans following the completion of Helix 2 at the end of June.
Our net fees and commissions remain strong, up 20% year to date and now
amounting to 30% of total income. We continue working on our business model in
order to improve our profitability and our operating expenses were flat in the
quarter. Our cost to income ratio (excluding levies and contributions) for the
year to date stood at 61%. We stand by our commitment to reduce our cost to
income ratio to our target of mid-50% in the medium term.
The Bank's capital position remains sound and comfortably in excess of our
regulatory requirements. As at 30 September 2021, our capital ratios (on a
transitional basis) were 20.4% for the Total Capital ratio and 15.3% for CET1
ratio, both pro forma for Helix 3.
We continue to support the domestic economy and extended €1.3 bn of new
loans in the first nine months of the year, an increase of 35% compared to the
same period last year. We remain committed to being part of the country's
economic growth, which is expected to fully offset the contraction in 2020 by
the end of the year, and, with the implementation of the Cyprus Recovery and
Resilience Plan, is expected to be sustained at pre-pandemic levels. At the
same time, we remain focused and on track with achieving our medium term
targets."
Panicos Nicolaou
A. Group Financial Results - Underlying Basis
Unaudited Interim Condensed Consolidated Income Statement
€ mn 9M2021 9M2020 3Q2021 2Q2021 qoq +% yoy +%
Net interest income 223 250 71 76 -6% -11%
Net fee and commission income 128 106 44 45 -2% 20%
Net foreign exchange gains and net gains on financial instrument transactions 14 14 6 6 1% -3%
and disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions 43 42 12 18 -36% 2%
Net gains/(losses) from revaluation and disposal of investment properties and 8 2 2 4 -42% -
on disposal of stock of properties
Other income 11 11 4 3 42% -3%
Total income 427 425 139 152 -8% 0%
Staff costs (152) (145) (51) (51) 0% 4%
Other operating expenses (108) (104) (38) (38) 2% 3%
Special levy on deposits and other levies/contributions (24) (24) (9) (6) 52% 2%
Total expenses (284) (273) (98) (95) 4% 4%
Operating profit 143 152 41 57 -29% -6%
Loan credit losses (57) (118) (22) (15) 42% -52%
Impairments of other financial and non-financial assets (13) (36) (2) (6) -62% -63%
Provisions for litigation, claims, regulatory and other matters (6) (4) (2) (3) -56% 34%
Total loan credit losses, impairments and provisions (76) (158) (26) (24) 3% -52%
Profit/(loss) before tax and non-recurring items 67 (6) 15 33 -52% -
Tax (3) (7) (2) 1 - -59%
(Profit)/loss attributable to non-controlling interests (0) 4 (0) (0) - -
Profit/(loss) after tax and before non-recurring items (attributable to the 64 (9) 13 34 -59% -
owners of the Company)
Advisory and other restructuring costs - organic (19) (9) (1) (15) -93% 102%
Profit/(loss) after tax - organic (attributable to the owners of the Company) 45 (18) 12 19 -31% -
Provisions/net (loss)/profit relating to NPE sales(1) (6) (87) 10 (14) - -94%
Restructuring and other costs relating to NPE sales(1) (19) (17) (3) (12) -71% 22%
Profit/(loss) after tax (attributable to the owners of the Company) 20 (122) 19 (7) - -
A. Group Financial Results - Underlying Basis (continued)
Unaudited Interim Condensed Consolidated Income Statement - Key Performance
Ratios
Key Performance Ratios(2) 9M2021 9M2020 3Q2021 2Q2021 qoq +% yoy +%
Net Interest Margin (annualised) 1.49% 1.87% 1.34% 1.49% -15 bps -38 bps
Cost to income ratio 66% 64% 71% 62% +9 p.p. +2 p.p.
Cost to income ratio excluding special levy on deposits and other 61% 59% 64% 58% +6 p.p. +2 p.p.
levies/contributions
Operating profit return on average assets (annualised) 0.8% 1.0% 0.7% 1.0% -0.3 p.p. -0.2 p.p.
Basic earnings/(losses) per share attributable to the owners of the Company 4.39 (27.25) 4.22 (1.66) 5.88 31.64
(€ cent)
Basic earnings/(losses) after tax and before non-recurring items per share 14.31 (1.99) 3.08 7.48 (4.40) 16.30
attributable to the owners of the Company (€ cent)(3)
1. 'Provisions/net (loss)/profit relating to NPE sales' refer to the net
(loss)/profit on transactions completed and the net loan credit losses on
transactions under consideration, whilst 'Restructuring and other expenses
relating to NPE sales' refer mainly to the restructuring costs relating to
these trades. For further details please refer to Section A.2.4. 2. Including
the NPE portfolios classified as "Non-current assets and disposal groups held
for sale", where relevant. 3. 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
Commentary on Underlying Basis
The financial information presented in this Section provides an overview of
the Group financial results for the nine months ended 30 September 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 F.1 'Reconciliation of income statement between statutory
and underlying basis' and in Section H 'Definitions and Explanations', to
facilitate the comparability of the underlying basis to the statutory
information.
With respect to the 'Balance Sheet Analysis', please note the following in
relation to the disclosure of pro forma figures and ratios with respect to
Projects Helix 3 and Helix 2. Further details are provided in Section A.1.5
'Loan portfolio quality'.
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. In relation to the
disclosure of pro forma figures and ratios with respect to Project Helix 2, in
comparative periods, where numbers are provided on a pro forma basis this is
stated.
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. All relevant figures are based on 30 September 2021
financial results, unless otherwise stated. Numbers on a pro forma basis are
based on 30 September 2021 underlying basis figures and are adjusted for
Project Helix 3 and assume its completion, currently expected to occur in
1H2022, which remains subject to customary regulatory and other approvals.
Where numbers are provided on a pro forma basis this is stated.
A. Group Financial Results - Underlying Basis (continued)
Unaudited Interim Condensed Consolidated Balance Sheet
€ mn 30.09.2021 31.12.2020 +%
Cash and balances with central banks 8,750 5,653 55%
Loans and advances to banks 284 403 -29%
Debt securities, treasury bills and equity investments 2,143 1,913 12%
Net loans and advances to customers 9,787 9,886 -1%
Stock of property 1,154 1,350 -14%
Investment properties 118 128 -8%
Other assets 1,954 1,550 26%
Non-current assets and disposal groups held for sale 361 631 -43%
Total assets 24,551 21,514 14%
Deposits by banks 402 392 3%
Funding from central banks 2,978 995 -
Customer deposits 17,128 16,533 4%
Loan stock 649 272 -
Other liabilities 1,303 1,247 5%
Total liabilities 22,460 19,439 16%
Shareholders' equity 1,846 1,831 1%
Other equity instruments 220 220 -
Total equity excluding non-controlling interests 2,066 2,051 1%
Non-controlling interests 25 24 3%
Total equity 2,091 2,075 1%
Total liabilities and equity 24,551 21,514 14%
Key Balance Sheet figures and ratios 30.09.2021 30.09.2021 31.12.2020 +(2)
(pro forma)(1) (as reported)(2) (as reported)(2)
Gross loans (€ mn) 10,295 10,864 12,261 -11%
Allowance for expected loan credit losses (€ mn) 530 849 1,902 -55%
Customer deposits (€ mn) 17,128 17,128 16,533 4%
Loans to deposits ratio (net) 57% 58% 63% -5 p.p.
NPE ratio 8.6% 13.3% 25.2% -11.9 p.p.
NPE coverage ratio 60% 59% 62% -3 p.p.
Leverage ratio 7.8% 7.8% 8.8% -1 p.p.
Capital ratios and risk weighted assets 30.09.2021 30.09.2021 31.12.2020 +(2)
(pro forma)(1) (as reported)(2) (as reported)(2)
Common Equity Tier 1 (CET1) ratio (transitional)(3) 15.3% 14.7% 14.8% -10 bps
Total capital ratio 20.4% 19.7% 18.4% +130 bps
Risk weighted assets (€ mn) 10,637 10,991 11,636 -6%
1. Pro forma for the sale of NPEs (Project Helix 3) of €0.6 bn on the basis
of 30 September 2021 figures; calculations assume completion of Project Helix
3, which remains subject to required customary regulatory and other approvals.
2. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant. 3.The CET1 fully loaded ratio as at 30
September 2021 amounts to 13.3% and 13.9% pro forma for Helix 3 (compared to
12.9% as at 30 June 2021 and to 12.9% and 13.3% pro forma for Helix 2
(Portfolios A and B) as at 31 December 2020). p.p. = percentage points, bps =
basis points, 100 basis points (bps) = 1 p.p.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis
A.1.1 Capital Base
Total equity excluding non-controlling interests totalled €2,066 mn at 30
September 2021, compared to €2,046 mn at 30 June 2021 and €2,051 mn at 31
December 2020. Shareholders' equity totalled €1,846 mn at 30 September 2021,
compared to €1,826 mn at 30 June 2021 and €1,831 mn at 31 December 2020.
The Common Equity Tier 1 capital (CET1) ratio on a transitional basis stood at
14.7% as at 30 September 2021 and 15.3% pro forma for the Project Helix 3
agreement reached in November 2021 (referred to as "pro forma for Helix 3"),
compared to 14.2% as at 30 June 2021 and 14.8% as at 31 December 2020 (and
15.2% pro forma for the Project Helix 2 Portfolios A and B, referred to as
"pro forma for Helix 2"). During 3Q2021, the CET1 ratio was positively
affected mainly by the pre-provision income, the impact of Helix 3 and the
decrease in risk-weighted assets (RWA), and negatively affected mainly by
provisions and impairments. Throughout, the capital ratios (and pro forma
capital ratios) as at 30 September 2021 include unaudited / unreviewed profits
for 9M2021, 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
and 50% (cumulative) for year 2021. This will increase to 75% (cumulative) for
year 2022 and 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.45 bps on the CET1 ratio on 1 January 2021.
The CET1 ratio on a fully loaded basis amounted to 13.3% as at 30 September
2021 and 13.9% pro forma for Helix 3, compared to 12.9% as at 30 June 2021 and
12.9% as at 31 December 2020 (and 13.3% pro forma for Helix 2). On a
transitional basis and on a fully phased-in basis, after the transition period
is completed, the impact of IFRS 9 is expected to be manageable and within the
Group's capital plans.
The Total Capital ratio stood at 19.7% as at 30 September 2021 and 20.4% pro
forma for Helix 3, compared to 19.2% as at 30 June 2021 and 18.4% as at 31
December 2020 (and 18.7% pro forma for Helix 2).
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 ratio is
currently at 9.7% (comprising a 4.5% Pillar I requirement, a 1.7% Pillar II
requirement, the Capital Conservation Buffer of 2.5% and the Other
Systemically Important Institution Buffer of 1.0%).
The SREP Total Capital Requirement is at 14.5%, comprising an 8.0% Pillar I
requirement (of which up to 1.5% can be in the form of AT1 capital and up to
2.0% in the form of T2 capital), a 3.0% Pillar II requirement, the Capital
Conservation Buffer of 2.5% and the Other Systemically Important Institution
Buffer of 1.0%. The 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%. This buffer is being
phased-in gradually, having started from 1 January 2019 at 0.5% and increasing
by 0.5% every year thereafter, until being fully implemented (2.0%). In April
2020, the CBC decided to delay the phasing-in (0.5%) 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 SREP conducted by the ECB in 2021, the Pillar II
requirement is expected to be c.3.27%, compared to the current level of 3.00%.
The additional Pillar II requirement add-on of c.0.27% 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
Helix 3. It is dynamic and can be reduced during 2022 on the basis of in-scope
NPEs and level of provisioning.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.1 Capital Base (continued)
As a result, the Group's minimum phased-in CET1 capital ratio is expected to
be set at c.10.09% compared to the current level of 9.69% (comprising a 4.50%
Pillar I requirement, a c.1.84% 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 is expected to be c.15.02% compared to the current
level of 14.50% (comprising an 8.00% Pillar I requirement, of which up to 1.5%
can be in the form of AT1 capital and up to 2.0% in the form of T2 capital, a
c.3.27% 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 expected to be effective from 1 March 2022 and remain subject to ECB final
confirmation. The Group's CET1 and Total Capital ratio remain above the
expected new requirements.
The European Banking Authority (EBA) final guidelines on SREP and supervisory
stress testing and the Single Supervisory Mechanism's (SSM) 2018 SREP
methodology provide that, as of 1 January 2020, 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
2020. Following the 2021 SREP pre-notification received in November 2021, the
Company and the Bank will still be 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.
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.
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.
The impact of this transaction on the Group's CET1 ratio is 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.67 bps on the Group's CET1 ratio.
All relevant figures and pro forma calculations are based on 30 September 2021
financial results, unless otherwise stated. Calculations on a pro forma basis
assume completion of the transaction, which remains subject to customary
regulatory and other approvals. Further details are provided in Section A.1.5
'Loan portfolio quality'.
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.
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. The
consideration can be increased through an earnout arrangement, depending on
the performance of each of the Portfolios.
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 is 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. Further details are provided in
Section A.1.5 'Loan portfolio quality'.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.1 Capital Base (continued)
Tier 2 Capital Notes
In April 2021, the Company issued €300 mn unsecured and subordinated Tier 2
Capital Notes (the 'New T2 Notes').
Immediately after, the Company and the Bank entered into an agreement pursuant
to which the Company on-lent to the Bank the entire €300 mn proceeds of the
issue of the New T2 Notes (the 'Tier 2 Loan') on terms substantially identical
to the terms and conditions of the New T2 Notes. The Tier 2 Loan constitutes
an unsecured and subordinated obligation of the Bank.
The New T2 Notes were priced at par with a fixed coupon of 6.625% per annum,
payable annually in arrears and resettable on 23 October 2026. The maturity
date for the New T2 Notes is 23 October 2031. The Company will have the option
to redeem the New T2 Notes early on any day during the six-month period from
23 April 2026 to 23 October 2026, subject to applicable regulatory consents.
At the same time, the Bank invited the holders of its €250 mn Fixed Rate
Reset Tier 2 Capital Notes due January 2027 (the 'Old T2 Notes') to tender
their Old T2 Notes for purchase by the Bank at a price of 105.50%, after which
Old T2 Notes of €43 mn remained outstanding.
During 3Q2021, Old T2 Notes of €4 mn were purchased by the Bank in the open
market, as part of the Bank's ongoing active management of its capital
position and liabilities. As at 30 September 2021, the Tier 2 Capital Notes
comprise c.299 bps of the Group's Total Capital ratio, of which c.26 bps
relate to the remaining Old T2 Notes of €39 mn. The Old T2 Notes are
redeemable at the option of the Bank in January 2022.
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
€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 (€13 mn in 4Q2019 and €19 mn in FY2019).
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.2. Regulations and Directives
A.1.2.1 Revised rules on capital and liquidity (CRR II and CRD V)
On 27 June 2019, the revised rules on capital and liquidity (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 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.
A.1.2.2 The 2021 Banking Package (CRR III and CRD VI and BRRD)
In October 2021, the European Commission adopted legislative proposals for
further amendments to 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. Please
refer to Note G.2. 'Capital management', for information on what the 2021
Banking Package includes. 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.
A.1.2.3 Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January
2016 EU member states shall apply the BRRD's provisions requiring EU credit
institutions and certain investment firms to maintain a minimum requirement
for own funds and eligible liabilities (MREL), subject to the provisions of
the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part
of the reform package for strengthening the resilience and resolvability of
European banks, the BRRD ΙΙ came into effect and was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in early May 2021. In addition, certain provisions on MREL have been
introduced in CRR ΙΙ which also came into force on 27 June 2019 as part of
the reform package and took immediate effect.
In April 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 23.32% of risk weighted assets and 5.91% of Leverage Ratio Exposure
(LRE) and must be met by 31 December 2025. Furthermore, the Bank must comply
by 1 January 2022 with an interim requirement of 14.94% of risk weighted
assets and 5.91% of LRE. The own funds used by 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 November 2021, the Bank received a draft notification from the SRB
regarding the 2022 MREL decision, by which the above requirements and
timelines remain unchanged, except for the final MREL requirement for 31
December 2025 now set at 23.74% of risk weighted assets. The revised MREL
requirements remain subject to SRB and CBC final confirmation.
In June 2021, the Bank executed its inaugural MREL transaction issuing €300
mn of senior preferred notes (the "SP Notes"). The SP Notes were priced at par
with a fixed coupon of 2.50% per annum, payable annually in arrears and
resettable on 24 June 2026. The maturity date of the SP Notes is 24 June 2027
and the Bank may, at its discretion, redeem the SP Notes on 24 June 2026,
subject to meeting certain conditions as specified in the Terms and
Conditions, including applicable regulatory consents. The SP Notes comply with
the criteria for MREL and contribute towards the Bank's MREL requirements.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.2. Regulations and Directives (continued)
A.1.2.3 Bank Recovery and Resolution Directive (BRRD) (continued)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL) (continued)
The MREL ratio of the Bank as at 30 September 2021, calculated according to
the SRB's eligibility criteria currently in effect and based on the Bank's
internal estimate, stood at 18.97% of risk weighted assets (RWA) and at 10.17%
of LRE. Pro-forma for Helix 3, the MREL ratio of the Bank as at 30 September
2021, calculated on the same basis, stood at 19.83% of risk weighted assets.
The MREL ratio expressed as a percentage of risk weighted assets does not
include capital used to meet the CBR amount, currently at 3.5% and expected to
increase to 3.75% on 1 January 2022. The MREL ratios (and pro forma MREL
ratios) as at 30 September 2021 include unaudited / unreviewed profits for
9M2021, unless otherwise stated.
The Bank's MREL ratio as at 30 September 2021 includes 36 bps relating to the
remaining Old T2 Notes of €39 mn. The Old T2 Notes are redeemable at the
option of the Bank in January 2022.
The successful Tier 2 capital refinancing in April 2021 and the inaugural
issuance of MREL-compliant senior notes in June 2021 are part of the Bank's
funding plan to meet the interim and final MREL requirements. The MREL interim
requirement of 1 January 2022 has already been achieved.
A.1.3 Funding and Liquidity
Funding
Funding from Central Banks
At 30 September 2021, the Bank's funding from central banks amounted to
€2,978 mn, which relates to ECB funding, comprising solely of funding
through the Targeted Longer-Term Refinancing Operations (TLTRO) III, compared
to €2,985 mn as at 30 June 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 has 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.
The potential NII benefit from the TLTRO III borrowing for the period from
June 2021 to June 2022 amounts to c.€15 mn, based on current ECB rates and
provided the Bank meets the net lending thresholds, recognised over the
respective period in the income statement.
The TLTRO III borrowing of €3.0 bn is expected to be repaid by mid-2022.
Deposits
Customer deposits totalled €17,128 mn at 30 September 2021 (compared to
€16,801 mn at 30 June 2021 and €16,533 mn at 31 December 2020) and
increased by 2% in the third quarter and by 4% since the year end.
The Bank's deposit market share in Cyprus reached 34.8% as at 30 September
2021, compared to 34.6% as at 30 June 2021 and 35.0% at 31 December 2020.
Customer deposits accounted for 70% of total assets and 76% of total
liabilities at 30 September 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 58% as at 30 September 2021
(compared to 59% as at 30 June 2021 and 63% as at 31 December 2020 on the same
basis). The decrease of 5 p.p. in the nine months to 30 September 2021 is
mainly due to the completion of Project Helix 2 in June 2021 and the increase
in deposits since the year end. Pro forma for Helix 3, the L/D ratio as at 30
September 2021 stood at 57%.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.3 Funding and Liquidity (continued)
Funding (continued)
Loan Stock
At 30 September 2021 the Group's loan stock (including accrued interest)
amounted to €649 mn (compared to €645 mn at 30 June 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 A.1.1 Capital Base and
A.1.2.3 Bank Recovery and Resolution Directive (BRRD) / Minimum Requirement
for Own Funds and Eligible Liabilities (MREL) respectively.
