REG - Bank of Cyprus Hldgs - Interim Financial Report 2024
08/08/2024 07:15
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RNS Number : 7007Z Bank of Cyprus Holdings PLC 08 August 2024
BANK OF CYPRUS HOLDINGS
INTERIM FINANCIAL REPORT 2024
BANK OF CYPRUS HOLDINGS GROUP Interim Financial Report 2024
Ιnterim Financial Report
Six months ended 30 June 2024
Contents Page
Board of Directors and Executives 1
Forward Looking Statements and Notes 2
Interim Management Report 3
Risk and Capital Management Report 33
Consolidated Condensed Interim Financial statements
Interim Consolidated Income Statement 69
Interim Consolidated Statement of Comprehensive Income 70
Interim Consolidated Balance Sheet 71
Interim Consolidated Statement of Changes in Equity 72
Interim Consolidated Statement of Cash Flows 74
Notes to the Consolidated Condensed Interim Financial Statements
1. Corporate information 76
2. Unaudited financial statements 76
3. Summary of accounting policies 76
4. Going concern 80
5. Economic and geopolitical environment 80
6. Significant and other judgements, estimates and assumptions 81
7. Segmental analysis 89
8. Interest income and income similar to interest income 95
9. Interest expense and expense similar to interest expense 96
10. Net gains on financial instruments 96
11. Staff costs 97
12. Other operating expenses 98
13. Credit losses on financial assets and impairment net of reversals on 100
non‑financial assets
14. Income tax 101
15. Earnings per share 103
16. Investments 103
17. Derivative financial instruments 107
18. Fair value measurement 110
19. Loans and advances to customers 116
20. Stock of property 118
21. Prepayments, accrued income and other assets 119
22. Funding from central banks 119
23. Customer deposits 120
24. Debt securities in issue and Subordinated liabilities 121
25. Accruals, deferred income, other liabilities and other provisions 123
26. Share capital 123
27. Distributions 125
28. Provisions for pending litigations, claims, regulatory and other matters 125
29. Contingent liabilities and commitments 131
30. Cash and cash equivalents 132
31. Analysis of assets and liabilities by expected maturity 133
32. Risk management ‑ Credit risk 134
33. Risk management ‑ Market risk 149
34. Risk management ‑ Liquidity and funding risk 152
35. Risk management ‑ Insurance risk 156
36. Capital management 158
37. Related party transactions 159
38. Group companies 161
39. Investments in associates and joint venture 163
40. Events after the reporting period 163
Independent Review Report to Bank of Cyprus Holdings Public Limited Company 164
Alternative Performance Measures Disclosures 166
BANK OF CYPRUS HOLDINGS GROUP Interim Financial Report 2024
Board of Directors and Executives
as at 7 August 2024
Board of Directors of Bank of Cyprus Holdings Public Limited Company Efstratios‑Georgios Arapoglou
CHAIRMAN
Lyn Grobler
VICE‑CHAIRPERSON
Panicos Nicolaou
Eliza Livadiotou
Monique Eugenie Hemerijck
Adrian John Lewis
Christian Philipp Hansmeyer
William Stuart Birrell
Executive Committee Panicos Nicolaou
CHIEF EXECUTIVE OFFICER
Dr. Charis Pouangare
DEPUTY CHIEF EXECUTIVE OFFICER & CHIEF OF BUSINESS
Eliza Livadiotou
EXECUTIVE DIRECTOR FINANCE
Demetris Th. Demetriou
CHIEF RISK OFFICER
Irene Gregoriou Pavlidi
EXECUTIVE DIRECTOR PEOPLE & CHANGE
George Kousis
EXECUTIVE DIRECTOR TECHNOLOGY & OPERATIONS
Company Secretary Katia Santis
Legal Advisers as to matters of Irish Law Arthur Cox
Legal Advisers as to matters of English and US Law Sidley Austin LLP
Legal Advisers as to matters of Cypriot Law Chryssafinis & Polyviou LLC
Statutory Auditors PricewaterhouseCoopers
One Spencer Dock
North Wall Quay
Dublin 1
D01 X9R7
Ireland
Registered Office 10 Earlsfort Terrace
Dublin 2
D02 T380
Ireland
BANK OF CYPRUS HOLDINGS GROUP Interim Financial Report 2024
Forward Looking Statements and Notes
This document contains certain forward‑looking statements which can usually
be identified by terms used such as 'expect', 'should be', 'will be' and
similar expressions or variations thereof or their negative variations, but
their absence does not mean that a statement is not forward‑looking.
Examples of forward‑looking statements include, but are not limited to,
statements relating to the Bank of Cyprus Holdings Group's (the Group) near
term and longer term future capital requirements and ratios, intentions,
beliefs or current expectations and projections about the Group's future
results of operations, financial condition, the level of the Group's assets,
liquidity, performance, prospects, anticipated growth, provisions,
impairments, business strategies and opportunities. By their nature,
forward‑looking statements involve risk and uncertainty because they relate
to events, and depend upon circumstances, that will or may occur in the
future. Factors that could cause actual business, strategy and/or results to
differ materially from the plans, objectives, expectations, estimates and
intentions expressed in such forward‑looking statements made by the Group
include, but are not limited to: general economic and political conditions in
Cyprus and other European Union (EU) Member States, interest rate and foreign
exchange rate fluctuations, legislative, fiscal and regulatory developments
and information technology, litigation and other operational risks, adverse
market conditions, the impact of outbreaks, epidemics or pandemics, and
geopolitical developments as well as uncertainty over the scope of actions
that may be required by us, governments and other to achieve goals relating to
climate, environmental and social matters, as well as the evolving nature of
underlying science and industry and governmental standards and regulations.
This creates significantly greater uncertainty about forward‑looking
statements. Should any one or more of these or other factors materialise, or
should any underlying assumptions prove to be incorrect, the actual results or
events could differ materially from those currently being anticipated as
reflected in such forward‑looking statements. Further, forward‑looking
statements may be affected by changes in reporting frameworks and accounting
standards, including practices with regard to the interpretation and
application thereof and emerging and developing ESG reporting standards. The
forward‑looking statements made in this document are only applicable as at
the date of publication of this document. Except as required by any applicable
law or regulation, the Group expressly disclaims any obligation or undertaking
to release publicly any updates or revisions to any forward‑looking
statement contained in this document to reflect any change in the Group's
expectations or any change in events, conditions or circumstances on which any
statement is based.
Non‑IFRS performance measures
Bank of Cyprus Holdings Public Limited Company's (the Company) management
believes that the non‑IFRS performance measures included in this document
provide valuable information to the readers of the Interim Financial Report as
they enable the readers to identify a more consistent basis for comparing the
Group's performance between financial periods and provide more detail
concerning the elements of performance which management are directly able to
influence or are relevant for an assessment of the Group. They also reflect an
important aspect of the way in which the operating targets are defined and
performance is monitored by the Group's management. However, any non‑IFRS
performance measures in this document are not a substitute for IFRS measures
and readers should consider the IFRS measures as the key measures of the 30
June position. Refer to 'Alternative Performance Measures Disclosures' on
pages 166 to 180 of the Interim Financial Report for the six months ended 30
June 2024 for further information and calculations of non‑IFRS performance
measures included throughout this document and their reconciliation to the
most directly comparable IFRS measures included in the Consolidated Condensed
Interim Financial Statements.
The Interim Financial Report for the six months ended 30 June 2024 is
available on the Group's website
www.bankofcyprus.com (Group/Investor Relations) (the Group's website).
The Interim Financial Report for the six months ended 30 June 2024 is
originally issued in English. The Greek translation of the Interim Financial
Report for the six months ended 30 June 2024 will be available on the Group's
website by 14 August 2024. In case of a difference or inconsistency between
the English document and the Greek document, the English document prevails.
INTERIM MANAGEMENT REPORT 2024
The Interim Financial Report relates to Bank of Cyprus Holdings Public Limited
Company (the Company) and together with its subsidiaries the Group, which was
listed on the London Stock Exchange ('LSE') and the Cyprus Stock Exchange
('CSE') as at 30 June 2024.
Activities
The Company is the holding company of the Group and of Bank of Cyprus Public
Company Ltd ('BOC PCL' or the 'Bank'). The principal activities of BOC PCL and
its subsidiary companies involve the provision of banking, financial, and
insurance services and the management and disposal of property predominately
acquired in exchange of debt.
All Group companies and branches are set out in Note 38 to the Consolidated
Condensed Interim Financial Statements. The Group has established branches in
Greece. There were no acquisitions of subsidiaries and no material disposals
of subsidiaries during the six months ended 30 June 2024. Information on Group
companies and acquisitions and disposals during the period are detailed in
Note 38 to the Consolidated Condensed Interim Financial Statements.
Group financial results on the underlying basis
Commentary on underlying basis
The financial information presented in this section provides an overview of
the Group financial results for the six months ended 30 June 2024 on the
'underlying basis', which management believes best fits the true measurement
of the performance and position of the Group, as this presents separately any
non-recurring items and also includes certain reclassifications of items,
other than non-recurring items, which are done for presentational purposes
under the underlying basis for aligning their presentation with items of a
similar nature.
Reconciliations between the statutory basis and the underlying basis to
facilitate the comparability of the underlying basis to the statutory
information, are included in section 'Reconciliation of the Interim
Consolidated Income Statement for the six months ended 30 June 2024 between
the statutory basis and the underlying basis' and 'Alternative Performance
Measures Disclosures' of the Interim Financial Report 2024.
The main financial highlights for the six months ended 30 June 2024 are set
out below:
Interim Consolidated Income Statement on the underlying basis
€ million Six months ended
30 June
2024(1) 2023(1)
Net interest income 420 358
Net fee and commission income 86 90
Net foreign exchange gains and net gains on financial instruments 13 21
Net insurance result 23 25
Net gains/(losses) from revaluation and disposal of investment properties and 2 5
on disposal of stock of properties
Other income 5 12
Total income 549 511
Staff costs (96) (93)
Other operating expenses (71) (69)
Special levy on deposits and other levies/contributions (19) (18)
Total expenses (186) (180)
Operating profit 363 331
Loan credit losses (16) (24)
Impairments of other financial and non‑financial assets (25) (30)
Provisions for pending litigations, claims, regulatory and other matters (net (3) (14)
of reversals)
Total loan credit losses, impairments and provisions (44) (68)
Profit before tax and non‑recurring items 319 263
Tax (48) (40)
Profit attributable to non‑controlling interests (1) (1)
Profit after tax and before non‑recurring items (attributable to the owners 270 222
of the Company)
Advisory and other transformation costs ‑ organic - (2)
Profit after tax (attributable to the owners of the Company) 270 220
1. The financial information is derived from and should be read in
conjunction with the accompanied Consolidated Condensed Interim Financial
Statements.
Group financial results on the underlying basis (continued)
Interim Consolidated Income Statement on the underlying basis (continued)
Key Performance Ratios Six months ended
30 June
2024 2023
Net interest margin (annualised) 3.66% 3.17%
Net interest margin (annualised) excluding TLTRO III 3.79% 3.48%
Cost to income ratio 34% 35%
Cost to income ratio excluding special levy on deposits and other 30% 32%
levies/contributions
Operating profit return on average assets (annualised) 2.8% 2.6%
Basic profit per share attributable to the owners of the Company (€)(1) 0.61 0.49
Return (annualised) on tangible equity (ROTE) 23.7% 24.0%
Return (annualised) on tangible equity (ROTE) on 15% CET1 ratio(2) 29.6% 25.3%
Tangible book value per share(3) (€) 5.27 4.34
1. The diluted earnings per share attributable to the owners of the
Company as at 30 June 2024 amounted to €0.60.
2. Calculated as Profit/(loss) after tax (attributable to the owners
of the Company) (annualised - based on year-to-date days), divided by the
quarterly average of Shareholders' equity minus intangible assets and after
deducting the excess CET1 capital on a 15% CET1 ratio from the tangible
shareholders' equity.
3. Tangible book value per share is calculated based on number of
shares in issue at the end of the period, excluding treasury shares.
Interim Consolidated Balance Sheet on the underlying basis
€ million 30 June 31 December
2024(1) 2023(1)
Cash and balances with central banks 7,287 9,615
Loans and advances to banks 384 385
Reverse repurchase agreements 1,015 403
Debt securities, treasury bills and equity investments 3,959 3,695
Net loans and advances to customers 10,085 9,822
Stock of property 764 826
Investment properties 56 62
Other assets 1,916 1,821
Total assets 25,466 26,629
Deposits by banks 405 472
Funding from central banks - 2,044
Customer deposits 19,723 19,337
Debt securities in issue 971 672
Subordinated liabilities 313 307
Other liabilities 1,425 1,309
Total liabilities 22,837 24,141
Shareholders' equity 2,387 2,247
Other equity instruments 220 220
Total equity excluding non‑controlling interests 2,607 2,467
Non‑controlling interests 22 21
Total equity 2,629 2,488
Total liabilities and equity 25,466 26,629
1. The financial information is derived from and should be
read in conjunction with the accompanied Consolidated Condensed Interim
Financial Statements.
Group financial results on the underlying basis (continued)
Interim Consolidated Balance Sheet on the underlying basis (continued)
Key Balance Sheet figures and ratios 30 June 31 December 2023
2024
Gross loans (€ million) 10,318 10,070
Allowance for expected loan credit losses (€ million) 251 267
Customer deposits (€ million) 19,723 19,337
Loans to deposits ratio (net) 51% 51%
NPE ratio 2.8% 3.6%
NPE coverage ratio 85% 73%
Leverage ratio 10.1% 9.1%
Capital ratios and risk weighted assets 30 June 31 December 2023 (Regulatory)(2)
2024
(Regulatory)(1)
Common Equity Tier 1 (CET1) ratio (transitional) 18.3% 17.4%
Total capital ratio (transitional) 23.3% 22.4%
Risk weighted assets (RWAs) (€ million) 10,580 10,341
(1. ) Includes reviewed profits for the six months ended 30 June 2024
net of distribution accrual (refer to section 'Capital Base'). Any
recommendation for a distribution is subject to regulatory approval.
(2. ) Includes profits for the year ended 31 December 2023 net of
distribution at 30% payout ratio, following ECB approval in March 2024 (refer
to section 'Capital Base').
Group financial results on the underlying basis (continued)
Reconciliation of the Interim Consolidated Income Statement for the six months
ended 30 June 2024 between the statutory basis and the underlying basis
€ million Underlying basis Other Statutory
basis
Net interest income 420 - 420
Net fee and commission income 86 - 86
Net foreign exchange gains and net gains on financial instruments 13 - 13
Net gains on derecognition of financial assets measured at amortised cost - 1 1
Net insurance result* 23 - 23
Net gains/(losses) from revaluation and disposal of investment properties and 2 - 2
on disposal of stock of property
Other income 5 - 5
Total income 549 1 550
Total expenses (186) (3) (189)
Operating profit 363 (2) 361
Loan credit losses (16) 16 -
Impairment of other financial and non-financial assets (25) 25 -
Provisions for pending litigations, claims, regulatory and other matters (net (3) 3 -
of reversals)
Credit losses on financial assets and impairment net of reversals of - (42) (42)
non-financial assets
Profit before tax and non-recurring items 319 - 319
Tax (48) - (48)
Profit attributable to non-controlling interests (1) - (1)
Profit after tax (attributable to the owners of the Company) 270 - 270
* Net insurance result per underlying basis comprises the aggregate of
captions 'Net insurance finance income/(expense) and net reinsurance finance
income/(expense)', 'Net insurance service result' and 'Net reinsurance service
result' per the statutory basis.
The reclassification differences between the statutory basis and the
underlying basis are explained below:
· 'Net gains on derecognition of financial assets measured at
amortised cost' of €1 million under the statutory basis comprise net gains
on derecognition of loans and advances to customers included in 'Loan credit
losses' under the underlying basis as to align their presentation with the
loan credit losses on loans and advances to customers.
· 'Provisions for pending litigations, claims, regulatory and other
matters (net of reversals)' amounting to €3 million presented within
'Operating profit before credit losses and impairment' under the statutory
basis, are presented under the underlying basis in conjunction with loan
credit losses and impairments.
· 'Credit losses on financial assets' and 'Impairment net of
reversals of non-financial assets' under the statutory basis include: i)
credit losses to cover credit risk on loans and advances to customers of €17
million, which are included in 'Loan credit losses' under the underlying
basis, and ii) credit losses of other financial assets of €0.3 million and
impairment net of reversals of non-financial assets of €25 million, which
are included in 'Impairment of other financial and non-financial assets' under
the underlying basis, as to be presented separately from loan credit losses.
Balance Sheet Analysis
Capital Base
Total equity excluding non-controlling interests totalled €2,607 million as
at 30 June 2024 compared to €2,467 million as at 31 December 2023.
Shareholders' equity totalled to €2,387 million as at 30 June 2024 compared
to €2,247 million as at 31 December 2023.
The regulatory Common Equity Tier 1 capital (CET1) ratio on a transitional
basis stood at 18.3% as at 30 June 2024 compared to 17.4% as at 31 December
2023. Throughout this Interim Management Report, the regulatory capital ratios
as at 30 June 2024 include reviewed profits for the six months ended 30 June
2024 in line with the ECB Decision (EU) (2015/656) on the recognition of
interim or year-end profits in CET1 capital in accordance with Article 26(2)
of the CRR, net of distribution accrual at the top end of the Group's approved
distribution policy in line with Commission Delegated Regulation (EU) No
241/2014 principles, (such ratios are referred to as regulatory). As per the
latest SREP decision, any distribution is subject to regulatory approval. Such
distribution accrual in respect of 2024 earnings does not constitute a binding
commitment for a distribution payment nor does it constitute a warranty or
representation that such a payment will be made. Since September 2023, a
charge is deducted from own funds in relation to the ECB prudential
expectations for NPEs, which amounted to 26 basis points as at 30 June 2024,
compared to 32 basis points as at 31 December 2023. A prudential charge in
relation to an onsite inspection on the value of the Group's foreclosed assets
is being deducted from own funds since June 2021, the impact of which was 7
basis points on Group's CET1 ratio as at 30 June 2024 (compared to 12 basis
points on Group's CET1 ratio as at 31 December 2023). In addition, the Group
is subject to increased capital requirements in relation to its real estate
repossessed portfolio, which follow a SREP provision to ensure minimum capital
levels retained on long-term holdings of real estate assets, with such
requirements being dynamic by reference to the in-scope REMU assets remaining
on the balance sheet of the Group and the value of such assets. As at 30 June
2024, the impact of these requirements was 47 basis points on Group's CET1
ratio, compared to 24 basis points as at 31 December 2023. The above-mentioned
requirements are within the capital plans of the Group and incorporated within
its capital projections.
The regulatory Total Capital ratio on a transitional basis stood at 23.3% as
at 30 June 2024 compared to 22.4% as at 31 December 2023.
The Group's capital ratios are above the Supervisory Review and Evaluation
Process (SREP) requirements.
On 30 November 2022, the CBC, following the revised methodology described in
its macroprudential policy, decided to increase the CcyB from 0.00% to 0.50%
of the total risk exposure amounts in Cyprus of each licensed credit
institution incorporated in Cyprus effective from 30 November 2023. Further,
in June 2023, the CBC announced an additional increase of 0.50% in the CcyB of
the total risk exposure amounts in Cyprus of each licensed credit institution
incorporated in Cyprus effective from June 2024, increasing the CcyB to 1.00%.
As a result, the CcyB for the Group as at 30 June 2024 amounted to
approximately 0.94%.
The Bank has been designated as an Other Systemically Important Institution
(O-SII) by the Central Bank of Cyprus (CBC) in accordance with the provisions
of the Macroprudential Oversight of Institutions Law of 2015 and the relevant
buffer increased by 37.5 basis points to 1.875% on 1 January 2024. In April
2024, following a revision by the CBC of its policy for the designation of
credit institutions that meet the definition of O-SII institutions and the
setting of O-SII buffer to be observed, the Group's O-SII buffer has been
reduced to 2.00% on 1 January 2026 (from the previous assessment of 2.25% on 1
January 2025) to be phased by 6.25 basis points annually, to 1.9375% on 1
January 2025 and 2.00% as of 1 January 2026 from the current level of 1.875%.
As at 30 June 2024, the Group's minimum phased-in CET1 capital ratio
requirement is set at 11.36%, comprising a 4.50% Pillar I requirement, a 1.55%
Pillar II requirement, the Capital Conservation Buffer of 2.50%, the O-SII
Buffer of 1.875% and CcyB of approximately 0.94%. Likewise, the Group's
minimum phased-in Total Capital ratio requirement is set at 16.06%, comprising
an 8.00% Pillar I requirement, of which up to 1.50% can be in the form of AT1
capital and up to 2.00% in the form of T2 capital, a 2.75% Pillar II
requirement, the Capital Conservation Buffer of 2.50%, the O-SII Buffer of
1.875% and the CcyB of approximately 0.94%. The ECB has also provided revised
lower non-public guidance for an additional Pillar II CET1 buffer (P2G)
compared to previous year.
Balance Sheet Analysis (continued)
Capital Base (continued)
Own funds held for the purposes of P2G cannot be used to meet any other
capital requirements (Pillar I, Pillar II requirements or the combined buffer
requirement), and therefore cannot be used twice.
The Group's minimum phased-in CET1 capital ratio requirement as at 31 December
2023 was set at 10.72%, comprising a 4.50% Pillar I requirement, a 1.73%
Pillar II requirement, the Capital Conservation Buffer of 2.50%, the O-SII
Buffer of 1.50% and the CcyB of approximately 0.48%. The Group's minimum
phased-in Total Capital ratio requirement was set at 15.56%, comprising an
8.00% Pillar I requirement, of which up to 1.50% can be in the form of AT1
capital and up to 2.00% in the form of T2 capital, a 3.08% Pillar II
requirement, the Capital Conservation Buffer of 2.50%, the O-SII Buffer of
1.50% and the CcyB of approximately 0.48%. Following the annual SREP performed
by the ECB in 2022, ECB had also maintained the non-public guidance for an
additional Pillar II CET1 buffer (P2G) for 2023 unchanged compared to 2022.
Distributions
In April 2023, the Company obtained the approval of the ECB to pay a dividend
of €0.05 per ordinary share in respect of earnings for the year ended 31
December 2022. This was the first dividend payment after 12 years underpinning
the Group's position as a strong and well-diversified organisation, capable of
delivering sustainable shareholder returns.
In March 2024, the Company obtained the approval of the ECB to pay a cash
dividend and to conduct a share buyback (together the 'Distribution'). The
Distribution corresponded to a 30% payout ratio of FY2023 adjusted recurring
profitability and amounted to €137 million in total, comprising a cash
dividend of €112 million and a share buyback of up to €25 million. The
proposed final dividend of €0.25 per ordinary share was declared at the
Annual General Meeting ('AGM') which was held on 17 May 2024. The dividend was
paid in cash on 14 June 2024.
In April 2024, the Group launched its inaugural programme to buy back ordinary
shares in the Company for an aggregate consideration of up to €25 million
(the 'Programme'). The purpose of the Programme is to reduce the Company's
share capital and therefore shares purchased under the Programme will be
cancelled. The Company has entered into non-discretionary agreements with
Numis Securities Limited (trading as 'Deutsche Numis') and The Cyprus
Investment and Securities Corporation Ltd ('CISCO') acting as joint lead
managers, to conduct the Programme and to repurchase Shares on the Company's
behalf and to make trading decisions under the Programme independently of the
Company in accordance with certain pre-set parameters. The Programme takes
place on both the London Stock Exchange and the Cyprus Stock Exchange and may
continue until 14 March 2025 subject to market conditions, the ongoing capital
requirements of the business and early termination rights customary for a
transaction of this nature. The implementation of the share buyback programme
complies with the Company's general authority to repurchase the Company's
ordinary shares as approved by shareholders at the Company's AGM on 17 May
2024, and with the terms of the approval received from the ECB. The maximum
number of shares that may be repurchased under the ECB approval is 1.6% of the
total outstanding shares as at 31 December 2023 (i.e. up to 7,343,249 Shares).
The Distribution in respect of 2023 earnings was equivalent to approximately
130 basis points on CET1 ratio as at 31 December 2023.
Distribution policy
The Group aims to provide a sustainable return to shareholders. Distributions
are expected to be in the range of 30-50% payout ratio of the Group's adjusted
recurring profitability, including cash dividends and buybacks, with any
distribution being subject to regulatory approval. Group adjusted recurring
profitability is defined as the Group's profit after tax before non-recurring
items (attributable to the owners of the Company) taking into account
distributions under other equity instruments such as the annual AT1 coupon. In
line with the Group's distribution policy, the Group is committed to
delivering sustainably growing distributions through a combination of cash
dividend and share buybacks while maintaining a robust capital base to support
profitable growth and prudently prepare for upcoming potential regulatory
changes. Supported by its continued progress towards its strategic targets,
the Group intends to move towards the top-end of the 30%-50% range of its
distribution policy (i.e 50% payout ratio) for 2024, subject to required
approvals. Any proposed distribution quantum, as well as envisaged allocation
between dividend and buyback, will take into consideration market conditions
as well as the outcome of its ongoing capital and liquidity planning exercises
at the time. Given the strong capital generation, the Group's distribution
policy is expected to be reviewed with the full year 2024 financial results in
the context of prevailing market conditions.
Balance Sheet Analysis (continued)
Capital Base (continued)
Share Capital
As at 30 June 2024, there were 444,812,058 issued ordinary shares with a
nominal value of €0.10 each, compared to 446,199,933 issued ordinary shares
as at 31 December 2023. The reduction since the beginning of the year relates
to the share buyback programme that was launched in April 2024. For further
details please refer to section 'Distributions' above.
Other equity instruments
At 30 June 2024, the Group's other equity instruments relate to Additional
Tier 1 Capital Securities (the 'AT1 securities') and amounted to €220
million (31 December 2023: €220 million).
The Fixed Rate Reset Perpetual Additional Tier 1 Capital Securities constitute
unsecured and subordinated obligations of the Company, are perpetual and are
issued at par. They carry an initial coupon of 11.875% per annum, payable
semi-annually and resettable on 21 December 2028 and every five years
thereafter.
The Company will have the option to redeem these capital securities from, and
including, 21 June 2028 to, and including, 21 December 2028 and on each
interest payment date thereafter, subject to applicable regulatory consents
and the relevant conditions to redemption.
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific deferred tax
assets (DTA) into deferred tax credits (DTC) became effective in March 2019.
The legislative amendments cover the utilisation of income tax losses
transferred from Laiki Bank to the Bank in March 2013. The introduction of the
Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)
IV in January 2014 and its subsequent phasing-in led to a more
capital-intensive treatment of this DTA for the Bank. With this legislation,
institutions are allowed to treat such DTAs as 'not relying on future
profitability', according to CRR/CRD IV and as a result not deducted from
CET1, hence improving a credit institution's capital position. The Law
provides that a guarantee fee on annual tax credit is payable annually by the
credit institution to the Government.
Following certain modifications to the Law in May 2022, the annual guarantee
fee is to be determined by the Cyprus Government on an annual basis, providing
however that such fee to be charged is set at a minimum fee of 1.5% of the
annual instalment and can range up to a maximum amount of €10 million per
year.
The Group estimates that such fees could range up to approximately €5
million 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.
Regulations and Directives
The 2021 Banking Package (CRR III and CRD VI and BRRD)
In October 2021, the European Commission adopted legislative proposals for
further amendments to the Capital Requirements Regulation (CRR), CRD 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. 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. In December 2023, the preparatory bodies of the Council
and European Parliament endorsed the amendments to the CRR and the CRD and the
legal texts were published on the Council and the Parliament websites. In
April 2024, the European Parliament voted to adopt the amendments to the CRR
and the CRD, Regulation (EU) 2024/1623 (known as CRR III) and Directive (EU)
2024/1619 (known as CRD VI) were published in the EU's official journal in
June 2024, with entry into force 20 days from the date of the publication.
Most provisions of the CRR III will become effective on 1 January 2025 with
certain measures subject to transitional arrangements or to be phased in over
time. Member states shall adopt and publish, by 10 January 2026, the laws,
regulations and administrative provisions necessary to comply with CRD VI and
shall apply most of those measures by 11 January 2026.
Balance Sheet Analysis (continued)
Regulations and Directives (continued)
Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January
2016, EU member states shall apply the BRRD's provisions requiring EU credit
institutions and certain investment firms to maintain a minimum requirement
for own funds and eligible liabilities (MREL), subject to the provisions of
the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part
of the reform package for strengthening the resilience and resolvability of
European banks, the BRRD ΙΙ came into effect and was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in May 2021. In addition, certain provisions on MREL have been introduced
in CRR ΙΙ which also came into force on 27 June 2019 as part of the reform
package and were immediately effective.
In January 2024, the Bank received final notification from the SRB regarding
the 2024 MREL decision, by which the final MREL requirement is now set at
25.0% of RWAs (or 30.3% of RWAs taking into account the expected prevailing
CBR as at 31 December 2024 which needs to be met with own funds on top of the
MREL) and 5.91% of Leverage Ratio Exposure (as defined in the CRR) and must be
met by 31 December 2024.
The Bank must comply with the MREL requirement at the consolidated level,
comprising the Bank and its subsidiaries.
In April 2024, the Bank proceeded with an issue of €300 million green senior
preferred notes (the 'Green Notes'). The Green Notes comply with the MREL
criteria and contribute towards the Bank's MREL requirement. For further
details, please refer to section 'Funding and Liquidity' below.
The MREL ratio as at 30 June 2024, calculated according to the SRB's
eligibility criteria currently in effect and based on internal estimate, stood
at 33.4% of RWAs (including capital used to meet the CBR) and at 14.0% of LRE
(based on the regulatory Total Capital as at 30 June 2024). The CBR stood at
5.31% as at 30 June 2024 (compared to 4.48% as at 31 December 2023),
reflecting the increase of the CcyB from approximately 0.49% to approximately
0.94% in June 2024.
The CBR is expected to increase further as a result of the phasing in of O-SII
buffer from 1.875% to 1.9375% on 1 January 2025 and to 2.00% on 1 January
2026.
Throughout this Interim Management Report, the MREL ratios as at 30 June 2024
include profits for the six months ended 30 June 2024 in line with the ECB
Decision (EU) (2015/656) on the recognition of interim or year-end profits in
CET1 capital in accordance with Article 26(2) of the CRR, net of distribution
accrual at the top end of the Group's approved distribution policy in line
with Commission Delegated Regulation (EU) No 241/2014 principles.
Funding and Liquidity
Funding
Funding from Central Banks
Following the repayment of €1.7 billion under the seventh TLTRO III
operation in March 2024 and €0.3 billion under the eighth TLTRO III
operation in June 2024, the Group's funding from central banks was reduced to
nil as at 30 June 2024, compared to €2,044 million as at 31 December 2023.
Balance Sheet Analysis (continued)
Funding and Liquidity (continued)
Funding (continued)
Deposits
Customer deposits totalled €19,723 million at 30 June 2024, compared to
€19,337 million at 31 December 2023 up by 2% since the beginning of the
year. Customer deposits are mainly retail-funded and approximately 57% of
deposits are protected under the deposit guarantee scheme as at 30 June
2024.
The Bank's deposit market share in Cyprus reached 37.5% as at 30 June 2024,
compared to 37.7% as at 31 December 2023. Customer deposits accounted for 77%
of total assets and 86% of total liabilities at 30 June 2024 (compared to 73%
of total assets and 80% of total liabilities as at 31 December 2023). The
increase since the beginning of the year relates to the repayment of €2.0
billion TLTRO and the 2% increase in customer deposits.
The net loans to deposits (L/D) ratio stood at 51% as at 30 June 2024,
compared to 51% as at 31 December 2023 on the same basis, flat since the
beginning of the year.
Subordinated liabilities
At 30 June 2024, the carrying amount of the Group's subordinated liabilities
amounted to €313 million, compared to €307 million at 31 December 2023 and
relate to unsecured subordinated Tier 2 Capital Notes ('T2 Notes').
The T2 Notes were priced at par with a fixed coupon of 6.625% per annum,
payable annually in arrears and resettable on 23 October 2026. The maturity
date of the T2 Notes is 23 October 2031. The Company will have the option to
redeem the T2 Notes early on any day during the six-month period from 23 April
2026 to 23 October 2026, subject to applicable regulatory approvals.
Debt securities in issue
At 30 June 2024, the carrying value of the Group's debt securities in issue
amounted to €971 million, compared to €672 million at 31 December 2023 and
relate to senior preferred notes. The increase of 45% since the beginning of
the year relates to the issuance of €300 million green senior preferred
notes ('Green Notes') in April 2024.
In April 2024, the Bank successfully launched and priced an issuance of €300
million green senior preferred notes. The Green Notes were priced at par with
a fixed coupon of 5% per annum, payable in arrear, until the Option redemption
date, i.e. 2 May 2028. The maturity date of the Green Notes is 2 May 2029;
however, the Bank may, at its discretion, redeem the Green Notes on the
Optional Redemption Date subject to meeting certain conditions (including
applicable regulatory consents) as specified in the Terms and Conditions. If
the Green Notes are not redeemed by the Bank, the coupon payable from the
Optional Redemption Date until the Maturity Date will convert from a fixed
rate to a floating rate and will be equal to 3-month Euribor plus 197.1 basis
points, payable quarterly in arrear.
The issuance was met with strong demand, attracting interest from more than
120 institutional investors, with a final orderbook over four times
over-subscribed at €1.3 billion and final pricing 50 basis points tighter
than the initial pricing indication. The transaction represents the Bank's
inaugural green bond issuance in line with the Group's Beyond Banking
approach, aimed at creating a stronger, safer and future-focused bank and
leading the transition of Cyprus to a sustainable future. An amount equivalent
to the net proceeds of the Green Notes will be allocated to Eligible Green
Projects as described in the Bank's Sustainable Finance Framework, which
include Green Buildings, Energy Efficiency, Clean Transport and Renewable
Energy.
Post this issuance, the Bank finalized its MREL build-up and created a
comfortable buffer over the final requirements of 25% of RWAs (or 30.3% of
RWAs taking into account the prevailing CBR as at 31 December 2024) and 5.91%
of LRE which the Bank must meet by 31 December 2024. For further details,
please refer to section 'Minimum Requirement for Own Funds and Eligible
Liabilities (MREL)'.
Balance Sheet Analysis (continued)
Funding and Liquidity (continued)
Funding (continued)
Debt securities in issue (continued)
In July 2023, the Bank successfully launched and priced an issuance of €350
million of senior preferred notes (the 'Notes'). The Notes were priced at par
with a fixed coupon of 7.375% per annum, payable annually in arrear, until the
Optional Redemption Date i.e. 25 July 2027. The maturity date of the Notes is
25 July 2028; however, the Bank may, at its discretion, redeem the Notes on
the Optional Redemption Date subject to meeting certain conditions (including
applicable regulatory consents) as specified in the Terms and Conditions. If
the Notes are not redeemed by the Bank, the coupon payable from the Optional
Redemption Date until the Maturity Date will convert from a fixed rate to a
floating rate and will be equal to 3-month Euribor + 409.5 basis points,
payable quarterly in arrear. The Notes comply with the criteria for the
Minimum Requirement for Own Funds and Eligible Liabilities ('MREL') and
contribute towards the Bank's MREL requirements.
In June 2021, the Bank executed its inaugural MREL transaction issuing €300
million of senior preferred notes (the 'SP Notes'). The SP Notes were priced
at par with a fixed coupon of 2.50% per annum, payable annually in arrears and
resettable on 24 June 2026. The maturity date of the SP Notes is 24 June 2027
and the Bank may, at its discretion, redeem the SP Notes on 24 June 2026,
subject to meeting certain conditions as specified in the Terms and
Conditions, including applicable regulatory consents. The SP Notes comply with
the criteria for MREL and contribute towards the Bank's MREL requirements.
Liquidity
At 30 June 2024, the Group Liquidity Coverage Ratio (LCR) stood at 304%
compared to 359% at 31 December 2023, well above the minimum regulatory
requirement of 100%. The LCR surplus as at 30 June 2024 amounted to €7.5
billion, compared to €9.1 billion at 31 December 2023 as the issuance of
€300 million of the green senior preferred notes in April 2024 and the
increase in customer deposits partially offset the impact from the repayment
of the remaining TLTRO III of €300 million in June 2024.
At 30 June 2024, the Group Net Stable Funding Ratio (NSFR) stood at 156%
(compared to 158% at 31 December 2023), well above the minimum regulatory
requirement of 100%.
Loans
Group gross loans totalled €10,318 million at 30 June 2024, compared to
€10,070 million at 31 December 2023.
New lending granted in Cyprus totalled €1,227 million for the six months
ended 30 June 2024 compared to €1,118 million for the six months ended 30
June 2023, driven mainly by corporate demand. New lending in the six months
ended 30 June 2024 comprised €568 million of corporate loans, €402 million
of retail loans (of which €236 million were housing loans), €120 million
of SME loans and €137 million of shipping and international loans.
At 30 June 2024, the Group net loans and advances to customers totalled
€10,085 million compared to €9,822 million at 31 December 2023.
The Bank is the largest credit provider in Cyprus with a market share of 43.2%
at 30 June 2024, compared to 42.2% at 31 December 2023.
In December 2023, the Bank entered into an agreement with Cyprus Asset
Management Company ('KEDIPES') to acquire a portfolio of performing and
restructured loans with gross book value of approximately €58 million with
reference date 31 December 2022 (the 'Transaction'). The Transaction was
broadly neutral to the Group's income statement and capital position. The
Transaction was completed in March 2024.
Balance Sheet Analysis (continued)
Loan portfolio quality
The Group has continued to make steady progress across all asset quality
metrics. The Group's priorities focus mainly on maintaining high quality new
lending with strict underwriting standards and preventing asset quality
deterioration.
The loan credit losses for the six months ended 30 June 2024 totalled €16
million, compared to €24 million for the six months ended 30 June 2023.
Further details regarding loan credit losses are provided in section 'Profit
before tax and non-recurring items'.
Non-performing exposures
The high interest rate environment as well as inflationary pressures are
expected to weigh on customers behaviour. Despite these elements, there are no
material signs of asset quality deterioration to date. While defaults have
been limited, the additional monitoring and provisioning for sectors and
individuals vulnerable to the macroeconomic environment remain in place to
ensure that potential difficulties in the repayment ability are identified at
an early stage, and appropriate solutions are provided to viable customers.
Non-performing exposures (NPEs) as defined by the European Banking Authority
(EBA) were reduced by €71 million to €294 million at 30 June 2024,
compared to €365 million at 31 December 2023.
As a result, the NPEs reduced to 2.8% of gross loans as at 30 June 2024,
compared to 3.6% of gross loans as at 31 December 2023.
