REG - Bank of Cyprus Hldgs - Interim Financial Report 2022 - 3A
31/08/2022 07:16
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RNS Number : 7201X Bank of Cyprus Holdings PLC 31 August 2022
Consolidated Condensed Interim Financial Statements for the six months ended
30 June 2022
Interim Consolidated Income Statement
Six months ended
30 June
2022 2021
(restated)
Notes €000 €000
Turnover 7
414,996 390,624
Interest income
181,470 179,272
Income similar to interest income
9,518 17,626
Interest expense
(37,541) (28,670)
Expense similar to interest expense
(7,752) (16,015)
Net interest income
145,695 152,213
Fee and commission income
98,086 87,610
Fee and commission expense
(4,447) (3,753)
Net foreign exchange gains
11,898 6,550
Net losses on financial instruments 8
(2,060) (13,196)
Net gains on derecognition of financial assets measured at amortised cost
1,648 1,053
Income from assets under insurance and reinsurance contracts
29,859 103,824
Expenses from liabilities under insurance and reinsurance contracts
3,010 (72,756)
Net losses from revaluation and disposal of investment properties
(1,372) (1,381)
Net gains on disposal of stock of property
8,242 7,372
Other income
8,927 5,854
Total operating income
299,486 273,390
Staff costs 9
(103,135) (100,866)
Special levy on deposits and other levies/contributions 9
(16,507) (15,255)
Other operating expenses 9
(80,393) (95,588)
Operating profit before credit losses and impairment
99,451 61,681
Credit losses on financial assets 10
(24,965) (52,163)
Impairment net of reversals on non‑financial assets 10
(12,157) (7,398)
Profit before tax
62,329 2,120
Income tax 11
(11,579) (968)
Profit after tax for the period
50,750 1,152
Attributable to:
Owners of the Company
50,088 739
Non‑controlling interests
662 413
Profit for the period
50,750 1,152
Basic and diluted profit per share attributable to the owners of the Company 12
(€ cent) 11.2 0.2
Interim Consolidated Statement of Comprehensive Income
Six months ended
30 June
2022 2021
Notes €000 €000
Profit for the period 50,750 1,152
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in (20,412) 1,059
subsequent periods
Fair value reserve (debt instruments) (17,909) 2,258
Net (losses)/gains on investments in debt instruments measured at fair value (17,421) 2,258
through OCI (FVOCI)
Transfer to the consolidated income statement on disposal (488) -
Foreign currency translation reserve (2,503) (1,199)
Profit/(loss) on translation of net investments in foreign branches and 1,576 (5,003)
subsidiaries
(Loss)/profit on hedging of net investments in foreign branches and 14 (4,079) 3,867
subsidiaries
Transfer to the consolidated income statement on dissolution/disposal of - (63)
foreign branches and subsidiaries
OCI not to be reclassified in the consolidated income statement in subsequent (211) 6,967
periods
Fair value reserve (equity instruments) (2,051) 576
Net (losses)/gains on investments in equity instruments designated at FVOCI (2,051) 576
Property revaluation reserve (40)
-
Deferred tax 11 - (40)
Actuarial gains on defined benefit plans 1,840 6,431
Remeasurement gains on defined benefit plans 1,840 6,431
Other comprehensive (loss)/income for the period net of taxation (20,623) 8,026
Total comprehensive income for the period 30,127 9,178
Attributable to:
Owners of the Company 29,465 8,780
Non‑controlling interests 662 398
Total comprehensive income for the period 30,127 9,178
Interim Consolidated Balance Sheet
30 June 31 December
2022
2021
(restated)
Assets Notes €000 €000
Cash and balances with central banks 27
9,904,549 9,230,883
Loans and advances to banks 27
312,308 291,632
Derivative financial assets 14
38,150 6,653
Investments at FVPL 13
181,318 199,194
Investments at FVOCI 13
529,872 748,695
Investments at amortised cost 13
1,391,487 1,191,274
Loans and advances to customers 16
10,144,099 9,836,405
Life insurance business assets attributable to policyholders
533,696 551,797
Prepayments, accrued income and other assets 18
621,955 616,219
Stock of property 17
1,054,034 1,111,604
Deferred tax assets 11
265,430 265,481
Investment properties
102,040 117,745
Property and equipment
245,693 252,130
Intangible assets
171,403 184,034
Non‑current assets and disposal groups held for sale 19
347,698 358,951
Total assets
25,843,732 24,962,697
Liabilities
Deposits by banks
492,022 457,039
Funding from central banks 20
2,954,808 2,969,600
Derivative financial liabilities 14
9,485 32,452
Customer deposits 21
18,450,216 17,530,883
Insurance liabilities
689,798 736,201
Accruals, deferred income, other liabilities and other provisions 23
394,117 361,977
Pending litigation, claims, regulatory and other matters
104,793 104,108
Debt securities in issue 22
298,899 302,555
Subordinated liabilities 22
311,738 340,220
Deferred tax liabilities 11
45,235 46,435
Total liabilities
23,751,111 22,881,470
Equity
Share capital 24
44,620 44,620
Share premium 24
594,358 594,358
Revaluation and other reserves
182,329 213,192
Retained earnings
1,028,218 986,623
Equity attributable to the owners of the Company
1,849,525 1,838,793
Other equity instruments 24
220,000 220,000
Non‑controlling interests
23,096 22,434
Total equity
2,092,621 2,081,227
Total liabilities and equity
25,843,732 24,962,697
Mr. E.G. Arapoglou Chairman Mr. P. Nicolaou Chief Executive Officer
Mr. N. Sofianos Director Mrs. E. Livadiotou Executive Director Finance & Legacy
Interim Consolidated Statement of Changes in Equity
Attributable to the owners of the Company
Share Share Treasury shares 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
earnings
instruments
equity
(Note 24)
fair value reserve (Note 24)
(Note 24) (Note 24)
€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
Profit for the period - - - 50,088 - - - - 50,088 - 662 50,750
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 - - - 51,928 - (19,960) - (2,503) 29,465 - 662 30,127
period
Decrease in value of in‑force life insurance business - - - 9,600 - - (9,600) - - - - -
Tax on decrease in value of in‑force life insurance - - - (1,200) - - 1,200 - - - - -
business
Defence contribution - - - (4,983) - - - - (4,983) - - (4,983)
Payment of coupon to AT1 holders (Note 24) - - - (13,750) - - - - (13,750) - - (13,750)
30 June 2022 44,620 594,358 (21,463) 1,028,218 80,060 3,325 105,251 15,156 1,849,525 220,000 23,096 2,092,621
Interim Consolidated Statement of Changes in Equity
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 24)
fair value
business
translation
instruments
(Note 24) (Note 24)
reserve
reserve
reserve
(Note 24)
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2021 44,620 594,358 (21,463) 982,513 79,515 22,894 110,401 17,806 1,830,644 220,000 24,410 2,075,054
Profit for the period - - - 739 - - - - 739 - 413 1,152
Other comprehensive income/(loss) after tax for the period - - - 6,431 (30) 2,834 - (1,194) 8,041 - (15) 8,026
Total comprehensive income/(loss) after tax for the period - - - 7,170 (30) 2,834 - (1,194) 8,780 - 398 9,178
Increase in value of in‑force life insurance business - - - (3,886) - - 3,886 - - - - -
Tax on increase in value of in‑force life insurance - - - 486 - - (486) - - - - -
business
Payment of coupon to AT1 holders (Note 24) - - - (13,750) - - - - (13,750) - - (13,750)
30 June 2021 44,620 594,358 (21,463) 972,533 79,485 25,728 113,801 16,612 1,825,674 220,000 24,808 2,070,482
Interim Consolidated Statement of Cash flow
Six months ended
30 June
2022 2021
(restated)
Note €000 €000
Profit before tax 62,329
2,120
Adjustments for:
Share of profit from associates -
(137)
Depreciation of property and equipment and amortisation of intangible assets 16,908
17,591
Impairment of stock of property and other non‑financial assets 12,157
7,398
Change in value of in‑force life insurance business 9,600
(3,886)
Credit losses of financial assets 10 24,965
52,163
Net gains on derecognition of financial assets measured at amortised cost (1,648)
(1,053)
Amortisation of discounts/premiums and interest on debt securities (8,767)
(10,273)
Dividend income (368)
(462)
Net loss on disposal of investment in debt securities 2,826 -
Loss from revaluation of debt securities designated as fair value hedges 38,007
7,886
Interest on subordinated liabilities and debt securities in issue 14,258
11,699
Negative interest on loans and advances to banks and balances with central 20,104
banks 13,141
Negative interest on funding from central banks (14,792)
(9,469)
(Profit)/loss on disposal/dissolution of subsidiaries and associates (179)
880
Loss from buyback of subordinated loan stock 8 -
12,433
Net gains on disposal of stock of property and investment properties (8,358)
(7,615)
(Profit)/loss on sale and write offs of property and equipment and intangible (51)
assets 62
Interest expense on lease liability -
44
Net losses from revaluation of investment properties and investment properties 1,488
held for sale 1,624
168,479
94,146
Change in:
Loans and advances to banks 36,345
(34,402)
Deposits by banks 34,983
8,732
Obligatory balances with central banks (7,883)
(1,278)
Customer deposits 919,333
268,039
Life insurance assets and liabilities (28,302)
(7,137)
Loans and advances to customers (356,885)
(117,251)
Prepayments, accrued income and other assets (16,810)
(14,913)
Pending litigation, claims, regulatory and other matters 685
4,986
Accruals, deferred income, other liabilities and other provisions 34,092
32,290
Derivative financial instruments (54,464)
12,459
Investments measured at FVPL 17,876
4,432
Stock of property 86,519
81,047
833,968
331,150
Tax paid (441)
(813)
Net cash from operating activities 833,527
330,337
Cash flows from investing activities
Purchases of debt, treasury bills and equity securities (329,751)
(603,791)
Proceeds on disposal/redemption of investments in debt and equity securities 295,856
304,990
Interest received from debt securities 17,230
11,660
Dividend income from equity securities 368
462
Proceeds on disposal of held for sale portfolios 19 -
144,300
Deposits on held for sale portfolios 900 -
Proceeds on disposal of subsidiaries and associates -
9,084
Purchases of property and equipment (817)
(942)
Purchases of intangible assets (6,046)
(4,840)
Proceeds on disposals of property and equipment and intangible assets 109
1,138
Proceeds on disposals of investment properties 23,384
2,577
Net cash from/(used in) investing activities 1,233
(135,362)
Six months ended
30 June
2022 2021
(restated)
Note €000 €000
Cash flow from financing activities
Payment of AT1 coupon 24 (13,750) (13,750)
Payment of defence contribution (4,983) -
Net proceeds of funding from central banks - 2,000,000
Proceeds from issue of subordinated liabilities (net of costs) - 297,551
Repayments of subordinated liabilities (35,605) (223,627)
Proceeds from the issue of debt securities (net of costs) - 298,505
Interest on subordinated liabilities (3,293) (23,125)
Interest on debt securities in issue (7,500) -
Negative interest on loans and advances to banks and balances with central (20,104) (13,141)
banks
Principle elements of lease payments (3,507) (3,901)
Net cash (used in)/from financing activities (88,742) 2,318,512
Net increase in cash and cash equivalents 746,018 2,513,487
Cash and cash equivalents 1 January 9,255,210 5,890,135
Foreign exchange adjustments (23,236) (10,100)
30 June 27 9,977,992 8,393,522
Non‑cash transactions
Repossession of collaterals
During the six months ended 30 June 2022, the Group acquired properties by
taking possession of collaterals held as security for loans and advances to
customers of €23,058 thousand (six months ended 30 June 2021: €24,692
thousand).
Disposal of Project Helix 2
During the six months ended 30 June 2021 and upon the completion of the
disposal of Project Helix 2, the Group recognised an amount of €381,567
thousand in other financial assets, which represents the fair value of the
deferred consideration receivable for the transaction (the 'DPP'). Please
refer to Note 18 for further details.
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 incorporated 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') 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 2022 (the Consolidated Financial Statements) were
authorised for issue by a resolution of the Board of Directors on 30 August
2022.
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 28.
Comparative information
Comparative information was restated following certain changes in the
presentation of the primary statements for the six months ended 30 June 2022
as described further below.
Reclassifications within the Consolidated Income Statement
'Gains/(losses) on disposal/dissolution of subsidiaries and associates',
previously presented within 'Net (losses)/gains on financial instrument
transactions and disposal/dissolution of subsidiaries and associates', are now
presented within 'Other income'. 'Net gains/(losses) on financial instrument
transactions' has been renamed to 'Net gains/(losses) on financial
instruments'. 'Share of profit/(loss) from associates' previously presented
separately in the Consolidated Income Statement is now presented within 'Other
income' as well. As a result of these changes in the presentation of 'Other
income' 'Turnover' is also restated as indicated below.
Insurance income and expense previously presented in a single line as
insurance income net of claims and commissions is now presented separately,
whereas credit losses relating to financial assets, including loans and
advances to customers, is now presented in a single line. Analysis of the
individual components included within each line item is presented in the
respective Notes.
30 June Reclassifications 30 June 2021
2021
(restated)
(as previously presented)
€000 €000 €000
Net losses on financial instrument transactions and disposal/dissolution of n/a
subsidiaries and associates (14,076) 14,076
Net losses on financial instruments
n/a (13,196) (13,196)
Share of profit from associate n/a
137 (137)
Other income
6,597 (743) 5,854
-
(7,342) (7,342)
Insurance income net of claims and commissions
31,068 (31,068) n/a
Income from assets under insurance and reinsurance contracts
n/a 103,824 103,824
Expenses from liabilities under insurance and reinsurance contracts
n/a (72,756) (72,756)
-
31,068 31,068
Credit losses to cover credit risk on loans and advances to customers
(48,349) 48,349 n/a
Credit losses of other financial instruments
(3,814) 3,814 n/a
Credit losses on financial assets
n/a (52,163) (52,163)
-
(52,163) (52,163)
Turnover
391,367 (743) 390,624
Reclassifications within the Consolidated Balance Sheet
Investments are now presented by class on the face of the consolidated balance
sheet and loan stock is now presented in separate lines by type of liability
issued.
31 December 2021 Reclassifications 31 December 2021
(as previously presented)
(restated)
Assets €000 €000 €000
Investments n/a
879,005 (879,005)
Investments pledged as collateral 1,260,158 n/a
(1,260,158)
Investments at FVPL n/a
199,194 199,194
Investments at FVOCI n/a
748,695 748,695
Investments at amortised cost 1,191,274
n/a 1,191,274
2,139,163 - 2,139,163
Liabilities
Loan stock n/a
642,775 (642,775)
Debt securities in issue
n/a 302,555 302,555
Subordinated loan stock
n/a 340,220 340,220
-
642,775 642,775
The Consolidated Statement of Cash Flows for the six months ended 30 June 2021
as well as respective notes were restated to reflect the changes in the
presentation of the Consolidated Income Statement and Consolidated Balance
Sheet described above.
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 2021,
upon which the auditors have expressed an unqualified opinion, were published
on 29 March 2022 and are expected to be delivered to the Registrar of
Companies of Ireland within 56 days from 30 September 2022.
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 2021, 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 2021, 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 2022 and
which are explained below. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet effective.
New and amended standards and Interpretations effective from 1 January 2022
IFRS 16: Leases COVID‑19‑Related Rent Concessions beyond 30 June 2021
(amendment)
The amendment increases the scope of COVID‑19‑related rent concessions
(amendment to IFRS 16 issued in May 2020), which provides lessees with an
exemption from assessing whether rent concessions that occur as a direct
consequence of the COVID‑19 pandemic and meet specified conditions are lease
modifications and, instead, to account for those rent concessions as if they
were not lease modifications. The amendment increased the eligibility period
for the application of the exemption by 12 months from 30 June 2021 to 30 June
2022.
IFRS 3: Business Combinations (amendments)
The IASB has published 'Reference to the Conceptual Framework (Amendments to
IFRS 3)' with amendments to IFRS 3 'Business Combinations' that update an
outdated reference in IFRS 3 without significantly changing the accounting
requirements for business combinations.
IAS 16: Property, Plant and Equipment - Proceeds before Intended Use
(amendments)
The amendments to the standard prohibit an entity from deducting from the cost
of an item of property, plant and equipment any proceeds from selling items
produced while bringing that asset to the location and condition necessary for
it to be capable of operating in the manner intended by management. Instead,
an entity recognises the proceeds from selling such items, and the cost of
producing those items, in profit or loss.
IAS 37: Provisions, Contingent Liabilities and Contingent Assets - Onerous
Contracts - Cost of Fulfilling a Contract (amendments)
The changes in Onerous Contracts - Cost of Fulfilling a Contract specify that
the 'cost of fulfilling' a contract comprises the 'costs that relate directly
to the contract'. Costs that relate directly to a contract can either be
incremental costs of fulfilling that contract (examples would be direct
labour, materials) or an allocation of other costs that relate directly to
fulfilling contracts (an example would be the allocation of the depreciation
charge for an item of property, plant and equipment used in fulfilling the
contract).
Annual Improvements to IFRS Standards 2018-2020 Cycle
Annual Improvements to IFRS Standards 2018-2020 Cycle makes amendments to the
following standards:
· IFRS 1 First time Adoption of International
Financial Reporting Standards: the amendment permits a subsidiary that applies
IFRS 1 to measure cumulative translation differences using the amounts
reported by its parent, based on the parent's date of transition to IFRSs.
· IFRS 9 Financial Instruments: the amendment
clarifies which fees an entity includes when it applies the '10 per cent' test
of IFRS 9 in assessing whether to derecognise a financial liability. An entity
includes only fees paid or received between the entity (the borrower) and the
lender, including fees paid or received by either the entity or the lender on
the other's behalf.
· IFRS 16 Leases: the amendment to Illustrative
Example 13 accompanying IFRS 16 removes from the example the illustration of
the reimbursement of leasehold improvements by the lessor in order to resolve
any potential confusion regarding the treatment of lease incentives that might
arise because of how lease incentives are illustrated in that example.
· IAS 41 Agriculture: the amendment removes the
requirement of IAS 41 for entities to exclude taxation cash flows when
measuring the fair value of a biological asset using a present value
technique, which ensures consistency with the requirements in IFRS 13.
These amendments and the annual improvements to IFRS Standards Cycle did not
have a significant impact on the Group during the six months ended 30 June
2022.
3.3.2 Standards and Interpretations that are issued but not yet
effective
IFRS 17, an accounting standard that will be effective from 1 January 2023,
impacts the phasing of profit recognition for insurance contracts. Upon
implementation, the Group's insurance‑related retained earnings will be
restated and the reporting of insurance new business revenue will be spread
over time, as the Group provides service to its policyholders (versus
recognised up front under current accounting standards), with the quantum and
timing of the impact dependent on, inter alia, the amount and mix of new
business and extent of assumption changes in any given year following
implementation. IFRS 17 requires a number of key changes compared with current
accounting policies for insurance.
· Under IFRS 17, there will be no present value of
in‑force insurance contracts ('PVIF') asset recognised. Instead, the
estimated future profit will be included in the measurement of the insurance
contract liability as the contractual service margin ('CSM') and this will be
gradually recognised in revenue as services are provided over the duration of
the insurance contract. While the profit over the life of an individual
contract will be unchanged, its emergence will be later under IFRS 17.
· IFRS 17 requires the increased use of current
market values in the measurement of insurance assets and liabilities hence
insurance liabilities and related assets will be adjusted to reflect IFRS 17
measurement requirements.
· In accordance with IFRS 17, directly attributable
costs will be incorporated in the CSM and, as recognised, will be presented as
a deduction to reported revenue. This will result in a reduction in operating
expenses.
The Group continues to make progress on the implementation of IFRS 17 and
preliminary management estimate on the initial impact is as previously
communicated and included below. However, industry practice and interpretation
of the standard are still developing, hence uncertainty remains as to the
final transition impact. Additionally, the impact on the forecast future
returns of the Group's insurance business is dependent on the growth, duration
and composition of its insurance contract portfolio. These estimates are
therefore subject to change in the period up to adoption of the standard.
The accounting changes for the purposes of planning the Group's financial
resources, are initially estimated to result in:
a) the removal of value in force from the insurance business
(including associated deferred tax liability) of approximately €105 million
as per the Group's consolidated balance sheet as at 30 June 2022, which will
reduce Group accounting equity by a respective amount (with no impact on the
Group regulatory capital or tangible equity), and
b) the remeasurement of insurance assets and liabilities and
the creation of a contractual service margin (CSM) liability which will
increase both the insurance business' and the Group's equity by an amount of
approximately €50 million, predominantly relating to the life business of
the Group.
The adoption of IFRS 17 may result in a modest annual negative impact on the
contribution to profits of the Group's insurance business in the near term
which has been incorporated in the Group business plan.
Minor amendments to other accounting standards
The IASB has issued a number of minor amendments to IFRSs effective 1 January
2023 (including IAS 1 Presentation of Financial Statements, IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors, IAS 12 Income Taxes).
These amendments are not expected to have a significant impact on the Group.
4. Going concern
The Directors have made an assessment of the Group's ability 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 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 2022 (the 'Plan') and Reforecast exercises run and the
operating environment. 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 base and 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 2022 that can be easily and readily monetised in a
period of stress.
5. Economic and geopolitical environment
The Group assessed the financial impacts of the economic environment through
the Group's planning process and believes that it is reasonably well
positioned to withstand volatility from a resurgence of the virus, the war in
Ukraine and the sanctions on Russia or other exogenous adverse shocks,
particularly given the Group's continued management of its financial position
and capital management.
The current geopolitical upheaval caused by the Russian invasion in Ukraine
has resulted in the deterioration of the macroeconomic outlook for the
European and Cyprus economy, which are now confronted with an increase in
inflation. The continuation of, or any further escalation in, the
Russia‑Ukraine war could have additional economic, social and political
consequences. These include further sanctions and trade restrictions,
longer‑term changes in the macroeconomic environment with the risk of higher
and sustained inflation, and a continued increase in energy prices. The
effects of these developments, such as the cost and sufficiency of energy
supplies in Europe and the economic impact of various scenarios, are hard to
predict and could be significant. The implications of Russia's ongoing war in
Ukraine, including higher energy and commodity prices, as well as the
continuing effects of the pandemic have increased uncertainty about the global
and European economic outlook. In an attempt to tame inflation the ECB has
started raising rates and as a result, financial conditions will be tightening
further.
The above trends are driving high levels of uncertainty and volatility in the
markets. Management closely monitors the developments and assesses the impact
these could have on the Group's financial results and performance.
Group's Direct exposure to Russia
Russia's invasion of Ukraine has triggered disruptions and uncertainties in
the markets and the global economy, as well as 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, Ukraine and Belarus remains
limited and has been further reduced since December 2021. The Group's direct
gross lending risk exposure to Russia, Ukraine and Belarus (including loans
and advances to customers classified as held for sale) was approximately
€112 million (31 December 2021: €119 million) with a net book value of
€108 million (31 December 2021: €110 million) across its business
divisions as at 30 June 2022. Out of the gross exposures outlined above €95
million (31 December 2021: €95 million) were classified as performing (the
basis of the exposure is expanded compared to the country risk exposure as
included in Note 29.2 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 deposits related to Russian/Ukrainian customers are disclosed in Note
21 of the Consolidated Financial Statements.
Further, the Group had Ruble denominated loans and advances to banks of
approximately €5 million as at 30 June 2022 (31 December 2021: €1
million). The Group's investments at amortised cost included EURO denominated
debt securities of a carrying amount of €12 million (31 December 2021:
€21.7 million) relating to debt securities of a European Union country
issuer with significant exposure in Russia and Ukraine. With respect to
derivatives, it is noted that the Group reduced its exposure in RUB
denominated derivatives to nil since March 2022. There were no other
investments relating to issuers with significant exposure to Russia and/or
Ukraine. The Group's balance sheet as at 30 June 2022 also included net assets
of less than €1 million (31 December 2021: €10 million) held in the
Group's Russian subsidiary; forming part of the Group's overseas legacy
operations which are being run down.
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
classification of financial instruments and 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 2021.
6.1 Classification of financial assets
The Group exercises judgement upon determining the classification of its
financial assets, which relate 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 life‑time
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.
Economic activity surprised to the upside in the first quarter of 2022, driven
by higher tourist arrivals and the continuing expansion of other services
exports. Arrivals of tourists increased considerably in the first half of the
year and reached around 75% of pre‑pandemic levels. The outlook for the
second half of the year remains positive despite the loss of Russian tourists
that accounted for about 22% of total arrivals in 2016‑19. The economic
fallout of the war in Ukraine and Western sanctions on Russia will impact
negatively on the economy in the second half. The Cypriot economy is expected
to expand by 3.2% in 2022 according to the European Commission's summer
forecasts. This follows a strong recovery in 2021 when real GDP increased by
5.6%. Over the medium term, prospects are aided by the Recovery and
Resilience Fund of Next Generation EU. Its purpose is ultimately about the
future, to help fund the key investments that will be needed for the green and
digital transitions, and so enhance the potential and economic resilience of
member states. Structural reform is an integral part of this process, and
ultimately a critical factor that will determine the effectiveness of the
investments. The bulk of the funds will be released in 2022‑2024 depending
on the strict implementation of reform priorities agreed with the EU. These
include increasing the efficiency of public and local administrations,
improving the government of state‑owned enterprises, reducing further the
levels of non‑performing loans in the banking sector, improving the
efficiency of the judicial system and accelerating anti‑corruption reforms.
However, prospects are clouded by the war in Ukraine and sanctions on Russia.
The continuing supply disruptions and the energy crisis that result from it,
sustain higher inflation for longer than initially anticipated forcing central
banks to reverse their policies and raise interest rates. Aggressive monetary
policies in turn, raise interest rates and risk a debt crisis in countries
with a high debt and political instability.
There have been distinct improvements in Cyprus' risk profile, but substantial
risks remain in terms of the domestic operating environment, as well as the
external environment on which it depends. Cyprus' overall country risk is a
combination of sovereign, currency, banking, political and economic structure
risk, including external developments with substantial potential impact on the
domestic economy. The large stock of public debt weighs heavily on Cyprus'
sovereign credit risk. In the banking sector, despite significant progress
since the financial crisis of 2012‑2014, risks remain elevated and
non‑performing loans were 11.4% of gross loans at the end of March 2022
compared to a Euro area average of just over 2%. Cyprus has a large and
relatively undiversified export base. While the current account deficit will
be narrowing as exports services recover in the medium‑term, it will remain
sizable. Rising inflation and higher interest rates will be causing a
significant slowing of economic activity in the quarters ahead. The extent of
the crisis in Ukraine can lead in 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, i.e. 30 June 2022.
The tables below indicate the most significant macroeconomic variables as well
as the scenarios used by the Group as at 30 June 2022 and 31 December 2021
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 2021. This reflects the management's
view of specific characteristics of the Cyprus economy that render it more
vulnerable to external and internal shocks. Given added uncertainties and
elevated risks during 2022‑2023, especially in view of inflation
uncertainties and added geopolitical risks, management decided to maintain an
elevated weight on the adverse scenario.