Liquidity
At 30 September 2021 the Group Liquidity Coverage Ratio (LCR) stood at 294%
(compared to 303% at 30 June 2021 and 254% at 31 December 2020), above the
minimum regulatory requirement of 100%. The liquidity surplus in LCR at 30
September 2021 amounted to €6.0 bn (compared to €5.7 bn at 30 June 2021
and €4.2 bn at 31 December 2020). The increase in 3Q2021 is mainly driven by
the increase in customer deposits. The increase in 2Q2021 was mainly due to
the issuance of €300 mn senior preferred notes, the completion of Project
Helix 2 and the increase in deposits. The increase in 1Q2021 was driven mainly
by the increase in the TLTRO III borrowing in March 2021.
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 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. At 30
September 2021 the Group's NSFR stood at 148% (compared to 150% at 30 June
2021 and 139% at 31 December 2020).
A.1.4 Loans
Group gross loans totalled €10,864 mn at 30 September 2021, compared to
€10,893 mn at 30 June 2021 and €12,261 mn at 31 December 2020, reduced by
11% since the year end following the completion of Project Helix 2.
New lending granted in Cyprus reached €427 mn for 3Q2021 (compared to €407
mn for 2Q2021 and €487 mn for 1Q2021) and totalled €1,321 mn for 9M2021
(up by 35% yoy). New lending in 3Q2021 comprised €188 mn of corporate loans,
€151 mn of retail loans (of which €109 mn were housing loans), €39 mn of
SME loans and €49 mn of shipping and international loans. New corporate
loans in 3Q2021 have increased by c.60% yoy, as the economic activity
continues to improve. At the same time, demand for retail housing loans
remains strong, supported by Government schemes.
At 30 September 2021, the Group net loans and advances to customers totalled
€9,787 mn (compared to €9,967 mn at 30 June 2021 and €9,886 mn at 31
December 2020). In addition, at 30 September 2021 net loans and advances to
customers of €250 mn were classified as held for sale in line with IFRS 5
and related to Project Helix 3, compared to Nil as at 30 June 2021 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 39.1% at 30 September 2021, at the same level as at 30 June 2021 and
compared 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.
A.1.5 Loan portfolio quality
The Group has continued to make steady progress across all asset quality
metrics and the loan restructuring activity has continued despite challenges
brought upon by COVID-19. The Group has been successful in engineering
restructuring solutions across the spectrum of its loan portfolio. The Group's
near-term priorities include completing the balance sheet de-risking, whilst
managing the post-pandemic NPE inflow.
The loan credit losses for 3Q2021 totalled €22 mn (excluding 'Provisions/net
(loss)/profit relating to NPE sales'), compared to €15 mn for 2Q2021 and
totalled €57 mn for 9M2021, compared to €118 mn in 9M2020. Further details
regarding loan credit losses are provided in Section A.2.3 'Profit/(loss)
before tax and non-recurring items'.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.5 Loan portfolio quality (continued)
Loan moratorium
As part of the measures to support borrowers affected by COVID-19 and the
wider Cypriot economy, the Cyprus Parliament voted for the suspension of loan
repayments for interest and principal (loan moratorium) for the period to the
end of the year 2020, for all eligible borrowers with no arrears for more than
30 days as at the end of February 2020. The payment holiday for all these
loans expired on 31 December 2020.
Performing loans as at 30 September 2021 under expired payment deferrals
amounted to €4.8 bn (compared to €4.9 bn as at 30 June 2021 and €5.3 bn
as at 31 December 2020), of which €4.7 bn or 98% had an instalment due by 22
November 2021 with a strong performance; 96% present no arrears (of which
€0.59 bn have been restructured) and only 4% (€186 mn) are in arrears (of
which €178 mn are less than 30 days-past-due).
Performing loans to private individuals as at 30 September 2021 under expired
payment deferrals amounted to €1.8 bn, of which 98% had an instalment due by
22 November 2021. Of those, 92% present no arrears (of which c.€36 mn have
been restructured) and only 8% (€142 mn) are in arrears (of which €135 mn
are less than 30 days-past-due).
Similarly, performing loans to businesses as at 30 September 2021 under
expired payment deferrals amounted to €3.0 bn, of which 98% had an
instalment due by 22 November 2021. Of those, 99% present no arrears (of which
c.€556 mn have been restructured, mostly in the tourism sector) and only 1%
(€44 mn) are in arrears.
In 3Q2021, net reclassifications of €157 mn of loans under expired payment
deferrals were made from Stage 2 to Stage1, mainly due to improved macro
assumptions. In addition, reclassifications of c.€8 mn of loans under
expired payment deferrals were made mainly from Stage 2 to Stage 3 in 3Q2021.
References made to 'loans under expired payment deferrals' in this paragraph
include current account and overdrafts.
The Bank will continue to monitor this portfolio closely, to ensure that
potential difficulties in the repayment ability are identified at an early
stage, and appropriate solutions are provided to viable customers. To that
end, the Bank has enhanced its monitoring process to include transactional
analysis to establish funds availability to meet upcoming instalments and
performance of daily monitoring of arrears and excesses, as well as NPEs
inflows and outflows.
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 tourism.
Following continuing signs of recovery in 3Q2021, the majority of COVID-19
related management overlays applied in FY2020 and 1H2021 were removed in
3Q2021. A reversal of loan impairments related 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. In comparison, loan impairments related to COVID-19 amounting to
€3.5 mn (12 bps) were included in 2Q2021 loan credit losses of €15 mn
(cost of risk of 52 bps for 2Q2021) and €9 mn (29 bps) were included in
1Q2021 loan credit losses of €20 mn (cost of risk of 66 bps for 1Q2021).
Overall, a reversal of loan impairments related to COVID-19 amounting to
c.€5 mn (5 bps) are included in 9M2021 loan credit losses of €57 mn
(annualised cost of risk of 0.66%). Overall, in FY2020, the impact of IFRS 9
FLI driven by the update of the macroeconomic assumptions resulted in a €54
mn charge (43 bps) included in the FY2020 loan credit losses of €149 mn
(cost of risk of 1.18%). Further details on the cost of risk are provided in
Section A.2.3 Profit/(loss) before tax and non-recurring items.
While defaults have been limited, the additional monitoring and provisioning
for sectors vulnerable under COVID-19 remain in place. The Group will continue
to monitor the situation, so that any changes arising 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,
such as the Omicron variant, and the persistent positive effect of fiscal and
monetary policy, are timely captured.
Finally, the provision coverage of Stage 3 loans under payment deferrals that
expired on 31 December 2020 of c.25% as at 30 September 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 22%.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.5 Loan portfolio quality (continued)
Loan moratorium (continued)
The table below presents the loans under payment deferrals that expired on 31
December 2020, by IFRS 9 staging.
IFRS 9 staging for expired loan payment deferrals (€ bn)
€ bn 30.09.2021 30.06.2021 31.12.2020
3.61 3.58 3.96
Stage 1
1.46 1.62 1.58
Stage 2
0.23 0.25 0.33
Stage 3
5.30(1) 5.45 5.87
Total
1 Includes overdrafts and current accounts of c.€0.25 bn (30 June 2021:
c.€0.26 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.
Following the outbreak of COVID-19, the sectors most adversely affected are
tourism and trade. The Group has a well - diversified performing loan
portfolio. For further information on the Group's non-legacy loan book
exposure to tourism and trade and the performance of these loans after the
expiry of the loan moratorium, please refer to Section C. Business Overview.
For further information please refer to the presentation for the Group
Financial Results for the nine months ended 30 September 2021 (slides 11 and
42).
Non-performing exposure reduction
Non-performing exposures (NPEs) as defined by the European Banking Authority
(EBA) were reduced by €140 mn, or 9%, in 3Q2021 comprising net organic NPE
reductions of €131 mn and further net NPE reductions of €9 mn relating to
Project Helix 3 loans during 3Q2021 (compared to a reduction of €1,423 mn in
2Q2021, including Project Helix 2 loans on completion of €1,305 mn) to
€1,449 mn at 30 September 2021 (compared to €1,589 mn at 30 June 2021 and
€3,086 mn at 31 December 2020). Pro forma for Helix 3, NPEs are reduced by a
further €568 mn to €881 mn on the basis of 30 September 2021 figures.
The NPEs account for 13.3% of gross loans as at 30 September 2021, compared to
14.6% as at 30 June 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.12 p.p. in the
year to date is driven by the completion of Project Helix 2. Pro forma for
Helix 3, the NPE ratio is reduced to 8.6% on the basis of 30 September 2021
figures.
The NPE coverage ratio stands at 59% at 30 September 2021, compared to 60% at
30 June 2021 and 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 Helix 3, NPE coverage ratio is 60% on the basis
of 30 September 2021 figures.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.5 Loan portfolio quality (continued)
Non-performing exposure reduction (continued)
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 H. Definitions & Explanations for the changes in
the definition).
30.09.2021 30.09.2021 31.12.2020 31.12.2020
Pro forma for Helix 3 Pro forma for Helix 2
€ mn % gross loans € mn % gross loans € mn % gross loans € mn % gross loans
NPEs as per EBA definition 881 8.6% 1,449 13.3% 1,760 16.1% 3,086 25.2%
Of which, in pipeline to exit:
-NPEs with forbearance measures, no arrears(1) 172 1.7% 180 1.7% 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 30 September 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 Helix 3, the Group's NPE ratio is in single digit. Helix 3
reduced the stock of NPEs by 39% to €881 mn pro forma on the basis of 30
September 2021 figures, and its NPE ratio by 5 p.p., to 8.6% pro forma on the
basis of 30 September 2021 figures. Overall, since the peak in 2014 and pro
forma for Helix 3, the stock of NPEs has been reduced by €14.1 bn or 94% to
less than €1 bn and the NPE ratio by 54 percentage points, from 63% to less
than 9%.
Project Helix 3 also reduced the Group's properties held by REMU by 9% to
€1,264 mn pro forma on the basis of 30 September 2021 figures (see Section
A.1.6. Real Estate Management Unit, REMU).
All relevant figures and pro forma calculations are based on 30 September 2021
financial results, unless otherwise stated. Calculations on a pro forma basis
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 A.2.1 Total
income).
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.5 Loan portfolio quality (continued)
Project Helix 2 (continued)
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. 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 2022 target for single digit NPE ratio and
remains on track to achieve an NPE ratio of c.5% in the medium term.
A.1.6 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) is focused on the disposal of
on-boarded properties resulting from debt for asset swaps. Cumulative sales
since the beginning of 2017 amount to €1.34 bn and exceed properties
on-boarded for the same period of €1.32 bn.
The Group completed disposals of €107 mn in 9M2021 (compared to €48 mn in
9M2020), resulting in a profit on disposal of €9.5 mn for 9M2021 (compared
to a profit on disposal of €6 mn for 9M2020), following the relaxation of
restrictive measures. Asset disposals are across all property classes, with
53% of sales by value in 9M2021 relating to land.
The Group completed disposals of €26 mn in 3Q2021 resulting in a profit on
disposal of €2 mn for 3Q2021, compared to disposals of €52 mn in 2Q2021,
resulting in a profit on disposal of €4 mn for 2Q2021. In addition,
disposals in 2Q2021 have been adjusted to include properties of €5 mn
relating to Project Helix 2 that had been transferred to non-current assets
and disposal groups held for sale in 1Q2021.
As at 30 September 2021, assets held by REMU with carrying value of €101 mn
(comprising stock of property of €95 mn and investment properties of €6
mn) were classified as non-current assets and disposal groups held for sale,
as they are included in Project Helix 3. Pro forma for Helix 3, assets held by
REMU were reduced by 14% in 9M2021.
During the nine months ended 30 September 2021, the Group executed
sale-purchase agreements (SPAs) for disposals of 553 properties (with contract
value of €113 mn), compared to SPAs for disposals of 320 properties (with
contract value of €56 mn) for 9M2020. Pro forma for Helix 3, the Group
executed SPAs of 974 properties with contract value of €212 mn during
9M2021, representing an increase (by contact value) of c.280% yoy.
In addition, the Group had a strong pipeline of €82 mn by contract value as
at 30 September 2021, of which €53 mn related to SPAs signed (compared to a
pipeline of €54 mn as at 30 September 2020, of which €31 mn related to
SPAs signed).
REMU on-boarded €29 mn of assets in 9M2021 (compared to additions of €74
mn in 9M2020), via the execution of debt for asset swaps and repossessed
properties.
Details with respect to the prudential charge relating to the onsite
inspection findings are provided in Section A.1.1 'Capital Base'.
Assets held by REMU
As at 30 September 2021, assets held by REMU had a carrying value of €1,264
mn (comprising properties of €1,154 mn classified as 'Stock of property' and
€110 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 €8 mn as at 30 September 2021 (compared
to €5 mn as at 31 December 2020), relate to legacy properties held by the
Group before the set-up of REMU in January 2016.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.6 Real Estate Management Unit (REMU) (continued)
Assets held by REMU (continued)
Assets held by REMU (Group) 9M2021 9M2020 3Q2021 2Q2021 qoq +% yoy +%
€ mn
Opening balance 1,473(1) 1,506(1) 1,404 1,449(1) -3% -2%
On-boarded assets (including construction cost) 29 74 8 10 -23% -61%
Sales (107) (48) (26) (57)(2) -57% 124%
Net impairment loss (30) (38) (21) (3) - -20%
Transfer to non-current assets and disposal groups held for sale (101) (11) (101) 5(2) - -
Closing balance 1,264 1,483(1) 1,264 1,404 -10% -15%
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. 2 Sales in
2Q2021 have been adjusted to include properties of €5 mn relating to Project
Helix 2 that had been transferred to non-current assets and disposal groups
held for sale in 1Q2021.
Analysis by type and country Cyprus Greece Romania Total
30 September 2021 (€ mn)
Residential properties 88 24 0 112
Offices and other commercial properties 217 25 3 245
Manufacturing and industrial properties 56 24 0 80
Hotels 25 - - 25
Land (fields and plots) 534 5 1 540
Golf courses and golf-related property 262 - - 262
Total 1,182 78 4 1,264
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.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis
A.2.1 Total income
€ mn 9M2021 9M2020 3Q2021 2Q2021 qoq +% yoy +%
Net interest income 223 250 71 76 -6% -11%
Net fee and commission income 128 106 44 45 -2% 20%
Net foreign exchange gains and net gains on financial instrument transactions 14 14 6 6 1% -3%
and disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions 43 42 12 18 -36% 2%
Net gains/(losses) from revaluation and disposal of investment properties and 8 2 2 4 -42% -
on disposal of stock of properties
Other income 11 11 4 3 42% -3%
Non-interest income 204 175 68 76 -10% 16%
Total income 427 425 139 152 -8% 0%
Net Interest Margin (annualised)(1) 1.49% 1.87% 1.34% 1.49% -15 bps -38 bps
Average interest earning assets 20,087 17,865 21,195 20,381 4% 12%
(€ mn)(1)
1. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Net interest income (NII) for 9M2021 amounted to €223 mn, compared to €250
mn in 9M2020, down by 11% yoy mainly due to the continuing pressure from the
low interest rate environment, lower volume of loans including the impact from
the completion of Helix 2, as well as lower interest collections on NPEs,
partially offset by the increase in TLTRO III in 9M2021 and the reduction in
the cost of deposits.
Net interest income (NII) for 3Q2021 amounted to €71 mn, compared to €76
mn for 2Q2021, mainly reflecting the completion of Helix 2 in June 2021. The
reduction in NII in 3Q2021 has been offset by an amount of €2.7 mn relating
to the unwinding of the net present value and interest income of the deferred
consideration, which is expected to continue until 2023, reducing thereafter
on the basis of repayments and assuming no early repayment in 2023.
Average interest earning assets (AIEA) for 9M2021 amounted to €20,087 mn, up
by 12% yoy driven by the increase in liquid assets following the increase in
the borrowing under TLTRO III by €2.0 bn in 9M2021. Quarterly average
interest earning assets for 3Q2021 amounted to €21,195 mn, up by 4% qoq,
mainly due to the increase in liquid assets following the increase in customer
deposits by c.€330 mn.
Net interest margin (NIM) for 9M2021 amounted to 1.49% (compared to 1.87% for
9M2020) negatively impacted by the decrease in NII and the increase in average
interest earning assets. Net interest margin (NIM) for 3Q2021 amounted to
1.34% (compared to 1.49% in 2Q2021) negatively impacted mainly by the decrease
in NII.
Non-interest income for 9M2021 amounted to €204 mn (compared to €175 mn
for 9M2020), up by 16% yoy, comprising net fee and commission income of €128
mn, net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and associates of €14
mn, net insurance income of €43 mn, net gains/(losses) from revaluation and
disposal of investment properties and on disposal of stock of properties of
€8 mn and other income of €11 mn. The yoy increase is driven by higher net
fee and commission income, as well as higher REMU disposal gains and lower
revaluation losses on investment properties.
Non-interest income for 3Q2021 amounted to €68 mn (compared to €76 mn for
2Q2021), down 10% qoq, comprising net fee and commission income of €44 mn,
net foreign exchange gains and net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates of €6 mn, net
insurance income of €12 mn, net gains/(losses) from revaluation and disposal
of investment properties and on disposal of stock of properties of €2 mn and
other income of €4 mn. The qoq decrease is mainly due to lower net insurance
income and lower gains on disposal of stock of properties.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.1 Total income (continued)
Net fee and commission income for 9M2021 amounted to €128 mn, compared to
€106 mn for 9M2020, up by 20% yoy, mainly resulting from the introduction of
liquidity fees to a broader group of corporate clients and a new price list
for charges and fees, both implemented as of 1 February 2021. Net fee and
commission income for 9M2021 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 3Q2021 amounted to €44 mn,
compared to €45 mn for 2Q2021 (down 2% qoq), mainly due to a fee of c.€2
mn relating to a specific client transaction in 2Q2021.
Net foreign exchange gains and net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates of €14 mn for 9M2021
(comprising net foreign exchange gains of €12 mn and net gains on financial
instrument transactions of €2 mn), at similar levels as for 9M2020 (down 3%
yoy).
Net foreign exchange gains and net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates of €6 mn for 3Q2021
(comprising net foreign exchange gains of €5 mn and net gains on financial
instrument transactions of c.€1 mn), at similar levels as for 2Q2021 (up by
1% qoq).
Net insurance income of €43 mn for 9M2021, compared to €42 mn for 9M2020,
up by 2% yoy mainly due to higher gross written premiums, partly offset by
the 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 9M2020 had been positively impacted by lockdowns). Net insurance
income of €12 mn in 3Q2021, compared to €18 mn in 2Q2021, down by 36% qoq,
impacted mainly by seasonality, higher claims and changes in the discount
rate.
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties for 9M2021 amounted to €8 mn (comprising
a profit on disposal of stock of properties of €9.5 mn and net losses from
revaluation and disposal of investment properties of €1.5 mn), compared to
€2 mn in 9M2020 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 3Q2021 amounted to €2 mn (relating
mainly to a profit on disposal of stock of properties of €2 mn), compared to
€4 mn in 2Q2021 (comprising a profit on disposal of stock of properties of
c.€4.5 mn and net losses from revaluation of investment properties of
c.€0.5 mn). REMU profit remains volatile.
Total income for 9M2021 amounted to €427 mn, compared to €425 mn for
9M2020 (broadly flat yoy). Total income for 3Q2021 amounted to €139 mn,
compared to €152 mn for 2Q2021 (down by 8% qoq).
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.2 Total expenses
€ mn 9M2021 9M2020 3Q2021 2Q2021 qoq +% yoy +%
Staff costs (152) (145) (51) (51) 0% 4%
Other operating expenses (108) (104) (38) (38) 2% 3%
Total operating expenses (260) (249) (89) (89) 1% 4%
Special levy on deposits and other levies/contributions (24) (24) (9) (6) 52% 2%
Total expenses (284) (273) (98) (95) 4% 4%
Cost to income ratio(1) 66% 64% 71% 62% +9 p.p. +2 p.p.