The NPE coverage ratio stands at 85% at 30 June 2024, compared to 73% at 31
December 2023. When taking into account tangible collateral at fair value,
NPEs are fully covered.
Overall, since the peak in 2014, the stock of NPEs has been reduced by €14.7
billion or 98% to approximately €0.3 billion and the NPE ratio by
approximately 60 percentage points from 63% to below 3%.
Mortgage-To-Rent Scheme ('MTR')
In July 2023, the Mortgage-to-Rent Scheme ('MTR') was approved by the Council
of Ministers and aims for the reduction of NPEs backed by primary residence
and simultaneously protect the primary residence of vulnerable borrowers. The
eligible criteria include:
· borrowers that were non-performing as at 31 December 2021,
remained non-performing as at 31 December 2022 with facilities backed by
primary residence with Open Market Value up to €250 thousand;
· borrowers that had a fully completed application to Estia Scheme
and were assessed as eligible but not viable with a primary residence of up to
€350 thousand Open Market Value; and
· all applicants that were approved under Estia Scheme but their
inclusion was terminated.
Under the MTR, eligible property owners will voluntarily surrender ownership
of their residence to Cyprus Asset Management Company ('KEDIPES') which has
been approved by the Government to provide and manage social housing and will
be exempted from their mortgage loan, as the state will be covering fully the
required rent on their behalf. KEDIPES will carry out a new valuation and a
technical due diligence for the eligible applicants' property and if satisfied
will approve the application and pay to the banks an amount equal to 65% of
the open market value of the primary residence in exchange for the mortgage
release, the write off of the NPE loan and the transfer of the property title
deeds.
The eligible applicants will be able to acquire the primary residence after 5
years at a favourable price, below the open market value.
The scheme has been launched in December 2023; it is expected to act as
another tool to address NPEs in the Retail sector.
Balance Sheet Analysis (continued)
Fixed income portfolio
Fixed income portfolio amounts to €3,828 million as at 30 June 2024,
compared to €3,348 million as at 31 December 2023. As at 30 June 2024, the
portfolio represents 15% of total assets and comprises €3,429 million (90%)
measured at amortised cost and €399 million (10%) at fair value through
other comprehensive income ('FVOCI').
The fixed income portfolio measured at amortised cost is held to maturity and
therefore no fair value gains/losses are recognised in the Group's income
statement or equity. This fixed income portfolio has high average rating at
Aa3. The amortised cost fixed income portfolio as at 30 June 2024 has an
unrealised fair value loss of €29 million.
Reverse repurchase agreements
Reverse repurchase agreements amount to €1,015 million as at 30 June 2024,
compared to €403 million as at 31 December 2023. The increase since the
beginning of the year relates to the additional hedging activities the Group
is carrying out in order to reduce its net interest income sensitivity. The
average yield of reverse repurchase agreements is approximately 3.0% per annum
and the average duration is estimated at approximately 2.5 years.
Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) is focused on the disposal of
on-boarded properties resulting from debt for asset swaps. Cumulative sales of
repossessed assets since the beginning of 2019 amount to approximately €1.0
billion and exceed properties on-boarded in the same period of €0.5 billion.
During the six months ended 30 June 2024, the Group completed disposals (and
transfers) of repossessed properties of €57 million (compared to €68
million in the six months ended 30 June 2023), resulting in a profit on
disposal of approximately €3 million for the six months ended 30 June 2024
(compared to a profit of approximately €4 million for the six months ended
30 June 2023). Asset disposals are across all property classes, with almost
two thirds in gross sale value in the six months ended 30 June 2024 relating
to land.
During the six months ended 30 June 2024, the Group executed sale-purchase
agreements (SPAs) for disposals of 258 properties with contract value of €65
million (including transfers of €3 million), compared to SPAs for disposals
of 273 properties with contract value of €78 million for the six months
ended 30 June 2023.
In addition, the Group had a pipeline of €49 million by contract value as at
30 June 2024, of which €18 million related to SPAs signed (compared to a
pipeline of €66 million as at 30 June 2023, of which €38 million related
to SPAs signed).
The Group on-boarded €14 million of assets in the six months ended 30 June
2024 (compared to additions of €6 million in the six months ended 30 June
2023), via the execution of debt for asset swaps and repossessed properties.
As at 30 June 2024, repossessed properties held by the Group had a carrying
value of €790 million, compared to €862 million as at 31 December 2023.
Income Statement Analysis
Total income
Net interest income (NII) for the six months ended 30 June 2024 amounted to
€420 million compared to €358 million for the six months ended 30 June
2023. The yearly increase is mainly attributed to higher interest rates on
liquid assets and loans, partially offset by a moderate increase in time and
notice cost of deposits and funding costs, as well as higher cost of hedging.
Quarterly average interest earning assets (AIEA) for the six months ended 30
June 2024 amounted to €23,064 million, broadly flat year-on-year.
Net interest margin (NIM) for the six months ended 30 June 2024 amounted to
3.66% (compared to 3.17% for the six months ended 30 June 2023), up 49 basis
points year-on-year, supported mainly by the higher interest rate outlook
compared to the prior year.
Non-interest income for the six months ended 30 June 2024 amounted to €129
million (compared to €153 million for the six months ended 30 June 2023),
comprising net fee and commission income of €86 million, net foreign
exchange gains and net gains on financial instruments of €13 million, net
insurance result of €23 million, net gains/(losses) from revaluation and
disposal of investment properties and on disposal of stock of properties of
€2 million and other income of €5 million. The year-on-year reduction is
mainly due to lower net foreign exchange gains and net gains on financial
instruments, as well as lower net fee and commission income.
Net fee and commission income for the six months ended 30 June 2024 amounted
to €86 million compared to €90 million in prior year, mainly due to lower
transactional fees.
Net foreign exchange gains and net gains on financial instruments amounted to
€13 million for the six months ended 30 June 2024, compared to approximately
€5.5 million for the six months ended 30 June 2023. The year-on-year
decrease is driven by lower foreign exchange gains on FX swaps and lower
revaluation gains in financial instruments. Net foreign exchange gains and net
gains on financial instruments are considered volatile profit contributors.
Net insurance result amounted to €23 million for the six months ended 30
June 2024, compared to €25 million for the six months ended 30 June 2023,
due to negative claim experience in the non-life insurance business, arising
from the severe weather-related events occurred in the first quarter of 2024,
partly offset by better claims experience and reduction in loss component of
the insurance contracts (in line with IFRS 17) in the life insurance business.
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties of €2 million for the six months ended 30
June 2024 (comprising net gains on disposal of stock of properties and
investment properties of approximately €3 million, and net loss from
revaluation of investment properties of approximately €1 million) compared
to €5 million for the six months ended 30 June 2023. REMU profit remains
volatile.
Total income amounted to €549 million for the six months ended 30 June 2024,
compared to €511 million for the six months ended 30 June 2023, with the
increase driven by higher net interest income as explained above.
Total expenses
Total expenses for the six months ended 30 June 2024 were €186 million
(compared to €180 million for the six months ended 30 June 2023), 52% of
which related to staff costs (€96 million), 38% to other operating expenses
(€71 million) and 10% to special levy on deposits and other
levies/contributions (€19 million). The increase year-on-year is mainly due
to higher staff costs.
Total operating expenses amounted to €167 million for the six months ended
30 June 2024, compared to €162 million for the six months ended 30 June
2023, up 4% year-on-year, mainly due to higher staff costs.
Income Statement Analysis (continued)
Total expenses (continued)
Staff costs for the six months ended 30 June 2024 were €96 million (compared
to €93 million for the six months ended 30 June 2023) and include
approximately €5 million performance-related pay accrual (compared to
approximately €3.5 million performance-related pay accrual and approximately
€2.8 million termination cost in the six months ended 30 June 2023). Net of
these accruals, staff costs increased by 5% year-on-year, reflecting salary
increments and higher cost of living adjustments (COLA) as well as higher
employer's contributions.
The performance-related pay accrual relates to the Short-Term Incentive Plan
('STIP') and the Long-Term Incentive Plan ('LTIP'). The Short-Term Incentive
Plan involves variable remuneration to selected employees and will be driven
by both, delivery of the Group's strategy as well as individual performance.
The LTIP is a share-based compensation plan and provides for an award in the
form of ordinary shares of the Company based on certain non-market performance
and service vesting conditions.
The LTIP was approved by the 2022 AGM, which took place on 20 May 2022. The
LTIP involves the granting of share awards and is driven by scorecard
achievement, with measures and targets set to align pay outcomes with the
delivery of the Group's strategy. Currently, under the plan, the employees
eligible for LTIP awards are the members of the Extended EXCO, including the
executive directors. The LTIP stipulates that performance will be measured
over a 3-year period and sets financial and non-financial objectives to be
achieved. At the end of the performance period, the performance outcome will
be used to assess the percentage of the awards that will vest. In December
2022, the Group granted 819,860 share awards to 22 eligible employees under
the LTIP, comprising the Extended Executive Committee of the Group. The awards
granted in December 2022 are subject to a three year performance period for
2022-2024 (with all performance conditions being non-market performance
conditions). In October 2023, 479,160 share awards were granted to 21 eligible
employees, comprising the Extended Executive Committee of the Group. The
awards granted in October 2023 are subject to a three-year performance period
2023-2025 (with all performance conditions being non market performance
conditions). In April 2024, 403,990 share awards were granted to 21 eligible
employees, comprising the Extended Executive Committee of the Group. The
awards granted in April 2024 are subject to a three-year performance period
2024-2026 (with all performance conditions being non market performance
conditions).
These shares will then normally vest in six tranches, with the first tranche
vesting after the end of the performance period and the last tranche vesting
on the fifth anniversary of the first vesting date.
As at 30 June 2024, the Group employed 2,860 persons compared to 2,830 persons
as at 31 December 2023.
Other operating expenses for the six months ended 30 June 2024 amounted to
€71 million, compared to €69 million for the six months ended 30 June
2023, impacted mainly by inflationary pressures and marketing expenses.
Special levy on deposits and other levies/contributions for the six months
ended 30 June 2024 amounted to €19 million compared to €18 million for the
six months ended 30 June 2023, driven mainly by the increase of deposits of
€0.55 billion year-on-year.
The cost to income ratio excluding special levy on deposits and other
levies/contributions for the six months ended 30 June 2024 was 30% compared to
32% for the six months ended 30 June 2023, benefitting from higher income.
Profit before tax and non-recurring items
Operating profit for the six months ended 30 June 2024 amounted to €363
million, compared to €331 million for the six months ended 30 June 2023, up
by 9% year-on-year reflecting mainly the significant increase in net interest
income.
Loan credit losses for the six months ended 30 June 2024 were €16 million
compared to €24 million for the six months ended 30 June 2023, supported by
the continued robust performance of the credit portfolio and improved
macroeconomic assumptions. Additional information on the drivers of the loan
credit losses for the six months ended 30 June 2024 is disclosed in Note 32.4
of the Consolidated Condensed Interim Financial Statements.
Income Statement Analysis (continued)
Profit before tax and non-recurring items (continued)
Cost of risk for the six months ended 30 June 2024 is equivalent to 31 basis
points, compared to a cost of risk of 48 basis points for the six months ended
30 June 2023.
At 30 June 2024, the allowance for expected loan credit losses, including
residual fair value adjustment on initial recognition and credit losses on
off-balance sheet exposures (please refer to 'Alternative Performance Measures
Disclosures' section of the Interim Financial Report for the definition)
totalled €251 million (compared to €267 million at 31 December 2023) and
accounted for 2.4% of gross loans (compared to 2.7% as at 31 December 2023).
Impairments of other financial and non-financial assets for the six months
ended 30 June 2024 amounted to €25 million, compared to €30 million for
the six months ended 30 June 2023, and relate mainly to REMU stock properties.
Provisions for pending litigations, claims, regulatory and other matters (net
of reversals) for the six months ended 30 June 2024 amounted to €3 million,
compared to €14 million for the six months ended 30 June 2023. The decrease
related primarily to a release of a provision on a claim following the closing
of the investigation by the Commission of the Protection of Competition.
Profit before tax and non-recurring items for the six months ended 30 June
2024 totalled to €319 million, compared to €263 million for the six months
ended 30 June 2023.
Profit after tax (attributable to the owners of the Company)
The tax charge for the six months ended 30 June 2024 amounted to €48 million
compared to €40 million for the six months ended 30 June 2023.
On 22 December 2022, the European Commission approved Directive 2022/2523
which provides for a minimum effective tax rate of 15% for the global
activities of large multinational groups (Pillar Two tax). The Directive that
follows closely the OECD Inclusive Framework on Base Erosion and Profit
Shifting should have been transposed by the Member States throughout 2023,
entering into force on 1 January 2024. In Cyprus, the legislation has not been
substantively enacted at the balance sheet date however it is expected to be
enacted within 2024. The Group expects to be in scope of the legislation and
has performed an assessment of the potential impact of Pillar Two income taxes
with the current estimate being a charge of approximately 1.5% on profit
before tax as at 30 June 2024. Because of the calculation complexity resulting
from these rules and as the final legislation has yet to be enacted, the
impact of this reform has been estimated to range up to 2% of profit before
tax and will be further refined upon the enactment and implementation of
relevant legislation.
Profit after tax and before non-recurring items (attributable to the owners of
the Company) for the six months ended 30 June 2024 is €270 million, compared
to €222 million for the six months ended 30 June 2023.
Advisory and other transformation costs - organic for the six months ended 30
June 2024 are nil, compared to €2 million for the six months ended 30 June
2023.
Profit after tax attributable to the owners of the Company for the six months
ended 30 June 2024 amounts to €270 million, corresponding to a ROTE of
23.7%, compared to €220 million for the six months ended 30 June 2023 (and a
ROTE of 24.0%). ROTE on 15% CET1 ratio for the six months ended 30 June 2024
increases to 29.6%, compared to 25.3% for the six months ended 30 June 2023.
The adjusted recurring profitability used for the Group's distribution policy
(i.e. defined as the Group's profit after tax before non-recurring items
(attributable to the owners of the Company) taking into account distributions
under other equity instruments such as the annual AT1 coupon which is paid
semi-annually) amounted to €257 million for the six months ended 30 June
2024, compared to €201 million for the six months ended 30 June 2023.
Operating Environment
Real GDP increased by 3.4% seasonally adjusted in the first quarter of 2024.
Overall growth in the quarter returned to about the long-term average and
contributions from the economic sectors returned to their long-term trends.
This was true mainly for trade, transport and accommodation, information and
communications, professional and administrative services, and also the public
related sectors of public administration, education and health. For 2024,
the economy is expected to increase by approximately 2.9% according to the
Ministry of Finance (based on May 2024 projections).
Short-term risks are mostly external and to the downside, including a downturn
in major tourism markets, an escalation of regional conflicts, and delays in
the implementation of the Recovery and Resilience Plan. In the medium-term,
risks are from climate change and from possible further deterioration in the
global geopolitical outlook. The digital and green transitions remain key
challenges.
The unemployment rate, after rising in 2020 and the first half of 2021, has
been declining and dropped to 6.0% in the fourth quarter of 2023 and to 5.7%
in the first quarter of 2024, seasonally adjusted. The unemployment rate was
6.5% in the Euro area in the first quarter of 2024.
In January-June 2024, harmonised inflation was 2.3% in Cyprus and core
inflation was 2.5%. In the Euro area, harmonised inflation was 2.5% and core
inflation was 2.9%. The decline in the harmonised inflation was driven by the
non-core components of energy and food, while core inflation, defined as total
index less energy and food, was stickier.
Tourist arrivals for the period January-June 2024 were broadly at the same
levels as in prior year. Likewise, receipts in January-May 2024, demonstrated
a small increase of 3% compared to the same period the year before.
In public finances, there have been significant improvements in budget and
debt dynamics including debt affordability indicators. The recovery in 2021
was underpinned by a significant increase in general government revenue and a
decrease in government expenditure. The result was a reduction in the budget
deficit to -1.8% of GDP, from a deficit of -5.7% of GDP in 2020. In 2022 the
budget surplus rose to 2.7% of GDP and 3.1% of GDP in 2023. Gross debt was
114.9% of GDP in 2020 and has dropped successively to 85.6% and 77.3% of GDP
in 2022 and 2023 respectively. The budget balance is forecasted to remain in
surplus at 2.9% of GDP in 2024 according to the Ministry of Finance Strategic
Framework of Fiscal Policy 2025-2028, and gross debt is expected to continue
to decline below 60% of GDP in 2026. Debt affordability metrics are favourable
and are expected to remain solid in the medium term, as gross financing needs
are moderate, and the cash buffer gives the government a high degree of
financing flexibility.
Cypriot banks are well capitalized and remain resilient. Despite the high
interest rates, asset quality has not deteriorated. Non-performing exposures
(NPEs) are by now largely outside of bank balance sheets, but their resolution
is critical for private sector balance sheets. As at 31 May 2024, NPEs in the
Cyprus banking system were €1.8 billion or 7.4% of gross loans, compared
with 7.9% of gross loans at the end of December 2023, and 9.5% at the end of
December 2022, according to the Central Bank of Cyprus. The NPE ratio for the
Cyprus banking sector in the non-financial companies' segment was 6.3% at the
end of May 2024 and that of households was 9.2%. About 44% of total NPEs are
restructured facilities and the coverage ratio was 54% as at 31 May 2024.
Risks remain to the downside. In the short-term, a slowing of economic
activity in main tourism markets and an escalation of regional conflicts could
slow Cyprus's efforts to reorient its services exports.
Operating Environment (continued)
Sovereign ratings
The sovereign risk ratings of the Cypriot government have improved
significantly in recent years, reflecting reduced banking sector risks,
improved economic resilience and consistent fiscal outperformance. Cyprus has
demonstrated policy commitment to correcting fiscal imbalances through reform
and restructuring of its banking system.
In June 2024, Fitch Ratings upgraded Cyprus' long-term foreign currency issuer
default rating to BBB+ from BBB whilst maintaining its outlook on Cyprus
positive. The upgrade relates mainly to the reduced vulnerabilities to
financial shocks, the continued strengthening of the banking sector's credit
profile, the deleveraging of the private sector, the reduction of Cyprus
public debt, as well as its strong GDP growth.
In addition, in June 2024, S&P Global Ratings upgraded Cyprus' long-term
local and foreign currency sovereign credit ratings to BBB+ from BBB, whilst
maintaining its outlook on Cyprus positive. This one-notch upgrade of Cyprus'
rating reflects the progress Cyprus has made in recent years to address fiscal
imbalances, amid resilient growth, as well as the strengthening financial
position of Cypriot banks.
In September 2023, Moody's Investors Service upgraded the long-term issuer and
senior unsecured ratings of the Government of Cyprus to Baa2 from Ba1. The
outlook was revised to stable from positive. This is a two-notch upgrade of
Cyprus' ratings, reflecting broad-based and sustained improvements in the
country's credit profile as a result of past and ongoing economic, fiscal, and
banking reforms. Economic resilience has improved, and medium-term growth
prospects remain strong. Fiscal strength has also improved significantly, with
a positive debt trend and sound debt affordability metrics. The stable outlook
balances the positive credit trends with remaining challenges.
DBRS Ratings GmbH (DBRS Morningstar) confirmed Cyprus' Long-Term Foreign and
Local Currency - Issuer Ratings at BBB (high) in March 2024. DBRS Ratings had
upgraded the long-term foreign and local currency issuer ratings of Cyprus
from BBB to BBB (high) in September 2023. The rating action is stable. The
upgrade was driven by the recent decline in government debt and the
expectation that public debt metrics will continue to improve over the next
few years, while economic growth is expected to remain among the strongest in
the euro area. The stable outlook balances the recent favourable fiscal
dynamics with downside risks to the economic outlook.
Business Overview
Credit ratings
The Group's financial performance is highly correlated to the economic and
operating conditions in Cyprus. In July 2024, Moody's Investors Service
upgraded the Bank's long-term deposit rating to Baa1 from Baa3 and revised the
outlook to stable. The upgrade by two notches reflects the ongoing
improvements of the Bank's solvency profile, the increased protection afforded
to the Bank's depositors, and its strengthened capital. This is the highest
long-term deposit rating for the Bank since 2011. The stable outlook balances
potential further asset quality improvements against lower normalised
profitability metrics, a broadly stable operating environment, and stable
funding, liquidity and capital metrics. Additionally in July 2024, Fitch
Ratings upgraded long-term issuer default rating to BB+ from BB, whilst
maintaining the positive outlook. The one-notch upgrade reflects a combination
of Fitch's improved assessment of the Cypriot operating environment, reduced
private sector indebtedness, expectation of continued economic growth, the
Bank's strengthened capitalisation and reduced exposure to legacy net problem
assets. In June 2024, S&P Global Ratings upgraded the long-term issuer
credit rating of the Bank to BB+ and maintained a positive outlook. The
upgrade by one notch was driven by the reduction of economic imbalances,
strengthened capitalisation, supportive economic conditions and the solid
profitability stemming from improved efficiency and contained cost of risk.
Financial performance
The Group is a leading, financial and technology hub in Cyprus. During the six
months ended 30 June 2024, the Group generated a profit after tax of €270
million, corresponding to a ROTE of 23.7%, demonstrating the sustainability of
its business model. This strong performance was supported by a resiliently
strong net interest income, continuous management of its cost base despite
inflation and a low cost of risk, and was feeding through into strong growth
of the Group's tangible book value per share. Since June 2023, the Group's
tangible book value per share improved by 21% to €5.27 based on share in
issue (excluding treasury shares), accelerating shareholder value creation.
Interest rate environment
The structure of the Group's balance sheet remains highly liquid. As at 30
June 2024, cash balances with ECB amounted to approximately €7.3 billion,
whereas the Group's loan portfolio is mainly floating rate, with almost half
of the loan portfolio being Euribor based. Net interest income for the six
months ended 30 June 2024 stood at €420 million, up 17% year-on-year due to
higher interest income on loans and liquid assets, underpinned by high
interest rates, all of which served to more than offset the higher cost of
deposits, and funding costs and the continued hedging activity to reduce NII
sensitivity.
Overall, the Group intends to increase its hedging position during the year
ended 31 December 2024 by €4-€5 billion compared to the year ended 31
December 2023(with average duration of 3-4 years), subject to market
conditions, via receive fixed interest rate swaps, further investment in fixed
rate bonds, additional reverse repos and continuing offering of fixed rate
loans.
In the first half of 2024, the Group carried out hedging of approximately
€3.4 billion, on track to meet its 2024 target of €4-€5 billion. The
increase was mainly attributed to the hedging through receive fixed interest
rate swaps, investing in fixed rate bonds, entering into reverse repos and
offering fixed rate loans. Simultaneously, about a quarter of the Group's loan
portfolio is linked with the Bank's base rate which provides a natural hedge
against the cost of deposits. Overall, these actions have led to a reduction
in the net interest income sensitivity (to a parallel shift in interest rates
by 100 basis points) by approximately €27 million since 31 December 2023.
Growing revenues in a more capital efficient way
The Group remains focused on growing revenues in a more capital efficient way
through growth of high-quality new lending and the growth in niche areas, such
as insurance and digital products, that provide further market penetration and
diversify through non-banking operations.
The Group has continued to provide high quality new lending in the six months
ended 30 June 2024 via prudent underwriting standards. Growth in new lending
in Cyprus has been focused on selected industries in line with the Bank's
target risk profile. During the six months ended 30 June 2024, new lending
remained strong at €1.2 billion, up 10% on prior year, driven mainly by
business demand. Gross performing loan book increased by 3% since the
beginning of the year to approximately €10.1 billion; loan growth is subdued
by repayments.
Business Overview (continued)
Financial performance (continued)
Growing revenues in a more capital efficient way (continued)
Fixed income portfolio continued to grow in the six months ended 30 June 2024
to €3,828 million, and currently represents 15% of total assets. This
portfolio is mostly measured at amortised cost and is highly rated with
average rating at Aa3. The amortised cost fixed income portfolio as at 30 June
2024 has an unrealised fair value loss of €29 million, equivalent to
approximately 30 basis points of CET1 ratio (compared to an unrealized fair
value gain of €3 million as at 31 December 2023) due to increases in the
bond yield.
Separately, the Group focuses to continue improving revenues through multiple
less capital-intensive initiatives, with a focus on fees and commissions,
insurance and non-banking opportunities, leveraging on the Group's digital
capabilities. During the six month ended 30 June 2024, non-interest income
amounted to €129 million, covering almost 77% of the Group's total operating
expenses.
In the first six months of 2024, net fee and commission income amounted to
€86 million and was down by 4% compared to the previous year, due to lower
transactional fees. Net fee and commission income is enhanced by transaction
fees from the Group's subsidiary, JCC Payment Systems Ltd (JCC), a leading
player in the card processing business and payment solutions, 75% owned by the
Bank. JCC's net fee and commission income contributed 11% of total
non-interest income and amounted to approximately €14 million for the six
months ended 30 June 2024, up 3% year-on-year, backed by strong transaction
volume. In the context of its wider strategic evaluation, the Group is
undertaking a strategic review which may result in a potential disposal of
part or all of its holding in JCC, although no decision has been taken at this
stage.
The Group's insurance companies, EuroLife and GI are respectively leading
players in the life and general insurance business in Cyprus, and have been
providing recurring and improving income, further diversifying the Group's
income streams. The net insurance result for the six months ended 30 June 2024
contributed approximately 18% of non-interest income and amounted to €23
million; insurance companies remain valuable and sustainable contributors to
the Group's profitability.
Finally, the Group through the Digital Economy Platform (Jinius) ('the
Platform') aims to support the national digital economy by optimising
processes in a cost-efficient way, allow the Bank to strengthen its client
relationships, create cross-selling opportunities, as well as to generate new
revenue sources over the medium term, leveraging on the Bank's market
position, knowledge and digital infrastructure. The first Business-to-Business
services are already in use by clients and include invoice, remittance, tender
and ecosystem management. Currently, approximately 2,200 companies are
registered in the platform and over €600 million cash were exchanged via the
platform since 2023 through invoicing and remittance services.
In February 2024, the Business-to-Consumer service was launched, a Product
Marketplace aiming to increase the touch points with customers. Currently
approximately 130 retailers were onboarded in fashion, technology, beauty,
small appliances, personal care devices and toy sectors, and over 160 thousand
products were embedded in the Product Marketplace.
Lean operating model
Striving for a lean operating model is a key strategic pillar for the Group in
order to deliver shareholder value, without constraining funding its digital
transformation and investing in the business.
In 2023, the Group completed a small-scale, targeted VEP through which 50
full-time employees were approved to leave at a total cost of approximately
€7.5 million, recorded in staff costs in the year ended 31 December 2023.
Since the beginning of the year, there was further branch footprint
rationalization as the Group reduced the number of branches by 5 to 55, a
reduction of 8%.
The Group's total operating expenses for the six months ended 30 June 2024
amounted to €167 million, up 4% on prior year, impacted mainly by
inflationary pressures on staff costs. The cost to income ratio excluding
special levy on deposits and other levies/contributions for the six months
ended 30 June 2024 stood at 30%, down 2 percentage points compared to prior
year, supported by strong income. In August 2024, a reward programme through
Antamivi Reward scheme was launched in the context of the new loyalty scheme
'Pronomia' to reward the Group's performing borrowers, which is expected to
impact total operating expenses by approximately €3 million in the second
half of 2024.
Business Overview (continued)
Financial performance (continued)
Lean operating model (continued)
Transformation plan
The Group's focus continues on deepening the relationship with its customers
as a customer centric organisation. The Group aims to enable the shift to
modern banking by digitally transforming customer service, as well as internal
operations. The holistic transformation aims to (i) shift to a more
customer-centric operating model by defining customer segment strategies, (ii)
redefine distribution model across existing and new channels, (iii) digitally
transform the way the Group serves its customers and operates internally, and
(iv) improve employee engagement through a robust set of organisational health
initiatives.
Digital transformation
In the dynamic world of banking, the Group stands as a pioneer of digital
banking innovation in Cyprus, reshaping the banking experience into something
more intuitive, more responsive, and more aligned with the contemporary needs
of its customers, consistently pushing the boundaries to offer unparalleled
banking services. The Group aims to continue to innovate and simplify the
banking journey, providing a unique and personalised experience to each of its
customers.
The Group's digital channels continue to grow. As at 30 June 2024, the Group's
digital community has increased to 467 thousand active subscribers, both on
Internet Banking and the BoC Mobile App, improving by 7% year-on-year.
Likewise, the BoC Mobile App, had 429 thousand active subscribers as at 30
June 2024 and increased by 10% year-on-year.
During the second quarter of 2024, the Group continued to enrich and improve
its digital portfolio with new innovative services to its customers. The
Bank's loyalty scheme 'pronomia' was launched, rewarding customers with
several benefits, such as additional Antamivi points, lower interest rates and
no initial bank fees on new loans and discounts on new insurance policies.
Additionally, the ability to request replacement of a card that was lost or
stolen has been added in both the BoC Mobile App and Internet Banking.
Furthermore, the ability to provide the beneficiary details for dividend
payments was given to the Bank's shareholders. In July 2024, Bank of Cyprus is
the first bank in Cyprus that enabled instant payments via digital channels,
providing the ability to the customer to make credit transfers in Euros making
the funds available in the beneficiary customer's account within 10 seconds.
Instant transfers are applicable for credit payments up to €50 thousand
within Cyprus and up to €25 thousand outside Cyprus (to 36 countries in the
SEPA Zone).
One of the Group's latest digital innovations, Quickloans, accessible through
both the BoC Mobile App and Internet Banking, has transformed the traditional
loan process, enabling customers to obtain a credit facility decision
instantly, without the need to visit a branch. Since the beginning of the year
2024, over seven thousand applications were processed, granting €52 million
new loans in the six months ended 30 June 2024, equivalent to an increase of
12% compared to the six months ended 30 June 2023.
In collaboration with Genikes Insurance, an insurance plan purchase was
integrated into the BoC Mobile App, enabling customers to access car or home
insurance plans through the BoC Mobile App at lower rates than branch prices.
Digital insurance sales for the six months ended 30 June 2024 amounted to
€291 thousand, compared to €159 thousand for the six months ended 30 June
2023, reflecting 925 policies in the six months ended 30 June 2024 compared to
541 policies for the six months ended 30 June 2023.
Lastly, digital account openings increased by 53% in the six months ended 30
June 2024 to 8,291 from 5,423 in the six months ended 30 June 2023 and new
debit cards increased by 97% year-on-year to 8,865 in the six months ended 30
June 2024, compared to 4,492 during the same period last year.
Asset quality
Balance sheet de-risking was largely completed in 2022; as at 30 June 2024,
the Group's NPE ratio stood at 2.8%, already achieving the 2024 NPE ratio
target. The Group's priorities remain intact, maintaining high quality new
lending with strict underwriting standards and preventing asset quality
deterioration.
Business Overview (continued)
Financial performance (continued)
Capital market presence
In April 2024, the Bank successfully launched and priced an issuance of €300
million green senior preferred notes ('Green Notes'). With this issuance, the
Bank finalised its MREL build-up and creates a comfortable buffer over the
final requirements of 25% of RWAs (or 30.3% of RWAs taking into account the
expected prevailing CBR as at 31 December 2024) and 5.91% of LRE which the
Bank must meet by 31 December 2024.
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda
Climate change and transition to a sustainable economy is one of the greatest
challenges. As part of its vision to be the leading financial hub in Cyprus,
the Group is determined to lead the transition of Cyprus to a sustainable
future. The Group continuously evolves towards its ESG agenda and continues to
progress towards building a forward-looking organisation embracing ESG in all
aspects of business as usual. In 2024, the Bank received a rating of AA (on a
scale of AAA-CCC) in the MSCI ESG Ratings assessment.
Reaffirming its strong commitment to sustainability and to the long term value
creation for all its stakeholders, in November 2023, the Bank was the first
Bank in Cyprus to become an official signatory of the United Nations
Principles for Responsible Banking representing a single framework for a
sustainable banking industry developed through a collaboration between banks
worldwide and the United Nations Environment Programme Finance Initiative
(UNEP FI).
In line with the Group's Beyond Banking approach and its commitment to create
a stronger, safer and future-focused organisation the Bank proceeded, in 2024,
with the issuance of an inaugural green bond. An amount equivalent to the net
proceeds of the notes will be allocated to eligible green projects as
described in the Bank's sustainable finance framework, which includes green
buildings, energy efficiency, clean transport and renewable energy.
The ESG strategy formulated in 2021 is continuously expanding. The Group is
maintaining its leading role in the Social and Governance pillars and focus on
increasing the Group's positive impacts on the Environment by transforming not
only its own operations, but also the operations of its customers.
The Group has committed to the following primary ESG targets, which reflect
the pivotal role of ESG in the Group's strategy:
● Become carbon neutral by 2030
● Become Net Zero by 2050
● Steadily increase Green Asset Ratio
● Steadily increase Green Mortgage Ratio
● ≥30% women in Group's management bodies (defined as the
Executive Committee (EXCO) and the Extended EXCO) by 2030
For the Group to continue its progress against its primary ESG targets and
address the evolving regulatory expectations, it further enhanced in 2024 its
ESG working plan which was established in 2022. Progress on the ESG working
plan is closely monitored by the Sustainability Committee, the Executive
Committee and the Board Committees on a quarterly basis.
Environmental Pillar
The Group has estimated the Scope 1 and Scope 2 greenhouse gas (GHG) emissions
of 2021 relating to own operations in order to set the baseline for carbon
neutrality target. The Bank being the main contributor of GHG emissions of the
Group, designed in 2022 the strategy to meet the carbon neutrality target by
2030 and progress towards Net Zero target of 2050. For the Group to become
carbon neutral by 2030, Scope 1 and Scope 2 emissions should be reduced by 42%
by 2030. The Bank, following the implementation of various energy upgrade
actions in 2022 and 2023, achieved a reduction of approximately 18% in Scope 1
and Scope 2 GHG emissions in 2023 compared to the baseline of 2021.
Business Overview (continued)
Financial performance (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda (continued)
Environmental Pillar (continued)
The Group plans to invest in energy efficient installations and actions as
well as replace fuel intensive machineries and vehicles from 2024 to 2025,
which would lead to approximately 3%-4% reduction in Scope 1 and Scope 2
emissions by 2025 compared to 2021. The Group expects that the Scope 2
emissions will be reduced further when the energy market in Cyprus shifts
further towards renewable energy. The Bank achieved a reduction of
approximately 22% in Scope 1 - Stationary Combustion GHG emissions and
approximately 5% in Scope 2 GHG emissions in the six months ended 30 June
2024 compared to the six months ended 30 June 2023 due to new solar panels
connected to energy network in 2023 as well as branch rationalisation as part
of the digitalization journey. The Bank achieved an increase of 16% in
renewable energy production, from 128,780 Kwh to 149,031 Kwh, in the six
months ended 30 June 2024 compared to the six months ended 30 June 2023.
The Group is gradually integrating climate-related and environmental (C&E)
risks into its Business Strategy. The Bank was the first bank in Cyprus to
join the Partnership for Carbon Accounting Financials (PCAF) in October 2022,
and has estimated and published the Financed Scope 3 GHG emissions associated
with its loan and investment portfolio as well as Insurance associated GHG
emissions using the PCAF standards, methodology and proxies. Following the
estimation of Financed Scope 3 GHG emissions of loan portfolio, the Bank
established a decarbonization target on Mortgage loan portfolio. The
decarbonization target on Mortgage portfolio was established by applying the
International Energy Agency's Below 2 Degree Scenario. For the Bank's Mortgage
loan portfolio to be aligned with the climate scenario and effectively be
associated with lower transition risks, the baseline as at 31 December 2022 of
53.5 kgCO2e/m2 should be reduced by 43% by 31 December 2030. The carbon
intensity of the Mortgage loan portfolio as at 30 June 2024 is estimated at
49.11 kgCO2e/m2 achieving approximately 8% reduction compared to baseline, due
to increased installation of solar panels in residential properties in 2023. A
Variable Green Housing product was launched at the end of 2023 to support the
Bank to meet the decarbonization target on Mortgage loans and effectively
limit the level of climate transition risk that is exposed to. The Bank is in
the process to launch in the third quarter of 2024, a Fixed Green Housing
product aligned with Green Loan Principles (GLPs) of the Loan Market
Association (LMA) which is expected to contribute significantly to the
environmentally friendly portfolio of the Bank by the end of 2024. In
addition, the Bank has set lending and investment limits on specific carbon
intensive sectors which are widely considered to be associated with high
climate transition risk. Further, having introduced and implementing a
Business Environment Scan process, the Bank developed green/transition new
lending targets in certain sectors to support its customer's transition to a
low carbon economy and effectively manage climate transition risks.
During 2023, the Bank has made considerable progress in integrating
climate-related and environmental risks into its risk management approach and
risk culture. The Bank revised and enhanced the Materiality assessment process
on C&E risks. The Bank has carried out a comprehensive identification and
assessment of C&E risks as drivers of existing financial and non-financial
risks considering its business profile and loan portfolio composition. As part
of this process, the Bank has identified the risk drivers, both physical and
transition, which could potentially have an impact on its risk profile and
operations and has assessed the severity of each risk driver for all the
existing categories of risks.
In 2024, the Bank introduced the syndicated Synesgy solution (ESG Due
Diligence process) across the Cypriot Banking system designed to enhance data
collection, score customers on their performance against various aspects
around C&E risks and provide guidance on remediation actions. This process
involves the utilization of structured ESG questionnaires, through the Synesgy
platform, applied at the individual company level to derive an ESG score. The
Bank established a structure and detailed Business Environment Scan process to
monitor the impact of C&E risks on its business environment in the short,
medium and long-term. The results of the preliminary (quarterly) and final
(annual) impact assessment have been incorporated in the Materiality
assessment of C&E risks as well as informed the Bank's Business Strategy.
The Bank offers a range of environmentally friendly products to manage
transition risk and help its customers become more sustainable. Specifically,
the Bank offers loans for energy upgrades of homes, installation of solar
panels, acquisition of new hybrid or electric car as well as financing of
renewable energy projects. In addition, following the Energy performance
certificate gathering exercise, in 2024, the Bank identified a pool of
€307.3 million gross loans, as at 30 June 2024, associated (financing or
collateralized) with properties with EPC Category A. The gross amount of
environmentally friendly loans (including loans associated with properties
with EPC Category A) as at 30 June 2024 was €339.8 million compared to
€272.0 million as at 31 December 2023.
Business Overview (continued)
Financial performance (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda (continued)
Environmental Pillar (continued)
During the six months ended 30 June 2024, in order to enhance the awareness
and skillset on ESG matters, the Group performed relevant trainings to control
functions and plans to perform trainings to the Board of Directors and Senior
Management, as well as to other members of staff.