The economy continues to face financial and macroeconomic risks, including a
high public debt ratio and a relatively high level of NPEs that together
maintain elevated vulnerabilities and limit the policy reaction space thus
sustaining conditions, which can lead to a deeper recession in response to
shocks than under normal times. Adverse developments and exogenous shocks,
that result in significantly slower growth can lead to a rapid increase in the
creation of non‑performing loans and weaken bank balance sheets.
These factors and the overall risk profile discussed earlier in this section,
including economic structure risk given a very large external sector and high
concentration to geographical areas render the economy more susceptible to
external shocks and weaken its resilience. This may, in management's view, not
be fully captured in the weights as calculated using the method described in
Note 2.19.5 of the annual consolidated financial statements for the year ended
31 December 2021. Hence management has decided to keep the weight of the
adverse scenario to 30%, and correspondingly keep a reduced weight of the
favourable scenario to 20%.
30 June 2022
Year Scenario Weight Real GDP Unemployment rate (% of labour force) Consumer Price Index (average % change) RICS House Price Index (average % change)
%
(% change)
2022 Adverse 30.0 0.6 6.4 7.3 0.4
Baseline 50.0 2.7 6.2 7.8 2.6
Favourable 20.0 3.2 6.0 8.2 2.8
2023 Adverse 30.0 ‑1.8 7.1 1.6 ‑0.6
Baseline 50.0 3.0 6.3 3.3 2.8
Favourable 20.0 3.3 5.7 3.6 3.0
2024 Adverse 30.0 0.8 7.3 0.7 0.0
Baseline 50.0 3.2 6.1 2.1 2.8
Favourable 20.0 3.3 5.5 2.2 3.0
2025 Adverse 30.0 1.9 7.0 1.4 1.2
Baseline 50.0 2.8 5.7 2.2 2.9
Favourable 20.0 2.9 5.2 2.2 3.0
2026 Adverse 30.0 3.4 5.8 2.2 3.2
Baseline 50.0 2.7 5.4 2.0 2.9
Favourable 20.0 2.5 4.8 2.1 2.7
31 December 2021
Year Scenario Weight Real GDP Unemployment rate (% of labour force) Consumer Price Index (average % change) RICS House Price Index (average % change)
%
(% change)
2022 Adverse 30.0 ‑0.4 7.6 0.5 ‑3.7
Baseline 50.0 4.3 6.5 2.2 2.6
Favourable 20.0 4.5 5.8 3.0 3.1
2023 Adverse 30.0 0.1 7.7 1.6 ‑1.0
Baseline 50.0 3.3 6.4 1.6 3.3
Favourable 20.0 3.3 5.8 1.6 4.0
2024 Adverse 30.0 1.8 7.6 1.8 3.0
Baseline 50.0 3.0 6.2 1.8 3.1
Favourable 20.0 3.2 5.7 1.8 3.2
2025 Adverse 30.0 2.4 7.2 1.9 3.3
Baseline 50.0 2.9 5.8 1.9 3.0
Favourable 20.0 3.0 5.5 1.9 2.9
2026 Adverse 30.0 3.0 6.7 1.8 3.2
Baseline 50.0 2.7 5.3 1.8 2.7
Favourable 20.0 2.6 5.1 1.8 3.1
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. Thus, property prices will initially adjust less steeply than
GDP, and will start to accelerate after the recovery in GDP has been
entrenched. After this point, property prices will accelerate and will match
and surpass the pace in the baseline scenario, before finally converging.
The baseline scenario was updated for 30 June 2022 reporting, considering
available information and relevant developments until that date. In the
baseline, real GDP is forecast to expand by 2.7% in 2022 and inflation will
rise by 7.8% compared with 2.3% in 2021. The unemployment rate will continue
to drop steadily in the medium term. Property prices will continue to rise
modestly in 2022 as domestic demand for housing picks up.
The adverse scenario is consistent with assumptions for continued supply
disruptions and the war in Ukraine also continuing. The impact of higher
inflation and tighter monetary policy on the economy will be more severe than
under the baseline scenario. The Cypriot economy relies on tourism and other
services exports. This makes the economy more exposed than other countries to
travel restrictions and the external environment. Developments with Russia
over the Ukrainian crisis and subsequent sanctions, lead to negative
implications for tourism travel, investment flows and energy prices. The hit
to the Cyprus economy from falling external demand for travel and tourism
services and the knock‑on effects to related sectors will be significantly
more severe than under the baseline scenario. Real GDP is expected to slow
sharply in the second half of the year, under the adverse scenario and average
a 0.6% annual growth. The economy falls into recession in the second half
which deepens in 2023 with real GDP contracting by 1.8%. Economic recovery
will remain weak in the medium term. In the labour market the unemployment
rate will remain stuck near the 2021 levels at 6.4% in 2022 and to rise
modestly to 7.1% in 2023 under the adverse scenario.
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 Bank'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 and endorsed by the Group Provisions Committee. Qualitative
adjustments or overlays were applied to the positive future property value
growth 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.
The RICS indices, which are considered for the purposes of determining the
real estate collateral value on realisation date have 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 and are capped to 0% in case of any future
projected increase, whereas any future projected decrease is taken into
account.
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 these are capped to zero
for all scenarios, in case of any future projected increase, whereas any
future projected decrease is taken into consideration.
At 30 June 2022, 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 2021: approximately 32%) excluding those classified as
held for sale.
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 2021: average of seven years), excluding those classified as held for
sale.
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 including cases where
no specific model has been developed.
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 a variance between assumptions made and
actual results could result in significant changes in the amount of required
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 credit conversion factor model for revolving products was calibrated in
the fourth quarter of 2021, to include additional data points covering the
period up to moratorium and in order to be aligned with the behavioural
maturity model for revolving facilities with impact on the ECL for the year
ended 31 December 2021 being a release of €1,790 thousand. The behavioural
model was updated in the second quarter of 2022 to reflect customers profile
whilst maintaining the same model components. The impact on the ECL for the
six months ended 30 June 2022 was a charge of ECL of €66 thousand.
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 Provisions Committee
and approved by the joint Risk and Audit Committee.
ECL allowances also include 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.
During the third quarter of 2021, cure model recalibration was performed
mainly to address the low default/cure environment observed in the recent
period prior to moratorium and investigate the considered model development
period such that is retains the through the cycle nature of the model. The
calibration was performed on the most recent changes in definition of default
introduced in January 2021 and had an ECL impact of €28 million for the year
ended 31 December 2021. In the second quarter of 2022, following the agreement
for the disposal of Helix 3 portfolio, cure model was updated, assigning
maximum cure period for an exposure of 3 years instead of 5 years from their
default date. This had an ECL impact of €1.8 million for the six months
ended 30 June 2022.
Overlays in the context of COVID‑19 and current economic conditions
COVID‑19 related management overlays applied in 2020 and up to the first six
months of 2021 were removed in the third quarter of 2021, except for the
overlay for exposures in the hotel and catering (which applied stricter
customer's credit ratings thresholds for customers in this industry sector)
that was removed in the second quarter of 2022 following the introduction of
the new overlays described below. The impact on the ECL, from the removal of
the overlay, was a release of €152 thousand and a transfer of €52 million
loans from Stage 2 to Stage 1 as at 30 June 2022.
During 2022, the Group has enhanced provisioning for exposures that could be
impacted from the consequences of the Ukrainian crisis, by establishing two
new overlays in the collectively assessed population, to address the increased
uncertainties from the geopolitical instability, trade restrictions,
disruptions in the global supply chains, increases in the energy prices and
their potential negative impact in the domestic cost of living. The impact on
the ECL from the application of these overlays was approximately €8.4
million charge for the six months ended 30 June 2022 and a transfer of €115
million loans from Stage 1 to Stage 2 as at 30 June 2022.
Specifically, the first overlay is related 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. The second overlay
related to sectors that have been classified as high risk (Transportation) or
Early Warning (Trade, Hotels and catering, Construction, Real Estate and Other
sectors such as Electricity and Mining) 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'.
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 2022. The Group will continue to
evaluate the ECL allowance and the related economic outlook each quarter, so
that any changes arising from the uncertainty on the macroeconomic outlook and
geopolitical developments, impacted by the implications of the Russian
invasion of Ukraine, as well as the degree of recurrence of the COVID‑19
pandemic due to virus mutations, are timely captured.
Portfolio segmentation
The individual assessment is performed not only for individually significant
exposures 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 during the six months ended 30
June 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 29.
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 17.
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 2.36 of the annual
consolidated financial statements for the year ended 31 December 2021.
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 25.
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. As from
2021, 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 in the last years. Further,
the results of certain small subsidiaries of the Group are allocated to the
segments based on their key activities.
The operating segments are analysed below:
· The Corporate, Small and medium‑sized enterprises
and Retail business lines are managing loans and advances to customers.
Categorisation of loans per customer group is detailed below.
· Large and International corporate business line
(previously 'Global corporate') is managing loans and advances to customers
within the large corporate section, the Shipping centre, the International
Corporate Lending, the International Syndicate and Project Finance.
· 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.
· International banking services specialises in the
offering of banking services to the international corporate and non‑resident
individuals, particularly international business companies whose ownership and
business activities lie outside Cyprus.
· Wealth management oversees the provision of private
banking and wealth management, Market execution and Custody along with Asset
Management and Investment Banking. The business line Wealth management 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.
· The Real Estate Management Unit 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. The business line REMU also
includes other subsidiary property companies of the Group.
· 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.
· The Insurance business line is involved in both
life and non‑life insurance business.
· The business line 'Other' includes central
functions of BOC PCL such as finance, risk management, compliance, legal,
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:
· Retail - all physical person customers, regardless
of the facility amount, and legal entities with facilities from BOC PCL of up
to €260 thousand, excluding business property loans.
· 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 €260 thousand to €6 million and a
maximum annual credit turnover of €10 million.
· 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 in excess of an aggregate
principal amount of €6 million or having a minimum annual credit turnover of
€10 million. These companies are either local‑larger corporations or
international companies or companies in the shipping sector (lending also
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.
Comparative information in analysis by business line analysis of total revenue
and turnover was restated to account for the changes in the presentation of
the primary statements for the six months ended 30 June 2022 as described in
Note 3.1.
Analysis by business line
Corporate Large and Small and medium‑sized enterprises Retail Restructuring and recoveries International banking services Wealth management REMU Insurance Treasury Other Total
international
corporate
Six months ended 30 June 2022 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Net interest income/(expense) 28,208 30,993 14,495 43,703 16,294 10,234 578 (12,354) (27) 13,573 (2) 145,695
Net fee and commission income/(expense) 7,744 4,184 5,587 29,562 4,252 27,928 2,569 (90) (3,889) 1,003 14,789 93,639
Net foreign exchange gains/(losses) 269 215 279 1,137 52 2,947 86 - - 5,809 1,104 11,898
Net gains/(losses) on financial instrument transactions - 171 - - (2,230) - (102) - (1,614) 1,899 (184) (2,060)
Net gains/(losses) on derecognition of financial assets 1,520 (376) (20) 116 1,523 13 (269) - - (867) 8 1,648
measured at amortised
cost
Insurance income net of claims and commissions - - - - - - - - 32,869 - - 32,869
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 4 4 10 43 186 (3) 155 4,867 37 1 3,623 8,927
Total operating income 37,745 35,191 20,351 74,561 20,077 41,119 3,017 (98) 27,069 21,418 19,036 299,486
Staff costs (2,622) (1,452) (2,902) (30,007) (5,677) (6,240) (1,825) (2,055) (6,169) (1,108) (39,948) (100,005)
Staff costs-voluntary exit plan and other termination - - - - - - - - - - (3,130) (3,130)
benefits
Special levy on deposits and other levies/contributions (1,015) (625) (806) (10,448) (45) (3,272) (295) - - (1) - (16,507)
Other operating (expenses)/income (excluding advisory and (9,936) (10,096) (7,652) (39,183) (11,197) (5,055) (1,170) (8,215) (5,563) (5,142) 29,491 (73,718)
other restructuring
costs)
Other operating expenses ‑ advisory and other restructuring - - - - (1,053) - - (351) - - (5,271) (6,675)
costs
Operating profit before credit losses and impairment 24,172 23,018 8,991 (5,077) 2,105 26,552 (273) (10,719) 15,337 15,167 178 99,451
Credit losses on financial assets (2,356) (3,631) 569 293 (16,577) 285 (226) (323) (101) (167) (2,731) (24,965)
Impairment net of reversals of non‑financial assets - - - - - - - (7,203) - - (4,954) (12,157)
Profit/(loss) before tax 21,816 19,387 9,560 (4,784) (14,472) 26,837 (499) (18,245) 15,236 15,000 (7,507) 62,329
Income tax (2,727) (2,423) (1,195) 598 1,809 (3,355) 3 2,429 (1,309) (1,875) (3,534) (11,579)
Profit/(loss) after tax 19,089 16,964 8,365 (4,186) (12,663) 23,482 (496) (15,816) 13,927 13,125 (11,041) 50,750
Non‑controlling interests‑profit - - - - - - - - - - (662) (662)
Profit/(loss) after tax attributable to the owners of the 19,089 16,964 8,365 (4,186) (12,663) 23,482 (496) (15,816) 13,927 13,125 (11,703) 50,088
Company
Corporate Large and Small and medium‑sized enterprises Retail Restructuring and recoveries International banking services Wealth management REMU Insurance Treasury Other Total
international
corporate
Six months ended 30 June 2021 (restated) €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Net interest income/(expense) 27,082 27,739 15,061 38,734 30,070 4,127 220 (12,417) (9) 8,179 13,427 152,213
Net fee and commission income/(expense) 6,926 5,385 4,445 20,764 7,690 26,846 2,773 (86) (3,759) 953 11,920 83,857
Net foreign exchange gains/(losses) 238 101 233 812 30 2,699 1,341 - - 1,160 (64) 6,550
Net (losses)/gains on financial instrument transactions - (116) - - (3,035) - (322) 6 (303) (10,270) 844 (13,196)
Net gains/(losses) on derecognition of financial assets 34 1,187 658 219 (971) (75) 1 - - - - 1,053
measured at amortised
cost
Insurance income net of claims and commissions - - - - - - - - 31,068 - - 31,068
Net losses from revaluation and disposal of investment - - - - - - - (709) - - (672) (1,381)
properties
Net gains on disposal of stock of property - - - - - - - 7,180 - - 192 7,372
Other income 1 2 6 177 32 1 100 3,284 30 - 2,221 5,854
Total operating income 34,281 34,298 20,403 60,706 33,816 33,598 4,113 (2,742) 27,027 22 27,868 273,390
Staff costs (2,604) (1,473) (2,992) (30,147) (8,015) (6,222) (1,993) (1,838) (5,396) (739) (39,447) (100,866)
Special levy on deposits and other levies/contributions (916) (461) (763) (9,846) (49) (2,937) (283) - - - - (15,255)
Other operating (expenses)/income (excluding advisory and (8,686) (8,380) (7,963) (33,637) (12,960) (4,518) (1,652) (8,706) (4,204) (4,232) 14,791 (80,147)
other restructuring
costs)
Other operating expenses ‑ advisory and other restructuring - - - - (14,559) - - (607) - - (275) (15,441)
costs
Operating profit before credit losses and impairment 22,075 23,984 8,685 (12,924) (1,767) 19,921 185 (13,893) 17,427 (4,949) 2,937 61,681
Credit losses on financial assets (1,666) (4,089) 913 11,906 (55,320) 1,548 (65) (91) (184) (57) (5,058) (52,163)
Impairment net of reversals of non‑financial assets - - - - - - - (6,742) - - (656) (7,398)
Profit/(loss) before tax 20,409 19,895 9,598 (1,018) (57,087) 21,469 120 (20,726) 17,243 (5,006) (2,777) 2,120
Income tax (2,551) (2,487) (1,200) 127 7,136 (2,684) (113) 895 (2,106) 626 1,389 (968)
Profit/(loss) after tax 17,858 17,408 8,398 (891) (49,951) 18,785 7 (19,831) 15,137 (4,380) (1,388) 1,152
Non‑controlling interests‑profit - - - - - - - - - - (413) (413)
Profit/(loss) after tax attributable to the owners of the 17,858 17,408 8,398 (891) (49,951) 18,785 7 (19,831) 15,137 (4,380) (1,801) 739
Company
Net insurance income for the six months ended 30 June 2022 amounted to
€32,869 thousand, comprising of income from assets under insurance and
reinsurance contracts of €29,859 thousand and a credit for expenses from
liabilities under insurance and reinsurance contracts of €3,010 thousand,
compared to €31,068 thousand for the six months ended 30 June 2021
(comprising of income from assets under insurance and reinsurance contracts of
€103,824 thousand and expenses from liabilities under insurance and
reinsurance contracts of €72,756 thousand respectively). The increase in net
insurance income of €1,801 thousand, is mainly due to increased new business
and the positive changes in valuation assumptions, partially offset by higher
insurance claims. The decrease in income from assets under insurance and
reinsurance contracts is impacted by the valuation on the unit‑linked
investments, which in turn has a positive impact on the respective technical
reserves, whose movement is reported under expenses from liabilities under
insurance and reinsurance contracts.
Analysis of total revenue
Total revenue includes net interest income, net fee and commission income, net
foreign exchange gains, net gains/(losses) on financial instrument
transactions, net gains/(losses) on derecognition of financial assets measured
at amortised cost, insurance income net of claims and commissions, 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 Large and Small and medium‑sized enterprises Retail Restructuring and recoveries International banking services Wealth management REMU Insurance Treasury Other Total
International
corporate
Six months ended 30 June 2022 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Revenue from third parties 42,440 40,306 21,749 77,546 21,454 37,163 3,275 12,102 31,704 (6,315) 18,062 299,486
Inter‑segment (expense)/revenue (4,695) (5,115) (1,398) (2,985) (1,377) 3,956 (258) (12,200) (4,635) 27,733 974 -
Total revenue 37,745 35,191 20,351 74,561 20,077 41,119 3,017 (98) 27,069 21,418 19,036 299,486
Six months ended 30 June 2021 (restated)
Revenue from third parties 38,511 38,874 21,893 64,878 35,972 31,495 4,556 9,576 30,060 (18,244) 15,819 273,390
Inter‑segment (expense)/revenue (4,230) (4,576) (1,490) (4,172) (2,156) 2,103 (443) (12,318) (3,033) 18,266 12,049 -
Total revenue 34,281 34,298 20,403 60,706 33,816 33,598 4,113 (2,742) 27,027 22 27,868 273,390
Analysis of assets and liabilities
Corporate Large and Small and medium‑sized enterprises Retail Restructuring and recoveries International banking services Wealth management REMU Insurance Treasury Other Total
international
corporate
30 June 2022 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Assets
Assets 2,148,827 2,226,206 1,033,646 4,155,410 651,062 136,120 67,126 1,235,597 990,211 12,116,263 1,449,264 26,209,732
Inter‑segment assets - - - - - - (10,838) (35,761) (16,487) - (25,659) (88,745)
2,148,827 2,226,206 1,033,646 4,155,410 651,062 136,120 56,288 1,199,836 973,724 12,116,263 1,423,605 26,120,987
Assets between Cyprus and overseas operations (277,255)
Total assets 25,843,732
Corporate Large and Small and medium‑sized enterprises Retail Restructuring and recoveries International banking services Wealth management REMU Insurance Treasury Other Total
international
corporate
31 December 2021 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Assets
Assets 2,012,908 2,139,025 1,036,958 4,011,930 703,926 134,596 73,512 1,282,342 1,023,678 11,412,964 1,583,202 25,415,041
Inter‑segment assets - - - - - - (12,036) (16,240) (20,367) - (15,227) (63,870)
2,012,908 2,139,025 1,036,958 4,011,930 703,926 134,596 61,476 1,266,102 1,003,311 11,412,964 1,567,975 25,351,171
Assets between Cyprus and overseas operations (388,474)
Total assets 24,962,697
Corporate Large and Small and medium‑sized enterprises Retail Restructuring and recoveries International banking services Wealth management REMU Insurance Treasury Other Total
international
corporate
30 June 2022 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Liabilities
Liabilities 1,247,265 820,982 900,332 11,444,665 57,974 3,667,783 329,834 39,513 787,443 4,153,824 668,622 24,118,237
Inter‑segment liabilities - - - - - - - - - (88,745) - (88,745)
1,247,265 820,982 900,332 11,444,665 57,974 3,667,783 329,834 39,513 787,443 4,065,079 668,622 24,029,492
Liabilities between Cyprus and overseas operations (278,381)
Total liabilities 23,751,111
31 December 2021
Liabilities
Liabilities 1,117,148 631,002 866,860 11,051,397 45,994 3,500,183 335,587 13,359 826,816 4,161,124 785,469 23,334,939
Inter‑segment liabilities - - - - - - - - - (63,870) - (63,870)
1,117,148 631,002 866,860 11,051,397 45,994 3,500,183 335,587 13,359 826,816 4,097,254 785,469 23,271,069
Liabilities (389,599)
Liabilities 22,881,470
Segmental analysis of customer deposits and loans and advances to customers is
presented in Note 21 and Notes 29.2 and 29.4 respectively.
Analysis of turnover
Six months ended
30 June
2022 2021
(restated)
€000 €000
Interest income and income similar to interest income 190,988 196,898
Fees and commission income 98,086 87,610
Net foreign exchange gains 11,898 6,550
Gross insurance premiums 105,591 95,089
Losses of investment properties and stock of properties (494) (1,377)
Other income 8,927 5,854
414,996 390,624
The analysis of 'Losses of investment properties and stock of properties' is
provided in the table below:
Six months ended
30 June
2022 2021
€000 €000
Net losses from revaluation and disposal of investment properties (1,372) (1,381)
Net gains on disposal of stock of property 8,242 7,372
Impairment of stock of property (Note 10) (7,364) (7,368)
(494) (1,377)
8. Net losses on financial instruments
Six months ended
30 June
2022 2021
(restated)
€000 €000
Trading portfolio:
‑ derivative financial instruments 23
37
Other investments at FVPL:
‑ debt securities (367) 2,540
‑ mutual funds (1,716) (575)
‑ equity securities (166) (171)
Net loss on disposal of FVOCI debt securities (1,959) -
Net loss on early redemption of subordinated loan stock - (12,433)
Net losses on loans and advances to customers at FVPL (2,059) (3,151)
Revaluation of financial instruments designated as fair value hedges:
‑ hedging instruments 49,687 9,786
‑ hedged items (45,517) (9,215)
(2,060) (13,196)
In April 2021, BOC PCL invited the holders of its €250 million unsecured and
subordinated Tier 2 Capital Note (issued in January 2017) to tender it for
purchase by BOC PCL at a price of 105.5% plus accrued interest. BOC PCL
received valid tenders for approximately €207 million in aggregate nominal
amount, all of which were accepted. As a result, BOC PCL incurred a loss of
€12,433 thousand for the six months ended 30 June 2021, while at the same
time forfeiting the relevant obligation for future coupon payments. Further
information is provided in Note 22.
9. Staff costs and other operating expenses
Staff costs
Six months ended
30 June
2022 2021
€000 €000
Salaries 81,246 81,397
Employer's contributions to state social insurance 12,982 12,905
Retirement benefit plan costs 5,777 6,564
100,005 100,866
Restructuring costs ‑ voluntary exit plans and other termination benefits 3,130 -
103,135 100,866
The number of persons employed by the Group as at 30 June 2022 was 3,422 (31
December 2021: 3,438 and includes 49 persons that have accepted the voluntary
exit plan (VEP) and left the Group in early 2022 and 30 June 2021: 3,558 and
includes 98 persons relating to Helix 2 transaction that left the Group in the
second half of 2021).
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. In December 2021, the
Group completed a VEP, through which 102 of the Group's full‑time employees
were approved to leave at a total cost of €16,146 thousand. In addition, in
July 2022, the Group proceeded with another VEP (refer to Note 36 for further
details).
In July 2021, BOC PCL reached an agreement with the Cyprus Union of Bank
Employees for the renewal of the collective agreement for the years 2021 and
2022. The agreement relates to certain changes including the introduction of a
new pay grading structure linked to the value of each position of employment,
and of a performance related pay component as part of the annual salary
increase, both of which have been long‑standing objectives of BOC PCL and
are in line with market best‑practice.
During the six months ended 30 June 2022, an amount of €831 thousand (30
June 2021: nil) relating to staff costs has been capitalised as internally
developed computer software.
Other operating expenses
Six months ended
30 June
2022 2021
€000 €000
Repairs and maintenance expenses 17,960 15,669
Other property‑related costs 5,865 5,708
Consultancy and other professional services fees 8,526 7,132
Insurance 4,218 3,725
Advertising and marketing 3,672 2,751
Depreciation of property and equipment 7,821 8,266
Amortisation of intangible assets 9,087 9,325
Communication expenses 3,431 3,449
Provisions for pending litigations, claims, regulatory and other matters (Note 594 10,660
25.4)
Printing and stationery 898 814
Cash transfer expenses 1,630 1,139
Other operating expenses 10,016 11,509
73,718 80,147
Advisory and other restructuring costs 6,675 15,441
80,393 95,588
Advisory and other restructuring costs comprise mainly fees to external
advisors in relation to the transformation programme and strategy of BOC PCL.
During the six months ended 30 June 2022, the Group recognised €84 thousand
relating to rent expense for short term leases, included within 'Other
property related costs (30 June 2021: €67 thousand) and €3,423 thousand
relating to the depreciation of right‑of‑use assets, included within
'Depreciation of property and equipment' (30 June 2021: €3,920 thousand).
Six months ended
30 June
2022 2021
€000 €000
Special levy on deposits of credit institutions in Cyprus and contribution to 13,246 12,370
Single Resolution Fund
Contribution to Deposit Guarantee Fund 3,261 2,885
16,507 15,255
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.
10. Credit losses on financial instruments and impairment net
of reversals of non‑financial assets
Six months ended
30 June
2022 2021
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 29.5) 28,055 41,717
Recoveries of loans and advances to customers previously written off (6,509) (5,036)
Changes in expected cash flows 2,840 10,393
Financial guarantees and commitments (427) 1,275
23,959 48,349
Credit losses of other financial instruments
Amortised cost debt securities 51
21
FVOCI debt securities 163 15
Loans and advances to banks (22) 9
Other financial assets (Note 18) 844 3,739
1,006 3,814
24,965 52,163
Impairment net of reversals on non‑financial assets
Stock of property (Note 17) 7,364 7,368
Other non‑financial assets 4,793 30
12,157 7,398
11. Income tax
Six months ended
30 June
2022 2021
€000 €000
Current tax:
‑ Cyprus 12,653 1,973
‑ Overseas -
34
Cyprus special defence contribution 59
79
Deferred tax (credit)/charge (1,149) 504
Prior years' tax adjustments (16) (1,890)
Other tax (credits)/charges (22) 322
11,579 968
The net deferred tax assets comprise:
30 June 31 December
2022
2021
€000 €000
Deferred tax assets 265,430 265,481
Deferred tax liabilities (45,235) (46,435)
Net deferred tax assets 220,195 219,046
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
2022
2021
€000 €000
1 January 219,046 295,378
Deferred tax recognised in the consolidated income statement 1,149 (641)
Deferred tax recognised in the consolidated statement of comprehensive income - 127
Transfer to current tax receivables following conversion into tax credit - (75,818)
30 June/31 December 220,195 219,046
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.