Cost to income ratio excluding special levy on deposits and other 61% 59% 64% 58% +6 p.p. +2 p.p.
levies/contributions(1)
1. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Total expenses for 9M2021 were €284 mn (compared to €273 mn for 9M2020, up
by 4% yoy), 53% of which related to staff costs (€152 mn), 38% to other
operating expenses (€108 mn) and 9% (€24 mn) to special levy on deposits
and other levies/contributions. Total expenses for 3Q2021 were €98 mn
compared to €95 mn for 2Q2021, up by 4% qoq. The yoy increase of 4% is
driven by the 4% yoy increase in staff costs. The qoq increase of 4% is driven
by the 52% qoq increase in special levy on deposits and other
levies/contributions. Further details are provided below.
Total operating expenses for 9M2021 were €260 mn, compared to €249 mn for
9M2020 (up by 4% yoy). Total operating expenses for 3Q2021 were €89 mn, at
broadly the same level as for 2Q2021 (up by 1% qoq).
Staff costs for 9M2021 were €152 mn, compared to €145 mn for 9M2020 (up by
4% yoy). Staff costs for 3Q2021 were €51 mn, flat qoq. The Group employed
3,558 as at 30 September 2021 (compared to 3,558 as at 30 June 2021 and 3,573
as at 31 December 2020), including 96 persons relating to Project Helix 2 who
were transferred to the buyer upon full migration at the end of 3Q2021.
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 relates 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. This renewal is expected to increase staff
costs for 2021 and 2022 by 3-4% per annum, in line with the impact of renewals
in previous years. The Group's medium-term guidance, which includes
maintaining annual 'total operating expenses' below €350 mn, remains
unchanged.
Other operating expenses for 9M2021 were €108 mn, compared to €104 mn for
9M2020 (up by 3% yoy). Other operating expenses for 3Q2021 were €38 mn, at
similar levels for 2Q2021 (up by 2% qoq).
Special levy on deposits and other levies/contributions for 9M2021 amounted to
€24 mn, broadly flat yoy. Special levy on deposits and other
levies/contributions for 3Q2021 amounted to €9 mn (compared to €6 mn for
2Q2021), up by 52% qoq, owing to the €3 mn contribution of the Bank to the
Deposit Guarantee Fund (DGF) which relates to 2H2021 and was recorded in
3Q2021, in line with IFRSs.
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.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.2 Total expenses (continued)
The cost to income ratio excluding special levy on deposits and other
levies/contributions for 9M2021 was 61%, compared to 59% for 9M2020 (up by 2
p.p. yoy). The cost to income ratio excluding special levy on deposits and
other levies/contributions for 3Q2021 was 64%, compared to 58% for 2Q2021,
with the increase of 6 p.p. qoq driven by the decrease in total income.
Adjusting for the interest income on the Helix 2 Portfolios, the cost to
income ratio excluding special levy on deposits and other levies/contributions
for 9M2021 increases to 63%, whilst for 3Q2021 was 64%, compared to 61% for
2Q2021 (up by 3 p.p. qoq).
The cost to income ratio excluding special levy on deposits and other
levies/contributions is expected to remain in the mid-60% for the FY2021 when
adjusted for the interest income on the Helix 2 Portfolios and to decrease to
mid-50% in the medium term.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.3 Profit/(loss) before tax and non-recurring items
€ mn 9M2021 9M2020 3Q2021 2Q2021 qoq +% yoy +%
Operating profit 143 152 41 57 -29% -6%
Loan credit losses (57) (118) (22) (15) 42% -52%
Impairments of other financial and non-financial assets (13) (36) (2) (6) -62% -63%
Provisions for litigation, claims, regulatory and other matters (6) (4) (2) (3) -56% 34%
Total loan credit losses, impairments and provisions (76) (158) (26) (24) 3% -52%
Profit/(loss) before tax and non-recurring items 67 (6) 15 33 -52% -
Cost of risk(1) 0.66% 1.25% 0.78% 0.52% +26 bps -59 bps
1. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Operating profit for 9M2021 was €143 mn, compared to €152 mn for 9M2020
(down by 6% yoy). Operating profit for 3Q2021 was €41 mn, compared to €57
mn for 2Q2021 (down by 29% qoq), driven by a lower total income qoq.
Loan credit losses for 9M2021 totalled €57 mn, compared to €118 mn for
9M2020. Loan credit losses for 3Q2021 totalled €22 mn, compared to €15 mn
for 2Q2021.
The annualised loan credit losses charge (cost of risk) for 9M2021 accounted
for 0.66% of gross loans and includes a reversal of loan impairments related
to COVID-19 of 5 bps (compared to an annualised loan credit losses charge of
1.25% for 9M2020, of which 45 bps reflect loan impairments related to
COVID-19). Cost of risk for 3Q2021 amounted to 78 bps (€22 mn) and includes
a reversal of loan impairments related 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. This is compared to a cost of risk of 52
bps (€15 mn) for 2Q2021, of which 12 bps (€3.5 mn) reflect loan
impairments related to COVID-19. Further details are provided in Section A.1.5
'Loan portfolio quality'.
Cost of risk for FY2021 is currently expected to be at similar levels as for
9M2021. Close monitoring of sectors vulnerable to COVID-19 continues.
At 30 September 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 €849 mn (compared to €947 mn at 30
June 2021 and €1,902 mn at 31 December 2020) and accounted for 7.8% of gross
loans including portfolios held for sale (compared to 8.7% and 15.5% of gross
loans including portfolios held for sale at 30 June 2021 and at 31 December
2020 respectively). The decrease in the allowance for expected loan credit
losses in 3Q2021 amounted to €98 mn, compared to a decrease of €922 mn in
2Q2021, following the completion of Project Helix 2 in June 2021.
Impairments of other financial and non-financial assets for 9M2021 amounted to
€13 mn, compared to €36 mn for 9M2020 (down by 63% yoy), driven by lower
revaluation losses on properties yoy. Impairments of other financial and
non-financial assets for 3Q2021 amounted to €2 mn, compared to €6 mn for
2Q2021 (down by 62% qoq).
Provisions for litigation, claims, regulatory and other matters for 9M2021
totalled €6 mn, compared to €4 mn for 9M2020. Provisions for litigation,
claims, regulatory and other matters for 3Q2021 totalled €2 mn (compared to
€3 mn for 2Q2021, which related mainly to a potential fine to be imposed on
the Bank relating to the findings of a regulatory investigation with regards
to transfer of liquidity by the Bank to its subsidiaries in the period
2016-2017 allegedly without prior regulatory approval).
Profit before tax and non-recurring items for 9M2021 totalled €67 mn,
compared to a loss of €6 mn for 9M2020. Profit before tax and non-recurring
items for 3Q2021 totalled €15 mn, compared to €33 mn for 2Q2021 (down by
52% qoq).
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.4 Profit/(loss) after tax (attributable to the owners of the Company)
€ mn 9M2021 9M2020 3Q2021 2Q2021 qoq +% yoy +%
Profit/(loss) before tax and non-recurring items 67 (6) 15 33 -52% -
Tax (3) (7) (2) 1 - -59%
(Profit)/loss attributable to non-controlling interests (0) 4 (0) (0) - -
Profit/(loss) after tax and before non-recurring items (attributable to the 64 (9) 13 34 -59% -
owners of the Company)
Advisory and other restructuring costs - organic (19) (9) (1) (15) -93% 102%
Profit/(loss) after tax - organic (attributable to the owners of the Company) 45 (18) 12 19 -31% -
Provisions/net (loss)/profit relating to NPE sales(1) (6) (87) 10 (14) - -94%
Restructuring and other costs relating to NPE sales(1) (19) (17) (3) (12) -71% 22%
Profit/(loss) after tax (attributable to the owners of the Company) 20 (122) 19 (7) - -
1. 'Provisions/net (loss)/profit relating to NPE sales' refer to the net
(loss)/profit on transactions completed and the net loan credit losses on
transactions under consideration, whilst 'Restructuring and other expenses
relating to NPE sales' refer mainly to the restructuring 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 9M2021 is €3 mn, compared to €7 mn for 9M2020. The tax
charge for 3Q2021 is €2 mn, compared to a tax credit of €1 mn for 2Q2021.
Profit after tax and before non-recurring items (attributable to the owners of
the Company) for 9M2021 was €64 mn, compared to a loss of €9 mn for
9M2020. Profit after tax and before non-recurring items (attributable to the
owners of the Company) for 3Q2021 was €13 mn, compared to €34 mn for
2Q2021. 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 5.2% for 9M2021 and 3.3% for 3Q2021.
Advisory and other restructuring costs - organic for 9M2021 amounted to €19
mn, compared to €9 mn for 9M2020. Advisory and other restructuring costs -
organic for 3Q2021 amounted to €1 mn, compared to €15 mn for 2Q2021. The
2Q2021 charge included an amount of €12 mn which related to the tender offer
for the Existing Tier 2 Capital Notes, due January 2027, with aggregate
nominal amount of €207 mn, thereby forfeiting the relevant obligation for
future coupon payments).
Profit after tax arising from the organic operations (attributable to the
owners of the Company) for 9M2021 amounted to €45 mn, compared to a loss of
€18 mn for 9M2020. Profit after tax arising from the organic operations
(attributable to the owners of the Company) for 3Q2021 amounted to €12 mn,
compared to €19 mn for 2Q2021.
Provisions/net loss relating to NPE sales for 9M2021 was €6 mn (compared to
€87 mn for 9M2020). Net profit relating to NPE sales for 3Q2021 was €10
mn that related to Project Helix 3, compared to provisions/net loss relating
to NPE sales of €14 mn for 2Q2021 that related to the completion mechanics
for Project Helix 2, expected to unwind over time in 'net interest income'
until the full payment of the deferred consideration.
Restructuring and other costs relating to NPE sales for 9M2021 was €19 mn
(compared to €17 mn for 9M2020). Restructuring and other costs relating to
NPE sales for 3Q2021 was €3 mn (compared to €12 mn for 2Q2021).
Profit after tax attributable to the owners of the Company for 9M2021 was
€20 mn (compared to a loss of €122 mn for 9M2020). Profit after tax
attributable to the owners of the Company for 3Q2021 was €19 mn (compared to
a loss of €7 mn for 2Q2021).
B. Operating Environment
The EU economy rebounded strongly, from the pandemic recession, in the first
half of the year, and the European Commission in its Autumn forecasts expects
growth of 5% in the year and 4.3% in 2022. According to the same European
Commission forecasts, the Cyprus economy is expected to advance by 5.4% in
2021, 4.2% in 2022 and 3.5% in 2023, a favourable outlook. Consumer inflation
is expected to decelerate and the unemployment rate to continue to drop. The
budget deficits will continue to narrow in 2022-2023 and the debt to GDP ratio
will return to its declining trajectory. A surge in new COVID-19 cases poses a
downward risk to upbeat growth forecasts.
Real GDP seasonally adjusted, rebounded strongly in the second and third
quarters of the year rising by 13.3% and 5.3% respectively from the previous
year, and almost recovered fully the level of GDP in 2019 for the first three
quarters. Growth was driven by consumption expenditures, particularly
government consumption, and by fixed investment which included a significant
contribution from ship registrations. Net of ship registrations domestic
demand is the main driver to growth, with net exports contributing positively,
reflecting the partial recovery in services exports.
On the supply side, growth in the first half of the year for which data is
available, was driven by manufacturing, construction and trade, transport, and
accommodation services. These were also the sectors that contracted the most
by the COVID-19 pandemic the previous year.
In the tourism sector, developments remained subdued, but were better than
expected, especially in the second and third quarters. A successful
vaccination campaign in Cyprus and in the EU were positive factors for the
tourism recovery. There was a steady monthly recovery of tourist arrivals, as
the tourism season extended until October. Tourism arrivals in October 2021
increased by 289% from the previous year and reached 90% of corresponding
levels in 2019.
In the labour market the unemployment rate increased to an average 8.5%
seasonally adjusted in the first half of the year, from an average of 7.6% in
2020. This was driven by a bigger increase in the labour force when the
increase in the volume of employment was slower. In the short- and the
medium-term, employment is expected to increase at a faster rate on the back
of strong economic expansion and the implementation of the Recovery and
Resilience Plan, which is also expected to facilitate the reallocation of the
labour force through retraining and up-skilling. The unemployment rate is
expected to drop to 7.5% in 2021 and to 7.1% in 2022 according to the European
Commission.
Consumer prices had declined by 0.6% on average in 2020 driven by a sharp
decline in energy prices, the hit to demand from the pandemic, and the cut to
the value-added tax rate for the tourism sector in July-December 2020.
Consumer prices started to rise from April 2021 onwards, and accelerated in
the second and third quarters. Consumer prices increased by an average of 2%
in January-October 2021, rising by more than 4% in July-October 2021. The
economic recovery and a rise in global energy prices support inflation this
year. The marked acceleration in inflation in recent months is expected to
slow as supply catches up with pent-up demand and base effects wane.
Public finances deteriorated in 2020 as a result of the pandemic, resulting in
a budget deficit of 5.7% of GDP and a debt ratio of 115.1%. However, Cyprus's
public finances have strengthened in 2021, with a marked improvement recorded
in July-September 2021, owing to steep increases in revenues, particularly
income tax receipts and social security contributions. On the expenditure side
capital spending remained unchanged in January-September 2021, offsetting
large increases in pandemic-related social protection payments. According to
the European Commission's autumn forecasts, the budget deficit of the general
government in relation to GDP, will narrow to 4.9% in 2021 and to 1.4% in
2022.
General government debt in nominal terms remained nearly unchanged at the end
of September 2021 from the previous December. The ratio of public debt to GDP
is expected to decline to 104.1% in 2021 and to 97.6% in 2022 according to the
European Commission.
On the external sector, the current-account deficit which widened to 10.1% of
GDP in 2020, will shrink gradually from 2022 onwards as services earnings
recover, and as EU recovery funds are credited in the secondary income
account. However, the current-account deficit will remain elevated in the
medium term, owing partly to long-term structural issues, and in part to
strong imports growth linked to the EU investment plans, which will weigh on
the trade balance.
The monetary policy of the ECB is expected to remain highly accommodative in
the medium term. The ECB is running two simultaneous quantitative easing, the
asset purchase programme, which is open-ended and runs at €20 bn per month,
and the pandemic emergency purchase programme, with a maximum size of €1.85
trillion and a provisional end date of March 2022. At its September policy
meeting the ECB announced a moderate reduction in the pace of asset purchases
under its pandemic emergency purchase programme. Interest rates remain
exceptionally low across the euro zone and Bank borrowing costs for households
and non-financial corporations remain favourable.
B. Operating Environment (continued)
Since the 2013 financial crisis in Cyprus, banks have reduced their foreign
exposure, prudential oversight has been strengthened and a new legal framework
for private-debt restructuring has been implemented, helping to reduce
non-performing exposures. However, weaknesses persist evidenced in low
profitability, high cost to income, and concerns about a renewed rise in
non-performing exposures, as a result of the coronavirus crisis. Total
non-performing exposures stood at 17.4% of gross loans at the end of August, a
modest decline from 17.7% at the end of the previous December. The coverage
ratio stood at 50.8% in August 2021.
Sovereign ratings
The sovereign risk ratings of the Cyprus Government improved considerably in
recent years reflecting improvements in economic resilience and consistent
fiscal outperformance. Cyprus demonstrated policy commitment to correcting
fiscal imbalances through reform and restructuring of its banking system.
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.
S&P Global Ratings maintains its investment grade rating of BBB- since
September 2018 and upgraded its outlook to positive from stable in its
September 2021 review. 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 continue to strengthen, supported by the
Government's implementation of structural reforms.
Fitch Ratings maintains a Long-Term Issuer Default rating of investment grade
at BBB- since November 2018 and a stable outlook, last affirmed in September
2021. Its outlook was upgraded to positive in October 2019 and revised to
stable in April 2020, reflecting the significant impact the global COVID-19
pandemic might have on the Cyprus economy and fiscal position.
In October 2021, DBRS Ratings 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.
C. Business Overview
Credit ratings
The Group's financial performance is highly correlated to the economic and
operating conditions in Cyprus. In November 2021, Standard and Poor's affirmed
their long-term issuer credit rating on the Bank of B+ and revised the outlook
to positive from stable. In July 2021, Moody's Investors Service upgraded the
Bank's long-term deposit rating to B1 from B3, maintaining the positive
outlook, and in November 2021, Moody's published an issuer comment for the
Bank, being the biggest lender in Cyprus, highlighting the reduction of its
NPE ratio to single digits and the significant de-risking of the balance
sheet, a credit positive. In January 2021, Fitch Ratings affirmed their
long-term issuer default rating of B- (negative outlook). In April 2020, Fitch
Ratings revised their outlook to negative, reflecting the significant impact
the outbreak of COVID-19 might have on the Cypriot economy and consequently on
the Bank.
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 third quarter 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, colleagues 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, such
as the Omicron variant, and the persistent positive effect of fiscal and
monetary policy.
Statistics are encouraging, as 83% of the adult population in Cyprus have been
vaccinated with the first dose and 80% have completed their vaccination regime
(University of Cyprus, as of 22 November 2021).
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 virus.
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.
Performing loans as at 30 September 2021 under expired payment deferrals
amounted to €4.8 bn (compared to €4.9 bn as at 30 June 2021 and €5.3 bn
as at 31 December 2020), of which €4.7 bn or 98% had an instalment due by 22
November 2021 with a strong performance; 96% present no arrears (of which
€0.59 bn have been restructured) and only 4% (€186 mn) are in arrears (of
which €178 mn are less than 30 days-past-due).
Further details are provided in Section A.1.5 'Loan portfolio quality'. 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.
Following the outbreak of COVID-19, the sectors most adversely affected are
tourism being the sector with the highest impact and trade with medium impact.
The Group has a well - diversified performing loan portfolio.
C. Business Overview (continued)
COVID-19 impact (continued)
As at 30 September 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.€0.92 bn of performing loans as at 30 September 2021 were under
expired payment deferrals. 99% of those had an instalment due by 22 November
2021 and of those 99% present no arrears (of which c.€300 mn have been
restructured).
Tourism performance was better than initially anticipated. There was a steady
monthly recovery of tourist arrivals, as the tourism season extended until
October. Tourism arrivals in October 2021 increased by 289% from the previous
year and reached 90% 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
97% of the tourism portfolio is secured by property. Close monitoring of
developments continues.
Respectively, as at 30 September 2021 the Group's non-legacy loan book
exposure to trade was €0.93 bn, of which €0.28 bn of performing loans as
at 30 September 2021 were under expired payment deferrals. 95% of those had an
instalment due by 22 November 2021 and of those, 98% present no arrears (of
which €13 mn have been restructured) and 2% present arrears.
Strategic priorities for the medium term
The Bank's medium-term strategic priorities remain clear, with a sustained
focus on strengthening its balance sheet, and improving asset quality and
efficiency, whilst maintaining a good capital position, in order to continue
to play a vital role in supporting the recovery of the Cypriot economy. The
Group continues to explore opportunities to grow revenues in a more capital
efficient way and to improve efficiency through its digital transformation
programme in order to provide products and services while reducing operating
costs. In addition, the Bank is looking to enhance its organisational
resilience and ESG (Environmental, Social and Governance) agenda by building a
forward-looking organisation with a clear strategy supported by effective
corporate governance aligned with ESG agenda priorities.
Completing balance sheet de-risking
Tackling the Bank's loan portfolio quality is of utmost importance for the
Group.
Project Helix 3, signed in November 2021, represents a milestone in the
delivery of one of the Group's core strategic priorities of improving asset
quality through the reduction of NPEs. Pro forma for Helix 3, the Group's NPE
ratio is in single digit. Helix 3 reduces the stock of NPEs by 39% and the NPE
ratio by 5 p.p. to 8.6%, pro forma on the basis of 30 September 2021 figures.
For further information please refer to Section A.1.5. Loan portfolio quality.
On a pro forma basis, in the first nine months of 2021 our NPE stock reduced
by €2.2 bn to €0.9 bn, and the NPE ratio to 8.6%, including Helix 3, Helix
2 and organic reductions. Overall, since the peak in 2014 and pro forma for
Helix 3, the stock of NPEs has been reduced by €14.1 bn or 94% to less than
€1 bn and the NPE ratio by 54 percentage points, from 63% to less than 9%.
Projects Helix 3 and Helix 2 mark further progress against delivering on the
Group's strategic objectives of becoming a stronger, safer and more efficient
institution. The Group is now better positioned to manage the challenges
resulting from the impact of the ongoing COVID-19 crisis, and to further
support the recovery of the Cypriot economy.