Social Pillar
At the centre of the Group's leading social role lie its contributions to the
Bank of Cyprus Oncology Centre (with an overall amount of approximately €70
million since 1998, whilst 55% of diagnosed cancer cases in Cyprus are being
treated at the Centre), the immediate and efficient response of Bank of
Cyprus' SupportCY network consisting of companies and organisations, to
various needs of the society and in cases of crises and emergencies, through
the activation of programs, specialized equipment and a highly trained
Volunteers Corps, the contribution of the Bank of Cyprus Cultural Foundation
in promoting the cultural heritage of the island, and the work of IDEA
Innovation Centre.
The Cultural Foundation premises and museums were closed from March to June
2024 for renovation purposes so to launch the new exhibition 'Cyprus Insula'.
The physical attendees of Cultural foundation events remain unchanged from the
first quarter of 2024 (4,062 attendees).
The IDEA Innovation Centre, invested approximately €4 million in start-up
business creation since its incorporation, supported creation of 95 new
companies to date, provided support to more than 210 entrepreneurs through its
Startup program since incorporation, and provided education to 7,000
entrepreneurs. Staff continued to engage in voluntary initiatives to support
charities, foundations, people in need and initiatives to protect the
environment.
The Group has continued to upgrade its staff's skillset by providing training
and development opportunities to all staff and capitalising on modern delivery
methods. In the six months ended 30 June
2024, the Bank's employees attended 23,482 hours of trainings. Moreover, the
Group continued its emphasis on staff wellness during 2024 by offering
webinars, team building activities and family events with sole purpose to
enhance mental, physical, financial and social health, attended by
approximately 750 employees through its Well at Work program.
Governance Pillar
The Group continues to operate successfully within a complex regulatory
framework of a holding company which is registered in Ireland, listed on two
Stock Exchanges and run in compliance with a number of rules and regulations.
Its governance and management structures enable it to achieve present and
future economic prosperity, environmental integrity and social equity across
its value chain. The Group operates within a framework with adequate control
environment, which enable risk assessment and risk management based on the
relevant policies under the leadership of the Board of Directors. The Group
has set up a Governance Structure to oversee its ESG agenda. Progress on the
implementation and evolution of the Group's ESG strategy is monitored by the
Sustainability Committee and the Board of Directors. The Sustainability
Committee is a dedicated executive committee set up in early 2021 to oversee
the ESG agenda of the Group, review the evolution of the Group's ESG strategy,
monitor the development and implementation of the Group's ESG objectives and
the embedding of ESG priorities in the Group's business targets. The Group's
ESG Governance structure continues to evolve, so as to better address the
Group's evolving ESG needs. The Group's regulatory compliance continues to be
an undisputed priority.
The Group's aspiration to achieve a representation of at least 30% women in
Group's management bodies (Defined as the EXCO and the Extended EXCO) by 2030,
has been reached earlier with 33% representation of women, as at 31 December
2023, in Group's management bodies. Women representation in Group management
bodies continues to be 33% as at 30 June 2024. During the transitional phase
of the Board's composition in the six months ended 30 June 2024 two male
members, highly experienced in the areas of ESG and technology, were appointed
leading to the female representation, as at 30 June 2024, being at 37.5%. The
Bank is in the process to appoint new members in the Board which will lead to
female representation of 42%.
Strategy and Outlook
The vision of the Group is to create a lifelong partnership with its
customers, guiding and supporting them in an evolving world.
The strategic pillars of the Group remain intact:
· Grow revenues in a more capital efficient way; by enhancing
revenue generation via growth in high quality new lending, diversification to
less capital intensive banking and other financial services (such as insurance
and the digital economy) as well as prudent management of the Group's
liquidity
· Achieve a lean operating model; by ongoing focus on efficiency
through further automations facilitated by digitisation
· Maintain robust asset quality; by maintaining high quality new
lending via strict underwriting criteria, normalising cost of risk and
reducing other impairments
· Enhance organisational resilience and ESG (Environmental, Social
and Governance) agenda; by leading the transition of Cyprus to a sustainable
future and building a forward-looking organisation embracing ESG in all
aspects.
During the first half of 2024, the Group continued to deliver strong financial
and operational results, demonstrating the sustainability of its business
model. Capitalising on its strong performance in the first half of 2024 the
Group has upgraded its 2024 and 2025 financial targets.
Components of Upgraded Financial Targets
On the back of a more favourable interest rate environment and positive
deposit behaviour, the net interest income for 2024 is upgraded from over
€670 million to approximately €800 million. This is mainly due to the fact
that the interest rate environment turned out to be more resilient than
initially anticipated, with the pace of rate cuts being prolonged. According
to market projections of July 2024, the ECB deposit facility rate and 6-month
Euribor are expected to average to 3.8% and 3.6% respectively for 2024,
vis-à-vis 3.4% ECB deposit facility rate and 3.2% 6-month Euribor anticipated
in February 2024. Other drivers of the upgrade of net interest income guidance
include:
· Cost of deposits to average to approximately 35 basis points in
2024, facilitated by the highly liquid banking sector in Cyprus
· Gradual change in deposit mix towards time and notice deposits to
approximately 43% by 31 December 2024;
· Low single-digit loan growth, in 2024-2025, supported by GDP
growth; loan growth subdued by repayments;
· Hedging activity to continue in 2024 to meet target of €4-€5
billion; already carried out €3.4 billion as at 30 June 2024;
· Fixed income portfolio to continue to grow, subject to market
conditions, so that it represents approximately 17% of total assets by the end
of 2024 (compared to 16% previously guided), benefitting also from rollover to
higher rates and;
· Higher wholesale funding costs, reflecting the full year impact
of the 2023 senior preferred issuance and the April 2024 issuance of green
senior preferred notes.
Going forward, the net interest income for 2025 is expected to be lower than
2024 but to remain strong, exceeding €700 million based on projections of
the ECB deposit facility rate and 6-month Euribor to average to approximately
3.0% respectively, reflecting mainly projected lower interest rates and higher
cost of deposits compared to 2024.
Separately, the Group continues to focus on improving revenues through
multiple less capital-intensive initiatives, with a focus on net fee and
commission income, insurance and non-banking activities, enhancing the Group's
diversified business model further. Non-interest income is an important
contributor to the Group's profitability and historically covered on average
around 80% of its total operating expenses. The Group reiterated its
expectation to continue covering around 70-80% of the Group's total operating
expenses, supported by a growing net fee and commission income in line with
economic growth for 2024-2025.
Maintaining cost discipline management remains an ongoing focus for the Group.
The cost to income ratio excluding special levy on deposits or other
levies/contributions is revised downwards to below 35% for 2024 (compared to
approximately 40% previously guided) reflecting mainly the higher income on
the back of the improved interest rate environment. For 2025, the cost to
income ratio excluding special levy on deposits or other levies/contributions
is set at below 40%, reflecting mainly lower income on gradually declining
interest rates.
Strategy and Outlook (continued)
On asset quality, the Group's NPE ratio decreased to 2.8% as at 30 June 2024
indicating that is already aligned with the 2024 NPE ratio target. In this
respect, the Group aims at an NPE ratio below 3% by end-2024 and below 2.5% by
end-2025. Additionally, due to the continued strong credit portfolio
performance, the cost of risk target is revised downwards and is currently
expected to be approximately 40 basis points for 2024 and within the
normalised range of 40-50 basis points for 2025.
Upgraded ROTE Targets
Overall, the Group expects to deliver a ROTE of over 19% (on a reported basis)
which is translated into a ROTE of over 24% on 15% CET1 ratio for 2024. For
2025, the Group expects to deliver a reported ROTE in the range of mid-teens,
corresponding to high-teens ROTE on 15% CET1 ratio. This strong performance
for 2024 and 2025 will facilitate rapid capital build-up, with the CET1
generation expected to exceed 300 basis points per annum on a pre-distribution
level.
Distributions
The Group aims to provide a sustainable return to shareholders. Distributions
are expected to be in the range of 30%-50% payout ratio of the Group's
adjusted recurring profitability, including cash dividends and buybacks, with
any distribution being subject to regulatory approval. Group adjusted
recurring profitability is defined as the Group's profit after tax before
non-recurring items (attributable to the owners of the Company) taking into
account distributions under other equity instruments, such as the annual AT1
coupon. In line with the Group's distribution policy, the Group is committed
to delivering sustainably growing distributions through a combination of cash
dividend and share buybacks while maintaining a robust capital base to support
profitable growth and prudently prepare for upcoming potential regulatory
changes. Supported by its continued progress towards its strategic targets,
the Group intends to move towards the top-end of the 30%-50% range of its
distribution policy (i.e. 50% payout ratio) for 2024, subject to required
approvals. Any proposed distribution quantum, as well as envisaged allocation
between dividend and buyback, will take into consideration market conditions
as well as the outcome of its ongoing capital and liquidity planning exercises
at the time. Given the strong capital generation, the Group's distribution
policy is expected to be reviewed with the full year 2024 financial results in
the context of prevailing market conditions.
Proposal to enhance the Group's market visibility and improve liquidity via
ATHEX listing
In the context of evaluating how best to position the Group to achieve its
long-term strategic targets and deliver sustainable value to shareholders, the
Board has been assessing how to enhance the liquidity of the ordinary shares
of the Group which are currently listed on the London Stock Exchange (LSE) and
Cyprus Stock Exchange (CSE). Following extensive communication with the
Group's stakeholders, the Board has reached the view that listing the
ordinary shares on the Athens Stock Exchange ('ATHEX') in conjunction with a
delisting from the LSE, will yield a number of long-term strategic and capital
market benefits. These include enhancing the Group's profile among the
relevant investor base focused on the region, enabling investors to directly
compare performance with regional banking peers, attracting long-term
institutional holders within the more focused market ecosystem of ATHEX and
providing scope for inclusion among indices over time. Taking into account
these benefits, the Board of the Group believes that listing the ordinary
shares on ATHEX and delisting the ordinary shares from the LSE has the
potential to enhance the liquidity of the ordinary shares and may improve the
market visibility of the Group for the benefit of shareholders. The ordinary
shares of the Group will continue to be listed on the
CSE. An Extraordinary General Meeting will be convened to propose a resolution
to shareholders to consider the proposed listing on ATHEX; further details
will be announced in due course. The effectiveness of the listing on ATHEX
will also be subject to and conditional upon, being approved by the ATHEX
Listings Committee. Subject to shareholder approval, necessary regulatory
approvals and market conditions, the Board expects the listing and delisting
to take place in autumn 2024.
Going concern
The Directors have made an assessment of the ability of the Group, the Company
and BOC PCL to continue as a going concern for a period of 12 months from the
date of approval of the Consolidated Condensed Interim Financial Statements.
The Directors have concluded that there are no material uncertainties which
would cast a significant doubt over the ability of the Group, the Company and
BOC PCL to continue to operate as a going concern for a period of 12 months
from the date of approval of the Consolidated Condensed Interim 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,
liquidity and funding position, taking also into consideration the Group's
Financial Plan approved by the Board in February 2024 (the 'Plan') and the
operating environment, as well as any reforecast exercises performed. The
Group has sensitised its projection to cater for a downside scenario and has
used reasonable economic inputs to develop its medium‑term strategy. The
Group is working towards materialising its Strategy.
Capital
The Directors and Management have considered the Group's forecasted capital
position, including the potential impact of a deterioration in economic
conditions. The Group has developed capital projections under a base and an
adverse scenario and the Directors believe that the Group has sufficient
capital to meet its regulatory capital requirements throughout the period of
assessment.
Funding and liquidity
The Directors and Management have considered the Group's funding and liquidity
position and are satisfied that the Group has sufficient funding and liquidity
throughout the period of assessment. The Group continues to hold a significant
liquidity buffer at 30 June 2024 that can be easily and readily monetised in a
period of stress.
Principal risks and uncertainties ‑ Risk management and mitigation
As part of its business activities, the Group faces a variety of risks. The
Group identifies, monitors, manages and mitigates these risks through various
control mechanisms. Credit risk, liquidity and funding risk, market risk
(arising from adverse movements in foreign currency exchange rates, interest
rates, security prices and property prices), insurance and re‑insurance risk
and operational risk, are some of the key significant risks the Group faces.
In addition, key risks facing the Group include geopolitical risk, legal risk,
regulatory compliance risk, information security and cyber risk, digital
transformation and technology risks, climate related and environmental risks,
and business model and strategic risk.
Information relating to the principal risks the Group faces and risk
management is set out in Notes 32 to 35 of the Consolidated Condensed Interim
Financial Statements and in the 'Risk and Capital Management Report', both of
which form part of the Interim Financial Report for the six months ended 30
June 2024. In addition, in relation to legal risk arising from litigations,
investigations, claims and other matters, further information is disclosed in
Note 28 of the Consolidated Condensed Interim Financial Statements.
Additionally, the Group is exposed to the risk of changes in the value of
property which is held either for own use or as stock of property or as
investment property. Stock of property is predominately acquired in exchange
for debt and is intended to be disposed of in line with the Group's strategy.
Further information is disclosed in Note 20 of the Consolidated Condensed
Interim Financial Statements.
Details of the financial instruments and hedging activities of the Group are
set out in Note 17 of the Consolidated Condensed Interim Financial Statements.
Further information on financial instruments is also presented in Notes 32 and
33 of the Consolidated Condensed Interim Financial Statements.
The Group's activities are mainly in Cyprus therefore the Group's performance
is impacted by changes in the Cyprus operating environment, as described in
the 'Operating environment' section of this Interim Management Report and
changes in the macroeconomic conditions and geopolitical developments as
described in the 'Risk and Capital Management Report' which forms part of the
Interim Financial Report for the six months ended 30 June 2024.
In addition, details of the significant and other judgements, estimates and
assumptions which may have a material impact on the Group's financial
performance and position are set out in Note 6 of the Consolidated Condensed
Interim Financial Statements.
Principal risks and uncertainties ‑ Risk management and mitigation
(continued)
As the war in Ukraine and the military conflict in the Middle east continue,
considerable uncertainly is added to the outlook for the global economy and
the impact will largely depend on how these conflicts are resolved. The Group
has limited direct exposure to both Ukraine and Russia as well as to Israel,
and is continuously monitoring the current affairs and remains vigilant to
take precautionary measures as required.
The risk factors discussed above and in the reports referenced above should
not be regarded as a complete and comprehensive statement of all potential
risks and uncertainties. There may be risks and uncertainties of which the
Group is not aware of, or which the Group does not consider significant, but
which may become significant. There are challenging conditions in global
markets due to the high interest rate environment, inflationary pressures, the
geopolitical developments, the growing threat from cyberattacks and other
unknown risks. As a result the precise nature of all risks and uncertainties
that the Group faces cannot be predicted with accuracy as many of these risks
are outside of the Group's control.
Events after the reporting date
Share repurchase programme
During the period from 1 July 2024 to 6 August 2024, 464 thousand shares were
further purchased under the share repurchase programme launched in April 2024,
at a total cost of €1,920 thousand. As at 6 August 2024, the Company holds
44 thousand shares, all arising from the share repurchase programme.
Proposal to list to Athens Stock Exchange and delist from London Stock
Exchange
The Board has been assessing how to enhance the liquidity of the ordinary
shares of the Group which are currently listed on the London Stock Exchange
('LSE') and the Cyprus Stock Exchange ('CSE'). Following extensive
communication with Group's stakeholders, the Board has reached the view that
listing the ordinary shares on the Athens Stock Exchange ('ATHEX') in
conjunction with a delisting from the LSE will yield a number of long-term
strategic and capital market benefits. The ordinary shares of the Group will
continue to be listed on the CSE. An Extraordinary General Meeting will be
convened to propose a resolution to shareholders to consider the proposed
listing on ATHEX. The effectiveness of the listing on ATHEX will also be
subject to and conditional upon, being approved by the ATHEX Listings
Committee.
No other significant non-adjusting events have taken place since 30 June 2024.
Distributions
Based on the 2023 SREP decision, effective from 1 January 2024, any equity
dividend distribution is subject to regulatory approval, both for the Company
and BOC PCL. The requirement for approval does not apply if the distributions
are made via the issuance of new ordinary shares to the shareholders which are
eligible as Common Equity Tier 1 Capital nor to the payment of coupons on any
AT1 capital instruments issued by the Company or BOC PCL.
In March 2024, the Company obtained the approval of the European Central Bank
to pay a cash dividend and to conduct a share buyback (together the
'Distribution') in respect of earnings for the year ended 31 December 2023.
The Distribution amounted to €137 million in total, comprising a cash
dividend of €112 million and a share buyback of up to €25 million as
described in Note 26 of the Consolidated Condensed Interim Financial
Statements. The AGM, on 17 May 2024, approved a final cash dividend of €0.25
per ordinary share in respect of earnings for the year ended 31 December 2023.
In April 2023, the Company obtained the approval of the European Central Bank
to pay a dividend in respect of earnings for the year ended 31 December 2022.
The AGM, on 26 May 2023, declared a final cash dividend of €0.05 per
ordinary share in respect of earnings for the year ended 31 December 2022. The
dividend amounted to €22 million in total.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Interim Financial Report in
accordance with International Accounting Standard (IAS) 34 on 'Interim
Financial Reporting' as adopted by the European Union, 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.
Each of the Directors, whose names and functions are listed on page 1,
confirms that to the best of each person's knowledge and belief:
· the Consolidated Condensed Interim Financial Statements, prepared
in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU,
give a true and fair view of the assets, liabilities and financial position of
the Group at 30 June 2024, and its profit for the period then ended; and
· the Interim Financial Report includes a fair review of:
a. important events that have occurred during the first six months
of the year, and their impact on the Consolidated Condensed Interim Financial
Statements;
b. a description of the principal risks and uncertainties for the
next six months of the financial year;
c. details of any related party transactions that have materially
affected the Group's financial position or performance in the six months ended
30 June 2024; and
d. any changes in the related parties' transactions described in
the last annual report that could have a material effect on the financial
position or performance of the Group in the first six months of the current
financial year.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included in the Company's website.
Legislation in Ireland governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Efstratios‑Georgios Arapoglou
Chairman
Panicos Nicolaou
Chief Executive Officer
07 August 2024
Risk and Capital Management Report
30 June 2024
The Group's approach to risk management
One of the Group's main priorities is to continually improve its risk
management framework to be able to respond to the ever changing environment in
an appropriate manner. Effective risk management is critical to the success of
the Group, and as such the Group maintains a risk management framework
designed to ensure the safety and soundness of the institution, protect the
interests of depositors and shareholders and comply with regulatory
requirements. Clearly defined lines of authority and accountability are in
place as well as the necessary infrastructure and analytics to allow the Group
to identify, assess, monitor and control risk.
1. Risk Management Framework (RMF)
The Board of Directors, through the Risk Committee (RC), is responsible to
ensure that a coherent and comprehensive Risk Management Framework (the
'Framework' or 'RMF') for the identification, assessment, monitoring and
controlling of all risks is in place. The Framework ensures that material and
emerging risks are identified, including, but not limited to, risks that might
threaten the Group's business model, future performance, liquidity, and
solvency. Such risks are taken into consideration in defining the Group's
overall business strategy ensuring alignment with the Group's risk appetite.
In setting its risk appetite, the Group ensures that its risk bearing capacity
is considered so that the appropriate capital levels are always maintained.
The RMF is supported by a strong governance structure and is comprised of
several components that are analysed in the sections below. The RMF is
reviewed, updated and approved by the Board at least annually to reflect any
changes to the Group's business or to take into consideration external
regulations, corporate governance requirements and industry best practices.
1.1 Risk Governance
The responsibility for the governance of risk at the Group lies with the Board
of Directors (the 'Board') which is ultimately accountable for the effective
management of risks and for the system of internal controls in the Group. The
Board is assisted in its risk governance responsibilities by the Board Risk
and Board Audit Committees (RC and AC respectively) and at executive
management level by the Executive Committee (EXCO), Asset and Liability
Committee (ALCO), Asset Disposal Committee (ADC), Technology Committee (TC),
Sustainability Committee (SC) and the Credit Committee.
The RC supports the Board on risk oversight matters including the monitoring
of the Group's risk profile and of all risk management activities whilst the
AC supports the Board in relation to the effectiveness of the system of
internal controls. In addition, discussion and escalation processes are in
place through both the Board Committees and executive level Committees that
provide for a consistent approach to risk management and decision-making.
Discussion around risk management is supported by the appropriate risk
information submitted by the Risk Management Division (RMD) and Executive
Management. The Chief Risk Officer (CRO) or his representatives participate in
all such key committees to ensure that the information is appropriately
presented, and that RMD's position is clearly articulated.
Furthermore, the roles of the CEO and the Group CRO are critical as they carry
specific responsibilities with respect to risk management. These include:
1. Risk Management Framework (RMF) (continued)
1.1 Risk Governance (continued)
Chief Executive Officer (CEO)
The CEO is accountable for leading the development of the Group's strategy and
business plans in a manner that is consistent with the approved risk appetite
and for managing and organising Executive Management to ensure these are
executed. It is the CEO's responsibility to manage the Group's financial and
operational performance within the approved risk appetite.
Chief Risk Officer (CRO)
The CRO leads an independent RMD across the Group including its subsidiaries.
The CRO is responsible for the execution of the Risk Management Framework and
the development of risk management strategies. The CRO is expected to
challenge business strategy and overall risk taking and risk governance within
the Group and independently submit his findings, where necessary, to the RC.
The CRO reports to the RC and for administrative purposes has a dotted line to
the CEO, as presented in the figure organizational diagram below.
1.2 Organisational Model
The RMD is the business function set up to manage the risk management process
of the Group on a day-to-day basis. The risk management process is integrated
into BOC PCL's internal control system. The RMD is organized into several
departments, each of which is specialized in one or several categories of
risks. The organization of RMD reflects the types of risks inherent in the
Group.
*The Data Quality and Governance Unit of the Data Office & Risk Analytics
Department directly reports through its manager to the Data Quality &
Governance committee chaired by the Executive Director People & Change.
RMD organisational model
The RMD operates independently and this is achieved through:
- Organisational independence from the activities assigned to
control;
- Unrestricted and direct access to Executive Management and the
Board, either through the RC or directly
- Direct and unconditional access to all business lines that
have the potential to generate material risk to the Group. Front Line managers
are required to cooperate with the RMD managers and provide access to all
records and files of the Group as well as any other information necessary;
- A separate budget submitted to the RC for approval;
- The CRO is a member of the EXCO and holds voting or veto
presence in key executive committees as well as operational committees.
Furthermore, this independence is also ensured as:
- The CRO is assessed annually by the RC that is jointly
responsible with Human Resources & Remuneration Committee
(https://www.bankofcyprus.com/en-gb/group/who-we-are/our-governance/group-committees/human-resources-remuneration-committee/)
- The CRO maintains a close working relationship with both the
RC and its Chairperson which includes regular and frequent direct
communication both during official RC meetings as well as unofficial meetings
and discussions
1. Risk Management Framework (RMF) (continued)
1.2 Organisational Model (continued)
The RMD organisational model is structured so as to:
- Define risk appetite and report regularly on the status of the
risk profile
- Ensure that all material and emerging risks have proper
ownership, management, monitoring and clear reporting
- Promote proper empowerment in key risk areas that will assist in
the creation of a robust risk culture
- Provide tools and methodologies for risk management to the
business units
- Report losses from risks identified to the EXCO, the RC and the
Board and, where necessary, to the Regulatory Authorities
- Collect and monitor Key Risk Indicators (KRIs)
The RMD is responsible for risk identification and risk management across the
Group.
1.3 Risk Identification
The risk identification process is comprised of two simultaneous but
complementary approaches, namely, the top-down and the bottom-up approaches.
The top-down process is led by Senior Management and focuses on identifying
the Group's material risks whilst the bottom-up approach risks are identified
and captured through several methods such as the Risk and Control
Self-Assessment (RCSA) process, incident capture, fraud events capture,
regulatory audits, direct engagement with specialized units and other. The
risks captured by these processes are compiled during the annual ICAAP process
and its quarterly updates and form the Groups' material risks.
To ensure a complete and comprehensive identification of risks the Group has
integrated several key processes into its risk identification process,
including the:
- Internal Capital Adequacy Assessment Process (ICAAP)
- Internal Liquidity Adequacy Assessment Process (ILAAP)
- Stress testing
- Group Financial Plan compilation process
- Regulatory, internal and external reviews and audits
1.4 Three Lines of Defence
The Group complies with the regulatory guidelines for corporate governance and
has established the "Three Lines of Defence" model as a framework for
effective risk and compliance management and control. The three lines of
defence model defines the responsibilities in the risk management process
ensuring adequate segregation in the oversight and assurance of risk.
First Line of Defence
The first line of defence lies with the functions that own and manage risks as
part of their responsibility for achieving objectives and are responsible for
implementing corrective actions to address, process and control deficiencies.
It comprises of the management and staff of business lines and support
functions who are directly aligned with the delivery of products and/or
services.
Second Line of Defence
The second line of defence includes functions that oversee the compliance of
the first line management and staff, with the regulatory framework and risk
management principles. It comprises of the RMD, Information Security and
Compliance functions. The second line of defence sets the corporate governance
framework of the Group and establishes policies and guidelines that the
business lines and support functions, Group entities and staff should operate
within. The second line of defence also provides support, as well as
independent oversight of the risk profile and risk framework.
1. Risk Management Framework (RMF) (continued)
1.4 Three Lines of Defence (continued)
Third Line of Defence
The third line of defence is the Internal Audit Division (IA) which provides
independent assurance to the Board and the EXCO on the design adequacy and
operating effectiveness of the Group's internal control framework, corporate
governance and risk management processes for the management of risks according
to the risk appetite set by the Board. Findings are communicated to the
Board through the committees and senior management and other key stakeholders,
with remediation plans monitored for progress against agreed completion dates.
1. Risk Management Framework (RMF) (continued)
1.5 Risk Appetite Framework (RAF)
The objective of the Risk Appetite Framework (RAF) is to set out the level of
risk that the Group is willing to take in pursuit of its strategic objectives,
outlying the key principles and rules that govern the risk appetite setting.
It comprises the Risk Appetite Statement (RAS), the associated policies and
limits where appropriate, as well as the roles and responsibilities for the
implementation and monitoring of the RAF.
The RAF has been developed in order to be used as a key management tool to
better align business strategy (financial and non-financial targets) with risk
management, and it should be perceived as the focal point for all relevant
stakeholders within the Group, as well as the supervisory bodies, for the
assessment of whether the undertaken business activities are consistent with
the set risk appetite.
The RAF is one of the main elements of the Risk Management Framework which
includes, among others, a number of frameworks, policies and circulars that
address the principal risks of the Group. Separate RAFs are in place for all
operating subsidiaries which are subject to each subsidiary's board approval.
Risk Appetite Statement (RAS)
The RAS is the articulation, in written form, of the aggregate level and types
of risk that the Group is willing to accept in the course of executing its
business objectives and strategy. It includes qualitative statements as well
as quantitative measures expressed relative to Financial and Non-Financial
risks. As part of the overall framework for risk governance, it forms a
boundary condition to strategy and guides the Group in its risk-taking and
related business activities.
Risk appetite and Financial Plan interaction
The Group's Financial Plan is integral to how the Group manages its business
and monitors performance. It informs the delivery of the Group's strategy and
is aligned to the Risk Appetite Statement. The RAS is subject to an annual
review process during the period in which the Group's Financial Plan as well
as the divisional strategic plans are being formulated. The interplay between
these processes provides for cycle of feedback during which certain RAS
indicators (such as ones related to minimum regulatory requirements) act as a
backstop to the Group's Financial Plan while for other indicators the Group
Financial Plan provides input for risk tolerance setting. Furthermore, the
Group Financial Plan and Reforecast exercises are tested to ensure they are
within the Group's risk appetite.
Risk Appetite monitoring
To ensure that the risk profile of the Group is within the approved risk
appetite, a consolidated risk report and a risk appetite profile report are
regularly reviewed and discussed by the Board and the RC.
Where a breach of a RAS indicator occurs, the Risk Appetite Framework provides the necessary escalation process to analyse the materiality and nature of the breach, notify the appropriate authorities, and decide the necessary remediation actions.
1.6 Risk Taxonomy
In order to ensure that all risks the Group may face are identified and
managed, a risk taxonomy is in place which is a key component of the Internal
Capital Adequacy Assessment Process (ICAAP) and the Internal Liquidity
Adequacy Assessment Process (ILAAP). The taxonomy ensures that the coverage of
risks is comprehensive and identifies potential linkages between risks.
The Risk taxonomy provides a categorisation of different risk types / factors
enabling the institution to assess, aggregate and manage risks in a consistent
way through a common risk language and mapping. It comprises of several levels
of risks in increasing granularity and supports a multi-level tree
categorization to enhance the overall risk classification. This risk
categorization is also used to accommodate additional regulatory compliance
requirements and internal risk analysis and reporting needs.
1. Risk Management Framework (RMF) (continued)
1.7 Risk measurement and reporting
The RMD uses several systems and models to support key business processes and
operations, including stress testing, credit approvals, fraud risk and
financial reporting. The RMD has established a model governance and validation
framework to help address risks arising from model use.
Additionally, the RMD:
- Maintains a categorization and definitions of risks and
terminologies which are used throughout the Group
- Collates reports of Key Risk Indicators (KRIs) and other
relevant risk information. When limit violations occur, escalation and
reporting procedures are in place;
- Checks that risk information provided by management is
complete and accurate and management has made all reasonable endeavour to
identify and assess all key risks;
- Ensures that the risk information submitted to the RC and the
Board by RMD and management is appropriate and enables monitoring and control
of all the risks faced by the Group;
- Discloses risk information externally and prepares reports on
significant risks in line with internal and external regulatory requirements.
Stress testing
Stress testing is a key risk management tool used by the Group to provide
insights on the behaviour of different elements of the Group in a crisis
scenario and to assess the Group's resilience and capital and liquidity
adequacy. To make this assessment, a range of scenarios is used, based on
variations of market, economic and other operating environment conditions.
Stress tests are performed for both internal and regulatory purposes and serve
an important role in:
- Understanding the risk profile of the Group;
- Evaluating whether there is sufficient capital or adequate
liquidity under stressed conditions (ICAAP and ILAAP) so as to put in place
appropriate mitigants;
- Evaluating of the Group's strategy;
- Establishing or revising limits;
- Assisting the Group to understand the events that might push the
Group outside its risk appetite.
The Group carries out the stress testing process through a combination of
bottom-up and top-down approaches. Scenario and sensitivity analysis follows a
bottom-up approach, whereas reverse stress testing follows a top-down
approach.
If the stress testing scenarios reveal vulnerability to a given set of risks,
management makes recommendations to the Board, through the RC, for remedial
measures or actions.
The Group's stress testing programme embraces a range of forward-looking
stress tests and takes all the Group's material risks into account. These key
internal exercises include:
· Stress testing undertaken in support of the Internal Capital
Adequacy Assessment Process (ICAAP). Quarterly ICAAP reviews are also
undertaken.
· Stress testing applied to the funding and liquidity plan in
support of the Internal Liquidity Adequacy Assessment Process (ILAAP) to
formally assess the Group's liquidity risks. Quarterly ILAAP reviews are also
undertaken.
· Annual recovery stress tests which use scenarios to assess the
adequacy of recovery indicators of both capital and liquidity in identifying
the recovery plan options used to exit that stress;
· Ad hoc stress testing as and if required, including in response
to regulatory requests.
1. Risk Management Framework (RMF) (continued)
1.7 Risk measurement and reporting (continued)
Other business and specific risk type stress tests
The Market and Liquidity Risk Department performs additional stress tests,
which include the following:
- Monthly stress testing for interest rate risk (2% shock on
Economic Value (EV));
- Quarterly stress testing for interest rate risk (2% shock on
Net Interest Income (NII));
- Quarterly stress testing for interest rate risk (based on the
six predefined Basel interest rate scenarios which involve flattening,
steepening, short up, short down, parallel up, parallel down shocks);
- Quarterly stress testing on items that are marked to market:
impact on profit/loss and reserves is indicated from changes in interest rates
and prices of bonds and equities.
ICAAP
The ICAAP is a process whose main objective is to assess the Group's capital
adequacy in relation to the level of underlying material risks that may arise
from pursuing the Group's strategy or from changes in its operating
environment. More specifically, the ICAAP analyses, assesses and quantifies
the Group's risks, establishes the current and future capital needs for the
material risks identified and assesses the Group's absorption capacity under
both the baseline scenario and stress testing conditions, aiming to assess
whether the Group has sufficient capital, under both the base and stress case
scenarios, to support its business and achieve its strategic objectives as per
its Board approved Risk Appetite and Strategy.
The Group undertakes quarterly reviews of its ICAAP results as well as on an
ad-hoc basis if needed, which are submitted to the ALCO and the RC,
considering the latest actual and forecasted information. During the quarterly
review, the Group's risk profile is reviewed and any material
changes/developments since the annual ICAAP exercise are assessed in terms of
capital adequacy.
The 2023 ICAAP was submitted to the ECB on 28 March 2024. It indicated that
the Group has sufficient capital and available mitigants to support its risk
profile and its business and to enable it to meet its regulatory requirements,
both under baseline and stressed conditions.
ILAAP
The ILAAP is a process whose main objective is to assess whether the volume
and capacity of liquidity resources available to the Group are adequate to
support its business model, to achieve its strategic objectives under both the
base and severe stress scenarios, and to meet regulatory requirements,
including the LCR and the NSFR.
The Group undertakes quarterly reviews of its ILAAP results through quarterly
liquidity stress tests which are submitted to the ALCO and the RC, where
actual and forecasted information is considered. Any material changes since
the year-end are assessed in terms of liquidity and funding.
The 2023 annual ILAAP package was submitted to the ECB on 28 March 2024. It
indicated that the Group maintains liquidity resources which are adequate to
ensure its ability to meet obligations as they fall due under ordinary and
stressed conditions.
1. Risk Management Framework (RMF) (continued)
1.8 The Group is participated in the Fit-for-55
exercise.
The Group participated in the European Banking Authority ("EBA") "Fit-for-55"
climate risk scenario analysis exercise. The exercise was part of the new
mandates received by the EBA in the scope of the European Commission's Renewed
Sustainable Finance Strategy. Under the European Green Deal, all 27 EU Member
States committed to turning the EU into the first climate-neutral continent by
2050 and pledged to reduce emissions by at least 55% by 2030, compared to 1990
levels. The One-off Fit-for-55 climate risk scenario analysis aimed at
assessing the resilience of the financial sector in line with the Fit-for-55
package and to gain insights into the capacity of the financial system to
support the transition to a lower carbon economy under conditions of stress.
1.9 The Group participated in the ECB Cyber Resilience
Stress Test
The Group participated in the cyber resilience stress test exercise conducted
by the ECB in the first half of 2024. The aim is to assess the
cyber-resilience framework for all SSM Significant Institutions. The
exercise aim to assess how banks respond to and recover from a cyberattack,
rather than their ability to prevent it. The insights gained will be used for
the wider supervisory assessment in 2024. The findings and lessons learned are
discussed with each bank as part of the 2024 Supervisory Review and Evaluation
Process.
2. Recovery and resolution planning
The Group's recovery plan sets out the arrangements and measures that the
Group could adopt in the event of severe financial stress to restore the Group
to long term viability. A suite of indicators and options are included in the
Group's recovery plan, which together present the identification of stress
events and the tangible mitigating actions available to the Group to restore
viability. The Group's recovery plan is approved by the Board on the
recommendation of the RC and ALCO.
The Group resolution plan is prepared by the Single Resolution Board in
cooperation with the National Resolution Authority (Central Bank of Cyprus).
The resolution plan describes the Preferred Resolution Strategy (PRS), in
addition to ensuring the continuity of the Group's critical functions and the
identification and addressing of any impediments to the Group's
resolvability. The PRS for the Group is a single point of entry bail-in via
BOC PCL. The resolution authorities also determine the Minimum Requirements
for own funds and Eligible Liabilities (MREL) corresponding to the loss
absorbing capacity necessary to execute the resolution.
3. Risk Culture
A robust risk culture is a substantial determinant of whether the Group will
be able to successfully execute its strategy within its defined risk appetite.
An action plan towards the implementation of a firm-wide risk culture is in
place across the Group and RMD has a leading role in it. The action plan
includes, among other, the measurement of risk culture, both at bank wide and
divisional level, through a specific Risk Culture Dashboard, the communication
of a series of topics aiming at re-enforcing risk culture and the provision of
specific training for areas such as credit underwriting and other risk
management related topics.
4. Principal Risks
As part of its business activities, the Group faces a variety of risks. The
principal and other risks faced by the Group are described below as well as
the way these are identified, assessed, managed and monitored by the Group,
including the available mitigants. The risks described below, should not be
regarded as a complete and comprehensive statement of all potential risks,
uncertainties or mitigants as other factors either not yet identified or not
currently material, may also adversely affect the Group.
4. Principal Risks (continued)
4.1 Credit Risk
Credit risk is defined as the current or prospective risk to earnings and
capital arising from an obligor's failure to meet the terms of any contract
with the Group (actual, contingent or potential claims both on and off balance
sheet) or failure to perform as agreed. Within the general definition of
credit risk, the Group identifies and manages the following types of risk:
· Counterparty credit risk (CCR): the Group's credit
exposure with other counterparties. The risk of losses arising as a result of
the counterparty not meeting their contractual obligations in full and on
time.
· Settlement risk: the risk that a counterparty fails to
deliver the terms of a contract with the Group.
· Issuer risk: the risk of losses arising from a credit
deterioration of an issuer of instruments in which the Group has invested.
· Concentration risk: the risk that arises from the
uneven distribution of exposures (i.e. credit concentration) to individual
borrowers or by industry, collateral, product, currency, economic sector or
geographical region.
· Country risk: the Group's credit exposure arising from
lending and/or investments or the presence of the Group to a specific country.
In order to manage these risks, the Group has a Credit Risk Management
function within RMD that:
- Develops prudent policies, guidelines and approval
limits necessary to manage and control or mitigate the credit and
concentration risk in the Group. These documents are reviewed and updated at
least annually, or earlier if deemed necessary, to reflect any changes in the
Group's risk appetite and strategy and consider the market environment or any
other major changes from external or internal factors that come into effect;
- Assesses credit applications, before their submission
for approval to Credit Committee 3 / the RC / the Board, from an independent
credit risk perspective ensuring abidance to the Group's risk appetite,
policies and guidelines, in order to support the role of Observer, who holds a
veto right;
- Participates as an observer in the Credit Committee 3 and in
specific cases that fall under the approving authority of Corporate
Sanctioning as delegated by the CRO;
- Sets KRIs for monitoring the loan portfolio quality and adopts
a proactive monitoring approach for such risks;
- Measures the expected credit losses in a prudent way in order
to have a fair representation of the loan book in the financial statements of
the Group
The Group sets and monitors risk appetite limits relating to credit risk.