BOC PCL has DTA that meets the requirements of the Income Tax Law Amendment
28(I) of 2019 (the 'Law'), which allow for the conversion of specific tax
losses into tax credits and subsequently any such unutilised tax credits into
a receivable from the Cyprus Government, 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 for which BOC PCL paid
a consideration as part of the respective acquisition. Under the Law, BOC PCL
could convert up to an amount of €3.3 billion tax losses (which led to the
creation of DTA amounting to €417 million) to tax credits, with the
conversion being based on the tax rate applicable at the time of conversion.
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 €265,364
thousand as at 30 June 2022 (31 December 2021: €265,364 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 2021.
In response to concerns raised by the European Commission with regard to the
provision of state aid arising out of the treatment of such tax losses, the
Cyprus Government has proceeded with the adoption of modifications to the Law,
including requirements for an additional annual fee over and above the 1.5%
annual guarantee fee already provided for in the Law, to maintain the
conversion of such DTAs into tax credits. The relevant amendments were voted
by the Cyprus Parliament in May 2022 and have become effective since. As
prescribed by the amendments in the Law, the annual fee is to be determined by
the Cyprus Government on an annual basis, providing however, for such fee to
be charged to be set at a minimum fee of 1.5% of the annual instalment and can
range up to a maximum amount of €10,000 thousand per year, and also allowing
for a higher amount to be charged in the year the amendments are effective
(i.e. in 2022).
The Group in prior years, in anticipation of modifications in the Law,
acknowledged that such increased annual fee may be required to be recorded on
an annual basis until expiration of such losses in 2028. The Group estimates
that such fees could range up to €5,300 thousand per year (for each tax year
in scope i.e. since 2018) although the Group understands that such fee may
fluctuate annually as to be determined by the Ministry of Finance. An amount
of €5,300 thousand was recorded during the year ended 31 December 2021,
bringing the total amount provided by the Group for such increased fee to
€21,200 thousand for years 2018‑2021. In the third quarter of 2022, BOC
PCL has been levied an amount within the provisions level maintained.
Accumulated income tax losses
The accumulated income tax losses are presented in the table below:
30 June 2022 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
€000 €000 €000
Expiring within 5 years 233,545 - 233,545
Utilisation in annual instalments up to 2028 2,122,909 2,122,909 -
2,356,454 2,122,909 233,545
31 December 2021
Expiring within 5 years 251,448 - 251,448
Utilisation in annual instalments up to 2028 2,122,909 2,122,909 -
2,374,357 2,122,909 251,448
In relation to the tax losses that were transferred to BOC PCL in 2013, the
income tax authorities in Cyprus issued their tax assessments in March and
April 2019. On the basis of these assessments the quantum of Laiki Bank tax
losses was approximately €5 billion and lower than the initial amount of
€7.4 billion estimated in 2013.
The tax losses in excess of the €3.3 billion transferred from Laiki Bank to
BOC PCL in March 2013 cannot be utilised by BOC PCL, in line with the March
2019 Law amendments, except in cases where there are transfers arising due to
reorganisations made prior to 1 October 2019.
12. Earnings per share
Six months ended
30 June
Basic and diluted profit per share attributable to the owners of the Company 2022 2021
Profit for the period attributable to the owners of the Company 50,088 739
(€ thousand)
Weighted average number of shares in issue during the period, excluding 446,058 446,058
treasury shares (thousand)
Basic and diluted profit per share (€ cent) 11.2 0.2
13. Investments
The analysis of the Group's investments is presented in the table below:
30 June 31 December
2022
2021
€000 €000
Investments at FVPL 181,318 199,194
Investments at FVOCI 529,872 748,695
Investments at amortised cost 1,391,487 1,191,274
2,102,677 2,139,163
Out of these, the amounts pledged as collateral are shown below:
30 June 31 December
2022
2021
Investments pledged as collateral €000 €000
Investments at FVOCI 385,429 488,806
Investments at amortised cost 984,042 771,352
1,369,471 1,260,158
Investments pledged as collateral as at 30 June 2022 related to debt
securities collaterised mainly for the additional amounts borrowed from the
ECB Targeted Longer‑Term Refinancing Operations (TLTRO III) in March 2021
and June 2021 of a total nominal amount of €2 billion, as further described
in Note 20. Encumbered assets are disclosed in Note 31.
The maximum exposure to credit risk for debt securities is disclosed in Note
29.1.
Investments in equity securities and mutual funds as at 30 June 2022, included
above, amount to €22,451 thousand and €166,455 thousand respectively (31
December 2021: €24,668 thousand and €184,107 thousand respectively).
Investments in debt securities and other non‑equity securities included
above amount to €1,913,771 thousand (31 December 2021: €1,930,388
thousand) and are analysed below by issuer type.
Debt securities and other non‑equity securities by issuer type FVPL FVOCI Amortised cost Total
30 June 2022 €000 €000 €000 €000
Cyprus government - 324,436 369,764 694,200
Other governments - 43,441 300,545 343,986
Banks 142,526 451,805 594,831
500
Other financial institutions 5,476 - 27,234 32,710
European Financial Stability Facility and European Investment Fund - - 225,224 225,224
Other non‑financial corporations - 5,905 16,915 22,820
5,976 516,308 1,391,487 1,913,771
31 December 2021 €000 €000 €000 €000
Cyprus government - 408,708 326,953 735,661
Other governments - 87,295 223,813 311,108
Banks 230,513 397,775 628,788
500
Other financial institutions 5,534 - 33,507 39,041
European Financial Stability Facility and European Investment Fund - - 209,226 209,226
Other non‑financial corporations - 6,564 - 6,564
6,034 733,080 1,191,274 1,930,388
The Group enters into fair value hedging relationship to manage the interest
rate risk in relation to its FVOCI bonds (Note 14).
There were no reclassifications of investments during the six months ended 30
June 2022 and the year ended 31 December 2021.
During the six months ended 30 June 2022 and the year ended 31 December 2021
no material equity investments measured at FVOCI have been disposed of. There
were no transfers from OCI to retained earnings during the period.
The fair value of the financial assets that have been reclassified out of FVPL
to FVOCI on transition to IFRS 9, amounts to €10,055 thousand at 30 June
2022 (31 December 2021: €11,066 thousand). The fair value loss that would
have been recognised in the consolidated income statement during the six
months ended 30 June 2022 if these financial assets had not been reclassified
as part of the transition to IFRS 9, amounts to €1,018 thousand (six months
ended 30 June 2021: loss of €41 thousand). The effective interest rate of
these instruments is 1.6%‑5.0% (2021: 1.6%‑5.0%) per annum and the
respective interest income during the six months ended 30 June 2022 amounts to
€128 thousand (six months ended 30 June 2021: €150 thousand).
14. Derivative financial instruments
The contract amount and fair value of the derivative financial instruments is
set out below:
30 June 2022 31 December 2021
Fair value Fair value
Contract amount Assets Liabilities Contract amount Assets Liabilities
€000 €000 €000 €000 €000 €000
Trading derivatives
Forward exchange rate contracts 11,006 159 45 11,344 81 55
Currency swaps 1,047,475 11,597 2,044 991,117 4,388 1,342
Interest rate swaps 21,828 345 316 21,690 86 61
Currency options 532 438 94 83 62 21
Interest rate caps/floors 18,434 743 743 518,950 223 218
1,099,275 13,282 3,242 1,543,184 4,840 1,697
Derivatives qualifying for hedge accounting
Fair value hedges ‑ interest rate swaps 596,606 24,868 6,236 700,835 1,813 30,025
Net investments ‑ forward exchange rate contracts and currency swaps 2,874 - 7 107,193 - 730
599,480 24,868 6,243 808,028 1,813 30,755
Total 1,698,755 38,150 9,485 2,351,212 6,653 32,452
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,
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.
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.
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.
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 operation
and by forward exchange rate contracts.
As at 30 June 2022, forward and swap exchange rate contracts amounting to
€2,874 thousand (31 December 2021: €107,193 thousand) have been designated
as hedging instruments and have given rise to a loss of €4,079 thousand (30
June 2021: gain of €3,867 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 2022 and 31 December 2021 the interest rate benchmarks to which
BOC PCL's hedge relationships are exposed to, are Euro Interbank Offered Rate
(Euribor) and US Dollar 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 key
judgement is that the cash flows for contracts currently indexing USD Libor
tenors are expected to have broadly equivalent cash flows upon the transition
of the contracts to IBOR replacement rates.
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 2021
2022
Interest Rate Swaps €000 €000
Euribor (3‑month) 527,832 529,831
Libor USD (3‑month) 68,774 171,004
Total 596,606 700,835
As at 30 June 2022, 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 30.
15. Fair value measurement
The following table presents the carrying value and fair value of the Group's
financial assets and liabilities.
30 June 2022 31 December 2021
Carrying value Fair value Carrying Fair value
value
Financial assets €000 €000 €000 €000
Cash and balances with central banks 9,904,549 9,904,549 9,230,883 9,230,883
Loans and advances to banks 312,308 304,227 291,632 289,519
Investments mandatorily measured at FVPL 181,318 181,318 199,194 199,194
Investments at FVOCI 529,872 529,872 748,695 748,695
Investments at amortised cost 1,391,487 1,335,249 1,191,274 1,196,753
Derivative financial assets 38,150 38,150 6,653 6,653
Loans and advances to customers 10,144,099 10,052,919 9,836,405 9,642,212
Life insurance business assets attributable to policyholders 522,376 522,376 540,827 540,827
Financial assets classified as held for sale 247,207 247,207 250,370 250,370
Other financial assets 417,162 417,162 393,464 393,464
23,688,528 23,533,029 22,689,397 22,498,570
Financial liabilities
Funding from central banks and deposits by banks 3,446,830 3,339,059 3,426,639 3,328,987
Derivative financial liabilities 9,485 9,485 32,452 32,452
Customer deposits 18,450,216 18,434,345 17,530,883 17,532,995
Debt securities in issue 298,899 236,598 302,555 292,615
Subordinated liabilities 311,738 253,643 340,220 355,159
Other financial liabilities and lease liabilities 299,979 299,979 275,519 275,519
22,817,147 22,573,109 21,908,268 21,817,727
The fair value of financial assets and liabilities in the above table is as at
the reporting date and does not represent any expectations about their future
value.
The Group uses the following hierarchy for determining and disclosing fair
value:
Level 1: investments valued using quoted prices in active markets.
Level 2: investments valued using models for which all inputs that have a
significant effect on fair value are market observable.
Level 3: investments valued using models for which inputs that have a
significant effect on fair value are not based on market observable data.
For assets and liabilities that are recognised in the Consolidated Financial
Statements at fair value, the Group determines whether transfers have occurred
between levels in the hierarchy by re‑assessing categorisation at the end of
each reporting period.
The following is a description of the determination of fair value for
financial instruments which are recorded at fair value on a recurring and on a
non‑recurring basis and for financial instruments which are not measured at
fair value but for which fair value is disclosed, using valuation techniques.
These incorporate the Group's estimate of assumptions that a market
participant would make when valuing the instruments.
Derivative financial instruments
Derivative financial instruments valued using a valuation technique with
market observable inputs are mainly interest rate swaps, currency swaps,
currency rate options, forward foreign exchange rate contracts and interest
rate collars. The most frequently applied valuation techniques include
forward pricing and swap models, using present value calculations. The
models incorporate various inputs including the credit quality of
counterparties, foreign exchange spot and forward rates and interest rate
curves.
Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA)
The CVA and DVA are incorporated into derivative valuations to reflect the
impact on fair value of counterparty risk and BOC PCL's own credit quality
respectively.
The Group calculates the CVA by applying the PD of the counterparty,
conditional on the non‑default of the Group, to the Group's expected
positive exposure to the counterparty and multiplying the result by the loss
expected in the event of default. Conversely, the Group calculates the DVA by
applying its own PD, conditional on the non‑default of the counterparty, to
the expected positive exposure of the counterparty to the Group and
multiplying the result by the loss expected in the event of default. Both
calculations are performed over the life of the potential exposure.
The expected exposure of derivatives is calculated as per the CRR and takes
into account the netting agreements where they exist. A standard Loss Given
Default (LGD) assumption in line with industry norms is adopted. Alternative
LGD assumptions may be adopted when both the nature of the exposure and the
available data support this.
The Group does not hold any significant derivative instruments which are
valued using a valuation technique with significant non‑market observable
inputs.
Investments at FVPL, investments at FVOCI and investments at amortised cost
Investments which are valued using a valuation technique or pricing models,
primarily consist of unquoted equity securities and debt securities. These
assets are valued using valuation models which sometimes only incorporate
market observable data and at other times use both observable and
non‑observable data. The rest of the investments are valued using quoted
prices in active markets.
Loans and advances to customers
The fair value of loans and advances to customers is based on the present
value of expected future cash flows. Future cash flows have been based on the
future expected loss rate per loan portfolio, taking into account expectations
for the credit quality of the borrowers. The discount rate includes components
that capture the risk‑free rate per currency, funding cost, servicing cost
and the cost of capital, considering the risk weight of each loan. The
discount rate used in the determination of the fair value of the loans and
advances to customers measured at FVPL during the six months ended 30 June
2022 ranges from 2.65% to 8.50% (31 December 2021:2.34%‑8.50%).
Customer deposits
The fair value of customer deposits is determined by calculating the present
value of future cash flows. The discount rate takes into account current
market rates and the credit profile of BOC PCL. The fair value of deposits
repayable on demand and deposits protected by the Deposit Protection Guarantee
Scheme are approximated by their carrying values.
Loans and advances to banks
Loans and advances to banks with maturity over one year are discounted using
an appropriate risk‑free rate plus the appropriate credit spread. For
short‑term lending, the fair value is approximated by the carrying value.
Deposits by banks and funding from central banks
Deposits by banks and funding from central banks with maturity over one year
are discounted using an appropriate risk‑free rate plus the appropriate
credit spread. For short‑term lending, the fair value is approximated by the
carrying value.
Debt securities in issue and Subordinated liabilities
Debt securities and subordinated liabilities issuances are traded in an active
market with quoted prices.
Model inputs for valuation
Observable inputs to the models for the valuation of unquoted equity and debt
securities include, where applicable, current and expected market interest
rates, market expected default rates, market implied country and counterparty
credit risk and market liquidity discounts.
The following table presents the fair value measurement hierarchy of the
Group's financial assets and liabilities recorded at fair value or for which
fair value is disclosed, by level of the fair value hierarchy:
Level 1 Level 2 Level 3 Total
30 June 2022 €000 €000 €000 €000
Financial assets measured at fair value
Loans and advances to customers measured at FVPL - - 282,184 282,184
Trading derivatives
Forward exchange rate contracts - 159 - 159
Currency swaps - 11,597 - 11,597
Interest rate swaps - 345 - 345
Currency options - 438 - 438
Interest rate caps/floors - 743 - 743
- 13,282 - 13,282
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps - 24,868 - 24,868
Investments mandatorily measured at FVPL 83,879 91,463 5,976 181,318
Investments at FVOCI 517,876 - 11,996 529,872
601,755 129,613 300,156 1,031,524
Other financial assets not measured at fair value
Loans and advances to banks - 304,227 - 304,227
Investments at amortised cost 1,216,176 101,678 17,396 1,335,250
Loans and advances to customers - - 9,770,735 9,770,735
1,216,176 405,905 9,788,131 11,410,212
For loans and advances to customers measured at FVPL categorised as Level 3,
an increase in the discount factor by 10% would result in a decrease of
€4,581 thousand in their fair value and a decrease in the discount factor by
10% would result in an increase of €886 thousand in their fair value.
For one investment included in debt and other non‑equity securities
mandatorily measured at FVPL as a result of the SPPI assessment and
categorised as Level 3 with a carrying amount of €5,476 thousand as at 30
June 2022, a change in the conversion factor by 10% would result in a change
in the value of the debt and other non‑equity securities by €548 thousand.
Level 1 Level 2 Level 3 Total
30 June 2022 €000 €000 €000 €000
Financial liabilities measured at fair value
Trading derivatives
Forward exchange rate contracts - - 45
45
Currency swaps - 2,044 - 2,044
Interest rate swaps - 316 - 316
Currency options - - 94
94
Interest rate caps/floors - 743 - 743
- 3,242 - 3,242
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps - 6,236 - 6,236
Net investments‑forward exchange rate contracts and currency swaps - - 7
7
- 6,243 - 6,243
- 9,485 - 9,485
Other financial liabilities not measured at fair value
Funding from central banks - 2,910,529 - 2,910,529
Deposits by banks - 428,530 - 428,530
Customer deposits - - 18,434,345 18,434,345
Debt securities in issue 236,598 - - 236,598
Subordinated liabilities 253,643 - - 253,643
490,241 3,339,059 18,434,345 22,263,645
Level 1 Level 2 Level 3 Total
31 December 2021 €000 €000 €000 €000
Financial assets measured at fair value
Loans and advances to customers measured at FVPL - - 281,868 281,868
Trading derivatives
Forward exchange rate contracts - - 81
81
Currency swaps - 4,388 - 4,388
Interest rate swaps - - 86
86
Currency options - - 62
62
Interest rate caps/floors - 223 - 223
- 4,840 - 4,840
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps - 1,813 - 1,813
Investments mandatorily measured at FVPL 98,016 95,144 6,034 199,194
Investments at FVOCI 734,832 - 13,863 748,695
832,848 101,797 301,765 1,236,410
Other financial assets not measured at fair value
Loans and advances to banks - 289,519 - 289,519
Investments at amortised cost 1,074,144 98,238 24,371 1,196,753
Loans and advances to customers - - 9,360,344 9,360,344
1,074,144 387,757 9,384,715 10,846,616
For loans and advances to customers measured at FVPL categorised as Level 3,
an increase in the discount factor by 10% would result in a decrease of
€4,647 thousand in their fair value and a decrease in the discount factor by
10% would result in an increase of €784 thousand in their fair value.
For one investment included in debt and other non‑equity securities
mandatorily measured at FVPL as a result of the SPPI assessment and
categorised as Level 3 with a carrying amount of €5,534 thousand as at 31
December 2021, a change in the conversion factor by 10% would result in a
change in the value of the debt and other non‑equity securities by €553
thousand.
Level 1 Level 2 Level 3 Total
31 December 2021 €000 €000 €000 €000
Liabilities measured at fair value
Trading derivatives
Forward exchange rate contracts - - 55
55
Currency swaps - 1,342 - 1,342
Interest rate swaps - - 61
61
Currency options - - 21
21
Interest rate caps/floors - 218 - 218
- 1,697 - 1,697
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps - 30,025 - 30,025
Net investments‑forward exchange rate contracts and currency swaps - 730 - 730
- 30,755 - 30,755
- 32,452 - 32,452
Other financial liabilities not measured at fair value
Funding from central banks - 2,950,646 - 2,950,646
Deposits by banks - 378,341 - 378,341
Customer deposits - - 17,532,995 17,532,995
Debt securities in issue 292,615 - - 292,615
Subordinated liabilities 355,159 - - 355,159
647,774 3,328,987 17,532,995 21,509,756
The cash and balances with central banks are financial instruments whose
carrying value is a reasonable approximation of fair value because they are
mostly short‑term in nature or are repriced to current market rates
frequently. The carrying value of other financial assets and other financial
liabilities and assets classified as held for sale is a close approximation of
their fair value and they are categorised as Level 3.
During the six months ended 30 June 2022 and the year ended 31 December 2021
there were no significant transfers between Level 1 and Level 2.
Movements in Level 3 assets measured at fair value
Transfers from Level 3 to Level 2 occur when the market for some securities
becomes more liquid, which eliminates the need for the previously required
significant unobservable valuation inputs. Following a transfer to Level 2 the
instruments are valued using valuation models incorporating observable market
inputs. Transfers into Level 3 reflect changes in market conditions as a
result of which instruments become less liquid. Therefore, the Group requires
significant unobservable inputs to calculate their fair value.
The movement in Level 3 financial assets which are measured at fair value is
presented below:
30 June 2022 31 December 2021
Loans and advances to customers Financial instruments Total Loans and advances to customers Financial instruments Total
€000 €000 €000 €000 €000 €000
1 January 281,868 19,897 301,765 289,861 33,182 323,043
Additions - - - - 396 396
Disposals - - - - (903) (903)
Conversion of instruments into common shares - - - - (18,618) (18,618)
Fair value (losses)/gains - (1,925) (1,925) - 5,840 5,840
Net losses on loans and advances to customers measured at FVPL (Note 8) (2,059) - (2,059) (17,292) - (17,292)
Derecognition/repayment of loans (3,624) - (3,624) (3,083) - (3,083)
Interest on loans 5,999 - 5,999 12,382 - 12,382
30 June/31 December 282,184 17,972 300,156 281,868 19,897 301,765
16. Loans and advances to customers
30 June 31 December 2021
2022
€000 €000
Gross loans and advances to customers at amortised cost 10,068,366 9,840,535
Allowance for ECL for impairment of loans and advances to customers (Note (206,451) (285,998)
29.5)
9,861,915 9,554,537
Loans and advances to customers measured at FVPL 282,184 281,868
10,144,099 9,836,405
Loans and advances to customers pledged as collateral are disclosed in Note
31.
Additional analysis and information regarding credit risk and analysis of the
allowance for ECL of loans and advances to customers are set out in Note 29.
17. Stock of property
The carrying amount of stock of property is determined as the lower of cost
and net realisable value. Impairment is recognised if the net realisable value
is below the cost of the stock of property. During the six months ended 30
June 2022 an impairment loss of €7,364 thousand (30 June 2021: €7,368
thousand) was recognised in 'Impairment net of reversals on non‑financial
assets' in the consolidated income statement. At 30 June 2022, stock of
€536,355 thousand (31 December 2021: €519,978 thousand) is carried at net
realisable value. Additionally, at 30 June 2022 stock of property with a
carrying amount of €95,187 thousand (31 December 2021: €116,987 thousand)
is carried at approximately its fair value less costs to sell.
The stock of property includes residential properties, offices and other
commercial properties, manufacturing and industrial properties, hotels and
land (fields and plots). There is no stock of property pledged as collateral
for central bank funding facilities under Eurosystem monetary policy
operations.
The carrying amount of the stock of property is analysed in the tables below:
30 June 31 December
2022
2021
€000 €000
Net book value at 1 January 1,111,604 1,349,609
Additions 17,402 34,347
Disposals (67,608) (123,520)
Transfers to disposal group (Note 19) - (101,978)
Impairment (Note 10) (7,364) (46,775)
Foreign exchange adjustments - (79)
Net book value at 30 June/31 December 1,054,034 1,111,604
As at 30 June 2022, there are charges against stock of property of the Group
with carrying value €20,989 thousand (31 December 2021: €21,015 thousand).
Analysis by type and country Cyprus Greece Romania Total
30 June 2022 €000 €000 €000 €000
Residential properties 70,572 17,397 88,001
32
Offices and other commercial properties 156,914 11,227 - 168,141
Manufacturing and industrial properties 32,514 15,954 48,516
48
Hotels 23,874 456 - 24,330
Land (fields and plots) 720,434 4,604 725,046
8
Total 1,004,308 49,638 1,054,034
88
31 December 2021
Residential properties 74,248 18,350 92,630
32
Offices and other commercial properties 163,789 19,462 - 183,251
Manufacturing and industrial properties 33,170 15,972 49,185
43
Hotels 24,619 456 - 25,075
Land (fields and plots) 755,663 4,986 814 761,463
Total 1,051,489 59,226 889 1,111,604
18. Prepayments, accrued income and other assets
30 June 31 December 2021
2022
€000 €000
Financial assets
Debtors 49,333 36,540
Receivable relating to tax 3,696 4,558
Deferred purchase payment consideration 304,268 299,766
Other assets 59,865 52,600
417,162 393,464
Non‑financial assets
Reinsurers' share of insurance contract liabilities 58,768 55,323
Current tax receivable 114,900 124,267
Prepaid expenses 835 756
Retirement benefit plan assets 1,769 -
Other assets 28,521 42,409
204,793 222,755
621,955 616,219
There were no financial assets measured at FVPL as at 30 June 2022 and 31
December 2021.
On the completion date of the sale of Project Helix 2 (the 'Transaction'), the
Group has recognised an amount of €381,567 thousand in other financial
assets, which represented the fair value of the deferred consideration
receivable from the Transaction (the 'DPP'). This amount is payable in four
instalments up to December 2025 and each instalment carries interest up to
each payment date. The first instalment in the amount of €84,579 thousand
was received in December 2021. An amount of €4,314 thousand, which
represents the interest income on DPP has been recognised in the Consolidated
Income Statement for the six months ended 30 June 2022 (30 June 2021: €58
thousand) within 'Interest income‑Financial assets at amortised cost‑Other
financial assets'. There are no other conditions attached. An amount of
€13,983 thousand which represents the effect of discounting the DPP at the
date of derecognition of the loan portfolio was recorded as part of the
transaction within 'Credit losses to cover credit risk on loans and advances
to customers' during the six months ended 30 June 2021. The DPP is classified
as Stage 1 as at 30 June 2022 and 31 December 2021.
During the six months ended 30 June 2022, credit losses of €844 thousand
were recognised in relation to prepayments, accrued income and other financial
assets. This includes ECL losses of €256 thousand (of which €188 thousand
relate to a partial reversal for 12‑months ECL of the DPP), and €588
thousand impairment losses. During the six months ended 30 June 2021, credit
losses of €3,739 thousand were recognised in relation to prepayments,
accrued income and other financial assets of which €3,426 thousand related
to 12‑months ECL of the DPP.
19. Non‑current assets and disposal groups held for sale
The following non‑current assets and disposal groups were classified as held
for sale as at 30 June 2022 and 31 December 2021:
30 June 31 December
2022
2021
€000 €000
Disposal group 1 330,334 340,622
Disposal group 2 6,956 7,921
Freehold property 10,408 10,408
347,698 358,951
30 June 2022 31 December 2021
Disposal Group 1 Disposal Group 2 Disposal Disposal
Group 1
Group 2
€000 €000 €000 €000
Gross loans and advances to customers 539,675 12,131 543,663 12,126
Allowance for ECL for impairment of loans and advances to customers (Note (299,028) (5,571) (300,608) (4,811)
29.5)
240,647 6,560 243,055 7,315
Stock of property 84,840 396 92,246 606
Investment property 4,847 - 5,321 -
330,334 6,956 340,622 7,921
Disposal Group 1
Disposal group 1 comprises a portfolio of loans and advances to customers and
a property portfolio (comprising stock of property and investment property)
known as Project Helix 3 ('Project Helix 3' or the 'Helix 3 Transaction').
