REG - Bank of Cyprus Hldgs - Half-year Report -Part 2
09/08/2023 07:15
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RNS Number : 7750I Bank of Cyprus Holdings PLC 09 August 2023
Consolidated Condensed Interim Financial Statements for the six months ended
30 June 2023
Interim Consolidated Income Statement
Six months ended
30 June
2023 2022
(restated)
Notes €000 €000
Turnover 7
646,203 414,996
Interest income 8
403,852 181,470
Income similar to interest income 8
22,172 9,518
Interest expense 9
(56,083) (37,514)
Expense similar to interest expense 9
(11,599) (7,752)
Net interest income
358,342 145,722
Fee and commission income
93,879 98,086
Fee and commission expense
(4,275) (4,447)
Net foreign exchange gains
15,839 11,898
Net gains/(losses) on financial instruments 10
5,680 (10,183)
Net gains on derecognition of financial assets measured at amortised cost
5,861 1,648
Net insurance finance income/(expense) and net reinsurance finance
income/(expense) 263 2,653
Net insurance service result
34,086 31,268
Net reinsurance service result
(9,788) (10,197)
Net gains/(losses) from revaluation and disposal of investment properties
788 (1,372)
Net gains on disposal of stock of property
3,906 8,242
Other income
12,200 8,927
Total operating income
516,781 282,245
Staff costs 11
(93,043) (98,303)
Special levy on deposits and other levies/contributions 11
(18,236) (16,507)
Provisions for pending litigations, claims, regulatory and other matters (net 27
of reversals) (14,148) (594)
Other operating expenses 11
(70,456) (75,824)
Operating profit before credit losses and impairment
320,898 91,017
Credit losses on financial assets 12
(36,772) (24,826)
Impairment net of reversals on non‑financial assets 12
(23,206) (12,157)
Profit before tax
260,920 54,034
Income tax 13
(39,768) (11,158)
Profit after tax for the period
221,152 42,876
Attributable to:
Owners of the Company
220,247 42,214
Non‑controlling interests
905 662
Profit for the period
221,152 42,876
Basic profit per share attributable to the owners of the Company 14
(€ cent) 49.4 9.5
Diluted profit per share attributable to the owners of the Company 14
(€ cent) 49.3 9.5
Interim Consolidated Statement of Comprehensive Income
Six months ended
30 June
2023 2022
(restated)
Notes €000 €000
Profit for the period 221,152 42,876
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in 3,299 (20,412)
subsequent periods
Fair value reserve (debt instruments) 3,373 (17,909)
Net gains/(losses) on investments in debt instruments measured at fair value 3,705 (17,421)
through OCI (FVOCI)
Transfer to the consolidated income statement on disposal (332) (488)
Foreign currency translation reserve (74) (2,503)
(Losses)/profit on translation of net investments in foreign branches and (71) 1,576
subsidiaries
Losses on hedging of net investments in foreign branches and subsidiaries 16 (3) (4,079)
OCI not to be reclassified in the consolidated income statement in subsequent (211)
periods 486
Fair value reserve (equity instruments) (681) (2,051)
Net losses on investments in equity instruments designated at FVOCI (681) (2,051)
Property revaluation reserve -
824
Fair value gains before tax 798 -
Deferred tax 13 26 -
Actuarial gains on the defined benefit plans 1,840
343
Remeasurement gains on defined benefit plans 343 1,840
Other comprehensive income/(loss) for the period net of taxation 3,785 (20,623)
Total comprehensive income for the period 224,937 22,253
Attributable to:
Owners of the Company 224,026 21,591
Non‑controlling interests 911 662
Total comprehensive income for the period 224,937 22,253
Interim Consolidated Balance Sheet
30 June 31 December 1 January
2023
2022
2022
(restated)
(restated)
Assets Notes €000 €000 €000
Cash and balances with central banks 28 9,567,258
9,127,429 9,230,883
Loans and advances to banks 28 204,811
431,812 291,632
Derivative financial assets 16 48,153
49,302 6,653
Investments at FVPL 15 190,209
138,661 199,194
Investments at FVOCI 15 467,375
487,806 748,695
Investments at amortised cost 15 2,046,119
2,703,240 1,191,274
Loans and advances to customers 18 9,953,252
10,007,819 9,836,405
Life insurance business assets attributable to policyholders 542,321
587,882 551,797
Prepayments, accrued income and other assets 20 609,054
609,607 583,777
Stock of property 19 1,041,032
945,831 1,111,604
Investment properties 85,099
74,339 117,745
Deferred tax assets 13 227,934
227,953 265,942
Property and equipment 253,378
267,410 252,130
Intangible assets 52,546
47,546 54,144
Non‑current assets and disposal groups held for sale - -
358,951
Total assets 25,288,541
25,706,637 24,800,826
Liabilities
Deposits by banks 507,658
448,713 457,039
Funding from central banks 21 1,976,674
2,004,480 2,969,600
Derivative financial liabilities 16 16,169
18,391 32,452
Customer deposits 22 18,998,319
19,166,155 17,530,883
Insurance liabilities 599,992
631,917 623,791
Accruals, deferred income, other liabilities and other provisions 24 379,182
429,585 356,697
Provisions for pending litigation, claims, regulatory and other matters 27 127,607
128,267 104,108
Debt securities in issue 23 297,636
291,976 302,555
Subordinated liabilities 23 302,104
309,348 340,220
Deferred tax liabilities 13 34,634
34,618 39,817
Total liabilities 23,239,975
23,463,450 22,757,162
Equity
Share capital 25 44,620
44,620 44,620
Share premium 25 594,358
594,358 594,358
Revaluation and other reserves 76,939
80,686 99,541
Retained earnings 1,090,349
1,264,795 1,062,711
Equity attributable to the owners of the Company 1,806,266
1,984,459 1,801,230
Other equity instruments 25 220,000
235,517 220,000
Non‑controlling interests 22,300
23,211 22,434
Total equity 2,048,566
2,243,187 2,043,664
Total liabilities and equity 25,288,541
25,706,637 24,800,826
Mr. E.G. Arapoglou Chairman Mr. P. Nicolaou Chief Executive Officer
Mr. N. Sofianos Director Mrs. E. Livadiotou Executive Director Finance
Interim Consolidated Statement of Changes in Equity
Attributable to the owners of the Company
Share Share Treasury shares Other Retained Property revaluation reserve Financial Life insurance in‑force business reserve Foreign currency translation reserve Total Other equity instruments Non‑ controlling interests Total
capital
premium
capital reserves
earnings
instruments
equity
(Note 25)
fair value reserve (Note 25)
(Note 25) (Note 25) (Note 11)
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
31 December 2022 44,620 594,358 (21,463) 322 1,041,152 74,170 7,142 101,301 16,768 1,858,370 220,000 22,300 2,100,670
Impact of retrospective application of IFRS 17 - - - - 49,197 - - (101,301) - (52,104) - - (52,104)
adoption
31 December 2022 (restated)/1 January 2023 44,620 594,358 (21,463) 322 1,090,349 74,170 7,142 - 16,768 1,806,266 220,000 22,300 2,048,566
Profit for the period - - - - 220,247 - - - - 220,247 - 905 221,152
Other comprehensive income/(loss) after tax for the - - - - 343 818 2,692 - (74) 3,779 - 6 3,785
period
Total comprehensive income/(loss) after tax for the - - - - 220,590 818 2,692 - (74) 224,026 - 911 224,937
period
Dividends (Note 26) - - - - (22,310) - - - - (22,310) - - (22,310)
Share‑based benefits ‑ cost (Note 11) - - - 311 - - - - - 311 - - 311
Payment of coupon to AT1 holders (Note 25) - - - - (13,750) - - - - (13,750) - - (13,750)
Issue of other equity instruments (Note 25) - - - - (3,530) - - - - (3,530) 220,000 - 216,470
Repurchase of other equity instruments (Note 25) - - - - (6,554) - - - - (6,554) (204,483) - (211,037)
30 June 2023 44,620 594,358 (21,463) 633 1,264,795 74,988 9,834 - 16,694 1,984,459 235,517 23,211 2,243,187
Attributable to the owners of the Company
Share Share Treasury shares Retained Property revaluation reserve Financial Life insurance Foreign Total Other Non‑ controlling interests Total
capital
premium
earnings
instruments
in‑force
currency
equity
equity
(Note 25)
fair value
business
translation
instruments
(Note 25) (Note 25)
reserve
reserve
reserve
(Note 25)
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2022 44,620 594,358 (21,463) 986,623 80,060 23,285 113,651 17,659 1,838,793 220,000 22,434 2,081,227
Impact of retrospective application of IFRS 17 adoption - - - 76,088 - - (113,651) - (37,563) - - (37,563)
Restated balance at 1 January 2022 44,620 594,358 (21,463) 1,062,711 80,060 23,285 - 17,659 1,801,230 220,000 22,434 2,043,664
Profit for the period - - - 42,214 - - - - 42,214 - 662 42,876
Other comprehensive income/(loss) after tax for the - - - 1,840 - (19,960) - (2,503) (20,623) - - (20,623)
period
Total comprehensive income/(loss) after tax for the - - - 44,054 - (19,960) - (2,503) 21,591 - 662 22,253
period
Defence contribution - - - (4,983) - - - - (4,983) - - (4,983)
Payment of coupon to AT1 holders (Note 25) - - - (13,750) - - - - (13,750) - - (13,750)
30 June 2022 44,620 594,358 (21,463) 1,088,032 80,060 3,325 - 15,156 1,804,088 220,000 23,096 2,047,184
Interim Consolidated Statement of Cash Flows
Six months ended
30 June
2023 2022
(restated)
Note €000 €000
Profit before tax 260,920
54,034
Adjustments for:
Depreciation of property and equipment and amortisation of intangible assets 16,901
16,908
Impairment net of reversals on non‑financial assets 23,206
12,157
Credit losses on financial assets 36,772
24,826
Net gains on derecognition of financial assets measured at amortised cost (5,861)
(1,648)
Amortisation of discounts/premiums and interest on debt securities (24,735)
(8,767)
Dividend income (439)
(368)
Net loss on disposal of investment in debt securities measured at FVOCI 433
2,826
(Gain)/loss from revaluation of financial instruments designated as fair value (9,473)
hedges 38,007
Interest on subordinated liabilities and debt securities in issue 13,956
14,258
Negative interest on loans and advances to banks and balances with central -
banks 20,104
Interest/(negative) interest on funding from central banks 27,806
(14,792)
Loss on disposal/dissolution of subsidiaries and associates -
(179)
Share‑based benefits cost 11 311 -
Net gains on disposal of stock of property and investment properties (4,868)
(8,358)
Profit on sale and write offs of property and equipment and intangible assets (12)
(51)
Interest expense on lease liability 1,433 -
Premium tax included in net insurance service result as directly attributable 1,070
expense 955
Net losses from revaluation of investment properties 174
1,488
Net exchange differences 2,290
(23,236)
339,884
128,164
Change in:
Loans and advances to banks 3,696
36,345
Deposits by banks (58,945)
34,983
Obligatory balances with central banks (23,925)
(7,883)
Customer deposits 167,836
919,333
Life insurance business assets attributable to policyholders and Insurance (13,636)
liabilities (19,715)
Loans and advances to customers (82,889)
(356,885)
Prepayments, accrued income and other assets (4,941)
(3,760)
Provisions for pending litigation, claims, regulatory and other matters (110)
685
Accruals, deferred income, other liabilities and other provisions 12,287
29,534
Derivative financial instruments 1,073
(54,464)
Investments measured at FVPL 51,548
17,876
Stock of property 61,778
86,519
453,656
810,732
Tax paid (764)
(441)
Net cash from operating activities 452,892
810,291
Cash flows from investing activities
Purchases of debt, treasury bills and equity securities (828,338)
(329,751)
Proceeds on disposal/redemption of investments in debt and equity securities 166,577
295,856
Interest received from debt securities 18,299
17,230
Dividend income from equity securities 439
368
Payment for purchase of Velocity 2 (3,604) -
Deposits on held for sale portfolios -
900
Purchases of property and equipment (2,246)
(817)
Purchases of intangible assets (4,484)
(6,046)
Proceeds on disposals of property and equipment and intangible assets 167
109
Proceeds on disposals of investment properties 2,921
23,384
Net cash (used in)/from investing activities (650,269)
1,233
Six months ended
30 June
2023 2022
(restated)
Note €000 €000
Cash flow from financing activities
Payment of AT1 coupon 25 (13,750) (13,750)
Issue of other equity instruments (net of transaction costs) 25 216,470 -
Repurchase of other equity instruments 25 (211,037) -
Payment of defence contribution - (4,983)
Repayments of subordinated liabilities - (35,605)
Dividend paid (16,614) -
Interest on subordinated liabilities - (3,293)
Interest on debt securities in issue (7,500) (7,500)
Negative interest on loans and advances to banks and balances with central - (20,104)
banks
Principal elements of lease payments (3,430) (3,507)
Net cash used in financing activities (35,861) (88,742)
Net (decrease)/increase in cash and cash equivalents (233,238) 722,782
Cash and cash equivalents 1 January 9,586,153 9,255,210
30 June 28 9,352,915 9,977,992
Non‑cash transactions
Repossession of collaterals
During the six months ended 30 June 2023, the Group acquired properties by
taking possession of collaterals held as securities for loans and advances to
customers of €5,815 thousand (30 June 2022: €23,058 thousand).
Recognition of RoU asset and lease liabilities
During the six months ended 30 June 2023, the Group recognised RoU assets and
corresponding lease liabilities of €2,234 thousand (30 June 2022: €136
thousand).
Notes to the Consolidated Condensed Interim Financial Statements
1. Corporate information
Bank of Cyprus Holdings Public Limited Company (the 'Company') was
incorporated in Ireland on 11 July 2016, as a public limited company under
company number 585903 in accordance with the provisions of the Companies Act
2014 of Ireland (Companies Act 2014). Its registered office is 10 Earlsfort
Terrace, Dublin 2, D02 T380, Ireland. The Company is domiciled in Ireland and
is tax resident in Cyprus.
Bank of Cyprus Holdings Public Limited Company is the holding company of Bank
of Cyprus Public Company Limited ('BOC PCL' or the 'Bank') with principal
place of business in Cyprus. The Bank of Cyprus Holdings Group (the 'Group')
comprises the Company, its subsidiary, BOC PCL, and the subsidiaries of BOC
PCL. Bank of Cyprus Holdings Public Limited Company is the ultimate parent
company of the Group.
The principal activities of BOC PCL and its subsidiary companies (the 'BOC
Group') involve the provision of banking services, financial services,
insurance services and the management and disposal of property predominately
acquired in exchange of debt.
BOC PCL is a significant credit institution for the purposes of the SSM
Regulation and has been designated by the CBC as an 'Other Systemically
Important Institution' (O‑SII). The Group is subject to joint supervision by
the ECB and the CBC for the purposes of its prudential requirements.
The shares of the Company are listed and trading on the London Stock Exchange
(LSE) and the Cyprus Stock Exchange (CSE).
Consolidated Condensed Interim Financial Statements
The Consolidated Condensed Interim Financial Statements of the Company for the
six months ended 30 June 2023 (the Consolidated Financial Statements) were
authorised for issue by a resolution of the Board of Directors on 08 August
2023.
The Consolidated Financial Statements are available on the Group's website
www.bankofcyprus.com (Group/Investor Relations/Financial Results).
2. Unaudited financial statements
The Consolidated Financial Statements have not been audited by the Group's
external auditors.
The Group's external auditors have conducted a review in accordance with the
International Standard on Review Engagements 2410 'Review of Interim Financial
Information performed by the Independent Auditor of the Entity'.
3. Summary of significant accounting policies
3.1 Basis of preparation
The Consolidated Financial Statements have been prepared on a historical cost
basis, except for properties held for own use and investment properties,
investments at fair value through other comprehensive income (FVOCI),
financial assets (including loans and advances to customers and investments)
at fair value through profit or loss (FVPL) and derivative financial assets
and derivative financial liabilities that have been measured at fair value,
non‑current assets held for sale measured at fair value less costs to sell
and stock of property measured at net realisable value where this is lower
than cost. The carrying values of recognised assets and liabilities that are
hedged items in fair value hedges, and otherwise carried at cost, are adjusted
to record changes in fair value attributable to the risks that are being
hedged.