Furthermore, a limits framework is in place in relation to the credit granting
process and also the general rules are documented in the Group's Lending
Policy. Relevant circulars and guidelines are in place that provide parameters
for the approval of credit applications and related credit limits. The Group
has established credit approving authorities, which are authorised to approve
the granting, review and restructuring of credit facilities in the Bank,
including the Credit Sanctioning Department and the Credit Committee 3. Credit
Committee 3 is comprised of members from various Group divisions outside RMD
to ensure independence of opinion. Applications falling outside the approval
limits of Credit Committee 3 are submitted to the RC or the Board, depending
on the total exposure of the customer group.
The Group has adopted methodologies and techniques for credit risk
identification. These methodologies are revised and modified whenever deemed
necessary to reflect changes in the financial environment and adjusted to be
in line with the Group's overall strategy and its short-term and long-term
objectives.
4. Principal Risks (continued)
4.1 Credit Risk (continued)
The Group dedicates considerable resources to assess credit risk and to
correctly reflect the value of its on-balance and off-balance sheet exposures
in accordance with regulatory and accounting guidelines. This process can be
summarised in the following stages:
· Analysing performance and asset quality
· Measuring exposures and concentrations
· Raising allowances for impairment
Furthermore, post-approval monitoring is in place to ensure adherence to both
terms and conditions set in the approval process and credit risk policies and
procedures. A key aspect of credit risk is credit risk concentration which is
defined as the risk that arises from the uneven distribution of exposures to
individual borrowers, specific industry or economic sectors, geographical
regions, product types or currencies. The monitoring and control of
concentration risk is achieved by limit setting (e.g. sector and name limits)
and reporting them to senior management.
Approved policies and procedures are in place for the approval of Credit and
Settlement Limits per counterparty based on the business needs, current
exposures and investment plans. Counterparty credit and settlement limits for
Treasury transactions are monitored real-time through the Treasury front to
back system.
With the aim of identifying credit risk at an early stage, a number of key
reports are prepared for the EXCO
and / or the Board. Indicatively, these include a credit quality dashboard
which analyses, among others, the overall loan book performance, forborne
facilities, the performance of new lending, specific products or portfolios,
new forbearances and modifications and other portfolio quality KPIs.
Country Risk
Country Risk refers to the possibility that borrowers of a particular country
may be unable or unwilling to fulfil their foreign obligations for reasons
beyond the usual risks which arise in relation to all lenders. Country risk
affects the Group via its operation in other countries and also via
investments in other countries (Money Market (MM) placements, bonds, shares,
derivatives, etc.). In addition, the Group is indirectly affected by credit
facilities provided to customers for their international operations or due to
collateral in other countries. In this respect, country risk is considered in
the risk assessment of all exposures, both on-balance sheet and off-balance
sheet. Country risk exposures are the aggregation of the various on-balance
sheet and off-balance sheet exposures including investments in bonds, money
market placements, loans by or guarantees to residents of a country, letters
of credit, properties etc.
The Group monitors country risk on a quarterly basis by reporting to ALCO
country exposures compared to country limits. The Board, through the RC is
also informed on a regular basis and at least annually, on any limit breaches.
The country limits are allocated based on the CET1 capital of the Group, the
country's credit rating and internal scoring.
Credit Risk Mitigation
The fundamental lending principle of the Group is to approve applications and
provide credit facilities only when the applicant has the ability to pay and
where the terms of these facilities are consistent with the customers' income
and financial position, independent of any collateral that may be assigned as
security and in full compliance with all external laws, regulations,
guidelines, internal codes of conduct and other internal policies and
procedures. The value of collateral is not a decisive factor in the Group's
assessment and approval of any credit facility since collaterals may only
serve as a secondary source of repayment in case of default.
Collaterals are used for risk mitigation. Collaterals are considered as an
alternative means of debt recovery in case of default. Collateral by itself is
not a predominant criterion for approving a loan, with the exception of when
the loan agreement envisages that the repayment of the loan is based on the
sale of the property pledged as collateral or liquid collateral provided (e.g.
cash). The Group's requirements around completion, valuation and management of
collateral are set out in appropriate Group policies.
4. Principal Risks (continued)
4.1 Credit Risk (continued)
Credit risk mitigation is also implemented through a number of policies,
procedures, guidelines circulars and limits. Policies are approved by the RC
and include the:
· Lending Policy
· Write-off policy
· Concentration Risk Policy
· Valuation Policy
· Credit Risk Monitoring Policy
· Environmental & Social Policy
· Asset Acquisition and Disposal Policy
· Loan Syndication Policy
· Green Lending Policy
· Shipping Finance Policy
· Early Warning Policy
Systems
The effective management of the Group's credit risk is achieved through a
combination of training and specialisation as well as appropriate credit risk
assessment (risk rating) systems. The Group aims to continuously upgrade the
systems and models used in assessing the creditworthiness of Group
customers. Additionally, the Group continuously upgrades the systems and
models for the assessment of credit risk aiming to correctly reflect the value
of its on-balance and off-balance sheet exposures in accordance with
regulatory and accounting guidelines.
The analysis of loans and advances to customers in accordance with the EBA
standards is presented below.
4. Principal Risks (continued)
4.1 Credit Risk (continued)
The tables below present the analysis of loans and advances to customers in
accordance with the EBA standards.
Gross loans and advances to customers Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
30 June 2024 Group gross customer Of which: NPEs Of which exposures with forbearance measures Accumulated impairment, accumulated negative changes in fair value due to Of which: NPEs Of which exposures with forbearance measures
credit risk and provisions
loans and advances(1,2)
Total exposures with forbearance measures Of which: NPEs Total exposures with forbearance measures Of which:
NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 79,953 - - - 9 - - -
Other financial corporations 263,807 533 1,006 462 2,703 373 326 307
Non-financial corporations 5,092,817 121,648 187,574 70,248 79,042 59,568 36,089 32,982
Of which: Small and Medium sized Enterprises(3) (SMEs) 3,072,960 93,422 130,282 44,445 55,226 45,218 21,000 19,215
Of which: Commercial real estate(3) 3,644,502 105,946 162,154 66,889 62,126 49,147 33,952 31,525
Non-financial corporations by sector
Construction 465,736 3,312 6,307
Wholesale and retail trade 924,700 33,020 18,547
Accommodation and food service activities 1,241,788 13,031 11,129
Real estate activities 971,813 37,240 18,782
Transport and storage 377,920 3,549 2,359
Other sectors 1,110,860 31,496 21,918
Households 4,821,406 172,229 165,320 75,728 91,262 61,755 30,644 23,708
Of which: Residential mortgage loans(3) 3,731,822 136,912 144,816 64,866 61,012 41,012 24,868 18,761
Of which: Credit for consumption(3) 619,941 28,151 18,061 10,895 19,728 14,801 4,913 4,155
Total on-balance sheet 10,257,983 294,410 353,900 146,438 173,016 121,696 67,059 56,997
( )
( )
( )
( )
(1)Excluding loans and advances to central banks and credit institutions.
(2)The residual fair value adjustment on initial recognition (which relates
mainly to loans acquired from Laiki Bank and is calculated as the difference
between the outstanding contractual amount and the fair value of loans
acquired and bears a negative balance) is considered as part of the gross
loans, therefore decreases the gross balance of loans and advances to
customers.
(3)The analysis shown in lines 'non-financial corporations' and 'households'
is non-additive across all categories as certain customers could be in both
categories.
4. Principal Risks (continued)
4.1 Credit Risk (continued)
Gross loans and advances to customers Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
31 December 2023 Group gross customer Of which: NPEs Of which exposures with forbearance measures Accumulated impairment, accumulated negative changes in fair value due to Of which: NPEs Of which exposures with forbearance measures
credit risk and provisions
loans and advances(1,2)
Total exposures with forbearance measures Of which: NPEs Total exposures with forbearance measures Of which:
NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 35,249 - - - 6 - - -
Other financial corporations 253,077 805 1,201 448 4,247 378 308 305
Non-financial corporations 4,931,801 155,212 258,469 95,156 91,640 61,097 37,355 33,472
Of which: Small and Medium sized Enterprises(3) (SMEs) 3,017,909 125,600 161,086 69,551 66,104 48,370 25,743 22,814
Of which: Commercial real estate(3) 3,567,684 136,152 228,516 90,842 66,458 50,862 33,774 31,716
Non-financial corporations by sector
Construction 484,893 24,873 8,585
Wholesale and retail trade 869,753 37,739 22,936
Accommodation and food service activities 1,169,399 14,310 9,657
Real estate activities 1,019,544 40,296 23,461
Manufacturing 359,874 3,852 4,589
Other sectors 1,028,338 34,142 22,412
Households 4,781,114 207,883 196,070 96,019 83,560 58,962 30,330 25,227
Of which: Residential mortgage loans(3) 3,726,056 169,734 173,407 83,445 52,863 39,732 25,119 20,849
Of which: Credit for consumption(3) 590,945 29,347 21,312 12,704 21,108 13,357 4,897 4,157
Total on-balance sheet 10,001,241 363,900 455,740 191,623 179,453 120,437 67,993 59,004
( )
(1)Excluding loans and advances to central banks and credit institutions.
(2)The residual fair value adjustment on initial recognition (which relates
mainly to loans acquired from Laiki Bank and is calculated as the difference
between the outstanding contractual amount and the fair value of loans
acquired and bears a negative balance) is considered as part of the gross
loans, therefore decreases the gross balance of loans and advances to
customers.
(3)The analysis shown in lines 'non-financial corporations' and 'households'
is non-additive across all categories as certain customers could be in both
categories.
4. Principal Risks (continued)
4.2 Market Risk
Market Risk is defined as the current or prospective risk to earnings and
capital arising from adverse movements in interest rates, currency / foreign
exchange rates and from any other changes in market prices. The main types
of market risk to which the Group is exposed to are listed below:
a. Interest Rate Risk in the Banking Book (IRRBB);
b. Currency / foreign exchange rates risk;
c. Securities price risk (bonds, equities);
d. Properties risk;
Each of the risks above is defined and further analysed in the subsections
below. Furthermore, additional information relating to Market risk is set out
in Note 33 of the Consolidated Condensed Interim Financial Statements.
The management of market risk in the Group is governed by the Group's Risk
Appetite Statement approved by the Board and by the Market Risk Policy,
approved by the RC. These are supplemented by a range of approved limits and
controls as per Market Risk Limits document approved by the Board. The Group
has an established governance structure for market risk. Market risk is
measured using portfolio sensitivity analysis, Value at Risk ('VaR') and
stress testing measures. Measurement and reporting to management body and
committees are performed on a frequent basis.
Interest Rate Risk in the Banking Book
Interest rate risk in the banking book ("IRRBB") is the current or prospective
risk to both the earnings and capital of the Group as a result of adverse
movements in interest rates. The four components of interest rate risk are:
repricing risk, yield curve risk, basis risk and option risk. Repricing risk
is the risk of loss of net interest income or economic value as a result of
timing mismatch in the repricing of assets, liabilities and off balance sheet
items. Yield curve risk arises from changes in the slope and the shape of the
yield curve. Basis risk is the risk of loss of net interest income or economic
value as a result of imperfect correlation between different reference rates.
Option risk arises from options, including embedded options, e.g. consumers
redeeming fixed rate products when market rates change.
The Group does not operate any trading book and thus all interest rate
exposure arises from the banking book.
In order to manage interest rate risk, the Group sets a one-year limit on the
maximum reduction of the net interest income. Limits are set as a percentage
of Group Tier 1 capital and as a percentage of Group annual net interest
income (when positive). Whilst limit breaches must be avoided at all times,
any such occurrence is reported to the relevant authorities (ALCO and / or RC)
and mitigating actions are put in place. Monthly update is provided to the
ALCO/ EXCO/ RC.
Treasury Division is responsible for managing the interest rate exposure of
the Group. Corrective actions are taken by Treasury Division with a view of
minimizing the risk exposure and in any event to restrict exposure within
limits.
Currency/foreign exchange rates risk
Currency/foreign exchange rates 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.
4. Principal Risks (continued)
4.2 Market Risk (continued)
Currency/foreign exchange risk (continued)
In order to limit the risk of loss from adverse fluctuations in foreign
exchange rates, overall Intraday and Overnight open currency position limits
have been set. These internal limits are small compared to the maximum
permissible by the regulator. Internal limits serve as a trigger to management
for avoiding regulatory limit breaches. Due to the fact that there is no
Foreign Exchange Trading Book, VaR (Value at Risk) is calculated on a monthly
basis on the position reported to the CBC. Intraday and overnight FX position
limits are monitored daily and the open foreign currency position or any
breaches are reported to ALCO and to the RC on a monthly basis.
Treasury Division is responsible for managing the foreign currency open
position of the Group emanating from its balance sheet. The foreign currency
position emanating from customer transactions is managed by the Treasury Sales
Unit of Global Markets & Treasury Sales Department. Treasury Division is
also responsible for hedging the foreign currency open positions of the
foreign non-banking units of the Group.
Equities Price Risk
The risk of loss from changes in the price of equity securities arises when
there is an unfavorable change in the prices of equity securities held by the
Group as investments.
The Group holds equity and fund investments on its balance sheet. The equity
portfolio mainly relates to certain legacy positions acquired through loan
restructuring activity and specifically through debt for equity swaps, whereas
the fund portfolio mainly relates to investments held by the insurance
operations of the Group. The policy is to manage the current equity portfolio
with the intention to run it down by selling all positions for which there is
a market. No new purchases of equities are allowed without ALCO approval.
Nevertheless, new equities may be obtained from repossessions of collateral
for loans. Analysis of equity and fund holdings are reported to ALCO on a
quarterly basis. Analysis of the positions the Group maintains as at 30 June
2024 is presented in Note 16 of the Consolidated Condensed Interim Financial
Statements.
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 issuers changes and/or as the interest rates
of fixed rate securities change.
The Group invests a significant part of its liquid assets in debt securities.
Changes in the prices of debt securities classified as investments at FVPL,
affect the profit or loss of the Group, whereas changes in the value of debt
securities classified as FVOCI affect directly the equity of the Group. Debt
securities classified as HTC are held at amortised cost.
Debt security investment limits exist at RAS level governing the level of
riskiness of the overall portfolio. Credit limits per issuer are also in
place. Limit monitoring is performed on a daily basis by the Market &
Liquidity Risk Unit. Any breaches are reported following the escalation
process depending on the limit breach.
The debt security portfolio is managed by the Treasury Division and governed
by the Bond Investment Policy. The annual bond investment strategy is proposed
by Treasury and approved by ALCO. Treasury proceeds with bond investment
amounts as approved through the Financial Plan which are within the Bond
Investment Policy and within limits and parameters set in the various policies
and frameworks. Analysis of the positions the Group maintains as at 30 June
2024 is presented in Note 16 of the Consolidated Condensed Interim Financial
Statements.
4.
Principal Risks (continued)
4.2
Market Risk (continued)
Property Price Risk
Property price risk is the risk that the value of property will decrease,
either as a result of:
˗ Changes in the demand for, and prices of, Cypriot real estate;
or
˗ Regulatory requests which may increase the capital requirements
for stock of property
The Group is exposed to the risk of negative changes in the fair value of
property which is held either for own use, as stock of property or as
investment property. Stock of property has been predominately acquired in
exchange of debt with a clear plan and intention to be disposed of in line
with the Group's strategy.
The Group has in place a number of actions to manage and monitor the exposure
to property risk as indicated below:
˗ It has an established Real Estate Management Unit (REMU), a
specialised division to manage, promote and monetise the repossessed
portfolio, including other non-core assets, through appropriate real estate
disposal initiatives;
˗ It has placed great emphasis on the efficient and quick
disposal of on-boarded properties and in their close monitoring and regular
reporting. RAS indicators and other KPIs are in place monitoring REMU
properties in terms of value, aging, and sales levels;
˗ It assesses and quantifies property risk as one of the material
risks for ICAAP purposes under both the normative and economic perspective;
˗ It 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;
˗ As part of the valuation process, assumptions are 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;
˗ For the valuation of properties owned by the Group, judgement
is exercised which takes into account available reference points, such as
comparable market data, expert valuation reports, current market conditions
and application of appropriate illiquidity haircuts where relevant.
4.3 Liquidity and Funding Risk
Liquidity risk is the risk that the Group does not have sufficient financial
resources to meet its commitments as 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.
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 requirements (e.g. MREL).
Further information relating to Group risk management in relation to liquidity
and funding risk is set out in Note 34 of the Consolidated Condensed Interim
Financial Statements. Additionally, information on encumbrance and liquidity
reserves is provided below.
4.3.1 Encumbered and unencumbered assets
Asset encumbrance arises from collateral pledged against secured funding and
other collateralised obligations.
An asset is classified as encumbered if it has been pledged as collateral
against secured funding and other collateralised obligations and, as a result,
is no longer available to the Group for further collateral or liquidity
requirements. The total encumbered assets of the Group amounted to
€3,499,227 thousand as at 30 June 2024 (31 December 2023: €3,681,929
thousand).
4. Principal Risks (continued)
4.3 Liquidity and Funding Risk (continued)
4.3.1 Encumbered and unencumbered assets (continued)
An asset is classified as unencumbered if it has not been pledged as
collateral against secured funding and other collateralised obligations.
Unencumbered assets are further analysed into those that are available and can
potentially be pledged and those that are not readily available to be pledged.
As at 30 June 2024, the Group held €19,583,371 thousand (31 December 2023:
€20,640,651 thousand) of unencumbered assets that can potentially be pledged
and can be used to support potential liquidity funding needs and €702,645
thousand (31 December 2023: €717,575 thousand) of unencumbered assets that
are not readily available to be pledged for funding requirements in their
current form.
The table below presents an analysis of the Group's encumbered and
unencumbered assets and the extent to which these assets are currently pledged
for funding or other purposes. The carrying amount of such assets is disclosed
below:
30 June 2024 Encumbered Unencumbered Total
Pledged as collateral Which can potentially be pledged Which are not readily available to be pledged
€000 €000 €000 €000
Cash and other liquid assets 71,132 8,115,131 499,928 8,686,191
Investments 40,641 3,903,031 15,082 3,958,754
Loans and advances to customers 3,387,454 6,524,754 172,759 10,084,967
Property - 1,037,424 14,876 1,052,300
Total on-balance sheet 3,499,227 19,580,340 702,645 23,782,212
31 December 2023
Cash and other liquid assets 72,800 9,890,350 439,353 10,402,503
Investments 260,011 3,419,445 15,953 3,695,409
Loans and advances to customers 3,349,118 6,229,383 243,287 9,821,788
Property - 1,101,473 18,982 1,120,455
Total on-balance sheet 3,681,929 20,640,651 717,575 25,040,155
Encumbered assets primarily consist of loans and advances to customers and
investments in debt securities. These are mainly pledged for the funding
facilities of the European Central Bank (ECB) and for the covered bond (Notes
22 and 34 of the Consolidated Condensed Interim Financial Statements for the
six ended 30 June 2024 respectively). Encumbered assets include cash and other
liquid assets placed with banks as collateral under ISDA agreements which are
not immediately available for use by the Group but are released once the
transactions are terminated. Cash is mainly used to cover collateral required
for (i) derivatives and (ii) trade finance transactions and guarantees issued.
It may also be used as part of the supplementary assets for the covered bond.
4. Principal Risks (continued)
4.3 Liquidity and Funding Risk (continued)
4.3.1 Encumbered and unencumbered assets (continued)
BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered
Bonds legislation and the Covered Bonds Directive of the Central Bank of
Cyprus (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% payable 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 and 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.
Unencumbered assets which can potentially be pledged include debt securities
and Cyprus loans and advances which are less than 90 days past due. Balances
with central banks are reported as unencumbered and can be pledged, to the
extent that there is excess available over the minimum reserve requirement.
The minimum reserve requirement is reported as unencumbered not readily
available to be pledged.
Unencumbered assets that are not readily available to be pledged primarily
consist of loans and advances which are prohibited by contract or law to be
encumbered or which are more than 90 days past due or for which there are
pending litigations or other legal actions against the customer, a proportion
of which would be suitable for use in secured funding structures but are
conservatively classified as not readily available for collateral. Properties
whose legal title has not been transferred to the Company or a subsidiary are
not considered to be readily available as collateral.
Insurance assets held by Group insurance subsidiaries are not included in the
table above or below as they are primarily due to the insurance policyholders.
The carrying and fair value of the encumbered and unencumbered investments of
the Group as at 30 June 2024 and 31 December 2023 are as follows:
30 June 2024 Carrying value of encumbered investments Fair value of encumbered investments Carrying value of unencumbered investments Fair value of unencumbered investments
€000 €000 €000 €000
Equity securities - - 126,917 126,917
Debt securities 40,641 40,704 3,791,196 3,762,356
Total investments 40,641 40,704 3,918,113 3,889,273
31 December 2023
Equity securities - - 144,016 144,016
Debt securities 260,011 250,480 3,291,383 3,303,818
Total investments 260,011 250,480 3,435,399 3,447,834
4. Principal Risks (continued)
4.3 Liquidity and Funding Risk (continued)
4.3.2 Liquidity regulation
The Group is required to comply with provisions on the Liquidity Coverage
Ratio (LCR) under CRD IV/CRR (as supplemented by Delegated Regulations (EU)
2015/61), with the limit set at 100%. The Group must also comply with the Net
Stable Funding Ratio (NSFR) calculated as per the Capital Requirements
Regulation II (CRR II), with the limit set at 100%.
The LCR is designed to promote the short-term resilience of a Group's
liquidity risk profile by ensuring that it has sufficient high-quality liquid
resources to survive an acute stress scenario lasting for 30 days. The NSFR
has been developed to promote a sustainable maturity structure of assets and
liabilities.
As at 30 June 2024, the Group was in compliance with all regulatory liquidity
requirements. As at 30 June 2024, the Group's LCR stood at 304% (compared to
359% at 31 December 2023) and the Group's NSFR stood at 156% (compared to 158%
at 31 December 2023).
4.3.3 Liquidity reserves
The below table sets out the Group's liquidity reserves:
Composition of the liquidity reserves 30 June 2024 31 December 2023
Internal Liquidity Reserves Liquidity reserves as per LCR Delegated Regulation (EU) Internal Liquidity Reserves Liquidity reserves as per LCR Delegated Regulation (EU)
2015/61 LCR eligible 2015/61 LCR eligible
Level 1 Level Level 1 Level
2A & 2B 2A & 2B
€000 €000 €000 €000 €000 €000
Cash and balances with central banks 7,099,641 7,099,641 - 9,428,052 9,428,052 -
Placements with banks 215,532 - - 214,588 - -
Liquid investments 4,265,274 3,711,833 369,895 3,299,967 2,801,667 354,128
Available ECB Buffer 1,918,086 - - 92,088 - -
Total 13,498,533 10,811,474 369,895 13,034,695 12,229,719 354,128
Internal Liquidity Reserves present the total liquid assets as defined in BOC
PCL's Liquidity Policy. Liquidity reserves as per LCR Delegated Regulation
(EU) 2015/61 present the liquid assets as per the definition of the
aforementioned regulation i.e., High-Quality Liquid Assets (HQLA).
Balances in Nostro accounts and placements with banks are not included in
Liquidity reserves as per LCR, as they are not considered HQLA (they are part
of the LCR Inflows).
Liquid investments under the Liquidity reserves as per LCR are shown at market
values reduced by standard weights as prescribed by the LCR regulation. Liquid
investments under Internal Liquidity Reserves include additional unencumbered
liquid bonds which are shown at market values net of haircuts based on the ECB
methodology and haircuts for the ECB eligible bonds, while for the non-ECB
eligible bonds, a more conservative internally developed haircut methodology
is used.
Currently available ECB buffer is not part of the Liquidity reserves as per
LCR.
4. Principal Risks (continued)
4.4 Operational Risk
Operational risk is defined as the risk of direct or indirect impact/loss
resulting from inadequate or failed internal processes, people, and systems or
from external events. The Group includes in this definition compliance, legal
and reputational risk.
The Group recognises that the control of operational risk is directly related
to effective and efficient management practices and high standards of
corporate governance. To that effect, the management of operational risk is
geared towards maintaining a strong internal control governance framework and
managing operational risk exposures through a consistent set of management
processes that drive risk identification, assessment, control and monitoring.
The Group also maintains adequate insurance policies to cover for unexpected
material operational losses.
Operational Risk Management (ORM) Framework
The Group has established an Operational Risk Management Framework which
addresses the following objectives:
- Raising operational risk awareness and building the
appropriate risk culture,
- Providing effective risk monitoring and reporting to the
Group's management at all levels in relation to the operational risk profile,
so as to facilitate decision making for risk control activities,
- Mitigating operational risk to ensure that operational losses
do not cause material damage to the Group's franchise and that the impact on
the Group's profitability and corporate objectives is contained, and
- Maintaining a strong system of internal controls to ensure
that operational incidents do not cause material damage to the Group's
franchise and have a minimal impact on the Group's profitability and
reputation.
Operational risks can arise from all business lines and from all activities
carried out by the Group and are thus diverse in nature.
To enable effective management of all material operational risks, the
operational risk management framework adopted by the Group is based on the
three lines of defence model, through which risk ownership is dispersed
throughout the organisation.
The key components of the Operational Risk Management Framework include the
following:
Operational Risk Appetite
A defined Operational RAS is in place, which forms part of the Group RAS.
Thresholds are applied for conduct and other operational risk related losses.
Risk Control Self-Assessment (RCSA)
An RCSA methodology is established across the Group. According to the RCSA
methodology, business owners are requested to identify risks that arise
primarily from the risk areas under the Group's Risk Taxonomy.
Updating/enriching the risk register in terms of existing and potential new
risks identified and their mitigation is an on-going process, sourced from
RCSAs, but also from other risk and control assessments (RCAs) performed.
4. Principal Risks (continued)
4.4 Operational Risk (continued)
Operational Risk Management (ORM) Framework (continued)
Incident recording and analysis
An operational risk event is defined as any incident where through the failure
or lack of a control, the Group has incurred an actual or potential loss/gain,
or could have had a negative reputational or regulatory impact.
Operational risk loss events are classified and recorded in the Group's Risk
and Compliance Management System (RCMS), which serves as an enterprise tool
integrating all risk-control data (e.g. risks, loss incidents, KRIs) to
provide a holistic view with regards to risk identification, corrective action
and statistical analysis. During the six months ended 30 June 2024, 335 loss
events with gross loss equal to or greater than €1,000 each were recorded
including incidents of prior years (mostly legal cases) for which losses
materialised in 2024 (30 June 2023: 406 loss events).
Key Risk Indicators (KRIs)
These are operational or financial variables, which track the likelihood
and/or impact of a particular operational risk. KRIs serve as a metric, which
may be used to monitor the level of particular operational risks.
Operational Risk Capital Requirements and ICAAP
Regulatory and economic capital requirements for operational risk are
calculated using the Standardised Approach. Additional Pillar II Regulatory
capital is calculated for operational risk on a scenario-based approach.
Scenarios are built after taking into consideration the Key Risk Drivers,
which are identified using a combination of methods and sources, through
top-down and bottom-up approaches.
Training and awareness
The Group strives to continuously enhance its risk control culture and
increase the awareness of its employees on operational risk issues through
ongoing staff training (both through physical workshops and through
e-learning).
Reporting
Important operational risks identified and assessed through the various
tools/methodologies of the Operational Risk Management Framework, are
regularly reported to top management, as part of overall risk reporting. More
specifically, the CRO reports on risk to the EXCO and the RC on a monthly
basis, while annual risk reports are submitted to the Regulators. Ad-hoc
reports are also submitted to management, as needed.
4.4.1 Fraud Risk Management
The Group has a dedicated unit under the ORM Function, the Fraud Risk
Management (FRM) unit, which is responsible for the oversight of internal and
external fraud by:
˗ Developing and maintaining a framework and supporting policies for
the management of internal and external fraud risks;
˗ Undertaking Specialised Fraud Risk Assessments and ensuring that
divisions and business departments have a sound process for identifying new
and emerging fraud risks;
˗ Promoting and adopting automated / alert-based systems and controls
for the prevention and early detection of external and internal fraud;
˗ Establishing structured Fraud Incident response management processes
and plans;
˗ Analysing data and emerging fraud trends for the proactive management
of emerged fraud;
˗ Providing direction through policy, education, tools and training;
˗ Ensuring compliance with relevant regulations and assessing new
regulations or amendments to existing ones with regards to fraud related
issues, by performing regulatory gap analysis in cooperation with other
related stakeholders.
4. Principal Risks (continued)
4.4 Operational Risk (continued)
4.4.1 Fraud Risk Management (continued)
Ongoing activities/initiatives towards further enhancements of FRM involved
inter alia, the provision of fraud risks and emerged frauds awareness seminar
to Group's staff and top-management, and the further strengthening of external
fraud prevention controls and framework, as a result of the customers'
accelerated shift towards digital channels and digital banking.
4.4.2 Third-Party Risk Management
The Group has a dedicated unit under the ORM Function, the Third-Party Risk
Management unit, which is responsible to perform risk assessments on all
outsourcing, strategic and intragroup arrangements of the Group. As part of
the risk assessment, the team identifies and monitors the effective handling
of any potential gaps/weaknesses. The risk assessment occurs prior to signing
an outsourcing, strategic or intragroup arrangement as well as prior to their
renewal, triennially and upon any change of scope of service.
Third-Party and Outsourcing risk can arise from a third party's failure to
provide the service as expected due to reasons such as inadequate capacity,
technological failure, human error, unsatisfactory quality of service,
unsatisfactory continuity of service and/or financial failure.
4.4.3 Business Continuity Risk Management (BCRM)
The Group has a dedicated unit under the ORM Function, the Business Continuity
Risk Management unit, which provides direction and sets the overall framework
to individual Business Units (BUs) to mitigate business continuity risks and
minimize the impact of severe disruptive incidents such as natural disasters,
loss of Information Technology Center, loss of electricity, pandemic etc.
5. Other principal risks and uncertainties
In addition to the risks described in section 4 above, further risks are also
faced by the Group. These risks are described below as well as the way these
are identified, assessed, managed and monitored by the Group, including the
available mitigants.
Emerging risks are defined as new risks or existing risks that may escalate in
a different way, with the potential to threaten the execution of the Group's
strategy or operations over a medium-term horizon. The Group is
forward-looking in its risk identification processes to ensure emerging risks
are identified. The internal and external risk environment of the Group as
well as macro-themes are assessed to identify such emerging risks that may
require escalation and implementation of suitable mitigation actions.
Half-year reporting of emerging risks to the RC and the EXCO is performed to
ensure all significant risks are escalated effectively for discussion and
action. The main emerging risks currently considered by the Group are
Geopolitical Risk, Digital Transformation and Climate and Environment Risks
all of which are also principal risks and are further described below.
The risks described, should not be regarded as a complete and comprehensive
statement of all potential risks, uncertainties or mitigants, as other factors
either not yet identified or not currently material, may also adversely affect
the Group.
5. Other principal risks and uncertainties
(continued)
5.1 Business Model and Strategic Risks
Business model and strategic risks refer to the uncertainty in implementing
the Group's strategy and achieving its business targets. Such risks can arise
from changes in the external environment, including economic trends,
competition, geopolitics, and regulatory changes, or due to operational
factors, such as inadequate planning or implementation. The Group faces
competition from banks, financial institutions, insurance and financial
technology companies operating locally or abroad. Also, deterioration of the
macroeconomic environment can lead to poor financial performance impacting the
Group's profitability, asset quality or capital resources.
Furthermore, the Group's business environment and operational performance are
heavily dependent on current and future economic conditions and prospects in
Cyprus where the Group's operations are based and earnings are predominantly
generated. The Group is also dependent on the economic conditions and
prospects in the countries of the main counterparties it conducts business
with.
The Group has a clear strategy with key objectives to enable delivery and
operates within defined risk appetite limits which are calibrated considering
the Group's risk bearing capacity. The strategy is closely monitored on a
regular basis. Furthermore, the Group remains ready to explore opportunities
that complement its strategy including diversification of income.
The Group monitors and manages business model risk within its Risk Appetite
Framework, by setting limits in respect of measures such as financial
performance, portfolio performance, concentration and capital levels. At a
more operational level, the risk is mitigated by monitoring deviations from
the Group's Financial Plan, while during the year, periodic reforecast updates
of the financial plan are prepared. The frequency of reforecast updates during
each year is determined by the prevailing business and economic conditions.
Performance against the plan is monitored on a monthly basis, both at Group
and Business Line levels, and reported to the EXCO and the Board.
The Group also closely monitors the risks and impact of changing macroeconomic
conditions on its lending portfolio, strategy and objectives, considering
mitigating actions where necessary. An internal stress testing framework as
part of the Group's ICAAP is in place to provide insights and to assess
capital resilience to shocks.
5.2 Geopolitical Risk
Cyprus is a small, open, services-based economy, with a large external sector
and high reliance on tourism and international business services. As a result,
external factors such as economic and geopolitical events that are beyond the
control of the Group, can have a significant impact on domestic economic
activity. A number of macro and market related risks, including weaker
economic activity, a higher interest rate environment for longer, and higher
competition in the financial services industry, could negatively affect the
Group's business environment, results and operations.
Geopolitical tensions remain high as a result of the continuing war in Ukraine
and the military conflict in the Middle East. The continuation of these
conflicts add considerable uncertainty to the outlook for the global economy
with the impact largely dependent on how these conflicts are resolved.
Up until now, the Cyprus economy has proved robust and flexible to withstand
external shocks and has displayed the ability to sufficiently diversify income
in order to maintain GDP growth and suppress unemployment.
These factors, as well as the current political context in the United States
and Europe, increase the uncertainty about the evolution of the global economy
and the risk of having a higher inflation and interest rates than expected as
of the date of this report. The Group closely monitors these events and their
impact on the economy and the business and remains vigilant to take any
precautionary measures as required.
5. Other principal risks and uncertainties
(continued)
5.2 Geopolitical Risk (continued)
Although, there have been distinct improvements in Cyprus' risk profile after
the banking crisis, risks do remain given the open structure of the Cypriot
economy.
The Group continuously monitors current affairs, the impact of forecasted
macroeconomic conditions and geopolitical developments on the Group's strategy
to proactively manage emerging risks. Where necessary, bespoke solutions are
offered to affected exposures and close monitoring on those is maintained.
Furthermore, the Group includes related events in its stress testing scenarios
in order to gain a better understanding of the potential impact.
5.3 Legal Risk
The Group may, from time to time, become involved in legal or arbitration
proceedings which may affect its operations and results. Litigation risk
arises from pending or potential legal proceedings and regulatory
investigations against the Group (Information on pending litigation, claims,
regulatory and other matters is disclosed in Note 28 of the Consolidated
Condensed Interim Financial Statements). In the event that legal issues are
not properly dealt with by the Group, this may result in financial and/or
reputational loss to the Group.
The Group has procedures in place to ensure effective and prompt management of
Legal risk including, among others, the risk arising from regulatory
developments, new products and internal policies.
The Legal Services department (LSD) monitors the pending litigation against
the Group and assesses the probability of loss for each legal action against
the Group based on International Accounting Standards. It also estimates the
amount of potential loss where it is deemed as probable. Additionally, it
reports pending litigation and latest developments to the Board.
5.4 Technology Risk
Technology risk arises from system downtimes impacting business operations
and/or customer service. Downtimes may be caused by hardware or software
failures due to malfunctions, failed processes, human error, or cyber
incidents. Use of outdated, obsolete and unsupported systems increase this
risk.
The Group has in place a Technology strategy designed to support Business
strategy and customer centric view. The strategy includes investments in
skills and technology to minimize system downtimes and security risks,
modernization of legacy applications, a risk-based approach to leverage the
benefits of Cloud technologies, and investments in new and innovative
applications to support business requirements. The Group implements a
collaborative operating model to implement the technology initiatives that
support Business strategy and its digital agenda. The Operating Model involves
setting up cross-functional teams that combine Technical, Business and Risk
skills for accelerated results. Where necessary, the Group engages with
appropriate external experts to augment capacity and meet peak demand for
technical initiatives while always maintaining good levels of internal skills
and capacity.
The Group's policies, standards, governance and controls undergo ongoing
review to ensure continued alignment with the Group's Technology strategy,
compliance with regulation and effective management of the associated risks.
5. Other principal risks and uncertainties
(continued)
5.5 Digital Transformation Risk
Digital transformation risk continues to be a principal and emerging risk, as
banking models are rapidly evolving both locally and globally and available
technologies have resulted in the customers' accelerated shift towards digital
channels. Money transmission, data driven integrated services and Digital
Product Sales are rapidly evolving. How the Group adapts to these emerging
developments could impact the realisation of its market strategies and
financial plans.
In the context of the overall business strategy, the Group assesses and
develops its Digital Strategy and maintains a clear roadmap that provides for
migration of transactions to the Digital Channels, full Digital and Digital
Assisted Product Sales, and Self-service banking support services. The
Group's emphasis on the Digital Strategy is reflected in the Operating Model
with a designated Chief Digital Officer supported by staff with the
appropriate skills that work closely with Technology and Control functions to
execute the strategy.
The Group's policies, standards, governance and controls undergo ongoing
review to ensure continued alignment with the Group's strategy for digital
transformation and effective management of the associated risk.
5.6 Information security and cyber risk
Information security and cyber-risk is a significant inherent risk, which
could cause a material disruption to the operations of the Group. The Group's
information systems have been and will continue to be exposed to an increasing
threat of continually evolving cybercrime and data security attacks. Customers
and other third parties to which the Group is significantly exposed, including
the Group's service providers (such as data processing companies to which the
Group has outsourced certain services), face similar threats.
Current geopolitical tensions have also led to increased risk of cyber-attack
from foreign state actors.
The Group has an internal specialized Information Security team which
constantly monitors current and future cyber security threats (either internal
or external, malicious or accidental) and invests in enhanced cyber security
measures and controls to protect, prevent, and appropriately respond against
such threats to Group systems and information. The Group maintains an approved
Group Information Security Policy that provides a set of standards,
guidelines, controls, measures designed to achieve a desired level of
information.
The Group also collaborates with industry bodies, the National Computer
Security Incident Response Team (CSIRT) and intelligence-sharing working
groups to be better equipped with the growing threat from cyber criminals. In
addition, the Group maintains insurance coverage which covers certain aspects
of cyber risks, and it is subject to exclusion of certain terms and
conditions.