In November 2021, the Group reached an agreement with Pacific Investment
Management Company LLC ('PIMCO') for the sale of Project Helix 3. The Group
will dispose Project Helix 3 through the transfer of the portfolio to a
licensed Cypriot Credit Acquiring Company (the CyCAC) by BOC PCL. The shares
of the CyCAC will be subsequently acquired by certain funds affiliated with
PIMCO.
The gross consideration for the transaction amounts to approximately €385
million, before transaction and other costs, payable at completion. An amount
of €19,225 thousand was received as a deposit shortly after the signing of
the agreement (Note 23). The gross book value of the loans and advances to
customers amounted to €550 million and the carrying value of the property
portfolio amounted to €102 million as at 30 September 2021 (the reference
date).
The completion of the Helix 3 Transaction is currently estimated to occur in
the second half of 2022 and remains subject to a number of conditions,
including customary regulatory and other approvals. The disposal group has
been classified as held for sale since 30 September 2021 as management is
committed to sell it and has proceeded with an active programme to complete
this plan.
Disposal Group 2
Disposal group 2 comprises a portfolio of loans and advances to customers and
stock of properties in Romania known as Project Sinope ('Project Sinope' or
the 'Sinope Transaction'), classified as held for sale since 31 December
2021.
In December 2021, the Group entered into an agreement for the sale of Project
Sinope. The transaction was completed on 24 August 2022. An amount of €900
thousand was received as a deposit in the second quarter of 2022 (Note 23).
Further analysis of the loans and advances to customers, included in these
disposal groups, is disclosed in Note 29.3.
Freehold property
Freehold property classified as held for sale as at 30 June 2022 and 31
December 2021 relates to properties which management is committed to sell and
proceeded with an active programme to complete this plan. The disposal is
expected to be completed within 12 months from the reporting date. Freehold
property classified as held for sale is measured at fair value less cost to
sell.
20. Funding from central banks
Funding from central banks comprises funding from the ECB under Eurosystem
monetary policy operations as set out in the table below:
30 June 31 December 2021
2022
€000 €000
Targeted Longer‑Term Refinancing Operations (TLTRO IΙI) 2,954,808
2,969,600
As at 30 June 2022, ECB funding amounted to €3 billion (31 December 2021:
€3 billion) borrowed from various TLTRO III operations.
The interest rate applicable to the TLTRO III funding depends on the eligible
net lending during the specified periods laid out in the terms of the ECB
operation.
In recognition of the challenging credit environment during the pandemic
period, the Governing Council of the ECB announced that the interest rate on
all outstanding TLTRO III operations for the periods from 24 June 2020 to 23
June 2021 and 24 June 2021 to 23 June 2022 would be 50 basis points below the
average rate applicable in the Eurosystem's main refinancing operations over
the same period. The interest rate on the main refinancing operations during
the above periods remained at 0%. For the counterparties whose eligible net
lending reached the lending performance thresholds, the interest rate applied
over the periods from 24 June 2020 to 23 June 2021 and 24 June 2021 to 23 June
2022 on all TLTRO III operations outstanding would be 50 basis points below
the average interest rate on the deposit facility prevailing over the same
period, and in any case not higher than minus 1%. The deposit facility rate as
at 30 June 2022 remained at minus 0.5%. BOC PCL has exceeded the eligible net
lending benchmark applicable for both periods, and is entitled to the
beneficial rate of minus 1% for 24 June 2020 to 23 June 2021 and 24 June 2021
to 23 June 2022. For the period after 23 June 2022, the interest rate shall be
the average interest rate on the deposit facility over the life of the
respective TLTRO‑III, as BOC PCL exceeded the benchmark net lending in both
reference periods. In calculating the applicable interest BOC PCL follows a
discrete approach by applying the estimated interest rate for each period.
The maturity of TLTRO III is three years from the settlement of each operation
but there is an option available to early repay or reduce the amounts borrowed
before their respective final maturity.
Details on encumbered assets related to the above funding facilities are
disclosed in Note 31.
21. Customer deposits
30 June 31 December 2021
2022
€000 €000
By type of deposit
Demand 10,049,792
9,221,791
Savings 2,640,108
2,423,086
Time or notice 5,760,316
5,886,006
18,450,216
17,530,883
By geographical area
Cyprus 12,837,406
11,992,960
Greece 1,884,736
1,906,854
United Kingdom
720,121 713,621
Romania
58,612 54,306
Russia
620,763 661,820
Ukraine
294,218 276,248
Belarus
83,410 55,738
Other Countries 1,950,950
1,869,336
18,450,216
17,530,883
Deposits by geographical area are based on the country of passport of the
Ultimate Beneficial Owner.
30 June 31 December 2021
2022
€000 €000
By currency
Euro 16,529,501
15,736,030
US Dollar 1,515,565
1,373,584
British Pound
322,903 312,918
Russian Rouble
9,838 28,539
Swiss Franc
12,212 10,865
Other currencies
60,197 68,947
18,450,216
17,530,883
30 June 31 December 2021
2022
€000 €000
By customer sector
Corporate 1,247,265
1,117,148
Large and international corporate
820,982 631,002
SMEs
900,332 866,860
Retail 11,444,665
11,051,397
Restructuring
- Corporate
34,563 21,658
- SMEs
10,413 13,091
- Retail other
11,851 9,862
Recoveries
- Corporate
1,147 1,383
International banking services 3,667,783
3,500,183
Wealth management
311,215 318,299
18,450,216
17,530,883
22. Debt securities in issue and Subordinated liabilities
30 June 2022 31 December 2021
€000 €000 €000 €000
Contractual interest rate Issuer Nominal value Carrying value Nominal Carrying
value
value
Subordinated liabilities
Subordinated Tier 2 Capital Note ‑ January 2017 9.25% up to BOC PCL - - 35,605 38,561
19 January 2022
Subordinated Tier 2 Capital Note ‑ April 2021 6.625% up to BOCH 300,000 311,738 300,000 301,659
23 October 2026
300,000 311,738 335,605 340,220
Debt securities in issue
Senior Preferred Notes ‑ June 2021 2.50% up to BOC PCL 300,000 298,899 300,000 302,555
24 June 2026
BOCH and BOC PCL maintain a Euro Medium Term Note (ΕΜΤΝ) Programme with an
aggregate nominal amount up to €4,000 million.
Subordinated Liabilities
Subordinated Tier 2 Capital Note ‑ January 2017
In January 2017, BOC PCL issued a €250 million unsecured and subordinated
Tier 2 Capital Note under the EMTN Programme. The note was priced at par with
a coupon of 9.25% per annum payable annually up to 19 January 2022 and
thereafter at the then prevailing 5‑year swap rate plus a margin of 9.176%
per annum up to 19 January 2027, payable annually. The note had a maturity
date on 19 January 2027. BOC PCL had the option to redeem the note early on 19
January 2022, subject to applicable regulatory consents. In April 2021, BOC
PCL invited the holders of this note to tender it for purchase by BOC PCL and
following acceptance of the valid tenders of €207 million nominal amount,
proceeded with the re‑purchase. By 31 December 2021, the Group purchased
from the open market a further €7 million nominal amount of the notes, which
were held by BOC PCL. On 19 January 2022, BOC PCL exercised its option to
redeem at par the remaining nominal amount outstanding of the notes. All
outstanding notes were cancelled. The note was listed on the Luxembourg Stock
Exchange's Euro Multilateral Trading Facility (MTF) market.
Subordinated Tier 2 Capital Note ‑ April 2021
In April 2021, BOCH issued a €300 million unsecured and subordinated Tier 2
Capital Note under the EMTN Programme. The note was priced at par with a
coupon of 6.625% per annum payable annually in arrears and resettable on 23
October 2026 at the then prevailing 5‑year swap rate plus a margin of 6.902%
per annum up to 23 October 2031, payable annually. The note matures on 23
October 2031. BOCH has the option to redeem the note early on any day during
the six‑month period from 23 April 2026 to 23 October 2026, subject to
applicable regulatory consents. The note is listed on the Luxembourg Stock
Exchange's Euro MTF market.
The fair value of the Subordinated liabilities as at 30 June 2022 and 31
December 2021 is disclosed in Note 15.
Debt securities in issue
Senior Preferred Notes ‑ June 2021
In June 2021, BOC PCL issued a €300 million senior preferred note under the
EMTN Programme. The note was priced at par with a fixed coupon of 2.50% per
annum, payable annually in arrears and resettable on 24 June 2026. The note
matures on 24 June 2027. BOC PCL has the option to redeem the note early on 24
June 2026, subject to applicable regulatory consents. The note is listed on
the Luxembourg Stock Exchange's Euro MTF market. The note complies with the
criteria for the minimum requirement for own funds and eligible liabilities
(MREL) and contributes towards BOC PCL's MREL requirements.
The fair value of the debt securities in issue as at 30 June 2022 and 31
December 2021 is disclosed in Note 15.
23. Accruals, deferred income, other liabilities and other
provisions
30 June 31 December 2021
2022
€000 €000
Income tax payable and related provisions 13,608 11,168
Special defence contribution payable 145 462
Retirement benefit plans liabilities - 1,673
Provisions for financial guarantees and commitments 21,518 21,945
Liabilities for investment‑linked contracts under administration 40,870 33,809
Accrued expenses and other provisions 49,705 79,482
Deferred income 17,872 16,441
Items in the course of settlement 87,537 64,024
Lease liabilities 30,966 33,981
Advances received for disposal group held for sale (Note 19) 20,125 19,225
Other liabilities 111,771 79,767
394,117 361,977
Other liabilities include an amount of €26,476 thousand (31 December 2021:
€26,476 thousand) relating to the annual guarantee fee for the conversion of
DTA into tax credits (Note 11) and an amount of €20,101 thousand (31
December 2021: €6,642 thousand) relating to card processing transactions.
24. Share capital
30 June 2022 31 December 2021
Number of shares (thousand) €000 Number of shares (thousand) €000
Authorised
Ordinary shares of €0.10 each 10,000,000 1,000,000 10,000,000 1,000,000
Issued
1 January and 31 December 446,200 44,620 446,200 44,620
Authorised and issued share capital
All issued ordinary shares carry the same rights.
There were no changes to the authorised or issued share capital during the six
months ended 30 June 2022 and the year ended 31 December 2021.
Share premium reserve
There were no changes to the share premium reserve during the six months ended
30 June 2022 and the year ended 31 December 2021.
Treasury shares of the Company
The consideration paid, including any directly attributable incremental costs
(net of income taxes), for shares of the Company held by entities controlled
by the Group is deducted from equity attributable to the owners of the Company
as treasury shares, until these shares are cancelled or reissued. No gain or
loss is recognised in the consolidated income statement on the purchase, sale,
issue or cancellation of such shares.
The life insurance subsidiary of the Group, as at 30 June 2022, held a total
of 142 thousand ordinary shares of the Company of a nominal value of €0.10
each (31 December 2021: 142 thousand ordinary shares of a nominal value of
€0.10 each), as part of its financial assets which are invested for the
benefit of insurance policyholders. The cost of acquisition of these shares
was €21,463 thousand (31 December 2021: €21,463 thousand).
Share‑based payments
During the Annual General Meeting of the shareholders of the Company which
took place on 20 May 2022, a special resolution was approved for the
establishment and implementation of a share based Long Term Incentive Plan of
Bank of Cyprus Holdings Public Limited Company (the '2022 LTIP'). The maximum
number of shares that may be issued pursuant to the 2022 LTIP until the tenth
anniversary of the relevant resolution shall not exceed 5% of the issued
ordinary share capital of the Company, as at the date of the resolution (being
22,309,996 ordinary shares of €0.10 each), as adjusted for any issuance or
cancellation of shares subsequent to the date of the resolution (excluding any
issuances of shares pursuant to the 2022 LTIP). The 2022 LTIP provides for an
award in the form of ordinary shares based on certain performance conditions.
Performance will be measured over a 3 year period and the performance
conditions will be set by the Human Resources & Remuneration Committee
each year and may be differentiated to reflect the Company's strategic
targets, at its discretion. Performance will be assessed against an evaluation
scorecard consistent with the Group's Medium Term Strategic Targets containing
both financial and non‑financial objectives, and including the areas of: (i)
Profitability; (ii) Asset quality; (iii) Capital adequacy; (iv) Risk control
& compliance; and (v) Environmental, Social and Governance ('ESG')
targets.
No awards have been granted under the 2022 LTIP to any employees of the Group
as at 30 June 2022.
The pre‑existing Share Option Plan, which was operating at the level of the
Company, has been superseded by the 2022 LTIP.
Other equity instruments
30 June 31 December 2021
2022
€000 €000
Reset Perpetual Additional Tier 1 Capital Securities 220,000 220,000
In December 2018 the Company issued €220 million Subordinated Fixed Rate
Reset Perpetual Additional Tier 1 Capital Securities (AT1). AT1 constitutes an
unsecured and subordinated obligation of the Company. The coupon is at 12.50%
and is payable semi‑annually. During the six months ended 30 June 2022, a
coupon payment to AT1 holders was made amounting to €13,750 thousand and has
been recognised in retained earnings (30 June 2021: €13,750 thousand). The
Company may elect to cancel any interest payment for an unlimited period, on a
non‑cumulative basis, whereas it mandatorily cancels interest payment under
certain conditions. AT1 is perpetual and has no fixed date for redemption but
can be redeemed (in whole but not in part) at the Company's option on the
fifth anniversary of the issue date and each subsequent fifth anniversary
subject to the prior approval of the regulator. The AT1 notes are listed on
the Luxembourg Stock Exchange's Euro Multilateral Trading Facility (MTF)
market.
25. Pending litigation, claims, regulatory and other matters
The Group, in the ordinary course of business, is involved in various disputes
and legal proceedings and is subject to enquiries and examinations, requests
for information, audits, investigations, legal and other proceedings by
regulators, governmental and other public bodies, actual and threatened,
relating to the suitability and adequacy of advice given to clients or the
absence of advice, lending and pricing practices, selling and disclosure
requirements, record keeping, filings and a variety of other matters. In
addition, as a result of the deterioration of the Cypriot economy and banking
sector in 2012 and the subsequent restructuring of BOC PCL in 2013 as a result
of the bail in Decrees, BOC PCL is subject to a large number of proceedings
and investigations that either precede, or result from the events that
occurred during the period of the bail‑in Decrees. There are also situations
where the Group may enter into a settlement agreement. This may occur only if
such settlement is in BOC PCL's interest (such settlement does not constitute
an admission of wrongdoing) and only takes place after obtaining legal advice
and all approvals by the appropriate bodies of management.
Apart from what is described below, the Group considers that none of these
matters are material, either individually or in aggregate. The Group has not
disclosed an estimate of the potential financial effect on its contingent
liabilities arising from these matters where it is not practicable to do so,
because it is too early or the outcome is too uncertain or, in cases where it
is practicable, where disclosure could prejudice conduct of the matters.
Provisions have been recognised for those cases where the Group is able to
estimate probable losses (Note 6.4). Where an individual provision is
material, the fact that a provision has been made is stated. Any provision
recognised does not constitute an admission of wrongdoing or legal liability.
While the outcome of these matters is inherently uncertain, management
believes that, based on the information available to it, appropriate
provisions have been made in respect of legal proceedings and regulatory and
other matters as at 30 June 2022 and hence it is not believed that such
matters, when concluded, will have a material impact upon the financial
position of the Group.
25.1 Pending litigation and claims
Investigations and litigation relating to securities issued by BOC PCL
A number of institutional and retail customers have filed various separate
actions against BOC PCL alleging that BOC PCL is guilty of misselling in
relation to securities issued by BOC PCL between 2007 and 2011. Remedies
sought include the return of the money investors paid for these securities.
Claims are currently pending before the courts in Cyprus and in Greece, as
well as the decisions and fines imposed upon BOC PCL in related matters by
Cyprus Securities and Exchange Commission (CySEC) and/or Hellenic Capital
Market Commission (HCMC).
The bonds and capital securities in respect of which claims have been brought
are the following: 2007 Capital Securities, 2008 Convertible Bonds, 2009
Convertible Capital Securities (CCS) and 2011 Convertible Enhanced Capital
Securities (CECS).
BOC PCL is defending these claims, particularly with respect to institutional
investors and retail purchasers who received investment advice from
independent investment advisors. In the case of retail investors, if it can be
demonstrated that the relevant BOC PCL's officers 'persuaded' them to proceed
with the purchase and/or purported to offer 'investment advice', BOC PCL may
face significant difficulties. To date, a number of cases have been tried in
Greece. BOC PCL has appealed against any such cases which were not ruled in
its favour. The resolution of the claims brought in the courts of Greece is
expected to take a number of years.
So far three capital securities cases have been adjudicated in favour of BOC
PCL and three cases have been adjudicated against BOC PCL at Areios Pagos
(Supreme Court of Greece). Those cases which were decided in favour of BOC PCL
ruled in effect that BOC PCL can rely on the defence of frustration (i.e.
intervening event out of the control of BOC PCL, in this case BOC PCL's
resolution and recapitalisation through the bail in of deposits) to show that
the risks associated with the sale of the capital securities because of the
consequences of the bail in were unforeseeable. The cases that BOC PCL has won
will be retried by the Court of Appeal as per the direction of the Supreme
Court. One of the said cases has already been retried by the Court of Appeal
and the ruling was in favour of BOC PCL primarily on the merits of the case
and at a secondary level per the direction of the Supreme Court. There has
been a new petition for annulment against this decision of the Court of Appeal
and the case will be retried before the Supreme Court in 2023. The two cases
that BOC PCL has lost will not be retried and are therefore deemed as
concluded.
In Cyprus thirteen judgments have been issued so far with regards to BOC PCL
capital securities. Eight of the said judgments have been issued in favour of
BOC PCL (dismissing the plaintiffs' claims) and five of them against BOC PCL.
BOC PCL has filed appeals with regards to three of the cases where the
judgment was issued against it and will file an appeal to the fourth case. In
five of the eight cases that BOC PCL won, the plaintiffs have filed an appeal.
It is to be noted that the statutory limitation period for filing claims with
respect to this and other matters for which the cause of action arose prior
and up to 31 December 2015, expired on 31 December 2021.
Provision has been made based on management's best estimate of probable
outflows for capital securities related litigation.
Bail‑in related litigation
Depositors
A number of BOC PCL's depositors, who allege that they were adversely affected
by the bail‑in, filed claims against BOC PCL and other parties (such as the
CBC and the Ministry of Finance of Cyprus) including against BOC PCL as the
alleged successor of Laiki Bank on the grounds that, inter alia, the
'Resolution Law of 2013' and the Bail‑in Decrees were in conflict with the
Constitution of the Republic of Cyprus and the European Convention on Human
Rights. They are seeking damages for their alleged losses resulting from the
bail‑in of their deposits. BOC PCL is defending these actions.
BOC PCL has won two cases with regards to bail in related litigation. The
specifics of the cases concerned alleged failure to follow instructions prior
to the bail‑in. The plaintiffs have filed appeals with respect to both
judgments.
BOC PCL also won three bail‑in decree related cases two of which during the
six months ended 30 June 2022. The court essentially ruled that the measures
that the government implemented were necessary to prevent the collapse of the
financial sector, which would have detrimental consequences for the country's
economy. Under the circumstances the government could rely on the doctrine of
necessity when it imposed the bail‑in. Up to the date of the Consolidated
Financial Statements an appeal has been filed with respect to one of the
judgments.
BOC PCL lost one bail‑in wrongful application related case in March 2022.
BOC PCL has filed an appeal with respect to this judgment. The court issued
its decision on the ground that the disputed account was not a provident fund
account and the bail‑in was wrongfully applied to this account.
BOC PCL has also lost another BOC bail‑in 'wrongful application' case in
July 2022. The court issued its decision on the ground that the deposit
account that the plaintiff maintained with BOC PCL which as per BOC PLC
practice had been blocked against the future payment under a Letter of Credit,
should not have been bailed in irrespective of the fact that the payment under
the Letter of Credit had not yet been made. BOC PCL is planning on filing an
appeal to this judgment.
Shareholders
Numerous claims were filed by shareholders in 2013 against the Government and
the CBC before the Supreme Court in relation to the dilution of their
shareholding as a result of the recapitalisation pursuant to the Resolution
Law and the Bail‑in Decrees issued thereunder. These proceedings sought the
cancellation and setting aside of the Bail‑in Decrees as unconstitutional
and/or unlawful and/or irregular. BOC PCL appeared in these proceedings as an
interested party to support the position that the cases should be adjudicated
upon in the context of private law. The Supreme Court ruled in these cases in
October 2014 that the proceedings fall within private and public law and thus
fall within the jurisdiction of the District Courts.
As at the present date, both the Resolution Law and the Bail‑in Decrees have
not been annulled by a court of law and thus remain legally valid and in
effect. A number of actions for damages have been filed and are still being
filed with the District Courts of Cyprus alleging either the
unconstitutionality of the Resolution Law and the Bail‑in Decrees, or a
misapplication of same by BOC PCL (as regards the way and methodology whereby
such Decrees have been implemented), or that BOC PCL failed to follow
instructions promptly prior to the bail‑in coming into force. BOC PCL
intends to contest all of these claims.
Legal position of the Group
All of the above claims are being vigorously disputed by the Group, in close
consultation with the appropriate state and governmental authorities. The
position of the Group is that the Resolution Law and the Decrees take
precedence over all other laws. As matters now stand, both the Resolution Law
and the Decrees issued thereunder are constitutional and lawful, in that they
were properly enacted and have not so far been annulled by any court.
Provident fund case
In December 2015, the Bank of Cyprus Employees Provident Fund (the Provident
Fund) filed an action against BOC PCL claiming €70 million allegedly owed as
part of BOC PCL's contribution by virtue of an agreement with the Union dated
31 December 2011. Based on facts currently known, it is not practicable at
this time for BOC PCL to predict the resolution of this matter, including the
timing or any possible impact on BOC PCL.
Employment litigation
Former employees of the Group have instituted a number of employment claims
including unfair dismissals and one claim for Provident Fund entitlements
against BOC PCL and the Trustees of the Provident Fund. In July 2021 the claim
for Provident Fund entitlements was settled. The Group does not consider that
the pending cases in relation to employment will have a material impact on its
financial position.
Additionally, a number of former employees have filed claims against BOC PCL
contesting entitlements received relating to the various voluntary exit plans.
As at the reporting date, the Group does not expect that these actions will
have a material impact on its financial position.
Swiss Francs loans litigation in Cyprus and the UK
Α number of actions have been instituted against BOC PCL by borrowers who
obtained loans in foreign currencies (mainly Swiss Francs). The central
allegation in these cases is that BOC PCL misled these borrowers and/or
misrepresented matters, in violation of applicable law. BOC PCL is contesting
the said proceedings. The Group does not expect that these actions will have a
material impact on its financial position.
UK property lending claims
BOC PCL is the defendant in certain proceedings alleging that BOC PCL is
legally responsible for allegedly, inter alia, advancing and misselling loans
for the purchase by UK nationals of property in Cyprus. The proceedings in the
UK are currently stayed in order for the parties to have time to negotiate
possible settlements. The Group does not expect that these negotiations will
lead to outflows for the Group.
Banking business cases
There is a number of banking business cases where the amounts claimed are
significant. These cases primarily concern allegations as to BOC PCL's
standard policies and procedures allegedly resulting to damages and other
losses for the claimants. Further, there are several other banking claims,
where the amounts involved are not as significant. Management has assessed
either the probability of loss as remote and/or does not expect any future
outflows with respect to these cases to have a material impact on the
financial position of the Group. Such matters arise as a result of the Group's
activities and management appropriately assesses the facts and the risks of
each case accordingly.
General criminal investigations and proceedings
The Attorney General and the Cypriot Police (the Police) are conducting
various investigations and inquiries following and relating to the financial
crisis which culminated in March 2013. BOC PCL is cooperating fully with the
Attorney General and the Police and is providing all information requested of
it. Based on the currently available information, the Group is of the view
that any further investigations or claims resulting from these investigations
will not have a material impact on its financial position.
Others
An investigation is in process related to potentially overstated and/or
fictitious claims paid by the non‑life insurance subsidiary of the Group.
The information usually required by IAS 37 'Provisions, Contingent Liabilities
and Contingent Assets' is not disclosed on the grounds that it is expected to
seriously prejudice the outcome of the investigation and/or the possible
taking of legal action. Based on the information available at present,
management considers that it is unlikely for this matter to have a material
adverse impact on the financial position and capital adequacy of the
non‑life insurance subsidiary and thereby the Group, also taking into
account that it is virtually certain that compensations will be received from
a relevant insurance coverage, upon the settlement of any obligation that may
arise.
25.2 Regulatory matters
The Hellenic Capital Market Commission (HCMC) Investigation
The HCMC is currently in the process of investigating matters concerning the
Group's investment in Greek Government Bonds from 2009 to 2011, including,
inter alia, related non‑disclosure of material information in BOC PCL's CCS
and CECS and rights issue prospectus (tracking the investigation carried out
by CySEC in 2013), Greek government bonds' reclassification, ELA disclosures
and allegations by some investors regarding BOC PCL's non‑compliance with
Markets in Financial Instruments Directive (MiFID) in respect of investors'
direct investments in Greek Government Bonds.
A specific estimate of the outcome of the investigations or of the amount of
possible fines cannot be given at this stage, though it is not expected that
any resulting liability or damages will have a material impact on the
financial position of the Group.
Labour Inspection Body of Greece
As for other potential matters involving the exposure of BOC PCL to losses,
twelve fines have been imposed by the Labour Inspection Body of Greece in
prior years relating to the years prior to 2013, which amount in total to
€84 thousand.
The Cyprus Securities and Exchange Commission (CySEC) Investigations
CySEC has concluded (in two stages) during 2013 and 2014 its investigation
with respect to BOC PCL exposure to Greek Government Bonds, non‑disclosure
of material information and other corporate governance deficiencies relating
to the said exposure. In this respect, CySEC has issued two decisions, coming
to the conclusion that BOC PCL was in breach of certain laws regarding
disclosure of information. At all times, BOC PCL had filed recourses before
the Administrative Court regarding the decisions of CySEC and the fines
imposed upon it.
In May 2022, the ruling of the Administrative Court in relation to one of the
recourses was issued, whereby the court found that the constitution of the
CySEC Board was not flawed. A fine of €950 thousand was imposed upon BOC
PCL. BOC PCL filed an appeal in June 2022. Relevant provisions were made since
prior years for the said cases.
As at 30 June 2022 and 31 December 2021 there were no pending CySEC
investigations against BOC PCL.
Central Bank of Cyprus (CBC)
The CBC has carried out certain investigations to assess compliance of BOC PCL
under the anti‑money laundering (AML) legislation which was in place during
years 2008‑2015 and 2015‑2018.