The Group has early achieved its 2022 target for single digit NPE ratio and
remains on track to achieve an NPE ratio of c.5% in the medium term. At the
same time, following the outbreak of COVID-19 and the expiration of the 2020
loan moratorium at the end of year 2020, the Group continues to closely
monitor the performance of loans under expired payment deferrals and nearly
eleven months after deferral expiry, the performance is better than initially
expected.
Growing revenues in a more capital efficient way
The accelerated de-risking of the balance sheet increases pressure on revenues
in the near term. There are multiple initiatives underway to increase net
interest income and less capital-intensive non-interest income, with a focus
on fees, insurance and non-banking business.
C. Business Overview (continued)
Strategic priorities for the medium term (continued)
Growing revenues in a more capital efficient way (continued)
The Group continues 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, and following the
outbreak of COVID-19, the focus remains to support the Cypriot economy in
order to overcome the crisis. During the nine months ended 30 September 2021,
new lending amounted to €1.3 bn, increased by 35% compared to the same
period last year and recovering towards pre-pandemic levels (at c.80% of
9M2019 levels). Demand for new loans is picking up, driven mainly by corporate
(up by 38% yoy for 9M2021 and up by c.60% yoy for 3Q2021), as economic
activity continues to improve. At the same time, the demand for retail housing
loans remains strong and above pre-COVID levels, supported by the Government
interest rate subsidy scheme. The pipeline for new housing loans remains
strong at €127 mn as at mid-November 2021, whilst new housing loans of
c.€265 mn have been approved by the Bank since the beginning of the scheme
until end-September 2021.
Aiming at supporting investments by SMEs and mid-caps to boost the Cypriot
economy, and create new jobs for young people, the Bank continues to provide
joint financed schemes. To this end, the Bank continues its partnership with
the European Investment Bank (EIB), the European Investment Fund (EIF) and the
Cyprus Government.
In common with other European banks, the prolonged low interest rate
environment also continues to present a challenge to the Group's
profitability. Over the medium-term, the Group aims to grow its performing
book by c.10%, as well as to grow shipping and international corporate lending
with prudency.
At the same time, in order to further optimise its funding structure, the Bank
continues to focus on the shape and cost of deposit franchise, taking
advantage of the increased customer confidence towards the Bank. The cost of
deposits has been reduced by 73 bps to 3 bps since December 2017. Moreover,
liquidity fees for specific customer groups were introduced in March 2020. The
introduction of liquidity fees to a broader group of corporate clients, that
was delayed due to the COVID-19 pandemic, was implemented as of 1 February
2021. Separately, a new price list for charges and fees was also implemented
as of 1 February 2021. Net fees and commission income in 9M2021 is above
pre-pandemic levels.
In the medium-term, the Group aims to increase the average product holding
through cross selling to the under-penetrated customer base, as well as to
introduce the Digital Economy Platform to generate new revenue sources,
through leveraging the Bank's market position, knowledge and digital
infrastructure.
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 fee income, further diversifying the
Group's income streams. The insurance income net of claims and commissions for
9M2021 contributed to 21% of non-interest income and amounted to €43 mn, up
2% yoy, mainly due to higher gross written premiums, partly offset by the
impact from the changes in the discount rate in the life insurance business
and by higher costs and claims in the general insurance business.
Specifically, Eurolife increased its gross written premiums by 7% yoy and its
total regular income also by 7% 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, in order to deliver
sustainable profitability and shareholder returns.
In 9M2021, the Bank participated in TLTRO III by borrowing an additional
amount of €2.0 bn, increasing its participation to €3.0 bn, despite its
comfortable liquidity position, given the favourable borrowing terms, in
combination with the relaxation of collateral requirements. The Bank has
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. The potential NII benefit for
the period from June 2021 to June 2022 amounts to c.€15 mn, based on current
ECB rates and provided the Bank meets the net lending thresholds, recognised
over the respective period. The TLTRO III borrowing of €3.0 bn is expected
to be repaid by mid-2022.
Improving operating efficiencies
The Digital Transformation Programme 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, through
further branch footprint rationalisation, further exit solutions to release
full time employees, containment of restructuring costs following the
completion of balance sheet de-risking, enhancement of procurement control, as
well as reduction of total operating expenses by c.10% compared to FY2019 over
the medium term despite inflation, facilitated by the Digital Transformation
Programme.
C. Business Overview (continued)
Strategic priorities for the medium term (continued)
Improving operating efficiencies (continued)
The Group continues to work towards becoming a more customer centric
organisation. A Transformation Office has been established at the beginning of
the year further reinforcing the commitment to the Bank's modernisation
agenda. The transformation programme will enable the implementation of the
strategy 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. Over the last three quarters a
transformation plan has been prepared and will run over the next 3 years. The
transformation will be gradually pivoting to implementation in the next
quarter.
Digital Transformation
As part of its vision to be the leading financial hub in Cyprus, the Bank
continues its Digital Transformation Programme, which focuses on three
strategic pillars: developing digital services and products that enhance the
customer experience, streamlining internal processes, and introducing new ways
of working to improve the workplace environment.
In recent months, two key features, which are part of the Digital
Transformation strategy and promote customer self-service functions, have been
made available to subscribers via the mobile banking application. The first
one is the possibility offered to new customers of the Bank to open their
first account and card through the Digital Onboarding process from their
mobile phone, without the need to visit a branch. In addition, the ability to
temporarily freeze and unfreeze their cards is now available through the
mobile app to our customers, which is a useful tool. This allows users who
have misplaced or lost their card to take instant action to ensure that their
card is not used during that time. Finally, other smaller features and
enhancements to existing functionalities are continuously added to our digital
channels, in order to meet our customer needs.
The adoption of digital products and services continued to grow and gained
momentum in the third quarter of 2021 and in October 2021. As at the end of
October 2021, 88.0% of the number of transactions involving deposits, cash
withdrawals and internal/external transfers were performed through digital
channels (up by c.21.6 p.p. from 66.4% in September 2017 when the digital
transformation programme was initiated). In addition, 78.1% of individual
customers were digitally engaged (up by 17.9 p.p. from 60.2% in September
2017), choosing digital channels over branches to perform their transactions.
As at the end of October 2021, active mobile banking users and active QuickPay
users have grown by 20% and 50% respectively in the last 12 months. The
highest number of QuickPay users to date was recorded in October 2021 with 122
thousand active users. Likewise, the highest number of QuickPay payments was
recorded in October 2021 with 338 thousand transactions.
Furthermore, as part of the Digital Transformation Programme, major changes
are underway in relation to enabling a modern and more efficient workplace.
New technologies and tools have been introduced that will drastically change
the employee experience, improving collaboration and knowledge sharing across
the organisation. Further enhancements will be implemented during the last
quarter of 2021 and in 2022, and the full impact will be seen over the coming
months.
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda
As part of its responsibility to a wider group of stakeholders, the Group aims
to enhance its organisational resilience and ESG (Environmental, Social and
Governance) agenda and is working towards building a forward-looking
organisation with a clear strategy supported by effective corporate governance
aligned with ESG agenda priorities.
Earlier this year a dedicated executive committee, the Sustainability
Committee, was set up, that will 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.
In order to further strengthen the Bank's corporate responsibility regarding
the protection of the environment the Bank is proceeding with the launch of
'environmentally friendly' loan products to promote investment in energy
saving and environmentally friendly products and services.
The Bank maintains a rating of A (on a scale of AAA-CCC) in the MSCI ESG
Ratings assessment since June 2020.
D. Strategy and Outlook
The strategic objectives for the Group are to become a stronger, safer and a
more efficient institution capable of supporting the recovery of the Cypriot
economy and delivering appropriate shareholder returns in the medium term.
The key pillars of the Group's strategy are to:
· Complete balance sheet de-risking
· 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
· Enhance organisational resilience and ESG (Environmental, Social
and Governance) agenda; by 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 9M2021 and to date PLAN OF ACTION
Complete balance sheet de-risking • Completion of Project Helix 2 (sale of NPE portfolios with • The Group has early achieved its 2022 target for single digit
gross book value of €1.3 bn) in June 2021 NPE ratio and remains on track to achieve an NPE ratio of c.5% in the medium
term.
• 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 the first nine months of 2021 our NPE
stock reduced by €2.2 bn to €0.9 bn, and the NPE ratio to 8.6%, including
Helix 3, Helix 2 and organic reductions.
• Single digit NPE ratio achieved at 30 September 2021 pro forma
for Helix 3
• For further information, please refer to Section A.1.5 'Loan
portfolio quality' and Section C 'Business Overview'
Grow revenues in a more capital efficient way; by enhancing revenue generation • Liquidity fees to corporate clients, that was delayed due to • Mitigating actions against NII challenges put in place, e.g.
via growth in performing book, and less capital-intensive banking and the COVID-19 pandemic, was implemented as of 1 February 2021 growing performing book and pricing away/price correctly deposits
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
February 2021 price list for charges and fees, increase average product holding through
cross selling, new sources of revenue through introduction of Digital Economy
Platform
• For further information, please refer to Section C 'Business
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 DT
D. Strategy and Outlook (continued)
KEY STRATEGIC PILLARS ACTION TAKEN IN 9M2021 and to date PLAN OF ACTION
Improve operating efficiency; by achieving leaner operations through • Renewal of collective agreement for 2021-2022 is expected to • Offer exit solutions to release full time employees
digitisation and automation increase staff costs for 2021 and 2022 by 3-4% per annum, in line with the
impact of renewals in previous years. The Group's medium-term guidance, which • Achieve further branch footprint rationalisation
includes maintaining annual 'total operating expenses' below €350 mn,
remains unchanged. • Contain restructuring costs following completion of balance
sheet de-risking
• Enhance procurement control
• Further developments in the Digital Transformation Programme
• Reduce total operating expenses by c.10% over the medium
term despite inflation
• For further information, please refer to Section C 'Business
Overview'
Enhance organisational resilience and ESG (Environmental, Social and • The Bank reached agreement with the Cyprus Union of Bank • Enhanced structure and corporate governance
Governance) agenda; by building a forward-looking organisation with a clear Employees for the renewal of the collective agreement in respect of 2021 and
strategy supported by effective corporate governance aligned with ESG agenda 2022. The agreement relates to certain changes including the introduction of a • Focus on our people
priorities 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 • Priority on ESG agenda, e.g. introduction of
increase, both of which have been long-standing objectives of the Bank and are 'environmentally friendly' loan products
in line with market best-practice.
• For further information, please refer to Section C 'Business
Overview'
• Please refer to slide 29 in the 9M2021 Group Financial
Results Investors Presentation
D. Strategy and Outlook (continued)
The Group's near-term priorities include completing the balance sheet
de-risking, whilst managing the post-pandemic NPE inflow; positioning the Bank
on the path for sustainable profitability; ensuring the cost base remains
appropriate, whilst further investing in the digital transformation programme
in the near term in order to modernise the Bank's franchise (in fact, the cost
to income ratio is expected to rise in the near term as revenues remain under
pressure and operating expenses increase due to higher digitisation investment
costs, and to reduce to mid-50s% in the medium term); addressing the
challenges from low rates and surplus liquidity.
The medium-term priorities include delivering sustainable profitability and
shareholder returns, enhancing revenues by capitalising on the Group's market
leading position; enhancing operating efficiency; and optimising capital
management.
The Group's medium-term strategic targets are set out below
Key Metrics Strategic Targets for
2022 Medium-Term
Profitability Return on Tangible Equity (ROTE)(1) ~7%
Total operating expenses(2) <€350 mn
Asset Quality NPE ratio ~5%
<10%
early achieved at 30 September 2021 pro forma for Helix 3
Cost of risk 70-80 bps
Capital Supported by CET1 ratio of At least 13%
1. Return on Tangible Equity (ROTE) is calculated as Profit after Tax
(annualised) divided by Shareholders' equity minus intangibles assets.
2. Total operating expenses 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.
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's business plan is based on maintaining a CET1 ratio of at
least 13% over the entire period of the plan. The Group's capital is to be
supported by organic capital generation, by focus on less capital-intensive
businesses and the further reduction of high intensity risk weighted assets.
At the same time, factors that could potentially have a negative impact on the
Group's capital ratios in addition to IFRS 9 phasing-in, include any potential
regulatory impacts, as well as one-off cost optimisation charges. Until the
completion of the de-risking and the restructuring of the business, there may
be volatility in the capital ratios due to the timing of potential future
impacts from regulatory changes and one-off restructuring costs.
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, in order to complete the
turnaround of its business and set the Bank on a path for profitability and
delivering value for shareholders.
E. Financial Results - Statutory Basis
Unaudited Interim Consolidated Income Statement
Nine months ended
30 September
2021 2020
€000 €000
Turnover 566,667 565,188
Interest income 269,395 295,959
Income similar to interest income 22,761 35,679
Interest expense (47,828) (47,311)
Expense similar to interest expense (20,776) (34,452)
Net interest income 223,552 249,875
Fee and commission income 134,287 111,910
Fee and commission expense (6,235) (5,330)
Net foreign exchange gains 11,572 14,636
Net (losses)/gains on financial instrument transactions and (18,933) 4,252
disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions 42,598 41,581
Net losses from revaluation and disposal of investment properties (2,329) (3,851)
Net gains on disposal of stock of property 9,481 6,341
Other income 10,836 11,162
404,829 430,576
Staff costs (151,709) (145,561)
Special levy on deposits and other levies/contributions (24,603) (24,039)
Other operating expenses (139,757) (134,309)
88,760 126,667
Net (losses)/gains on derecognition of financial assets measured at amortised (2,718) 1,760
cost
Credit losses to cover credit risk on loans and advances to customers (30,419) (211,322)
Credit losses of other financial instruments (3,325) (229)
Impairment net of reversals of non-financial assets (29,543) (35,677)
Profit/(loss) before share of profit/(loss) from associates 22,755 (118,801)
Share of profit/(loss) from associates 137 (97)
Profit/(loss) before tax 22,892 (118,898)
Income tax (2,589) (6,329)
Profit/(loss) after tax for the period 20,303 (125,227)
Attributable to:
Owners of the Company 19,566 (121,568)
Non-controlling interests 737 (3,659)
Profit/(loss) for the period 20,303 (125,227)
Basic and diluted profit/(loss) per share attributable to the owners of the 4.4 (27.3)
Company (€ cent)
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Comprehensive Income
Nine months ended
30 September
2021 2020
€000 €000
Profit/(loss) for the period 20,303 (125,227)
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in
subsequent periods
Fair value reserve (debt instruments)
Net gains/(losses) on investments in debt instruments measured at fair value 3,406 (12,447)
through OCI (FVOCI)
Transfer to the consolidated income statement on disposal - (3,653)
3,406 (16,100)
Foreign currency translation reserve
(Loss)/profit on translation of net investment in foreign branches and (8,045) 25,360
subsidiaries
Profit/(loss) on hedging of net investments in foreign branches and 7,235 (23,983)
subsidiaries
Transfer to the consolidated income statement on dissolution of foreign (63) 122
subsidiary
(873) 1,499
Total OCI that may be reclassified in the consolidated income statement in 2,533 (14,601)
subsequent periods
OCI not to be reclassified in the consolidated income statement in subsequent
periods
Fair value reserve (equity instruments)
Net gains/(losses) on investments in equity instruments designated at FVOCI 739 (197)
739 (197)
Property revaluation reserve
Deferred tax (40) (459)
(40) (459)
Actuarial gains/(losses) on the defined benefit plans
Remeasurement gains/(losses) on defined benefit plans 5,855 (3,773)
Total OCI not to be reclassified in the consolidated income statement in 6,554 (4,429)
subsequent periods
Other comprehensive income/(loss) for the period net of taxation 9,087 (19,030)
Total comprehensive income/(loss) for the period 29,390 (144,257)
Attributable to:
Owners of the Company 28,669 (140,457)
Non-controlling interests 721 (3,800)
Total comprehensive income/(loss) for the period 29,390 (144,257)
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Balance Sheet
30 September 2021 31 December 2020
Assets €000 €000
Cash and balances with central banks 8,750,254 5,653,315
Loans and advances to banks 284,135 402,784
Derivative financial assets 15,296 24,627
Investments 874,147 1,876,009
Investments pledged as collateral 1,268,500 37,105
Loans and advances to customers 9,787,136 9,886,047
Life insurance business assets attributable to policyholders 525,630 474,187
Prepayments, accrued income and other assets 668,416 249,877
Stock of property 1,154,299 1,349,609
Deferred tax assets 303,390 341,360
Investment properties 117,771 128,088
Property and equipment 257,550 272,474
Intangible assets 183,280 185,256
Investments in associates and joint venture - 2,462
Non-current assets and disposal groups held for sale 361,172 630,931
Total assets 24,550,976 21,514,131
Liabilities
Deposits by banks 402,511 391,949
Funding from central banks 2,977,558 994,694
Derivative financial liabilities 38,207 45,978
Customer deposits 17,128,185 16,533,212
Insurance liabilities 717,108 671,603
Accruals, deferred income, other liabilities and other provisions 344,243 359,892
Pending litigation, claims, regulatory and other matters 157,130 123,615
Subordinated loan stock 648,661 272,152
Deferred tax liabilities 46,679 45,982
Total liabilities 22,460,282 19,439,077
Equity
Share capital 44,620 44,620
Share premium 594,358 594,358
Revaluation and other reserves 217,301 209,153
Retained earnings 989,284 982,513
Equity attributable to the owners of the Company 1,845,563 1,830,644
Other equity instruments 220,000 220,000
Total equity excluding non‑controlling interests 2,065,563 2,050,644
Non‑controlling interests 25,131 24,410
Total equity 2,090,694 2,075,054
Total liabilities and equity 24,550,976 21,514,131
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Changes in Equity
Attributable to the shareholders of the Company Other equity instruments Non- controlling interests Total
equity
Share Share Treasury shares Retained earnings Property revaluation reserve Financial instruments fair value reserve Life insurance Foreign currency translation reserve Total
capital premium in-force
business
reserve
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2021 44,620 594,358 (21,463) 982,513 79,515 22,894 110,401 17,806 1,830,644 220,000 24,410 2,075,054
Profit for the period - - - 19,566 - - - - 19,566 - 737 20,303
Other comprehensive income/ (loss) after tax for the period - - - 5,855 (30) 4,145 - (867) 9,103 - (16) 9,087
Total comprehensive income/(loss) after tax for the period - - - 25,421 (30) 4,145 - (867) 28,669 - 721 29,390
Increase in value of in-force life insurance business - - - (5,600) - - 5,600 - - - - -
Tax on increase in value of in-force life insurance business - - - 700 - - (700) - - - - -
Payment of coupon to AT1 holders - - - (13,750) - - - - (13,750) - - (13,750)
30 September 2021 44,620 594,358 (21,463) 989,284 79,485 27,039 115,301 16,939 1,845,563 220,000 25,131 2,090,694
E. Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Changes in Equity (continued)
Attributable to the shareholders of the Company Other equity instruments Non- controlling interests Total
equity
Share Share Treasury shares Retained earnings Property revaluation reserve Financial instruments fair value reserve Life insurance in-force business reserve Foreign currency translation reserve Total
capital premium
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2020 44,620 1,294,358 (21,463) 490,286 79,286 33,900 102,051 16,927 2,039,965 220,000 28,662 2,288,627
Loss for the period - - - (121,568) - - - - (121,568) - (3,659) (125,227)
Other comprehensive (loss)/income after tax for the period - - - (3,773) (326) (16,291) - 1,501 (18,889) - (141) (19,030)
Total comprehensive (loss)/ income after tax for the period - - - (125,341) (326) (16,291) - 1,501 (140,457) - (3,800) (144,257)
Increase in value of in-force life insurance business - - - (5,771) - - 5,771 - - - - -
Tax on increase in value of in-force life insurance business - - - 721 - - (721) - - - - -
Change in the holding of Undertakings for Collective Investments in - - - (33) - - - - (33) - - (33)
Transferable Securities (UCITS) Fund
Payment of coupon to AT1 holders - - - (13,750) - - - - (13,750) - - (13,750)
Dividends paid to non-controlling interests - - - - - - - - - - (140) (140)
30 September 2020 44,620 1,294,358 (21,463) 346,112 78,960 17,609 107,101 18,428 1,885,725 220,000 24,722 2,130,447
F. Notes
F.1 Reconciliation of income statement between statutory and
underlying basis
€ million Underlying basis NPE Other Statutory
basis
Sales
Net interest income 223 - - 223
Net fee and commission income 128 - - 128
Net foreign exchange gains and net losses on financial instrument transactions 14 - (21) (7)
and disposal/dissolution of subsidiaries and associates
Insurance income net of claims and commissions 43 - - 43
Net gains from revaluation and disposal of investment properties and on 8 (1) - 7
disposal of stock of properties
Other income 11 - - 11
Total income 427 (1) (21) 405
Total expenses (284) (19) (12) (315)
Operating profit 143 (20) (33) 90
Loan credit losses (57) 15 8 (34)
Impairments of other financial and non-financial assets (13) (20) - (33)
Provisions for litigation, claims, regulatory and other matters (6) - 6 -
Profit before tax and non-recurring items 67 (25) (19) 23
Tax (3) - - (3)
Profit after tax and before non-recurring items (attributable to the owners of 64 (25) (19) 20
the Company)
Advisory and other restructuring costs-organic (19) - 19 -
Profit after tax - organic* (attributable to the owners of the Company) 45 (25) - 20
Net loss on NPE sales (6) 6 - -
Restructuring and other expenses (19) 19 - -
Profit after tax (attributable to the owners of the Company) 20 - - 20
*This is the profit after tax (attributable to the owners of the Company),
before the loss on NPE sales and the restructuring and other expenses.