5.7 Regulatory Compliance Risk
The Group conducts its business subject to on-going regulation and the
associated regulatory risk, including the effects of changes in the laws,
regulations, policies, voluntary codes of practice and interpretations.
Regulatory compliance risk is the risk of impairment to the organization's
business model, reputation and financial condition from failure to meet laws
and regulations, internal standards and policies, and expectations of key
stakeholders such as shareholders, customers, employees and society. Failure
to comply with regulatory framework requirements or identify and plan for
emerging requirements could lead to, amongst other things, increased costs for
the Group, limitation on BOC PCL's capacity to lend and could have a material
adverse effect on the business, financial condition and results, operations
and prospects of the Group.
5. Other Principal Risks and uncertainties
(continued)
5.7 Regulatory Compliance Risk (continued)
There is strong commitment by the management of the Group for an on-going and
transparent dialogue with the Regulators of the Group (including the ECB, the
CBC and others, such as CySec and CSE). The Regulatory Steering Group, chaired
by the CEO and consisting of executive management, is regularly updated on
Regulatory Compliance Risk matters, through the Regulatory Affairs Department,
which obtains relevant information from Group Compliance, to ensure that all
regulatory matters are brought to the attention of management in a timely
manner.
Regulatory compliance risks are identified and assessed using a combination of
methods and sources as these are incorporated in the Group Compliance Policy
which sets out the compliance framework that applies within BOC PCL and its
subsidiaries in Cyprus and abroad. It sets out the business and legal
environment applicable to the Group as well as the objectives, principles, and
responsibilities for compliance and how these responsibilities are allocated
and carried out at Group and Entity level. Furthermore, this Policy ensures
that there are proper procedures in place for BOC PCL to comply with the
requirements of the CBC Internal Governance Directive and the EBA Guidelines
on Internal Governance.
The Compliance Risk Assessment Methodology sets out the principles to assess
compliance risks. The Compliance function identifies and communicates new
and/or amended regulations, within the regulatory compliance universe to the
relevant business areas for impact assessment and/or a regulatory gap analysis
with the Compliance function as second line of defence to review and
challenge.
Appropriate tools and mechanisms are in place for identifying, assessing,
monitoring, escalating and reporting compliance risks which, inter alia,
include:
˗ The assessment of periodic reports submitted by the
network of its compliance liaisons;
˗ The use of aggregated risk measurements such as
compliance risk indicators;
˗ Oversighting and challenging the regulatory risks
identified by compliance liaisons and subsidiary compliance officers through
the gap analysis of new or amended regulations, assessments of new or amended
processes and procedures, project assessments, new or amended product/services
assessments and any other ad-hoc assessments with regulatory impact such as
new operating models, reorganisations etc., to ensure that compliance risks
within the Group are managed effectively and recommending additional controls
and corrective actions, where needed;
˗ Oversighting the compliance risk assessment process
followed by the compliance liaisons and subsidiary compliance officers and the
monitoring of the implementation of mitigating actions for the management of
identified risks;
˗ Overseeing the complaints process and utilising
customer complaints as a source of relevant information in the context of its
general monitoring responsibilities;
˗ Cooperating and exchanging information with other
internal control and risk management functions on compliance matters,
assessing any regulatory incidents, monitoring any mitigating actions to avoid
reoccurrence and manage the risk and reporting to competent authorities
incidents of non-compliance as per the relevant regulations;
˗ Conducting periodic onsite/offsite reviews with
applicable laws, rules, regulations and standards and providing
recommendations / advise to management on measures to be taken to ensure
compliance,
˗ Investigating possible breaches of the compliance
policy and regulatory framework and/or conducting investigations thereof, as
requested by competent authorities with the assistance, if deemed necessary;
of experts from within the institution such as experts from the Internal Audit
function, Legal Services Department, Information Security Department or Fraud
Risk Management unit.
Regulatory compliance risks are reported promptly to senior management and the
management body in accordance with the guidelines of the CBC Internal
Governance Directive.
5. Other Principal Risks and uncertainties
(continued)
5.8 Insurance risk and re-insurance risk
The Group, through its subsidiaries, EuroLife Ltd ('EuroLife') and General
Insurance of Cyprus Ltd ('Genikes Insurance'), provides life insurance and
non-life insurance services, respectively, and is exposed to certain risks
specific to these businesses. Insurance events are unpredictable and the
actual number and amount of claims and benefits will vary from year to year
from the estimate established using actuarial and statistical techniques.
Insurance risk therefore is the risk that an insured event under an insurance
contract occurs and uncertainty over the amount and the timing of the
resulting claim exists.
The above risk exposure is mitigated by the Group through the diversification
across a large portfolio of insurance contracts. The variability of risks is
also reduced by careful selection and implementation of underwriting strategy
guidelines, as well as the use of reinsurance arrangements. Although the Group
has reinsurance coverage, it is not relieved of its direct obligations to
policyholders and is thus exposed to credit risk with respect to ceded
insurance, to the extent that any reinsurer is unable to meet the obligations
assumed under such reinsurance arrangements.
For that reason, the creditworthiness of reinsurers is evaluated by
considering their solvency and credit rating and reinsurance arrangements are
monitored and reviewed to ensure their adequacy as per the reinsurance policy.
In addition, counterparty risk assessment is performed on a frequent basis.
Both EuroLife and Genikes Insurance perform their annual stress tests (ORSA)
which aim to ensure, among others, the appropriate identification and
measurement of risks, an appropriate level of internal capital in relation to
each company's risk profile, and the application and further development of
suitable risk management and internal control systems.
5.9 Climate Related & Environmental Risks
Climate & Environmental matters is a growing agenda for financial
institutions given the increasing effects of climate change globally and the
sharp regulatory focus on addressing the resultant risks. The Group's
businesses, operations and assets could be affected by climate-related and
environmental (C&E) risks over the short, medium and long term. The Group
is committed to integrate C&E risk considerations into all relevant
aspects of the decision-making, governance, strategy and risk management and
has taken the necessary steps to achieve this.
The Group applies the definition used in the Task Force on Climate-related
Financial Disclosures (TCFD) for C&E risks whereby climate-related risks
are divided into two major categories: (1) risks related to the transition to
a lower-carbon economy (transition risks) and (2) risks related to the
physical impacts of climate change (physical risks).
˗ Physical risk refers to the financial impact of a changing
climate, including more frequent extreme weather events and gradual changes in
climate, as well as of environmental degradation, such as air, water and land
pollution, water stress, biodiversity loss and deforestation. Physical risk is
categorised as "acute" when it arises from extreme events, such as droughts,
floods and storms, and "chronic" when it arises from progressive shifts, such
as increasing temperatures, sea-level rises, water stress, biodiversity loss,
land use change, habitat destruction and resource scarcity. This can directly
result in, for example, damage to property or reduced productivity, or
indirectly lead to subsequent events, such as the disruption of supply chains.
˗ Transition risk refers to an institution's financial loss
that can result, directly or indirectly, from the process of adjustment
towards a lower-carbon and more environmentally sustainable economy. This
could be triggered, for example, by a relatively abrupt adoption of climate
and environmental policies, technological progress or changes in market
sentiment and preferences.
5. Other Principal Risks and uncertainties
(continued)
5.9 Climate Related & Environmental Risks
(continued)
Accelerating climate change could lead to sooner than anticipated physical
risk impacts to the Group and the wider economy and there is uncertainty in
the scale and timing of technology, commercial and regulatory changes
associated with the transition to a low carbon economy.
The Group has put in place targets which set transparent ambitions on its
climate strategy and decarbonization of its operations and portfolio aiming to
achieve the transition to a net zero economy by 2050. An overall ESG strategy
and working plan is thus in place to facilitate these ambitions and address
ECB expectations.
The Group also acknowledges the growing importance of environmental /
nature-related risks which, as per the Task Force for Nature-related Financial
Disclosures (TNFD), are defined as those potential threats posed to an
organization arising from its own and the wider society's dependencies and
impacts on nature. These risks can be physical or transition risks, as defined
below:
˗ Physical risks arise when natural systems are compromised,
due to the impact of climate.
˗ Transition risks result from a misalignment between a company or
investor's strategy and management and its changing regulatory and policy
landscape.
Dedicated teams both within Risk Management and Investor Relations & ESG
Department, as well as other resources, have been mobilised across the Group
and are engaged in various streams of work such as the measuring of own and
financed emissions, the integration of C&E risk in the risk management
framework and the enhancement of green products offering.
Further information on C&E risks and its risk management is provided in
the ESG Disclosures 2023 that form part of the Group's Annual Financial Report
for 2023, within part A 'Task Force on Climate-related Financial Disclosures
(TCFD)'.
6. 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, support
its strategy and maximise shareholders' value.
The capital adequacy framework, as in force, was incorporated through the
Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)
which came into effect on 1 January 2014 with certain specified provisions
implemented gradually. The CRR and CRD transposed the new capital, liquidity
and leverage standards of Basel III into the European Union's legal framework.
CRR establishes the prudential requirements for capital, liquidity and
leverage for credit institutions. It is directly applicable in all EU member
states. CRD governs access to deposit-taking activities and internal
governance arrangements including remuneration, board composition and
transparency. Unlike the CRR, member states were required to transpose the CRD
into national law and national regulators were allowed to impose additional
capital buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (Regulation (EU)
2019/876 (CRR II) and Directive (EU) 2019/878 (CRD V)) came into force. As an
amending regulation, the existing provisions of CRR apply, unless they are
amended by CRR II. Certain provisions took immediate effect (primarily
relating to Minimum Requirement for Own Funds and Eligible Liabilities
(MREL)), but most changes became effective as of June 2021. The key changes
introduced consist of, among others, changes to qualifying criteria for Common
Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2 (T2) instruments,
introduction of requirements for MREL and a binding Leverage Ratio requirement
(as defined in the CRR) and a Net Stable Funding Ratio (NSFR).
6. Capital management (continued)
The amendments that came into effect on 28 June 2021 are in addition to those
introduced in June 2020 through Regulation (EU) 2020/873, which among others,
brought forward certain CRR II changes in light of the COVID-19 pandemic. The
main adjustments of Regulation (EU) 2020/873 that had an impact on the Group's
capital ratio relate to the acceleration of the implementation of the new SME
discount factor (lower RWAs), extending the IFRS 9 transitional arrangements
and introducing further relief measures to CET1 allowing to fully add back to
CET1 any increase in ECL recognised in 2020 and 2021 for non-credit impaired
financial assets and phasing-in this starting from 2022 (phasing-in at 25% in
2022, 50% in 2023 and 75% in 2024) and advancing the application of prudential
treatment of software assets as amended by CRR II (which came into force in
December 2020).
In October 2021, the European Commission adopted legislative proposals for
further amendments to the CRR, CRD and the BRRD (the '2021 Banking Package').
Amongst other things, the 2021 Banking Package would implement certain
elements of Basel III that have not yet been transposed into EU law. The 2021
Banking Package
includes:
· a proposal for a Regulation (sometimes known as 'CRR III') to make
amendments to CRR with regard to (amongst other things) requirements on credit
risk, credit valuation adjustment risk, operational risk, market risk and the
output floor;
· a proposal for a Directive (sometimes known as 'CRD VI') to make
amendments to CRD with regard to (amongst other things) requirements on
supervisory powers, sanctions, third-country branches and ESG risks; and
· a proposal for a Regulation to make amendments to CRR and the BRRD
with regard to (amongst other things) requirements on the prudential treatment
of G-SII groups with a multiple point of entry resolution strategy and a
methodology for the indirect subscription of instruments eligible for meeting
the MREL requirements.
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.
In December 2023 the preparatory bodies of the Council and European Parliament
endorsed the amendments to the CRR and the CRD and the legal texts were
published on the Council and the Parliament websites. In April 2024, the
European Parliament voted to adopt the amendments to the CRR and the CRD;
Regulation (EU) 2024/1623 (known as CRR III) and Directive (EU) 2024/1619
(known as CRD VI) were published in the EU's official journal in June 2024,
with entry into force 20 days from the date of the publication. Most
provisions of the CRR III will become effective on 1 January 2025 with certain
measures subject to transitional arrangements or to be phased-in over time.
Member states shall adopt and publish, by 10 January 2026, the laws,
regulations and administrative provisions necessary to comply with CRD VI and
shall apply most of those measures by 11 January 2026.
The Regulatory CET1 ratio of the Group as at 30 June 2024 stands at 18.3% and
the Total Capital ratio at 23.3%. The ratios as at 30 June 2024 include
reviewed profits for the six months ended 30 June 2024 in line with the ECB
Decision (EU) (2015/656) on the recognition of interim or year-end profits in
CET1 capital in accordance with Article 26(2) of the CRR and an accrual for a
distribution at a payout ratio of 50% of the Group's adjusted recurring
profitability for the period, which represents the top-end range of the
Group's approved distribution policy in line with the principles of Commission
Delegated Regulation (EU) (241/2014) for foreseeable dividends and charges, as
further described in Section 'Distributions' under 'Balance Sheet Analysis' of
the Interim Management Report.
6. Capital management (continued)
Minimum CET1 Regulatory Capital Requirements 30 June 2023
2024
Pillar I - CET1 Requirement 4.50% 4.50%
Pillar II - CET1 Requirement 1.55% 1.73%
Capital Conservation Buffer (CCB)* 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer** 1.875% 1.50%
Countercyclical Buffer (CcyB) 0.94% 0.48%
Minimum CET1 Regulatory Requirements 11.36% 10.72%
* Fully phased in as of 1 January 2019
** Increasing by 0.0625%. every year thereafter, until being fully implemented
on 1 January 2026 at 2.00%.
Minimum Total Capital Regulatory Requirements 30 June 2023
2024
Pillar I - Total Capital Requirement 8.00% 8.00%
Pillar II - Total Capital Requirement 2.75% 3.08%
Capital Conservation Buffer (CCB)* 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer** 1.875% 1.50%
Countercyclical Buffer (CcyB) 0.94% 0.48%
Minimum Total Capital Regulatory Requirements 16.06% 15.56%
* Fully phased in as of 1 January 2019
** Increasing by 0.0625%. every year thereafter, until being fully implemented
on 1 January 2026 at 2.00%.
The minimum Pillar I total capital requirement ratio of 8.00% may be met, in
addition to the 4.50% CET1 requirement, with up to 1.50% by AT1 capital and
with up to 2.00% by T2 capital.
The Group is also subject to additional capital requirements for risks which
are not covered by the Pillar I capital requirements (Pillar II add-ons).
Applicable Regulation allows a part of the said Pillar II Requirements (P2R)
to be met also with AT1 and T2 capital and does not require solely the use of
CET1.
The capital position of the Group and BOC PCL as at 30 June 2024 exceeds both
their Pillar I and their Pillar II add-on capital requirements. However, the
Pillar II add-on capital requirements are a point-in-time assessment and
therefore are subject to change over time.
The CBC, in accordance with the Macroprudential Oversight of Institutions Law
of 2015, sets, on a quarterly basis, the CcyB rates in accordance with the
methodology described in this law.
On 30 November 2022, the CBC, following the revised methodology described in
its macroprudential policy, decided to increase the CcyB rate from 0.00% to
0.50% of the total risk exposure amount in Cyprus of each licensed credit
institution incorporated in Cyprus effective from 30 November 2023. Moreover,
on 2 June 2023, the CBC, announced its decision to raise the CcyB rate to
1.00% of the total risk exposure amount in Cyprus, effective from 2 June 2024.
The CcyB for the Group as at 30 June 2024 has been calculated at approximately
0.94% (31 December 2023: 0.48%).
6. Capital management (continued)
In accordance with the provisions of this law, the CBC is also the responsible
authority for the designation of banks that are Other Systemically Important
Institutions (O-SIIs) and for the setting of the O-SII Buffer requirement for
these systemically important banks. BOC PCL has been designated as an O-SII.
The O-SII Buffer as at 31 December 2023 stood at 1.50% and increased by 37.5
bps to 1.875% on 1 January 2024, following a revision of the O-SII buffer by
the CBC in October 2023. In April 2024, following a revision by the CBC of
its policy for the designation of credit institutions that meet the definition
of O-SII institutions and the setting of an O-SII buffer to be observed, the
Group's O-SII buffer has been set to 2.00% from 1 January 2026 (from the
previous assessment carried out in October 2023 of 2.25% from 1 January 2025)
to be phased-in by 6.25 bps annually to 1.9375% on 1 January 2025 and 2.00% as
of 1 January 2026 from the current level of 1.875%.
The ECB also provides non-public guidance for an additional Pillar II CET1
buffer (P2G) to be maintained.
The Group is subject to a 3% Pillar I Leverage Ratio requirement.
The above minimum ratios apply for both BOC PCL and the Group.
The EBA final guidelines on SREP and supervisory stress testing and the Single
Supervisory Mechanism's (SSM) 2018 SREP methodology provide that the own funds
held for the purposes of Pillar II Guidance (P2G) cannot be used to meet any
other capital requirements (Pillar I requirement, P2R or the Combined Buffer
Requirement (CBR)), and therefore cannot be used twice.
The regulatory capital position of the Group and BOC PCL as at the reporting
date (after applying the transitional arrangements) is presented below:
6. Capital management (continued)
Regulatory capital Group BOC PCL
30 June 31 December 2023(3) 30 June 31 December 2023(3)
2024(1) 2024(2)
€000 €000 €000 €000
Common Equity Tier 1 (CET1)(4) 1,937,413 1,798,015 1,897,589 1,766,707
Additional Tier 1 capital (AT1) 220,000 220,000 220,000 220,000
Tier 2 capital (T2) 313,009 300,000 314,048 300,000
Transitional total regulatory capital 2,470,422 2,318,015 2,431,637 2,286,707
Risk weighted assets - credit risk(5) 9,252,520 9,013,267 9,212,355 9,005,552
Risk weighted assets - market risk - - - -
Risk weighted assets - operational risk 1,327,871 1,327,871 1,292,350 1,292,350
Total risk weighted assets 10,580,391 10,341,138 10,504,705 10,297,902
Transitional % % % %
Common Equity Tier 1 (CET1) ratio 18.3 17.4 18.1 17.2
Total capital ratio 23.3 22.4 23.1 22.2
Leverage ratio 8.6 7.6 8.4 7.5
(1). Includes reviewed profits for the six months ended 30 June 2024 in line
with the ECB Decision (EU) (2015/656) on the recognition of interim or
year-end profits in CET1 capital in accordance with Article 26(2) of the CRR
and an accrual for a distribution at a payout ratio of 50% of the Group's
adjusted recurring profitability for the period, which represents the top-end
range of the Group's approved distribution policy in line with the principles
of Commission Delegated Regulation (EU) (241/2014) for foreseeable dividends
and charges. As per the latest SREP decision, any distribution is subject to
regulatory approval. Such distribution accrual does not constitute a binding
commitment for a distribution payment nor does it constitute a warranty or
representation that such a payment will be made.
(2.) Includes unaudited/unreviewed profits for the six months ended 30 June
2024 in line with the ECB Decision (EU) (2015/656) on the recognition of
interim or year-end profits in CET1 capital in accordance with Article 26(2)
of the CRR and an accrual for a distribution at a payout ratio of 50% of the
Group's adjusted recurring profitability for the period, which represents the
top-end range of the Group's approved distribution policy in line with the
principles of Commission Delegated Regulation (EU) (241/2014) for foreseeable
dividends and charges. As per the latest SREP decision, any distribution is
subject to regulatory approval. Such distribution accrual does not constitute
a binding commitment for a distribution payment nor does it constitute a
warranty or representation that such a payment will be made.
(3.) Includes profits for the year ended 31 December 2023 and a deduction for
the distribution in respect of 2023 earnings of €137 million, following
approval received by the ECB in March 2024 and relevant recommendation by the
Board of Directors to the shareholders for a final cash dividend of €112
million and in principle approval by the Board to undertake a share buyback of
ordinary shares of the Company for an aggregate consideration of up to €25
million and in compliance with the terms of the ECB approval. Similarly, for
BOC PCL, amounts include profits for the year ended 31 December 2023 and a
deduction for the distribution in respect of 2023 earnings following approval
received by the ECB in March 2024 and relevant recommendation by the Board of
Directors to the shareholders for a final cash dividend of €137 million.
(4.) CET1 includes regulatory deductions, comprising, amongst others,
intangible assets amounting to €20,821 thousand for the Group and €14,057
thousand for BOC PCL as at 30 June 2024 (31 December 2023: €24,337 thousand
for the Group and €16,861 thousand for BOC PCL). As at 30 June 2024 an
amount of €16,763 thousand, for the Group and €13,088 thousand for BOC
PCL, relating to intangible assets, is considered prudently valued for CRR
purposes and is not deducted from CET1 (31 December 2023: €15,337 thousand
for the Group and €12,643 thousand for BOC PCL).
(5.) Includes Credit Valuation Adjustments (CVA).
6. Capital management (continued)
The capital ratios of the Group and BOC PCL as at the reporting date on a
fully loaded basis are presented below:
Fully loaded Group BOC PCL
30 June 2024(1,4) 31 December 30 June 2024(2,4) 31 December
2023(3,4) 2023(3,4)
(restated) (restated)
% % % %
Common Equity Tier 1 ratio 18.3 17.3 18.0 17.1
Total capital ratio 23.3 22.4 23.1 22.2
Leverage ratio 8.6 7.6 8.4 7.5
(1.) Includes reviewed profits for the six months ended 30 June 2024 in line
with the ECB Decision (EU) (2015/656) on the recognition of interim or
year-end profits in CET1 capital in accordance with Article 26(2) of the CRR
and an accrual for a distribution at a payout ratio of 50% of the Group's
adjusted recurring profitability for the period, which represents the top-end
range of the Group's approved distribution policy in line with the principles
of Commission Delegated Regulation (EU) (241/2014) for foreseeable dividends
and charges. As per the latest SREP decision, any distribution is subject to
regulatory approval. Such distribution accrual does not constitute a binding
commitment for a distribution payment nor does it constitute a warranty or
representation that such a payment will be made.
(2.) Includes unaudited/unreviewed profits for the six months ended 30 June
2024 in line with the ECB Decision (EU) (2015/656) on the recognition of
interim or year-end profits in CET1 capital in accordance with Article 26(2)
of the CRR and an accrual for a distribution at a payout ratio of 50% of the
Group's adjusted recurring profitability for the period, which represents the
top-end range of the Group's approved distribution policy in line with the
principles of Commission Delegated Regulation (EU) (241/2014) for foreseeable
dividends and charges. As per the latest SREP decision, any distribution is
subject to regulatory approval. Such distribution accrual does not constitute
a binding commitment for a distribution payment nor does it constitute a
warranty or representation that such a payment will be made.
(3.) Includes profits for the year ended 31 December 2023 and a deduction for
the distribution in respect of 2023 earnings of €137 million, following
approval received by the ECB in March 2024 and relevant recommendation by the
Board of Directors to the shareholders for a final cash dividend of €112
million and in principle approval by the Board to undertake a share buyback of
ordinary shares of the Company for an aggregate consideration of up to €25
million and in compliance with the terms of the ECB approval. Similarly, for
BOC PCL amounts include profits for the year ended 31 December 2023 and a
deduction for the distribution in respect of 2023 earnings following approval
received by the ECB in March 2024 and relevant recommendation by the Board of
Directors to the shareholders for a final cash dividend of €137 million.
(4.) IFRS 9 fully loaded as applicable.
During the six months ended 30 June 2024, the regulatory CET1 was mainly
affected by pre-provision income, provisions and impairments, the payment of
AT1 coupon, the accrual for a distribution at a payout ratio of 50% of the
Group's adjusted recurring profitability for the period and the movement in
risk-weighted assets. As a result, the CET1 ratio (on a transitional basis)
has increased by c.90 bps during the six months ended 30 June 2024, whereas on
a fully loaded basis the ratio has increased by c.100 bps.
A charge, which amounted to 26 bps as at 30 June 2024, is deducted from own
funds in relation to ECB expectations for NPEs. In addition, a prudential
charge in relation to the onsite inspection on the value of the Group's
foreclosed assets is being deducted from own funds since June 2021, the impact
of which is 7 bps on the Group's CET1 ratio as at 30 June 2024. Furthermore,
the Group is subject to increased capital requirements in relation to its real
estate repossessed portfolio which follow a SREP provision to ensure minimum
capital levels retained on long-term holdings of real estate assets, with such
requirements being dynamic by reference to the in-scope REMU assets remaining
on the balance sheet of the Group and the value of such assets. As at 30 June
2024 the impact of these requirements was 47 bps on the Group's CET1 ratio
compared to 24 bps on 31 December 2023. The above-mentioned requirements are
within the capital plans of the Group and incorporated within its capital
projections.
6. Capital management (continued)
Capital requirements of subsidiaries
The insurance subsidiaries of the Group, the General Insurance of Cyprus Ltd
and Eurolife Ltd, comply with the requirements of the Superintendent of
Insurance including the minimum solvency ratio. The regulated Cyprus
Investment Firm (CIF) of the Group, The Cyprus Investment and Securities
Corporation Ltd (CISCO), complies with the minimum capital adequacy ratio
requirements. In 2021 the new prudential regime for Investment Firms ('IFs')
as per the Investment Firm Regulation (EU) 2019/2033 ('IFR') on the prudential
requirements of IFs and the Investment Firm Directive (EU) 2019/2034 ('IFD')
on the prudential supervision of IFs came into effect. Under the new regime
CISCO has been classified as a Non-Systemic 'Class 2' company and is subject
to the new IFR/IFD regime in full. The payment services subsidiary of the
Group, JCC Payment Systems Ltd, complies with the regulatory capital
requirements under the Provision and Use of Payment Services and Access to
Payment Systems Laws of 2018 to 2023.
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January
2016 EU member states shall apply the BRRD's provisions requiring EU credit
institutions and certain investment firms to maintain a Minimum Requirement
for Own Funds and Eligible Liabilities (MREL), subject to the provisions of
the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part
of the reform package for strengthening the resilience and resolvability of
European banks, the BRRD ΙΙ came into effect and was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in May 2021. In addition, certain provisions on MREL have been introduced
in CRR ΙΙ which also came into force on 27 June 2019 as part of the reform
package and were immediately effective.
In January 2024, BOC PCL received final notification from the SRB regarding
the 2024 MREL decision, by which the final MREL requirement is now set at
25.00% of risk weighted assets (30.3% of risk-weighted assets when taking into
account the expected prevailing CBR as at 31 December 2024 which needs to be
met with own funds on top of the MREL) and 5.91% of Leverage Ratio Exposure
(LRE) (as defined in the CRR) and must be met by 31 December 2024.
BOC PCL must comply with the MREL requirement at the consolidated level,
comprising BOC PCL and its subsidiaries.
In April 2024, BOC PCL proceeded with an issue of €300 million green senior
preferred notes (the 'Notes'). The Notes comply with the MREL criteria and
contribute towards BOC PCL's MREL requirement.
The MREL ratio as at 30 June 2024, calculated according to the SRB's
eligibility criteria currently in effect and based on internal estimate, stood
at 33.4% of RWAs (including capital used to meet the CBR) and at 14.0% of LRE
(based on the regulatory Total Capital as at 30 June 2024). The CBR stood at
5.31% as at 30 June 2024 (compared to 4.48% as at 31 December 2023),
reflecting the increase of the O-SII buffer from 1.50% to 1.875% on 1 January
2024 and the increase of the CcyB to approximately 0.94% in June 2024. The CBR
is expected to increase further as a result of the phasing-in of O-SII buffer
from 1.875% to 1.9375% on 1 January 2025 and to 2.00% on 1 January 2026.
Consolidated Condensed Interim Financial Statements
for the six months ended 30 June 2024
BANK OF CYPRUS HOLDINGS GROUP Interim Financial Report 2024
Interim Consolidated Income Statement
Six months ended
30 June
2024 2023
Notes €000 €000
Interest income 8
504,330 403,852
Income similar to interest income 8
67,456 22,172
Interest expense 9
(87,237) (56,083)
Expense similar to interest expense 9
(64,666) (11,599)
Net interest income
419,883 358,342
Fee and commission income
89,872 93,879
Fee and commission expense
(3,657) (4,275)
Net foreign exchange gains
13,034 15,839
Net gains on financial instruments 10
729 5,680
Net gains on derecognition of financial assets measured at amortised cost
1,106 5,861
Net insurance finance income/(expense) and net reinsurance finance
income/(expense) (311) 263
Net insurance service result
34,949 34,086
Net reinsurance service result
(11,863) (9,788)
Net (losses)/gains from revaluation and disposal of investment properties
(1,257) 788
Net gains on disposal of stock of property
2,584 3,906
Other income
5,218 12,200
Total operating income
550,287 516,781
Staff costs 11
(96,135) (93,043)
Special levy on deposits and other levies/contributions 12
(18,784) (18,236)
Provisions for pending litigations, claims, regulatory and other matters (net 28
of reversals) (2,562) (14,148)
Other operating expenses 12
(70,989) (70,456)
Operating profit before credit losses and impairment
361,817 320,898
Credit losses on financial assets 13
(17,471) (36,772)
Impairment net of reversals on non‑financial assets 13
(24,760) (23,206)
Profit before tax
319,586 260,920
Income tax 14
(48,203) (39,768)
Profit after tax for the period
271,383 221,152
Attributable to:
Owners of the Company
270,353 220,247
Non‑controlling interests
1,030 905
Profit for the period
271,383 221,152
Basic profit per share attributable to the owners of the Company (€ cent) 15
60.6 49.4
Diluted profit per share attributable to the owners of the Company (€ cent) 15
60.4 49.3
BANK OF CYPRUS HOLDINGS GROUP Interim Financial Report 2024
Interim Consolidated Statement of Comprehensive Income
Six months ended
30 June
2024 2023
Notes €000 €000
Profit for the period 271,383 221,152
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in (1,202) 3,299
subsequent periods
Fair value reserve (debt instruments) (1,194) 3,373
Net (losses)/gains on investments in debt instruments measured at fair value (1,194) 3,705
through OCI (FVOCI)
Transfer to the consolidated income statement on disposal - (332)
Foreign currency translation reserve (8) (74)
Loss on translation of net investments in foreign subsidiaries (8) (71)
Loss on hedging of net investments in foreign subsidiaries 17 - (3)
OCI not to be reclassified in the consolidated income statement in subsequent 1,481 486
periods
Fair value reserve (equity instruments) (681)
180
Net gains/(losses) on investments in equity instruments designated at FVOCI 180 (681)
Property revaluation reserve 824
100
Net fair value gains before tax - 798
Deferred tax 14 100 26
Actuarial gains on defined benefit plans 1,201 343
Remeasurement gains on defined benefit plans 1,201 343
Other comprehensive income for the period net of taxation 279 3,785
Total comprehensive income for the period 271,662 224,937
Attributable to:
Owners of the Company 270,654 224,026
Non‑controlling interests 1,008 911
Total comprehensive income for the period 271,662 224,937
BANK OF CYPRUS HOLDINGS GROUP Interim Financial Report 2024
Interim Consolidated Balance Sheet
30 June 31 December 2023
2024
Assets Notes €000 €000
Cash and balances with central banks 30
7,287,221 9,614,502
Loans and advances to banks 30
384,112 384,802
Reverse repurchase agreements
1,014,858 403,199
Derivative financial assets 17
67,112 51,055
Investments at FVPL 16
119,201 135,275
Investments at FVOCI 16
410,437 443,420
Investments at amortised cost 16
3,429,116 3,116,714
Loans and advances to customers 19
10,084,967 9,821,788
Life insurance business assets attributable to policyholders
722,582 649,212
Prepayments, accrued income and other assets 21
596,292 584,919
Stock of property 20
763,913 826,115
Investment properties
55,614 62,105
Deferred tax assets 14
202,717 201,268
Property and equipment
282,342 285,568
Intangible assets
45,686 48,635
Total assets
25,466,170 26,628,577
Liabilities
Deposits by banks
405,438 471,556
Funding from central banks 22 -
2,043,868
Derivative financial liabilities 17
21,966 17,980
Customer deposits 23
19,722,692 19,336,915
Changes in the fair value of hedged items in portfolio hedges of interest rate 17 -
risk (7,261)
Insurance contract liabilities
702,196 658,424
Accruals, deferred income, other liabilities and other provisions 25
563,284 469,265
Provisions for pending litigations, claims, regulatory and other matters 28
111,470 131,503
Debt securities in issue 24
970,790 671,632
Subordinated liabilities 24
313,009 306,787
Deferred tax liabilities 14
32,934 32,306
Total liabilities
22,836,518 24,140,236
Equity
Share capital 26
44,481 44,620
Share premium 26
594,358 594,358
Revaluation and other reserves
88,628 89,920
Retained earnings
1,659,916 1,518,182
Equity attributable to the owners of the Company
2,387,383 2,247,080
Other equity instruments 26
220,000 220,000
Non‑controlling interests
22,269 21,261
Total equity
2,629,652 2,488,341
Total liabilities and equity
25,466,170 26,628,577
Mr. E.G. Arapoglou Mr. P. Nicolaou
Chairman Chief Executive Officer
Mr. A.J. Lewis Mrs. E. Livadiotou
Director Executive Director Finance
BANK OF CYPRUS HOLDINGS GROUP Interim Financial Report 2024
Interim Consolidated Statement of Changes in Equity
Attributable to the owners of the Company
Share Share Capital redemption reserve Treasury shares Other Retained Property revaluation reserve Financial Foreign currency translation reserve Total Other equity instruments Non‑controlling interests Total
capital
premium
capital reserves
earnings
instruments
equity
(Note 26) (Note 26)
fair value reserve (Note 26)
(Note 26) (Note 26) (Note 11)
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2024 44,620 594,358 - (21,463) 917 1,518,182 84,239 9,553 16,674 2,247,080 220,000 21,261 2,488,341
Profit for the period - - - - - 270,353 - - - 270,353 - 1,030 271,383
Other comprehensive income/(loss) after tax for the - - - - - 1,201 122 (1,014) (8) 301 - (22) 279
year
Total comprehensive income/(loss) after tax for the - - - - - 271,554 122 (1,014) (8) 270,654 - 1,008 271,662
year
Dividends (Note 27) - - - - - (111,550) - - - (111,550) - - (111,550)
Share‑based benefits ‑ cost (Note 11) - - - - 493 - - - - 493 - - 493
Transfers to retained earnings - - - - - 583 - (583) - - - - -
Payment of coupon to AT1 holders (Note 26) - - - - - (13,063) - - - (13,063) - - (13,063)
Share buyback‑repurchase of shares and cancellation (139) - 139 (441) - (5,790) - - - (6,231) - - (6,231)
(Note 26)
30 June 2024 44,481 594,358 139 (21,904) 1,410 1,659,916 84,361 7,956 16,666 2,387,383 220,000 22,269 2,629,652
Attributable to the owners of the Company
Share Share Treasury shares Other Retained Property revaluation reserve Financial Foreign Total Other Non‑controlling interests Total
capital
premium
capital reserves
earnings
instruments
currency
equity
equity
(Note 26)
fair value
translation
instruments
(Note 26) (Note 26) (Note 11)
reserve
reserve
(Note 26)
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2023 44,620 594,358 (21,463) 322 1,090,349 74,170 7,142 16,768 1,806,266 220,000 22,300 2,048,566
Profit for the period - - - - 220,247 - - - 220,247 - 905 221,152
Other comprehensive income/(loss) after - - - - 343 818 2,692 (74) 3,779 - 6 3,785
tax for the period
Total comprehensive income/(loss) after - - - - 220,590 818 2,692 (74) 224,026 - 911 224,937
tax for the period
Shared‑based benefits‑cost (Note 11) - - - 311 - - - - 311 - - 311
Dividends (Note 27) - - - - (22,310) - - - (22,310) - - (22,310)
Payment of coupon to AT1 holders (Note - - - - (13,750) - - - (13,750) - - (13,750)
26)
Issue of other equity instruments (Note - - - - (3,530) - - - (3,530) 220,000 - 216,470
26)
Repurchase of other equity instruments - - - - (6,554) - - - (6,554) (204,483) - (211,037)
(Note 26)
30 June 2023 44,620 594,358 (21,463) 633 1,264,795 74,988 9,834 16,694 1,984,459 235,517 23,211 2,243,187
BANK OF CYPRUS HOLDINGS GROUP Interim Financial Report 2024
Interim Consolidated Statement of Cash Flows
Six months ended
30 June
2024 2023
Note €000 €000
Profit before tax 319,586
260,920
Adjustments for:
Depreciation of property and equipment and amortisation of intangible assets 17,706
16,901
Impairment net of reversals on non‑financial assets 24,760
23,206
Credit losses on financial assets 17,471
36,772
Net gains on derecognition of financial assets measured at amortised cost (1,106)
(5,861)
Amortisation of discounts/premiums and interest on debt securities (47,663)
(24,735)
Dividend income (166)
(439)
Net loss on disposal of investment in debt securities measured at FVOCI -
433
Gains from revaluation of financial instruments designated as fair value (17,399)
hedges (9,473)
Interest on subordinated liabilities and debt securities in issue 29,447
13,956
Interest on reverse repurchase agreements (11,666) -
Interest on funding from central banks 21,842
27,806
Share‑based benefits cost 11 493
311
Net gains on disposal of stock of property and investment properties (2,725)
(4,868)
Profit on sale and write offs of property and equipment and intangible assets (26)
(12)
Interest expense on lease liability 482
1,433
Premium tax included in net insurance service result as directly attributable 1,195
expense 1,070
Net losses from revaluation of investment properties 1,398
174
Net exchange differences (8,454)
2,290
345,175
339,884
Change in:
Loans and advances to banks 32,333
3,696
Deposits by banks (66,118)
(58,945)
Obligatory balances with central banks (60,247)
(23,925)
Customer deposits 385,777
167,836
Changes in the fair value of hedged items in portfolio hedges of interest rate (7,261) -
risk
Life insurance business assets attributable to policyholders and Insurance (29,598)
contract liabilities (13,636)
Loans and advances to customers (245,144)
(82,889)
Prepayments, accrued income and other assets (20,761)
(4,941)
Provisions for pending litigations, claims, regulatory and other matters (20,033)
(110)
Accruals, deferred income, other liabilities and other provisions 50,403
12,287
Derivative financial instruments (12,071)
1,073
Investments measured at FVPL 16,074
51,548
Stock of property 48,368
61,778
416,897
453,656
Tax paid (5,188)
(764)
Net cash from operating activities 411,709
452,892
Cash flows from investing activities
Purchases of debt securities, treasury bills and equity securities (787,525)
(828,338)
Purchase of reverse repurchase agreements (600,000) -
Proceeds on disposal/redemption of investments in debt and equity securities 525,909
166,577
Interest received from debt securities 36,207
18,299
Dividend income from equity securities 166
439
Payment for purchase of Kedipes portfolio (2023: Velocity 2) (46,276)
(3,604)
Purchases of property and equipment (4,378)
(2,246)
Additions to intangible assets (6,268)
(4,484)
Proceeds on disposal of property and equipment and intangible assets
33 167
Proceeds on disposal of investment properties 7,697
2,921
Net cash used in investing activities (874,435)
(650,269)
Six months ended
30 June
2024 2023
Note €000 €000
Cash flow from financing activities
Payment of AT1 coupon 26 (13,063)
(13,750)
Issue of other equity instruments (net of transaction costs) 26 -
216,470
Repurchase of other equity instruments 26 -
(211,037)
Share repurchase (buyback) 26 (6,231) -
Repayment of funding from central banks (2,065,710) -
Proceeds from the issue of debt securities in issue (net of transaction costs) 297,767 -
Dividend paid on ordinary shares (92,750)
(16,614)
Interest on debt securities in issue (7,500)
(7,500)
Principal elements of lease payments (5,675)
(3,430)
Net cash used in financing activities (1,893,162)
(35,861)
Net decrease in cash and cash equivalents (2,355,888)
(233,238)
Cash and cash equivalents 1 January 9,838,321
9,586,153
Cash and cash equivalents 30 June 30 7,482,433
9,352,915
Non‑cash transactions
Repossession of collaterals
During the six months ended 30 June 2024, the Group acquired properties by
taking possession of collaterals held as security for loans and advances to
customers of €12,156 thousand (30 June 2023: €5,815 thousand).