Following the investigations and the on‑site audit findings, the CBC
concluded on 27 January 2021 that in the case of AML legislation 2008‑2015
BOC PCL was in breach of certain articles of the said legislation and prima
facie, failed to act in accordance with certain provisions of the AML/counter
terrorism financing (CTF) Law and the CBC AML/CTF Directive. In October 2021 a
fine of €277 thousand was imposed upon BOC PCL. BOC PCL paid for a
discounted fine and has filed a recourse against this decision and fine.
Following the investigation and the on‑site examination, the CBC concluded
with regards to the files and transactions related to years 2015‑2018, that
BOC PCL was in breach of certain articles of the legislation. In December
2021, a fine of €790 thousand was imposed upon BOC PCL. BOC PCL paid for a
discounted fine and has filed a recourse against the decision and the fine.
The CBC had conducted an investigation in the past into BOC PCL's issuance of
capital securities and concluded that BOC PCL breached certain regulatory
requirements concerning the issuance of Convertible Capital Securities
(Perpetual) in 2009, but not in relation to the CECS in 2011. The CBC had, in
2013, imposed a fine of €4 thousand upon BOC PCL, who filed a recourse. The
Administrative Court cancelled both the CBC's decision and the fine that was
imposed upon BOC PCL in a respective judgment dated in 2020. CBC decided to
re‑examine this matter and to re‑open the investigation.
The CBC has decided that between the reporting date of 31 December 2014 and
until the reporting date of 31 December 2017 BOC PCL was in breach of the
requirements of the Directive on the Computation of Prudential Liability in
Euro, of the Directive on the Prudential Liability in foreign currencies and
of the CBC Directive on Governance and Management Arrangements in Credit
Institutions. BOC PCL was given the opportunity to express its views with
regards to the identified failures and the possible imposition of sanctions.
BOC PCL has submitted its views and representations and CBC will decide on the
matter.
European Central Bank (ECB) Investigation
In July 2021, BOC PCL was notified in writing by the ECB that, based on an
investigation carried out by ECB's investigating unit, BOC PCL was in breach
of an ECB decision of September 2016. The alleged breach related to the
requirement imposed on BOC PCL to seek the prior approval of the ECB for any
transfer of capital or liquidity to any subsidiary company. The Governing
Council of the ECB informed BOC PCL in February 2022 of its decision to impose
an administrative penalty of €575 thousand. BOC PCL proceeded with the
payment of the fine.
Commission for the Protection of Competition Investigation (CPC)
In April 2014, following an investigation which began in 2010, CPC issued a
statement of objections, alleging violations of Cypriot and EU competition law
relating to the activities and/or omissions in respect of card payment
transactions by, among others, BOC PCL and JCC Payment Systems Ltd (JCC), a
card processing business currently 75% owned by BOC PCL. BOC PCL is expecting
the final conclusion of this matter and has provided for it accordingly.
There was also an allegation concerning BOC PCL's arrangements with American
Express, namely that such exclusive arrangements violated Cypriot and EU
competition law. On both matters, the CPC has concluded that BOC PCL (in
common with other banks and JCC) has breached the relevant provisions of the
applicable law for the protection of competition. In May 2017, the CPC imposed
a fine of €18 million upon BOC PCL and BOC PCL filed a recourse against the
decision and the fine. The payment of the fine had been stayed pending the
final outcome of the recourse. In June 2018, the Administrative Court accepted
BOC PCL's position and cancelled the decision as well as the fine imposed upon
BOC PCL. During 2018, the Attorney General has filed an appeal before the
Supreme court with respect to such decision. Until a judgment is issued by the
Supreme Court, the decision of the CPC remains annulled and there is no
subsisting fine upon BOC PCL. The said appeal is still pending as at the date
of these Consolidated Financial Statements.
In 2019, the CPC initiated an ex officio investigation with respect to unfair
contract terms and into the contractual arrangements/facilities offered by BOC
PCL for the period from 2012 to 2016. To date no charges have been put forward
nor have any formal proceedings been instituted against BOC PCL in this case.
This investigation is currently at a very early stage to predict its outcome
and no formal process has been initiated.
Association for the Protection of Bank Borrowers (CYPRODAT)
CYPRODAT filed a complaint with the Commission for the Protection of
Competition (CPC) in January 2022, claiming that BOC PCL and another bank have
concerted in practices regarding the recent revisions of their commissions and
charges. It also filed an application for an interim order which, if
successful, would essentially freeze the implementation of the revised
commissions and charges. The application for interim order was rejected by the
CPC, however, the CPC reverted in April 2022 to inform BOC PCL of the
initiation of an investigation with respect to this matter. This investigation
is currently at a very early stage to predict its outcome.
Commissioner for the Protection of Personal Data
The Commissioner for the Protection of Personal Data has informed BOC PCL that
based on the evidence submitted, there is a breach of Regulation 2016/679 on
the protection of natural persons with regards to the processing of personal
data and on the free movement of such data. The breach concerned the exchange
of data under the sale of a portfolio of credit facilities which did not
relate to the transaction. A fine of €17 thousand was imposed on BOC PCL.
BOC PCL informed the Commissioner on the procedures to follow to avoid such
oversights in the future and the measures it has taken to remedy the specific
breaches.
Consumer Protection Service (CPS)
In July 2017, CPS imposed a fine of €170 thousand upon BOC PCL after
concluding an ex officio investigation regarding some terms in both BOC PCL's
and Marfin Popular Bank's loan documentation, that were found to constitute
unfair commercial practices. Decisions of the CPS (according to rulings of the
Administrative Court) are not binding but merely an expression of opinion.
Against this decision, BOC PCL has filed a recourse before the Administrative
Court which has not yet issued its judgement. The recourse is still pending as
at the date of these Consolidated Financial Statements.
In March 2020, BOC PCL has been served with an application by the director of
CPS through the Attorney General seeking for an order of the court, with
immediate effect, the result of which will be for BOC PCL to cease the use of
a number of terms in the contracts of BOC PCL which are deemed to be unfair
under the said order. The said terms relate to contracts that had been signed
during 2006‑2007. Furthermore, the said application seeks for an order
ordering BOC PCL to undertake measures to remedy the situation. BOC PCL will
take all necessary steps for the protection of its interests. This matter is
still pending before the court as at the date of these Consolidated Financial
Statements.
In April 2021, the Director of the Consumer Protection Service filed an
application for the issuance of a court order against BOC PCL, prohibiting the
use of a number of contractual terms included in BOC PCL's consumer contracts
and the amendment of any such contracts (present and future) so as to remove
such unfair terms. This matter is still pending before the court as at the
date of these Consolidated Financial Statements.
BOC PCL received a letter in July 2021 from CPS, initiating an ex officio
investigation under the Distance Marketing of Financial Services to Consumers
Law, with respect to the services and products of BOC PCL for which the
contract between BOC PCL and the consumer is entered into online via BOC PCL's
website.
BOC PCL received another letter in July 2021 from CPS, initiating an
investigation with respect to an alleged commercial practice of BOC PCL of
promoting a product.
The investigations are currently at a very early stage to predict their
outcome.
Cyprus Consumers' Association (CCA)
In March 2021, BOC PCL was served with an application filed by the CCA for the
issuance of a court order prohibiting the use of a number of contractual terms
included in BOC PCL's consumer contracts and the amendment of any such
contracts (present and future) so as to remove such terms deemed as unfair.
The said contractual terms were determined as unfair pursuant to the decisions
issued by the Consumer Protection Service of the Ministry of Energy, Commerce,
Industry and Tourism against BOC PCL in 2016 and 2017. BOC PCL will take all
necessary steps for the protection of its interests. This matter is still
pending before the court as at the date of these Consolidated Financial
Statements.
The new Law on Consumer Protection brings under one umbrella the existing
legislation on unfair contract terms and practices with some enhanced powers
vested in the Consumer Protection Service i.e. power to impose increased fines
which are immediately payable. The new Law on Consumer Protection has a
retrospective effect in that it also applies to all contracts/practices
entered into and/or terminated prior to this law coming into effect as opposed
to contracts/practices which are only entered into/adopted as from the date of
publication of the new Law on Consumer Protection.
There are many factors that may affect the range of outcomes, and the
resulting financial impact, of these matters, is unknown.
UK regulatory matters
As part of the agreement for the sale of Bank of Cyprus UK Ltd, a liability
with regards to UK regulatory matters remains an obligation for settlement by
the Group. The level of the provision represents the best estimate of all
probable outflows arising from customer redress based on information available
to management.
25.3 Οther matters
Other matters include among others, provisions for various other open
examination requests by governmental and other public bodies, legal matters
and provisions for warranties and indemnities related to the disposal process
of certain operations of the Group.
The provisions for pending litigation, claims, regulatory and other matters do
not include insurance claims arising in the ordinary course of business of the
Group's insurance subsidiaries as these are included in 'Insurance
liabilities'.
25.4 Provisions for pending litigation, claims, regulatory and
other matters
Pending litigation and claims Regulatory matters Other matters Total
(Note 25.1)
(Note 25.2)
(Note 25.3)
2022 €000 €000 €000 €000
1 January 57,844 16,415 29,849 104,108
Net increase in provisions including unwinding of discount (Note 9) 1,086 950 - 2,036
Utilisation of provisions (78) (759) - (837)
Release of provisions (Note 9) (392) - (100) (492)
Foreign exchange adjustments - (22) - (22)
30 June 58,460 16,584 29,749 104,793
2021
1 January 67,439 12,305 43,871 123,615
Net increase in provisions including unwinding of discount (Note 9) 1,505 2,890 34,270 38,665
Utilisation of provisions (6,539) - - (6,539)
Foreign exchange adjustments - - 24
24
30 June 62,405 15,219 78,141 155,765
Provisions for pending litigation, claims, regulatory and other matters
recorded in the consolidated income statement (Note 9) during the six months
ended 30 June 2021 amounting to €10,660 thousand, also include an amount of
€841 thousand representing an amount recovered from plaintiffs directly
recognised in the consolidated income statement.
Some information required by the IAS 37 'Provisions, Contingent Liabilities
and Contingent Assets' is not disclosed on the grounds that it can be expected
to prejudice seriously the outcome of the litigation or the outcome of the
negotiation in relation to provisions for warranties and indemnities related
to the disposal process of certain operations of the Group.
An increase by 5% in the probability of loss rate for pending litigation and
claims (31 December 2021: 5%) with all other variables held constant, would
lead to an increase in the actual provision by €6,983 thousand at 30 June
2022 (31 December 2021: increase by €7,097 thousand).
26. Contingent liabilities and commitments
The Group, as part of its disposal process of certain of its operations, has
provided various representations, warranties and indemnities to the buyers.
These relate to, among other things, the ownership of the loans, the validity
of the liens, tax exposures and other matters agreed with the buyers. As a
result, the Group may be obliged to compensate the buyers in the event of a
valid claim by the buyers with respect to the above representations,
warranties and indemnities.
A provision has been recognised, based on management's best estimate of
probable outflows, where it was assessed that such an outflow is probable.
Capital commitments for the acquisition of property, equipment and intangible
assets as at 30 June 2022 amount to €17,454 thousand (31 December 2021:
€18,678 thousand).
27. Cash and cash equivalents
Cash and cash equivalents comprise:
30 June 31 December 2021
2022
€000 €000
Cash and non‑obligatory balances with central banks 9,729,679 9,063,896
Loans and advances to banks with original maturity less than three months 248,313 191,314
9,977,992 9,255,210
Analysis of cash and balances with central banks and loans and advances to
banks
30 June 31 December 2021
2022
€000 €000
Cash and non‑obligatory balances with central banks 9,729,679 9,063,896
Obligatory balances with central banks 174,870 166,987
Total cash and balances with central banks 9,904,549 9,230,883
Loans and advances to banks with original maturity less than three months 248,313 191,314
Restricted loans and advances to banks 63,995 100,318
Total loans and advances to banks 312,308 291,632
Restricted loans and advances to banks include collaterals under derivative
transactions of €3,100 thousand (31 December 2021: €41,068 thousand) which
are not immediately available for use by the Group, but are released once the
transactions are terminated.
28. Analysis of assets and liabilities by expected maturity
30 June 2022 31 December 2021
Less than Over one Total Less than Over one Total
one year
year
one year
year
Assets €000 €000 €000 €000 €000 €000
Cash and balances with central banks 9,729,679 174,870 9,904,549 9,063,896 166,987 9,230,883
Loans and advances to banks 248,313 63,995 312,308 191,314 100,318 291,632
Derivative financial assets 12,240 25,910 38,150 4,556 2,097 6,653
Investments 253,907 1,848,770 2,102,677 366,420 1,772,743 2,139,163
Loans and advances to customers 1,042,690 9,101,409 10,144,099 1,018,312 8,818,093 9,836,405
Life insurance business assets attributable to policyholders 6,214 527,482 533,696 14,111 537,686 551,797
Prepayments, accrued income and other assets 150,722 471,233 621,955 139,988 476,231 616,219
Stock of property 243,889 810,145 1,054,034 267,480 844,124 1,111,604
Deferred tax assets 37,909 227,521 265,430 37,909 227,572 265,481
Property, equipment and intangible assets - 417,096 417,096 - 436,164 436,164
Investment properties 20,509 81,531 102,040 32,139 85,606 117,745
Non‑current assets and disposal groups held for sale 347,698 - 347,698 358,951 - 358,951
12,093,770 13,749,962 25,843,732 11,495,076 13,467,621 24,962,697
Liabilities
Deposits by banks 156,338 335,684 492,022 100,530 356,509 457,039
Funding from central banks 979,625 1,975,183 2,954,808 2,969,600 - 2,969,600
Derivative financial liabilities 4,342 5,143 9,485 4,830 27,622 32,452
Customer deposits 7,257,960 11,192,256 18,450,216 6,909,913 10,620,970 17,530,883
Insurance liabilities 101,257 588,541 689,798 91,758 644,443 736,201
Accruals, deferred income and other liabilities and pending litigation, 332,889 166,021 498,910 273,940 192,145 466,085
claims, regulatory and other matters
Debt securities in issue and subordinated liabilities - 610,637 610,637 38,561 604,214 642,775
Deferred tax liabilities - 45,235 45,235 937 45,498 46,435
8,832,411 14,918,700 23,751,111 10,390,069 12,491,401 22,881,470
The main assumptions used in determining the expected maturity of assets and
liabilities are set out below.
Cash and balances with central banks are classified in the relevant time band
based on the contractual maturity, with the exception of obligatory balances
with central banks which are classified in the 'Over one year' time band.
The investments are classified in the relevant time band based on expectations
as to their realisation. In most cases this is the maturity date, unless
there is an indication that the maturity will be prolonged or there is an
intention to sell, roll or replace the security with a similar one.
Performing loans and advances to customers in Cyprus are classified based on
the contractual repayment schedule. Overdraft accounts are classified in the
'Over one year' time band. The Stage 3 Loans are classified in the 'Over one
year' time band except cash flows from expected receipts which are included
within time bands, according to historic amounts of receipts in the recent
months.
Stock of property is classified in the relevant time band based on
expectations as to its realisation.
A percentage of customer deposits maturing within one year is classified in
the 'Over one year' time band, based on the observed behavioural analysis.
The expected maturity of all prepayments, accrued income and other assets and
accruals, deferred income and other liabilities is the same as their
contractual maturity. If they do not have a contractual maturity, the expected
maturity is based on the timing the asset is expected to be realised and the
liability is expected to be settled.
29. Risk management ‑ Credit risk
In the ordinary course of its business the Group is exposed to credit risk
which is monitored through various control mechanisms across all Group
entities in order to prevent undue risk concentrations and to price credit
facilities and products on a risk‑adjusted basis.
Credit risk is the risk that arises from the possible failure of one or more
customers to discharge their credit obligations towards the Group.
The Credit Risk Management department in co‑operation with the Credit Risk
Control and Monitoring department set the Group's credit disbursement policies
and monitor compliance with credit risk policies applicable to each business
line and the quality of the Group's loans and advances portfolio through the
timely credit risk assessment of customers. The credit exposures of related
accounts are aggregated and monitored on a consolidated basis.
The Credit Risk Management department, in co‑operation with the Credit Risk
Control and Monitoring department, also safeguard the effective management of
credit risk at all stages of the credit cycle, monitor the quality of
decisions and processes and ensure that the credit sanctioning function is
being properly managed.
The credit policies are combined with the methods used for the assessment of
the customers' creditworthiness (credit rating and credit scoring systems).
The loan portfolio is analysed on the basis of assessments of the customers'
creditworthiness, their economic sector of activity and geographical
concentration.
The credit risk exposure of the Group is diversified across the various
sectors of the economy. Credit Risk Management determines the prohibitive/high
credit risk sectors of the economy and sets out stricter policy rules for
these sectors, according to their degree of riskiness.
The Market Risk department assesses the credit risk relating to exposures to
Credit Institutions and Governments and other debt securities. Models and
limits are presented to and approved by the Board of Directors, through the
relevant authority based on the authorisation level limits.
The Group's significant judgements, estimates and assumptions regarding the
determination of the level of provisions for impairment are described in Note
6 'Significant and other judgements, estimates and assumptions' of these
Consolidated Financial Statements.
29.1 Maximum exposure to credit risk and collateral and other
credit enhancements
Loans and advances to customers
The Credit Risk Management department determines the amount and type of
collateral and other credit enhancements required for the granting of new
loans to customers.
The main types of collateral obtained by the Group are mortgages on real
estate, cash collateral/blocked deposits, bank guarantees, government
guarantees, pledges of equity securities and debt instruments of public
companies, fixed and floating charges over corporate assets, assignment of
life insurance policies, assignment of rights on certain contracts and
personal and corporate guarantees.
The Group regularly monitors the changes in the market value of the collateral
and, where necessary, requests the pledging of additional collateral in
accordance with the relevant agreement.
Off‑balance sheet exposures
The Group offers guarantee facilities to its customers under which the Group
may be required to make payments on their behalf and enters into commitments
to extend credit lines to secure their liquidity needs.
Letters of credit and guarantee facilities (including standby letters of
credit) commit the Group to make payments on behalf of customers in the event
of a specific act, generally related to the import or export of goods. Such
commitments expose the Group to risks similar to those of loans and advances
and are therefore monitored by the same policies and control processes.
Other financial instruments
Collateral held as security for financial assets other than loans and advances
to customers is determined by the nature of the financial instrument. Debt
securities and other eligible bills are generally unsecured with the exception
of asset‑backed securities and similar instruments, which are secured by
pools of financial assets. In addition, some debt securities are
government‑guaranteed.
The Group has chosen the ISDA Master Agreement for documenting its derivatives
activity. It provides the contractual framework within which dealing activity
across a full range of over‑the‑counter (OTC) products is conducted and
contractually binds both parties to apply close‑out netting across all
outstanding transactions covered by an agreement, if either party defaults. In
most cases the parties execute a Credit Support Annex (CSA) in conjunction
with the ISDA Master Agreement. Under a CSA, the collateral is passed between
the parties in order to mitigate the market contingent counterparty risk
inherent in their open positions. As at 30 June 2022, the majority of
derivative exposures are covered by ISDA netting arrangements. A detailed
analysis of derivative asset and liability exposures is available in Note 14.
Information about the Group's collaterals under derivative transactions is
provided in Note 27.
Settlement risk arises in any situation where a payment in cash or securities
is made in the expectation of a corresponding receipt in securities or cash.
The Group sets daily settlement limits for each counterparty. Settlement
risk is mitigated when transactions are effected via established payment
systems or on a delivery upon payment basis.
The table below presents the maximum exposure to credit risk before taking
into account the tangible and measurable collateral and credit enhancements
held.
30 June 31 December 2021
2022
€000 €000
Balances with central banks 9,767,741 9,087,968
Loans and advances to banks (Note 27) 312,308 291,632
FVPL debt and other non‑equity securities (Note 13) 5,976 6,034
Debt securities classified at amortised cost and FVOCI 1,907,795 1,924,354
Derivative financial instruments (Note 14) 38,150 6,653
Loans and advances to customers (Note 16) 10,144,099 9,836,405
Loans and advances to customers classified as held for sale (Note 19) 247,207 250,370
Debtors (Note 18) 49,333 36,540
Reinsurers' share of insurance contract liabilities (Note 18) 58,768 55,323
Deferred purchase payment consideration (Note 18) 304,268 299,766
Other assets (Note 18) 63,561 57,158
On‑balance sheet total 22,899,206 21,852,203
Contingent liabilities
Acceptances and endorsements 5,263 4,625
Guarantees 584,748 609,830
Commitments
Documentary credits 11,288 11,264
Undrawn formal stand‑by facilities, credit lines and other commitments to 1,900,867 1,950,665
lend
Off‑balance sheet total 2,502,166 2,576,384
25,401,372 24,428,587
29.2 Credit risk concentration of loans and advances to customers
There are restrictions on loan concentrations which are imposed by the Banking
Law in Cyprus, the relevant CBC Directives and CRR. The Group's risk appetite
statement may impose stricter concentration limits which are monitored by the
Group.
The credit risk concentration, which is based on industry (economic activity)
and business line concentrations, as well as geographical concentration, is
presented below.
The geographical concentration, for credit risk concentration purposes, is
based on the Group's Country Risk Policy which is followed for monitoring the
Group's exposures. Market Risk is responsible for analysing the country risk
of exposures. ALCO reviews the country risk of exposures on a quarterly basis
and the Board, through its Risk Committee, reviews the country risk of
exposures and any breaches of country risk limits on a regular basis and at
least annually.
The table below presents the geographical concentration of loans and advances
to customers by country of risk based on the country of residency for
individuals and the country of registration for companies. Loans and
advances to customers are presented separately for countries with high
concentration and all other countries with low concentration are presented
within 'Other countries' as per Group policy.
30 June 2022 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000 €000
Trade 970,006 432 71 2 - 67 970,578
Manufacturing 321,223 45,085 - - - 39,698 406,006
Hotels and catering 938,500 32,481 36,461 - - 40,107 1,047,549
Construction 560,237 9,083 80 1,985 - 40 571,425
Real estate 903,732 95,373 1,901 11,064 - 48,242 1,060,312
Private individuals 4,471,587 9,053 89,316 1,191 26,735 67,973 4,665,855
Professional and other services 643,738 1,001 5,381 879 356 40,937 692,292
Other sectors 435,969 5 34 - 2 218,339 654,349
9,244,992 192,513 133,244 15,121 27,093 455,403 10,068,366
30 June 2022 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000 €000
Corporate 2,156,913 9,471 54 - 350 117 2,166,905
Large and international corporate 1,439,771 173,810 43,175 11,780 - 376,620 2,045,156
SMEs 1,033,533 710 2,318 2,023 - 2,250 1,040,834
Retail
‑ housing 3,191,534 3,585 41,008 857 3,581 27,315 3,267,880
‑ consumer, credit cards and other 908,645 1,036 747 131 207 2,709 913,475
Restructuring
‑ corporate 47,871 - 526 - 32 61 48,490
‑ SMEs 61,076 - 168 - 163 454 61,861
‑ retail housing 79,995 152 1,897 - 416 767 83,227
‑ retail other 24,755 4 33 1 - 41 24,834
Recoveries
‑ corporate 23,084 - 4 61 141 181 23,471
‑ SMEs 27,795 - 1,672 59 2,192 1,938 33,656
‑ retail housing 90,418 251 25,694 76 5,544 11,719 133,702
‑ retail other 45,163 27 2,175 4 210 626 48,205
International banking services 82,605 2,085 13,773 129 14,257 24,350 137,199
Wealth management 31,834 1,382 - - - 6,255 39,471
9,244,992 192,513 133,244 15,121 27,093 455,403 10,068,366
31 December 2021 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000 €000
Trade 977,703 505 122 60 3,351 146 981,887
Manufacturing 303,372 179 - - 1,212 25,674 330,437
Hotels and catering 881,205 33,422 37,450 - - 40,123 992,200
Construction 510,928 9,005 108 2,108 646 58 522,853
Real estate 959,891 125,123 1,950 11,443 - 49,293 1,147,700
Private individuals 4,379,843 9,185 121,260 1,057 37,315 73,997 4,622,657
Professional and other services 543,424 1,007 5,516 875 16,492 35,142 602,456
Other sectors 458,005 7 40 - 8 182,285 640,345
9,014,371 178,433 166,446 15,543 59,024 406,718 9,840,535
31 December 2021 Cyprus Greece United Kingdom Romania Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000 €000
Corporate 2,018,926 9,430 60 99 15,778 113 2,044,406
Large and international corporate 1,417,643 159,349 44,132 11,742 - 320,730 1,953,596
SMEs 1,038,599 773 1,869 2,047 4,701 2,345 1,050,334
Retail
‑ housing 3,068,097 3,466 47,742 629 4,513 26,819 3,151,266
‑ consumer, credit cards and other 884,231 1,101 760 126 237 2,232 888,687
Restructuring
‑ corporate 60,446 - 526 - 32 1,213 62,217
‑ SMEs 69,501 - 338 - - 340 70,179
‑ retail housing 80,730 152 3,058 - 392 752 85,084
‑ retail other 32,611 14 132 - 3 238 32,998
Recoveries
‑ corporate 35,010 - - 589 219 256 36,074
‑ SMEs 30,505 - 2,557 2 3,699 2,554 39,317
‑ retail housing 109,945 382 45,158 167 9,254 18,213 183,119
‑ retail other 54,959 30 4,356 4 1,557 1,304 62,210
International banking services 76,314 2,402 15,211 138 18,639 23,214 135,918
Wealth management 36,854 1,334 547 - - 6,395 45,130
9,014,371 178,433 166,446 15,543 59,024 406,718 9,840,535
The loans and advances to customers include lending exposures in Cyprus with
collaterals in Greece with a carrying value as at 30 June 2022 of €102,150
thousand (31 December 2021: €100,039 thousand).
The loan and advances to customers reported within 'Other countries' as at 30
June 2022 include exposures of €3,2 million in Ukraine (31 December 2021:
€3,6 million).
29.3 Credit risk concentration of loans and advances to customers
classified as held for sale
Economic activity, geographical and business line concentrations of Group
loans and advances to customers at amortised cost classified as held for sale
are presented in the table below.