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
€13 million and other expenses of €6 million relating to the agreements
for the sale of portfolios of NPEs and are presented within 'Restructuring and
other expenses' under the underlying basis.
· Loan credit losses under the statutory basis
include the loan credit losses relating to Project Helix 2 of approximately
€1.5 million, reversal of loan credit losses relating to Project Helix 3 of
€30 million and an amount of €14 million which represents the effect of
discounting the deferred consideration receivable from Project Helix 2 on
initial recognition, and are disclosed under non-recurring items within 'Net
loss on 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 million relating to investment properties of Project
Helix 3 and are presented within 'Net loss on NPE sales' under the underlying
basis.
· 'Impairments of financial and other non-financial
assets' under the statutory basis include an impairment loss of €19 million
relating to stock of properties of Project Helix 3 and are presented within
'Net loss on NPE sales' under the underlying basis.
Other reclassifications
· Net losses on loans and advances to customers at
FVPL of approximately €8.5 million included in 'Loan credit losses' under
the underlying basis are included in 'Net losses on financial instrument
transactions and disposal/dissolution of subsidiaries and associates' under
the statutory basis. Their classification under the underlying basis is done
in order to align their presentation with the loan credit losses on loans and
advances to customers at amortised cost.
· Net loss on the early redemption of subordinated
loan stock of approximately €12.5 million 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.
F. Notes (continued)
F.1 Reconciliation of income statement between statutory and
underlying basis (continued)
· Advisory and other restructuring costs of
approximately €6 million included in 'Other operating expenses' under the
statutory basis are separately presented under the underlying basis since they
comprise mainly fees to external advisors in relation to customers loan
restructuring activities.
· Provisions for litigation, claims, regulatory and
other matters amounting to €6 million included in 'Other operating expenses'
under the statutory basis, are separately presented under the underlying
basis, since they mainly relate to a provision set aside for a potential
penalty on investigation by the ECB (approximately €3 million) and to cases
that arose outside the normal activities of the Group.
F.2 Customer deposits
The analysis of customer deposits is presented below:
30 September 31 December 2020
2021
By type of deposit €000 €000
Demand 8,857,412 8,149,688
Savings 2,273,472 1,970,975
Time or notice 5,997,301 6,412,549
17,128,185 16,533,212
By geographical area
Cyprus 17,128,185 16,533,212
Deposits by geographical area are based on the originator country of the
deposit.
30 September 31 December 2020
2021
By currency €000 €000
Euro 15,401,809 14,929,662
US Dollar 1,324,081 1,199,069
British Pound 309,009 288,102
Russian Rouble 18,573 28,618
Swiss Franc 9,339 9,901
Other currencies 65,374 77,860
17,128,185 16,533,212
By customer sector
Corporate 1,249,216 1,037,430
Global corporate 557,049 607,467
SMEs 814,481 832,576
Retail 10,847,594 10,525,819
Restructuring
- Corporate 24,097 27,889
- SMEs 12,762 16,688
- Retail other 10,515 10,561
Recoveries
- Corporate 1,485 3,251
International banking services 3,281,321 3,180,061
Wealth management 329,665 291,470
17,128,185 16,533,212
F. Notes (continued)
F.3 Loans and advances to customers
30 September 31 December 2020
2021
€000 €000
Gross loans and advances to customers at amortised cost 9,844,143 10,400,603
Allowance for ECL for impairment of loans and advances to customers (346,057) (804,417)
9,498,086 9,596,186
Loans and advances to customers measured at FVPL 289,050 289,861
9,787,136 9,886,047
F.4 Credit risk concentration of loans and advances to
customers
The credit risk concentration, which is based on industry (economic activity)
and by business line, as well as the geographical concentration, is presented
in the tables below. The geographical concentration, for credit risk
concentration purposes, is based on the Group's Country Risk Policy which is
followed for monitoring the Group's exposures, in accordance with which
exposures are analysed by country of risk based on the country of residency
for individuals and the country of registration for companies.
30 September 2021 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000 €000
Trade 970,997 530 143 660 3,514 145 975,989
Manufacturing 310,651 231 9 443 1,213 31,693 344,240
Hotels and catering 874,691 34,820 36,343 389 - 40,111 986,354
Construction 576,500 8,939 109 2,262 647 57 588,514
Real estate 877,074 125,589 1,984 20,859 - 42,756 1,068,262
Private individuals 4,362,118 9,534 128,584 1,280 38,674 74,006 4,614,196
Professional and other services 586,397 982 5,576 2,439 16,221 28,988 640,603
Other sectors 440,273 9 48 72 8 185,575 625,985
Total 8,998,701 180,634 172,796 28,404 60,277 403,331 9,844,143
30 September 2021
By business line
Corporate 1,981,293 9,709 97 227 15,592 2,373 2,009,291
Global corporate 1,412,201 160,905 42,961 22,531 - 312,135 1,950,733
SMEs 1,043,455 757 2,068 2,246 4,821 2,257 1,055,604
Retail
- housing 3,004,785 3,480 52,274 726 5,062 26,080 3,092,407
- consumer, credit cards and other 895,801 1,343 1,217 197 250 1,898 900,706
Restructuring
- corporate 66,004 - 524 - - 4,239 70,767
- SMEs 76,489 20 351 - 246 377 77,483
- retail housing 76,599 189 2,040 - 411 779 80,018
- retail other 38,034 13 212 - 4 260 38,523
Recoveries
- corporate 42,399 - 8 1,861 225 247 44,740
- SMEs 35,961 10 2,699 307 3,563 2,585 45,125
- retail housing 122,245 341 46,300 165 9,082 18,832 196,965
- retail other 91,677 34 4,868 4 1,537 1,300 99,420
International banking services 73,650 2,511 16,626 140 19,484 23,685 136,096
Wealth management 38,108 1,322 551 - - 6,284 46,265
8,998,701 180,634 172,796 28,404 60,277 403,331 9,844,143
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
31 December 2020 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000 €000
Trade 1,014,445 717 252 3,767 7,291 112 1,026,584
Manufacturing 350,403 389 177 704 1,399 31,717 384,789
Hotels and catering 875,572 35,989 34,736 504 - 40,185 986,986
Construction 613,895 8,689 123 2,786 741 234 626,468
Real estate 867,601 127,342 1,899 33,484 - 41,223 1,071,549
Private individuals 4,670,357 8,024 163,613 1,202 48,361 84,830 4,976,387
Professional and other services 652,928 407 5,711 3,968 23,074 39,933 726,021
Other sectors 432,569 13 219 838 5 168,175 601,819
9,477,770 181,570 206,730 47,253 80,871 406,409 10,400,603
31 December 2020 (restated*)
By business line
Corporate 1,922,810 8,949 94 605 18,913 2,760 1,954,131
Global corporate 1,344,983 163,153 41,334 35,546 9,308 302,734 1,897,058
SMEs 1,081,773 708 2,881 2,393 4,361 2,337 1,094,453
Retail
- housing 2,862,802 3,052 57,627 623 6,051 25,622 2,955,777
- consumer, credit cards and other 884,151 1,286 1,507 196 256 2,061 889,457
Restructuring
- corporate 165,161 - 532 - - 5,324 171,017
- SMEs 98,931 - 883 - 97 240 100,151
- retail housing 143,540 182 3,600 130 377 1,591 149,420
- retail other 79,617 202 118 1 8 18 79,964
Recoveries
- corporate 30,963 - 9 4,948 1 256 36,177
- SMEs 57,559 9 3,154 2,643 8,079 3,770 75,214
- retail housing 374,056 326 70,621 160 11,947 27,952 485,062
- retail other 337,500 34 6,108 4 304 1,890 345,840
International banking services 68,923 2,905 18,262 4 21,169 24,075 135,338
Wealth management 25,001 764 - - - 5,779 31,544
9,477,770 181,570 206,730 47,253 80,871 406,409 10,400,603
*Following a reorganisation of the RRD portfolio and mainly of the terminated
exposures, certain loans were reclassified within the 'Restructuring' and
'Recoveries' business lines. As a result comparative information has been
restated to present information on a consistent basis. The table below
presents the gross loans and advances to customers for 'Restructuring' and
'Recoveries' business lines as previously presented in the 2020 Annual
Financial Report.
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
31 December 2020 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000 €000
Restructuring
- corporate 175,386 - 524 - - 5,324 181,234
- SMEs 86,644 189 1,633 - 263 133 88,862
- retail housing 130,661 182 2,849 130 219 1,703 135,744
- retail other 94,560 13 127 - - 12 94,712
Recoveries
- corporate 20,388 - - 7,592 - 23 28,003
- SMEs 87,276 9 275 - 1,465 1,728 90,753
- retail housing 364,775 326 73,460 160 18,511 30,042 487,274
- retail other 327,637 34 6,157 4 355 2,076 336,263
1,287,327 753 85,025 7,886 20,813 41,041 1,442,845
The loans and advances to customers include lending exposures in Cyprus with
collaterals in Greece with a carrying value of €91,276 thousand (31 December
2020: €85,424 thousand).
Loans and advances to customers classified as held for sale
Industry (economic activity), business line and geographical concentrations of
the Group's gross loans and advances to customers at amortised cost classified
as held for sale are presented in the tables below:
30 September 2021 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000
Trade 57,486 - - - - 57,486
Manufacturing 24,328 - 1 - - 24,329
Hotels and catering 15,402 - 1 - - 15,403
Construction 28,132 - - - - 28,132
Real estate 6,731 - - - - 6,731
Private individuals 372,411 - 1,070 791 3,547 377,819
Professional and other services 27,839 - 1 - - 27,840
Other sectors 11,774 - 1 - - 11,775
544,103 - 1,074 791 3,547 549,515
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
Loans and advances to customers classified as held for sale (continued)
30 September 2021 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000
Corporate 68 - - - - 68
SMEs 168 - - - - 168
Retail
- housing 1,321 - - - 34 1,355
- consumer, credit cards and other 530 - - - - 530
Restructuring
- corporate 1,142 - - - - 1,142
- SMEs 5,227 - - - - 5,227
- retail housing 23,696 - 504 - - 24,200
- retail other 12,630 - - - - 12,630
Recoveries
- corporate 7,168 - - - - 7,168
- SMEs 21,813 - 1 753 377 22,944
- retail housing 241,474 - 563 38 2,964 245,039
- retail other 228,866 - 6 - 172 229,044
Total 544,103 - 1,074 791 3,547 549,515
31 December 2020
By economic activity
Trade 137,088 - - - - 137,088
Manufacturing 49,724 84 305 - 560 50,673
Hotels and catering 30,266 - 496 - 29 30,791
Construction 151,907 - 8 26 76 152,017
Real estate 68,685 - - - 314 68,999
Private individuals 712,742 1,423 16,225 10,004 14,969 755,363
Professional and other services 85,933 199 62 1,093 192 87,479
Other sectors 58,845 - - - - 58,845
1,295,190 1,706 17,096 11,123 16,140 1,341,255
F. Notes (continued)
F.4 Credit risk concentration of loans and advances to
customers (continued)
Loans and advances to customers classified as held for sale (continued)
31 December 2020 (restated*) Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000
SMEs 3 - - - - 3
Retail
- housing 40 - - - - 40
- consumer, credit cards and other 23 - - - - 23
Restructuring
- corporate 64,957 - - - - 64,957
- SMEs 84,811 - 257 - 254 85,322
- retail housing 66,250 - 1,689 163 350 68,452
- retail other 29,052 1 327 - - 29,380
Recoveries
- corporate 85,548 - - 462 103 86,113
- SMEs 371,625 149 2,407 919 1,844 376,944
- retail housing 312,890 1,305 10,547 7,649 10,227 342,618
- retail other 279,991 251 1,869 1,930 3,362 287,403
1,295,190 1,706 17,096 11,123 16,140 1,341,255
*Following a reorganisation of the RRD portfolio and mainly of the terminated
exposures, certain loans were reclassified within the 'Restructuring' and
'Recoveries' business lines. As a result comparative information has been
restated to present information on a consistent basis. The table below
presents the gross loans and advances to customers classified as held for
sale for 'Restructuring' and 'Recoveries' business lines as previously
presented in the 2020 Annual Financial Report.
31 December 2020 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000
Restructuring
- corporate 65,947 - - - - 65,947
- SMEs 117,541 1 1,734 163 368 119,807
- retail housing 21,584 - 402 - 76 22,062
- retail other 39,998 - 137 - 160 40,295
Recoveries
- corporate 132,494 - 1,164 3,552 2,918 140,128
- SMEs 365,829 149 2,993 842 1,842 371,655
- retail housing 298,136 1,305 9,019 5,705 7,492 321,657
- retail other 253,595 251 1,647 861 3,284 259,638
1,295,124 1,706 17,096 11,123 16,140 1,341,189
F. Notes (continued)
F.5 Analysis of loans and advances to customers by stage
The following tables present the Group's gross loans and advances at amortised
cost before residual fair value adjustment on initial recognition and at
amortised cost, by stage.
30 September 2021 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on 7,321,037 1,783,110 672,877 183,599 9,960,623
initial recognition
Residual fair value adjustment on initial recognition (75,117) (23,241) (6,333) (11,789) (116,480)
Gross loans at amortised cost 7,245,920 1,759,869 666,544 171,810 9,844,143
31 December 2020
Gross loans at amortised cost before residual fair value adjustment on initial 6,681,481 2,148,946 1,380,926 335,852 10,547,205
recognition
Residual fair value adjustment on initial recognition (72,591) (25,815) (9,376) (38,820) (146,602)
Gross loans at amortised cost 6,608,890 2,123,131 1,371,550 297,032 10,400,603
Loans and advances to customers classified as held for sale
30 September 2021 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on - 1,461 472,038 95,803 569,302
initial recognition
Residual fair value adjustment on initial recognition - (38) (2,393) (17,356) (19,787)
Gross loans at amortised cost - 1,423 469,645 78,447 549,515
31 December 2020
Gross loans at amortised cost before residual fair value adjustment on 6,177 21,801 1,138,587 221,365 1,387,930
initial recognition
Residual fair value adjustment on initial recognition (41) 397 (7,650) (39,381) (46,675)
Gross loans at amortised cost 6,136 22,198 1,130,937 181,984 1,341,255
F. Notes (continued)
F.5 Analysis of loans and advances to customers by stage
(continued)
The following tables present the Group's gross loans and advances to customers
at amortised cost by stage and by business line concentration:
30 September 2021 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate 1,512,475 453,779 22,321 20,716 2,009,291
Global corporate 1,337,165 514,663 65,509 33,396 1,950,733
SMEs 793,682 236,428 14,740 10,754 1,055,604
Retail
- housing 2,718,855 308,053 53,733 11,766 3,092,407
- consumer, credit cards and other 728,897 128,661 26,034 17,114 900,706
Restructuring
- corporate 6,326 36,978 19,891 7,572 70,767
- SMEs 14,579 16,244 40,930 5,730 77,483
- retail housing 1,942 12,110 62,642 3,324 80,018
- retail other 1,524 4,639 31,122 1,238 38,523
Recoveries
- corporate - - 37,482 7,258 44,740
- SMEs - - 39,274 5,851 45,125
- retail housing - - 165,876 31,089 196,965
- retail other 127 - 83,991 15,302 99,420
International banking services 90,302 42,741 2,807 246 136,096
Wealth management 40,046 5,573 192 454 46,265
7,245,920 1,759,869 666,544 171,810 9,844,143
31 December 2020 (restated*)
By business line
Corporate 1,519,663 362,199 37,635 34,634 1,954,131
Global corporate 1,393,025 367,147 102,881 34,005 1,897,058
SMEs 740,305 325,412 17,731 11,005 1,094,453
Retail
- housing 2,223,620 651,980 68,644 11,533 2,955,777
- consumer, credit cards and other 588,339 251,022 33,095 17,001 889,457
Restructuring
- corporate 29,108 64,706 60,719 16,484 171,017
- SMEs 13,263 25,167 54,003 7,718 100,151
- retail housing 2,475 13,599 127,558 5,788 149,420
- retail other 943 4,047 71,910 3,064 79,964
Recoveries
- corporate - - 29,431 6,746 36,177
- SMEs - - 65,287 9,927 75,214
- retail housing - - 404,337 80,725 485,062
- retail other 221 13 288,374 57,232 345,840
International banking services 76,160 49,222 9,767 189 135,338
Wealth management 21,768 8,617 178 981 31,544
6,608,890 2,123,131 1,371,550 297,032 10,400,603
*Following a reorganisation of the RRD portfolio and mainly of the terminated
exposures, certain loans were reclassified within the 'Restructuring' and
'Recoveries' business lines, as explained in F.4 'Credit risk concentration of
loans and advances to customers'.
F. Notes (continued)
F.5 Analysis of loans and advances to customers by stage
(continued)
Loans and advances to customers classified as held for sale
The following tables present the Group's gross loans and advances to customers
at amortised cost classified as held for sale by stage and by business line
concentration.
30 September 2021 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate - - 68 - 68
SMEs - 168 - - 168
Retail
- housing - - 1,355 - 1,355
- consumer, credit cards and other - - 530 - 530
Restructuring
- corporate - - 1,142 - 1,142
- SMEs - 639 3,840 748 5,227
- retail housing - 616 22,208 1,376 24,200
- retail other - - 12,025 605 12,630
Recoveries
- corporate - - 6,588 580 7,168
- SMEs - - 21,264 1,680 22,944
- retail housing - - 207,801 37,238 245,039
- retail other - - 192,824 36,220 229,044
- 1,423 469,645 78,447 549,515
31 December 2020 (restated*)
By business line
SMEs - - - 3 3
Retail
- housing - 40 - - 40
- consumer, credit cards and other - 2 21 - 23
Restructuring
- corporate - 975 62,946 1,036 64,957
- SMEs 3,442 9,882 67,664 4,334 85,322
- retail housing 2,414 9,882 53,327 2,829 68,452
- retail other 280 1,417 26,665 1,018 29,380
Recoveries
- corporate - - 73,449 12,664 86,113
- SMEs - - 325,082 51,862 376,944
- retail housing - - 296,934 45,684 342,618
- retail other - - 224,849 62,554 287,403
6,136 22,198 1,130,937 181,984 1,341,255
* Following a reorganisation of the RRD portfolio and mainly of the terminated
exposures, certain loans were reclassified within the 'Restructuring' and
'Recoveries' business lines, as explained in F.4 'Credit risk concentration of
loans and advances to customers'.