Presentation of the Consolidated Financial Statements
The Consolidated Financial Statements are presented in Euro (€) and all
amounts are rounded to the nearest thousand, except where otherwise indicated.
A comma is used to separate thousands and a dot is used to separate decimals.
The Group presents its balance sheet broadly in order of liquidity. An
analysis regarding expected recovery or settlement of assets and liabilities
within twelve months after the balance sheet date and more than twelve months
after the balance sheet date is presented in Note 29.
Comparative information
Comparative information was restated following the adoption of IFRS 17
'Insurance Contracts' on 1 January 2023 as described further below in Note
3.3.1.
Furthermore, comparative information was restated following certain changes in
the presentation of the primary statements first applied in the 2022 annual
consolidated financial statements. More specifically, 'Provisions for pending
litigations, claims regulatory and other matters (net of reversals)'
previously presented within 'Other operating expenses' is now presented
separately on the Consolidated Income Statement.
In addition, comparative information was restated in relation to the
presentation of segmental analysis as detailed in Note 7 following an internal
re‑organisation in the fourth quarter of 2022. This change led to a
respective restatement of 'Analysis by Business line' and 'Analysis of total
revenue' in Note 7.
3.2 Statement of compliance
The Consolidated Financial Statements have been prepared in accordance with
the International Accounting Standard (IAS) applicable to interim financial
reporting as adopted by the European Union (EU) (IAS 34), the Transparency
(Directive 2004/109/EC) Regulations 2007, as amended, Part 2 (Transparency
Requirements) of the Central Bank (Investment Market Conduct) Rules 2019 and
the applicable requirements of the Disclosure Guidance and Transparency Rules
of the UK's Financial Conduct Authority.
The Consolidated Financial Statements do not comprise statutory financial
statements for the purposes of the Companies Act 2014 of Ireland. The
Company's statutory financial statements for the purposes of Chapter 4 of Part
6 of the Companies Act 2014 of Ireland for the year ended 31 December 2022,
upon which the auditors have expressed an unqualified opinion, were published
on 31 March 2023 and are expected to be delivered to the Registrar of
Companies of Ireland within 56 days from 30 September 2023.
The Consolidated Financial Statements do not include all the information and
disclosures required for the annual financial statements and should be read in
conjunction with the Annual Consolidated Financial Statements of Bank of
Cyprus Holdings Group for the year ended 31 December 2022, prepared in
accordance with International Financial Reporting Standards (IFRS) as adopted
by the EU and ESEF requirements, which are available at the Group's website
(www.bankofcyprus.com).
3.3 Changes in accounting policies, presentation and
disclosures
The accounting policies adopted are consistent with those followed for the
preparation of the annual consolidated financial statements for the year ended
31 December 2022, except for the adoption of new and amended standards and
interpretations as explained in Note 3.3.1.
3.3.1 New and amended standards and interpretations
The Group applied for the first time certain standards and amendments, which
are effective for annual periods beginning on or after 1 January 2023 and
which are explained below. The Group has not early adopted any other standard,
interpretation or amendments that has been issued but is not yet effective.
IFRS 17: Insurance Contracts
IFRS 17 'Insurance Contracts' (IFRS 17) became effective on 1 January 2023 and
as required by the standard, the Group applied the requirements
retrospectively with comparative information restated from the transition
date, 1 January 2022 as further explained in the 'Transition application'
section below. IFRS 17 establishes the principles for the recognition,
measurement, presentation and disclosure of insurance contracts, reinsurance
contracts and investment contracts with discretionary participation features.
IFRS 17 is a comprehensive new accounting standard for insurance contracts
which replaces IFRS 4 'Insurance Contracts'. In contrast to the requirements
in IFRS 4, IFRS 17 provides a comprehensive model (the general measurement
model or 'GMM') for insurance contracts, supplemented by the variable fee
approach ('VFA') for contracts with direct participation features that are
substantially investment‑related service contracts, and the premium
allocation approach ('PAA') mainly for short duration insurance contracts. The
main features of the new accounting standard for insurance contracts are the
following:
i. The measurement of the present value of future cash flows,
incorporating an explicit risk adjustment, remeasured every reporting period
(the fulfilment cash flows).
ii. A Contractual Service Margin (CSM) that is equal and opposite to any
day one gain in the fulfilment cash flows of a group of contracts. The CSM
represents the unearned profitability of the insurance contracts and is
recognised in profit or loss over the service period (i.e., the coverage
period).
i. Certain changes in the expected present value of future cash flows
are adjusted against the CSM and thereby recognised in profit or loss over the
remaining contractual service period.
ii. The recognition of insurance revenue and insurance service expenses
in the consolidated income statement is based on the concept of services
provided during the period.
iii. Insurance service result (earned revenue less incurred claims) is
presented separately from the insurance finance income or expense.
iv. Extensive disclosures to provide information on the recognised amounts
from insurance contracts and the nature and extent of the risks arising from
these contracts.
Transition application
The standard is applied retrospectively using a fully retrospective approach
('FRA') as if it had always been applied, unless it is impracticable to so, in
which case either a modified retrospective approach ('MRA') or a fair value
approach ('FVA') can be selected. Impracticability assessments were performed
based on the requirements of IFRS 17 and considered the availability of data
and systems and the requirement not to apply hindsight within the measurement.
Following the completion of impracticability assessments, the Group applied
the following approaches:
· The FRA for all non‑life groups of insurance
contracts and non‑individual life groups of insurance contracts,
irrespective of issue date.
· The MRA for groups of life insurance contracts
issued between 2016 and 2021.
· The FVA for groups of life insurance contracts
issued prior to 2016.
Modified retrospective approach ('MRA')
The Group is permitted to use the MRA only to the extent that is does not have
reasonable and supportable information to apply the FRA. MRA is an approach to
achieve the outcome closest to the FRA, with the prescribed modifications to
address some of the challenges of retrospective application. Under MRA the
below simplifications are permitted:
· assessments at the date of initial recognition of
groups of insurance contracts;
· contractual service margin for insurance contracts
without direct participation features;
· contractual service margin for insurance contracts
with direct participation features; and
· insurance finance income or expenses.
In applying the MRA, the Group used reasonable and supportable information
from its existing reporting systems, with the objective to arrive at the
outcome closest to the FRA. The Group applied each of the following
modifications:
· Groups of contracts issued between 2016 and 2021
contain contracts issued more than one year apart. For these groups, the
discount rates on initial recognition were determined at 1 January 2022
instead of at the date of initial recognition.
· For groups of contracts issued between 2016 and
2021, the future cash flows on initial recognition were estimated by
considering:
- the transactions that occurred in the period
2016‑2021, plus
- the expected future cashflows estimated at 31
December 2021.
· For groups of contracts issued between 2016 and
2021, the illiquidity premiums applied to the risk‑free yield curves on
initial recognition were estimated by determining an average spread between
the risk‑free yield curves and the discount rates determined retrospectively
for the period between 1 January 2016 and 1 January 2022.
· For groups of contracts issued between 2016 and
2021, the risk adjustment for non‑financial risk at initial recognition was
determined by adjusting the relevant amount at 1 January 2022.
· The amount of the CSM has been released in the
profit or loss before 1 January 2022 was determined by comparing the coverage
units provided before 1 January 2022 and the expected coverage units at 1
January 2022.
Determination on transition of the fair value of insurance contract
liabilities for which FVA was applied
Under the FVA approach required by IFRS 17, the valuation of insurance
liabilities on transition is based on the requirements of IFRS 13 'Fair Value
Measurement'. This requires consideration of the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (an exit price). Under the
FVA, the CSM of the liability for remaining coverage at the transition date is
determined as the difference between the fair value of the groups of insurance
contracts and the fulfilment cash flows measured as at that date. There is
judgement involved in determining an appropriate fair value, as there is a
lack of observable data for actual transactions for closed book insurance
businesses and a range of possible modelling approaches. In determining the
fair value the Group considered the estimated profit margin that a market
participant would demand in return for assuming the insurance liabilities, and
the discount rate that would be applied within the IFRS 13 calculation. The
approach for setting these included the following:
· The discount rate was derived with an allowance for
an illiquidity premium that takes into account the level of 'matching' between
the life Insurance assets and related liabilities.
· Solvency II information (i.e. Best Estimate
Liabilities and Risk Margin) has been utilised.
The sections below provide a summary of the significant accounting policies
applied under IFRS 17, information on the quantitative impact of transition to
IFRS 17, the restated consolidated balance sheet at 1 January 2022 and at 31
December 2022 and the restatement impact on the consolidated income statement
for the year ended 31 December 2022 and the six months ended 30 June 2022.
Summary of significant accounting policies
Identifying contracts in the scope of IFRS 17
IFRS 17 establishes the principles for the recognition, measurement,
presentation and disclosure of insurance contracts, reinsurance contracts and
investment contracts with discretionary participation features.
An insurance contract is a contract under which the Group accepts significant
insurance risk from another party by agreeing to compensate that party if it
is adversely affected by a specified uncertain future event.
When identifying contracts in the scope of IFRS 17, there is a need to assess
whether contracts need to be treated as a single contract and whether embedded
derivatives, investment components and goods and services components need to
be separated and accounted for under another standard. For the Group's
insurance and reinsurance contracts held, there were no significant changes
arising from the application of these requirements.
Level of aggregation
Individual insurance contracts that are managed together and are subject to
similar risks are identified as a group.
Contracts that are managed together usually belong to the same product line
and have similar characteristics such as being subject to a similar pricing
framework or similar product management and are issued by the same legal
entity. If a contract is exposed to more than one risk, the dominant risk of
the contract is used to assess whether the contract features similar risks.
Each group of contracts is then divided into annual cohorts (i.e. by year of
issue) and each cohort into three groups, based on expected profitability: (i)
contracts that are onerous at initial recognition; (ii) contracts that at
initial recognition have no significant possibility of becoming onerous
subsequently; and (iii) the remaining contracts.
The groups of insurance contracts are established at initial recognition
without subsequent reassessment and form the unit of account at which the
contracts are measured.
Contract boundaries
The measurement of a group of insurance contracts includes all the future cash
flows within the boundary of each contract in the group. Cash flows are within
the boundary of an insurance contract if they arise from substantive rights
and obligations that exist during the reporting period in which the Group can
compel the policyholder to pay the premiums, or in which the Group has a
substantive obligation to provide the policyholder with services. For
multiyear (more than one year) non‑life contracts, the Group has assessed
that they are expected to equal their duration as the Group cannot reprice or
terminate the insurance contract during the coverage period.
Measurement
IFRS 17 introduces a standard measurement model, the General Measurement Model
(GMM) and allows also for a simplified approach, the Premium Allocation
Approach (PAA). IFRS 17 also provides for the Variable Fee Approach (VFA),
which is mandatory to apply for insurance contracts with direct participation
features upon meeting the eligibility criteria. While the GMM is the default
measurement model under IFRS 17, the Group applies the VFA primarily to
insurance contracts in the unit‑linked life portfolio. The PAA is an
optional simplification applicable for measuring the Liability for Remaining
Coverage (LRC) for contracts with coverage periods of one year or less, or
when doing so approximates the GMM; it is primarily applied by the Group to
non‑life insurance contracts and to non‑individual life insurance
contracts as well as to reinsurance contracts of the Group except for the
individual life reinsurance agreement, for which the GMM was applied. For the
rest of the insurance contracts (individual protection life contracts, the
acquired portfolio and health long‑term portfolio) and the Liability for
Incurred Claims (LIC) of non‑life Insurance contracts, the Group applies the
GMM approach.
Initial measurement
Groups of insurance contracts under the GMM or the VFA are initially measured
as the total of:
- Fulfilment cash flows, which comprise:
· an estimate of the present value of future cash
flows that are expected to arise as the Group fulfils its service under the
insurance contracts; and
· an explicit risk adjustment for non‑financial
risk (i.e., the risk adjustment held on balance sheet)
- Contractual Service Margin (CSM) which represents
the unearned profit that the Group will recognise as it provides insurance
contract services.
The fulfilment cash flows comprise unbiased and probability‑weighted
estimates of future cash flows, discounted to present value to reflect both
the time value of money and financial risks, plus a risk adjustment for
non‑financial risk. The discount rate applied reflects the time value of
money, the characteristics of the cash flows, the liquidity characteristics of
the insurance contracts and, where appropriate, is consistent with observable
current market prices.
The risk adjustment for non‑financial risk for a group of insurance
contracts is the compensation required for bearing the uncertainty in relation
to the amount and timing of the cash flows that arises from non‑financial
risk. The risk adjustment is explicit and determined separately from other
fulfilment cash flows.
A CSM arises when, for a group of contracts, the sum of the discounted cash
flows and the risk adjustment is a net inflow. If the sum of these is a net
outflow, then the group of contracts is onerous and a loss equal to the net
outflow is recognised in the consolidated income statement.
Under the PAA, the liability for remaining coverage is initially recognised as
the premiums received at initial recognition, minus any insurance acquisition
cash flows.
Subsequent measurement
GMM
At the end of each reporting period, IFRS 17 requires that insurance contracts
are measured as the sum of:
· Liability for remaining coverage (LRC), comprising
fulfilment cash flows related to future service and the CSM at the reporting
date; and
· Liability for incurred claims (LIC), comprising
fulfilment cash flows related to past service at the reporting date (claims
and expenses not yet paid, including claims incurred but not yet reported).
The fulfilment cash flows of groups of insurance contracts are measured at the
reporting date using current estimates of future cash flows, current discount
rates and current estimates of the risk adjustment for non‑financial risk.
Changes in fulfilment cash flows are recognised as follows:
- Changes related to future service are adjusted
against the CSM unless the group of contracts is onerous in which case such
changes are recognised in the net insurance service result in the consolidated
income statement
- Changes related to past or current service are
recognised in the net insurance service result in the consolidated income
statement
- The effects of the time value of money and financial
risk are recognised as net insurance finance income or expense in the
consolidated income statement
The amount of CSM recognised in income statement for services in a period is
determined by the allocation of the CSM remaining at the end of the reporting
period over the current and remaining expected coverage period of the group of
insurance contracts based on coverage units. Services provided are estimated
using coverage units, which reflect the quantity of benefits and the coverage
duration.
VFA
The VFA is applied for contracts with direct participation features (contracts
where returns are based on the performance of underlying assets). For
insurance contracts under the VFA, changes in the Group's share of the
underlying items, and economic experience and economic assumption changes
adjust the CSM, whereas these changes do not adjust the CSM under the GMM but
are recognised in profit or loss as they arise.
PAA
Subsequently to initial measurement, the carrying amount of the LRC is
increased with premiums received in the period, minus insurance acquisition
cash flows, plus amortisation of acquisition cash flows, minus the amount
recognised as insurance revenue for coverage provided in that period. The LRC
is not discounted, since at initial recognition, it is expected that the time
between providing each part of the coverage and the due date of the related
premium is not more than a year.
Reinsurance contracts
The Group applies the same accounting policies to measure a group of
reinsurance contracts under PAA, with the following modifications to reflect
features that differ from those of insurance contracts. The Group
establishes a loss‑recovery component on the carrying amount of the asset
for remaining coverage for a group of reinsurance contracts, depicting the
recovery of losses, where the Group recognises a loss on initial recognition
of an onerous group of underlying insurance contracts or when further onerous
underlying insurance contracts are added to a group.
The Group calculates the loss‑recovery component by multiplying the loss
recognised on the underlying insurance contracts and the percentage of claims
on the underlying insurance contracts the Group expects to recover from the
group of reinsurance contracts. The loss‑recovery component adjusts the
carrying amount of the asset for remaining coverage.
The subsequent measurement of reinsurance contracts follows the same
principles as those for insurance contracts issued and has been adapted to
reflect the specific features of reinsurance. Where the Group has established
a loss‑recovery component, the Group subsequently reduces the
loss‑recovery component to zero in line with reductions in the onerous group
of underlying insurance contracts in order to reflect that the loss‑recovery
component shall not exceed the portion of the carrying amount of the loss
component of the onerous group of underlying insurance contracts that the
entity expects to recover from the group of reinsurance contracts.