30 June 2022 Cyprus United Kingdom Romania Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000
Trade 56,677 - 533 1 -
57,211
Manufacturing 24,121 1 119 - -
24,241
Hotels and catering 14,995 6 276 - -
15,277
Construction 27,447 - 253 - -
27,700
Real estate 6,122 - 9,635 - -
15,757
Private individuals 366,929 1,092 55 839 4,501 373,416
Professional and other services 26,087 2 1,258 - -
27,347
Other sectors 10,856 - 1 - -
10,857
533,234 1,101 12,130 840 4,501 551,806
30 June 2022 Cyprus United Kingdom Romania Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000
Large and International corporate - - 10,507 - -
10,507
SMEs - - 247 - -
247
Restructuring
‑ corporate 366 - - - -
366
‑ SMEs 3,979 - - - -
3,979
‑ retail housing 18,253 492 - - 34
18,779
‑ retail other 6,270 - - - -
6,270
Recoveries
‑ corporate 8,309 - 1,058 - 1
9,368
‑ SMEs 14,780 1 318 800 394
16,293
‑ retail housing 243,857 594 - 39 3,532 248,022
‑ retail other 237,420 14 - 1 540 237,975
533,234 1,101 12,130 840 4,501 551,806
31 December 2021 Cyprus United Kingdom Romania Russia Other Gross loans at amortised cost
countries
By economic activity €000 €000 €000 €000 €000 €000
Trade 56,859 - 514 - -
57,373
Manufacturing 24,688 1 110 - -
24,799
Hotels and catering 14,794 1 278 - -
15,073
Construction 28,226 - 231 - -
28,457
Real estate 4,575 - 9,395 - -
13,970
Private individuals 369,182 1,070 55 804 4,087 375,198
Professional and other services 27,866 2 1,466 - -
29,334
Other sectors 11,476 - 77 - 32
11,585
537,666 1,074 12,126 804 4,119 555,789
31 December 2021 Cyprus United Kingdom Romania Russia Other Gross loans at amortised cost
countries
By business line €000 €000 €000 €000 €000 €000
Large and International Corporate - - 10,441 - 32
10,473
SMEs - - 231 - -
231
Retail
‑ housing 153 - - - -
153
‑ consumer, credit cards and other 2 - - - -
2
Restructuring
‑ corporate 374 - - - -
374
‑ SMEs 5,301 - - - -
5,301
‑ retail housing 23,769 501 - - 34
24,304
‑ retail other 12,702 - - - -
12,702
Recoveries
‑ corporate 8,090 - 1,111 - -
9,201
‑ SMEs 17,923 1 343 766 381
19,414
‑ retail housing 238,791 566 - 38 3,210 242,605
‑ retail other 230,561 6 - - 462 231,029
537,666 1,074 12,126 804 4,119 555,789
29.4 Analysis of loans and advances to customers by staging
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2022 €000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on initial 7,758,616 1,821,428 460,216 124,176 10,164,436
recognition
Residual fair value adjustment on initial recognition (67,369) (21,515) (3,905) (3,281) (96,070)
Gross loans at amortised cost 7,691,247 1,799,913 456,311 120,895 10,068,366
Cyprus 7,691,008 1,799,913 454,177 120,895 10,065,993
Other Countries 239 - 2,134 - 2,373
7,691,247 1,799,913 456,311 120,895 10,068,366
Stage 1 Stage 2 Stage 3 POCI Total
31 December 2021 €000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on initial 7,488,354 1,721,231 576,873 159,755 9,946,213
recognition
Residual fair value adjustment on initial recognition (69,659) (22,051) (3,530) (10,438) (105,678)
Gross loans at amortised cost 7,418,695 1,699,180 573,343 149,317 9,840,535
Cyprus 7,418,432 1,699,180 545,327 149,317 9,812,256
Other countries 263 - 28,016 - 28,279
7,418,695 1,699,180 573,343 149,317 9,840,535
Loans and advances to customers classified as held for sale
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2022 €000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on initial 1,754 472,474 95,527 569,849
recognition 94
Residual fair value adjustment on initial recognition - (1,683) (16,320) (18,043)
(40)
Gross loans at amortised cost 1,714 470,791 79,207 551,806
94
Stage 1 Stage 2 Stage 3 POCI Total
31 December 2021 €000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on initial - 2,132 476,538 96,209 574,879
recognition
Residual fair value adjustment on initial recognition - (2,079) (16,954) (19,090)
(57)
Gross loans at amortised cost - 2,075 474,459 79,255 555,789
Residual fair value adjustment
The residual fair value adjustment mainly relates to the loans and advances to
customers acquired as part of the acquisition of certain operations of Laiki
Bank in 2013. In accordance with the provisions of IFRS 3, this adjustment
decreased the gross balance of loans and advances to customers. The residual
fair value adjustment is included within the gross balances of loans and
advances to customers as at each balance sheet date. However, for credit risk
monitoring, the residual fair value adjustment as at each balance sheet date
is presented separately from the gross balances of loans and advances, as
shown in the tables above.
The following tables present the Group's gross loans and advances to customers
at amortised cost by staging and by business line concentration.
30 June 2022 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate 1,709,712 421,888 16,962 18,343 2,166,905
Large and International corporate 1,466,397 499,664 56,220 22,875 2,045,156
SMEs 782,914 242,613 4,622 10,685 1,040,834
Retail
‑ housing 2,872,402 345,464 38,045 11,969 3,267,880
‑ consumer, credit cards and other 707,746 169,818 19,957 15,954 913,475
Restructuring
‑ corporate 6,373 33,331 8,743 48,490
43
‑ SMEs 12,510 17,222 28,884 3,245 61,861
‑ retail housing 3,854 20,918 54,630 3,825 83,227
‑ retail other 1,581 4,340 17,898 1,015 24,834
Recoveries
‑ corporate - - 19,706 3,765 23,471
‑ SMEs - - 30,062 3,594 33,656
‑ retail housing - - 116,070 17,632 133,702
‑ retail other - 40,721 7,442 48,205
42
International banking services 92,001 41,277 3,778 137,199
143
Wealth management 35,715 3,378 39,471
13 365
7,691,247 1,799,913 456,311 120,895 10,068,366
31 December 2021 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate 1,569,699 430,865 22,357 21,485 2,044,406
Large and International corporate 1,374,550 501,092 55,159 22,795 1,953,596
SMEs 812,211 215,012 12,522 10,589 1,050,334
Retail
‑ housing 2,769,274 320,473 49,633 11,886 3,151,266
‑ consumer, credit cards and other 732,154 116,983 23,361 16,189 888,687
Restructuring
‑ corporate 6,092 35,613 14,255 6,257 62,217
‑ SMEs 14,016 16,417 34,083 5,663 70,179
‑ retail housing 3,075 15,528 62,934 3,547 85,084
‑ retail other 1,409 5,701 24,838 1,050 32,998
Recoveries
‑ corporate - - 29,600 6,474 36,074
‑ SMEs - - 35,685 3,632 39,317
‑ retail housing - - 154,469 28,650 183,119
‑ retail other - 51,672 10,424 62,210
114
International banking services 92,193 40,715 2,775 135,918
235
Wealth management 43,908 - 45,130
781 441
7,418,695 1,699,180 573,343 149,317 9,840,535
Loans and advances to customers classified as held for sale
The following table presents the Group's gross loans and advances to customers
at amortised cost classified as held for sale as at 30 June 2022 and 31
December 2021, by staging and business line concentration.
30 June 2022 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Large and International corporate - - 10,507 - 10,507
SMEs - - - 247
247
Restructuring
‑ corporate - - - 366
366
‑ SMEs - 2,441 3,979
860 678
‑ retail housing 17,056 18,779
94 694 935
‑ retail other - 5,537 6,270
160 573
Recoveries
‑ corporate - - 8,640 9,368
728
‑ SMEs - - 14,802 1,491 16,293
‑ retail housing - - 208,669 39,353 248,022
‑ retail other - - 202,526 35,449 237,975
1,714 470,791 79,207 551,806
94
31 December 2021 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Large and International corporate - - 10,470 10,473
3
SMEs - - - 231
231
Retail
‑ housing - - - 153
153
‑ consumer, credit cards and other - - - 2
2
Restructuring
‑ corporate - - - 374
374
‑ SMEs - 3,842 5,301
718 741
‑ retail housing - 22,113 1,387 24,304
804
‑ retail other - 11,543 12,702
553 606
Recoveries
‑ corporate - - 8,507 9,201
694
‑ SMEs - - 17,653 1,761 19,414
‑ retail housing - - 204,956 37,649 242,605
‑ retail other - - 194,615 36,414 231,029
- 2,075 474,459 79,255 555,789
The movement of the gross loans and advances to customers at amortised cost by
staging, including the loans and advances to customers classified as held for
sale, is presented in the tables below:
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2022 €000 €000 €000 €000 €000
1 January 7,418,695 1,701,255 1,047,802 228,572 10,396,324
Transfers to stage 1 292,741 (292,741) - - -
Transfers to stage 2 (405,422) 429,065 (23,643) - -
Transfers to stage 3 (4,782) (19,409) 24,191 - -
Foreign exchange and other adjustments (24) - 905 - 881
Write offs (398) (295) (100,301) (17,522) (118,516)
Interest accrued and other adjustments 94,167 38,719 37,154 13,327 183,367
New loans originated or purchased and drawdowns of existing facilities 1,060,453 46,984 200 852 1,108,489
Loans derecognised or repaid (excluding write offs) (763,291) (103,101) (56,132) (25,008) (947,532)
Changes to contractual cash flows due to modifications (798) 1,150 (3,074) (119) (2,841)
30 June 7,691,341 1,801,627 927,102 200,102 10,620,172
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2021 €000 €000 €000 €000 €000
1 January 6,615,026 2,145,329 2,502,487 479,016 11,741,858
Transfers to stage 1 811,784 (811,782) - -
(2)
Transfers to stage 2 (560,426) 602,381 (41,955) - -
Transfers to stage 3 (10,274) (24,050) 34,324 - -
Foreign exchange and other adjustments - 1,452 1,456
7 (3)
Write offs (255) (782) (117,481) (19,479) (137,997)
Interest accrued and other adjustments 23,844 102,978 54,582 10,951 192,355
New loans originated or purchased and drawdowns of existing facilities 769,064 12,736 6,107 11,889 799,796
Loans other than Helix 2 portfolio derecognised or repaid (excluding write (644,376) (103,090) (102,577) (40,316) (890,359)
offs)
Changes to contractual cash flows due to modifications 3,465 (4,539) (3,002) (4,048)
28
Derecognition of Helix 2 portfolio (8,408) (16,941) (1,087,782) (173,714) (1,286,845)
30 June 6,999,451 1,902,240 1,246,153 268,372 10,416,216
For revolving facilities, overdrafts and credit cards the net positive change
in balance by stage excluding write‑offs is reported in 'New loans
originated' and the net negative change is reported in 'Loans derecognised or
repaid'.
Significant increase in credit risk (SICR)
IFRS 9 requires that in the event of a significant increase in credit risk
since initial recognition, the calculation basis of the loss allowance would
change from 12 month ECLs to lifetime ECLs.
The assessment of whether credit risk has increased significantly since
initial recognition is performed at each reporting date, by considering the
change in the risk of default occurring over the remaining life of the
financial instrument since initial recognition.
Significant increase in credit risk for loans and advances to customers
Primarily, the Group uses the lifetime probability of default (PDs) as the
quantitative metric in order to assess transition from Stage 1 to Stage 2 for
all portfolios. The Group considers an exposure to have experienced
significant increase in credit risk (SICR) by comparing the PD at the
reporting date with the PD at initial recognition to compute the relative
increase in regard to the corresponding threshold. The threshold has been
determined by using statistical analysis on historical information of credit
migration exposures on the basis of days past due, for the different segments.
The Group applies the thresholds presented in the table below to each
portfolio/segment, based on the following characteristics: customer type,
product type and rating at origination. The threshold is then assigned to each
facility according to the facility's portfolio/segment.
For Retail, SME and Corporate portfolios, the threshold applied varies
depending on the original credit quality of the borrower. For specific
segments, instruments with lower default probabilities at inception due to
good credit quality of the counterparty, the SICR threshold is set as
probability at inception times a multiple which is higher than a multiple used
for instruments with higher default probabilities at inception.
The SICR trigger is activated based on the comparison of the ratio of current
lifetime PD to the remaining Lifetime PD at origination (PD@O) to the
pre‑established threshold. If the resulting ratio is higher than the
pre‑established threshold then deterioration is assumed to have occurred and
the exposure is transferred to Stage 2. The thresholds calibration is driven
by changes in the PD models which are assessed semi‑annually.
The table below summarises the quantitative measure of the SICR trigger which
varies depending on the credit quality at origination as follows, applied on
30 June 2022 and 31 December 2021:
Segment Rating at PD Deterioration PD Deterioration
origination
thresholds applied at
thresholds applied at
30 June 2022
31 December 2021
1‑3 2 X PD@O 2 X PD@O
Retail 4‑5 2 X PD@O 2 X PD@O
6‑7 2 X PD@O 2 X PD@O
1‑3 2 X PD@O 2 X PD@O
SME 4‑5 2 X PD@O 2 X PD@O
6‑7 2 X PD@O 2 X PD@O
Corporate 1‑7 1‑3 X PD@O 1‑3 X PD@O
For exposures which are subject to individual impairment assessment, the
following qualitative factors in addition to the ones incorporated in the PD
calculation, are considered:
· significant change in collateral value or guarantee
or financial support provided by shareholders/directors,
· significant adverse changes in business, financial
and/or economic conditions in which the borrower operates.
In addition, SICR is automatically triggered upon the granting of forbearance
measures to performing borrowers. Stage 1 exposures that are classified as
'performing forborne' are automatically transferred to Stage 2.
The Group also considers, as a backstop criterion, that a significant increase
in the credit risk occurs when contractual payments are more than 30 days past
due (past due materiality is applied). Loans that meet this condition are
classified in Stage 2. The transfer to Stage 2 does not take place in cases
where certain exposures are past due for more than 30 days but certain
materiality limits are not met (such as arrears up to €100 and funded
balances up to 1% in the case of retail exposures and arrears up to €500 and
funded balances up to 1% on all exposures other than retail). The
materiality levels are set in accordance with the ECB Regulation (EU)
2018/1845.
The thresholds for movement between Stage 1 and Stage 2 are symmetrical. After
a financial asset has been transferred to Stage 2, if its credit risk is no
longer considered to have significantly increased relative to its initial
recognition, the financial asset will move back to Stage 1.
29.5 Credit losses of loans and advances to customers, including
loans and advances to customers held for sale
The movement in ECL of loans and advances to customers, including the loans
and advances to customers held for sale, is as follows:
30 June 2022 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
1 January 15,457 29,383 478,796 67,781 591,417
Transfers to stage 1 4,837 (4,837) - - -
Transfers to stage 2 (1,355) 5,604 (4,249) - -
Transfers to stage 3 (34) (591) 625 - -
Impact on transfer between stages during the period* (4,177) 5,205 (41) 989
2
Foreign exchange and other adjustments - - 1,406 - 1,406
Write offs (398) (295) (100,781) (17,522) (118,996)
Interest (provided) not recognised in the income statement - - 7,697 1,471 9,168
New loans originated or purchased* 1,985 - - 2,012
27
Loans derecognised or repaid (excluding write offs)* (254) (830) (7,779) (1,490) (10,353)
Write offs* 380 196 6,565 734 7,875
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL 625 (3,302) 28,536 4,162 30,021
calculations*
Changes to contractual cash flows due to modifications not resulting in (158) 1,685 (3,755) (261) (2,489)
derecognition*
30 June 2022 16,908 27,015 412,266 54,861 511,050
Individually assessed 6,380 12,327 63,636 4,530 86,873
Collectively assessed 10,528 14,688 348,630 50,331 424,177
16,908 27,015 412,266 54,861 511,050
* Individual components of the 'Impairment loss net of reversals on loans and
advances to customers' (Note 10).
The impairment loss for the six months ended 30 June 2022 was driven mainly
from additional net credit losses recorded on NPEs as part of the Group's
de‑risking activities and additional ECL charge of €9 million following
the changes in the methodology for the cure models and the new overlays
introduced in 2022, as explained in Note 6.2.
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2021 €000 €000 €000 €000 €000
1 January 22,619 49,127 1,376,412 204,477 1,652,635
Transfers to stage 1 11,504 (11,504) - - -
Transfers to stage 2 (3,543) 9,116 (5,573) - -
Transfers to stage 3 (437) (197) 634 - -
Impact on transfer between stages during the period* (10,536) 1,291 2,328 (264) (7,181)
Foreign exchange and other adjustments 165 - 1,193 (44) 1,314
Write offs (255) (782) (117,482) (19,479) (137,998)
Interest (provided) not recognised in the income statement - - 30,896 4,322 35,218
New loans originated or purchased* 4,606 - - - 4,606
Loans other than Helix 2 portfolio derecognised or repaid (excluding write (246) (436) (12,673) 397 (12,958)
offs)*
Write offs* 242 350 (4,331) 579 (3,160)
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL (3,306) (4,450) 65,757 9,120 67,121
calculations*
Changes to contractual cash flows due to modifications not resulting in (654) 1,020 (5,044) (2,033) (6,711)
derecognition*
Disposal of Helix 2 portfolio (3,197) (12,802) (725,525) (109,569) (851,093)
30 June 2021 16,962 30,733 606,592 87,506 741,793
Individually assessed 5,748 11,858 86,297 7,869 111,772
Collectively assessed 11,214 18,875 520,295 79,637 630,021
16,962 30,733 606,592 87,506 741,793
The analysis of credit losses of loans and advances to customers, including
the loans and advances to customers held for sale, by business line is
presented in the table below:
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2022 €000 €000 €000 €000 €000
Corporate 6,441 4,445 5,878 17,729
965
Large and International corporate 4,554 7,509 33,334 46,370
973
SMEs 1,550 3,217 2,235 7,180
178
Retail
‑ housing 1,775 2,096 5,833 9,985
281
‑ consumer, credit cards and other 2,295 4,907 7,671 1,087 15,960
Restructuring
‑ corporate 2,135 1,849 4,049
41 24
‑ SMEs 1,132 13,743 15,849
102 872
‑ retail housing 15,735 17,309
46 719 809
‑ retail other 10,116 11,564
29 603 816
Recoveries
‑ corporate - - 17,650 2,460 20,110
‑ SMEs - - 22,153 1,308 23,461
‑ retail housing - - 125,168 21,652 146,820
‑ retail other - - 150,114 23,431 173,545
International banking services 1,079
44 248 783 4
Wealth management 40
31 4 4 1
16,908 27,015 412,266 54,861 511,050
Stage 1 Stage 2 Stage 3 POCI Total
31 December 2021 €000 €000 €000 €000 €000
Corporate 5,131 6,851 18,163 30,895
750
Large and International corporate 4,204 6,511 28,539 39,988
734
SMEs 1,653 3,242 8,151 13,322
276
Retail
‑ housing 1,615 2,868 7,045 11,845
317
‑ consumer, credit cards and other 2,674 4,434 8,223 1,002 16,333
Restructuring
‑ corporate 1,397 5,015 2,292 8,744
40
‑ SMEs 1,139 13,970 16,072
79 884
‑ retail housing 20,005 21,491
3 708 775
‑ retail other 1,049 16,583 18,452
14 806
Recoveries
‑ corporate - - 21,374 3,518 24,892
‑ SMEs - - 26,338 2,045 28,383
‑ retail housing - - 152,596 27,732 180,328
‑ retail other - - 152,691 26,643 179,334
International banking services 1,181 1,322
33 102 6
Wealth management 16
11 3 1 1
15,457 29,383 478,796 67,781 591,417
Credit losses of loans and advances to customers as at 30 June 2022 and 31
December 2021 include credit losses relating to loans and advances to
customers classified as held for sale as presented in the table below:
Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
30 June 2022 438 262,821 41,333 304,599
7
31 December 2021 - 710 262,706 42,003 305,419
During the six months ended 30 June 2022 the total non‑contractual
write‑offs recorded by the Group amounted to €98,625 thousand (30 June
2021: €116,667 thousand). The contractual amount outstanding on financial
assets that were written off during the six months ended 30 June 2022 and that
are still subject to enforcement activity is €538,069 thousand (31 December
2021: €984,329 thousand).
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 macroeconomic
scenario for future changes in property prices, and are capped to zero for all
scenarios in case of any future projected increase, whereas any future
projected decrease is taken into consideration.
At 30 June 2022 the weighted average haircut (including liquidity haircut and
selling expenses) used in the collectively assessed provision calculation for
loans and advances to customers is approximately 32% under the baseline
scenario (31 December 2021: approximately 32%), excluding those classified as
held for sale.
The timing of recovery from real estate collaterals used in the collectively
assessed provision calculation for loans and advances to customers has been
estimated to be on average seven years under the baseline scenario (31
December 2021: average of seven years), excluding those classified as held for
sale.
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 the calculation of expected credit losses three scenarios were used; base,
adverse and favourable with 50%, 30% and 20% probability respectively.
For Stage 3 customers, the base scenario focuses on the following variables,
which are based on the specific facts and circumstances of each customer: the
operational cash flows, the timing of recovery of collaterals and the haircuts
from the realisation of collateral. The base scenario is used to derive
additional favourable and adverse scenarios. Under the adverse scenario
operational cash flows are decreased by 50%, applied haircuts on real estate
collateral are increased by 50% and the timing of recovery of collaterals is
increased by 1 year with reference to the baseline scenario. Under the
favourable scenario, applied haircuts are decreased by 5%, with no change in
the recovery period with reference to the baseline scenario. Assumptions used
in estimating expected future cash flows (including cash flows that may result
from the realisation of collateral) reflect current and expected future
economic conditions and are generally consistent with those used in the Stage
3 collectively assessed exposures. In the case of loans held for sale the
Group takes into consideration the timing of expected sale and the estimated
sale proceeds in determining the ECL.
The above assumptions are also influenced by the ongoing regulatory dialogue
BOC PCL maintains with its lead regulator, the ECB, and other regulatory
guidance and interpretations issued by various regulatory and industry bodies
such as the ECB and the EBA, which provide guidance and expectations as to
relevant definitions and the treatment/classification of certain
parameters/assumptions used in the estimation of provisions.
Any changes in these assumptions or difference 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.
Sensitivity analysis
The Group has performed sensitivity analysis relating to the loan portfolio in
Cyprus, which represents more than 99% of the total loan portfolio of the
Group (excluding the loans and advances to customers classified as held for
sale) with reference date 30 June 2022 and 31 December 2021.
The Group has altered for the purpose of sensitivity analysis the below
parameters and the impact on the ECL, for both individually and collectively
assessed ECL calculations, is presented in the table below:
Increase/(decrease) on ECL for loans and advances to customers at amortised
cost
30 June 31 December 2021
2022
€000 €000
Increase the adverse weight by 5% and decrease the favourable weight by 5%
2,854 3,610
Decrease the adverse weight by 5% and increase the favourable weight by 5%
(2,841) (3,626)
Increase the expected recovery period by 1 year
4,847 8,000
Decrease the expected recovery period by 1 year
(4,304) (7,421)
Increase the collateral realisation haircut by 5%
13,451 19,063
Decrease the collateral realisation haircut by 5% (11,107)
(16,906)
Increase in the PDs of stages 1 and 2 by 20%
7,230 8,190
Decrease in the PDs of stages 1 and 2 by 20%
(6,870) (8,011)
The increase/(decrease) on ECL, per stage, for loans and advances to customers
at amortised cost is further presented in the table below:
Stage 1 Stage 2 Stage 3 Total
30 June 2022 €000 €000 €000 €000
Increase the adverse weight by 5% and decrease the favourable weight by 5% 155 295 2,404 2,854
Decrease the adverse weight by 5% and increase the favourable weight by 5% (161) (276) (2,404) (2,841)
Increase the expected recovery period by 1 year 395 1,138 3,314 4,847
Decrease the expected recovery period by 1 year (369) (1,019) (2,916) (4,304)
Increase the collateral realisation haircut by 5% 1,076 2,888 9,487 13,451
Decrease the collateral realisation haircut by 5% (888) (2,309) (7,910) (11,107)
Increase in the PDs of stages 1 and 2 by 20%* 1,875 5,355 - 7,230
Decrease in the PDs of stages 1 and 2 by 20%* (2,302) (4,568) - (6,870)
Stage 1 Stage 2 Stage 3 Total
31 December 2021 €000 €000 €000 €000
Increase the adverse weight by 5% and decrease the favourable weight by 5% 384 413 2,813 3,610
Decrease the adverse weight by 5% and increase the favourable weight by 5% (351) (461) (2,814) (3,626)
Increase the expected recovery period by 1 year 434 1,402 6,164 8,000
Decrease the expected recovery period by 1 year (401) (1,323) (5,697) (7,421)
Increase the collateral realisation haircut by 5% 1,215 3,742 14,106 19,063
Decrease the collateral realisation haircut by 5% (1,004) (3,266) (12,636) (16,906)
Increase in the PDs of stages 1 and 2 by 20%* 2,687 5,503 - 8,190
Decrease in the PDs of stages 1 and 2 by 20%* (2,882) (5,129) - (8,011)
*The impact on the ECL also includes the transfer between stages of the loans
and advances to customers following the increase/ decrease in the PD.
The sensitivity analysis performed on the collateral realisation haircut and
its impact on the ECL by business line is presented in the table below:
Increase the collateral realisation haircut by 5% Decrease the collateral realisation haircut by 5% Increase the collateral realisation haircut by 5% Decrease the collateral realisation haircut by 5%
30 June 30 June 31 December 31 December
2022
2022
2021
2021
€000 €000 €000 €000
Corporate (1,272)
1,687 (1,380) 1,365
Large and International corporate (1,976)
1,290 (1,228) 2,194
SMEs (627)
524 (444) 724
Retail
‑ housing (1,545)
1,492 (1,263) 1,838
‑ consumer, credit cards and other (653)
628 (530) 718
Restructuring
‑ corporate (558)
290 (254) 551
‑ SMEs (858)
944 (852) 956
‑ retail housing (972)
958 (823) 1,079
‑ retail other (420)
380 (333) 458
Recoveries
‑ corporate (760)
640 (553) 748
‑ SMEs (940)
853 (722) 1,114
‑ retail housing (4,889)
2,626 (1,899) 5,541
‑ retail other (1,233)
982 (680) 1,503
International banking services (202)
157 (146) 273
Wealth management - - (1)
1
(16,906)
13,451 (11,107) 19,063
29.6 Currency concentration of loans and advances to customers
The following table presents the currency concentration of the Group's loans
and advances at amortised cost.
30 June 31 December
2022
2021
Gross loans at amortised cost €000 €000
Euro 9,478,377 9,294,950
US Dollar 453,374 372,263
British Pound 91,859 93,369
Russian Rouble 350 16,329
Romanian Lei -
1
Swiss Franc 42,596 61,336
Other currencies 1,809 2,288
10,068,366 9,840,535
Loans and advances to customers classified as held for sale
The following table presents the currency concentration of the Group's loans
and advances at amortised cost classified as held for sale.
30 June 31 December
2022
2021
Gross loans at amortised cost €000 €000
Euro 528,996 533,190
US Dollar 752 700
British Pound 226 230
Swiss Franc 18,279 18,184
Other currencies 3,553 3,485
551,806 555,789
29.7 Forbearance/Restructuring
Forbearance measures occur in situations in which the borrower is considered
to be unable to meet the terms and conditions of the contract due to financial
difficulties. Taking into consideration these difficulties, the Group
decides to modify the terms and conditions of the contract to provide the
borrower with the ability to service the debt or refinance the contract,
either partially or fully.
The practice of extending forbearance measures constitutes a grant of a
concession whether temporarily or permanently to that borrower. A concession
may involve restructuring the contractual terms of a debt or payment in some
form other than cash, such as an arrangement whereby the borrower transfers
collateral pledged to the Group.