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers
Nine months ended
30 September
2021 2020
€000 €000
Impairment loss net of reversals on loans and advances to customers 24,437 212,773
Recoveries of loans and advances to customers previously written off (8,644) (17,734)
Changes in expected cash flows 12,018 17,925
Financial guarantees and commitments 2,608 (1,642)
30,419 211,322
The movement in ECL of loans and advances to customers, including the loans
and advances to customers held for sale, and the analysis of the balance by
stage is as follows:
Nine months ended
30 September
2021 2020
€000 €000
1 January 1,652,635 1,803,550
Foreign exchange and other adjustments 1,753 (4,366)
Write offs (224,122) (289,374)
Interest (provided) not recognised in the income statement 42,295 59,570
Disposal of Helix 2/Velocity 2 portfolios (851,093) (112,098)
Charge for the period 24,437 212,773
30 September 645,905 1,670,055
Stage 1 16,167 23,813
Stage 2 33,920 34,590
Stage 3 523,279 1,403,378
POCI 72,539 208,274
30 September 645,905 1,670,055
The allowance for ECL, included above, for loans and advances to customers
held for sale as at 30 September 2021 amounted to €299,848 thousand (30
September 2020: €538,637 thousand).
The charge on loans and advances to customers, including the loans and
advances to customers held for sale, by stage for the period is presented in
the table below:
Nine months ended
30 September
2021 2020
€000 €000
Stage 1 (16,145) 3,969
Stage 2 969 (5,373)
Stage 3 39,613 214,177
24,437 212,773
During the nine months ended 30 September 2021 the total non‑contractual
write‑offs recorded by the Group amounted to €204,095 thousand (nine
months ended 30 September 2020: €212,782 thousand). The contractual amount
outstanding on financial assets (including loans and advances to customers
classified as held for sale) that were written off during the nine months
ended 30 September 2021 and that are still subject to enforcement activity
is €736,121 thousand (31 December 2020: €1,062,224 thousand).
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers (continued)
Assumptions have been made about the future changes in property values, as
well as the timing for the realisation of collateral, taxes and expenses on
the repossession and subsequent sale of the collateral as well as any other
applicable haircuts. Indexation has been used as the basis to estimate updated
market values of properties supplemented by management judgement where
necessary given the difficulty in differentiating between short term impacts
and long term structural changes and the shortage of market evidence for
comparison purposes. Assumptions were made on the basis of a macroeconomic
scenario for future changes in property prices, and these are capped to zero,
for all scenarios, in case of any future projected increase, whereas any
future projected decrease is taken into consideration.
At 30 September 2021 the weighted average haircut (including liquidity haircut
and selling expenses) used in the collectively assessed provision calculation
for loans and advances to customers excluding those classified as held for
sale is approximately 32% under the baseline scenario (31 December 2020:
approximately 32%).
The timing of recovery from real estate collaterals used in the collectively
assessed provision calculation for loans and advances to customers, excluding
those classified as held for sale, has been estimated to be on average seven
years under the baseline scenario (31 December 2020: average seven years).
For the calculation of individually assessed allowances for ECL, the timing of
recovery of collaterals as well as the haircuts used are based on the specific
facts and circumstances of each case.
For the calculation of expected credit losses three scenarios were used; base,
adverse and favourable with 50%, 30% and 20% probability respectively.
For Stage 3 customers, the base scenario focuses on the following variables,
which are based on the specific facts and circumstances of each customer: the
operational cash flows, the timing of recovery of collaterals and the haircuts
from the realisation of collateral. The base scenario is used to derive
additional more favourable or more adverse scenarios. Under the adverse
scenario operational cash flows are decreased by 50%, applied haircuts on real
estate collateral are increased by 50% and the timing of recovery of
collaterals is increased by 1 year with reference to the baseline scenario.
Under the favourable scenario, applied haircuts are decreased by 5%, with no
change in the operational cash flows and in the recovery period with reference
to the baseline scenario. Assumptions used in estimating expected future cash
flows (including cash flows that may result from the realisation of
collateral) reflect current and expected future economic conditions and are
generally consistent with those used in the Stage 3 collectively assessed
exposures. In the case of loans and advances to customers held for sale the
Group has taken into consideration the timing of the expected sale and the
estimated sale proceeds in determining the ECL. Amounts previously written off
which are expected to be recovered through sale are included in 'Recoveries of
loans and advances to customers previously written off'.
The above assumptions are also influenced by the ongoing regulatory dialogue
BOC PCL maintains with its lead regulator, the ECB, and other regulatory
guidance and interpretations issued by various regulatory and industry bodies
such as the ECB and the EBA, which provide guidance and expectations as to
relevant definitions and the treatment/classification of certain
parameters/assumptions used in the estimation of allowance for ECL.
Any changes in these assumptions or differences between assumptions made and
actual results could result in significant changes in the estimated amount of
expected credit losses of loans and advances to customers.
Overlays in the context of COVID‑19
Following the COVID-19 pandemic, the Group considered the complexities of
governmental support programmes and regulatory guidance on the treatment of
customer payment breaks by the ECL models. In this context, management has
considered the data and measurement limitations arising from the extraordinary
impact of COVID-19 and addressed them through management overlays in relation
to the significant credit risk deterioration, behavioural ratings and PD. The
majority of COVID-19 related management overlays applied in 2020 and up during
the first six months of 2021 were removed in the third quarter of 2021
following the availability of recent financial information (such as financial
statements) and continuing signs of recovery in the third quarter of 2021
(such as the repaying percentage (96%) of moratorium customers nine months
after the end of moratorium).
The Group has exercised critical judgement on a best effort basis, to consider
all reasonable and supportable information available at the time of the
assessment of the ECL allowance as at 30 September 2021. The Group will
continue to evaluate the ECL allowance and the related economic outlook each
quarter, so that any changes arising from the uncertainty on the macroeconomic
outlook impacted by the additional progress in vaccinations and medication,
degree of recurrence of the disease due to virus mutations, such as the
Omicron variant, and the persistent positive effect of fiscal and monetary
policy, are timely captured.
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to
customers (continued)
SICR adjustment
Following an assessment performed for SICR for customers that had taken up the
moratorium in 2020, a management overlay was applied, in order to capture any
bias introduced in the customer's credit ratings by defining collective rules
that can assess Stage 1 and Stage 2 misclassified customers, due to skewed
outlook of the idiosyncratic risk. The exercise carried out compared the
observed with the expected score/rating (adjusted for the days past due and
arrears elements that did not apply during the moratorium period so as to
assess if any customers exhibit severe deterioration/improvement).
Additionally, stricter customers' credit ratings thresholds have been applied
for customers in the hotel and catering industry sector. A staging overlay was
then applied on these customers in order to classify them accordingly to Stage
2. At 30 September 2021, this overlay continued to apply only for the
customers in the hotel and catering industry. The isolated impact of this
overlay resulted in a transfer of loans of €65 million from Stage 1 to Stage
2 during the nine months ended 30 September 2021. This overlay had an impact
on the ECL of €308 thousand for the nine months ended 30 September 2021.
Given the data available since the expiry of the moratorium, any exposures
that were assessed as having experienced a SICR in 2020, and were classified
to Stage 2 following overlays performed, were allowed to return to Stage 1, if
no SICR was identified by the models. This overlay has been removed and led to
a transfer back to Stage 1 of €451 million exposures, resulting in the
reversal of ECL of approximately €3 million during the nine months ended 30
September 2021.
Additionally, exposures that did not participate in the 2020 moratorium but
were identified as having experienced a SICR during 2020 and therefore
transferred to Stage 2 were allowed to migrate back to Stage 1 if they did not
exhibit a SICR as at 30 June 2021. This overlay has been removed and led to a
transfer back to Stage 1 of €301 million exposures, resulting in an ECL
release of €3.5 million during the nine months ended 30 September 2021.
Probability of default and behavioural rating adjustment
A PD overlay, maintained from 2020 in order to avoid extreme values in the
model predictions whilst ensuring that the moratorium will not cause a
timeline misalignment between the model-projected and observed 2021 defaults
was removed during the third quarter of 2021. This overlay had an isolated ECL
impact of €11 million in 2020 and a corresponding ECL release upon its
removal during the nine months ended 30 September 2021.
The PD overlay applied in 2020 relating to behavioural ratings, where a
prudent logic was applied in order to prevent any moratorium-biased rating to
reflect an improved asset quality, was removed in 2021. This overlay did not
allow any moratorium facilities to have improved ratings when compared to
their corresponding February 2020 rating and resulted in an ECL increase of
€5 million during 2020. The overlay was removed during the first quarter of
2021 and resulted in an ECL release of €5 million for the nine months ended
30 September 2021.
Other ECL changes during 2021
Cure model recalibration
The cure model is one of the main components of the loss given default (LGD)
of the IFRS9 model which allows estimation of the lifetime probability of a
defaulted account to return to non-default status. During the third quarter of
2021, cure model recalibration was performed mainly to address the
low-default/cure environment observed in the recent period prior to moratorium
and investigate the considered model development period such that is retains
the through-the-cycle nature of the model. The calibration was performed on
the most recent changes in definition of default introduced in January 2021
and had an ECL impact of approximately €28 million for the nine months ended
30 September 2021.
SICR trigger
During the second quarter of 2021, another qualitative factor that triggers
SICR has been introduced, that is the granting of forbearance measures to
performing borrowers. Stage 1 exposures that are classified as 'performing
forborne' are automatically transferred to Stage 2. The impact of this new
criterion was €202 million of loans and advances to customers to be
transferred from Stage 1 to Stage 2 and the respective impact on the ECL was
an increase of €1,486 thousand when this criterion was first introduced.
.
F.7 Rescheduled loans and advances to customers
The below table presents the Group's rescheduled loans and advances to
customers by stage, excluding those classified as held for sale.
30 September 2021 31 December 2020
€000 €000
Stage 1 108 199,193
Stage 2 704,586 242,493
Stage 3 392,722 686,944
POCI 46,357 98,400
1,143,773 1,227,030
F. Notes (continued)
F.8 Pending litigation, claims, regulatory and other matters
The Group, in the ordinary course of business, is subject to enquiries and
examinations, requests for information, audits, investigations, legal and
other proceedings by regulators, governmental and other public bodies, actual
and threatened, relating to the suitability and adequacy of advice given to
clients or the absence of advice, lending and pricing practices, selling and
disclosure requirements, record keeping, filings and a variety of other
matters. In addition, as a result of the deterioration of the Cypriot economy
and banking sector in 2012 and the subsequent restructuring of BOC PCL in 2013
as a result of the bail-in Decrees, BOC PCL is subject to a large number of
proceedings and a number of investigations that either precede, or result from
the events that occurred during the period of the bail-in Decrees. Most
proceedings of significance relate to matters arising during the period prior
to the issue of the bail-in Decrees.
Further, the Group, as part of its disposal process of certain of its
operations, has provided various representations, warranties and indemnities
to the buyers. These relate to, among other things, the ownership of the
loans, the validity of the loan securities, data quality, tax exposures and
other matters agreed with the buyers. As a result, the Group may be obliged to
compensate the buyers in the event of a valid claim by the buyers with respect
to these representations, warranties and indemnities.
Provisions have been recognised for those cases where the Group is able to
estimate probable losses. Any provision recognised does not constitute an
admission of wrongdoing or legal liability. While the outcome of these matters
is inherently uncertain, management believes that, based on the information
available to it, appropriate provisions have been made in respect of legal
proceedings and regulatory and other matters.
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures
G.1 Additional Credit risk disclosures
Definitions
Non-Performing Exposures (NPEs(1)) 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 Central Bank of Cyprus (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/GL/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:
- Retail exposures: Total arrears/excess amount greater than €100
- 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%.
Non-performing forborne exposures cease to be considered as NPEs and in such
case are transferred out of Stage 3, only when all of the following conditions
are met:
(i) The extension of forbearance measures does not lead
to the recognition of impairment or default.
(ii) A period of one year has passed since the latest of
the following events:
a) The restructuring date
b) The date the exposure was classified as non-performing
c) The end of the grace period included in the restructuring
arrangements
(iii) Following the forbearance measures and according to
the post-forbearance conditions, there is no past due amount or concerns
regarding the full repayment of the exposure.
(iv) No unlikely-to-pay criteria exist for the debtor.
The debtor has made post-forbearance payments of a non-insignificant amount of
capital (different capital thresholds exist according to the facility type).
Exposures are classified as forborne when concessions are made to debtors who
are facing or about to face financial difficulties and cannot meet their
contractual obligations.
(1 )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).
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.1 Additional Credit risk disclosures (continued)
Non‑performing non‑forborne exposures cease to be considered as NPEs only
when all of the following conditions are met:
i. At least three months have passed since the
date that the conditions for which the exposure was classified as
non-performing cease to be met, and within these three months there are no
default triggers, and
ii. During the three month period, the behaviour
of the obligor should be taken into account, i.e. there are no
arrears/excesses and instalments are being repaid normally, and
iii. During the three month period, the financial
situation of the obligor should be taken into account, i.e. the financial
situation of the obligor has improved, and
iv. During the three month period an
Unlikely‑to‑Pay criteria assessment is carried out and it is assessed that
the obligor can fulfill their obligations without resorting to the liquidation
of collateral and there are no other Unlikely-to-Pay criteria.
The definitions of credit‑impaired and default are aligned.
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.1 Additional Credit risk disclosures (continued)
The tables below present the analysis of loans and advances to customers in
accordance with the EBA standards.
30 September 2021 Gross loans and advances to customers Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
Group gross customer Of which NPEs Of which exposures with forbearance measures Accumulated impairment, accumulated negative changes in fair value due to Of which NPEs Of which exposures with forbearance measures
credit risk and provisions
loans and advances(2,3)
Total exposures with forbearance measures Of which NPEs Total exposures with forbearance measures Of which on NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 52,152 - - - 93 - - -
Other financial corporations 127,289 7,971 10,041 3,499 5,133 3,279 1,606 1,387
Non-financial corporations 5,200,726 312,380 872,684 232,800 145,940 114,631 76,136 69,384
Of which: Small and Medium sized Enterprises(4)(SMEs) 4,060,741 158,795 598,795 89,243 104,560 74,244 41,977 36,019
Of which: Commercial real estate(4) 3,966,267 192,745 760,769 150,220 91,562 77,379 64,086 59,612
Non-financial corporations by sector
Construction 581,187 35,327 27,599
Wholesale and retail trade 957,348 47,321 33,137
Accommodation and food service activities 1,131,022 6,859 4,781
Real estate activities 1,126,365 107,377 6,906
Manufacturing 339,779 20,467 13,195
Other sectors 1,065,025 95,029 60,322
Households 4,759,883 501,561 486,863 272,512 201,748 182,137 89,002 81,444
Of which: Residential mortgage loans(4) 3,700,738 399,955 409,870 227,586 127,762 119,506 62,847 58,003
Of which: Credit for consumption(4) 576,010 67,036 62,246 35,098 43,092 36,178 17,694 16,016
10,140,050 821,912 1,369,588 508,811 352,914 300,047 166,744 152,215
Loans and advances to customers classified as held for sale 549,515 548,071 240,438 239,124 299,848 299,530 115,538 115,250
Total on-balance sheet 10,689,565 1,369,983 1,610,026 747,935 652,762 599,577 282,282 267,465
(2) Excluding loans and advances to central banks and credit institutions.
(3)The residual fair value adjustment on initial recognition (which relates
mainly to loans acquired from Laiki Bank and is calculated as the difference
between the outstanding contractual amount and the fair value of loans
acquired and bears a negative balance) is considered as part of the gross
loans, therefore decreases the gross balance of loans and advances to
customers.
(4) The analysis shown in lines 'non-financial corporations' and
'households' is non-additive across categories as certain customers could be
in both categories.
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.1 Additional Credit risk disclosures (continued)
Gross loans and advances to customers Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
31 December 2020
Group gross customer Of which NPEs Of which exposures with forbearance measures Accumulated impairment, accumulated negative changes in fair value due to Of which NPEs Of which exposures with forbearance measures
credit risk and provisions
loans and advances(5,6)
Total exposures with forbearance measures Of which NPEs Total exposures with forbearance measures Of which on NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 50,771 1 - - 1,949 - - -
Other financial corporations 115,668 10,494 17,303 4,568 7,232 5,545 2,604 1,907
Non-financial corporations 5,364,716 574,205 499,948 304,406 272,331 245,647 106,238 101,989
Of which: Small and Medium sized Enterprises(7) 3,797,095 387,568 327,344 193,938 230,595 210,511 91,092 87,496
Of which: Commercial real estate(7) 4,042,172 346,607 367,083 193,959 154,807 139,915 77,104 74,009
Non-financial corporations by sector
Construction 614,135 75,550 42,791
Wholesale and retail trade 997,904 134,135 80,885
Accommodation and food service activities 1,123,380 19,836 12,766
Real estate activities 1,129,066 140,532 30,355
Manufacturing 376,551 45,142 28,185
Other sectors 1,123,680 159,010 77,349
Households 5,160,342 1,055,706 821,614 544,408 523,938 495,784 231,313 221,722
Of which: Residential mortgage loans(7) 4,059,939 882,336 690,514 465,939 396,275 382,063 185,648 178,570
Of which: Credit for consumption(7) 622,102 133,351 89,725 68,763 82,951 74,473 33,363 32,285
10,691,497 1,640,406 1,338,865 853,382 805,450 746,976 340,155 325,618
Loans and advances to customers classified as held for sale 1,341,255 1,312,166 754,795 731,624 848,218 832,419 447,731 434,657
Total on-balance sheet 12,032,752 2,952,572 2,093,660 1,585,006 1,653,668 1,579,395 787,886 760,275
(5) Excluding loans and advances to central banks and credit institutions.
(6) The residual fair value adjustment on initial recognition (which relates
mainly to loans acquired from Laiki Bank and is calculated as the difference
between the outstanding contractual amount and the fair value of loans
acquired and bears a negative balance) is considered as part of the gross
loans, therefore decreases the gross balance of loans and advances to
customers.
(7) The analysis shown in lines 'non-financial corporations' and
'households' is non-additive across categories as certain customers could be
in both categories.
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.2 Capital management
The primary objective of the Group's capital management is to ensure
compliance with the relevant regulatory capital requirements and to maintain
strong credit ratings and healthy capital adequacy ratios in order to support
its business and maximise shareholders' value.
The capital adequacy framework, as in force, was incorporated through the
Capital Requirements Regulation (CRR) and Capital Requirements Directive IV
(CRD IV) and came into effect on 1 January 2014 with certain specified
provisions implemented gradually. The CRR and CRD IV transposed the new
capital, liquidity and leverage standards of Basel III into the European
Union's legal framework. CRR establishes the prudential requirements for
capital, liquidity and leverage for credit institutions and investment firms.
It is directly applicable in all EU member states. CRD IV governs access to
deposit-taking activities and internal governance arrangements including
remuneration, board composition and transparency. Unlike the CRR, member
states were required to transpose the CRD IV into national law and national
regulators were allowed to impose additional capital buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRD V)
came into force. As an amending regulation, the existing provisions of CRR
apply, unless they are amended by CRR II. Certain provisions took immediate
effect (primarily relating to Minimum Requirement for Own Funds and Eligible
Liabilities (MREL)), but most changes became effective as of June 2021. The
key changes introduced consist of, among others, changes to qualifying
criteria for Common Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2
(T2) instruments, introduction of requirements for MREL and a binding Leverage
Ratio requirement and a Net Stable Funding Ratio (NSFR).
The amendments that came into effect on 28 June 2021 are in addition to those
introduced in June 2020 through Regulation (EU) 2020/873, which among other
brought forward certain CRR II changes in light of the COVID‑19 pandemic.
The main adjustments of Regulation (EU) 2020/873 that had an impact on the
Group's capital ratio relate to the acceleration of the implementation of the
new SME discount factor (lower RWAs), extending the IFRS 9 transitional
arrangements and introducing further relief measures to CET1 allowing to fully
add back to CET1 any increase in ECL recognised in 2020 and 2021 for
non-credit impaired financial assets and phasing in this starting from 2022
and advancing the application of prudential treatment of software assets as
amended by CRR II (which came into force in December 2020). In addition,
Regulation (EU) 2020/873 introduced a temporary treatment of unrealized gains
and losses on exposures to central governments, to regional governments or to
local authorities measured at fair value through other comprehensive income
which the Group elected to apply and implemented from the third quarter of
2020.