The measurement of reinsurance contracts under the individual life reinsurance
agreement follows the same principles as those for insurance contracts
measured under the GMM. The carrying amount of the reinsurance contracts at
each reporting date is the sum of the asset for remaining coverage and the
asset for incurred claims. The asset for remaining coverage comprises (a) the
fulfilment cash flows that relate to services that will be received under the
contracts in future periods and (b) any remaining CSM at that date.
The risk adjustment for non‑financial risk will represent the amount of risk
being transferred by the Group to the reinsurer.
The CSM of a group of reinsurance contracts represents a net cost or net gain
on purchasing reinsurance.
Contract derecognition
The Group derecognises an insurance contract issued when the obligation
specified in the contract expires, is discharged, or is cancelled, or if its
terms are modified significantly. When a contract is modified significantly, a
new contract based on the modified terms is recognised.
On derecognition of an insurance contract, the Group:
· -Adjusts the fulfilment cash flows to eliminate the
present value of future cash flows and risk adjustment for non‑financial
risk relating to the rights and obligations that have been derecognised from
the group of contracts,
· Adjusts the CSM of the group of contracts for the
change in the fulfilment cash flows, except where such changes are allocated
to a loss component; and
· Adjusts the number of coverage units for the
expected remaining services, to reflect the number of coverage units
derecognised from the group of contracts.
Directly attributable expenses
In accordance with IFRS 17, expenses directly attributable to a group of
insurance contracts, which include both acquisition and maintenance costs are
incorporated in actual and estimated future cash flows and recognised in the
net insurance result. Insurance acquisition cash flows are amortised. Expenses
that are not directly attributable are excluded from the measurement of
insurance contract liabilities and are recognised in profit and loss as
incurred.
Significant judgments and estimates
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, that have a significant risk of causing a
material adjustment to the carrying amounts of insurance and reinsurance
assets and liabilities within the next financial year are discussed below. The
Group based its assumptions and estimates on parameters available by the
reporting date. Existing circumstances and assumptions about future
developments, however, may change due to market changes or circumstances
arising that are beyond the control of the Group. Such changes are reflected
in the assumptions when they occur.
Estimates of future cash flows
In estimating future cash flows, the Group incorporates, in an unbiased way,
all reasonable and supportable information that is available without undue
cost or effort at the reporting date. This information includes both internal
and external historical data about claims and other experience, updated to
reflect current expectations of future events.
Cash flows within the boundary of a contract are those that relate directly to
the fulfilment of the contract, including those for which the Group has
discretion over the amount or timing. These include payments to (or on behalf
of) policyholders and other costs that are incurred in fulfilling contracts.
These comprise both an allocation of fixed and variable overheads.
The estimates of future cash flows reflect the Group's view of current
conditions at the reporting date, as long as the estimates of any relevant
market variables are consistent with observable market prices.
The following assumptions were used when estimating future cash flows in
relation to life insurance contracts:
· Mortality and morbidity rates
· Expenses and inflation
· Lapse and surrender rates
The table below sets out the percentage assumed to apply to industry mortality
and morbidity tables in estimating fulfilment cash flows:
Mortality Rates Mortality rates*
30 June 2023 31 December 2022
Males Smokers 68% A67/70 68% A67/70
Non‑Smokers 48.25% A67/70 48.25% A67/70
Smokers 68% A67/70 rated down by 4 years 68% A67/70 rated down by 4 years
Females Non‑Smokers 48.25% A67/70 rated down by 4 years 48.25% A67/70 rated down by 4 years
* The Group uses A67/70 UK standard mortality table in setting the mortality
assumption, since the Group's own claim experience is not sufficient to allow
the development of its own mortality table. To reflect the Group's
specific claims experience more accurately, a percentage is
applied on the A67/70 UK standard mortality table.
Discount rates
Discount rates are applied to adjust the estimates of future cash flows to
reflect the time value of money and the financial risks related to those cash
flows, to the extent that the financial risks are not included in the
estimates of cash flows.
IFRS 17 requires that discount rates should:
· Reflect the time value of money, characteristics of
the cash flows and liquidity characteristics of the insurance contract
· Be consistent with observable current market prices
(if any) for financial instruments with cash flows whose characteristics are
consistent with those of the insurance contracts (e.g., timing, currency and
liquidity)
· Exclude the effect of factors that influence such
observable market prices, but do not affect the future cash flows of the
insurance contracts
IFRS 17 does not require a particular estimation technique for determining
discount rates but provides two alternative approaches that may be used to
derive discount rates. The determination of discount rates may be derived from
a yield curve that reflects the current market rates of return of an actual or
reference portfolio of assets, adjusted to eliminate any factors that are not
relevant to the insurance contracts (top‑down approach), or discount rates
may be derived based on a liquid risk‑free yield curve adjusted for an
illiquidity premium (bottom‑up approach). The Group has elected to apply a
bottom‑up approach whereby discount rates are derived based on a liquid risk
free yield curve adjusted for an illiquidity premium.
The discount rates applied for discounting future cash flows are listed below:
Year 1 Year 3 Year 5 Year 10 Year 20
30 June 31 December 30 June 31 December 30 June 31 December 30 June 31 December 30 June 31 December
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
Life insurance contracts (unit‑linked) 3.8% 2.4% 3.2% 2.8% 3.0% 2.9% 2.9% 3.0% 2.8% 2.7%
Life insurance contracts (non‑linked) 3.9% 2.4% 3.3% 2.8% 3.1% 2.9% 3.0% 3.0% 2.9% 2.7%
Non‑life insurance contracts 3.9% 4.0% 3.3% 4.0% 3.1% 4.0% 3.0% 3.9% 2.9% 3.6%
Risk adjustments for non‑financial risk
IFRS 17 provides limited prescriptive requirements as to the methodology to be
used to calculate the risk adjustment and allows an entity to apply judgement
in determining an appropriate estimation technique.
Life Insurance business
The Group has applied judgement in estimating the risk adjustment, in the
following areas:
· Risks included within the risk adjustment
calculation ‑ the Group has considered the same risks as under the Solvency
II risk margin, specifically for life underwriting and health underwriting
risks, as they both use a definition of non‑market risks, apart from
specific differences referred to in IFRS 17. The excluded categories are
counterparty and operational risks.
· Method of calculation ‑ the Group calculates a
margin, above best estimate assumptions, for each non‑financial risk to
which the Group is exposed through issuing insurance contracts. The margins
are set so that (in combination) they would cover potential losses from
movements in non‑financial risks within a specified confidence level. The
total of these margins is the risk adjustment. The Group has applied judgement
in setting the confidence level applied in the risk adjustment calculation,
based on the Group's appetite for accepting the risk inherent in writing
insurance contracts and the compensation required for doing so.
The Group has estimated the risk adjustment using a hybrid of Cost of Capital
(CoC) and Value at Risk (VaR) techniques. The Group scales up/down the Risk
Adjustment calculated under the CoC technique using the VaR technique to
reflect the Group's risk appetite and overall strategy.
To calculate the Risk Adjustment, the Group first uses the CoC technique to
derive a calibrated normal distribution with a mean that is equal to Best
Estimate Liabilities (BEL) at Best Estimate Assumptions and percentile at
99,5% equal to BEL + Solvency Capital Requirements (SCR) (t=0). A 6% CoC rate
is applied to the additional capital requirement in future reporting periods
to calculate the return required by the Group to compensate for the exposure
to non¬financial risk. The CoC method results to a confidence level of 60%.
Using the VaR methodology, to allow for the Group's risk appetite and overall
strategy the confidence level is then scaled up to 90% which is the desired
confidence level of the Group. The Risk Adjustment is then calculated using
the normal distribution and a confidence level of 90%.
Non‑life Insurance business
For non‑life insurance business the risk adjustment forms a key component of
the LIC.
The risk adjustment for LRC forms part of the loss component calculation which
is used to determine the groupings of contracts that are expected to be
onerous.
Risk adjustment for non‑financial risk is determined to reflect the
compensation that the Group would require for bearing non‑financial risk and
its degree of risk aversion. It is determined separately for each non‑life
line of business and allocated to groups of contracts based on the total
premiums for each group. It reflects the effects of the diversification
benefits between the different lines of business, which are determined using a
correlation matrix technique available from EIOPA.
The risk adjustment for non‑financial risk is determined using a confidence
level technique which stems from a hybrid Cost of Capital and Value at Risk
approach. To determine the risk adjustment for non‑financial risk for
non‑life reinsurance contracts, the Group applies this technique to the
gross amounts and then by using gross to net ratios it derives the amount of
risk being transferred to the reinsurer as the difference between the two
results.
The Group estimates the probability distribution of the expected present value
of the future cash flows from the contracts at each reporting date and
calculates the risk adjustment for non‑financial risk at value at risk of
the target confidence level. The Group uses a target 75% percentile for the
confidence level.
CSM
The CSM of a group of contracts is recognised in the income statement to
reflect services provided in each year, by identifying the coverage units in
the group, allocating the CSM remaining at the end of the year equally to each
coverage unit provided in the year and expected to be provided in future
years, and recognising in income statement the amount of the CSM allocated to
coverage units provided in the year. The number of coverage units is the
quantity of services provided by the contracts in the group, determined by
considering for each contract the quantity of the benefits and its expected
coverage period. The coverage units are reviewed and updated at each reporting
date.
Significant accounting policy choices
The significant accounting policy choices applicable to the Group are in
relation to:
· Disaggregation of insurance finance income or
expenses: The Group has elected to recognise total insurance finance income or
expenses in the consolidated income statement in the period in which they
arise i.e no disaggregation is applied.
· Deferral of acquisition expenses: The Group has
elected to defer insurance acquisition cash flows, in applying the premium
allocation approach for which IFRS 17 provides an election to be made.
· Disaggregation of change in risk adjustment for
non‑financial risk: The Group has elected to disaggregate the change in risk
adjustment for non‑financial risk between the net insurance service result
and net insurance finance income/(expense).
Presentation
The amounts presented in the consolidated income statement under IFRS 17
include:
i. Net insurance finance income/(expense) and net reinsurance finance
income/(expense), that comprises of:
· Net insurance finance income/(expense) which
represents the finance related change in the carrying value of a group of
insurance contracts comprising interest effects of changes in interest rates
and other financial assumptions and the effect of changes in the fair value of
underlying items for direct participating contracts
· Net finance income/(expense) from reinsurance
contracts held is the finance related change in the carrying value of a group
of reinsurance contracts comprising interest accreted and effects of changes
in interest rates and other financial assumptions.
ii. Net insurance service result, that comprises of:
· Insurance revenue that reflects the consideration
to which the Group expects to be entitled in exchange for the provision of
coverage and other insurance contract services (excluding any investment
components) and includes among others CSM released during the period, revenue
for insurance contracts under the PAA and changes in risk adjustment related
to current service period and experience variance.
· Insurance service expenses that comprise the
incurred claims and other incurred insurance service expenses (excluding any
investment components), and losses on onerous groups of contracts and
reversals of such losses.
iii. Net reinsurance service result, that comprises of amounts recovered
from reinsurers and reinsurance expenses.
Transition impact
On transition on 1 January 2022, consistent with the disclosures in the 2022
Annual Financial Report, the Group's Total Equity and Equity attributable to
the owners of the Company were reduced by €37,563 thousand, reflecting the
aggregate impact of the present value of in‑force life insurance business
(PVIF) elimination and remeasurement of insurance assets and liabilities, both
net of associated tax impact. Similarly, adjusting for the impact of IFRS 17
on the profit for the year ended 31 December 2022, the Group's Total Equity
and Equity attributable to the owners of the Company at 31 December 2022 as
reported under IFRS 4 were reduced by €52,104 thousand, as analysed below.
At 1 January At 31 December
2022
2022
€000 €000
IFRS 4 Total Equity 2,081,227 2,100,670
IFRS 4 Equity attributable to the owners of the Company 1,838,793 1,858,370
Removal of PVIF asset (129,890) (115,776)
Contractual service margin (43,731) (41,863)
Removal of IFRS 4 assets and liabilities and recording of IFRS 17 fulfilment 129,255
cash flows and risk adjustment 97,028
Tax effect (incl. PVIF tax effect)
7,079 9,601
Other
(276) (1,094)
Total impact of IFRS 17 restatements
(37,563) (52,104)
IFRS 17 Equity attributable to the owners of the Company 1,801,230 1,806,266
IFRS 17 Total Equity 2,043,664 2,048,566
The reduction of the Group's equity by €52 million as at 31 December 2022
comprises the elimination of the in‑force life insurance business asset
(PVIF) and the associated deferred tax liability, resulting in a net decrease
of €101 million and the remeasurement of insurance assets and liabilities
(including the impact of the contractual service margin) resulting in a net
increase in equity by €49 million.
On transition on 1 January 2022, the Group's Tangible Equity attributable to
the owners of the Company was increased by €92,327 thousand. Adjusting for
the impact of IFRS 17 on the profit for the year ended 31 December 2022, the
Group's Tangible Equity attributable to the owners of the Company as at 31
December 2022 as restated under IFRS 17 was increased by €63,672 thousand as
analysed below.
At 1 January At 31 December
2022
2022
€000 €000
IFRS 4 Group's Tangible Equity attributable to the owners of the Company 1,654,759 1,690,048
Contractual service margin (43,731) (41,863)
Removal of IFRS 4 assets and liabilities and recording of IFRS 17 129,255
fulfilment cash flows and risk adjustment 97,028
Tax effect (incl. PVIF tax effect)
7,079 9,601
Other
(276) (1,094)
Total impact of IFRS 17 restatements
92,327 63,672
IFRS 17 Group's Tangible Equity attributable to the owners of the Company 1,747,086 1,753,720
Consolidated Income Statement for the year ended 31 December 2022, as restated
for IFRS 17 and as previously reported under IFRS 4 is presented below.
Year ended
31 December 2022
IFRS 17 IFRS 4
(restated)
(as previously
presented)
€000 €000
Interest income
428,849 428,849
Income similar to interest income
22,119 22,119
Interest expense
(65,721) (65,821)
Expense similar to interest expense
(14,840) (14,840)
Net interest income
370,407 370,307
Fee and commission income
202,583 202,583
Fee and commission expense
(10,299) (10,299)
Net foreign exchange gains
31,291 31,291
Net gains/(losses) on financial instruments
(614) 10,052
Net gains/(losses) on derecognition of financial assets measured at amortised
cost 5,235 5,235
Net insurance finance income/(expense) and net reinsurance finance -
income/(expense) 4,075
Net insurance service result -
60,530
Net reinsurance service result -
(20,039)
Income from assets under insurance and reinsurance contracts -
114,681
Expenses from liabilities under insurance and reinsurance contracts -
(43,542)
Net losses from revaluation and disposal of investment properties
(999) (999)
Net gains on disposal of stock of property
13,970 13,970
Other income
16,681 16,681
Total operating income
672,821 709,960
Staff costs
(285,154) (294,361)
Special levy on deposits and other levies/contributions
(38,492) (38,492)
Provisions for pending litigations, regulatory and other provisions (net of
reversals) (11,880) (11,880)
Other operating expenses
(157,916) (166,365)
Operating profit before credit losses and impairment
179,379 198,862
Credit losses on financial assets
(59,087) (59,529)
Impairment net of reversals on non‑financial assets
(29,549) (29,549)
Profit before tax
90,743 109,784
Income tax
(31,312) (35,812)
Profit after tax for the year
59,431 73,972
Attributable to:
Owners of the Company
56,565 71,106
Non‑controlling interests
2,866 2,866
Profit for the year
59,431 73,972
Basic and diluted profit per share attributable to the owners of the Company
(€ cent) 12.7 15.9
Consolidated Balance Sheet at transition date and at 31 December 2022 as
restated under IFRS 17 and as previously reported under IFRS 4 is presented
below.