Recognition of RoU assets and lease liabilities
During the six months ended 30 June 2024 the Group recognised RoU assets and
corresponding lease liabilities of €895 thousand (30 June 2023: €2,234
thousand).
BANK OF CYPRUS HOLDINGS GROUP Interim Financial Report 2024
Notes to the Consolidated Condensed Interim Financial Statements
1. Corporate information
Bank of Cyprus Holdings Public Limited Company (the 'Company') was
incorporated in Ireland on 11 July 2016, as a public limited company under
company number 585903 in accordance with the provisions of the Companies Act
2014 of Ireland (Companies Act 2014). Its registered office is 10 Earlsfort
Terrace, Dublin 2, D02 T380, Ireland. The Company is domiciled in Ireland and
is tax resident in Cyprus.
Bank of Cyprus Holdings Public Limited Company is the holding company of Bank
of Cyprus Public Company Limited ('BOC PCL' or the 'Bank') with principal
place of business in Cyprus. The Bank of Cyprus Holdings Group (the 'Group')
comprises the Company, its subsidiary, BOC PCL, and the subsidiaries of BOC
PCL. Bank of Cyprus Holdings Public Limited Company is the ultimate parent
company of the Group.
The principal activities of BOC PCL and its subsidiary companies (the 'BOC
Group') involve the provision of banking services, financial services,
insurance services and the management and disposal of property predominately
acquired in exchange of debt.
BOC PCL is a significant credit institution for the purposes of the SSM
Regulation and has been designated by the CBC as an 'Other Systemically
Important Institution' (O‑SII). The Group is subject to joint supervision by
the ECB and the CBC for the purposes of its prudential requirements.
The shares of the Company are listed and trading on the London Stock Exchange
(LSE) and the Cyprus Stock Exchange (CSE).
Consolidated Condensed Interim Financial Statements
The Consolidated Condensed Interim Financial Statements of the Company for the
six months ended 30 June 2024 (the Consolidated Financial Statements) were
authorised for issue by a resolution of the Board of Directors on 7 August
2024.
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 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. The Group has elected, as a policy choice permitted by IFRS 9, to
continue to apply hedge accounting in accordance with IAS 39, including the
provisions related to macro‑fair value hedge accounting (IAS 39
'carve‑out').
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 31.
Comparative information
i. Following a change in the definition of 'Turnover' introduced in the
2023 Consolidated Financial Statements included within the 2023 Annual
Financial Report, comparative information on 'Turnover' was restated in order
to align to the new definition. Turnover is now aligned to the 'Total
operating income' caption as presented in the Consolidated Income Statement
and is considered to be the most representative for the Group. The restatement
is presented in the table below:
Turnover Restatements Turnover
30 June
to Turnover
30 June
2023
definition
2023
(as previously presented)
(restated)
€000 €000 €000
Interest income and income similar to interest income -
426,024 (426,024)
Net interest income 358,342
n/a 358,342
Fees and commission income ‑
93,879 (93,879)
Net fee and commission income n/a
89,604 89,604
Net foreign exchange gains -
15,839 15,839
Net gains/(losses) on financial instruments n/a
5,680 5,680
Net gains on derecognition of financial assets measured at amortised cost n/a
5,861 5,861
Gross insurance premiums n/a
116,773 (116,773)
Net insurance result n/a
24,561 24,561
Net gains from revaluation and disposal of investment properties -
788 788
Net gains on disposal of stock of property -
3,906 3,906
Impairment of stock of property n/a
(23,206) 23,206
Other income -
12,200 12,200
Turnover 516,781
646,203 (129,422)
ii. In addition, comparative information was restated following a change
in the presentation of segmental analysis as detailed in Note 7. This change
led to a respective restatement in Notes 19, 23, 32.2 and 32.4 where analysis
by business is presented. The relevant tables are identified as restated.
The restatements did not have an impact on the results for the period or
equity of the Group.
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 2023,
upon which the auditors have expressed an unqualified opinion, were published
on 28 March 2024 and are expected to be delivered to the Registrar of
Companies of Ireland within 56 days from 30 September 2024.
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 2023, 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 2023 and set out in Note 2 of those consolidated financial
statements except for macro fair value hedging as explained below which was
applied in 2024, and the adoption of new and amended standards and
interpretations as explained in Note 3.3.1.
Portfolio Hedging (Macro‑Hedging)
The Group applies macro fair value hedging to non‑maturing deposits (NMDs),
in accordance with IAS 39, as adopted by the EU (IAS 39 carve‑out). The
hedged items are determined through behavioural modelling identifying the
'core' Non‑Maturing Deposits (NMDs), which are stable demand deposits with
behavioural maturity of up to ten years. Deposits within the identified
portfolios are allocated to repricing/maturity time buckets based on expected,
rather than contractual, maturity dates. The hedging instruments (pay
floating/receive fixed rate interest rate swaps) are designated appropriately
to those repricing/maturity time buckets. Hedge effectiveness is measured by
comparing fair value movements of the hedged amount attributable to the hedged
risk, against the fair value movements of the hedging derivatives, to ensure
that they are within an 80% to 125% range. The accounting for portfolio hedges
is as described in the accounting policy for fair value hedges in Note 2.21 of
the annual consolidated financial statements for the year ended 31 December
2023. Further details on the Group's hedge arrangements in relation to macro
fair value (portfolio) hedging are set out in Note 17.
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 2024 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.
IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures:
Supplier Finance Arrangements (amendments)
These amendments require the disclosures of an entity's supplier finance
arrangements that would enable the users of financial statements to assess the
effects of those arrangements on the entity's liabilities and cash flows and
on the entity's exposure to liquidity risk. The purpose of the additional
disclosure requirements is to enhance the transparency of the supplier finance
arrangements. The amendments do not affect recognition or measurement
principles. These amendments did not have an impact on the Group's results and
financial position.
IAS 12 Income Taxes: International Tax Reform - Pillar Two Model Rules
(amendments)
The Group has adopted since 2023 the 'International Tax Reform ‑ Pillar Two
Model Rules (amendments to IAS 12)'. The amendments provide a temporary
mandatory exception from deferred tax accounting for the top‑up tax, which
is effective immediately, and require new disclosures about the Pillar Two
exposure. The mandatory exception applies retrospectively. No legislation to
implement the top‑up tax was enacted or substantively enacted at 31 December
2023 or 30 June 2024 in Cyprus, which is the main jurisdiction in which the
Group operates. The Group discloses known or reasonably estimable information
that helps users of financial statements to understand the estimated Group's
exposure to Pillar Two income taxes in Note 14.
IFRS 16 Leases: Lease Liability in a Sale and Leaseback (amendments)
The amendment to IFRS 16 Leases specifies the requirements that a
seller‑lessee uses in measuring the lease liability arising in a sale and
leaseback transaction, to ensure the seller‑lessee does not recognise any
amount of the gain or loss that relates to the right of use it retains. A sale
and leaseback transaction involves the transfer of an asset by an entity (the
seller‑lessee) to another entity (the buyer‑lessor) and the leaseback of
the same asset by the seller‑lessee. The amendment is intended to improve
the requirements for sale and leaseback transactions in IFRS 16. It does not
change the accounting for leases unrelated to sale and leaseback transactions.
These amendments did not have a material impact on the Group's results and
financial position.
IAS 1 Presentation of Financial Statements: classification of Liabilities as
Current or Non‑current (amendments)
The IASB issued amendments to IAS 1 Presentation of Financial Statements to
specify the requirements for classifying liabilities as current or
non‑current. The amendments clarify: (a) what is meant by a right to defer
settlement, (b) that a right to defer must exist at the end of the reporting
period and (c) that classification is unaffected by the likelihood that an
entity will exercise its deferral right. Terms of a liability that could, at
the option of the counterparty, result in its settlement by the transfer of
the entity's own equity instruments do not affect its classification as
current or non‑current if, the entity classifies the option as an equity
instrument, recognising it separately from the liability as an equity
component of a compound financial instrument. These amendments did not have an
impact on the Group's results and financial position.
3.4 Standards and Interpretations that are issued but not yet
effective
3.4.1 Standards and Interpretations issued by the IASB but not yet
adopted by the EU
IAS 21 The Effects of Changes in Foreign Exchange Rates: Lack of
Exchangeability (amendments)
These amendments help entities assess exchangeability between two currencies
and determine the spot exchange rate, when exchangeability is lacking. An
entity is impacted by the amendments when it has a transaction or an operation
in a foreign currency that is not exchangeable into another currency at a
measurement date for a specified purpose. The amendments to IAS 21 do not
provide detailed requirements on how to estimate the spot exchange rate.
Instead, they set out a framework under which an entity can determine the spot
exchange rate at the measurement date. When applying the new requirements, it
is not permitted to restate comparative information. Rather, it is required to
translate the affected amounts at estimated spot exchange rates at the date of
initial application, with an adjustment to retained earnings or to the reserve
for cumulative translation differences. The amendments will be effective for
annual reporting periods beginning on or after 1 January 2025. Earlier
application is permitted. The Group does not expect these amendments to have a
material impact on its results and financial position.
IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures ‑
Classification and Measurement of financial Instruments (amendments)
The IASB issued amendments to IFRS 9 and IFRS 7. The amendments: (a) clarify
the date of recognition and derecognition of some financial assets and
liabilities, with a new exception for some financial liabilities settled
through an electronic cash transfer system, (b) add further guidance for
assessing whether a financial asset meets the solely payments of principal and
interest (SPPI) criterion, (c) add new disclosures for certain instruments
with contractual terms that can change cash flows, (d) update the disclosures
for equity instruments designated at fair value through other comprehensive
income (FVOCI). These amendments to IFRS 9 and IFRS 7 will be effective for
annual reporting periods beginning on or after 1 January 2026. Earlier
application is permitted. The Group will be assessing the impact that these
amendments might have on its results and financial position.
IFRS 18 Presentation and Disclosure in Financial Statements (new standard)
The new standard on presentation and disclosure in financial statements
focuses on updates to the statement of profit or loss. The key new concepts
introduced in IFRS 18 relate to the structure of the statement of profit or
loss, required disclosures in the financial statements for certain profit or
loss performance measures that are reported outside an entity's financial
statements (that is, management‑defined performance measures) and enhanced
principles on aggregation and disaggregation which apply to the primary
financial statements and notes in general. IFRS 18 will not impact the
recognition or measurement of items in the financial statements, but it might
change what an entity reports as its 'operating profit or loss'. IFRS 18 will
apply for reporting periods beginning on or after 1 January 2027 and will also
apply to comparative information. The Group does not expect these amendments
to have an impact on its results and financial position however,
presentational changes and additional disclosures may be required upon
adoption.
IFRS 19 Subsidiaries without Public Accountability: Disclosures (new standard)
The IASB issued a new accounting standard for subsidiaries. IFRS 19
Subsidiaries without Public Accountability will enable subsidiaries to keep
only one set of accounting records in order to meet the needs of both their
parent company and the users of their financial statements. In addition, the
IFRS 19 will permit reduced disclosures better suited to the needs of the
users of the financial statements while still maintaining the usefulness of
the information. The new standard does not apply to the financial statements
of the Group.
Annual Improvements to IFRS Accounting Standards - Volume 11
The amendments contained in the Annual Improvements relate to:
(i) IFRS 1 First‑time Adoption of International Financial
Reporting Standards ‑ Hedge Accounting by a First‑time Adopter
(ii) IFRS 7 Financial Instruments: Disclosures and its
accompanying Guidance on implementing IFRS 7
(iii) IFRS 9 Financial Instruments ‑ Derecognition of lease
liabilities and Transaction price
(iv) IFRS 10 Consolidated Financial Statements ‑ Determination of
a 'de facto agent'
(v) IAS 7 Statement of Cash Flows ‑ Cost Method.
These amendments will be effective for annual reporting periods beginning on
or after 1 January 2026. Earlier application is permitted. The Group will be
assessing the impact that these amendments might have on its results and
financial position.
4. Going concern
The Directors have made an assessment of the ability of the Group, the Company
and BOC PCL to continue as a going concern for a period of 12 months from the
date of approval of these Consolidated Financial Statements.
The Directors have concluded that there are no material uncertainties which
would cast a significant doubt over the ability of the Group, the Company and
BOC PCL to continue to operate as a going concern for a period of 12 months
from the date of approval of the 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,
liquidity and funding position, taking also into consideration the Group's
Financial Plan approved by the Board in February 2024 (the 'Plan') and the
operating environment, as well as any reforecast exercises performed. The
Group has sensitised its projection to cater for a downside scenario and has
used reasonable economic inputs to develop its medium‑term strategy. The
Group is working towards materialising its strategy.
Capital
The Directors and management have considered the Group's forecasted capital
position, including the potential impact of a deterioration in economic
conditions. The Group has developed capital projections under a base and an
adverse scenario and the Directors believe that the Group has sufficient
capital to meet its regulatory capital requirements throughout the period of
assessment.
Funding and liquidity
The Directors and management have considered the Group's funding and liquidity
position and are satisfied that the Group has sufficient funding and liquidity
throughout the period of assessment. The Group continues to hold a significant
liquidity buffer at 30 June 2024 that can be monetised in a period of stress.
5. Economic and geopolitical environment
Cyprus is a small, open, services‑based economy, with a large external
sector and high reliance on tourism and international business services. As a
result, external factors, economic and geopolitical, which are beyond the
control of the Group, can have a significant impact on domestic economic
activity. A number of macro and market related risks, including weaker
economic activity, a higher interest rate environment for longer, and higher
competition in the financial services industry, could negatively affect the
Group's business environment, results and operations.
There are heightened geopolitical tensions between the world's largest
economies adding uncertainty to the global economy outlook. Tensions between
Russia and the West also remain high. At the same time in Gaza, a ceasefire
remains elusive. Houthi attacks on commercial shipping in the Red Sea and the
Indian Ocean continue to divert ships to longer routes, exacerbating the
ongoing supply chain crisis.
The economic environment has evolved rapidly since February 2022 following
Russia's invasion in Ukraine. In response to the war in Ukraine, the EU, the
UK and the US, in a coordinated effort joined by several other countries
imposed a variety of financial sanctions and export controls on Russia,
Belarus and certain regions of Ukraine as well as various related entities and
individuals. As the war is prolonged and geopolitical tension persists,
inflation remains elevated weighing on business confidence and consumers'
behaviour.
Several central banks cut their interest rates this year including the ECB,
the Bank of Canada, the Swiss National Bank, and the Riksbank of Sweden. The
ECB cut its Main Refinancing Operations rate at its June meeting, by 25 bp to
4.25% while inflation is expected at 2.5% in 2024 and 2.2% in 2025, versus a
2% target. Economic activity remains weak in the Euro area with real GDP
increasing by 0.4% year‑on‑year in the first quarter of 2024. Future
interest rate decisions will depend on how the economy and inflation develop
according to the ECB monetary policy announcement, while markets expect more
cuts in the remainder of the year. In the United States, official measures of
inflation are still above the target of 2% and the Federal Reserve has kept
the interest rates unchanged at 5.25%‑5.50% in their June monetary policy
meeting.
In this context, the Group is closely monitoring the developments, utilising
dedicated governance structures including a Crisis Management Committee as
required and has assessed the impact the crisis has on the Group's operations
and financial performance.
Although, there have been distinct improvements in Cyprus' risk profile after
the banking crisis, substantial risks remain. Cyprus' overall country risk is
a combination of sovereign, currency, banking, political and economic
structure risk, influenced by external developments with substantial potential
impact on the domestic economy. Given the above, the Group recognises that
unforeseen political events can have negative effects on the Group's
activities, operating results, and market position.
The Group is continuously monitoring the current affairs and the impact of the
forecasted macroeconomic conditions and geopolitical developments on the
Group's strategy to proactively manage emerging risks. Where necessary,
bespoke solutions are offered to affected exposures and close monitoring on
those is maintained. Furthermore, the Group includes related events in its
stress testing scenarios in order to gain a better understanding of the
potential impact.
Cyprus demonstrates relative strength and resilience in this environment with
a growth outlook that outweighs average growth in the EU and with inflation
dropping at a faster pace in comparison. Economic momentum is expected to
continue in 2024 driven by an easing in monetary policy in the second half of
the year, and positive momentum in growth sectors mainly in information and
communications, financial services, and international business services.
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 litigations, 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 2023.
6.1 Classification of financial assets
The Group exercises judgement upon determining the classification of its
financial assets, in relation to business models and future cash flows.
Judgement is also required to determine the appropriate level at which the
assessment of business models needs to be performed. In general, the
assessment for the classification of financial assets into the business models
is performed at the level of each business line. Further, the Group exercises
judgement in determining the effect of sales of financial instruments on its
business model assessment.
The Group also applies judgement upon considering whether contractual features
including interest rate could significantly affect future cash flows.
Furthermore, judgement is required when assessing whether compensation paid or
received on early termination of lending arrangements results in cash flows
that are not SPPI.
6.2 Calculation of expected credit losses
The calculation of ECL requires management to apply significant judgement and
make estimates and assumptions, involving significant uncertainty at the time
these are made. Changes to these estimates and assumptions can result in
significant changes to the timing and amount of ECL to be recognised. The
Group's calculations are outputs of models, of underlying assumptions on the
choice of variable inputs and their interdependencies.
It has been the Group's policy to regularly review its models in the context
of actual loss experience and adjust when necessary.
Elements of ECL models that are considered accounting judgements and estimates
include:
Assessment of significant increase in credit risk (SICR)
IFRS 9 does not include a definition of significant increase in credit risk.
The Group assesses whether significant increase in credit risk has occurred
since initial recognition using predominantly quantitative and in certain
cases qualitative information. The determination of the relevant thresholds to
determine whether a significant increase in credit risk has occurred, is based
on statistical metrics and could be subject to management judgement. The
relevant thresholds are set, monitored and updated on a yearly basis by the
Risk Management Division and endorsed by the Group Provisions Committee.
Determining the probability of default (PD) at initial recognition requires
management estimates in particular cases. Specifically, in the case of
exposures existing prior to the adoption of IFRS 9, a retrospective
calculation of the PD is made in order to quantify the risk of each exposure
at the time of the initial recognition. In certain cases, estimates about the
date of initial recognition might be required.
For the retail portfolio, the Group uses a PD at origination incorporating
behavioural information (score cards) whereas, for the corporate portfolio,
the Group uses the internal credit rating information. For revolving
facilities, management estimates are required with respect to the lifetime and
hence a behavioural maturity model is utilised, assigning an expected maturity
based on product and customer behaviour.
Scenarios and macroeconomic factors
The Group determines the ECL, which is a probability weighted amount, by
evaluating a range of possible outcomes. Management uses forward looking
scenarios and assesses the suitability of weights used. These are based on
management's assumptions taking into account macroeconomic, market and other
factors. Changes in these assumptions and in other external factors could
significantly impact ECL. Macroeconomic inputs and weights per scenario are
monitored by the Economic Research Department and are based on internal model
analysis and expert judgement, considering also external forecasts.
Following two years of robust growth in 2021 and 2022 with GDP growing
respectively by 9.9% and 5.1%, economic activity averaged 2.5% in 2023, amid
continued global economic uncertainty and rising interest rates. The economy
is expected to pick up again in 2024 and 2025 growing by 2.8% and 2.9%
respectively according to the European Commission's Spring 2024 European
Forecasts. Inflation measured by the Harmonised Index of Consumer Prices
decreased to an average of 3.9% and is expected to continue to decelerate to
around 2.4% in 2024 and 2.1% in 2025 after a peak of 8.1% in 2022. A sustained
drop in energy prices and tighter monetary conditions underpin the
disinflation that is being observed. In the labour market the unemployment
rate dropped to 6.1% and is expected to drop further to 5.6% and 5.4%
respectively in 2024 and 2025, according to the European Commission. The
government balance turned a surplus of 3.1% of GDP in 2023, and is expected to
be in surplus of 2.9% of GDP in both in 2024 and 2025. Gross Public debt will
thus drop to 70.6% of GDP in 2024 and to 65.4% in 2025 from 77.3% to GDP in
2023.
The credit profile of Cyprus has improved significantly in the more recent
period, reflecting solid medium‑term growth outlook, good institutional
strength and effective policy making. There have been significant improvements
in the banking sector and in public finances. Cyprus is a small open economy
and therefore more vulnerable to exogenous shocks, but features relatively
high levels of wealth, an agile private sector, and an outward orientation.
The sovereign risk ratings of the Cypriot government have improved
significantly in recent years, now above investment grade by the three major
rating agencies.
Cyprus received a total of €263 million from the recovery and resilience
facility up until early July 2024. This consisted of €157 million in
pre‑financing in September 2021 following the approval of the national
recovery plan in July 2021. This was pre‑financing for 13% of total
disbursements over the period 2021‑2026. Cyprus received its first
disbursement of €85 million in December 2022 following the passage of
conditional legislation in parliament, and after approval from the European
Commission. In December 2022 Cyprus also received €20.9 million of
additional funding, part of the REPowerEU initiative aimed at enhancing energy
security and supporting the green transition. The Cyprus government in
December 2023 applied for the second and third disbursements for a total of
€152.3 million. The release of the funds is conditional on the strict
implementation of reforms agreed in the national recovery plan. Funds will be
used to increase investment in the digital and green transition, to increase
the efficiency of public and local administrations, and to improve the
efficiency of the judicial system among others. Cyprus submitted a request for
the fourth tranche of funds from the EU Recovery and Resilience Facility
(RRF). This request was made in July 2024, and amounts to €77 million. This
submission followed the successful completion of 16 milestones and targets
specified in Cyprus's national Recovery and Resilience Plan.
Non‑performing exposures continued their declining trend, mostly due to
sales packages by the two largest banks. Total NPEs in the Cyprus banking
system at the end of March 2024 were €1.8 billion or 7.3% of gross loans.
About 44.7% of total non‑performing exposures are restructured facilities,
and the coverage ratio was 58.0%. Private debt, as measured by loans to
residents on bank balance sheets, excluding the government, dropped to €20.3
billion at the end of March 2024, or about 68% of GDP.
However, substantial risks remain in terms of the domestic operating
environment, as well as the external environment on which it depends. Public
debt has dropped in relation to GDP, but government expenditures need more
rationalisation. In the banking sector non‑performing exposures need to drop
further. The current account deficit remains sizable. At the same time the
monetary policy of the European Central Bank can remain tight for longer if
inflation pressures persist and the extent of crises in Ukraine and the Middle
East can sustain 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.
For the ECL calculations, the Group uses an unbiased and
probability‑weighted amount that is determined by evaluating a range of
possible outcomes, as described in Note 2.17.5 of the annual consolidated
financial statements for the year ended 31 December 2023. The approach
employed, involves scenario generation, where the scenarios applied by the
Group are anchored to the baseline scenario. All scenarios are updated on a
quarterly basis for the purposes of the ECL calculation in tandem with the
baseline scenario. The updated macroeconomic inputs (incorporating any
uncertainties and downside risks) are therefore reflected in the scenario
parameters, starting from the baseline and updated in turn for the adverse and
the favourable scenarios accordingly. If the baseline becomes more
pessimistic, then both the favourable and downside scenarios would move
accordingly, reflecting the fact that the economic variables used in the
scenarios are not constant but are conditional on the economy's position in
the business cycle. A dynamic scenario approach is followed as explained above
where the scenario parameters derived, reflect the Group's view of the
economic conditions. The probability weights attached to the scenarios are a
function of their relative position on the distribution, with a lower
probability weight attached to the scenarios that were assessed to be more
distant from the centre of the distribution. The baseline scenario is defined
over the range of values corresponding to 50% probability of equidistant
deviations around the mean of the historical distribution. The favourable and
adverse scenarios are defined over the range of values to the right and left
of the distribution respectively, each corresponding to 25% probability.
The most significant macroeconomic variables for each of the scenarios used by
the Group as at 30 June 2024 and 31 December 2023 are presented in the table
below. The Group uses three different economic scenarios in the calculation of
default probabilities and provisions. The scenarios factor‑in updated
macroeconomic assumptions and other monetary and fiscal developments based on
events as at the reporting date. The Group has used the 30‑50‑20
probability structure for the adverse, baseline and favourable scenarios
respectively compared to the 25‑50‑25 structure derived using the method
described in Note 2.17.5 of the annual consolidated financial statements for
the year ended 31 December 2023. This reflects management's view of specific
characteristics of the Cyprus economy that render it more vulnerable to
external and internal shocks.
30 June 2024
Year Scenario Weight % Real GDP (% change) Unemployment rate (% of labour force) Consumer Price Index (average % RICS Properties Price Index (average %
change)
change)
2024 Adverse 30.0 2.1 5.8 1.1 0.8
Baseline 50.0 2.9 5.7 2.0 3.5
Favourable 20.0 3.3 5.7 2.3 3.9
2025 Adverse 30.0 ‑1.8 6.3 0.2 ‑1.8
Baseline 50.0 2.6 5.6 2.2 2.2
Favourable 20.0 3.4 5.5 2.6 3.4
2026 Adverse 30.0 ‑1.2 6.5 1.3 2.2
Baseline 50.0 2.7 5.4 2.1 2.3
Favourable 20.0 2.9 5.2 2.0 2.7
2027 Adverse 30.0 2.9 6.1 2.1 2.7
Baseline 50.0 2.6 5.2 2.1 2.2
Favourable 20.0 2.6 5.0 2.0 2.5
2028 Adverse 30.0 3.9 5.8 2.0 2.5
Baseline 50.0 2.5 4.9 2.0 2.2
Favourable 20.0 2.5 4.7 2.1 2.5
31 December 2023
Year Scenario Weight % Real GDP (% change) Unemployment rate (% of labour force) Consumer Price Index (average % RICS Properties Price Index (average %
change)
change)
2024 Adverse 30.0 ‑1.6 6.3 0.9 ‑3.1
Baseline 50.0 2.7 5.8 2.5 3.0
Favourable 20.0 3.5 5.6 3.1 3.7
2025 Adverse 30.0 ‑0.7 6.9 1.2 0.6
Baseline 50.0 2.6 5.4 2.5 2.3
Favourable 20.0 3.1 5.2 2.6 2.5
2026 Adverse 30.0 2.2 7.0 1.2 1.9
Baseline 50.0 2.6 5.1 2.1 2.2
Favourable 20.0 2.7 4.9 2.0 2.3
2027 Adverse 30.0 3.6 6.7 2.3 2.4
Baseline 50.0 2.4 4.9 2.3 2.2
Favourable 20.0 2.6 4.6 2.2 2.3
2028 Adverse 30.0 3.5 6.4 2.2 2.4
Baseline 50.0 2.3 4.6 2.2 2.3
Favourable 20.0 2.5 4.2 2.3 2.4
The adverse scenarios may outpace the base and favourable scenarios after the
initial shock has been adjusted to and the economy starts to expand from a
lower base. Thus, in the adverse scenario GDP will follow a growth trajectory
that will ultimately equal and surpass the baseline before converging.
Property prices are determined by multiple factors with GDP growth featuring
prominently. However, the relationship between GDP growth and property prices
entails a lag.
The baseline scenario was updated for the 30 June 2024 reporting, considering
available information and relevant developments until then, and is described
next. Growth moderated in 2023 following strong recoveries in 2021‑2022, but
remained above the Euro area average, supported by the continued recovery in
tourism and expanding services activity. Real GDP increased by 2.5% on average
in 2023 and growth accelerated in the first quarter of 2024, reaching 3.4%
from a year earlier seasonally, adjusted. Tourist arrivals in Cyprus exceeded
1.65 million in the first half of 2024, up by an annual 2.4%. Under the
baseline scenario the economy is expected to advance by 2.9% in 2024, consumer
price inflation will decelerate to 2% and the unemployment rate will continue
to drop steadily in the medium term. House prices are expected to rise by 3.5%
in 2024 following strong increases in 2022‑2023.
The adverse scenario is consistent with assumptions for a global economic
slowdown driven by the wars in Ukraine and the Middle East, elevated inflation
and continued tight monetary conditions. The Cypriot economy relies on
services, particularly on tourism, international business, and information and
communication services with an outward orientation. This makes the Cypriot
economy more exposed than other economies to the international environment and
terms of trade shocks. Weaker external demand and more restricted domestic
demand as a result of higher interest rates will lead to a slowdown of
economic activity. The adverse scenario assumes a deeper impact of these
conditions on the real economy than under the baseline scenario. Under the
adverse scenario, real GDP is expected to grow by 2.1% in 2024 as a whole, and
contract by 1.8% in 2025. In the labour market the unemployment rate will rise
only modestly, and inflation will be lower than under the baseline scenario.
House prices will also slow in line with the contraction in real GDP.
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 the Eurostat. In the case
of property prices, the Group additionally uses data from the Royal Institute
of Chartered Surveyors. For the forward reference period, the Group uses the
forecast values for the same variables, as prepared by the BOC PCL's Economic
Research Department. The results of the internal forecast exercises are
consistent with publicly available forecasts from official sources including
the European Commission, the International Monetary Fund, the European Central
Bank and the Ministry of Finance of the Republic of Cyprus.
Qualitative adjustments or overlays are occasionally made when inputs
calculated do not capture all the characteristics of the market. These are
reviewed and adjusted, if considered necessary, by the Risk Management
Division, endorsed by the Group Provisions Committee and approved by the Board
Risk and Audit Committees. Qualitative adjustments or overlays are described
in the below sections as applicable.
For Stage 3 customers, the calculation of individually assessed provisions is
the weighted average of three scenarios: base, adverse and favourable. The
base scenario focuses on the following variables, which are based on the
specific facts and circumstances of each customer: the operational cash flows,
the timing of recovery of collaterals and the haircuts from the realisation of
collateral. The base scenario is used to derive additional either more
favourable or more adverse scenarios. Under the adverse scenario, operational
cash flows are decreased by 50%, applied haircuts on real estate collateral
are increased by 50% and the timing of recovery of collaterals is increased by
one 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)
For the estimation of loss given default (LGD) key estimates are the timing
and net recoverable amount from repossession or realisation of collaterals
(including through portfolio sales) which mainly comprise real estate assets.
Assumptions have been made about the future changes in property values, as
well as the timing for the realisation of collateral, taxes and expenses on
the repossession and subsequent sale of the collateral as well as any other
applicable haircuts. Indexation has been used as the basis to estimate updated
market values of properties, supplemented by management judgement where
necessary, given the difficulty in differentiating between short‑term
impacts and long‑term structural changes and the shortage of market evidence
for comparison purposes. Assumptions were made on the basis of a macroeconomic
scenario for future changes in property prices and qualitative adjustments or
overlays were applied to the projected future property value increases to
restrict the level of future property price growth to 0% for all scenarios for
loans and advances to customers which are secured by property collaterals.
At 30 June 2024, the weighted average haircut (including liquidity haircut and
selling expenses) used for the provision calculation for loans and advances to
customers (for both Stage 1 and Stage 2 exposures and collectively assessed
Stage 3 exposures) is approximately 41.5% under the baseline scenario (31
December 2023: approximately 31.3%). The increase in the haircut percentage is
primarily due to the calibration of the collateral realisation model during
the first half of 2024, as explained in section 'Calibration of IFRS 9
models and removal of overlays in relation to economic conditions'.
At 30 June 2024, the timing of recovery from real estate collaterals used for
the provision calculation for loans and advances to customers (for both Stage
1 and Stage 2 exposures and collectively assessed Stage 3 exposures) has been
estimated to be on average seven years under the baseline scenario (31
December 2023: average of six years).
In the 2023 Financial Statements the above disclosures in relation to the
weighted average haircut and timing of recovery from real estate collaterals
were by reference to exposures that were collectively assessed and not
including exposures which were assessed for staging purposes on an individual
basis. The comparative information presented above has been updated for
aligning with the disclosure for the period ended 30 June 2024.
For the calculation of individually assessed provisions of Stage 3 exposures,
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.
Any changes in these assumptions or variance between assumptions made and
actual results could result in significant changes in the estimated amount of
expected credit losses of loans and advances to customers.
Expected lifetime of revolving facilities
The expected lifetime of revolving facilities is based on a behavioural
maturity model for revolving facilities based on BOC PCL's available
historical data, where an expected maturity for each revolving facility based
on the customer's profile is assigned. The behavioural model was updated in
the third quarter of 2023 to reflect updates in customers' profile whilst
maintaining the same model components.
Modelling adjustments
Forward looking models have been developed for ECL parameters (PD, EAD, LGD)
for all portfolios and segments sharing similar characteristics. Model
validation (initial and periodic) is performed by the independent validation
unit within the Risk Management Division and involves assessment of a model
under both quantitative (i.e. stability and performance) and qualitative
terms. The frequency and level of rigour of model validation is commensurate
to the overall use, complexity and materiality of the models, (i.e. risk
tiering). In certain cases, judgement is exercised in the form of expert
judgment and/or management overlay by applying adjustments on the modelled
parameters. Governance of these models lies with the Risk Management Division,
where a governance process is in place around the determination of the
impairment measurement methodology including inputs, assumptions and overlays.
Any management overlays are prepared by the Risk Management Division, endorsed
by the Group Provisions Committee and approved by the Board Risk and Audit
Committees.
ECL allowances also include allowances on off‑balance sheet credit exposures
represented by guarantees given and by irrevocable commitments to disburse
funds. Off‑balance sheet credit exposures of the individually assessed
assets require assumptions on the probability, timing and amount of cash
outflows. For the collectively assessed off‑balance sheet credit exposures,
the allowance for provisions is calculated using the Credit Conversion Factor
(CCF) model.
Calibration of IFRS 9 models and removal of overlays in relation to economic
conditions
During the six months ended 30 June 2024, the Group performed a calibration of
its IFRS 9 models which involved the reassessment and update of the ECL model
parameters (PDs, LGDs and cure rates) and SICR thresholds so as to incorporate
in the models the effects of the recent economic conditions and experience,
which were previously reflected in the ECL through the use of overlays.
Further, the calibration involved the Group updating and revising the LGD
parameter, as part of the Group's ongoing review and update of models as to
incorporate updated data information and to reflect an update on realisation
paths and rates applied.
More specifically, the Group proceeded with model calibrations affecting the
probability of default parameter (the 'PD‑macro'), the SICR parameter, the
probability of cure model and the collateral realisation model and introducing
an LGD floor, as explained below:
i. The calibration of the PD‑macro model included the introduction of
inflation related variables and the inclusion of post‑COVID period data to
capture the low‑default environment as well as the integration of a dynamic
adjustment to calibrate (up or down) the model projection based on the
relationship between the past model projections and the actual observed
defaults (structural breaks in the relationship e.g. between a specific macro
factor and the PD value). The impact of this calibration was €8.1 million
ECL release for the six months ended 30 June 2024.
ii. As a result of the PD‑macro calibration, the SICR model was
revisited following a statistical model methodology calibration, whilst
introducing an absolute threshold to increase stability and accuracy. The
corresponding impact was €1.4 million ECL release for the six months ended
30 June 2024 and net transfer of related loans from Stage 2 to Stage 1.
iii. With respect to the probability of cure model, a different curability
period was introduced for each macro‑economic scenario following a detailed
statistical analysis examining the relationship of cure rates with macro
indicators and concluding that curability should differentiate at the level of
the scenario. The respective impact was an ECL charge of €2.1 million for
the six months ended 30 June 2024.
iv. As a result of calibrations (i)‑(iii), the Group removed the prior
year overlays applied in the context of economic conditions (as described in
Note 5.2 in the annual consolidated financial statements for the year ended 31
December 2023) with the resulting impact being €16.2 million ECL release for
the six months ended 30 June 2024.
v. For the collateral realisation model, the Group has updated its LGD
parameter with respect to the path of realisation through portfolio sales, by
increasing the likelihood of this realisation path. The resulting impact was
an ECL charge of €19.2 million for the six months ended 30 June 2024.
i. Lastly, the Group has incorporated a minimum LGD rate which provides
for a minimum loss rate (which acts as a floor) irrespective of the
realisation path and value of collateral. This minimum LGD was introduced as
to capture the subjectivity and uncertainty involved in the value of recovery
assumptions (i.e. collateral recoverable amount, maximum recovery period,
etc.) which impacts the realisation amount. The corresponding impact was an
ECL charge of €20.0 million for the six months ended 30 June 2024.
The IFRS 9 models are reviewed regularly in order to incorporate the most
recent information available and to ensure that they perform adequately and
that they are suitably representative when applied to the current portfolio
for the calculation of impairment loss allowances.
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 2024. The Group will continue to
evaluate the ECL allowance and the related economic outlook each quarter, so
that any changes arising from the uncertainty on the macroeconomic outlook and
geopolitical developments, are timely captured.
Portfolio segmentation
The individual assessment is performed not only for individually significant
assets but also for other exposures meeting specific criteria determined by
management. The selection criteria for the individually assessed exposures are
based on management judgement and are reviewed on a quarterly basis by the
Risk Management Division and are adjusted or enhanced, if deemed necessary.
Following the wars in Ukraine and the Middle East, the selection criteria were
further enhanced to include significant exposures to customers with passport
of origin or residency in Russia, Ukraine or Belarus and/or business activity
within these countries and significant exposures with repayment deriving from
Israel.
Further details on impairment allowances and related credit information are
set out in Note 32.
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 20.