In October 2021, the European Commission adopted legislative proposals for
further amendments to CRR, CRD IV and the BRRD (the "2021 Banking Package").
Amongst other things, the 2021 Banking Package would implement certain
elements of Basel III that have not yet been transposed into EU law. The
2021 Banking Package includes:
· a proposal for a Regulation (sometimes known as "CRR III") to
make amendments to CRR with regard to (amongst other things) requirements on
credit risk, credit valuation adjustment risk, operational risk, market risk
and the output floor;
· a proposal for a Directive (sometimes known as "CRD VI") to make
amendments to CRD IV with regard to (amongst other things) requirements on
supervisory powers, sanctions, third-country branches and ESG risks; and
· a proposal for a Regulation to make amendments to CRR and the
BRRD with regard to (amongst other things) requirements on the prudential
treatment of G-SII groups with a multiple point of entry resolution strategy
and a methodology for the indirect subscription of instruments eligible for
meeting the MREL requirements.
The 2021 Banking Package is subject to amendment in the course of the EU's
legislative process; and its scope and terms may change prior to its
implementation. In addition, in the case of the proposed amendments to CRD IV
and the BRRD, their terms and effect will depend, in part, on how they are
transposed in each member state. As a general matter, it is likely to be
several years until the 2021 Banking Package begins to be implemented; and
certain measures are expected to be subject to transitional arrangements or to
be phased in over time.
The CET1 ratio of the Group as at 30 September 2021 stands at 14.66% and the
total capital ratio at 19.66% on a transitional basis. The ratios as at 30
September 2021 include unaudited/un-reviewed profits for the nine months ended
30 September 2021.
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.2 Capital management (continued)
CET1 Regulatory Capital Requirements 2021 2020*
Pillar I - CET1 Requirement 4.50% 4.50%
Pillar II - CET1 Requirement 1.69% 1.69%
Capital Conservation Buffer (CCB)** 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer 1.00% 1.00%
Minimum CET1 Regulatory Requirements 9.69% 9.69%
* As amended in April 2020 by ECB SREP amending decision following COVID-19
outbreak
** Fully phased in as of 1 January 2019
Minimum Total Capital Regulatory Requirements 2021 2020
Pillar I - Total Capital Requirement 8.00% 8.00%
Pillar II - Total Capital Requirement 3.00% 3.00%
Capital Conservation Buffer (CCB)* 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer 1.00% 1.00%
Minimum Total Capital Regulatory Requirements 14.50% 14.50%
* Fully phased in as of 1 January 2019
The minimum Pillar I total capital requirement is 8.0% and may be met, in
addition to the 4.5% CET1 requirement, with up to 1.5% by AT1 capital and with
up to 2.0% by T2 capital.
The ECB has also provided non-public guidance for an additional Pillar II CET1
buffer.
As part of the relaxation measures following the COVID-19 outbreak, on 12
March 2020, the ECB and the EBA also announced that banks are temporarily
allowed to operate below the level of capital defined by Pillar II Guidance
(P2G), the CCB and the Countercyclical Capital Buffer (CCyB). In July 2020,
the ECB committed to allow banks to operate below P2G and the Combined Buffer
Requirement until at least the end of 2022, without automatically triggering
supervisory actions.
The above minimum ratios apply for both BOC PCL and the Group.
The capital position of the Group and BOC PCL as at 30 September 2021 exceeds
both their Pillar I and their Pillar II add-on capital requirements. However,
the Pillar II add-on capital requirements are a point-in-time assessment and
therefore are subject to change over time. Further information is provided in
Section A.1.1. Capital Base.
The CBC, in accordance with the Macroprudential Oversight of Institutions Law
of 2015, sets, on a quarterly basis, the CCyB level in accordance with the
methodology described in this law. The CBC has set the level of the CCyB for
risk weighted exposures in Cyprus at 0% for the years 2020 and 2021.
In accordance with the provisions of this law, the CBC is also the responsible
authority for the designation of banks that are Other Systemically Important
Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for
these systemically important banks. BOC PCL has been designated as an O-SII
and the CBC set the O-SII buffer at 2.0%, revised to 1.5% in November 2021
with effect from 1 January 2022.
This buffer is being phased in gradually, having started from 1 January 2019
at 0.5% and increasing by 0.5% every year thereafter, until being fully
implemented. In April 2020, the CBC decided to delay the phasing in of the
O-SII buffer on 1 January 2021 and 1 January 2022 by 12 months. Consequently,
the O-SII buffer will be fully phased in on 1 January 2023, instead of 1
January 2022 as originally set, by 0.25% each year.
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.2 Capital management (continued)
The insurance subsidiaries of the Group comply with the requirements of the
Superintendent of Insurance including the minimum solvency ratio as at 30
September 2021 and 31 December 2020. The regulated UCITS management company of
the Group, BOC Asset Management Ltd, complies with the regulatory capital
requirements of the CySEC laws and regulations as at 30 September 2021 and 31
December 2020. The regulated investment firm (CIF) of the Group, The Cyprus
Investment and Securities Corporation Ltd (CISCO), complies with the minimum
capital adequacy ratio requirements as at 30 September 2021 and 31 December
2020.
The capital position of the Group and BOC PCL as at the reporting date (after
applying the transitional arrangements) is presented below:
Regulatory capital Group BOC PCL
30 September 31 December 30 September 31 December
2021(8) 2020(9) 2021(8) 2020(9)
€000 €000 €000 €000
Transitional Common Equity Tier 1 (CET1)(10) 1,611,742 1,722,751 1,584,948 1,688,296
Transitional Additional Tier 1 capital (AT1) 220,000 220,000 220,000 220,000
Tier 2 capital (T2) 328,794 192,248 339,205 250,000
Transitional total regulatory capital 2,160,536 2,134,999 2,144,153 2,158,296
Risk weighted assets - credit risk(11) 9,859,753 10,504,937 9,875,376 10,516,023
Risk weighted assets - market risk - - - -
Risk weighted assets - operational risk 1,131,438 1,131,438 1,078,575 1,078,575
Total risk weighted assets 10,991,191 11,636,375 10,953,951 11,594,598
% % % %
Transitional Common Equity Tier 1 ratio 14.66 14.80 14.47 14.56
Transitional total capital ratio 19.66 18.35 19.57 18.61
The capital ratios of the Group and BOC PCL as at the reporting date on a
fully loaded basis are presented below:
Fully loaded Group BOC PCL
30 September 31 December 30 September 31 December
2021(8,12) 2020(9,12) 2021(8,12) 2020(9,12)
% % % %
Common Equity Tier 1 ratio 13.30 12.94 13.09 12.69
Total capital ratio 18.38 16.74 18.28 16.83
During the nine months ended 30 September 2021 CET1 was negatively affected
mainly by the phasing-in of IFRS 9 transitional adjustments on 1 January 2021,
provisions and impairments, the prudential charge relating to the Group's
foreclosed assets of approximately 44 bps (further explained below), costs
relating to the tender process for the Old Tier 2 Capital Notes, and was
positively affected by pre-provision income, the impact of Helix 2 and Helix 3
transactions, the movement in other prudential items and the decrease in
risk-weighted assets. As a result, the CET1 ratio has decreased by 14 bps
during the nine months ended 30 September 2021.
8 Includes unaudited/un-reviewed profits for the nine months ended 30
September 2021.
9 As per Annual Report 2020 and Pillar III Disclosures 2020.
1(0) CET1 includes regulatory deductions, comprising, amongst others,
intangible assets amounting to €26,803 thousand for the Group and €23,369
thousand for BOC PCL as at 30 September 2021 (31 December 2020: €27,171
thousand for the Group and €24,269 thousand for BOC PCL). As at 30 September
2021 an amount of €16,048 thousand is considered prudently valued for CRR
purposes and it is not deducted from CET1 (31 December 2020:€21,985
thousand).
1(1) Includes Credit Valuation Adjustments (CVA).
1(2) IFRS 9 and application of the temporary treatment of certain FVOCI
instruments in accordance with Article 468 of CRR fully loaded.
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.2 Capital management (continued)
The Group has elected in prior years to apply the static-dynamic approach in
relation to the transitional arrangements for the initial application of IFRS
9, where the impact on the impairment amount from the initial application of
IFRS 9 on the capital ratios is phased in gradually, pursuant to EU Regulation
2017/2395 and it therefore applies paragraph 4 of Article 473(a) of the CRR.
The 'static-dynamic' approach allows for recalculation of the transitional
adjustment periodically on Stage 1 and Stage 2 loans, so as to reflect the
increase of the ECL provisions within the transition period. The Stage 3 ECL
remains static over the transition period as per the impact upon initial
recognition.
The amount added each year for the 'static component' decreases based on a
weighting factor until the impact of IFRS 9 is fully absorbed back to CET1 at
the end of the five years. The impact on the capital position for year 2018
was 5% of the impact on the impairment amounts from the initial application of
IFRS 9, increasing to 15% (cumulative) for year 2019, to 30% (cumulative) for
year 2020 and 50% (cumulative) for year 2021. This will increase to 75%
(cumulative) for year 2022 and will be fully phased in (100%) by 1 January
2023.
Following the June 2020 amendments to the CRR, the Group applied the
amendments in relation to the IFRS 9 transitional arrangements for Stage 1 and
Stage 2 loans (i.e. the 'dynamic component') which provide for the extension
of the transitional period for the 'dynamic component'. A 100% add back of
IFRS 9 provisions is allowed for the years 2020 and 2021, reducing to 75% in
2022, to 50% in 2023 and to 25% in 2024. The calculation at each reporting
period is to be made against Stage 1 and Stage 2 provisions as at 1 January
2020, instead of 1 January 2018. The calculation of the 'static component' has
not been amended.
In relation to the temporary treatment of unrealized gains and losses for
certain exposures measured at fair value through other comprehensive income,
Regulation EU 2020/873 allows institutions to remove from their CET1 the
amount of unrealized gains and losses accumulated since 31 December 2019,
excluding those of financial assets that are credit-impaired. The relevant
amount is removed at a scaling factor of 100% from January to December 2020,
reduced to 70% from January to December 2021 and to 40% from January to
December 2022. The Group applies the temporary treatment from the third
quarter of 2020.
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 BOC PCL's progress in disposing the properties in scope. The amount
is being directly deducted from own funds since 30 June 2021, resulting in a
decrease in the Group's CET1 ratio as at 30 September 2021 by approximately 44
bps.
In April 2021, the Company issued €300 million unsecured and subordinated
Tier 2 Capital Notes (the 'New T2 Notes') and immediately after, the Company
and BOC PCL entered into an agreement pursuant to which the Company on-lent to
BOC PCL the entire €300 million proceeds of the issue of the New T2 Notes on
terms substantially identical to the terms and conditions of the New T2 Notes.
At the same time, BOC PCL invited the holders of its €250 million Fixed Rate
Reset Tier 2 Capital Notes due January 2027 (the 'Old T2 Notes') to tender
their Old T2 Notes for purchase by BOC PCL.
As at 30 September 2021, the Tier Capital 2 Notes contribute approximately 299
bps to the Group's Total Capital ratio, of which approximately 26 bps relate
to the remaining Old T2 Notes. The Old T2 Notes are redeemable at the option
of BOC PCL in January 2022.
Minimum requirement for own funds and eligible liabilities
In April 2021, BOC PCL 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 BOC PCL, determined as the preferred
resolution point of entry.
As per the decision, the MREL requirement is set at 23.32% of risk weighted
assets and 5.91% of Leverage Ratio Exposure (LRE) and must be met by 31
December 2025. Furthermore, BOC PCL must comply by 1 January 2022 with an
interim requirement of 14.94% of risk weighted assets and 5.91% of LRE. The
own funds used by BOC PCL to meet the Combined Buffer Requirement (CBR) will
not be eligible to meet its MREL requirements expressed in terms of
risk-weighted assets. BOC PCL must comply with the MREL requirement at the
consolidated level, comprising BOC PCL and its subsidiaries.
The MREL ratio of BOC PCL as at 30 September 2021, calculated according to the
SRB's eligibility criteria currently in effect and based on BOC PCL's internal
estimate, stood at 18.97% of risk weighted assets (RWA) and at 10.17% of LRE.
The MREL ratio expressed as a percentage of risk weighted assets does not
include capital used to meet the CBR amount, currently at 3.5% and expected to
increase to 3.75% on 1 January 2022. The MREL ratios as at 30 September 2021
include unaudited/unreviewed profits for the nine months ended 30 September
2021.
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.3 Internal Capital Adequacy Assessment Process (ICAAP),
Internal Liquidity Assessment Process (ILAAP), Pillar II and Supervisory
Review and Evaluation Process (SREP)
The Group prepares the ICAAP and ILAAP reports annually. Both reports for 2020
have been completed and submitted to the ECB at the end of April 2021
following approval by the Board of Directors.
The Group also undertakes quarterly reviews of its ICAAP results, which are
submitted to the ALCO and the Risk Committee of the Board of Directors,
considering the latest actual and forecasted information. During the quarterly
review, the Group's risk profile and risk management policies are reviewed and
any material changes/developments since the annual ICAAP exercise are assessed
in terms of capital adequacy. Both the annual ICAAP for 2020 and the quarterly
ICAAP reviews indicated that the Group has sufficient capital and available
mitigants to support its risk profile and its business and to enable it to
meet its regulatory requirements, both in a base case and in stress
conditions.
The Group also undertakes a quarterly review for the ILAAP through quarterly
stress tests submitted to the ALCO and the Risk Committee of the Board of
Directors. Any material changes since the year-end are assessed in terms of
liquidity. The quarterly review identifies whether the Group has an adequate
liquidity buffer to cover the stress outflows. The Group's ILAAP analysis
demonstrates that the volume and capacity of liquidity resources available to
the Group are adequate. Both the annual ILAAP for 2020 and the quarterly ILAAP
reviews indicated that BOC PCL's liquidity position is at a very comfortable
level. BOC PCL maintains liquidity resources which are adequate to ensure its
ability to meet obligations as they fall due under ordinary and stressed
conditions.
The ECB, as part of its supervisory role, has been conducting the SREP and
other inspections (onsite/ off-site/ targeted reviews/ deep-dives) on the
Group. SREP is a holistic assessment of, amongst other things, the Group's
business model, internal governance and institution-wide control arrangements,
risks to capital and adequacy of capital to cover these risks and risks to
liquidity and adequacy of liquidity resources to cover these risks. The
objective of the SREP is for the ECB to form an up-to-date supervisory view of
the Group's risks and viability and to form the basis for supervisory measures
and dialogue with the Group. Additional capital and other requirements could
be imposed on the Group as a result of these supervisory processes, including
a revision of the level of Pillar II add-ons as the Pillar II add-ons capital
requirements are a point-in-time assessment and therefore subject to change
over time.
The Group participated in the ECB SREP Stress Test of 2021. The exercise was
initiated on 29 January 2021 with the announcement of the macro assumptions of
the stress tests. The baseline scenario for EU countries was based on the
projections from the national central banks on December 2020. The adverse
scenario assumed the materialisation of the main financial stability risks
that have been identified by the European Systemic Risk Board (ESRB) and which
the EU banking sector is exposed to and reflects recent risk assessments by
the EBA.
The ECB published on 30 July 2021 the results of the stress test. As per the
relevant ECB press release 'the results of the 2021 stress test, which show
that the euro area banking system is resilient to adverse economic
developments. Banks were in better shape at the start of the exercise than
they were three years ago, but capital depletion at the system level was
higher'. As in previous years, the stress test is not a pass/fail exercise. By
its standard procedures, the ECB considers the quantitative performance in the
adverse scenario as an input when reconsidering the level of the Pillar II
Guidance in its 2021 SREP assessment and the qualitative performance as one
aspect when holistically reviewing the Pillar II Requirement.
The stress test was based on a static balance sheet approach, thus using the
Group's financial and capital position as at 31 December 2020 as a starting
point. Given the static balance sheet methodology, the 2021 ECB SREP Stress
Test does not incorporate the impact of any capital accretive results post 31
December 2020.
G.4 Liquidity regulation
The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR)
under CRD IV/CRR (as supplemented by Delegated Regulations (EU) 2015/61). The
Group also has to comply with its Net Stable Funding Ratio (NSFR) calculated
as per the Capital Requirements Regulation II (CRR II), enforced in June 2021,
with the limit set at 100%.
The LCR is designed to promote the short-term resilience of a Group's
liquidity risk profile by ensuring that it has sufficient high quality liquid
resources to survive an acute stress scenario lasting for 30 days. The NSFR
has been developed to promote a sustainable maturity structure of assets and
liabilities.
As at 30 September 2021 the Group was in compliance with all regulatory
liquidity requirements. As at 30 September 2021, the LCR stood at 294% for the
Group (compared to 254% at 31 December 2020) and was in compliance with the
minimum regulatory requirement of 100%. As at 30 September 2021 the Group's
NSFR was 148% (compared to 139% at 31 December 2020 on the basis of the Basel
III standards).
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.5 Liquidity reserves
The below table sets out the Group's liquidity reserves:
Composition of the liquidity reserves 30 September 2021 31 December 2020
Internal Liquidity reserves as per LCR Delegated Reg (EU) Internal Liquidity reserves as per LCR Delegated Reg (EU)
Liquidity reserves 2015/61 LCR eligible Liquidity reserves 2015/61 LCR eligible
Level 1 Level 2A Level 1 Level 2A
€000 €000 €000 €000 €000 €000
Cash and balances with central banks 8,588,056 8,588,056 - 5,568,431 5,568,431 -
Placements with banks 85,768 - 248,839 - -
Liquid investments 418,344 298,875 185,303 1,409,850 1,240,773 133,073
Available ECB Buffer 72,612 - - 762,001 - -
Total 9,164,780 8,886,931 185,303 7,989,121 6,809,204 133,073
Internal Liquidity Reserves present the total liquid assets as defined in BOC
PCL's Liquidity Policy. Liquidity reserves as per LCR Delegated Regulation
(EU) 2015/61 present the liquid assets as per the definition of the
aforementioned regulation i.e. High Quality Liquid Assets (HQLA).
Under Liquidity reserves as per LCR, balances in Nostro accounts and
placements with banks are not included, as they are not considered HQLA (they
are part of the LCR Inflows).
Liquid investments under the Liquidity reserves as per LCR are shown at market
values reduced by standard weights as prescribed by the LCR regulation. Liquid
investments under Internal Liquidity Reserves include all LCR and/or ECB
eligible investments and are shown at market values net of haircuts based on
ECB haircuts and methodology.
The reduction in liquid investments and available ECB buffer in the nine
months ended 30 September 2021 is due to the utilization of ECB buffer and the
encumbrance of bonds as collateral for the additional TLTRO funding obtained
during 2021 (of a total nominal value of €2 billion), the proceeds of which
have been placed as balances with central banks.
Current available ECB buffer is not part of the Liquidity reserves as per LCR.
The Liquidity Reserves are managed by Treasury.
Following the outbreak of COVID-19, the ECB has adopted a broad set of policy
measures to mitigate the economic impact of the crisis and to ensure that its
directly supervised banks can continue to fulfil their role in funding the
real economy. A high-level description of the main measures which have a
direct or indirect impact on the liquidity position of banks is set out
below.
The ECB announced in March 2020 that it will allow banks to operate
temporarily below the defined level of 100% of the LCR. This is expected to
apply until at least the end-2021. The set of collateral easing measures
adopted, resulted in increasing BOC PCL's borrowing capacity from the ECB
operations and improving the liquidity buffers due to the lower haircuts
applied to the ECB eligible collateral BOC PCL holds, that comprises of bonds
and Additional Credit Claims (ACC). The collateral easing packages are
designed as temporary measures (with the exception of part of the haircut
reduction on ACCs which is permanent) that will remain in place until June
2022 and will be reassessed before then. Furthermore, the ECB enlarged the
scope of the ACC framework, increasing the universe of eligible loans. In
relation to existing collateral, the ECB announced changes in collateral
rules, temporarily accepting collaterals with a rating below investment grade,
setting however a minimum acceptable rating level.