IFRS 17 IFRS 4
(restated)
(as previously presented)
31 December 1 January 31 December 1 January
2022
2022
2022
2022
Assets €000 €000 €000 €000
Cash and balances with central banks
9,567,258 9,230,883 9,567,258 9,230,883
Loans and advances to banks
204,811 291,632 204,811 291,632
Derivative financial assets
48,153 6,653 48,153 6,653
Investments at FVPL
190,209 199,194 190,209 199,194
Investments at FVOCI
467,375 748,695 467,375 748,695
Investments at amortised cost
2,046,119 1,191,274 2,046,119 1,191,274
Loans and advances to customers
9,953,252 9,836,405 9,953,252 9,836,405
Life insurance business assets attributable to policyholders
542,321 551,797 542,321 551,797
Prepayments, accrued income and other assets
609,054 583,777 639,765 616,219
Stock of property
1,041,032 1,111,604 1,041,032 1,111,604
Investment properties
85,099 117,745 85,099 117,745
Deferred tax assets
227,934 265,942 227,521 265,481
Property and equipment
253,378 252,130 253,378 252,130
Intangible assets
52,546 54,144 168,322 184,034
Non‑current assets and disposal groups held for sale - -
358,951 358,951
Total assets
25,288,541 24,800,826 25,434,615 24,962,697
Liabilities
Deposits by banks
507,658 457,039 507,658 457,039
Funding from central banks
1,976,674 2,969,600 1,976,674 2,969,600
Derivative financial liabilities
16,169 32,452 16,169 32,452
Customer deposits
18,998,319 17,530,883 18,998,319 17,530,883
Insurance liabilities
599,992 623,791 679,952 736,201
Accruals, deferred income, other liabilities and other provisions
379,182 356,697 384,004 361,977
Provisions for pending litigation, claims, regulatory and other matters
127,607 104,108 127,607 104,108
Debt securities in issue
297,636 302,555 297,636 302,555
Subordinated liabilities
302,104 340,220 302,104 340,220
Deferred tax liabilities
34,634 39,817 43,822 46,435
Total liabilities
23,239,975 22,757,162 23,333,945 22,881,470
Equity
Share capital
44,620 44,620 44,620 44,620
Share premium
594,358 594,358 594,358 594,358
Revaluation and other reserves
76,939 99,541 178,240 213,192
Retained earnings
1,090,349 1,062,711 1,041,152 986,623
Equity attributable to the owners of the Company
1,806,266 1,801,230 1,858,370 1,838,793
Other equity instruments
220,000 220,000 220,000 220,000
Non‑controlling interests
22,300 22,434 22,300 22,434
Total equity
2,048,566 2,043,664 2,100,670 2,081,227
Total liabilities and equity
25,288,541 24,800,826 25,434,615 24,962,697
Transition impact on the Consolidated Balance Sheet at 1 January 2022
The adjustments to the Group's balance sheet at 1 January 2022 arising on the
adoption of IFRS 17 are presented below.
Balance Removal of IFRS 17 IFRS 17 Tax Other Balance Total
IFRS 4
PVIF and
fulfilment
CSM
effect
IFRS 17
movements
IFRS 4
cash flows
assets and
incl. Risk
liabilities
adjustment*
Assets €000 €000 €000 €000 €000 €000 €000 €000
Prepayments, accrued income and other assets 616,219 (70,121) 37,676 - - 3 583,777 (32,442)
Deferred tax assets 265,481 - - - 461 - 265,942 461
Intangible assets 184,034 (129,890) - - - - 54,144 (129,890)
All other assets 23,896,963 - - - - - 23,896,963 -
Total assets 24,962,697 (200,011) 37,676 - 461 3 24,800,826 (161,871)
Liabilities
Insurance liabilities 736,201 (735,143) 579,002 43,731 - - 623,791 (112,410)
Accruals, deferred income, other liabilities and other 361,977 (5,559) - - - 279 356,697 (5,280)
provisions
Deferred tax liabilities 46,435 - - - (6,618) - 39,817 (6,618)
All other liabilities 21,736,857 - - - - - 21,736,857 -
Total liabilities 22,881,470 (740,702) 579,002 43,731 (6,618) 279 22,757,162 (124,308)
* includes reinsurance assets and liabilities adjustments
Transition drivers
Removal of PVIF and IFRS 4 assets and liabilities
The present value of in‑force business ('PVIF') which was previously
reported under IFRS 4 within 'Intangible assets' and that arose from the
upfront recognition of future profits associated with in‑force insurance
contracts, is no longer recognized under IFRS 17. The estimated future profits
are included in the measurement of the insurance contract liability as the
contractual service margin ('CSM'), representing the unearned profit, which
will be gradually recognized over the duration of a contract. Other IFRS 4
insurance assets and insurance contract liabilities are removed on transition,
to be replaced with IFRS 17 insurance assets and liabilities.
Recognition of the IFRS 17 fulfilment cash flows and risk adjustment
The measurement of insurance contract liabilities under IFRS 17 is based on
groups of insurance contracts and includes a liability for fulfilling the
contractual obligations associated with the insurance contract, such as
premiums, expenses, insurance benefits and claims. These are recorded within
the fulfilment cash flow component of the insurance contract liability,
together with the risk adjustment.
Recognition of the IFRS 17 CSM
In contrast to IFRS 4 accounting, where profits were recognised upfront, under
IFRS 17 they are deferred within the CSM which is systematically recognized in
revenue, as services are provided over the coverage period of groups of
insurance contracts.
Tax effect
The removal of deferred tax liability primarily results from the removal of
the associated PVIF intangible, and new deferred tax assets and liabilities
are reported, where appropriate, on temporary differences between the new IFRS
17 accounting balances and their associated tax bases.
Transition impact on the Consolidated Income Statement
A summary of the impact of implementing IFRS 17 on the Group's consolidated
income statement for the year ended 31 December 2022 is presented below.
For the year ended 31 December 2022
IFRS 4 Removal of Net IFRS 17 IFRS 17 IFRS 17 Net Attributable Tax IFRS 17
IFRS 4 and
insurance
CSM
insurance
insurance
expense
expenses
effect
(restated)
reclassifi‑cations
finance
revenue‑
expense
from
(reclassifi‑cation
income/
other than
reinsurance
to net
expense
CSM
insurance
service result)
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Interest income 428,849 - - - - - - - - 428,849
Income similar to interest income 22,119 - - - - - - - - 22,119
Interest expense (65,821) - - - 100 - - - - (65,721)
Expense similar to interest expense (14,840) - - - - - - - - (14,840)
Net interest income 370,307 - - - 100 - - - - 370,407
Fee and commission income 202,583 - - - - - - - - 202,583
Fee and commission expenses (10,299) - - - - - - - - (10,299)
Net foreign exchange gains 31,291 - - - - - - - - 31,291
Net gains/(losses) on financial instruments 10,052 (10,666) - - - - - - - (614)
Net gains/(losses) on derecognition of financial assets measured at 5,235 - - - - - - - - 5,235
amortised
cost
Net insurance finance income/(expense) and net reinsurance finance - - 4,075 - - - - - - 4,075
income/(expense)
Net insurance service result - - - 5,031 130,061 (74,562) - - - 60,530
Net reinsurance service result - - - - - - (20,039) - - (20,039)
Income from assets under insurance and reinsurance contracts 114,681 (114,681) - - - - - - - n/a
Expenses from liabilities under insurance and reinsurance contracts (43,542) 43,542 - - - - - - - n/a
Net losses from revaluation and disposal of investment properties (999) - - - - - - - - (999)
Net gains on disposal of stock of property 13,970 - - - - - - - - 13,970
Other income 16,681 - - - - - - - - 16,681
Total operating income 709,960 (81,805) 4,075 5,031 130,161 (74,562) (20,039) - - 672,821
Staff costs (294,361) - - - - - - 9,207 - (285,154)
Special levy on deposits and other levies/contributions (38,492) - - - - - - - - (38,492)
Provisions for pending litigations, regulatory and other provisions (11,880) - - - - - - - - (11,880)
(net of
reversals)
Other operating expenses (166,365) - - - - - - 8,449 - (157,916)
Operating profit before credit losses and impairment 198,862 (81,805) 4,075 5,031 130,161 (74,562) (20,039) 17,656 - 179,379
Credit losses on financial assets (59,529) - - - 442 - - - - (59,087)
Impairment net of reversals on non‑financial assets (29,549) - - - - - - - - (29,549)
Profit before tax 109,784 (81,805) 4,075 5,031 130,603 (74,562) (20,039) 17,656 - 90,743
Income tax (35,812) - - - - - - 77 4,423 (31,312)
Profit after tax for the year 73,972 (81,805) 4,075 5,031 130,603 (74,562) (20,039) 17,733 4,423 59,431
The Consolidated Income Statement for the six months ended 30 June 2022, as
restated for IFRS 17 and as previously reported under IFRS 4 is presented
below:
Six months ended 30 June 2022
IFRS 4 IFRS 17 IFRS 17
(as previously
(adjustments)
(restated)
presented)
€000 €000 €000
Turnover - 414,996
414,996
Interest income - 181,470
181,470
Income similar to interest income - 9,518
9,518
Interest expense (37,514)
(37,541) 27
Expense similar to interest expense - (7,752)
(7,752)
Net interest income 145,722
145,695 27
Fee and commission income - 98,086
98,086
Fee and commission expense - (4,447)
(4,447)
Net foreign exchange gains - 11,898
11,898
Net gains/(losses) on financial instruments (10,183)
(2,060) (8,123)
Net gains/(losses) on derecognition of financial assets measured at amortised - 1,648
cost 1,648
Net insurance finance income/(expense) and net reinsurance finance - 2,653
income/(expense) 2,653
Net insurance service result - 31,268
31,268
Net reinsurance service result - (10,197)
(10,197)
Income from assets under insurance and reinsurance contracts -
29,859 (29,859)
Expenses from liabilities under insurance and reinsurance contracts -
3,010 (3,010)
Net losses from revaluation and disposal of investment properties - (1,372)
(1,372)
Net gains on disposal of stock of property - 8,242
8,242
Other income - 8,927
8,927
Total operating income 282,245
299,486 (17,241)
Staff costs (98,303)
(103,135) 4,832
Special levy on deposits and other levies/contributions - (16,507)
(16,507)
Provisions for pending litigations, regulatory and other provisions (net of - (594)
reversals) (594)
Other operating expenses (75,824)
(79,799) 3,975
Operating profit before credit losses and impairment 91,017
99,451 (8,434)
Credit losses on financial assets (24,826)
(24,965) 139
Impairment net of reversals on non‑financial assets - (12,157)
(12,157)
Profit before tax 54,034
62,329 (8,295)
Income tax (11,158)
(11,579) 421
Profit after tax for the period 42,876
50,750 (7,874)
Attributable to:
Owners of the Company 42,214
50,088 (7,874)
Non‑controlling interests - 662
662
Profit for the period 42,876
50,750 (7,874)
Basic profit per share attributable to the owners of the Company (€ cent) 9.5
11.2 (1.7)
Diluted profit per share attributable to the owners of the Company (€ cent) 9.5
11.2 (1.7)
Analysis of new insurance line items included in the consolidated income
statement for the year ended 31 December 2022
Year ended
31 December 2022
€000
Insurance finance income and expense and reinsurance finance income and
expense 41,429
Return on assets backing insurance liabilities (37,354)
Net insurance finance income/(expense) and net reinsurance finance
income/(expense) 4,075
Insurance revenue 135,495
Insurance service expenses (74,562)
Other insurance related income/(expense)
(403)
Net insurance service result
60,530
Allocation of reinsurance premiums (36,170)
Amounts recoverable from reinsurers for incurred claims
16,131
Net reinsurance service result (20,039)
Net insurance result 44,566
IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2:
Disclosure of Accounting policies (amendments)
The amendments to IAS 1 require companies to disclose their material
accounting policy information rather than their significant accounting
policies. The amendments to IFRS Practice Statement 2 provide guidance on how
to apply the concept of materiality to accounting policy disclosures. These
amendments did not have an impact on the Group's results and financial
position.
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors:
Definition of Accounting Estimates (amendments)
The amendments introduce the definition of accounting estimates and include
other amendments to IAS 8 to help entities distinguish changes in accounting
estimates from changes in accounting policies. These amendments did not have
an impact on the Group's financial results and financial position.
IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising
from a Single Transaction (amendments)
The amendments require companies to recognise deferred tax on transactions
that, on initial recognition, give rise to equal amounts of taxable and
deductible temporary differences. The amendments typically apply to
transactions such as leases for the lessee and decommissioning obligations.
These amendments did not have an impact on the Group's results and financial
position.
IAS 12 Income Taxes: International Tax Reform - Pillar Two Model Rules
(amendments)
The amendments require an entity to disclose that it has applied the exception
to recognising and disclosing information about deferred tax assets and
liabilities related to Pillar Two income taxes. An entity is required to
separately disclose its current tax expense (income) related to Pillar Two
income taxes, in the periods when the legislation is effective. The amendments
require, for periods in which Pillar Two legislation is (substantively)
enacted but not yet effective, disclosure of known or reasonably estimable
information that helps users of financial statements understand the entity's
exposure arising from Pillar Two income taxes. To comply with these
requirements, an entity is required to disclose qualitative and quantitative
information about its exposure to Pillar Two income taxes at the end of the
reporting period. The legislation has not been substantively enacted at the
balance sheet date and the Group will continue to monitor the evolving
national legislation including any disclosures required, or exemptions
available, under IAS 12 in the year ending 31 December 2023.
3.3.2 Standards and Interpretations that are issued but not yet
adopted
The IASB has issued a number of minor amendments to IFRSs effective 1 January
2024 (including IAS 1 Presentation of Financial Statements, IAS 7 Statement of
Cash Flows and IFRS 7 Financial Instruments: Disclosures, and IFRS 16 Leases).
These amendments are not expected to have a significant impact on the Group.
4. Going concern
The Directors have made an assessment of the ability of the Group, the Company
and BOC PCL to continue as a going concern for a period of 12 months from the
date of approval of these Consolidated Financial Statements.
The Directors have concluded that there are no material uncertainties which
would cast a significant doubt over the ability of the Group, the Company and
BOC PCL to continue to operate as a going concern for a period of 12 months
from the date of approval of these Consolidated Financial Statements.
In making this assessment, the Directors have considered a wide range of
information relating to present and future conditions, including projections
of profitability, cash flows, capital requirements and capital resources,
taking also into consideration, the Group's Financial Plan approved by the
Board in February 2023 (the 'Plan') and the operating environment as well as
any reforecast exercises performed. The Group has sensitised its projection to
cater for a downside scenario and has used reasonable economic inputs to
develop its medium‑term strategy. The Group is working towards materialising
its Strategy.
Capital
The Directors and Management have considered the Group's forecasted capital
position, including the potential impact of a deterioration in economic
conditions. The Group has developed capital projections under a base and an
adverse scenario and the Directors believe that the Group has sufficient
capital to meet its regulatory capital requirements throughout the period of
assessment.
Funding and liquidity
The Directors and Management have considered the Group's funding and liquidity
position and are satisfied that the Group has sufficient funding and liquidity
throughout the period of assessment. The Group continues to hold a significant
liquidity buffer at 30 June 2023 that can be easily and readily monetised in a
period of stress.
5. Economic and geopolitical environment
The economic environment in 2023 and over the medium term is now subject to a
high degree of uncertainty, with the continuation of the war in Ukraine,
rising tensions in US‑China relations, more persistent inflation and tighter
monetary conditions threatening a significant slowdown in the global economy,
particularly in Europe. A combination of supply shocks, including rising
protectionism, the green transition, persistently low productivity growth,
slowing population growth as well as more widespread labour shortages
following the pandemic, could potentially result in average inflation over the
next few years being higher than over the past years.
Headline inflation has decelerated significantly in the first half of 2023,
but core inflation, once the volatile energy and food items are excluded,
remains stubbornly sticky. As a result, central banks in advanced countries
remain focused on fighting inflation and are likely to continue to raise their
policy rates into the third quarter of the year. Interest rates are thus
likely to stay higher for longer, subduing growth and extending debt pressures
in emerging markets.