The loans forborne continue to be classified as Stage 3 in the case they are
performing forborne exposures under probation for which additional forbearance
measures are extended, or performing forborne exposures, previously classified
as NPEs that present more than 30 days past due within the probation period.
Modifications of loans and advances that do not affect payment arrangements,
such as restructuring of collateral or security arrangements, are not regarded
as sufficient to categorise the facility as credit impaired, as by themselves
they do not necessarily indicate credit distress affecting payment ability
such that would require the facility to be classified as NPE.
Rescheduled loans and advances are those facilities for which the Group has
modified the repayment programme (e.g. provision of a grace period, suspension
of the obligation to repay one or more instalments, reduction in the
instalment amount and/or elimination of overdue instalments relating to
capital or interest).
For an account to qualify for rescheduling it must meet certain criteria
including that the customer must be considered to be viable. The extent to
which the Group reschedules accounts that are eligible under its existing
policies may vary depending on its view of the prevailing economic conditions
and other factors which may change from year to year. In addition, exceptions
to policies and practices may be allowed in specific situations in response to
legal or regulatory agreements or orders.
The forbearance characteristic contributes in two specific ways for the
calculation of lifetime ECL for each individual facility. Specifically, it is
taken into consideration in the scorecard development where if this
characteristic is identified as statistically significant it affects
negatively the rating of each facility. It also contributes in the
construction through the cycle probability of default and cure curves, where
when feasible a specific curve for the forborne products is calculated and
assigned accordingly.
Forbearance activities may include measures that restructure the borrower's
business (operational restructuring) and/or measures that restructure the
borrower's financing (financial restructuring).
Restructuring options may be of a short or long term nature or a combination
thereof. The Group has developed and deployed sustainable restructuring
solutions, which are suitable for the borrower and acceptable for the Group.
Short‑term restructuring solutions are defined as restructured repayment
solutions of duration of less than two years. In the case of loans for the
construction of commercial property and project finance, a short‑term
solution may not exceed one year.
Short‑term restructuring solutions can include the following:
· Suspension of capital or capital and interest:
granting to the borrower a grace period in the payment of capital (i.e. during
this period only interest is paid) or capital and interest, for a specific
period of time.
· Reduced payments: decrease of the amount of
repayment instalments over a defined short term period in order to accommodate
the borrower's new cash flow position.
· Arrears and/or interest capitalisation:
capitalisation of the arrears and of any unpaid interest to the outstanding
principal balance for repayment under a rescheduled program.
Long‑term restructuring solutions can include the following:
· Interest rate reduction: permanent or temporary
reduction of interest rate (fixed or variable) into a fair and sustainable
rate.
· Extension of maturity: extension of the maturity of
the loan which allows a reduction in instalment amounts by spreading the
repayments over a longer period.
· Sale of Assets: Part of the restructuring can be
the agreement with the borrower for immediate or on time sale of assets
(mainly real estate) to reduce borrowing.
· Modification of existing terms of previous
decisions: In the context of the new sustainable settlement / restructuring
solution, review any terms of previous decisions that may not be met.
· Consolidation / refinancing of Existing Facilities:
In cases where the borrower maintains several separate loans with different
collaterals, these can be consolidated and a new repayment schedule can be set
and the new loan can be secured with all existing collaterals.
· Hard Core Current Account Limit: In such cases a
loan with a longer repayment may be offered to replace / reduce the current
account limit.
· Split and freeze: the customer's debt is split into
sustainable and unsustainable parts. The sustainable part is restructured to a
sustainable repayment program. The unsustainable part is 'frozen' for the
restructured duration of the sustainable part. At the maturity of the
restructuring, the frozen part is either forgiven pro rata (based on the
actual repayment of the sustainable part) or restructured.
· Rescheduling of payments: the existing contractual
repayment schedule is adjusted to a new sustainable repayment program based on
a realistic, current and forecasted, assessment of the cash flow generation of
the borrower.
· Liquidation Collateral: An agreement between BOC
PCL and a borrower for the voluntary sale of mortgaged assets, for partial or
full repayment of the debt.
· Currency Conversion: This solution is provided to
match the credit facility currency and the borrower's income currency.
· Additional Financing: This solution can be granted,
simultaneously with the restructuring of the existing credit facilities of the
borrower, to cover any financing gap.
· Partial or full write‑off: BOC PCL agrees to
seize the right to recover part of the debt or the entire amount due from the
borrower (such as Fast Settlement), according to the provisions of the
respective write‑off policy.
· Debt/equity swaps: debt restructuring that allows
partial or full repayment of the debt in exchange of obtaining an equivalent
amount of equity by the Group, with the remaining debt right sized to the cash
flows of the borrower to allow repayment. This solution is used only in
exceptional cases and only where all other efforts for restructuring are
exhausted and after ensuring compliance with the banking law.
· Debt/asset swaps: agreement between the Group and
the borrower to voluntarily transfer the mortgaged asset or other immovable
property to the Group, to partially or fully repay the debt. Any residual debt
may be restructured within an appropriate repayment schedule in line with the
borrower's reassessed repayment ability.
29.8 Rescheduled loans and advances to customers
The below table presents the movement of the Group's rescheduled loans and
advances to customers measured at amortised cost including those classified as
held for sale. The rescheduled loans related to loans and advances classified
as held for sale as at 30 June 2022 amounts to €238,195 thousand (31
December 2021: €245,452 thousand and 30 June 2021: nil).
30 June 30 June
2022
2021
€000 €000
1 January 1,469,182 1,981,825
New loans and advances rescheduled in the period 56,411 405,472
Loans no longer classified as rescheduled and repayments (148,629) (283,370)
Write off of rescheduled loans and advances (39,834) (58,758)
Interest accrued on rescheduled loans and advances 26,911 25,932
Foreign exchange adjustments 1,127 385
Derecognition of Helix 2 portfolio - (733,448)
30 June 1,365,168 1,338,038
The classification as forborne loans is discontinued when all EBA criteria for
the discontinuation of the classification as forborne exposure are met. The
criteria are set out in the EBA Final draft Implementing Technical Standards
(ITS) on supervisory reporting and non‑performing exposures.
The below tables present the Group's rescheduled loans and advances to
customers by staging, economic activity and business line classification
excluding those classified as held for sale, as well as ECL allowances and
tangible collateral held for such rescheduled loans.
30 June 31 December
2022
2021
€000 €000
Stage 1 - 6,883
Stage 2 818,330 828,849
Stage 3 281,832 348,385
POCI 26,811 39,613
1,126,973 1,223,730
Fair value of collateral
30 June 31 December
2022
2021
€000 €000
Stage 1 - 6,751
Stage 2 774,087 782,843
Stage 3 230,213 275,882
POCI 23,355 37,824
1,027,655 1,103,300
The fair value of collateral presented above has been computed based to the
extent that the collateral mitigates credit risk.
Credit risk concentration
30 June 31 December
2022
2021
By economic activity €000 €000
Trade 44,452 52,714
Manufacturing 14,925 16,217
Hotels and catering 264,027 259,534
Construction 230,792 164,871
Real estate 136,820 196,522
Private individuals 336,966 414,463
Professional and other services 78,528 96,714
Other sectors 20,463 22,695
1,126,973 1,223,730
30 June 2022 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate - 272,991 4,267 2,964 280,222
Large and international corporate - 312,715 54,841 - 367,556
SMEs - 79,657 1,701 923 82,281
Retail
‑ housing - 63,318 29,528 1,926 94,772
‑ consumer, credit cards and other - 23,247 13,118 847 37,212
Restructuring
‑ corporate - 21,977 4,003 25,981
1
‑ SMEs - 11,004 19,118 2,303 32,425
‑ retail housing - 19,112 44,426 3,524 67,062
‑ retail other - 3,841 11,057 419 15,317
Recoveries
‑ corporate - - 9,518 1,831 11,349
‑ SMEs - - 10,611 2,250 12,861
‑ retail housing - - 58,985 7,109 66,094
‑ retail other - - 17,737 2,386 20,123
International banking services - 10,468 2,922 13,391
1
Wealth management - - - 327 327
- 818,330 281,832 26,811 1,126,973
31 December 2021 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate 6,461 255,488 14,735 - 276,684
Large and international corporate - 303,823 53,667 - 357,490
SMEs - 96,654 5,736 3,972 106,362
Retail
‑ housing 381 97,548 38,276 2,548 138,753
‑ consumer, credit cards and other 29,578 16,181 1,206 47,006
41
Restructuring
‑ corporate - 6,941 8,882 6,013 21,836
‑ SMEs - 8,705 23,410 3,775 35,890
‑ retail housing - 13,500 49,746 3,362 66,608
‑ retail other - 5,047 15,088 426 20,561
Recoveries
‑ corporate - - 17,503 2,293 19,796
‑ SMEs - - 12,402 1,980 14,382
‑ retail housing - - 70,951 10,367 81,318
‑ retail other - - 19,313 3,165 22,478
International banking services - 11,565 2,495 14,159
99
Wealth management - - - 407 407
6,883 828,849 348,385 39,613 1,223,730
ECL allowance
30 June 31 December
2022
2021
€000 €000
Stage 1 - 8
Stage 2 12,276 13,349
Stage 3 93,731 120,345
POCI 5,719 10,218
111,726 143,920
30. Risk management ‑ Market risk
Market risk is the risk of loss from adverse changes in market prices namely
from changes in interest rates, exchange rates, property and security
prices. The Market Risk department is responsible for monitoring the risk on
financial instruments resulting from such changes with the objective to
minimise the impact on earnings and capital. The department also monitors
liquidity risk and credit risk with counterparties and countries. It is also
responsible for monitoring compliance with the various market risk policies
and procedures.
Interest rate risk
Interest rate risk refers to the current or prospective risk to Group's
capital and earnings arising from adverse movements in interest rates that
affect the Group's banking book positions.
Interest rate risk is measured mainly using the impact on net interest income
and impact on economic value. In addition to the above measures, interest rate
risk is also measured using interest rate risk gap analysis where the assets,
liabilities and off‑balance sheet items, are classified according to their
remaining repricing period. Items that are not sensitive to rate changes are
recognised as non‑rate sensitive (NRS) items. The present value of 1 basis
point (PV01) is also calculated. Interest rate risk is managed through a 1
Year Interest Rate Effect (IRE) limit on the maximum reduction of net interest
income under the various interest rate shock scenarios. Limits are set as a
percentage of the Group capital and as a percentage of the net interest
income. There are different limits for the Euro and the US Dollar.
Sensitivity analysis
The table below sets out the impact on the Group's net interest income, over a
one‑year period, from reasonably possible changes in the interest rates of
the main currencies using the assumption of the prevailing market risk policy
for the current and the comparative period:
Impact on Net Interest Income in €000
Currency Interest Rate Scenario 30 June 31 December
2022
2021
(50 bps for Euro and 60 bps for US Dollar)
(50 bps for Euro and 60 bps for US Dollar)
All Parallel up 53,336 35,677
All Parallel down (48,311) (28,235)
All Steepening (33,955) (19,944)
All Flattening 42,534 25,546
All Short up 51,166 33,182
All Short down (47,077) (28,169)
Euro Parallel up 52,302 34,484
Euro Parallel down (46,103) (26,230)
Euro Steepening (31,851) (17,866)
Euro Flattening 42,107 25,153
Euro Short up 50,287 32,200
Euro Short down (44,121) (25,208)
US Dollar Parallel up 1,034 1,193
US Dollar Parallel down (2,208) (2,005)
US Dollar Steepening (2,104) (2,078)
US Dollar Flattening 427 393
US Dollar Short up 879 982
US Dollar Short down (2,956) (2,961)
The table below sets out the impact on the Group's equity, from reasonably
possible changes in the interest rates under various interest rate scenarios
for the Euro and the US Dollar in line with the EBA guidelines.
Impact on Equity in €000
Currency Interest Rate Scenario 30 June 31 December 2021
2022
(50 bps for Euro and 60 bps for US Dollar)
(50 bps for Euro and 60 bps for US Dollar)
All Parallel up 5,147 (14,964)
All Parallel down (9,228) 23,698
All Steepening (11,749) (9,300)
All Flattening 8,207 8,986
All Short up 10,396 3,616
All Short down (20,326) 6,273
Euro Parallel up 4,313 (18,080)
Euro Parallel down (1,804) 60,603
Euro Steepening (11,128) (7,836)
Euro Flattening 17,544 17,714
Euro Short up 16,315 2,234
Euro Short down (13,550) 26,386
US Dollar Parallel up 5,980 6,232
US Dollar Parallel down (7,424) (6,604)
US Dollar Steepening (621) (1,464)
US Dollar Flattening (565)
258
US Dollar Short up 4,476 4,998
US Dollar Short down (6,776) (6,920)
The aggregation of the impact on equity was performed as per the EBA
guidelines by adding the negative and 50% of the positive impact of each
scenario.
In addition to the above fluctuations in net interest income, interest rate
changes can result in fluctuations in the fair value of investments at FVPL
(including investments held for trading) and in the fair value of derivative
financial instruments.
The equity of the Group is also affected by changes in market interest
rates. The impact on the Group's equity arises from changes in the fair
value of fixed rate debt securities classified at FVOCI.
The sensitivity analysis is based on the assumption of a parallel shift of the
yield curve. The table below sets out the impact on the Group's profit/loss
before tax and equity as a result of reasonably possible changes in the
interest rates of the major currencies.
Parallel change in interest rates Impact on profit/loss before tax Impact on equity
((increase)/decrease in net
interest income)
30 June 2022 €000 €000
+0.6% for US Dollar
+0.5% for Euro (619) (504)
+1.0% for British Pound
‑0.6% for US Dollar
‑0.5% for Euro 619 504
‑1.0% for British Pound
Impact on profit/loss before tax Impact on equity
Parallel change in interest rates €000 €000
((increase)/decrease in net
interest income)
31 December 2021
+0.6% for US Dollar
+0.5% for Euro 1,219 (739)
+1.0% for British Pound
‑0.6% for US Dollar
‑0.5% for Euro (782) 739
‑1.0% for British Pound
Interest rate benchmark reform
The LIBOR and the EURIBOR (collectively referred to as IBORs) are the subject
of international, national and other regulatory guidance and proposals for
reform. Some of these reforms are already effective while others are still to
be implemented as explained further below. These reforms may cause such
benchmarks to perform differently from the past or cease to exist entirely or
have other consequences that cannot be predicted.
Regarding LIBOR reform, regulators and industry working groups have identified
alternative rates to transition to. On 5 March, 2021 the Financial Conduct
Authority (FCA) confirmed that all LIBOR settings would either cease to be
provided by any administrator or no longer be representative of the underlying
market they intended to measure:
· immediately after 31 December 2021, in the case of all sterling,
euro, Swiss franc and Japanese yen settings, and the 1 week and 2 month US
dollar settings; and
· immediately after 30 June 2023, in the case of the remaining US
dollar settings.
In October 2021, the European Commission designated a statutory replacement
rate for certain settings of CHF LIBOR. On 16 November 2021, the Financial
Conduct Authority of the United Kingdom (UK FCA) confirmed that they would
permit the temporary use of the synthetic GBP and JPY LIBOR in all legacy
LIBOR contracts, other than cleared derivatives that have not been changed at
or ahead of end‑31 December 2021. Also, under their new use restriction
power they would prohibit new use of USD LIBOR from the end of 2021, except in
specific circumstances.
How the Group is managing the transition to alternative benchmark rates
BOC PCL established a project to manage the transition to alternative interest
rate benchmarks with the Director of Treasury as the project owner and with
oversight from a dedicated Benchmark Steering Committee. The main divisions
involved in the project at the highest level are the Legal Department,
Treasury, Risk Management, Finance, Information Technology (IT), Operations
and the business lines. The Assets and Liabilities Committee (ALCO) monitors
the project on a regular basis.
The Group's transition project also involved the drawing up of appropriate
fallback provisions for LIBOR linked contracts and transition mechanisms in
its floating rate assets and liabilities with maturities after 2021.
For the legacy non‑cleared derivatives exposures, the Group has adhered to
the International Swaps and Derivatives Association (ISDA) protocol which came
into effect in January 2021, while for cleared derivatives, BOC PCL adopted
the market wide standardised approach to be followed by the relevant clearing
house.
The Group proactively engaged with its customer base and market counterparties
for the amendment of substantially all impacted LIBOR contracts (other than
the relevant contracts referencing to USD LIBOR and which they will cease on
30 June 2023) by 31 December 2021 for transitioning to alternative rates.
Those legacy credit facilities in CHF for which the contract was not amended
by the first interest period commencing in 2022 ('tough legacy'), have been
transitioned to the statutory rate provided by EU legislation. The Group has
also made the necessary arrangements to transition its tough legacy GBP and
JPY credit facilities to alternative rates by notifying its customer base
accordingly and reserving the right to use a statutory rate provided by EU
legislation in case such a rate is nominated in the future. Specifically, in
anticipation that the European Commission might not designate an alternative
rate for JPY and GBP Libor, the Group has informed its customers of its
decision to transition tough legacy JPY and GBP LIBOR credit facilities to the
same alternative rates, as if the customer has signed the relevant contract
amendment. This would ensure that customers would not be treated differently
to other similar customers on the same JPY and GBP LIBOR tenor who have signed
their contract amendment. The Group has also engaged in client communication
to inform customers and ensure a smooth transition of non‑USD LIBOR credit
facilities to RFRs.
New RFR lending products have also been introduced and adopted across the
Group's key currencies.
The Group's project for the transition to alternative interest rate benchmarks
is now focused of the transition of USD LIBOR contracts ahead of the June 2023
deadline.
BOC PCL has dedicated teams in place to support the transition and
continuously assess, monitor and dynamically manage risks arising from the
transition when required.
The Group has also been actively monitoring for any market and regulatory
developments published by regulatory bodies as well as by relevant Working
Groups across various jurisdictions.
The Group will continue to assess, monitor and dynamically manage risks, and
implement specific mitigating controls when required, progressing towards an
orderly transition to alternative benchmarks.
The following table summarises the significant non‑derivative exposures
impacted by interest rate benchmark reform which have yet to transition as at
30 June 2022 and 31 December 2021 to the replacement benchmark rate at the
respective date:
30 June 2022 USD Other Total
LIBOR
LIBOR
Non‑derivative financial assets €000 €000 €000
Loans and advances to customers 451,218 - 451,218
Loans and advances to banks 42,081 2,104 44,185
Total 493,299 2,104 495,403
Non‑derivative financial liabilities
Deposits by banks 114 374 488
Total 114 374 488
31 December 2021 GBP USD CHF Other Total
LIBOR
LIBOR
LIBOR
LIBOR
Non‑derivative financial assets €000 €000 €000 €000 €000
Loans and advances to customers 92,819 364,113 26,727 1,627 485,286
Loans and advances to banks 18,341 87,397 4,984 10,261 120,983
Total 111,160 451,510 31,711 11,888 606,269
Non‑derivative financial liabilities
Deposits by banks 113 7,658 - 503 8,274
Total 113 7,658 - 503 8,274
EURIBOR is in compliance with the EU Benchmarks Regulation and can continue to
be used as a benchmark interest rate for existing and new contracts. The Group
therefore, does not consider that Group's exposure to EURIBOR is affected by
the BMR reform.
For derivatives in hedging relationships subject to IBOR reform refer to Note
14.
Currency risk
Currency risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in foreign exchange
rates.
The impact on equity arises mainly from the impact of hedging instruments used
to hedge part of the net assets of the subsidiaries. At Group level, there is
an approximately equal and opposite impact on equity from the revaluation of
the net assets of the foreign operations of the Group.
Price risk
Equity securities price risk
The risk of loss from changes in the price of equity securities arises when
there is an unfavourable change in the prices of equity securities held by the
Group as investments.
Debt securities price risk
Debt securities price risk is the risk of loss as a result of adverse changes
in the prices of debt securities held by the Group. Debt security prices
change as the credit risk of the issuer changes and/or as the interest rate
changes for fixed rate securities. The Group invests a significant part of its
liquid assets in highly rated securities. The average Moody's Investors
Service rating of the debt securities portfolio of the Group as at 30 June
2022 was A3 (31 December 2021: A3). The average rating excluding the Cyprus
Government bond and non‑rated transactions as at 30 June 2022 was Aa2 (31
December 2021: Aa2).
Property price risk
A significant part of the Group's loan portfolio is secured by real estate the
majority of which is located in Cyprus. Furthermore, the Group holds a
substantial number of properties mainly arising from loan restructuring
activities; the enforcement of loan collateral and debt for asset swaps. These
properties are held by the Group primarily as stock of properties and some are
held as investment properties.
Property risk is the risk that the Group's business and financial position
will be affected by adverse changes in the demand for, and prices of, real
estate, or by regulatory capital requirements relating to increased charges
with respect to the stock of properties held.
31. Risk management ‑ Liquidity and funding risk
Liquidity Risk
Liquidity risk is the risk that the Group is unable to fully or promptly meet
current and future payment obligations as and when they fall due. This risk
includes the possibility that the Group may have to raise funding at high cost
or sell assets at a discount to fully and promptly satisfy its obligations.
It reflects the potential mismatch between incoming and outgoing payments,
taking into account unexpected delays in repayment and unexpectedly high
payment outflows. Liquidity risk involves both the risk of unexpected
increases in the cost of funding of the portfolio of assets and the risk of
being unable to liquidate a position in a timely manner on reasonable terms.
In order to limit this risk, management has adopted a strategy of managing
assets with liquidity in mind and monitoring cash flows and liquidity on a
daily basis. The Group has developed internal control processes and
contingency plans for managing liquidity risk.
Management and structure
The Board of Directors sets the Group's Liquidity Risk Appetite which defines
the level of risk at which the Group should operate.
The Board of Directors, through its Risk Committee, approves the Liquidity
Policy Statement and reviews at frequent intervals the liquidity position of
the Group.
The ALCO is responsible for setting the policies for the effective management
and monitoring of liquidity risk across the Group.
The Treasury Division is responsible for liquidity management at Group level
to ensure compliance with internal policies and regulatory liquidity
requirements and provide direction as to the actions to be taken regarding
liquidity needs. Treasury assesses on a continuous basis, the adequacy of
the liquid assets and takes the necessary actions to ensure a comfortable
liquidity position.
Liquidity is also monitored daily by Market Risk, to ensure compliance with
both internal policies and limits, and with the limits set by the regulatory
authorities. Market Risk reports the liquidity position to ALCO at least
monthly. It also provides the results of various stress tests to ALCO at
least quarterly.
Liquidity is monitored and managed on an ongoing basis through:
(i) Risk appetite: established Group Risk Appetite together
with the appropriate limits for the management of all risks including
liquidity risk.
(ii) Liquidity policy: sets the responsibilities for managing
liquidity risk as well as the framework, limits and stress test assumptions.
(iii) Liquidity limits: a number of internal and regulatory
limits are monitored on a daily, monthly and quarterly basis. Where
applicable, a traffic light system (RAG) has been introduced for the ratios,
in order to raise flags and take action when the ratios deteriorate.
(iv) Early warning indicators: monitoring of a range of
indicators for early signs of liquidity risk in the market or specific to the
Group. These are designed to immediately identify the emergence of increased
liquidity risk so as to maximise the time available to execute appropriate
mitigating actions.
(v) Liquidity Contingency Plan: maintenance of a Liquidity
Contingency Plan (LCP) which is designed to provide a framework where a
liquidity stress could be effectively identified and managed. The LCP provides
a communication plan and includes management actions to respond to liquidity
stresses.
(vi) Recovery Plan: the Group has developed a Recovery Plan
(RP), the key objectives of which are, among others, to set key Recovery and
Early Warning Indicators and to set in advance a range of recovery options to
enable the Group to be adequately prepared to respond to stressed conditions
and restore the Group's liquidity position.
Monitoring process
Daily
The daily monitoring of customer flows and the stock of highly liquid assets
is important to safeguard and ensure the uninterrupted operations of the
Group's activities. Market risk prepares a daily report analysing the internal
liquidity buffer and comparing it to the previous day's buffer. The historical
summary results of this report are made available to ALCO members and to
members of the Risk Division, Treasury and Financial Control department. In
addition, Treasury monitors daily and intraday the customer inflows and
outflows in the main currencies used by the Group.
Market Risk also prepares daily stress testing for bank specific, market wide
and combined scenarios. The requirement is to have sufficient liquidity buffer
to enable BOC PCL to survive a twelve‑month stress period, including
capacity to raise funding under all scenarios.
Moreover, an intraday liquidity stress test takes place to ensure that the
Group maintains sufficient liquidity buffer in immediately accessible form, to
enable it to meet the stressed intraday payments.
The liquidity buffer is made up of: Banknotes, CBC balances (excluding the
Minimum Reserve Requirements (MRR)), unpledged cash and nostro current
accounts, as well as money market placements up to the stress horizon,
available ECB credit line and market value net of haircut of
unencumbered/available liquid bonds.
The designing of the stress tests followed guidance and was based on the
liquidity risk drivers which are recognised internationally by both the
Prudential Regulation Authority (PRA) and EBA. In addition, it takes into
account SREP recommendations as well as the Annual Risk Identification Process
of the Group. The stress test assumptions are included in the Group Liquidity
Policy which is reviewed on an annual basis and approved by the Board.
However, whenever it is considered appropriate to amend the assumptions during
the year, approval is requested from ALCO and the Board Risk Committee. The
main items shocked in the different scenarios are: deposit outflows, wholesale
funding, loan repayments, off balance sheet commitments, marketable
securities, own issue covered bond, additional credit claims, interbank
takings and cash collateral for derivatives and repos (as applicable).
Weekly
Market Risk prepares a report indicating the level of Liquid Assets including
Credit Institutions Money Market Placements as per LCR definitions.
Monthly
Market Risk prepares reports monitoring compliance with internal and
regulatory liquidity ratios requirements and submits them to the ALCO, the
Executive Committee and the Board Risk Committee. It also calculates the
expected flows under a stress scenario and compares them with the available
liquidity buffer in order to calculate the survival days. The fixed deposit
renewal rates, the percentage of International Banking Services deposits over
total deposits and the percentage of instant access deposits are also
presented. The liquidity mismatch in the form of the Maturity Ladder report
(for both contractual and behavioural flows) is presented to ALCO and the
resulting 30‑day mismatch between assets and liabilities is compared to
previous month's mismatch.
Market Risk also prepares a monthly liquidity report which is submitted to the
ECB. The report includes information on deposits breakdown, cash flow
information, survival period, LCR ratio, rollover of funding, funding gap
(through the Maturity ladder analysis), concentration of funding and
collateral details. It concludes on the overall liquidity position of BOC PCL
and describes the measures implemented and to be implemented in the short term
to improve liquidity position if needed.
Market Risk reports the LCR and Additional Liquidity Monitoring Metrics (ALMM)
to the CBC/ECB on a monthly basis.
Quarterly
The results of the stress testing scenarios prepared daily are reported to
ALCO and Board Risk Committee quarterly as part of the quarterly Internal
Liquidity Adequacy Assessment Process (ILAAP) review. Market Risk reports the
Net Stable Funding Ratio (NSFR) to the CBC/ECB on a quarterly basis.