Additionally, the package contains measures that provide liquidity support to
the euro area financial system, such as significant favourable amendments in
the terms and characteristics of TLTRO III. Furthermore, a new series of
additional longer-term refinancing operations, called Pandemic Emergency
Longer-Term Refinancing Operations (PELTROs), has been introduced.
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.6 Quarterly Pillar III disclosures
The quarterly Pillar III disclosures are prepared in accordance with the
Capital Requirement Regulation (CRR) and the Capital Requirements Directive IV
(CRD IV). The European Banking Authority (EBA) guidelines on Pillar III
disclosure requirements have been fully adopted.
G.6.1 EU KM1 - Key metrics
* Amount and ratios exclude interim
profits
** Net Stable Funding Ratio as at 30 September and 30 June 2021 is
calculated as per CRR II enforced in 30 June 2021. Thus, no comparatives of
previous periods
exist.
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.6 Quarterly Pillar III disclosures (continued)
G.6.2 Own Funds
G.6.2.1 IFRS9 Template
Comparison of institution's own funds and capital and leverage ratios with and
without the application of transitional arrangements for IFRS 9 or analogous
ECLs, and with and without the application of the temporary treatment in
accordance with Article 468 of the CRR
* Amounts and ratios exclude interim profits.
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.6 Quarterly Pillar III disclosures (continued)
G.6.2 Own Funds (continued)
G.6.2.1 IFRS9 Template (continued)
* Amounts and ratios exclude interim profits.
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.6 Quarterly Pillar III disclosures (continued)
G.6.2 Own Funds (continued)
G.6.2.2 EU OV1 - Overview of total risk exposure amounts
The decrease in TREA is at its majority derives from credit risk driven by the
Helix 2 transaction and increased exposure values with central banks.
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.6 Quarterly Pillar III disclosures (continued)
G.6.3 Liquidity
EU LIQ1 - Quantitative information of LCR
G. Additional Risk & Capital Management disclosures -
including quarterly Pillar III disclosures (continued)
G.6 Quarterly Pillar III disclosures (continued)
G.6.3 Liquidity (continued)
EU LIQB - Qualitative information on LCR, which complements template EU LIQ1
Row number Qualitative information
(a) Explanations on the main drivers of LCR results and the evolution of the The main drivers of the LCR results have been the amount of HQLA (numerator)
contribution of inputs to the LCR's calculation over time and the deposits amounts (part of the denominator). The rest of the items of
the denominator are of smaller magnitude and have remained relatively stable
over time.
(b) Explanations on the changes in the LCR over time LCR has been steadily increasing in the recent years. This has been the
result of increasing HQLA mainly due to the increase in Customer Deposits as
well as other sources of funding (ECB funding and own issues). Net outflows
have remained relatively steady due to the fact that the customer deposit
increase is mainly due to retail deposits (which carry a low outflow rate) and
the additional funding obtained is of a long term nature and thus excluded
from the LCR outflows.
(c) Explanations on the actual concentration of funding sources Customer Deposits have always been the main funding source of BOC PCL. Other
funding sources include Central bank funding, issued notes, and Interbank
loans. The different funding options are governed by limits and guidelines
as per the RAS of BOC PCL, the Liquidity Policy, the Public Funding Policy and
the Collateral Management Policy. BOC PCL has a medium-term strategic
objective to further diversify its funding sources via issuances of debt from
the wholesale market. The main driver for the issuances is the requirement to
comply with MREL.
(d) High-level description of the composition of the institution`s liquidity The Liquidity Buffer is comprised of mainly Available Central Bank reserves.
buffer. The rest of the buffer is made up of Level 1 securities and, to a lesser
extent, Level 2A securities.
(e) Derivative exposures and potential collateral calls As per Article 30 (1), (2) and (3) of Commission Delegated Regulation (EU)
2015/61, potential outflows due to derivative and financing transactions are
calculated based on:
a) Credit deterioration of BOC PCL's credit quality.
During the actual acute stress period experienced in 2013, additional
independent amounts had to be placed by BOC PCL (reflecting the increased
credit risk of BOC PCL as perceived by counterparties). The potential outflow
takes into account the percentage increase of independent amounts experienced
in 2013 as well as the current outstanding derivatives in terms of notional,
the type of derivative and the currency pair in the case of FX swaps/ FX
forwards.
b) Adverse market movements affecting the mark to market.
The potential negative impact on the mark to market of derivatives and the
underlying collateral of repos is calculated in the case of adverse market
movements. The methodology followed is based on the Historical Look Back
Approach for market valuation changes as per Commission Delegated Regulation
(EU) 2017/208.
(f) Currency mismatch in the LCR With regards to the currency mismatch, it is noted that for US Dollars, the
ratio presents a gap when comparing the buffer with its net outflows. BOC PCL
maintains large amounts of customer deposits in USD (included in LCR
outflows). Part of the proceeds received are invested in either USD MM
placements (which form part of the LCR inflows and not the liquidity buffer)
or are converted to Euro through the use of short term FX Swaps which are very
liquid instruments. Part of the proceeds are also invested in USD liquid
assets in the form of bonds which are mostly categorised as Level 1 HQLA in
LCR and, to a lesser extent, Level 2A HQLA. Thus, although a gap exists, BOC
PCL is in a position to cover any USD requirements either through the cash
invested in USD MM placements or by terminating or not renewing the EUR/USD FX
Swaps.
(g) Other items in the LCR calculation that are not captured in the LCR disclosure n/a
template but that the institution considers relevant for its liquidity profile
H. Definitions & Explanations
Reconciliations of Alternative Performance Measures
Reconciliations between the calculations of non-IFRS performance measures and
the most directly comparable IFRS measures which allow for the comparability
of the underlying basis to statutory information are disclosed below:
1. (a) Reconciliation of Gross loans and advances to
customers
30 September 31 December 2020
2021
€000 €000
Gross loans and advances to customers as per the underlying basis (as defined 10,863,932 12,261,404
below)
Reconciling items:
Residual fair value adjustment on initial recognition (Note 1 below) (116,480) (146,602)
Loans and advances to customers classified as held for sale (Section F.4) (549,515) (1,341,255)
Residual fair value adjustment on initial recognition on loans and advances to (19,787) (46,675)
customers classified as held for sale (Note 1 below)
Loans and advances to customers measured at fair value through profit or loss (289,050) (289,861)
(Section F.3)
Aggregate fair value adjustment on loans and advances to customers measured at (44,957) (36,408)
fair value through profit or loss
Gross loans and advances to customers at amortised cost as per Section F.3 9,844,143 10,400,603
1. (b) Reconciliation of Loans and advances to customers
classified as held for sale
30 September 31 December 2020
2021
€000 €000
Loans and advances to customers classified as held for sale as per the 569,302 1,387,930
underlying basis
Reconciling items:
Residual fair value adjustment on initial recognition on loans and advances to (19,787) (46,675)
customers classified as held for sale (Note 1 below)
Loans and advances to customers classified as held for sale as per Section F.4 549,515 1,341,255
H. Definitions & Explanations (continued)
Reconciliations of Alternative Performance Measures (continued)
2. (a) Reconciliation of Allowance for expected credit
losses on loans and advances to customers (ECL)
30 September 31 December 2020
2021
€000 €000
Allowance for expected credit losses on loans and advances to customers (ECL) 849,363 1,901,978
as per the underlying basis (as defined below)
Reconciling items:
Residual fair value adjustment on initial recognition (Note 1 below) (116,480) (146,602)
Aggregate fair value adjustment on loans and advances to customers measured at (44,957) (36,408)
fair value through profit or loss
Allowance for expected credit losses on loans and advances to customers (299,848) (848,218)
classified as held for sale (Section F.6)
Residual fair value adjustment on initial recognition on loans and advances to (19,787) (46,675)
customers classified as held for sale (Note 1 below)
Provisions for financial guarantees and commitments (22,234) (19,658)
Allowance for ECL for impairment of loans and advances to customers as per 346,057 804,417
Section F.3
2. (b) Reconciliation of Allowance for expected credit losses
on loans and advances to customers classified as held for sale (ECL)
30 September 31 December 2020
2021
€000 €000
Allowance for expected credit losses on loans and advances to customers (ECL) 319,635 894,893
classified as held for sale as per the underlying basis
Reconciling items:
Residual fair value adjustment on initial recognition on loans and advances to (19,787) (46,675)
customers classified as held for sale (Note 1 below)
Allowance for ECL for impairment of loans and advances to customers classified 299,848 848,218
as held for sale as per Section F.6
H. Definitions & Explanations (continued)
Reconciliations of Alternative Performance Measures (continued)
3. Reconciliation of NPEs
30 September 31 December 2020
2021
€000 €000
NPEs (as defined below and as per Section G.1) 1,448,515 3,085,646
Reconciling items:
Loans and advances to customers (NPEs) classified as held for sale (Note 2 (548,071) (1,312,165)
below)
Residual fair value adjustment on initial recognition on loans and advances to (19,749) (47,011)
customers (NPEs) classified as held for sale (Note 3 below)
Loans and advances to customers measured at fair value through profit or loss (121,992) (118,479)
(NPEs)
POCI (NPEs) (Note 4 below) (85,826) (227,065)
Residual fair value adjustment on initial recognition on loans and advances to (6,333) (9,376)
customers (NPEs) classified as Stage 3 (Section F.5)
Stage 3 gross loans and advances to customers at amortised cost as per Section 666,544 1,371,550
F.5
NPE ratio
NPEs (as per table above) (€000) 1,448,515 3,085,646
Gross loans and advances to customers (as per table above) (€000) 10,863,932 12,261,404
Ratio of NPE/Gross loans (%) 13.3% 25.2%
Note 1: Residual fair value adjustment
The residual fair value adjustment mainly relates to the loans and advances to
customers acquired as part of the acquisition of certain operations of Laiki
Bank in 2013. In accordance with the provisions of IFRS 3, this adjustment
decreased the gross balance of loans and advances to customers. The residual
fair value adjustment is included within the gross balance of loans and
advances to customers as at each balance sheet date. However, for credit risk
monitoring, the residual fair value adjustment as at each balance sheet date
is presented separately from the gross balance of loans and advances to
customers.
Note 2: Gross loans at amortised cost after residual fair value adjustment on
initial recognition classified as held for sale include an amount of
€469,645 thousand Stage 3 loans (31 December 2020: €1,130,937 thousand
Stage 3 loans) and an amount of €78,426 thousand POCI - Stage 3 loans (out
of a total of €78,447 thousand POCI loans) (31 December 2020: €181,228
thousand POCI - Stage 3 loans (out of a total of €181,984 thousand POCI
loans)), as disclosed in Section F.5.
Note 3: The residual fair value adjustment on initial recognition of loans and
advances to customers classified as held for sale includes an amount of
€2,393 thousand for Stage 3 loans (31 December 2020: €7,650 thousand for
Stage 3 loans) and an amount of €17,356 thousand POCI - Stage 3 loans (out
of a total of €17,356 thousand POCI loans) (31 December 2020: €39,361
thousand for POCI - Stage 3 loans (out of a total of €39,381 thousand POCI
loans)), as disclosed in Section F.5.
Note 4: Gross loans and advances to customers at amortised cost before
residual fair value adjustment on initial recognition include an amount of
€85,826 thousand POCI - Stage 3 loans (out of a total of €183,599 thousand
POCI loans) (31 December 2020: €227,065 thousand POCI - Stage 3 loans (out
of a total of €335,852 thousand POCI loans)) as disclosed in Section F.5.
H. Definitions & Explanations (continued)
Reconciliations of Alternative Performance Measures (continued)
4. Reconciliation of Gross Loans - Pro forma
30 September 31 December 2020
2021
€000 €000
Gross Loans (as per table 1 (a) above) 10,863,932 12,261,404
Reconciling items:
Gross loans and advances to customers classified as held for sale (549,515) (1,309,206)
(30 September 2021: Project Helix 3, 31 December 2020: Project Helix 2,
Portfolios A and B)
Residual fair value adjustment on initial recognition on loans and advances to (19,787) (44,947)
customers classified as held for sale (30 September 2021: Project Helix 3, 31
December 2020: Project Helix 2, Portfolios A and B)
Gross loans and advances to customers - pro forma 10,294,630 10,907,251
5. Reconciliation of NPEs - Pro forma
30 September 31 December 2020
2021
€000 €000
NPEs (as per table 3 above) 1,448,515 3,085,646
Reconciling items:
Gross loans and advances to customers (NPEs) classified as held for sale (30 (548,071) (1,280,391)
September 2021: Project Helix 3, 31 December 2020: Project Helix 2, Portfolios
A and B) (Note 1 below)
Residual fair value adjustment on initial recognition on loans and advances to (19,749) (45,269)
customers (NPEs) classified as held for sale (30 September 2021: Project Helix
3, 31 December 2020: Project Helix 2, Portfolios A and B)
NPEs - pro forma 880,695 1,759,986
NPE ratio - Pro forma 30 September 31 December 2020
2021
€000 €000
NPEs - Pro forma (as per table above) (€000) 880,695 1,759,986
Gross loans and advances to customers - Pro forma (as per table above) 10,294,630 10,907,251
(€000)
Ratio of NPE/Gross loans - Pro forma (%) 8.6% 16.1%
Note 1: Gross loans at amortised cost after residual fair value adjustment on
initial recognition classified as held for sale include an amount of
€469,645 thousand Stage 3 loans (31 December 2020: €1,106,816 thousand
Stage 3 loans) and an amount of €78,426 thousand POCI - Stage 3 loans for
project Helix 3 (out of a total €469,645 thousand Stage 3 loans classified
as held for sale and €78,447 thousand POCI - Stage 3 loans classified as
held for sale as disclosed in Section F.5 and Note 2 of Table 3 in these
'Definitions and explanations' respectively) (31 December 2020: €173,575
thousand POCI - Stage 3 loans for project Helix 2, Portfolios A and B (out of
a total €1,130,937 thousand Stage 3 loans classified as held for sale and
€181,228 thousand POCI - stage 3 loans classified as held for sale)).
H. Definitions & Explanations (continued)
Ratios Information
1. Net Interest Margin
Nine months ended
30 September
2021 2020
1.1. Reconciliation of Net interest income €000 €000
Net interest income as per the underlying basis/Unaudited Interim Consolidated 223,552 249,875
Income Statement
Net interest income used in the calculation of NIM (annualised) 298,888 333,775
1.2. Interest earning assets 30 September 2021 30 June 31 March 31 December 2020
2021 2021
€000 €000 €000 €000
Cash and balances with central banks 8,750,254 8,227,491 6,926,347 5,653,315
Loans and advances to banks 284,135 436,091 420,593 402,784
Loans and advances to customers 9,787,136 9,966,542 9,959,849 9,886,047
Loans and advances to customers held for sale 249,667 - 471,628 493,037
Cash held for sale - - 79,373 68,425
Prepayments, accrued income and other assets - Deferred consideration 381,056 378,141 - -
receivable ('DPP')
Investments
Debt securities 1,946,811 1,998,076 1,923,324 1,708,844
Less: Investments which are not interest bearing (7,355) (7,531) (18,883) (18,618)
Total interest earning assets 21,391,704 20,998,810 19,762,231 18,193,834
1.3. Quarterly average interest earning assets (€000)
- as at 30 September 2021 20,086,645
- as at 30 September 2020 17,864,837
1.2.
1.2.
1.4. Net interest margin Nine months ended
30 September
2021 2020
€000 €000
Net interest income (annualised) (as per table 1.1. above) (€000) 298,888 333,775
Quarterly average interest earning assets (as per table 1.3. above) (€000) 20,086,645 17,864,837
NIM (%) 1.49% 1.87%
2. Operating profit return on average assets
The various components used in the determination of the operating profit
return on average assets are provided below:
30 September 2021 30 June 31 March 31 December
2021 2021 2020
€000 €000 €000 €000
Total assets used in the computation of the operating profit return on average 24,550,976 24,211,313 23,043,592 21,514,131
assets per the Unaudited Interim Consolidated Balance Sheet
H. Definitions & Explanations (continued)
Ratios Information (continued)
2. Operating profit return on average assets (continued)
30 September 2021 30 September
2020
Annualised operating profit (€000) 191,304 203,048
Quarterly average total assets (€000) 23,330,003 21,109,991
Operating profit return on average assets (annualised) (%) 0.8% 1.0%
H. Definitions & Explanations (continued)
Advisory and other restructuring costs Comprise mainly (a) fees of external advisors in relation to: (i) disposal of
operations and non-core assets, and (ii) customer loan restructuring
activities, and (b) the cost of the tender offer for the Existing Tier 2
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, (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.
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 19 November 2021.
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
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 €181 mn at 30 September 2021 (compared to
€185 mn at 30 June 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 €334 mn at 30 September 2021 (compared to €332 mn
at 30 June 2021 and €326 mn at 31 December 2020).
H. Definitions & Explanations (continued)
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.
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 39.1%
at 30 September 2021, compared to 39.1% at 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 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 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.
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 has been set at 100% as per the CRR II enforced in June 2021. 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.
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.
H. Definitions & Explanations (continued)
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 Central Bank of Cyprus (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:
- Retail exposures: Total arrears/excess amount greater than €100
- 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%.
Non-recurring items Non-recurring items as presented in the 'Unaudited Interim Condensed
Consolidated Income Statement - Underlying basis' relate to the following
items, as applicable: (i) Advisory and other restructuring costs - organic,
(ii) Provisions/net (loss)/profit relating to NPE sales, and (iii)
Restructuring and other expenses 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).
H. Definitions & Explanations (continued)
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').
Project Helix Project Helix refers to the sale of a portfolio of loans with a gross book
value of €2.8 bn completed in June 2019.
Project Helix 2 Project Helix 2 refers to the sale of portfolios of loans with a total gross
book value of €1.3 bn completed in June 2021. For further information please
refer to section A.1.5 Loan portfolio quality.
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.
H. Definitions & Explanations (continued)
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) any restructuring
costs relating to NPE sales. (i) 'Advisory and other restructuring
costs-organic' amounted to €1 mn for 3Q2021 (compared to €15 mn for
2Q2021, €3 mn for 1Q2021 and €1 mn for 4Q2020), (ii) Restructuring costs
relating to NPE sales amounted to €3 mn for 3Q2021 (compared to €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 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 nine months ended 30 September 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
nine months ended 30 September 2021.
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 2020, upon which the auditors have given an unqualified
report, were published on 30 March 2021 and have been annexed to the annual
return and delivered to the Registrar of Companies of Ireland. The Board of
Directors approved the Group statutory financial statements for the nine
months ended 30 September 2021 on 29 November 2021.
Statutory basis: Statutory information is set out on pages 33-37. However, a
number of factors have had a significant effect on the comparability of the
Group's financial position and performance. Accordingly, the results are also
presented on an underlying basis.
Underlying basis: The financial information presented under the underlying
basis provides an overview of the Group financial results for the nine months
ended 30 September 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
5. The statutory results are adjusted for certain items (as described on pages
38-39) to allow a comparison of the Group's underlying financial position and
performance, as set out on pages 4-6.
The financial information included in this announcement is neither reviewed
nor audited by the Group's external auditors.
This announcement and the presentation for the Group Financial Results for the
nine months ended 30 September 2021 have been posted on the Group's website
www.bankofcyprus.com (Investor Relations/Financial Results).
Definitions: The Group uses definitions in the discussion of its business
performance and financial position which are set out in section H, together
with explanations.
The Group Financial Results for the nine months ended 30 September 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. 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. The
Bank of Cyprus Group operates through a total of 90 branches in Cyprus, of
which 10 operate as cash offices. Bank of Cyprus also has representative
offices in Russia, Ukraine and China. The Bank of Cyprus Group employs 3,558
staff worldwide. At 30 September 2021, the Group's Total Assets amounted to
€24.5 bn and Total Equity was €2.1 bn. The Bank of Cyprus Group comprises
Bank of Cyprus Holdings Public Limited Company, its subsidiary Bank of Cyprus
Public Company Limited and its subsidiaries.
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