Government debt levels in relation to GDP in the advanced economies, fell in
2021‑2022 following steep increases in 2020, due to a stronger recovery and
higher inflation. However, governments' fiscal space will narrow again in the
medium term due to higher interest rates and slower economic growth, limiting
their ability to deal with future economic emergencies and potentially
increasing the risk of financial instability, especially in more vulnerable
countries.
The International Monetary Fund in its Spring World Economic Outlook released
in April 2023, predicts slower growth for the global economy and increased
financial and other vulnerabilities under tighter monetary conditions.
Cyprus demonstrates relative strength and resilience in this environment with
a growth outlook that outweighs average growth in EU and with inflation
dropping at a faster pace in comparison. Economic momentum is expected to
continue in 2023 at a slower pace, driven mainly by the expected deterioration
of external demand, as well as slowing domestic demand caused by still high
consumer price inflation.
Cyprus' risk profile has improved significantly, but substantial risks remain
in the domestic environment and in the external environment on which it
depends. The most important factor weighing on Cyprus' sovereign risk is the
high level of public debt. Banks have weathered the pandemic crisis well, with
their liquidity and capital buffers intact. Non‑performing loans continued
their downward trend, mainly due to the sale packages of the two largest
banks. However, in an uncertain environment, asset quality remains a focus for
bank management and supervisors.
The Group believes it is reasonably well positioned to withstand volatility
that may arise from a deterioration in the geopolitical and global economic
environment.
Group's Direct exposure to Russia
Russia's invasion of Ukraine has triggered disruptions and uncertainties in
the markets and in the global economy. The coordinated implementation of
sanctions by the EU, the UK and the U.S., joined by several other countries,
imposed against Russia, Belarus and certain regions of Ukraine and certain
Russian entities and nationals. The Group's policy is to comply with all
applicable laws, including sanctions and export controls.
Overall, the Group's direct exposure to Russia and Belarus remains limited. In
summary, the Group has direct lending exposure to Russia and Belarus of a
gross book value of approximately €82 million (31 December 2022:
approximately €86 million) across its business divisions as at 30 June 2023,
of which €74 million (31 December 2022: €76 million) were classified as
performing and secured mainly with residential collateral located in Cyprus.
The basis of the exposure is expanded compared to the country risk exposure as
included in Note 30.2 of the Consolidated Financial Statements which is
disclosed by reference to the country of residency/country of registration, to
also include exposures for loans and advances to customers with passport of
origin in these countries and/or business activities within these countries
and/or where the UBO has passport of origin or residency in these countries.
Customer deposit balances with customers with UBO primary passport of origin
in these countries amounts to approximately 3.74% of total deposits as at 30
June 2023 as disclosed in Note 22 of the Consolidated Financial Statements.
With respect to the Group's Russian subsidiary, the net exposure is being run
down and as a result the net assets included on the Group's balance sheet as
at 30 June 2023 are less than €1 million (31 December 2022: less than €1
million).
6. Significant and other judgements, estimates and
assumptions
The preparation of the Consolidated Financial Statements requires the
Company's Board of Directors and management to make judgements, estimates and
assumptions that can have a material impact on the amounts recognised in the
Consolidated Financial Statements and the accompanying disclosures, as well as
the disclosures of contingent liabilities. Uncertainty about these assumptions
and estimates could result in outcomes that require a material adjustment to
the carrying amount of assets or liabilities affecting future periods.
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities are
described below. The Group based its assumptions and estimates on parameters
available when the Consolidated Financial Statements were prepared. Existing
circumstances and assumptions about future developments may, however, change
due to market changes or circumstances beyond the control of the Group. Such
changes are reflected in the assumptions when they occur.
The most significant judgements, estimates and assumptions relate to the
calculation of expected credit losses (ECL), the estimation of the net
realisable value of stock of property and the provisions for pending
litigation, claims, regulatory and other matters, which are presented in Notes
6.1 to 6.4 below. Other judgements, estimates and assumptions are disclosed in
Notes 5.5 to 5.13 of the annual consolidated financial statements for the year
ended 31 December 2022.
6.1 Classification of financial assets
The Group exercises judgement upon determining the classification of its
financial assets, in relation to business models and future cash flows.
Judgement is also required to determine the appropriate level at which the
assessment of business models needs to be performed. In general, the
assessment for the classification of financial assets into the business models
is performed at the level of each business line. Further, the Group exercises
judgement in determining the effect of sales of financial instruments on its
business model assessment.
The Group also applies judgement upon considering whether contractual features
including interest rate could significantly affect future cash flows.
Furthermore, judgement is required when assessing whether compensation paid or
received on early termination of lending arrangements results in cash flows
that are not SPPI.
6.2 Calculation of expected credit losses
The calculation of ECL requires management to apply significant judgement and
make estimates and assumptions, involving significant uncertainty at the time
these are made. Changes to these estimates and assumptions can result in
significant changes to the timing and amount of ECL to be recognised. The
Group's calculations are outputs of models, of underlying assumptions on the
choice of variable inputs and their interdependencies.
It has been the Group's policy to regularly review its models in the context
of actual loss experience and adjust when necessary.
Elements of ECL models that are considered accounting judgements and estimates
include:
Assessment of significant increase in credit risk (SICR)
IFRS 9 does not include a definition of significant increase in credit risk.
The Group assesses whether significant increase in credit risk has occurred
since initial recognition using predominantly quantitative and in certain
cases qualitative information. The determination of the relevant thresholds to
determine whether a significant increase in credit risk has occurred, is based
on statistical metrics and could be subject to management judgement. The
relevant thresholds are set, monitored and updated on a yearly basis by the
Risk Management Division and endorsed by the Group Provisions Committee.
Determining the probability of default (PD) at initial recognition requires
management estimates in particular cases. Specifically, in the case of
exposures existing prior to the adoption of IFRS 9, a retrospective
calculation of the PD is made in order to quantify the risk of each exposure
at the time of the initial recognition. In certain cases, estimates about the
date of initial recognition might be required.
For the retail portfolio, the Group uses a PD at origination incorporating
behavioural information (score cards) whereas, for the corporate portfolio,
the Group uses the internal credit rating information. For revolving
facilities, management estimates are required with respect to the lifetime and
hence a behavioural maturity model is utilised, assigning an expected maturity
based on product and customer behaviour.
Scenarios and macroeconomic factors
The Group determines the ECL, which is a probability weighted amount, by
evaluating a range of possible outcomes. Management uses forward looking
scenarios and assesses the suitability of weights used. These are based on
management's assumptions taking into account macroeconomic, market and other
factors. Changes in these assumptions and in other external factors could
significantly impact ECL. Macroeconomic inputs and weights per scenario are
monitored by the Economic Research Department and are based on internal model
analysis after considering external market data supplemented by expert
judgement.
In a challenging international environment, the Cypriot economy has shown
considerable resilience. Growth remained strong in 2022 averaging 5.6% which
is well above the euro area average, driven almost entirely by services on the
supply side. Tourist activity recovered strongly during the year 2022 with
arrivals reaching 80% and receipts 90% of their levels in 2019. On the demand
side, growth was driven by private consumption and investment, especially
inventory accumulation, while the external sector made a negative contribution
due to faster growth in imports.
First quarter growth for 2023 was 3.4% according to the Cyprus Statistical
Service, which was largely as expected. For the year the growth forecast is
around 2.8% according to the Ministry of Finance. This follows strong growth
of 6.9% and 5.6% respectively in 2021‑22 driven by a strong recovery in
tourism toward pre‑pandemic levels, and also strong growth in other services
sectors. GDP growth will be materially supported in 2023 by EU funding in the
form of grants and loans from the Recovery and Resilience Facility (RRF).
Cyprus has already received €157 million as pre‑financing in September
2021 and the first payment of €85 million in December 2022 after achieving
the 14 milestones being linked to the first instalment. Cyprus is broadly on
track in the implementation of its National Recovery and Resilience Plan.
Harmonised inflation in Cyprus was on average 8.1% in 2022, compared to 8.4%
in the Euro area. Inflation peaked in July 2022 at 10.6% and has been
decelerating since, reaching 2.8% in June 2023. In the first half of 2023,
total harmonised inflation was 4.9% and is expected to moderate further but
only gradually. For Cyprus, the European Commission forecasts harmonised
inflation of 3.8% in 2023 and 2.5% in 2024.
Developments in 2022 were favourable for public finances. The IMF forecasts
fiscal surpluses of 1.9% and 1.7% of GDP and gross debt to GDP of 79.5% and
71.9% for 2023 and 2024 respectively in each case.
The sovereign risk ratings of the Cypriot government have improved
significantly in recent years, reflecting reduced banking sector risks,
improved economic resilience and consistent fiscal outperformance. Cyprus has
demonstrated policy commitment to correcting fiscal imbalances through reform
and restructuring of its banking system.
Banks managed to weather the pandemic crisis well, with their liquidity and
capital buffers intact. Non‑performing exposures continued their declining
trend, mostly to sales packages by the two largest banks. Total NPEs at the
end of April 2023 were €2.2 billion or 9% of gross loans. About 44.8% of
total non‑performing exposures are restructured facilities and the coverage
ratio was 54.2%. Private debt, as measured by loans to residents on bank
balance sheets, excluding the government, dropped to €20.8 billion at the
end of May 2023, or about 77% of GDP.
However, substantial risks remain in terms of the domestic operating
environment, as well as the external environment on which it depends. The
large stock of public debt weighs heavily on Cyprus' sovereign credit risk. In
the banking sector non‑performing exposures need to drop further. While the
current account deficit will be narrowing as exports services recover in the
medium term, it will remain sizable. The monetary policy of the European
Central Bank can remain tight for longer if inflation pressures persist. The
extent of the crisis in Ukraine can lead to elevated tensions for a
considerable period of time.
For the ECL, the Group updated its forward looking scenarios, factoring in
updated macroeconomic assumptions and other monetary and fiscal developments
at the national and the EU level based on developments and events as at the
reporting date 30 June 2023.
The tables below indicate the most significant macroeconomic variables as well
as the scenarios used by the Group as at 30 June 2023 and 31 December 2022
respectively. The Group uses three different economic scenarios in the
calculation of default probabilities and provisions. The Group has used the
30‑50‑20 probability structure for the adverse, base and favourable
scenarios respectively compared to the 25‑50‑25 structure derived using
the method described in Note 2.19.5 of the annual consolidated financial
statements for the year ended 31 December 2022. This reflects management's
view of specific characteristics of the Cyprus economy that render it more
vulnerable to external and internal shocks. Given the added uncertainties of
the outlook for 2023 and downside risks, a global slowdown and the continuing
war in Ukraine with the risk of escalation rising, as well as the tighter
monetary environment in the fight against inflation, management decided to
maintain an elevated weight on the adverse scenario.
30 June 2023
Year Scenario Weight % Real GDP (% change) Unemployment rate (% of labour force) Consumer Price Index (average % RICS House Price Index (average %
change)
change)
2023 Adverse 30.0 ‑0.7 7.7 2.8 ‑1.8
Baseline 50.0 2.9 7.0 3.5 3.0
Favourable 20.0 3.7 6.9 3.9 3.4
2024 Adverse 30.0 ‑1.2 8.4 2.4 0.2
Baseline 50.0 2.6 6.9 2.7 3.1
Favourable 20.0 3.3 6.7 2.9 3.5
2025 Adverse 30.0 1.3 8.2 2.6 1.1
Baseline 50.0 2.8 6.4 2.5 2.9
Favourable 20.0 2.8 6.2 2.6 3.1
2026 Adverse 30.0 3.0 8.2 2.4 2.5
Baseline 50.0 3.0 6.2 2.5 2.9
Favourable 20.0 2.9 5.9 2.4 3.0
2027 Adverse 30.0 3.8 7.7 2.5 3.5
Baseline 50.0 2.9 5.8 2.5 2.9
Favourable 20.0 2.9 5.3 2.4 3.0
31 December 2022
Year Scenario Weight % Real GDP (% change) Unemployment rate (% of labour force) Consumer Price Index (average % RICS House Price Index (average %
change)
change)
2023 Adverse 30.0 ‑2.0 7.0 3.7 ‑2.2
Baseline 50.0 2.8 6.3 4.7 2.8
Favourable 20.0 3.6 5.9 5.1 3.3
2024 Adverse 30.0 ‑0.7 6.8 3.0 ‑0.8
Baseline 50.0 2.4 6.0 3.2 2.5
Favourable 20.0 2.8 5.8 3.3 2.8
2025 Adverse 30.0 1.4 6.7 2.4 1.1
Baseline 50.0 2.5 5.7 2.3 2.5
Favourable 20.0 2.6 5.6 2.4 2.6
2026 Adverse 30.0 2.8 6.7 2.4 2.7
Baseline 50.0 2.8 5.5 2.4 2.5
Favourable 20.0 3.1 5.3 2.4 2.6
2027 Adverse 30.0 3.5 6.5 2.5 3.5
Baseline 50.0 2.6 5.2 2.5 2.5
Favourable 20.0 2.6 4.9 2.4 2.6
The adverse scenarios may outpace the base and favourable scenarios after the
initial shock has been adjusted to and the economy starts to expand from a
lower base. Thus, in the adverse scenario GDP will follow a growth trajectory
that will ultimately equal and surpass the baseline before converging.
Property prices are determined by multiple factors with GDP growth featuring
prominently. However, the relationship between GDP growth and property prices
entails a lag.
The baseline scenario was updated for the 30 June 2023 reporting, considering
available information and relevant developments until then, and is described
next. Economic activity continued to recover strongly in 2022 driven by a
steep recovery in the tourism sector after the steep contraction of 2020, and
a strong growth in private consumption, despite an aggressive monetary
contraction and steep increases in interest rates. Economic momentum is
expected to continue in 2023 at a slower pace. Real GDP increased by 5.6% in
2022 and is projected to rise by 2.8% in 2023 according to the Ministry of
Finance. Consumer price inflation averaged 8.1% in 2022 and is expected to
decelerate to 3.8% in 2023 according to the European Commission's Spring
forecasts. The unemployment rate will continue to drop steadily in the medium
term. Property prices will continue to rise modestly in 2023 as domestic
residential demand remains relatively strong.
The adverse scenario is consistent with assumptions for a global economic
slowdown driven by the war in Ukraine, elevated inflation and continued tight
monetary policies. The Cypriot economy relies on services, particularly on
tourism, international business, and information services with an outward
orientation. This makes the Cypriot economy more exposed than other economies
to the international environment and terms of trade shocks. Weaker external
demand and more restricted domestic demand as a result of higher interest
rates will lead to a slow‑down of economic activity. The adverse scenario
assumes a deeper impact of these conditions on the real economy than under the
baseline scenario. Real GDP is expected to contract modestly by 0.7% in 2023
with the recovery remaining weak in the medium term. In the labour market the
unemployment rate will rise only modestly and inflation while elevated, will
be lower than under the baseline scenario. House prices will also contract in
line with the contraction in real GDP.
Since 1 January 2018, the Group has reassessed the key economic variables used
in the ECL models consistent with the implementation of IFRS 9. The Group uses
actual values for the input variables. These values are sourced from the
Cyprus Statistical Service, the Eurostat, the Central Bank of Cyprus for the
residential property price index, and the European Central Bank for interest
rates. Interest rates are also sourced from Bloomberg. In the case of property
prices, the Group additionally uses data from the Royal Institute of Chartered
Surveyors. For the forward reference period, the Group uses the forecast
values for the same variables, as prepared by the BOC PCL's Economic Research
Department. The results of the internal forecast exercises are consistent with
publicly available forecasts from official sources including the European
Commission, the International Monetary Fund, the European Central Bank and the
Ministry of Finance of the Republic of Cyprus.
Qualitative adjustments or overlays are occasionally made when inputs
calculated do not capture all the characteristics of the market. These are
reviewed and adjusted, if considered necessary, by the Risk Management
Division, endorsed by the Group Provisions Committee and approved by the joint
Risk and Audit Committee. Qualitative adjustments or overlays are described in
the below sections as applicable.