Annually
The Group prepares on an annual basis its ILAAP package. The ILAAP package
provides a holistic view of the Group's liquidity adequacy under normal and
stress conditions. Within ILAAP, the Group evaluates its liquidity risk in the
context of established policies, processes for the identification,
measurement, management and monitoring of liquidity risk implemented by the
institution.
As part of the Group's procedures for monitoring and managing liquidity risk,
there is a Group Liquidity Contingency Plan (LCP) for handling liquidity
difficulties. The LCP details the steps to be taken in the event that
liquidity problems arise, which escalate to a special meeting of the extended
ALCO. The LCP sets out the members of this committee and a series of the
possible actions that can be taken. The LCP is tested annually. The LCP, which
forms part of the Group's Liquidity Policy, is reviewed by ALCO at least
annually, during the ILAAP review. The ALCO submits the updated Liquidity
Policy with its recommendations to the Board through the Board Risk Committee
for approval. The approved Liquidity Policy is notified to the SSM.
Liquidity ratios
The Group LCR is calculated based on the Delegated Regulation (EU) 2015/61. It
is designed to establish a minimum level of high‑quality liquid assets
sufficient to meet an acute stress lasting for 30 calendar days. Τhe minimum
requirement is 100%. The Group also calculates its NSFR as per Capital
Requirements Regulation II (CRR II), enforced in June 2021, with the limit set
at 100%. The NSFR is the ratio of available stable funding to required stable
funding. NSFR has been developed to promote a sustainable maturity structure
of assets and liabilities.
Funding risk
Funding risk is the risk that the Group does not have sufficiently stable
sources of funding or access to sources of funding may not always be available
at a reasonable cost and thus the Group may fail to meet its obligations,
including regulatory ones (e.g. MREL).
Main sources of funding
As at 30 June 2022 the Group's main sources of funding were its deposit base
and central bank funding, through the Eurosystem monetary policy operations.
Wholesale funding is also becoming an important source of funding, following
the refinancing of the Tier 2 for €300 million in April 2021 and the
issuance of senior preferred debt of €300 million in June 2021.
With respect to TLTRO III operations, BOC PCL borrowed in March 2021 an amount
of €1,700 million and in June 2021 another €300 million, having previously
borrowed in June 2020 €1,000 million under the TLTRO III, given the
favourable borrowing rate, in combination with the relaxation of collateral
terms (lower haircuts and widening of eligibility of credit claims), all being
part of the ECB's COVID 19 aid package. As a result, at 30 June 2022 the
carrying value of the ECB funding was €2,955 million (31 December 2021:
€2,970 million).
As at 30 June 2022, the wholesale funding nominal amount was €820 million
(31 December 2021: €856 million). This includes funding raised from the
wholesale debt capital markets of €220 million AT1 issued in December 2018,
€300 million new Tier 2 issued in April 2021 and €300 million senior
preferred debt issued in June 2021. In January 2022, BOC PCL redeemed the
remaining €36 million outstanding of the Tier 2 issued in January 2017.
Funding to subsidiaries
The funding provided by BOC PCL to its subsidiaries for liquidity purposes is
repayable as per the terms of the respective agreements.
Any new funding to subsidiaries requires approval from the ECB and the CBC.
The subsidiaries may proceed with dividend distributions in the form of cash
to BOC PCL, provided that they are not in breach of their regulatory capital
and liquidity requirements, where applicable. Certain subsidiaries have a
recommendation from their regulator to exercise caution and prudence regarding
dividend distributions and to consider the impact of COVID‑19 on their
operating models, solvency, liquidity and financial position.
Collateral requirements and other disclosures
Collateral requirements
The carrying values of the Group's encumbered assets as at 30 June 2022 and 31
December 2021 are summarised below:
30 June 31 December 2021
2022
€000 €000
Cash and other liquid assets 66,579 102,463
Investments 1,369,471 1,260,158
Loans and advances 3,283,003 3,126,803
4,719,053 4,489,424
Cash is mainly used to cover collateral required for derivatives, trade
finance transactions and guarantees issued. It may also be used as part of the
supplementary assets for the covered bond. The decrease in cash and other
liquid assets presented as encumbered assets during the six months ended 30
June 2022 was driven mainly by the decrease in cash encumbered for
derivatives.
As at 30 June 2022 and 31 December 2021, investments are mainly used as
collateral for ECB funding or as supplementary assets for the covered bond.
The increase in the investments presented as encumbered assets during the six
months ended 30 June 2022 was driven by the pledging of additional debt
securities to the ECB in anticipation of the gradual phasing out of the
pandemic collateral easing measures effective from 8 July 2022.
Loans and advances indicated as encumbered as at 30 June 2022 and 31 December
2021 are mainly used as collateral for funding from the ECB and the covered
bond.
Loans and advances to customers include mortgage loans of a nominal amount of
€1,005 million as at 30 June 2022 (31 December 2021: €1,007 million) in
Cyprus, pledged as collateral for the covered bond issued by BOC PCL in 2011
under its Covered Bond Programme. Furthermore as at 30 June 2022 housing loans
of a nominal amount of €2,223 million (31 December 2021: €2,091 million)
in Cyprus, are pledged as collateral for funding from the ECB.
BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered
Bonds legislation and the Covered Bonds Directive of the CBC. Under the
Covered Bond Programme, BOC PCL has in issue covered bonds of €650 million
secured by residential mortgages originated in Cyprus. The covered bonds have
a maturity date on 12 December 2026 and interest rate of 3 months Euribor plus
1.25% on a quarterly basis. On 9 August 2022, BOC PCL proceeded with an
amendment to the terms and conditions of the covered bonds following the
implementation of Directive (EU) 2019/2162 in Cyprus. The covered bonds are
listed on the Luxemburg Bourse. The covered bonds have a conditional Pass
Through structure. All the bonds are held by BOC PCL. The covered bonds are
eligible collateral for the Eurosystem credit operations and are placed as
collateral for accessing funding from the ECB.
Other disclosures
Deposits by banks include balances of €32,201 thousand as at 30 June 2022
(31 December 2021: €36,571 thousand) relating to borrowings from
international financial and similar institutions for funding, aiming to
facilitate access to finance and improve funding conditions for small or
medium sized enterprises, active in Cyprus. The carrying value of the
respective loans and advances granted to such enterprises serving this
agreement amounts to €62,735 thousand as at 30 June 2022 (31 December 2021:
€71,321 thousand).
32. Capital management
The primary objective of the Group's capital management is to ensure
compliance with the relevant regulatory capital requirements and to maintain
healthy capital adequacy ratios to cover the risks of its business and support
its strategy and maximise shareholders' value.
The capital adequacy framework, as in force, was incorporated through the
Capital Requirements Regulation (CRR) and Capital Requirements Directive IV
(CRD IV) which came into effect on 1 January 2014 with certain specified
provisions implemented gradually. The CRR and CRD transposed the new capital,
liquidity and leverage standards of Basel III into the European Union's legal
framework. CRR establishes the prudential requirements for capital, liquidity
and leverage for credit institutions. It is directly applicable in all EU
member states. CRD governs access to deposit taking activities and internal
governance arrangements including remuneration, board composition and
transparency. Unlike the CRR, member states were required to transpose the CRD
into national law and national regulators were allowed to impose additional
capital buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity Regulation (EU)
2019/876 (CRR II) and Directive (EU) 2019/878 (CRD V)) came into force. As an
amending regulation, the existing provisions of CRR apply unless they are
amended by CRR II. Certain provisions took immediate effect (primarily
relating to Minimum Requirement for Own Funds and Eligible Liabilities
(MREL)), but most changes became effective as of June 2021. The key changes
introduced consist of among others, changes to qualifying criteria for Common
Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2 (T2) instruments,
introduction of requirements for MREL and a binding Leverage Ratio requirement
(as defined in the CRR) and a Net Stable Funding Ratio (NSFR).
The amendments that came into effect on 28 June 2021 are in addition to those
introduced in June 2020 through Regulation (EU) 2020/873, which among other,
brought forward certain CRR II changes in light of the COVID 19 pandemic. The
main adjustments of Regulation (EU) 2020/873 that had an impact on the Group's
capital ratio relate to i) the acceleration of the CRR II provision for the
implementation of the new SME discount factor (lower RWAs), ii) extending the
IFRS 9 transitional arrangements and introducing further relief measures to
CET1 allowing to fully add back to CET1 any increase in ECL recognised in 2020
and 2021 for non‑credit impaired financial assets and phasing in this
starting from 2022 (phasing‑in at 25% in 2022) and iii) advancing the
application of prudential treatment of software assets as amended by CRR II
(which came into force in December 2020). In addition, Regulation (EU)
2020/873 introduced a temporary treatment of unrealized gains and losses on
exposures to central governments, to regional governments or to local
authorities measured at fair value through other comprehensive income which
the Group elected to apply and implemented from the third quarter of 2020.
The Group and BOC PCL have complied with the minimum capital requirements
(Pillar I and Pillar II).
In October 2021, the European Commission adopted legislative proposals for
further amendments to Capital Requirements Regulation (CRR), CRD IV and the
BRRD (the '2021 Banking Package'). Amongst other things, the 2021 Banking
Package would implement certain elements of Basel III that have not yet been
transposed into EU law. The 2021 Banking Package is subject to amendment in
the course of the EU's legislative process; and its scope and terms may change
prior to its implementation. In addition, in the case of the proposed
amendments to CRD and the BRRD, their terms and effect will depend, in part,
on how they are transposed in each member state. As a general matter, it is
likely to be several years until the 2021 Banking Package begins to be
implemented (currently expected in 2025); and certain measures are expected to
be subject to transitional arrangements or to be phased in over time.
The insurance subsidiaries of the Group, the General Insurance of Cyprus Ltd
and EuroLife Ltd, comply with the requirements of the Superintendent of
Insurance including the minimum solvency ratio. The regulated UCITS management
company of the Group, BOC Asset Management Ltd complies with the regulatory
capital requirements of the Cyprus Securities and Exchange Commission (CySEC)
laws and regulations. The regulated investment firm (CIF) of the Group, The
Cyprus Investment and Securities Corporation Ltd (CISCO) complies with the
minimum capital adequacy ratio requirements. CISCO has been classified as
Non‑Systemic 'Class 2' company under the prudential regime for Investment
Firms and is subject to the new IFR/IFD regime in full. The payment services
subsidiary of the Group, JCC Payment Services Ltd, complies with the
regulatory capital requirements.
Additional information on regulatory capital is disclosed in 'Additional Risk
and Capital Management Disclosures' included in the Interim Financial Report
2022 and in the 'Interim Pillar III disclosures 2022', which are available on
the Group's website.
33. Related party transactions
Related parties of the Group include associates and joint ventures, key
management personnel, members of the Board of Directors and their connected
persons.
Fees and emoluments of members of the Board of Directors and other key
management personnel
Six months ended
30 June
2022 2021
Director emoluments €000 €000
Executives
Salaries and other short‑term benefits 523 337
Employer's contributions 20
35
Retirement benefit plan costs 30
44
602 387
Non‑executives
Fees 663 615
Total directors' emoluments 1,265 1,002
Other key management personnel emoluments
Salaries and other short‑term benefits 1,397 1,792
Employer's contributions 163 138
Retirement benefit plan costs 105 100
Total other key management personnel emoluments 1,665 2,030
Total 2,930 3,032
The fees of the non‑executive Directors include fees as members of the Board
of Directors of the Company and its subsidiaries, as well as of committees of
the Board of Directors.
Other key management personnel
The other key management personnel emoluments include the remuneration of the
members of the Executive Committee since the date of their appointment to the
Committee and other members of the Senior Management team (Extended EXCO)
(prior to the change in the Group organisational structure, those members of
the management team who report directly to the Chief Executive Officer or to
the Deputy Chief Executive Officer & Chief of Business). Mrs Eliza
Livadiotou has been appointed as member of the Board of Directors from 6
October 2021 and her emoluments from that date onwards are disclosed within
the Executive Directors emoluments above.
Aggregate amounts outstanding and additional transactions
The table below shows the loans and advances, deposits and other credit
balances held by the members of the Board of Directors and key management
personnel and their connected persons, as at the balance sheet date:
30 June 31 December 2021
2022
Loans and advances €000 €000
‑ members of the Board of Directors and other key management personnel 2,504 2,364
‑ connected persons 773 164
3,277 2,528
Deposits
‑ members of the Board of Directors and other key management personnel 5,127 2,687
‑ connected persons 3,145 2,254
8,272 4,941
Accruals and other liabilities
‑ balances with entity providing key management personnel services n/a 1,199
The above table does not include period/year‑end balances for members of the
Board of Directors and other key management personnel and their connected
persons who resigned during the year.
The aggregate expected credit loss allowance of the above loans and credit
facilities is below €7 thousand as at 30 June 2022. All interest that has
fallen due on these loans or credit facilities has been paid.
All transactions with members of the Board of Directors and their connected
persons are made on normal business terms as for comparable transactions,
including interest rates, with customers of a similar credit standing. A
number of loans and advances have been extended to other key management
personnel on the same terms as those applicable to the rest of the Group's
employees and to their connected persons on the same terms as those of
customers.
Connected persons include spouses, minor/dependent children and companies in
which directors/other key management personnel, hold directly or indirectly,
at least 20% of the voting shares in a general meeting, or act as executive
director or exercise control of the entities in any way.
Related parties also include entities providing key management personnel
services to the Group.
The table below discloses interest, commission and insurance premium income,
as well other transactions and expenses with the members of the Board of
Directors, key management personnel and their connected persons for the
reference period.
Six months ended
30 June
2022 2021
€000 €000
Interest income for the period 366
29
Commission income for the period 1
3
Insurance premium income for the period 206 160
Subscriptions and insurance expenses for the period 488 348
Staff costs, consultancy and restructuring expenses with entity providing key - 7,035
management personnel services
Interest income and expense are disclosed for the period during which they
were members of the Board of Directors or served as key management personnel.
During the six months ended 30 June 2022 connected persons of key management
personnel transacted with REMU for the purchase of a property amounting to
€58 thousand (30 June 2021: nil). The transaction is made on normal business
terms as for comparable transactions with third parties.
In addition to loans and advances, there were contingent liabilities and
commitments in respect of members of the Board of Directors and their
connected persons, mainly in the form of documentary credits, guarantees and
commitments to lend, amounting to €130 thousand as at 30 June 2022 (31
December 2021: €133 thousand).
There were also contingent liabilities and commitments to key management
personnel and their connected persons amounting to €1,181 thousand as at 30
June 2022 (31 December 2021: €573 thousand).
The total unsecured amount of the loans and advances and contingent
liabilities and commitments to members of the Board of Directors, key
management personnel and connected persons (using forced‑sale values for
tangible collaterals and assigning no value to other types of collaterals) at
30 June 2022 amounted to €1,290 thousand (31 December 2021: €774
thousand).
During the six months ended 30 June 2022 premiums of €94 thousand (six
months ended 30 June 2021: €68 thousand) and claims of €20 thousand (six
months ended 30 June 2021: €15 thousand) were paid between the members of
the Board of Directors of the Company and their connected persons and the
insurance subsidiaries of the Group.
There were no other transactions during the six months ended 30 June 2022 and
the year ended 31 December 2021 with connected persons of the current members
of the Board of Directors or with any members who resigned during the
period/year.
34. Group companies
The main subsidiary companies and branches included in the Consolidated
Financial Statements of the Group, their country of incorporation, their
activities and the percentage held by the Company (directly or indirectly) as
at 30 June 2022 are:
Company Country Activities Percentage
holding
(%)
Bank of Cyprus Holdings Public Limited Company Ireland Holding company n/a
Bank of Cyprus Public Company Ltd Cyprus Commercial bank 100
EuroLife Ltd Cyprus Life insurance 100
General Insurance of Cyprus Ltd Cyprus Non‑life insurance 100
JCC Payment Systems Ltd Cyprus Card processing transaction services 75
The Cyprus Investment and Securities Corporation Ltd (CISCO) Cyprus Investment banking and brokerage 100
BOC Asset Management Ltd Cyprus Management administration and safekeeping of UCITS Units 100
LCP Holdings and Investments Public Ltd Cyprus Investments in securities and participations in companies and schemes that are 67
active in various business sectors and projects
Kermia Ltd Cyprus Property trading and development 100
Kermia Properties & Investments Ltd Cyprus Property trading and development 100
S.Z. Eliades Leisure Ltd Cyprus Land development and operation of a golf resort 70
Auction Yard Ltd Cyprus Auction company 100
BOC Secretarial Company Ltd Cyprus Secretarial services 100
Bank of Cyprus Public Company Ltd (branch of BOC PCL) Greece Administration of guarantees and holding of real estate properties n/a
BOC Asset Management Romania S.A. Romania Collection of the existing portfolio of receivables, including third party 100
collections
MC Investment Assets Management LLC Russia Problem asset management company 100
Fortuna Astrum Ltd Serbia Problem asset management company 100
In addition to the above companies, as at 30 June 2022 BOC PCL had 100%
shareholding in the companies listed below, whose activity is the ownership
and management of immovable property:
Cyprus: Hamura Properties Ltd, Noleta Properties Ltd, Tolmeco Properties Ltd,
Arlona Properties Ltd, Dilero Properties Ltd, Ensolo Properties Ltd, Pelika
Properties Ltd, Cobhan Properties Ltd, Innerwick Properties Ltd, Ramendi
Properties Ltd, Nalmosa Properties Ltd, Emovera Properties Ltd, Estaga
Properties Ltd, Skellom Properties Ltd, Blodar Properties Ltd, Tebane
Properties Ltd, Cranmer Properties Ltd, Les Coraux Estates Ltd, Natakon
Company Ltd, Oceania Ltd, Dominion Industries Ltd, Ledra Estate Ltd, EuroLife
Properties Ltd, Laiki Lefkothea Center Ltd, Labancor Ltd, Joberco Ltd, Zecomex
Ltd, Domita Estates Ltd, Memdes Estates Ltd, Thryan Properties Ltd, Edoric
Properties Ltd, Canosa Properties Ltd, Kernland Properties Ltd, Jobelis
Properties Ltd, Melsolia Properties Ltd, Koralmon Properties Ltd, Spacous
Properties Ltd, Calinora Properties Ltd, Marcozaco Properties Ltd, Soluto
Properties Ltd, Solomaco Properties Ltd, Linaland Properties Ltd, Unital
Properties Ltd, Neraland Properties Ltd, Wingstreet Properties Ltd, Nolory
Properties Ltd, Lynoco Properties Ltd, Fitrus Properties Ltd, Lisbo Properties
Ltd, Mantinec Properties Ltd, Colar Properties Ltd, Irisa Properties Ltd,
Provezaco Properties Ltd, Hillbay Properties Ltd, Ofraco Properties Ltd,
Forenaco Properties Ltd, Hovita Properties Ltd, Astromeria Properties Ltd,
Regetona Properties Ltd, Arcandello Properties Ltd, Camela Properties Ltd,
Fareland Properties Ltd, Barosca Properties Ltd, Fogland Properties Ltd,
Tebasco Properties Ltd, Homirova Properties Ltd, Valecross Properties Ltd,
Altco Properties Ltd, Olivero Properties Ltd, Jaselo Properties Ltd, Elosa
Properties Ltd, Flona Properties Ltd, Toreva Properties Ltd, Resoma Properties
Ltd, Mostero Properties Ltd, Helal Properties Ltd, Pendalo Properties Ltd,
Frontyard Properties Ltd, Bonsova Properties Ltd, Garmozy Properties Ltd,
Palmco Properties Ltd, Thermano Properties Ltd, Venicous Properties Ltd,
Lorman Properties Ltd, Eracor Properties Ltd, Rulemon Properties Ltd, Thelemic
Properties Ltd, Maledico Properties Ltd, Dentorio Properties Ltd, Valioco
Properties Ltd, Bascone Properties Ltd, Balasec Properties Ltd, Bendolio
Properties Ltd, Diafor Properties Ltd, Kartama Properties Ltd, Paradexia
Properties Ltd, Paramina Properties Ltd, Nouralia Properties Ltd, Resocot
Properties Ltd, Soblano Properties Ltd, Talamon Properties Ltd, Weinar
Properties Ltd, Zemialand Properties Ltd, Asianco Properties Ltd, Cimonia
Properties Ltd, Coeval Properties Ltd, Comenal Properties Ltd, Finevo
Properties Ltd, Mazima Properties Ltd, Nesia Properties Ltd, Nigora Properties
Ltd, Riveland Properties Ltd, Rosalica Properties Ltd, Secretsky Properties
Ltd, Senadaco Properties Ltd, Tasabo Properties Ltd, Venetolio Properties Ltd,
Zandexo Properties Ltd, Flymoon Properties Ltd, Meriaco Properties Ltd, Odolo
Properties Ltd, Calandomo Properties Ltd, Molemo Properties Ltd, Nivamo
Properties Ltd, Samilo Properties Ltd, Sendilo Properties Ltd, Baleland
Properties Ltd, Prodino Properties Ltd, Alezia Properties Ltd, Zenoplus
Properties Ltd, Alepar Properties Ltd, Enelo Properties Ltd, Monata Properties
Ltd and Vertilia Properties Ltd.
Romania: Otherland Properties Dorobanti SRL, Green Hills Properties SRL,
Imoreth Properties SRL, Inroda Properties SRL, Zunimar Properties SRL, Allioma
Properties SRL and Nikaba Properties SRL.
Further, at 30 June 2022 BOC PCL had 100% shareholding in Obafemi Holdings
Ltd, Stamoland Properties Ltd, Unoplan Properties Ltd, Petrassimo Properties
Ltd and Gosman Properties Ltd.
The main activities of the above companies are the holding of shares and other
investments and the provision of services.
At 30 June 2022 BOC PCL had 100% shareholding in BOC Terra AIF V.C.I Plc which
is a real estate alternative investment fund.
At 30 June 2022 BOC PCL had 100% shareholding in the companies listed below
which are reserved to accept property:
Cyprus: Tavoni Properties Ltd, Amary Properties Ltd, Holstone Properties Ltd,
Cramonco Properties Ltd, Aktilo Properties Ltd, Aparno Properties Ltd,
Stormino Properties Ltd, Lomenia Properties Ltd, Carilo Properties Ltd, Gelimo
Properties Ltd, Rifelo Properties Ltd, Avaleto Properties Ltd, Midelox
Properties Ltd, Ameleto Properties Ltd, Orilema Properties Ltd, Montira
Properties Ltd, Larizemo Properties Ltd and Olisto Properties Ltd.
In addition, BOC PCL holds 100% of the following intermediate holding
companies:
Cyprus: Otherland Properties Ltd, Battersee Properties Ltd, Bonayia Properties
Ltd, Janoland Properties Ltd, Imoreth Properties Ltd, Inroda Properties Ltd,
Zunimar Properties Ltd, Nikaba Properties Ltd, Allioma Properties Ltd,
Landanafield Properties Ltd and Hydrobius Ltd.
BOC PCL also holds 100% of the following companies which are inactive:
Cyprus: Birkdale Properties Ltd, Laiki Bank (Nominees) Ltd, Thames Properties
Ltd, Folimo Properties Ltd, Paneuropean Ltd, Philiki Ltd, Nelcon Transport Co.
Ltd, Weinco Properties Ltd, Iperi Properties Ltd, Finerose Properties Ltd,
CYCMC II Ltd, CYCMC IV Ltd, Steparco Ltd, Trecoda Properties Ltd and Romaland
Properties Ltd.
Greece: Kyprou Zois (branch of EuroLife Ltd), Kyprou Asfalistiki (branch of
General Insurance of Cyprus Ltd), Kyprou Commercial SA and Kyprou Properties
SA.
All Group companies are accounted for as subsidiaries using the full
consolidation method. All companies listed above have share capital consisting
of ordinary shares.
Acquisitions of subsidiaries
During the six months ended 30 June 2022 and during 31 December 2021 there
were no acquisitions of subsidiaries.
Dissolution and disposal of subsidiaries
There were no material disposals of subsidiaries during the six months ended
30 June 2022. Renalandia Properties Ltd, Crolandia Properties Ltd, Elosis
Properties Ltd, Pariza Properties Ltd, Prosilia Properties Ltd, Otoba
Properties Ltd, Dolapo Properties Ltd, Nivoco Properties Ltd, Polkima
Properties Ltd and Fledgego Properties Ltd were dissolved during the six
months ended 30 June 2022. Vieman Ltd, Edilia Properties Ltd, Limoro
Properties Ltd, Stevolo Properties Ltd, Yossi Properties Ltd and Jalimo
Properties Ltd were disposed off during the six months ended 30 June 2022.
As at 30 June 2022, the following subsidiaries were in the process of
dissolution or in the process of being struck off: Fantasio Properties Ltd,
Demoro Properties Ltd, Bramwell Properties Ltd, Blindingqueen Properties Ltd,
Buchuland Properties Ltd, Fairford Properties Ltd, Salecom Ltd, Sylvesta
Properties Ltd, Bocaland Properties Ltd, Tantora Properties Ltd, Selilar
Properties Ltd, Cyprialife Ltd, Imperial Life Assurances Ltd, Philiki
Management Services Ltd and Battersee Real Estate SRL.
35. Investments in associates and joint venture
Percentage holding Type of investment
(%)
Aris Capital Management LLC 30.0 Associate
Rosequeens Properties Limited 33.3 Associate
Rosequeens Properties SRL 33.3 Associate
Tsiros (Agios Tychon) Ltd 50.0 Joint Venture
Fairways Automotive Holdings Ltd 45.0 Associate
The carrying values of the investments in associates and joint venture are
considered to be fully impaired and their value has been restricted to zero.
Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc
(Apollo)
In March 2021, the Group completed the sale of its entire holding of 34.2% of
the UCITS of Apollo. The Group considered that it exercised significant
influence over Apollo even though no Board representation existed, because due
to its UCITS holdings, it possessed the power to potentially appoint members
of the Board of Directors. During the year ended 31 December 2021, an amount
of €137 thousand was recognised in the consolidated income statement as the
Group's share of profit from Apollo. The loss on the sale of the investment in
associate amounted to €97 thousand and has been recognised in 'Other Income'
during the year ended 31 December 2021.
36. Events after the reporting period
Voluntary exit plan
In July 2022, the Group proceeded with a VEP for its employees, with a cost of
around €99 million. In total around 550 employees accepted the VEP and are
expected to leave the Group in the second half of 2022.
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. END IR FIFSETRILVIFRecent news on Bank of Cyprus Holdings
See all newsREG - Bank of Cyprus Hldgs - BOCH – Total voting rights and Capital
AnnouncementREG - Bank of Cyprus Hldgs - BOCH - Transactions in Own Shares
AnnouncementREG - Bank of Cyprus Hldgs - Appointments of New Directors
AnnouncementREG - Bank of Cyprus Hldgs - Transaction in Own Shares
AnnouncementREG - Bank of Cyprus Hldgs - Date of announcement of 1Q2024 FR
Announcement