6.4 Provisions for pending litigations, claims, regulatory and
other matters
Judgement is required in determining whether a present obligation exists and
in estimating the probability, timing and amount of any outflows. Provisions
for pending litigations, 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 litigations, claims, regulatory
and other matters refer to Note 28.
7. Segmental analysis
The Group's activities are mainly concentrated in Cyprus. Cyprus operations
are organised into operating segments based on the line of business. The
results of the overseas activities of the Group, namely Greece, Romania and
Russia, are presented within segment 'Other', given the size of these
operations which are in a run‑down mode and relate to legacy operations of
the Group. Further, the results of certain small subsidiaries of the Group are
allocated to the segments based on their key activities.
As from the first quarter of 2024, following an internal re‑organisation,
the activities previously reported under segment 'Wealth Management' were
reorganised and are now reported as follows: part of the activities were
allocated to the newly set up unit, Affluent Banking which is presented and
monitored under 'Retail' and part of the activities were allocated to the
Institutional Wealth Management and Custody, which was transferred under and
is now presented and monitored as part of 'Treasury'. As a result of the
changes, 'Wealth Management' no longer comprises a separately reportable
segment. The activities of the subsidiary companies of the Group, CISCO and
its subsidiary, which were part of the 'Wealth Management' segment and whose
activities relate to investment banking, brokerage, discretionary asset
management and investment advice services do not qualify as a material segment
and are now presented within 'Other'. Comparative information in 'Analysis by
business line', 'Analysis of total revenue' and 'Analysis of assets and
liabilities' in this note and comparative information in the 'By business
line' analysis in Notes 19, 23, 32.2 and 32.4 was restated to reflect this
change.
In addition, as from the year ended 31 December 2023 the results of the
subsidiary company JCC Payment Systems Ltd (JCC), previously reported under
segment 'Other', are presented separately under segment 'Payment services'.
The business segments 'International Corporate' and 'IBU' have been combined
and the results of these business segments, previously reported separately,
are presented combined under segment 'IBU & International Corporate'
business segment. Comparative information in 'Analysis by business line' and
'Analysis of total revenue' was restated to account for these changes as well.
'Analysis by business Line' and 'Analysis of total revenue' has been restated
by reference to available information for the year 2023 for customers
allocated in segment 'Wealth Management' in 2023.
The operating segments are analysed below:
i. The Corporate, Small and Medium‑sized Enterprises (SME) and Retail
business lines are managing loans and advances to customers. As from the first
quarter of 2024, Retail business line also reports and monitors the Affluent
Banking unit, which offers exclusive and upgraded customer experience in
protecting, managing and growing customers' wealth through offering a
personalised, holistic and bespoke approach for all banking and investment
needs. Categorisation of loans per customer group is detailed further below.
ii. IBU & International Corporate comprises of:
1. IBU, which specialises in the offering of banking services to the
international corporate customers based in Cyprus, particularly international
business companies whose ownership and business activities lie outside Cyprus,
and non resident individual customers of BOC PCL.
2. International Corporate, which comprises of International Corporate
Banking, Project Finance & Loan Syndication and Shipping Centre.
International Corporate Banking provides financing from Cyprus in respect of
projects based overseas with main focus being in Greece and the United
Kingdom. Project Finance & Loan Syndication acts as arranger or
participant in large international loan syndication transactions. Shipping
Centre provides shipping financing primarily for ocean‑going cargo
vessels.
i. 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.
ii. The Real Estate Management Unit (REMU) manages properties acquired
through debt‑for‑property swaps and properties acquired through the
acquisition of certain operations of Laiki Bank in 2013 and executes exit
strategies in order to monetise these assets. REMU also includes other
subsidiary property companies of the Group.
iii. Treasury is responsible for managing assets and liabilities within
the Risk Appetite Framework set by the Board of Directors. Treasury manages
the Group's liquid assets, investing in fixed income securities and interbank
market. This business line manages the interest rate and foreign exchange
risks to which the Group is exposed to and is also responsible for liquidity
management and for ensuring compliance with internal and regulatory liquidity
guidelines. It is also responsible for raising funding through the issuance of
debt in the wholesale markets. As from the first quarter of 2024, Treasury
also reports and monitors the Institutional Wealth Management and Custody
unit, which comprises of market execution and custody unit services along with
asset management.
iv. The Insurance business line is involved in both life and non‑life
insurance business.
i. Payment Services comprise the subsidiary company JCC, which is
involved in the development of inter‑banking systems, acquiring and
processing of debit and credit card transactions and other payment services.
ii. The segment 'Other' includes central functions of BOC PCL such as
finance, risk management, compliance, legal, information technology, corporate
affairs and human resources. These functions provide services to the operating
segments. Segment 'Other' also includes the subsidiary company, CISCO and
other small subsidiary companies in Cyprus (excluding the insurance
subsidiaries, property companies under REMU and the payment services
subsidiary of the Group (JCC)), as well as the overseas legacy activities of
the Group.
BOC PCL broadly categorises its loans per customer group, in the following
customer sectors:
i. Retail - all individuals, regardless of the facility amount, and
legal entities with facilities from BOC PCL of up to €500 thousand,
excluding business property loans, and/or annual credit turnover up to €1
million.
ii. Small and medium‑sized enterprises (SME) - any company or group of
companies (including personal and housing loans to the directors or
shareholders of a company) with facilities from BOC PCL in the range of €500
thousand to €4 million and/or annual credit turnover in the range of €1
million to €10 million.
iii. Corporate - any company or group of companies (including personal and
housing loans to the directors or shareholders of a company) with available
credit lines with BOC PCL of over €4 million and/or having a minimum annual
credit turnover of over €10 million. These companies are either local larger
corporations or international companies or companies in the shipping sector.
Lending includes direct lending or through syndications.
Management monitors the operating results of each business segment separately
for the purposes of performance assessment and resource allocation. Segment
performance is evaluated based on profit after tax and non‑controlling
interests. Inter‑segment transactions and balances are eliminated on
consolidation.
Operating segment disclosures are provided as presented to the Group Executive
Committee.
Income and expenses associated with each business line are included within the
business line results for determining its performance. Fund transfer pricing
and internal charges methodologies are applied between the business lines as
to reflect the performance of each business line. 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 rate is charged/credited to the profit or loss
before tax of each business line.
The loans and advances to customers, the customer deposits and the related
income and expense are generally included in the segment where the business is
managed, instead of the segment where the transaction is recorded.
Analysis by business line
Corporate IBU & International corporate SME Retail Restructuring and recoveries REMU Insurance Treasury Payment services Other Total
Six months ended 30 June 2024 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Net interest income/(expense) 79,536 81,083 29,456 213,857 8,055 (13,696) (124) 24,173 - (2,457) 419,883
Net fee and commission income/(expense) 10,248 23,790 4,574 32,218 960 (61) (4,107) 2,100 13,962 2,531 86,215
Net foreign exchange gains/(losses) 650 3,147 365 1,271 22 - - 6,928 (23) 674 13,034
Net gains/(losses) on financial instruments 536 - - - - 4 146 (48) 44 47 729
Net gains/(losses) on derecognition of financial assets (4,631) 102 (909) (7) 6,554 - - - - (3) 1,106
measured at amortised
cost
Net insurance result - - - - - - 22,775 - - - 22,775
Net gains/(losses) from revaluation and disposal of - - - - - (625) 8 - - (640) (1,257)
investment properties
Net gains on disposal of stock of property - - - - - 2,812 - - - (228) 2,584
Other income 7 9 6 90 63 2,123 359 - 1,858 703 5,218
Total operating income 86,346 108,131 33,492 247,429 15,654 (9,443) 19,057 33,153 15,841 627 550,287
Staff costs (3,802) (7,145) (2,961) (27,757) (4,653) (1,649) (1,604) (1,483) (3,840) (41,241) (96,135)
Special levy on deposits and other levies/contributions (2,083) (3,714) (990) (11,847) (20) - - (130) - - (18,784)
Provisions for pending litigations, claims, regulatory and - - - - - - - - - (2,562) (2,562)
other matters (net
of reversals)
Other operating expenses (15,798) (9,290) (7,436) (45,318) (5,142) (6,956) (1,959) (6,222) (6,017) 33,149 (70,989)
Operating profit/(loss) before credit losses and impairment 64,663 87,982 22,105 162,507 5,839 (18,048) 15,494 25,318 5,984 (10,027) 361,817
Credit losses on financial assets 13,177 (1,435) (57) (8,725) (19,813) 214 (118) (439) - (275) (17,471)
Impairment net of reversals on non‑financial assets - - - - - (19,326) - - - (5,434) (24,760)
Profit/(loss) before tax 77,840 86,547 22,048 153,782 (13,974) (37,160) 15,376 24,879 5,984 (15,736) 319,586
Income tax (11,676) (12,982) (3,307) (23,067) 2,096 5,106 (1,415) (3,732) (834) 1,608 (48,203)
Profit/(loss) after tax 66,164 73,565 18,741 130,715 (11,878) (32,054) 13,961 21,147 5,150 (14,128) 271,383
Non‑controlling interests‑(profit)/loss - - - - - 587 - - (1,283) (334) (1,030)
Profit/(loss) after tax attributable to the owners of the 66,164 73,565 18,741 130,715 (11,878) (31,467) 13,961 21,147 3,867 (14,462) 270,353
Company
Corporate IBU & International corporate SME Retail Restructuring and recoveries REMU Insurance Treasury Payment services Other Total
Six months ended 30 June 2023 (restated) €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Net interest income/(expense) 77,412 71,184 25,803 173,746 9,360 (19,315) - 21,357 (26) (1,179) 358,342
Net fee and commission income/(expense) 10,342 27,123 5,325 31,614 1,369 (75) (4,332) 1,528 13,513 3,197 89,604
Net foreign exchange gains/(losses) 475 2,687 291 1,236 20 - - 11,261 30 (161) 15,839
Net gains/(losses) on financial instruments (9) - - - - - 1,746 2,651 686 606 5,680
Net gains/(losses) on derecognition of financial assets 3,839 43 (924) (233) 3,195 - - (41) - (18) 5,861
measured at amortised
cost
Net insurance result - - - - - - 24,509 - - 52 24,561
Net gains/(losses) from revaluation and disposal of - - - - - 889 - - - (101) 788
investment properties
Net gains on disposal of stock of property - - - - - 3,704 - - - 202 3,906
Other income 10 2 8 84 64 3,937 5,121 12 1,773 1,189 12,200
Total operating income 92,069 101,039 30,503 206,447 14,008 (10,860) 27,044 36,768 15,976 3,787 516,781
Staff costs (3,707) (6,581) (2,578) (25,827) (4,596) (2,120) (1,370) (2,114) (3,329) (40,821) (93,043)
Special levy on deposits and other levies/contributions (1,756) (3,894) (908) (11,558) (32) - - (88) - - (18,236)
Provisions for pending litigations, claims, regulatory and - - - - - - - - - (14,148) (14,148)
other matters (net
of reversals)
Other operating expenses (18,889) (9,378) (7,066) (41,066) (5,567) (7,423) (1,528) (4,350) (5,387) 30,198 (70,456)
Operating profit/(loss) before credit losses and impairment 67,717 81,186 19,951 127,996 3,813 (20,403) 24,146 30,216 7,260 (20,984) 320,898
Credit losses on financial assets (3,795) (319) 547 (8,475) (18,185) (6,131) (112) (375) - 73 (36,772)
Impairment net of reversals on non‑financial assets - - - - - (22,836) - - - (370) (23,206)
Profit/(loss) before tax 63,922 80,867 20,498 119,521 (14,372) (49,370) 24,034 29,841 7,260 (21,281) 260,920
Income tax (7,990) (10,109) (2,562) (14,942) 1,797 5,186 (1,962) (3,728) (1,120) (4,338) (39,768)
(Profit)/loss after tax 55,932 70,758 17,936 104,579 (12,575) (44,184) 22,072 26,113 6,140 (25,619) 221,152
Non‑controlling interests‑(profit)/loss - - - - - - - - (1,535) 630 (905)
Profit/(loss) after tax attributable to the owners of the 55,932 70,758 17,936 104,579 (12,575) (44,184) 22,072 26,113 4,605 (24,989) 220,247
Company
Analysis of total revenue
Total revenue includes net interest income, net fee and commission income, net
foreign exchange gains, net gains/(losses) on financial instruments, net
gains/(losses) on derecognition of financial assets measured at amortised
cost, net insurance result, net gains/(losses) from revaluation and disposal
of investment properties, net gains/(losses) on disposal of stock of property
and other income. There was no revenue deriving from transactions with a
single external customer that amounted to 10% or more of Group revenue.
Corporate IBU & International corporate SME Retail Restructuring and recoveries REMU Insurance Treasury Payment Services Other Total
Six months ended 30 June 2024 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Revenue from third parties 99,544 60,485 29,311 126,532 16,416 4,735 23,088 174,509 13,325 2,342 550,287
Inter‑segment (expense)/revenue (13,198) 47,646 4,181 120,897 (762) (14,178) (4,031) (141,356) 2,516 (1,715) -
Total revenue 86,346 108,131 33,492 247,429 15,654 (9,443) 19,057 33,153 15,841 627 550,287
Six months ended 30 June 2023 (restated)
Revenue from third parties 107,136 61,031 27,362 115,191 14,341 8,271 31,099 132,109 13,584 6,657 516,781
Inter‑segment (expense)/revenue (15,067) 40,008 3,141 91,256 (333) (19,131) (4,055) (95,341) 2,392 (2,870) -
Total revenue 92,069 101,039 30,503 206,447 14,008 (10,860) 27,044 36,768 15,976 3,787 516,781
Analysis of assets and liabilities
Corporate IBU & International corporate SME Retail Restructuring and recoveries REMU Insurance Treasury Payment Services Other Total
30 June 2024 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Assets
Assets 3,622,681 937,946 966,751 4,438,945 162,793 847,973 994,018 12,533,453 111,924 1,054,900 25,671,384
Inter‑segment assets (44,305) - - - - (47,060) (21,508) - (24,419) (67,922) (205,214)
Total assets 3,578,376 937,946 966,751 4,438,945 162,793 800,913 972,510 12,533,453 87,505 986,978 25,466,170
31 December 2023 (restated)
Assets
Assets 3,469,090 880,219 942,490 4,351,607 213,477 895,374 919,427 13,971,313 93,536 1,055,699 26,792,232
Inter‑segment assets (35,367) - - - - (39,843) (19,443) - (33,058) (35,944) (163,655)
Total assets 3,433,723 880,219 942,490 4,351,607 213,477 855,531 899,984 13,971,313 60,478 1,019,755 26,628,577
Corporate IBU & International corporate SME Retail Restructuring and recoveries REMU Insurance Treasury Payment Services Other Total
30 June 2024 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Liabilities
Liabilities 2,322,649 3,880,272 1,073,039 12,398,577 19,938 34,114 866,112 1,859,681 53,976 533,374 23,041,732
Inter‑segment liabilities (142,157) - - - - (17,111) (18,050) - - (27,896) (205,214)
Total liabilities 2,180,492 3,880,272 1,073,039 12,398,577 19,938 17,003 848,062 1,859,681 53,976 505,478 22,836,518
31 December 2023 (restated)
Liabilities
Liabilities 2,197,945 3,901,025 1,019,245 12,216,209 29,045 24,695 803,319 3,588,480 40,635 483,293 24,303,891
Inter‑segment liabilities (111,192) - - - - (11,667) (16,404) - - (24,392) (163,655)
2,086,753 3,901,025 1,019,245 12,216,209 29,045 13,028 786,915 3,588,480 40,635 458,901 24,140,236
Segmental analysis of customer deposits and loans and advances to customers is
presented in Notes 23 and Notes 19, 32.2 and 32.4 respectively.
Analysis of turnover
Six months ended
30 June
2024 2023 (restated)
€000 €000
Net interest income 419,883 358,342
Net fee and commission income 86,215 89,604
Net foreign exchange gains 13,034 15,839
Net gains on financial instruments 729 5,680
Net gains on derecognition of financial assets measured at amortised cost 1,106 5,861
Net insurance result 22,775 24,561
Net (losses)/gains from revaluation and disposal of investment properties (1,257) 788
Net gains on disposal of stock of property 2,584 3,906
Other income 5,218 12,200
550,287 516,781
8. Interest income and income similar to interest income
Interest income
Six months ended
30 June
2024 2023
€000 €000
Financial assets at amortised cost:
‑ Loans and advances to customers 272,311 237,519
‑ Loans and advances to banks and central banks 164,060 132,500
‑ Reverse repurchase agreements 11,666 -
‑ Debt securities 43,488 20,742
‑ Other financial assets (Note 21) 8,630 9,098
Debt securities at FVOCI 4,175 3,993
504,330 403,852
Income similar to interest income
Six months ended
30 June
2024 2023
€000 €000
Loans and advances to customers measured at FVPL 4,678 6,263
Derivative financial instruments 62,778 15,909
67,456 22,172
9. Interest expense and expense similar to interest expense
Interest expense
Six months ended
30 June
2024 2023
Financial liabilities at amortised cost: €000 €000
‑ Customer deposits 31,318 10,671
‑ Funding from central banks and deposits by banks 26,138 31,301
‑ Debt securities in issue 19,341 3,878
‑ Subordinated liabilities 10,106 10,078
Interest expense on lease liabilities 334 155
87,237 56,083
Expense similar to interest expense
Six months ended
30 June
2024 2023
€000 €000
Derivative financial instruments 64,666 11,599
10. Net gains on financial instruments
Six months ended
30 June
2024 2023
€000 €000
Trading portfolio:
‑ derivative financial instruments 16
22
Other investments at FVPL:
‑ non‑equity securities 980
63
‑ mutual funds 193 1,780
‑ equity securities (85) 1,962
Net losses on disposal of FVOCI debt securities - (433)
Net gains/(losses) on loans and advances to customers at FVPL 536 (9)
Revaluation of financial instruments designated as fair value hedges:
‑ hedging instruments (17,788) (8,843)
‑ hedged items 17,788 10,227
729 5,680
11. Staff costs
Staff costs
Six months ended
30 June
2024 2023
€000 €000
Salaries 71,436 69,571
Employer's contributions 13,844 11,355
Variable compensation:
Accrual for short‑term incentive award (Note 11.2) 4,421 3,450
Share‑based benefits expense (Note 11.1) 493 311
Retirement benefit plan costs 5,781 5,556
Exit cost and other termination benefits 160 2,800
96,135 93,043
The number of persons employed by the Group as at 30 June 2024 was 2,860 (31
December 2023: 2,830 and 30 June 2023: 2,902).
Staff costs are presented in the Consolidated Income Statement net of software
capitalisation costs and costs included in the insurance contracts fulfilment
cash flow liabilities under IFRS 17. An analysis of expenses by nature
incurred by the Group is included in Note 12.
11.1 Share‑based compensation plan
Long‑Term Incentive Plan
At 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 the share based Long‑Term Incentive Plan (the 'LTIP')
of Bank of Cyprus Holdings Public Limited Company.
The LTIP is an equity‑settled share‑based compensation plan for executive
directors and senior management of the Group. The LTIP provides for an award
in the form of ordinary shares of the Company based on certain non‑market
performance and service vesting conditions. Performance will be measured over
a three‑year period. The performance conditions are set by the Human
Resources & Remuneration Committee (HRRC) each year and may be
differentiated at the HRRC's discretion to reflect the Group's strategic
targets and employees' personal performance. 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 targets in the areas of: (i) Profitability; (ii) Asset quality;
(iii) Capital adequacy; (iv) Risk control & compliance; and (v)
Environmental, Social and Governance ('ESG'). From 2024, targets in the area
of customer experience have been introduced for non‑control functions. The
awards ordinarily vest in six tranches, with 40% vesting in the year following
the year the performance period ends and the remaining 60% vesting in tranches
(12%), on each of the first, second, third, fourth and fifth anniversary of
the first vesting date. For any award to vest the employee must be in the
employment of the Group up until the date of the vesting of such an award.
Under certain circumstances the HRRC has the discretion to determine whether
the award will lapse and/or the extent to which the award will be vested.
The maximum number of shares that may be issued pursuant to the 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 subsequently to the date of the resolution (excluding
any issuances of shares pursuant to the LTIP).
Under the LTIP the following share awards were granted as of 30 June 2024:
i. On 3 April 2024 (grant date) 403,990 share awards were granted by the
Company to 21 eligible employees, comprising the Extended Executive Committee
of the Group. The awards granted in April 2024 are subject to a three‑year
performance period 2024‑2026 (with all performance conditions being
non‑market performance conditions).
i. On 3 October 2023 (grant date) 479,160 share awards were granted by
the Company to 21 eligible employees, comprising the Extended Executive
Committee of the Group. The awards granted in October 2023 are subject to a
three‑year performance period 2023‑2025 (with all performance conditions
being non‑market performance conditions).
ii. On 22 December 2022 (grant date) 819,860 share awards were granted
by the Company to 22 eligible employees, comprising the Extended Executive
Committee of the Group. The awards granted in December 2022 are subject to a
three‑year performance period 2022‑2024 (with all performance conditions
being non‑market performance conditions).
Each of the share awards granted thereon vest in six tranches, with the first
tranche vesting in the year following the year the performance period ends and
the last tranche vesting on the fifth anniversary of the first vesting date.
Vesting is also subject to service conditions. Awards are subject to potential
forfeiture under certain leaver scenarios.
11.2 Short‑term incentive plan
Short‑Term Incentive Plan
Short‑term incentive award refers to a Short‑Term Incentive Plan first
introduced by the Group in 2023. This is an annual incentive which involves
variable remuneration in the form of cash to selected employees, and is driven
by both delivery of the Group's Strategy, as well as individual performance,
in the relevant year. Executive Management are also eligible to be considered
for the short‑term incentive award. The short‑term incentive award is
generally paid in cash and is non‑deferred, however, in cases where the
amount exceeds a specified threshold as per regulatory guidelines, 50% of the
award is awarded in shares and 50% in cash. In cases the award for an
individual comprises both a cash and a share component then the award vests,
similarly to LTIP vesting, i.e., 40% vests in the year following the
performance year to which the incentive award relates to, and the remaining
60% vests in tranches (12%) over five years.
Shares vesting as part of the short‑term incentive award are subject to
one‑year retention period and 100% of the award is subject to clawback
provisions.
12. Other operating expenses
Six months ended
30 June
2024 2023
€000 €000
Repairs and maintenance expenses 17,785 16,263
Property‑related costs 5,360 5,058
Consultancy, legal and other professional services fees 8,970 8,224
Insurance 3,137 4,203
Advertising and marketing 3,539 2,646
Depreciation of property and equipment 7,705 6,660
Amortisation of intangible assets 7,345 7,974
Communication expenses 2,924 3,010
Printing and stationery 924 794
Cash transfer expenses 1,562 1,417
Other operating expenses 11,738 11,950
70,989 68,199
Advisory and other transformation costs (non‑recurring) - 2,257
70,989 70,456
Advisory and other transformation costs comprise mainly fees to external
advisors in relation to the transformation program and other strategic
projects of the Group and are considered to be non‑recurring.
During the six months ended 30 June 2024, the Group recognised €25 thousand
relating to rent expense for short‑term leases, included within
'Property‑related costs' (30 June 2023: €39 thousand) and €3,972
thousand relating to the depreciation of right‑of‑use assets, included
within 'Depreciation of property and equipment' (30 June 2023: €2,752
thousand).
Special levy on deposits and other levies/contributions as presented in the
consolidated income statement are set out below:
Six months ended
30 June
2024 2023
€000 €000
Special levy on deposits of credit institutions in Cyprus 14,481 8,816
Single Resolution Fund contribution - 5,477
Contribution to Deposit Guarantee Fund 4,303 3,943
18,784 18,236
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 ('SRF')
contribution, which is charged annually by the Single Resolution Board
('SRB'), reduces the charge of the Special Levy up to the level of the total
annual Special Levy charge. In February 2024, the SRB announced that no
regular annual contributions will be collected in 2024 from the institutions
falling in scope of the SRF and contributions would only be collected in the
event of specific circumstances.
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 was to reach at least 0.8% of covered deposits by 3 July 2024.
The management committee of the DGS can decide to collect additional ex‑ante
contributions to achieve a higher return.
12.1. Expenses by nature
Analysis of staff costs and other operating expenses incurred by the Group by
nature, is presented in the table below:
30 June 2024
Directly attributable expenses Capitalised as internally developed computer software Staff Other operating expenses(Note 12) Total
costs
(Note 11)
€000 €000 €000 €000 €000
Salaries and employer's contributions 5,117 1,146 85,280 - 91,543
Variable compensation:
Accrual for short‑term incentive award - - 4,421 - 4,421
Share‑based benefits expense - - 493 - 493
Retirement benefit plan costs 496 - 5,781 - 6,277
Exit cost and other termination benefits - - 160 - 160
Depreciation 212 - - 3,733 3,945
Depreciation of RoU assets 581 - - 3,972 4,553
Amortisation of intangible assets 1,863 - - 7,345 9,208
Other operating expenses 1,812 - - 55,939 57,751
Total 10,081 1,146 96,135 70,989 178,351
30 June 2023
Directly attributable expenses Capitalised as internally developed computer software Staff Other operating expenses (Note 12) Total
costs (Note 11)
€000 €000 €000 €000 €000
Salaries and employer's contributions 4,672 851 80,926 - 86,449
Variable compensation:
Accrual for short‑term incentive award - - 3,450 - 3,450
Share‑based benefits expense - - 311 - 311
Retirement benefit plan costs 466 - 5,556 - 6,022
Exit cost and other termination benefits - - 2,800 - 2,800
Depreciation 263 - - 3,908 4,171
Depreciation of RoU assets 492 - - 2,752 3,244
Amortisation of intangible assets 1,512 - - 7,974 9,486
Other operating expenses 1,641 - - 55,822 57,463
Total 9,046 851 93,043 70,456 173,396
Directly attributable expenses are expenses incurred by the insurance
subsidiaries of the Group that relate directly to the fulfilment of insurance
and re‑insurance contracts within the scope of IFRS 17.
13. Credit losses on financial assets and impairment net of reversals on
non‑financial assets
Six months ended
30 June
2024 2023
Credit losses on financial assets €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 32.4) 25,734 38,514
Recoveries of loans and advances to customers previously written off (5,509) (8,376)
Changes in expected cash flows (2,206) (426)
Financial guarantees and commitments (874) 578
17,145 30,290
Credit losses on other financial instruments
Amortised cost debt securities 260 120
FVOCI debt securities (25) 18
Loans and advances to banks (2) (181)
Balances with central banks (86) 415
Reverse repurchase agreements -
7
Other financial assets (Note 21) 172 6,110
326 6,482
17,471 36,772
Six months ended
30 June
2024 2023
Impairment net of reversals on non‑financial assets €000 €000
Stock of property (Note 20) 24,760 23,206
24,760 23,206
14. Income tax
Six months ended
30 June
2024 2023
€000 €000
Current tax:
‑ Cyprus 47,360 39,473
Cyprus special defence contribution 30
38
Deferred tax credit (721) (9)
Prior years' tax adjustments 453 (11)
Other tax charges 1,073 285
48,203 39,768
The corporate income tax rate in Cyprus is 12.5% on taxable income (2023:
12.5%). The Group's profits from overseas operations are taxed at the rates
prevailing in the respective countries, which for the six months ended 30 June
2024 were: Greece 22% (2023: 22%), Romania 16% (2023: 16%) and Russia 20%
(2023: 20%).
For life insurance business there is a minimum income tax charge of 1.5% on
gross premiums (this is included within 'Net insurance service result'), which
amounted to €1,168 thousand for the six months ended 30 June 2024 (30 June
2023: €1,070 thousand). Special defence contribution is payable on rental
income at a rate of 3% (2023: 3%) and on interest income from activities
outside the ordinary course of business at a rate of 17% (2023: 30%).
The Group is subject to income taxes in the various jurisdictions in which it
operates and the calculation of the Group's income tax charge and provisions
for income tax necessarily involves a degree of estimation and judgement.
There are transactions and calculations for which the ultimate income tax
treatment is uncertain and cannot be determined until resolution has been
reached with the relevant tax authority. The Group has a number of open income
tax returns with various income tax authorities and liabilities relating to
these judgemental matters are based on estimates of whether additional income
taxes will be due. In case the final income tax outcome of these matters is
different from the amounts that were initially recorded, such differences will
impact the current and deferred income tax assets and liabilities in the
period in which such determination is made.
On 22 December 2022, the European Commission approved Directive 2022/2523
which provides for a minimum effective tax rate of 15% for the global
activities of large multinational groups (Pillar Two tax). The Directive that
follows closely the OECD Inclusive Framework on Base Erosion and Profit
Shifting should have been transposed by the Member States throughout 2023,
entering into force on 1 January 2024. In Cyprus, the legislation has not been
substantively enacted at the balance sheet date, however it is expected to be
enacted within 2024. The Group expects to be in scope of the legislation and
has performed an assessment of the potential impact of Pillar Two income taxes
with the current estimate being a charge of approximately 1.5% on profit
before tax as at 30 June 2024. Because of the calculation complexity resulting
from these rules and as the final legislation has yet to be enacted, the
impact of this reform has been estimated to range up to 2% of profit before
tax and will be further refined upon the enactment and implementation of
relevant legislation.
Deferred tax
The net deferred tax assets comprise:
30 June 31 December
2024
2023
€000 €000
Deferred tax assets 202,717 201,268
Deferred tax liabilities (32,934) (32,306)
Net deferred tax assets 169,783 168,962
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
2024
2023
€000 €000
1 January 168,962 193,300
Deferred tax recognised in the consolidated income statement ‑ tax 721 (26,001)
credit/(charge)
Deferred tax recognised in the consolidated statement of comprehensive income 100 (3,234)
‑ tax credit/(charge)
Transfer to current tax payables following the adoption of IFRS 17 - 4,871
Other transfers -
26
30 June/31 December 169,783 168,962
The Group offsets income tax assets and liabilities only if it has a legally
enforceable right to set‑off current income tax assets and current income
tax liabilities.
Income Tax Law Amendment 28(I) of 2019
On 1 March 2019 the Cyprus Parliament adopted legislative amendments to the
Income Tax Law (the 'Law') which were published in the Official Gazette of the
Republic on 15 March 2019 ('the amendments').
BOC PCL has DTA that meets the requirements of the Income Tax Law Amendment
28(I) of 2019 relating to income tax losses transferred to BOC PCL as a result
of the acquisition of certain operations of Laiki Bank, on 29 March 2013,
under 'The Resolution of Credit and Other Institutions Law'. The DTA
recognised upon the acquisition of certain operations of Laiki in 2013
amounted to €417 million (corresponding to €3.3 billion tax losses) for
which BOC PCL paid a consideration as part of the respective acquisition. The
period of utilisation of the tax losses which may be converted into tax
credits is eleven years following the amendment of the Law in 2019, starting
from 2018 i.e., by end of 2028.
As a result of the above Law, the Group has DTA amounting to €189,546
thousand as at 30 June 2024 (31 December 2023: €189,546 thousand) that meet
the requirements under this Law, the recovery of which is guaranteed. On an
annual basis, an amount is either converted to annual tax credit and is
reclassified from the DTA to current tax receivables or it is used in the
determination of the taxable income of the relevant year, as the annual
instalment can be claimed as a deductible expense in which case the annual
instalment is reflected as a charge in the Consolidated Income Statement.
The DTA subject to the Law is accounted for on the same basis as described in
Note 2.11 of the annual consolidated financial statements for the year ended
31 December 2023.
Accumulated income tax losses
The accumulated income tax losses are presented in the table below:
Total income tax losses Income tax losses for which a deferred tax asset was recognised Income tax losses for which no deferred tax asset was recognised
30 June 2024 €000 €000 €000
Expiring within 5 years 1,590 - 1,590
Utilisation in annual instalments up to 2028 1,516,364 1,516,364 -
1,517,954 1,516,364 1,590
31 December 2023
Expiring within 5 years 45,851 - 45,851
Utilisation in annual instalments up to 2028 1,516,364 1,516,364 -
1,562,215 1,516,364 45,851
15. Earnings per share
Basic earnings per share
Six months ended
30 June
2024 2023
Profit for the period attributable to the owners of the Company 270,353 220,247
(€ thousand) (basic)
Weighted average number of shares in issue during the period, excluding 445,760 446,058
treasury shares (thousand)
Basic earnings per share attributable to the owners of the Company (€ cent) 60.6 49.4
Diluted earnings per share
Six months ended
30 June
2024 2023
Profit for the period attributable to the owners of the Company 270,353 220,247
(€ thousand)
Weighted average number of shares in issue during the period, excluding 447,308 446,755
treasury shares adjusted for the dilutive effect of all rights on shares
(thousand)
Diluted earnings per share attributable to the owners of the Company 60.4 49.3
(€ cent)
For diluted earnings per share the weighted average number of ordinary shares
in issue is adjusted for the dilutive effect of ordinary shares that may arise
in respect of share awards granted to executive directors and senior
management of the Group under the Long‑Term Incentive Plan (LTIP) for the
performance years 2022‑2024, 2023‑2025 and 2024‑2027 and the STIP award
granted for the performance year 2023.
16. Investments
The analysis of the Group's investments is presented in the table below:
30 June 31 December
2024
2023
€000 €000
Investments at FVPL 119,201 135,275
Investments at FVOCI 410,437 443,420
Investments at amortised cost 3,429,116 3,116,714
3,958,754 3,695,409
Out of these, the amounts pledged as collateral are shown below:
30 June 31 December
2024
2023
Investments pledged as collateral €000 €000
Investments at FVOCI - 25,458
Investments at amortised cost 40,641 234,553
40,641 260,011
Investments pledged as collateral as at 30 June 2024 are mainly used as
supplementary assets for the covered bond (Note 34). As at 31 December 2023,
debt securities collateralised were primarily used for the amounts borrowed
from the ECB Targeted Longer‑Term Refinancing Operations (TLTRO III) (Note
22) which was fully repaid in the six months ended 30 June 2024. Encumbered
assets are disclosed in Note 34.
The maximum exposure to credit risk for debt securities is disclosed in Note
32.1.
The increase in the investment portfolio as at 30 June 2024 is consistent with
the strategy of the Group to prudently grow the fixed income portfolio.
Investments at fair value through profit or loss
Investments mandatorily measured at FVPL
30 June 31 December 2023
2024
€000 €000
Other non‑equity securities 3,754 3,611
Equity securities 837 903
Mutual funds 114,610 130,761
119,201 135,275
Investments at FVOCI
30 June 31 December 2023
2024
€000 €000
Debt securities 398,967 431,068
Equity securities 11,470 12,352
410,437 443,420
Investments at amortised cost
30 June 31 December 2023
2024
€000 €000
Debt securities 3,429,116 3,116,714
Further analysis of the Group's investments is provided in the tables below.
Equity securities
FVPL FVOCI Total
30 June 2024 €000 €000 €000
Listed on the Cyprus Stock Exchange - 266 266
Listed on other stock exchanges 837 897
60
Unlisted - 11,144 11,144
837 11,470 12,307
FVPL FVOCI Total
31 December 2023 €000 €000 €000
Listed on the Cyprus Stock Exchange - 728 728
Listed on other stock exchanges 903 961
58
Unlisted - 11,566 11,566
903 12,352 13,255
The Group irrevocably made the election to classify its equity investments as
equity investments at FVOCI on the basis that these are not held for trading.
Their carrying value amounts to €11,470 thousand at 30 June 2024 and is
equal to their fair value (31 December 2023: €12,352 thousand).
Equity investments at FVOCI comprise mainly investments in private Cyprus
registered companies, acquired through loan restructuring activity and
specifically through debt for equity swaps.
Dividend income amounting to €166 thousand has been received and recognised
during the six months ended 30 June 2024 in other income (30 June 2023: €439
thousand).
During the six months ended 30 June 2024, holdings of equity investments
measured at FVOCI with a carrying value of €667 thousand have been disposed
of (31 December 2023: €702 thousand).
Mutual funds
FVPL
30 June 2024 €000
Listed on other stock exchanges 26,193
Unlisted 88,417
114,610
FVPL
31 December 2023 €000
Listed on other stock exchanges 35,192
Unlisted 95,569
130,761
The majority of the unlisted mutual funds relate to investments whose
underlying assets are listed on stock exchanges and are therefore presented in
Level 2 hierarchy in Note 18.
Debt securities and other non‑equity securities
Analysis by issuer type FVPL FVOCI Amortised Total
cost
30 June 2024 €000 €000 €000 €000
Cyprus government - 282,784 700,015 982,799
Other governments - 22,033 869,577 891,610
Financial institutions - 68,265 1,075,227 1,143,492
Other financial corporations 3,754 - 46,574 50,328
Supranational organisations - 20,978 586,591 607,569
Other non‑financial corporations - 4,907 151,132 156,039
3,754 398,967 3,429,116 3,831,837
FVPL FVOCI Amortised Total
cost
31 December 2023 €000 €000 €000 €000
Cyprus government - 315,640 610,781 926,421
Other governments - 10,316 751,247 761,563
Financial institutions - 81,727 1,046,184 1,127,911
Other financial corporations 3,611 - 47,477 51,088
Supranational organisations - 18,438 550,394 568,832
Other non‑financial corporations - 4,947 110,631 115,578
3,611 431,068 3,116,714 3,551,393
Geographic dispersion by country of issuer FVPL FVOCI Amortised Total
cost
30 June 2024 €000 €000 €000 €000
Cyprus - 282,784 710,871 993,655
Greece - 10,250 75,951 86,201
Germany - 2,889 224,569 227,458
France - 27,467 289,393 316,860
Other European Union countries - 28,261 957,780 986,041
United Kingdom - - 18,167 18,167
USA and Canada 3,754 4,052 234,661 242,467
Other countries - 22,286 331,133 353,419
Supranational organisations - 20,978 586,591 607,569
3,754 398,967 3,429,116 3,831,837
FVPL FVOCI Amortised cost Total
31 December 2023 €000 €000 €000 €000
Cyprus - 315,640 621,162 936,802
Greece - 18,726 60,297 79,023
Germany - - 210,507 210,507
France - 31,659 283,235 314,894
Other European Union countries - 20,342 741,157 761,499
United Kingdom - - 18,089 18,089
USA and Canada 3,611 4,077 273,447 281,135
Other countries - 22,186 358,426 380,612
Supranational organisations - 18,438 550,394 568,832
3,611 431,068 3,116,714 3,551,393
'Other countries' include exposures in Israel amounting to €46,385 thousand
as at 30 June 2024 (31 December 2023: €46,715 thousand).