For Stage 3 customers, the calculation of individually assessed provisions is
the weighted average of three scenarios: base, adverse and favourable. 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 either 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, whereas under the favourable
scenario applied haircuts are decreased by 5%, with no change in the recovery
period with reference to the baseline scenario. Assumptions used in estimating
expected future cash flows (including cash flows that may result from the
realisation of collateral) reflect current and expected future economic
conditions and are generally consistent with those used in the Stage 3
collectively assessed exposures.
For collectively assessed customers the calculation is also the weighted
average of three scenarios: base, adverse and favourable.
Assessment of loss given default (LGD)
A factor for the estimation of loss given default (LGD) is the timing and net
recoverable amount from repossession or realisation of collaterals which
mainly comprise real estate assets.
Assumptions have been made about the future changes in property values, as
well as the timing for the realisation of collateral, taxes and expenses on
the repossession and subsequent sale of the collateral as well as any other
applicable haircuts. Indexation has been used as the basis to estimate updated
market values of properties, supplemented by management judgement where
necessary, given the difficulty in differentiating between short‑term
impacts and long‑term structural changes and the shortage of market evidence
for comparison purposes. Assumptions were made on the basis of a macroeconomic
scenario for future changes in property prices and qualitative adjustments or
overlays were applied to the projected future property value increases to
restrict the level of future property price growth to 0% for all scenarios for
loans and advances to customers which are secured by property collaterals.
At 30 June 2023, the weighted average haircut (including liquidity haircut and
selling expenses) used in the collectively assessed provisions calculation for
loans and advances to customers is approximately 32% under the baseline
scenario (31 December 2022: approximately 32%).
The timing of recovery from real estate collaterals used in the collectively
assessed provisions calculation for loans and advances to customers has been
estimated to be on average seven years under the baseline scenario (31
December 2022: average of seven years).
For the calculation of individually assessed provisions, the timing of
recovery of collaterals as well as the haircuts used are based on the specific
facts and circumstances of each case. For specific cases judgement may also be
exercised over staging during the individual assessment.
The above assumptions are also influenced by the ongoing regulatory dialogue
the Group maintains with its lead regulator, the ECB, and other regulatory
guidance and interpretations issued by various regulatory and industry bodies
such as the ECB and the EBA, which provide guidance and expectations as to
relevant definitions and the treatment/classification of certain
parameters/assumptions used in the estimation of provisions.
Any changes in these assumptions or differences between assumptions made and
actual results could result in significant changes in the estimated amount of
expected credit losses of loans and advances to customers.
Expected lifetime of revolving facilities
The expected lifetime of revolving facilities is based on a behavioural
maturity model for revolving facilities based on BOC PCL's available
historical data, where an expected maturity for each revolving facility based
on the customer's profile is assigned. The behavioural model was updated in
the second quarter of 2022 to reflect updates in customers profile whilst
maintaining the same model components.
Modelling adjustments
Forward looking models have been developed for ECL parameters PD, EAD, LGD for
all portfolios and segments sharing similar characteristics. Model validation
(initial and periodic) is performed by the independent validation unit within
the Risk Management Division and involves assessment of a model under both
quantitative (i.e. stability and performance) and qualitative terms. The
frequency and level of rigour of model validation is commensurate to the
overall use, complexity and materiality of the models, (i.e. risk tiering). In
certain cases, judgement is exercised in the form of management overlay by
applying adjustments on the modelled parameters. Governance of these models
lies with the Risk Management Division, where a strong governance process is
in place around the determination of the impairment measurement methodology
including inputs, assumptions and overlays. Any management overlays are
prepared by the Risk Management Division, endorsed by the Group Provisions
Committee and approved by the joint Risk and Audit Committee.
ECL allowances also include allowances on off‑balance sheet credit exposures
represented by guarantees given and by irrevocable commitments to disburse
funds. Off‑balance sheet credit exposures of the individually assessed
assets require assumptions on the probability, timing and amount of cash
outflows. For the collectively assessed off‑balance sheet credit exposures,
the allowance for provisions is calculated using the Credit Conversion Factor
(CCF) model.
Overlays in the context of current economic conditions
The two overlays introduced in 2022 in response to uncertainties from the
consequences of the Ukrainian crisis, in the collectively assessed population
for exposures that were considered to be the most vulnerable to the
implications of the crisis, continued to be in effect during the six months
ended 30 June 2023. These were introduced to address the increased
uncertainties from the geopolitical instability, trade restrictions,
disruptions in the global supply chains, increases in the energy prices and
their potential negative impact on the domestic cost of living. The impact on
the ECL from the application of these overlays was approximately €3.7
million ECL release for the six months ended 30 June 2023 (following an update
of the assessment of the sectors classified as High Risk and/or Early Warning)
and a net transfer of €22 million loans from Stage 1 to Stage 2 as at 30
June 2023.
Specifically, the first overlay relates to private individuals that are
expected to be affected by the increased cost of living in order to reflect
the future vulnerabilities to inflation, where a scenario with higher
percentage increase is applied for the cost of living. A one‑notch downgrade
is applied to the identified portfolio, reflecting the expected impact of
inflation to their credit quality. The second overlay relates to sectors that
have been classified as High Risk or Early Warning to reflect the expected
Gross Value Added (GVA) outlook of these sectors, where this has deteriorated.
Specifically, the sector risk classification is carried out by comparing the
projected GVA outlook of each sector with its past performance (intrinsic) and
its performance vis‑a‑vis other sectors (systemic). In cases where both
systemic and intrinsic indicators are found to have deteriorated, the relevant
sector is classified as High Risk, whereas if only one of the two has
deteriorated, then the sector is classified as Early Warning. A one‑notch
downgrade is applied to Early Warning sectors whereas for High Risk sectors a
more severe downgrade is applied accordingly.
In addition, the overlay on the probability of default (PD), introduced in the
fourth quarter of 2022 to address specifically the high inflation environment
affecting the economy, continued to be in effect during the six months ended
30 June 2023. With this overlay the PDs were floored to the maximum of
2018/2019 level, on the basis that these years are considered as closer to a
business‑as‑usual environment in terms of default rates. The impact on the
ECL from the application of this overlay was €3.9 million charge for the six
months ended 30 June 2023, as a result of multiple components including
updated ratings, PD and thresholds calibrations and stage migrations.
In addition, in the six months ended 30 June 2023, for the LGD parameter, the
overlay has been integrated through reduced curability period for Stage 2 and
Stage 3 exposures (i.e., the maximum period that a customer is considered to
cure has been reduced). The impact on the ECL was €8.4 million charge for
the six months ended 30 June 2023.
The Group has exercised critical judgement on a best effort basis, to consider
all reasonable and supportable information available at the time of the
assessment of the ECL allowance as at 30 June 2023. The Group will continue to
evaluate the ECL allowance and the related economic outlook each quarter, so
that any changes arising from the uncertainty on the macroeconomic outlook and
geopolitical developments, impacted by the implications of the Russian
invasion of Ukraine, are timely captured.
Portfolio segmentation
The individual assessment is performed not only for individually significant
assets but also for other exposures meeting specific criteria determined by
management. The selection criteria for the individually assessed exposures are
based on management judgement and are reviewed on a quarterly basis by the
Risk Management Division and are adjusted or enhanced, if deemed necessary.
The selection criteria were further enhanced in 2022 to include significant
exposures to customers with passport of origin or residency in Russia, Ukraine
or Belarus and/or business activity within these countries.
Further details on impairment allowances and related credit information are
set out in Note 30.
6.3 Stock of property ‑ estimation of net realisable value
Stock of property is measured at the lower of cost and net realisable value.
The net realisable value is determined through valuation techniques, requiring
significant judgement, taking into account all available reference points,
such as expert valuation reports, current market conditions, the holding
period of the asset, applying an appropriate illiquidity discount where
considered necessary, and any other relevant parameters. Selling expenses are
deducted from the realisable value. Depending on the value of the underlying
asset and available market information, the determination of costs to sell may
require professional judgement which involves a high degree of uncertainty due
to the relatively low level of market activity.
More details on the stock of property are presented in Note 19.
6.4 Provisions for pending litigation, claims, regulatory and
other matters
The accounting policy for provisions for pending litigation, claims,
regulatory and other matters is described in Note 2.37 of the annual
consolidated financial statements for the year ended 31 December 2022.
Judgement is required in determining whether a present obligation exists and
in estimating the probability, timing and amount of any outflows. Provisions
for pending litigation, claims, regulatory and other matters usually require a
higher degree of judgement than other types of provisions. It is expected that
the Group will continue to have a material exposure to litigation and
regulatory proceedings and investigations relating to legacy issues in the
medium term. The matters for which the Group determines that the probability
of a future loss is more than remote will change from time to time, as will
the matters as to which a reliable estimate can be made and the possible loss
for such matters can be estimated. Actual results may prove to be
significantly higher or lower than the estimated possible loss in those
matters, where an estimate was made. In addition, loss may be incurred in
matters with respect to which the Group believed the probability of loss was
remote.
For a detailed description of the nature of uncertainties and assumptions and
the effect on the amount and timing of pending litigation, claims, regulatory
and other matters refer to Note 27.
7. Segmental analysis
The Group's activities are mainly concentrated in Cyprus. Cyprus operations
are organised into operating segments based on the line of business. The
results of the overseas activities of the Group, namely Greece, Romania and
Russia, are presented within segment 'Other', given the size of these
operations which are in a run‑down mode and relate to legacy operations of
the Group. Further, the results of certain small subsidiaries of the Group are
allocated to the segments based on their key activities.
As from the fourth quarter of 2022, following an internal re‑organisation,
the Large Corporate and the International Corporate business lines, which were
previously reported together as one business line namely Global Corporate,
have been separated, and Large Corporate is presented and monitored together
with Corporate, while International Corporate Banking, Project Finance &
Loan Syndication and Shipping Center are presented and monitored under
International Corporate. Comparative information in 'Analysis by business
line' and 'Analysis of total revenue' were restated to account for this
change, which was reflected in the annual consolidated financial statements
for the year ended 31 December 2022. Comparative information in 'Analysis by
business line' and 'Analysis of total revenue' was also restated to account
for the retrospective application of IFRS 17 as described in Note 3.3.1.
The operating segments are analysed below:
i. The Corporate and Large Corporate, Small and Medium‑sized
Enterprises (SME) and Retail business lines are managing loans and advances to
customers. Categorisation of loans per customer group is detailed below.
ii. International Corporate comprises of International Corporate
Banking, Project Finance & Loan Syndication and Shipping Center.
International Corporate Banking provides financing from Cyprus in respect of
projects based overseas with main focus being Greece and the United Kingdom.
Project Finance & Loan Syndication act as arranger or participant in large
international loan syndication transactions. Shipping Center provides shipping
financing primarily for ocean‑going cargo vessels.
iii. Restructuring and Recoveries is the specialised unit which was set up
to tackle the Group's loan portfolio quality and manages exposures to
borrowers in distress situation through innovative solutions.
iv. International Business Unit (IBU) specialises in the offering of
banking services to the international corporate customers based in Cyprus,
particularly international business companies whose ownership and business
activities lie outside Cyprus, and non‑resident individual customers of BOC
PCL.
v. Wealth Management oversees the provision of private banking and wealth
management, market execution and custody along with asset management and
investment banking. This business line also includes subsidiary companies of
the Group, whose activities relate to investment banking and brokerage,
investment holding and management, administration and safekeeping of UCITS
units.
vi. The Real Estate Management Unit (REMU) manages properties acquired
through debt‑for‑property swaps and properties acquired through the
acquisition of certain operations of Laiki Bank in 2013, and executes exit
strategies in order to monetise these assets. REMU also includes other
subsidiary property companies of the Group.
vii. Treasury is responsible for liquidity management and for overseeing
operations to ensure compliance with internal and regulatory liquidity
policies and provide direction as to the actions to be taken regarding
liquidity availability.
viii. The Insurance business line is involved in both life and non‑life
insurance business.
i. The business line 'Other' includes central functions of BOC PCL such
as finance, risk management, compliance, legal, Information Technology
services, corporate affairs and human resources. These functions provide
services to the operating segments. 'Other' includes also other subsidiary
companies in Cyprus (excluding the insurance subsidiaries, property companies
under REMU and subsidiary companies under Wealth), as well as the overseas
activities of the Group.
BOC PCL broadly categorises its loans per customer group, using the following
customer sectors:
i. Retail - all physical person customers, regardless of the facility
amount, and legal entities with facilities from BOC PCL of up to €500
thousand, excluding business property loans and/or annual credit turnover up
to €1 million.
ii. SME - any company or group of companies (including personal and
housing loans to the directors or shareholders of a company) with facilities
from BOC PCL in the range of €500 thousand to €4 million and/or annual
credit turnover of €1 million up to €10 million.
iii. Corporate - any company or group of companies (including personal and
housing loans to the directors or shareholders of a company) with available
credit lines with BOC PCL of over €4 million and/or having a minimum annual
credit turnover of over €10 million. These companies are either local larger
corporations or international companies or companies in the shipping sector.
Lending includes direct lending or through syndications.
Management monitors the operating results of each business segment separately
for the purposes of performance assessment and resource allocation. Segment
performance is evaluated based on profit after tax and non‑controlling
interests. Inter‑segment transactions and balances are eliminated on
consolidation and are made on an arm's length basis.
Operating segment disclosures are provided as presented to the Group Executive
Committee.
Income and expenses associated with each business line are included for
determining its performance. Transfer pricing methodologies are applied
between the business lines to present their results on an arm's length basis.
Income and expenses incurred directly by the business lines are allocated to
the business lines as incurred. Indirect income and expenses are
re‑allocated from the central functions to the business lines. For the
purposes of the Cyprus analysis by business line, notional tax at the 12.5%
Cyprus tax rate is charged/credited to profit or loss before tax of each
business line.
The loans and advances to customers, the customer deposits and the related
income and expense are generally included in the segment where the business is
managed, instead of the segment where the transaction is recorded.
Analysis by business line
Corporate and Large corporate International corporate Small and medium‑sized enterprises Retail Restructuring and recoveries International business unit Wealth management REMU Insurance Treasury Other Total
Six months ended 30 June 2023 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Net interest income/(expense) 77,412 14,093 25,803 167,683 9,360 57,091 8,180 (19,315) - 19,334 (1,299) 358,342
Net fee and commission income/(expense) 10,342 586 5,325 30,617 1,369 26,537 2,566 (75) (4,332) 844 15,825 89,604
Net foreign exchange gains/(losses) 475 (5) 291 1,206 20 2,692 79 - - 11,211 (130) 15,839
Net (losses)/gains on financial instruments (9) - - - - - 34 - 1,746 2,651 1,258 5,680
Net gains/(losses) on derecognition of financial assets 3,839 108 (924) (314) 3,195 (65) 81 - - (41) (18) 5,861
measured at amortised
cost
Net insurance result - - - - - - - - 24,509 - 52 24,561
Net gains/(losses) from revaluation and disposal of - - - - - - - 889 - - (101) 788
investment properties
Net gains on disposal of stock of property - - - - - - - 3,704 - - 202 3,906
Other income 10 - 8 84 64 2 83 3,937 5,121 12 2,879 12,200
Total operating income 92,069 14,782 30,503 199,276 14,008 86,257 11,023 (10,860) 27,044 34,011 18,668 516,781
Staff costs (3,707) (814) (2,578) (25,104) (4,596) (5,767) (2,650) (2,120) (1,370) (1,061) (43,276) (93,043)
Special levy on deposits and other levies/contributions (1,756) (132) (908) (11,064) (32) (3,762) (582) - - - - (18,236)
Provisions for pending litigations, regulatory and other - - - - - - - - - - (14,148) (14,148)
provisions (net of
reversals)
Other operating (expenses)/income (excluding advisory and (18,422) (3,275) (6,852) (40,233) (5,364) (5,795) (861) (7,241) (1,528) (3,868) 25,240 (68,199)
other transformation
costs)
Other operating expenses ‑ advisory and other transformation (467) (96) (214) (778) (203) (212) (32) (182) - (73) - (2,257)
costs
Operating profit before credit losses and impairment 67,717 10,465 19,951 122,097 3,813 70,721 6,898 (20,403) 24,146 29,009 (13,516) 320,898
Credit losses on financial assets (3,795) (284) 547 (8,473) (18,185) (35) 4 (6,131) (112) (375) 67 (36,772)
Impairment net of reversals on non‑financial assets - - - - - - - (22,836) - - (370) (23,206)
Profit/(loss) before tax 63,922 10,181 20,498 113,624 (14,372) 70,686 6,902 (49,370) 24,034 28,634 (13,819) 260,920
Income tax (7,990) (1,273) (2,562) (14,203) 1,797 (8,836) (886) 5,186 (1,962) (3,579) (5,460) (39,768)
Profit/(loss) after tax 55,932 8,908 17,936 99,421 (12,575) 61,850 6,016 (44,184) 22,072 25,055 (19,279) 221,152
Non‑controlling interests‑profit - - - - - - - - - - (905) (905)
Profit/(loss) after tax attributable to the owners of the 55,932 8,908 17,936 99,421 (12,575) 61,850 6,016 (44,184) 22,072 25,055 (20,184) 220,247
Company
Corporate and Large corporate International corporate Small and medium‑sized enterprises Retail Restructuring and recoveries International business unit Wealth management REMU Insurance Treasury Other Total
Six months ended 30 June 2022 (restated) €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Net interest income/(expense) 49,572 9,629 14,495 43,703 16,294 10,234 578 (12,354) - 13,573 (2) 145,722
Net fee and commission income/(expense) 11,157 771 5,587 29,562 4,252 27,928 2,569 (90) (3,889) 1,003 14,789 93,639
Net foreign exchange gains 450 34 279 1,137 52 2,947 86 - - 5,809 1,104 11,898
Net gains/(losses) on financial instruments 171 - - - (2,230) - (102) - (9,737) 1,899 (184) (10,183)
Net gains/(losses) on derecognition of financial assets 1,036 108 (20) 116 1,523 13 (269) - - (867) 8 1,648
measured at amortised
cost
Net insurance result - - - - - - - - 23,724 - - 23,724
Net losses from revaluation and disposal of investment - - - - - - - (415) (307) - (650) (1,372)
properties
Net gains on disposal of stock of property - - - - - - - 7,894 - - 348 8,242
Other income 8 - 10 43 186 (3) 155 4,867 37 1 3,623 8,927
Total operating income 62,394 10,542 20,351 74,561 20,077 41,119 3,017 (98) 9,828 21,418 19,036 282,245
Staff costs (3,413) (661) (2,902) (30,007) (5,677) (6,240) (1,825) (2,055) (1,337) (1,108) (43,078) (98,303)
Special levy on deposits and other levies/contributions (1,506) (134) (806) (10,448) (45) (3,272) (295) - - (1) - (16,507)
Provisions for pending litigations, regulatory and other - - - - - - - - - - (594) (594)
provisions (net of
reversals)
Other operating (expenses)/income (excluding advisory and (16,951) (3,081) (7,652) (39,183) (11,197) (5,055) (1,170) (8,215) (1,588) (5,142) 30,085 (69,149)
other transformation
costs)
Other operating expenses ‑ advisory and other transformation - - - - (1,053) - - (351) - - (5,271) (6,675)
costs
Operating profit before credit losses and impairment 40,524 6,666 8,991 (5,077) 2,105 26,552 (273) (10,719) 6,903 15,167 178 91,017
Credit losses on financial assets (6,206) 219 569 293 (16,577) 285 (226) (323) 38 (167) (2,731) (24,826)
Impairment net of reversals on non‑financial assets - - - - - - - (7,203) - - (4,954) (12,157)
Profit/(loss) before tax 34,318 6,885 9,560 (4,784) (14,472) 26,837 (499) (18,245) 6,941 15,000 (7,507) 54,034
Income tax (4,290) (860) (1,195) 598 1,809 (3,355) 3 2,429 (888) (1,875) (3,534) (11,158)
Profit/(loss) after tax 30,028 6,025 8,365 (4,186) (12,663) 23,482 (496) (15,816) 6,053 13,125 (11,041) 42,876
Non‑controlling interests‑profit - - - - - - - - - - (662) (662)
Profit/(loss) after tax attributable to the owners of the 30,028 6,025 8,365 (4,186) (12,663) 23,482 (496) (15,816) 6,053 13,125 (11,703) 42,214
Company
Analysis of total revenue
Total revenue includes net interest income, net fee and commission income, net
foreign exchange gains, net gains/(losses) on financial instruments, net
gains/(losses) on derecognition of financial assets measured at amortised
cost, net insurance result, net gains/(losses) from revaluation and disposal
of investment properties, net gains/(losses) on disposal of stock of property
and other income. There was no revenue deriving from transactions with a
single external customer that amounted to 10% or more of Group revenue.
Corporate and Large corporate International corporate Small and medium‑sized enterprises Retail Restructuring and recoveries International business unit Wealth management REMU Insurance Treasury Other Total
Six months ended 30 June 2023 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Revenue from third parties 107,136 21,286 27,362 113,280 14,341 39,745 3,787 8,271 31,099 131,374 19,100 516,781
Inter‑segment (expense)/revenue (15,067) (6,504) 3,141 85,996 (333) 46,512 7,236 (19,131) (4,055) (97,363) (432) -
Total revenue 92,069 14,782 30,503 199,276 14,008 86,257 11,023 (10,860) 27,044 34,011 18,668 516,781
Six months ended 30 June 2022 (restated)
Revenue from third parties 70,241 12,505 21,749 77,546 21,454 37,163 3,275 12,102 14,463 (6,315) 18,062 282,245
Inter‑segment (expense)/revenue (7,847) (1,963) (1,398) (2,985) (1,377) 3,956 (258) (12,200) (4,635) 27,733 974 -
Total revenue 62,394 10,542 20,351 74,561 20,077 41,119 3,017 (98) 9,828 21,418 19,036 282,245
Analysis of assets and liabilities
Corporate and Large corporate International corporate Small and medium‑sized enterprises Retail Restructuring and recoveries International business unit Wealth management REMU Insurance Treasury Other Total
30 June 2023 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Assets
Assets 3,631,474 693,952 980,135 4,265,210 258,551 131,417 74,992 1,015,859 864,065 12,749,946 1,412,229 26,077,830
Inter‑segment assets - - - - - - (9,155) (38,017) (21,995) - (36,506) (105,673)
3,631,474 693,952 980,135 4,265,210 258,551 131,417 65,837 977,842 842,070 12,749,946 1,375,723 25,972,157
Assets between Cyprus and overseas operations (265,520)
Total assets 25,706,637
Corporate and Large corporate International corporate Small and medium‑sized enterprises Retail Restructuring and recoveries International business unit Wealth management REMU Insurance Treasury Other Total
31 December 2022 (restated) €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Assets
Assets 3,556,475 684,696 1,020,727 4,193,741 313,657 137,399 72,438 1,115,788 852,892 12,291,132 1,408,357 25,647,302
Inter‑segment assets - - - - - - (9,313) (35,214) (18,807) - (25,938) (89,272)
3,556,475 684,696 1,020,727 4,193,741 313,657 137,399 63,125 1,080,574 834,085 12,291,132 1,382,419 25,558,030
Assets between Cyprus and overseas operations (269,489)
Total assets 25,288,541
Corporate and Large corporate International corporate Small and medium‑sized enterprises Retail Restructuring and recoveries International business unit Wealth management REMU Insurance Treasury Other Total
30 June 2023 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Liabilities
Liabilities 1,964,893 131,044 962,581 11,667,105 34,989 3,848,653 575,888 16,335 735,553 3,178,231 720,496 23,835,768
Inter‑segment liabilities - - - - - - - - - (105,673) - (105,673)
1,964,893 131,044 962,581 11,667,105 34,989 3,848,653 575,888 16,335 735,553 3,072,558 720,496 23,730,095
Liabilities between Cyprus and overseas operations (266,645)
Total liabilities 23,463,450
31 December 2022 (restated)
Liabilities
Liabilities 1,915,300 139,898 1,007,555 11,333,783 33,806 3,957,050 628,578 10,049 690,757 3,183,550 699,535 23,599,861
Inter‑segment liabilities - - - - - - - - - (89,272) - (89,272)
1,915,300 139,898 1,007,555 11,333,783 33,806 3,957,050 628,578 10,049 690,757 3,094,278 699,535 23,510,589
Liabilities between Cyprus and overseas operations (270,614)
Liabilities 23,239,975
Segmental analysis of customer deposits and loans and advances to customers is
presented in Note 22 and Notes 30.2 and 30.4 respectively.
Analysis of turnover
Six months ended
30 June
2023 2022
€000 €000
Interest income and income similar to interest income 426,024 190,988
Fees and commission income 93,879 98,086
Net foreign exchange gains 15,839 11,898
Gross insurance premiums 116,773 105,591
Losses of investment properties and stock of properties (18,512) (494)
Other income 12,200 8,927
646,203 414,996
The analysis of 'Losses of investment properties and stock of properties' is
provided in the table below:
Six months ended
30 June
2023 2022
€000 €000
Net gains/(losses) from revaluation and disposal of investment properties 788 (1,372)
Net gains on disposal of stock of property 3,906 8,242
Impairment of stock of property (Note 12) (23,206) (7,364)
(18,512) (494)
8. Interest income and income similar to interest income
Interest income
Six months ended
30 June
2023 2022
€000 €000
Financial assets at amortised cost:
‑ Loans and advances to customers 237,519 152,151
‑ Loans and advances to banks and central banks 132,500 1,446
‑ Debt securities 20,742 3,781
‑ Other financial assets (Note 20) 9,098 4,314
Debt securities at FVOCI 3,993 4,986
Negative interest on funding from central banks - 14,792
403,852 181,470
Income similar to interest income
Six months ended
30 June
2023 2022
€000 €000
Loans and advances to customers measured at FVPL 6,263 5,999
Derivative financial instruments 15,909 3,519
22,172 9,518
9. Interest expense and expense similar to interest expense
Interest expense
Six months ended
30 June
2023 2022
(restated)
Financial liabilities at amortised cost: €000 €000
‑ Customer deposits 10,671 2,363
‑ Funding from central banks and deposits by banks 31,301 783
‑ Debt securities in issue 3,878 3,843
‑ Subordinated liabilities 10,078 10,415
Negative interest on loans and advances to banks and balances with central - 20,104
banks
Interest expense on lease liabilities 155 6
56,083 37,514
Expense similar to interest expense
Six months ended
30 June
2023 2022
€000 €000
Derivative financial instruments 11,599 7,752
10. Net gains/(losses) on financial instruments
Six months ended
30 June
2023 2022 (restated)
€000 €000
Trading portfolio:
‑ derivative financial instruments 37
16
Other investments at FVPL:
‑ debt securities 980 (367)
‑ mutual funds 1,780 (9,839)
‑ equity securities 1,962 (166)
Net losses on disposal of FVOCI debt securities (433) (1,959)
Net losses on loans and advances to customers at FVPL (9) (2,059)
Revaluation of financial instruments designated as fair value hedges:
‑ hedging instruments (8,843) 49,687
‑ hedged items 10,227 (45,517)
5,680 (10,183)
11. Staff costs and other operating expenses
Staff costs
Six months ended
30 June
2023 2022 (restated)
€000 €000
Salaries 69,571 77,324
Employer's contributions to state social insurance 11,355 12,411
Variable compensation 3,761
of which: accrual for non‑deferred cash award 3,450 -
of which: share‑based benefits expense 311 -
Retirement benefit plan costs 5,556 5,438
Exit cost and other termination benefits (2022:Voluntary Exit Plan) 2,800 3,130
93,043 98,303
During the six months ended 30 June 2023, an amount of €851 thousand (30
June 2022: €831 thousand) relating to staff costs has been capitalised as
internally developed computer software.
The number of persons employed by the Group as at 30 June 2023 was 2,902 (31
December 2022: 2,889 and 30 June 2022: 3,422). In July 2022, the Group
completed a VEP through which 559 of the Group's full‑time employees were
approved to leave at a total cost of €101,195 thousand.
In January 2022, the Group's subsidiary company, JCC Payment Systems Ltd,
proceeded with a VEP for its employees, through which 15 employees were
approved to leave at a total cost of €3,130 thousand.
Share‑based benefits expense represents the cost for the period in relation
to the Long‑Term Incentive Plan established in 2022, under which annual LTIP
awards may be granted, and which provides for an award in the form of ordinary
shares of the Company based on certain non‑market performance (driven by
both delivery of the Group's Strategy as well as individual performance) and
service vesting conditions. The eligible participants are the members of the
Extended Executive Committee of the Group.
Non‑deferred cash award refers to a Short‑Term Incentive Plan established
by the Group in 2023. This involves variable remuneration in the form of cash
to selected employees, and will be driven by both delivery of the Group's
Strategy, as well as individual performance.
Other operating expenses
Six months ended
30 June
2023 2022 (restated)
€000 €000
Repairs and maintenance expenses 16,263 17,420
Other property‑related costs 5,058 5,518
Consultancy, legal and other professional services fees 8,224 8,220
Insurance 4,203 4,197
Advertising and marketing 2,646 3,458
Depreciation of property and equipment 6,660 6,930
Amortisation of intangible assets 7,974 7,806
Communication expenses 3,010 3,374
Printing and stationery 794 869
Cash transfer expenses 1,417 1,630
Other operating expenses 11,950 9,727
68,199 69,149
Advisory and other transformation costs 2,257 6,675
70,456 75,824
Advisory and other transformation costs comprise mainly fees to external
advisors in relation to the transformation program and other strategic
projects of the Group.
During the six months ended 30 June 2023, the Group recognised €39 thousand
relating to rent expense for short term leases, included within 'Other
property‑related costs' (30 June 2022: €84 thousand) and €2,752 thousand
(30 June 2022: €2,823 thousand) relating to the depreciation of
right‑of‑use assets (RoU assets), included within 'Depreciation of
property and equipment'. In addition, depreciation of RoU assets of €492
thousand (30 June 2022: €600 thousand) and depreciation of property and
equipment and amortisation of intangible assets of €1,775 thousand (30 June
2022: €1,572 thousand) are included within 'Net insurance service result',
as these relate to directly attributable expenses of insurance services.
'Special levy on deposits and other levies/contributions' as presented in the
interim consolidated income statement are analysed as per below:
Six months ended
30 June
2023 2022
€000 €000
Special levy on deposits of credit institutions in Cyprus 8,816 7,467
Single Resolution Fund contribution 5,477 5,779
Contribution to Deposit Guarantee Fund 3,943 3,261
18,236 16,507
The special levy on credit institutions in Cyprus (the Special Levy) is
imposed on the level of deposits as at the end of the previous quarter, at the
rate of 0.0375% per quarter. Following an amendment of the Imposition of
Special Credit Institution Tax Law in 2017, the Single Resolution Fund
contribution, which is charged annually by the Single Resolution Board,
reduces the payment of the Special Levy up to the level of the total annual
Special Levy charge.
As from 1 January 2020 and until 3 July 2024, BOC PCL is subject to a
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 covered deposits by 3 July 2024.
12. Credit losses on financial assets and impairment net of
reversals of non‑financial assets
Six months ended
30 June
2023 2022 (restated)
Credit losses on financial instruments €000 €000
Credit losses to cover credit risk on loans and advances to customers
Impairment net of reversals on loans and advances to customers (Note 30.4) 38,514 28,055
Recoveries of loans and advances to customers previously written off (8,376) (6,509)
Changes in expected cash flows (426) 2,840
Financial guarantees and commitments 578 (427)
30,290 23,959
Credit losses of other financial instruments
Amortised cost debt securities 120 21
FVOCI debt securities 163
18
Loans and advances to banks (181) (22)
Balances with central banks 415 -
Other financial assets (Note 20) 6,110 705
6,482 867
36,772 24,826
Six months ended
30 June
2023 2022
Impairment net of reversals of non‑financial assets €000 €000
Stock of property (Note 19) 23,206 7,364
Other non‑financial assets - 4,793
23,206 12,157
13. Income tax
Six months ended
30 June
2023 2022 (restated)
€000 €000
Current tax:
‑ Cyprus 39,473 11,084
‑ Overseas - 34
Cyprus special defence contribution 37
30
Deferred tax (credit)/charge (9) 41
Prior years' tax adjustments (11) (16)
Other tax charges 285 (22)
39,768 11,158
In addition to the amount of income tax presented in the respective caption in
the consolidated income statement, an amount of €1,070 thousand (30 June
2022: €955 thousand) relates to tax expense presented within the net
insurance service result as it is treated as directly attributable expense of
the insurance operations of the Group.
Income tax in Cyprus is calculated at the rate of 12.5% on taxable income
(2022: 12.5%). The Group's profits from overseas operations are taxed at the
rates prevailing in the respective countries, which for 2023 were: Greece 22%
(2022: 22%), Romania 16% (2022: 16%) and Russia 20% (2022: 20%).
On 22 December 2022, the European Commission approved Directive 2022/2523
which provides for a minimum effective tax rate of 15% for the global
activities of large multinational groups. The Directive that follows closely
the OECD Inclusive Framework on Base Erosion and Profit Shifting should be
transposed by the Member States throughout 2023, entering into force on 1
January 2024. The legislation has not been substantively enacted at the
balance sheet date and the Group will continue to monitor the evolving
national legislation including any disclosures required, or exemptions
available, under IAS 12 in the year ending 31 December 2023.
Deferred tax
The net deferred tax assets comprise:
30 June 31 December
2023
2022 (restated)
€000 €000
Deferred tax assets 227,953 227,934
Deferred tax liabilities (34,618) (34,634)
Net deferred tax assets 193,335 193,300
The deferred tax assets (DTA) relate to Cyprus operations.
The movement of the net deferred tax assets is set out below:
30 June 31 December
2023
2022 (restated)
€000 €000
1 January (restated) 193,300 226,125
Deferred tax recognised in the consolidated income statement ‑ tax credit 4,840
9
Deferred tax recognised in the consolidated statement of comprehensive income 244
26
Transfer to current tax receivables following conversion into tax credit - (37,909)
30 June/31 December 193,335 193,300
The Group offsets income tax assets and liabilities only if it has a legally
enforceable right to set‑off current income tax assets and current income
tax liabilities.
Income Tax Law Amendment 28 (I) of 2019
On 1 March 2019 the Cyprus Parliament adopted legislative amendments to the
Income Tax Law (the 'Law') which were published in the Official Gazette of the
Republic on 15 March 2019 ('the amendments').
BOC PCL has DTA that meets the requirements of the Income Tax Law Amendment
28(I) of 2019 relating to income tax losses transferred to BOC PCL as a result
of the acquisition of certain operations of Laiki Bank, on 29 March 2013,
under 'The Resolution of Credit and Other Institutions Law'. The DTA
recognised upon the acquisition of certain operations of Laiki in 2013
amounted to €417 million (corresponding to €3.3 billion tax losses) for
which BOC PCL paid a consideration as part of the respective acquisition. The
period of utilisation of the tax losses which may be converted into tax
credits is eleven years following the amendment of the Law in 2019, starting
from 2018 i.e. by end of 2028.
As a result of the above Law, the Group has DTA amounting to €227,455
thousand as at 30 June 2023 (31 December 2022: €227,455 thousand) that meet
the requirements under this Law, the recovery of which is guaranteed. On an
annual basis an amount is converted to annual tax credit and is reclassified
from the DTA to current tax receivables.
The DTA subject to the Law is accounted for on the same basis as described in
Note 2.13 of the annual consolidated financial statements for the year ended
31 December 2022.
Accumulated income tax losses
The accumulated income tax losses are presented in the table below:
Total income tax losses Income tax losses for which a deferred tax asset was recognised Income tax losses for which no deferred tax asset was recognised
30 June 2023 €000 €000 €000
Expiring within 5 years 44,960 - 44,960
Utilisation in annual instalments up to 2028 1,819,636 1,819,636 -
1,864,596 1,819,636 44,960
31 December 2022
Expiring within 5 years -
44,960 44,960
Utilisation in annual instalments up to 2028 1,819,636 1,819,636 -
1,864,596 1,819,636
44,960
14. Earnings per share
Basic earnings per share
Six months ended
30 June
Basic profit per share attributable to the owners of the Company 2023 2022 (restated)
€000 €000
Profit for the period attributable to the owners of the Company 220,247 42,214
(€ thousand) (basic)
Weighted average number of shares in issue during the period, excluding 446,058 446,058
treasury shares ( € thousand)
Basic profit per share (€ cent) 49.4 9.5
Diluted earnings per share
Six months ended
30 June
Diluted profit per share attributable to the owners of the Company 2023 2022 (restated)
€000 €000
Profit for the period attributable to the owners of the Company 220,247 42,214
(€ thousand)
Weighted average number of shares in issue during the period, excluding 446,755 446,058
treasury shares adjusted for the dilutive effect of all rights on shares (€
thousand)
Diluted profit per share (€ cent) 49.3 9.5
For diluted earnings per share the weighted average number of ordinary shares
in issue is adjusted for the dilutive effect of ordinary shares that may arise
in respect of share awards granted to executive directors and senior
management of the Group under the Long‑Term Incentive Plan (2022 LTIP).
15. Investments
The analysis of the Group's investments is presented in the table below:
30 June 31 December
2023
2022
€000 €000
Investments at FVPL 138,661 190,209
Investments at FVOCI 487,806 467,375
Investments at amortised cost 2,703,240 2,046,119
3,329,707 2,703,703
Out of these, the amounts pledged as collateral are shown below:
30 June 31 December
2023
2022
Investments pledged as collateral €000 €000
Investments at FVOCI 24,585 60,974
Investments at amortised cost 232,562 223,369
257,147 284,343
Investments pledged as collateral as at 30 June 2023 and 31 December 2022
related to debt securities collaterised mainly for the additional amounts
borrowed from the ECB Targeted Longer‑Term Refinancing Operations (TLTRO
III) (Note 21). Encumbered assets are disclosed in Note 32.
The maximum exposure to credit risk for debt securities is disclosed in Note
30.1.
The increase in the investment portfolio as at 30 June 2023 is consistent with
the strategy of the Group to prudently grow the fixed income portfolio to
reach approximately 15% of the Group's total assets. Further, part of the
increase as at 30 June 2023 reflects incremental new investments during the
second quarter of 2023, ahead of expected maturities in the second half of
2023.
Investments at fair value through profit or loss
Investments mandatorily measured at FVPL
30 June 31 December 2022
2023
€000 €000
Other non‑equity securities 3,364 8,968
Equity securities 4,870 6,961
Mutual funds 130,427 174,280
138,661 190,209
Investments at FVOCI
30 June 31 December 2022
2023
€000 €000
Debt securities 474,887 453,775
Equity securities (including preference shares) 12,919 13,600
487,806 467,375
Investments at amortised cost
30 June 31 December 2022
2023
€000 €000
Debt securities 2,703,240 2,046,119
Further analysis of the Group's investments is provided in the tables below.
Equity securities
Equity securities FVPL FVOCI Total
30 June 2023 €000 €000 €000
Listed on the Cyprus Stock Exchange - 1,280 1,280
Listed on other stock exchanges 4,870 4,931
61
Unlisted - 11,578 11,578
4,870 12,919 17,789
FVPL FVOCI Total
31 December 2022 €000 €000 €000
Listed on the Cyprus Stock Exchange - 1,335 1,335
Listed on other stock exchanges 6,961 7,029
68
Unlisted - 12,197 12,197
6,961 13,600 20,561
The Group irrevocably made the election to classify its equity investments as
equity investments at FVOCI on the basis that these are not held for trading.
Their carrying value amounts to €12,919 thousand at 30 June 2023 and is
equal to their fair value (31 December 2022: €13,600 thousand).
Equity investments at FVOCI comprise mainly investments in private Cyprus
registered companies, acquired through loan restructuring activity and
specifically through debt for equity swaps.
Dividend income amounting to €439 thousand has been received and recognised
during the six months ended 30 June 2023 in other income (30 June 2022: €368
thousand).
During the six months ended 30 June 2023 and the year ended 31 December 2022
no material equity investments measured at FVOCI have been disposed off.
Mutual funds
Mutual funds FVPL
30 June 2023 €000
Listed on other stock exchanges 37,958
Unlisted 92,469
130,427
FVPL
31 December 2022 €000
Listed on other stock exchanges 77,782
Unlisted 96,498
174,280
The majority of the unlisted mutual funds relate to investments whose
underlying assets are listed on stock exchanges and are therefore presented in
Level 2 hierarchy in Note 17.
Debt securities and other non‑equity securities
Analysis by issuer type FVPL FVOCI Amortised Total
cost
30 June 2023 €000 €000 €000 €000
Cyprus government - 343,459 615,978 959,437
Other governments - 10,008 546,796 556,804
Financial institutions - 97,754 1,013,598 1,111,352
Other financial corporations 3,364 - 41,645 45,009
Supranational organisations - 18,819 387,633 406,452
Other non‑financial corporations - 4,847 97,590 102,437
3,364 474,887 2,703,240 3,181,491
FVPL FVOCI Amortised Total
cost
31 December 2022 €000 €000 €000 €000
Cyprus government - 310,791 521,322 832,113
Other governments - 22,616 402,844 425,460
Financial institutions - 115,497 722,522 838,019
Other financial corporations 8,968 - 36,547 45,515
Supranational organisations - - 293,834 293,834
Other non‑financial corporations - 4,871 69,050 73,921
8,968 453,775 2,046,119 2,508,862
Geographic dispersion by country of issuer FVPL FVOCI Amortised Total
cost
30 June 2023 €000 €000 €000 €000
Cyprus - 343,459 626,805 970,264
Greece - 18,422 41,649 60,071
Germany - - 176,649 176,649
France - 44,632 247,792 292,424
Other European Union countries - 19,655 549,240 568,895
United Kingdom - - 23,234 23,234
USA and Canada 3,364 9,029 267,283 279,676
Other countries - 20,871 382,955 403,826
Supranational organisations - 18,819 387,633 406,452
3,364 474,887 2,703,240 3,181,491
FVPL FVOCI Amortised cost Total
31 December 2022 €000 €000 €000 €000
Cyprus - 310,791 531,611 842,402
Greece - 14,987 43,276 58,263
Germany - - 121,132 121,132
France - 58,134 162,405 220,539
Other European Union countries - 33,298 370,728 404,026
United Kingdom - - 23,128 23,128
USA and Canada 8,968 8,974 238,802 256,744
Other countries - 27,591 261,203 288,794
Supranational organisations - - 293,834 293,834
8,968 453,775 2,046,119 2,508,862
Listing analysis FVPL FVOCI Amortised cost Total
30 June 2023 €000 €000 €000 €000
Listed on the Cyprus Stock Exchange - - 25,984 25,984
Listed on other stock exchanges - 474,887 2,677,256 3,152,143
Unlisted 3,364 - - 3,364
3,364 474,887 2,703,240 3,181,491
FVPL FVOCI Amortised cost Total
31 December 2022 €000 €000 €000 €000
Listed on the Cyprus Stock Exchange - - 29,849 29,849
Listed on other stock exchanges - 453,775 2,016,270 2,470,045
Unlisted 8,968 - - 8,968
8,968 453,775 2,046,119 2,508,862
There were no reclassifications of investments during the six months ended 30
June 2023 and the year ended 31 December 2022.
The fair value of the financial assets that have been reclassified out of FVPL
to FVOCI on transition to IFRS 9, amounts to €7,631 thousand at 30 June 2023
(31 December 2022: €8,694 thousand). The fair value gain that would have
been recognised in the consolidated income statement during the six months
ended 30 June 2023 if these financial assets had not been reclassified as part
of the transition to IFRS 9, amounts to €100 thousand (30 June 2022: loss of
€1,018 thousand). The effective interest rate of these instruments is
1.6%‑5.0% (2022: 1.6%‑5.0%) per annum and the respective interest income
during the six months ended 30 June 2023 amounts to €105 thousand (30 June
2022: €128 thousand).
16. Derivative financial instruments
The contract amount and fair value of the derivative financial instruments is
set out below:
30 June 2023 31 December 2022
Fair value Fair value
Contract amount Assets Liabilities Contract amount Assets Liabilities
€000 €000 €000 €000 €000 €000
Trading derivatives
Forward exchange rate contracts 22,489 204 124 13,239 103 123
Currency swaps 1,067,461 4,890 3,615 1,248,522 283 10,316
Interest rate swaps 14,244 360 347 14,806 437 420
Currency options 125 123 2 352 287 65
Interest rate caps/floors 169,248 3,699 3,699 171,864 3,094 3,094
1,273,567 9,276 7,787 1,448,783 4,204 14,018
Derivatives qualifying for hedge accounting
Fair value hedges ‑ interest rate swaps 1,093,731 40,024 10,604 803,513 43,939 2,151
Net investments ‑ forward exchange rate contracts and currency swaps 3,288 2 - 3,059 10 -
1,097,019 40,026 10,604 806,572 43,949 2,151
Total 2,370,586 49,302 18,391 2,255,355 48,153 16,169
Hedge accounting
The Group elected, as a policy choice permitted by IFRS 9, to continue to
apply hedge accounting in accordance with IAS 39.
The Group applies fair value hedge accounting using derivatives when the
required criteria for hedge accounting are met. The Group also uses
derivatives for economic hedging (hedging the changes in interest rates,
foreign currency exchange rates or other risks) which do not meet the criteria
for hedge accounting. As a result, these derivatives are accounted for as
trading derivatives and the gains or losses arising from revaluation are
recognised in the consolidated income statement.
Fair value hedges
The Group uses interest rate swaps to hedge the interest rate risk arising as
a result of the possible adverse movement in the fair value of fixed rate debt
securities measured at FVOCI.
Changes in the fair value of derivatives designated as fair value hedges and
the fair value of the item in relation to the risk being hedged are recognised
in the consolidated income statement.
Hedges of net investments
The Group's consolidated balance sheet is impacted by foreign exchange
differences between the Euro and all non‑Euro functional currencies of
overseas subsidiaries and other foreign operations. The Group hedges its
structural currency risk when it considers that the cost of such hedging is
within an acceptable range (in relation to the underlying risk). This hedging
is effected by financing with borrowings in the same currency as the
functional currency of the overseas subsidiaries and other foreign operations
and by forward exchange rate contracts.
As at 30 June 2023, forward exchange rate contracts amounting to €3,288
thousand (30 June 2022: forward exchange rate contracts amounting to €2,874
thousand) have been designated as hedging instruments and have given rise to a
loss of €3 thousand (30 June 2022: loss of €4,079 thousand) which was
recognised in the 'Foreign currency translation reserve' in the consolidated
statement of comprehensive income, against the profit or loss from the
retranslation of the net assets of the overseas subsidiaries and other foreign
operations.
Interest rate benchmark reform
As at 30 June 2023 the interest rate benchmarks to which BOC PCL's hedge
relationships are exposed to, are Euro Interbank Offered Rate (Euribor) (31
December 2022: Euribor and USD London Interbank Offered Rate (Libor)) in
relation to the cash flows of the hedging instruments. The Group has applied
judgement in relation to market expectations regarding hedging instruments.
The table below indicates the nominal amount of derivatives in hedging
relationships analysed by interest rate basis. The derivative hedging
instruments provide a close approximation to the extent of the risk exposure
BOC PCL manages through hedging relationships.
30 June 31 December 2022
2023
Interest Rate Swaps €000 €000
Euribor (3‑month) 1,093,731 770,731
Libor USD (3‑month) - 32,782
Total 1,093,731 803,513
Euribor is in compliance with EU Benchmarks Regulation (BMR) and the Group
does not consider that Euribor‑based derivatives are affected by the BMR
Reform.
As at 30 June 2023, the Group's assessment regarding the on going transition
to the new risk free rates (RFRs) indicates that the impact on the hedging
relationships and in value terms is not significant. Further details in
relation to interest rate benchmark reform are disclosed in Note 31.
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