Listing analysis FVPL FVOCI Amortised cost Total
30 June 2024 €000 €000 €000 €000
Listed on the Cyprus Stock Exchange - - 12,925 12,925
Listed on other stock exchanges - 398,967 3,416,191 3,815,158
Unlisted 3,754 - - 3,754
3,754 398,967 3,429,116 3,831,837
FVPL FVOCI Amortised cost Total
31 December 2023 €000 €000 €000 €000
Listed on the Cyprus Stock Exchange - - 4,566 4,566
Listed on other stock exchanges - 431,068 3,112,148 3,543,216
Unlisted 3,611 - - 3,611
3,611 431,068 3,116,714 3,551,393
The Group uses fair value hedging to manage the interest rate risk in relation
to its FVOCI bonds (Note 17).
There were no reclassifications of investments during the six months ended 30
June 2024 and the year ended 31 December 2023.
The fair value of the financial assets that have been reclassified out of FVPL
to FVOCI on transition to IFRS 9, amounts to €6,525 thousand at 30 June 2024
(31 December 2023: €7,149 thousand). The fair value loss that would have
been recognised in the consolidated income statement during the six months
ended 30 June 2024 if these financial assets had not been reclassified as part
of the transition to IFRS 9, amounts to €3 thousand (30 June 2023: fair
value gain of €100 thousand). The effective interest rate of these
instruments is 1.6%‑4.9% (30 June 2023: 1.6%‑5.0%) per annum and the
respective interest income during the six months ended 30 June 2024 amounts to
€103 thousand (30 June 2023: €105 thousand).
17. Derivative financial instruments
The contract amount and fair value of the derivative financial instruments is
set out below:
30 June 2024 31 December 2023
Fair value Fair value
Contract amount Assets Liabilities Contract amount Assets Liabilities
€000 €000 €000 €000 €000 €000
Trading derivatives
Forward exchange rate contracts 47,454 369 276 23,960 205 184
Currency swaps 805,161 5,251 354 986,259 136 13,278
Interest rate swaps 8,862 58 56 13,460 189 181
Currency options 276 226 50 44 2 42
Interest rate caps/floors 163,096 1,904 1,904 166,075 1,843 1,844
1,024,849 7,808 2,640 1,189,798 2,375 15,529
Derivatives qualifying for hedge accounting
Fair value hedges ‑ interest rate swaps 1,642,500 58,717 4,193 1,401,531 48,679 2,451
Portfolio fair value hedges ‑ interest rate swaps 2,500,000 587 15,132 - - -
Net investments ‑ forward exchange rate contracts 1,136 - 1 1,200 1 -
4,143,636 59,304 19,326 1,402,731 48,680 2,451
Total 5,168,485 67,112 21,966 2,592,529 51,055 17,980
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 hedge accounting using derivatives when the required
criteria for hedge accounting are met. The Group also uses derivatives for
economic hedging (hedging the changes in interest rates, foreign currency
exchange rates or other risks) which do not meet the criteria for hedge
accounting. As a result, these derivatives are accounted for as trading
derivatives and the gains or losses arising from revaluation are recognised in
the consolidated income statement.
Fair value hedges
The Group uses interest rate swaps to hedge the interest rate risk arising as
a result of the possible adverse movement in the fair value of fixed rate debt
securities measured at FVOCI, debt securities in issue and subordinated
liabilities, as well as customer deposits.
As part of its structural interest rate risk management, during the six months
ended 30 June 2024, the Group has contracted fixed‑rate receiver swaps to
hedge interest rate risk by setting up fair value hedges for a portfolio of
liabilities (i.e. core NMDs). This strategy is designated as a fair value
hedge, under the IAS 39 as adopted by the EU (IAS 39 carve‑out) and its
effectiveness is assessed by comparing changes in the fair value of the
designated hedged item, attributable to changes in the benchmark interest
rate, with the respective changes in the fair value of the interest rate swaps
used as hedging instruments.
Changes in the fair value of derivatives designated as fair value hedges (both
for micro hedges and macro hedges) and the fair value of the hedged items in
relation to the risk being hedged are recognised in the consolidated income
statement.
In the case of fair value macro hedges, fair value changes of the hedged
portfolios are recognised in the liability side of the consolidated balance
sheet under caption 'Changes in the fair value of hedged items in portfolio
hedges of interest rate risk', which as at 30 June 2024 amounted to a
cumulative fair value change of €7,261 thousand (31 December 2023: n/a).
Hedges of net investments
The Group's consolidated balance sheet is impacted by foreign currency
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 the use of forward exchange rate contracts.
As at 30 June 2024, forward exchange rate contracts amounting to €1,136
thousand (30 June 2023: forward exchange rate contracts amounting to €3,288
thousand) have been designated as hedging instruments and have given rise to
approximately a nil loss (30 June 2023: loss of €3 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).
The accumulated fair value adjustment arising from the hedging relationships
is presented in the table below:
Carrying amount of hedged items Accumulated amount of fair value hedging adjustments gains/(losses) on the
hedged item
30 June 2024 Assets Liabilities Assets Liabilities
Derivatives qualifying for hedge accounting €000 €000 €000 €000
Fair value hedges ‑ interest rate swaps
‑debt securities ‑ investments 376,360 - (43,708) -
‑debt securities in issue - 970,790 - 1,029
‑subordinated liabilities - 313,009 - (354)
‑customer deposits (macro hedge) - 2,500,000 - 7,261
Net investments ‑ forward exchange rate contracts
Net assets - 1,136 -
1
Total 376,360 3,784,935 (43,708) 7,937
Carrying amount of hedged items Accumulated amount of fair value hedging adjustments gains/(losses) on the
hedged item
31 December 2023 Assets Liabilities Assets Liabilities
Derivatives qualifying for hedge accounting €000 €000 €000 €000
Fair value hedges ‑ interest rate swaps
‑debt securities ‑ investments 439,043 - (43,441) -
‑debt securities in issue - 671,632 - (9,421)
‑subordinated liabilities - 306,787 - (4,237)
Net investments ‑ forward exchange rate contracts
Net assets 1,200 - -
1
Total 440,243 978,419 (43,440) (13,658)
18. Fair value measurement
The following table presents the carrying value and fair value of the Group's
financial assets and liabilities.
30 June 2024 31 December 2023
Carrying value Fair value Carrying value Fair value
Financial assets €000 €000 €000 €000
Cash and balances with central banks 7,287,221 7,287,221 9,614,502 9,614,502
Loans and advances to banks 384,112 373,733 384,802 370,853
Investments at FVPL 119,201 119,201 135,275 135,275
Investments at FVOCI 410,437 410,437 443,420 443,420
Investments at amortised cost 3,429,116 3,400,339 3,116,714 3,119,618
Reverse repurchase agreements 1,014,858 1,011,986 403,199 411,654
Derivative financial assets 67,112 67,112 51,055 51,055
Loans and advances to customers 10,084,967 10,069,245 9,821,788 9,972,249
Life insurance business assets attributable to policyholders 710,932 710,932 637,562 637,562
Other financial assets 416,504 426,240 388,244 406,602
23,924,460 23,876,446 24,996,561 25,162,790
Financial liabilities
Funding from central banks and deposits by banks 405,438 369,883 2,515,424 2,472,718
Derivative financial liabilities 21,966 21,966 17,980 17,980
Customer deposits 19,722,692 19,687,329 19,336,915 19,300,867
Debt securities in issue 970,790 994,121 671,632 655,428
Subordinated liabilities 313,009 319,440 306,787 300,098
Other financial liabilities and lease liabilities 419,718 419,718 362,152 362,152
21,853,613 21,812,457 23,210,890 23,109,243
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 impact on fair value are market observable.
Level 3: investments valued using models for which inputs that have a
significant impact 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
BOC PCL's 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.
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 norm 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 2024 is 7.49%
(31 December 2023: 7.56%).
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 is 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.
Reverse repurchase agreements
Fair values of reverse repurchase agreements that are held on a non trading
basis are determined by calculating the present value of future cash flows.
The cashflows are discounted using an appropriate risk free rate plus the
appropriate credit spread.
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 funding, 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.
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 table presents the fair value measurement hierarchy of the
Group's financial assets and financial liabilities recorded at fair value and
financial assets and financial liabilities for which fair value is disclosed,
by level of the fair value hierarchy.
Level 1 Level 2 Level 3 Total
30 June 2024 €000 €000 €000 €000
Financial assets measured at fair value
Loans and advances to customers measured at FVPL - - 134,835 134,835
Trading derivatives
Forward exchange rate contracts - 369 - 369
Currency swaps - 5,251 - 5,251
Interest rate swaps - - 58
58
Currency options - 226 - 226
Interest rate caps/floors - 1,904 - 1,904
- 7,808 - 7,808
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps - 58,717 - 58,717
Portfolio fair value hedges ‑ interest rate swaps - 587 - 587
- 59,304 - 59,304
Investments at FVPL 27,030 88,417 3,754 119,201
Investments at FVOCI 399,293 - 11,144 410,437
426,323 155,529 149,733 731,585
Other financial assets not measured at fair value
Loans and advances to banks - 373,733 - 373,733
Investments at amortised cost 3,214,852 185,487 - 3,400,339
Reverse repurchase agreements - 1,011,986 - 1,011,986
Loans and advances to customers - - 9,934,410 9,934,410
3,214,852 1,571,206 9,934,410 14,720,468
For loans and advances to customers measured at FVPL categorised as Level 3 as
at 30 June 2024, an increase in the discount factor by 10% would result in a
decrease of €2,541 thousand in their fair value and a decrease in the
discount factor by 10% would result in an increase of €620 thousand in their
fair value.
For one investment included in 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 €3,754 thousand as at 30 June 2024, a change in
the conversion factor by 10% would result in a change in the value of the
other non‑equity securities by €375 thousand.
Level 1 Level 2 Level 3 Total
30 June 2024 €000 €000 €000 €000
Financial liabilities measured at fair value
Trading derivatives
Forward exchange rate contracts - 276 - 276
Currency swaps - 354 - 354
Interest rate swaps - - 56
56
Currency options - - 50
50
Interest rate caps/floors - 1,904 - 1,904
- 2,640 - 2,640
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps - 4,193 - 4,193
Portfolio fair value hedges ‑ interest rate swaps - 15,132 - 15,132
Net investments ‑ forward exchange rate contracts - -
1 1
- 19,326 - 19,326
- 21,966 - 21,966
Other financial liabilities not measured at fair value
Deposits by banks - 369,883 - 369,883
Customer deposits - - 19,687,329 19,687,329
Debt securities in issue 994,121 - - 994,121
Subordinated liabilities 319,440 - - 319,440
1,313,561 369,883 19,687,329 21,370,773
Level 1 Level 2 Level 3 Total
31 December 2023 €000 €000 €000 €000
Financial assets measured at fair value
Loans and advances to customers measured at FVPL - - 138,727 138,727
Trading derivatives
Forward exchange rate contracts - 205 - 205
Currency swaps - 136 - 136
Interest rate swaps - 189 - 189
Currency options - -
2 2
Interest rate caps/floors - 1,843 - 1,843
- 2,375 - 2,375
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps - 48,679 - 48,679
Net investments‑forward exchange rate contracts and currency swaps - -
1 1
- 48,680 - 48,680
Investments at FVPL 36,095 95,569 3,611 135,275
Investments at FVOCI 431,854 - 11,566 443,420
467,949 146,624 153,904 768,477
Other financial assets not measured at fair value
Loans and advances to banks - 370,853 - 370,853
Investments at amortised cost 2,958,793 160,825 - 3,119,618
Reverse repurchase agreements - 411,654 - 411,654
Loans and advances to customers - - 9,833,522 9,833,522
2,958,793 943,332 9,833,522 13,735,647
For loans and advances to customers measured at FVPL categorised as Level 3 as
at 31 December 2023, an increase in the discount factor by 10% would result in
a decrease of €2,714 thousand in their fair value and a decrease in the
discount factor by 10% would result in an increase of €622 thousand in their
fair value.
For one investment included in 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 €3,611 thousand as at 31 December 2023, a change
in the conversion factor by 10% would result in a change in the value of the
other non‑equity securities by €361 thousand.
Level 1 Level 2 Level 3 Total
31 December 2023 €000 €000 €000 €000
Financial liabilities measured at fair value
Trading derivatives
Forward exchange rate contracts - 184 - 184
Currency swaps - 13,278 - 13,278
Interest rate swaps - 181 - 181
Currency options - -
42 42
Interest rate caps/floors - 1,844 - 1,844
- 15,529 - 15,529
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps - 2,451 - 2,451
- 17,980 - 17,980
Other financial liabilities not measured at fair value
Funding from central banks - 2,043,868 - 2,043,868
Deposits by banks - 428,850 - 428,850
Customer deposits - - 19,300,867 19,300,867
Debt securities in issue 655,428 - - 655,428
Subordinated liabilities 300,098 - - 300,098
955,526 2,472,718 19,300,867 22,729,111
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, other than the
deferred purchase payment consideration (Note 21), and other financial
liabilities is a close approximation of their fair value and they are
categorised as Level 3.
During the six months ended 30 June 2024 and the year ended 31 December 2023
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 2024 31 December 2023
Loans and advances to customers Financial instruments Total Loans and advances to customers Financial instruments Total
€000 €000 €000 €000 €000 €000
1 January 138,727 15,177 153,904 214,359 21,233 235,592
Disposals - (125) (125) - - -
Conversion of instruments into common shares - - - - (6,521) (6,521)
Fair value (losses)/gains - (234) (234) - 569 569
Net gains on loans and advances to customers measured at FVPL (Note 10) 536 - 536 2,401 - 2,401
Derecognition/repayment of loans (9,106) - (9,106) (89,522) - (89,522)
Interest on loans (Note 8) 4,678 - 4,678 11,489 - 11,489
Foreign exchange adjustments - 80 80 - (104) (104)
30 June/31 December 134,835 14,898 149,733 138,727 15,177 153,904
19. Loans and advances to customers
30 June 31 December 2023
2024
€000 €000
Gross loans and advances to customers at amortised cost 10,123,148 9,862,514
Allowance for ECL for impairment of loans and advances to customers (Note (173,016) (179,453)
32.4)
9,950,132 9,683,061
Loans and advances to customers measured at FVPL 134,835 138,727
10,084,967 9,821,788
The following tables present the Group's gross loans and advances to customers
at amortised cost by staging.
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2024 €000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on initial 8,927,672 933,797 252,907 69,823 10,184,199
recognition
Residual fair value adjustment on initial recognition (51,244) (9,482) 1,180 (1,505) (61,051)
Gross loans at amortised cost 8,876,428 924,315 254,087 68,318 10,123,148
31 December 2023
Gross loans at amortised cost before residual fair value adjustment on initial 8,334,929 1,168,745 328,177 100,197 9,932,048
recognition
Residual fair value adjustment on initial recognition (59,340) (7,474) (1,294) (1,426) (69,534)
Gross loans at amortised cost 8,275,589 1,161,271 326,883 98,771 9,862,514
Residual fair value adjustment
The residual fair value adjustment on initial recognition 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.
Loans and advances to customers measured at FVPL are managed in Cyprus.
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 2024 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate 2,977,199 456,232 32,489 12,985 3,478,905
IBU & International corporate
‑ IBU 102,124 19,413 121,983
335 111
‑ International corporate 774,221 46,003 820,279
42 13
SMEs 889,361 72,397 7,874 4,460 974,092
Retail
‑ housing 3,206,908 228,743 17,440 9,804 3,462,895
‑ consumer, credit cards and other 907,661 81,664 9,159 11,060 1,009,544
Restructuring
‑ corporate 2,712 3,365 41,708 11,934 59,719
‑ SMEs 9,053 4,651 8,640 2,326 24,670
‑ retail housing 5,603 9,990 36,138 1,664 53,395
‑ retail other 1,548 1,857 13,167 17,288
716
Recoveries
‑ corporate - - 2,897 3,806
909
‑ SMEs - - 12,395 1,265 13,660
‑ retail housing - - 49,323 6,875 56,198
‑ retail other - 22,480 4,196 26,714
38
8,876,428 924,315 254,087 68,318 10,123,148
31 December 2023 (restated) Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate 2,709,523 519,134 96,289 32,799 3,357,745
IBU & International corporate
‑ IBU 99,009 21,409 120,878
320 140
‑ International corporate 744,955 17,220 762,228
38 15
SMEs 824,503 109,865 5,583 9,042 948,993
Retail
‑ housing 3,038,339 345,135 23,508 9,897 3,416,879
‑ consumer, credit cards and other 836,679 103,710 9,814 13,839 964,042
Restructuring
‑ corporate 3,770 21,747 13,461 10,073 49,051
‑ SMEs 9,831 8,089 13,715 2,431 34,066
‑ retail housing 6,450 12,429 39,696 1,912 60,487
‑ retail other 2,471 2,533 13,474 19,211
733
Recoveries
‑ corporate - - 6,378 7,345
967
‑ SMEs - - 15,812 1,587 17,399
‑ retail housing - - 65,070 10,255 75,325
‑ retail other - 23,725 5,081 28,865
59
8,275,589 1,161,271 326,883 98,771 9,862,514
During 2023, BOC PCL entered into an agreement with Cyprus Asset Management
Company ('KEDIPES') to acquire a portfolio of performing and restructured
loans with gross book value of approximately €58 million with reference date
31 December 2022 (the 'Transaction'). The Transaction was completed in March
2024.
Loans and advances to customers pledged as collateral are disclosed in Note
34.
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 32.
20. 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 2024 an impairment loss of €24,760 thousand (30 June 2023: €23,206
thousand) was recognised in 'Impairment net of reversals on non‑financial
assets' in the consolidated income statement. At 30 June 2024, stock of
property of €423,457 thousand (31 December 2023: €445,009 thousand) is
carried at net realisable value.
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.
The carrying amount of the stock of property is analysed in the tables below:
30 June 31 December
2024
2023
€000 €000
Net book value at 1 January 826,115 1,041,032
Additions 14,189 19,531
Disposals (49,084) (170,595)
Net transfers to investment properties (2,547) -
Net transfer to property and equipment - (17,827)
Impairment for the period/year (Note 13) (24,760) (46,026)
Net book value at 30 June/31 December 763,913 826,115
Analysis by type and country Cyprus Greece Total
30 June 2024 €000 €000 €000
Residential properties 47,850 5,748 53,598
Offices and other commercial properties 86,973 6,953 93,926
Manufacturing and industrial properties 19,206 6,536 25,742
Hotels 13,245 339 13,584
Land (fields and plots) 573,975 3,088 577,063
Total 741,249 22,664 763,913
31 December 2023
Residential properties 47,841 8,091 55,932
Offices and other commercial properties 91,114 9,978 101,092
Manufacturing and industrial properties 23,373 9,263 32,636
Hotels 17,345 437 17,782
Land (fields and plots) 614,990 3,683 618,673
Total 794,663 31,452 826,115
21. Prepayments, accrued income and other assets
30 June 31 December 2023
2024
€000 €000
Financial assets
Debtors 65,497 34,662
Insurance contract assets - 1,255
Receivable relating to tax 2,868 3,263
Deferred purchase payment consideration 251,244 243,013
Other assets 96,895 106,051
416,504 388,244
Non‑financial assets
Insurance and reinsurance contract assets 59,136 56,239
Current tax receivable 61,839 73,943
Prepaid expenses 1,363 867
Retirement benefit plan assets 1,880 669
Other assets 55,570 64,957
179,788 196,675
596,292 584,919
Within other non‑financial assets an amount of €18,550 thousand as at 30
June 2024 (31 December 2023: €18,550 thousand) relates to contract assets
from contracts with customers.
On the completion date of the sale of Project Helix 2 (the 'Transaction') in
June 2021, the Group 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'). The remaining
amount outstanding is payable in two instalments up to December 2025 and each
instalment carries interest up to each payment date. An amount of €8,214
thousand, which represents the interest income on the DPP has been recognised
in the Consolidated Income Statement for the six months ended 30 June 2024 (30
June 2023: €9,098 thousand) within 'Interest income ‑ Financial assets at
amortised cost ‑ Other financial assets' (Note 8). There are no other
conditions attached. The DPP is classified as Stage 1 as at 30 June 2024 and
31 December 2023.
During the six months ended 30 June 2024, credit losses of €172 thousand (30
June 2023: €6,110 thousand) were recognised in relation to other financial
assets.
22. 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 2023
2024
€000 €000
Targeted Longer‑Term Refinancing Operations (TLTRO IΙI) -
2,043,868
As at 30 June 2024, there was no outstanding ECB funding (31 December 2023:
€2 billion) as amount outstanding as at 31 December 2023 was fully repaid
during the six months ended 30 June 2024.
Details on encumbered assets are disclosed in Note 34.
23. Customer deposits
30 June 31 December 2023
2024
€000 €000
By type of deposit
Demand 10,297,855
10,167,622
Savings 2,995,776
2,979,275
Time or notice 6,429,061
6,190,018
19,722,692
19,336,915
By geographical area
Cyprus 15,798,935
15,355,445
Greece 1,509,033
1,473,491
United Kingdom
415,095 386,057
United States
146,429 166,673
Germany
72,921 77,288
Romania
24,853 29,729
Russia
98,499 128,489
Ukraine
197,371 183,316
Belarus
2,766 3,762
Israel
174,657 195,580
Other countries 1,282,133
1,337,085
19,722,692
19,336,915
Deposits by geographical area are based on the country of residence of the
Ultimate Beneficial Owner.
30 June 31 December 2023
2024
€000 €000
By currency
Euro 17,921,252
17,514,400
US Dollar 1,435,204
1,448,753
British Pound
301,687 300,867
Russian Rouble
1,393 1,322
Swiss Franc
9,321 8,947
Other currencies
53,835 62,626
19,722,692
19,336,915
30 June 31 December 2023
2024
(restated)
€000 €000
By business line
Corporate 2,180,492
2,086,753
IBU & International corporate
‑ IBU 3,742,302
3,779,571
‑ International corporate
137,970 121,454
SMEs 1,073,039
1,019,245
Retail 12,398,577
12,216,209
Restructuring
- corporate
7,736 12,565
- SMEs
3,550 5,954
- retail other
7,587 9,428
Recoveries
- corporate
1,065 1,098
Institutional Wealth Management and Custody
170,374 84,638
19,722,692
19,336,915
24. Debt securities in issue and Subordinated liabilities
30 June 2024 31 December 2023
Nominal value Carrying value Nominal value Carrying value
Subordinated liabilities Contractual interest rate Issuer €000 €000 €000 €000
Subordinated Tier 2 Capital Note ‑ April 2021 6.625% up to BOCH 300,000 313,009 300,000 306,787
23 October 2026
Debt securities in issue
Senior Preferred Notes ‑ June 2021 2.50% up to BOC PCL 300,000 296,515 300,000 303,466
24 June 2026
Senior Preferred 7.375% up to BOC PCL 350,000 374,062 350,000 368,166
Notes ‑ July 2023
25 July 2027
Green Senior Preferred 5% up to BOC PCL 300,000 300,213 - -
Notes ‑ May 2024
2 May 2028
950,000 970,790 650,000 671,632
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 ‑ 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 arrear 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 2024 and 31
December 2023 is disclosed in Note 18.
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 arrear 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.
Senior Preferred Notes ‑ July 2023
In July 2023, BOC PLC issued a €350 million senior preferred note under the
EMTN Programme. The note was priced at par with a fixed coupon of 7.375% per
annum, payable annually in arrear and resettable on 25 July 2027. The note
matures on 25 July 2028. BOC PCL has the option to redeem the note early on 25
July 2027, 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.
Green Senior Preferred Notes ‑ May 2024
In May 2024, BOC PLC issued a €300 million green senior preferred note under
the EMTN Programme. The note was priced at par with a fixed coupon of 5.00%
per annum, payable annually in arrear and resettable on 2 May 2028. The note
matures on 2 May 2029. BOC PCL has the option to redeem the note early on 2
May 2028, 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 2024 and 31
December 2023 is disclosed in Note 18.
25. Accruals, deferred income, other liabilities and other provisions
30 June 31 December 2023
2024
€000 €000
Income tax payable and related provisions 98,393 66,479
Special defence contribution payable 562 1,308
Retirement benefit plan liabilities - 565
Provisions for financial guarantees and commitments 18,026 19,192
Liabilities arising from non‑participating investment contracts 106,892 87,756
Accrued expenses and other provisions 66,924 83,738
Deferred income 20,329 19,569
Items in the course of settlement 74,143 69,519
Lease liabilities 25,406 30,217
Other liabilities 152,609 90,922
563,284 469,265
Other liabilities include an amount of €10,385 thousand (31 December 2023:
€10,385 thousand) relating to the guarantee fee for the conversion of DTA
into tax credits (Note 14) and an amount of €23,738 thousand (31 December
2023: €19,354 thousand) relating to card processing transactions. As at 30
June 2024, other liabilities include an amount of €18,880 thousand (31
December 2023: €1,965 thousand) which relates to dividends declared in May
2024 in respect of earnings for the year ended 31 December 2023 and in May
2023 in respect of earnings for the year ended 31 December 2022.
26. Share capital
30 June 2024 31 December 2023
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 446,200 44,620 446,200 44,620
Share buyback ‑ repurchase and cancellation of shares (1,388) (139) - -
30 June/31 December 444,812 44,481 446,200 44,620
Authorised and issued share capital
All issued ordinary shares carry the same rights.
The authorised capital of the Company is €1,000,000 thousand divided into
10,000,000 thousand ordinary shares of a nominal value €0.10 each. There
were no changes to the authorised share capital during the six months ended 30
June 2024 and the year ended 31 December 2023.
As of 30 June 2024, the Company had 444,812 thousand issued shares (31
December 2023: 446,200 thousand issued shares) of a nominal value of €0.10
each. During the six months ended 30 June 2024, the number of shares issued
decreased by 1,388 thousand shares and the value of the share capital
decreased by €139 thousand, as shares were repurchased and cancelled under
the share repurchase program. As a result, an equivalent amount of €139
thousand has been transferred to the Company's capital redemption reserve by
30 June 2024.
Share premium reserve
There were no changes to the share premium reserve during the six months ended
30 June 2024 and the year ended 31 December 2023.
Share repurchase programme (Buyback)
In April 2024, the Group launched its inaugural programme to buy back ordinary
shares of the Company for an aggregate consideration of up to €25 million
(the 'Programme'). The purpose of the Programme is to reduce the Company's
share capital and therefore the shares purchased under the Programme are
cancelled. The Programme takes place on both the London Stock Exchange and the
Cyprus Stock Exchange and may continue until 14 March 2025 subject to market
conditions, the ongoing capital requirements of the business and early
termination rights customary for a transaction of this nature. The
implementation of the share buyback programme complies with the Company's
general authority to repurchase the Company's ordinary shares as approved by
the shareholders at the Company's Annual General Meeting on 26 May 2023, which
has been renewed at the Annual General Meeting on 17 May 2024. The maximum
number of shares that may be repurchased under the ECB approval is 1.6% of the
total outstanding shares as at 31 December 2023 (i.e. up to 7,343,249 shares).
During the six months ended 30 June 2024 1,497 thousand shares were
repurchased at a total cost of €6,231 thousand of which 1,388 thousand
shares had been cancelled by 30 June 2024.
Capital redemption reserve
The capital redemption reserve is a legal reserve arising as a result of the
acquisition and cancellation of the Company's ordinary shares under the
buyback programme announced in April 2024, and represents transfers from share
capital, retained earnings and other reserves required under applicable law.
The capital redemption reserve is not distributable. As at 30 June 2024, the
capital redemption reserve amounted to €139 thousand further to the buyback
and the cancellation of 1,388 thousand of Company's shares.
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 the Company and 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 2024, held a total
of 142 thousand ordinary shares of the Company of a nominal value of €0.10
each (31 December 2023 and 30 June 2023: 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 2023 and 30 June 2023:
€21,463 thousand). In addition, 109 thousand ordinary shares repurchased
under the buyback programme at a total cost (including transaction costs) of
€441 thousand remain as treasury shares as at 30 June 2024.
Other equity instruments
30 June 31 December 2023
2024
€000 €000
2023 Reset Perpetual Additional Tier 1 Capital Securities 220,000 220,000
220,000 220,000
In June 2023, the Company issued €220,000 thousand Fixed Rate Reset
Perpetual Additional Tier 1 Capital Securities (the 'Capital Securities'). The
Capital Securities constitute unsecured and subordinated obligations of the
Company, are perpetual and issued at par. They carry an initial coupon of
11.875% per annum, payable semi‑annually, and resettable on 21 December 2028
and every five years thereafter. 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. The Capital
Securities are perpetual and have no fixed date of redemption, but can be
redeemed (in whole but not in part) at the Company's option from, and
including, 21 June 2028 to, and including, 21 December 2028 and on each
interest payment date thereafter, subject to applicable regulatory consents
and the relevant conditions to redemption. The Capital Securities are listed
on the Luxembourg Stock Exchange's Euro Multilateral Trading Facility (MTF)
market.
Transaction costs of €3,530 thousand in relation to the issuance of the
Capital Securities were recorded directly in equity during the six months
ended 30 June 2023.
In addition, in June 2023 the Company invited the holders of its outstanding
€220,000 thousand 2018 Reset Perpetual Additional Tier 1 Capital Securities
to tender for cash purchase by the Company at a price equal to 103% of their
principal amount. As a result of the tender offer €204,483 thousand in
aggregate nominal amount were purchased and cancelled by the Company as at 30
June 2023 and a cost of €6,554 thousand was recorded directly in equity in
June 2023. In July 2023, the Company purchased in the open market
approximately €7,000 thousand of the outstanding nominal amount of such
capital securities. In November 2023, the Board of Directors resolved to
exercise the option to redeem the remaining nominal amount outstanding of the
2018 Capital Securities in December 2023.
During the six months ended 30 June 2024, a coupon payment for the total
amount of €13,063 thousand (30 June 2023: €13,750 thousand) was made to
the holders of the AT1 instruments and has been recognised in retained
earnings.
27. Distributions
Based on the 2023 SREP decision, effective from 1 January 2024, any equity
dividend distribution is subject to regulatory approval, both for the Company
and BOC PCL. The requirement for approval does not apply if the distributions
are made via the issuance of new ordinary shares to the shareholders which are
eligible as Common Equity Tier 1 Capital nor to the payment of coupons on any
AT1 capital instruments issued by the Company or BOC PCL.
In March 2024, the Company obtained the approval of the European Central Bank
to pay a cash dividend and to conduct a share buyback (together the
'Distribution') in respect of earnings for the year ended 31 December 2023.
The Distribution amounted to €137 million in total, comprising a cash
dividend of €112 million and a share buyback of up to €25 million (Note
26-Share repurchase programme (Buyback)). The AGM, on 17 May 2024, approved a
final cash dividend of €0.25 per ordinary share in respect of earnings for
the year ended 31 December 2023.
In April 2023, the Company obtained the approval of the European Central Bank
to pay a dividend in respect of earnings for the year ended 31 December 2022.
The AGM, on 26 May 2023, declared a final cash dividend of €0.05 per
ordinary share in respect of earnings for the year ended 31 December 2022. The
dividend amounted to €22,310 thousand in total.
28. Provisions for pending litigations, 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 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, reporting
and information security requirements 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.
Apart from what is described below, the Group considers that none of these
matters are material, either individually or in aggregate. Nevertheless,
provisions have been made where: (a) there is a present obligation (legal or
constructive) arising from past events, (b) the settlement of the obligation
is expected to result in an outflow of resources embodying economic benefits,
and (c) a reliable estimate of the amount of the obligation can be made. 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 except to the
extent that doing so would be prejudicial. Any provision recognised does not
constitute an admission of wrongdoing or legal liability. There are also
situations where the Group may enter into a settlement agreement. This may
occur only if such settlement is in the Group'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. While the outcome of these matters is inherently uncertain,
management believes that, based on the information available to it,
appropriate provisions have been made in respect of legal proceedings,
regulatory and other matters as at 30 June 2024 and hence it is not believed
that such matters, when concluded, will have a material impact upon the
financial position of the Group.
28.1 Pending litigations and claims
Investigations and litigations 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, four capital securities cases have been adjudicated in favour of BOC
PCL and five cases have been adjudicated against BOC PCL at Areios Pagos
(Supreme Court of Greece). None of the cases won at the Court of Appeal have
been reversed by the Supreme Court. 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. 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 2024. The five cases that BOC PCL has lost will
not be retried and are therefore deemed as concluded.
In Cyprus, twenty‑five judgments have been issued so far with regards to BOC
PCL capital securities. Seventeen of the said judgments have been issued in
favour of BOC PCL (dismissing the plaintiffs' claims) and eight of them
against BOC PCL. BOC PCL has filed appeals with regards to five of the cases
where the judgment was issued against it. In nine of the seventeen 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.
The Court of Appeal has issued its first judgment in regards to BOC PCL
capital securities and it is in favour of BOC PCL. The Court of Appeal
rejected the appeal filed by the Applicant against a decision issued by the
District Court in favour of BOC PCL. In its ruling, the Court of Appeal found
that the District Court had been correct in its assessment of the facts,
including the fact that MiFid Law (Law 144(I)/2007) did not apply in this
instance. The Applicant may file an appeal to the Supreme Court.
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 five cases with regards to bail‑in related litigation (on
failure to follow instructions). The plaintiffs have filed appeals with
respect to two of the said judgments. BOC PCL lost four cases with regards to
bail‑in related litigation (on failure to follow instructions) and has filed
appeals with respect to three of the said judgements.
BOC PCL also won fifteen bail‑in decree related cases. In summary, the court
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 only four appeals have been
filed with respect to the above‑mentioned judgments. One of the said appeals
relates to six cases that have been jointly litigated. BOC PCL lost one Laiki
Bail‑in decree case but it is the opinion of legal advisors of BOC PCL that
this case is an one‑off case which turned on its own particular facts. An
appeal by BOC PCL has been filed with respect to this case.
BOC PCL won two and lost three bail‑in wrongful application related cases.
The two appeals that have been filed by BOC PCL are still pending with regards
to this matter. With regards to the cases that BOC PCL won, the plaintiffs
have not filed an appeal.
Provision has been made based on management's best estimate of probable
outflows for depositors related litigation.
Shareholders
A number of actions for damages have been 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. 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. BOC PCL contests 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 the Group.
Employment litigation
Former employees of the Group have instituted a number of employment claims
including unfair dismissals. The Group does not consider that the pending
cases in relation to employment will have a material impact on its financial
position. A judgment has been issued in one of the unfair dismissal cases and
BOC PCL lost. BOC PCL has filed an appeal with respect to this case and
similarly, the plaintiff has also filed an appeal. The facts of this case are
unique and it is not expected to affect the rest of the cases where unfair
dismissal is claimed.
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.
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 (including cases where it is alleged that BOC PCL
misled borrowers and/or misrepresented matters, in violation of applicable
laws for matters such as foreign currency lending and advancing/misselling
loans for the purchase of property in Cyprus by UK nationals). 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.
28.2 Regulatory matters
The Hellenic Capital Market Commission (HCMC) Investigation
The HCMC has been 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,
CECS and rights issue prospectuses (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.
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 and the
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 October 2021, the Administrative Court ruled in favour of BOC PCL in
relation to the fine of €160 thousand on the ground of flawed constitution
of the CySEC Board. An appeal to this judgment was filed. In March 2024 the
appeal was rejected. With the abovementioned rulings, the said fine has been
cancelled. In May 2022, the Administrative Court (under a different bench)
ruled against BOC PCL in relation to the fine of €950 thousand and found
that the constitution of the CySEC Board was not flawed. BOC PCL filed an
appeal and in March 2024 the appeal overturned the ruling of the
Administrative Court on the grounds that the constitution of the CySEC Board
was flawed and in this case there was a violation of the objective aspect of
the principle of impartiality. With the abovementioned ruling, the said fine
has been cancelled. In May 2023, the Administrative Court ruled in favour of
BOC PCL in relation to the fine of €70 thousand on the ground of flawed
constitution of the CySEC Board. CySEC filed an appeal but in May 2024 it
decided to withdraw the said appeal, following the ruling of the appeal court
in the abovementioned cases.
As at 30 June 2024 and 31 December 2023 there were no pending CySEC
investigations against BOC PCL.
Central Bank of Cyprus (CBC)
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. In 2021, CBC
decided to re‑examine this matter and to re‑open the investigation. This
matter is still pending as at the period end.
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. 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 and imposed a fine of €18 million upon BOC PCL.
BOC PCL filed a recourse against the decision and the fine. 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. Following the decision of the appeal court in the CySEC case
mentioned above, the Attorney General acting on behalf of CPC withdrew his
appeal. In July 2024, the Group was informed that the CPC had resolved to
refrain from re‑opening the investigation and the matter is now considered
closed.
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.
The Group is not aware of any further developments in this case.
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. In April 2022, CPC informed BOC PCL of the initiation of an
investigation with respect to this matter but for which no formulation of a
Statement of Objections has been received to date which would indicate the
initiation of formal proceedings.
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. BOC
PCL has filed a recourse before the Administrative Court against this
decision. The Administrative Court has issued its judgment in 2022 in favour
of BOC PCL, and the CPS decision along with the fine have been cancelled. An
appeal has been submitted by CPS with regards to this judgment, which is still
pending as at 30 June 2024.
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 30 June 2024.
In April 2021, the director of CPS 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 requiring 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 30 June 2024.
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 wrong commercial practice of BOC PCL
in promoting a product.
There have been no further developments on the aforementioned investigations
since.
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 requiring 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 30 June 2024.
The Consumer Protection Law 2021 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 Consumer Protection Law 2021 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.
28.3 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 litigations, claims, regulatory and other matters
described above and provided in the tables below do not include insurance
claims arising in the ordinary course of business of the Group's insurance
subsidiaries as these are included in 'Insurance contract liabilities'.
28.4 Provisions for pending litigations, claims, regulatory and other
matters
Pending litigations and claims Regulatory matters Other matters Total
(Note 28.1)
(Note 28.2)
(Note 28.3)
2024 €000 €000 €000 €000
1 January 60,968 14,741 55,794 131,503
Net increase in provisions including unwinding of discount 12,686 - 7,871 20,557
Utilisation of provisions (20,190) (29) (5,598) (25,817)
Release of provisions (5,797) (9,000) - (14,797)
Foreign exchange adjustments - - 24
24
30 June 47,667 5,736 58,067 111,470
Pending litigations and claims Regulatory matters Other Total
(Note 28.1)
(Note 28.2)
matters
(Note 28.3)
2023 €000 €000 €000 €000
1 January 63,947 14,918 48,742 127,607
Net increase in provisions including unwinding of discount 14,682 - 4,095 18,777
Utilisation of provisions (14,289) - - (14,289)
Release of provisions (4,629) - - (4,629)
Transfer - - 767 767
Foreign exchange adjustments - - 34
34
30 June 59,711 14,952 53,604 128,267
Provisions for pending litigations, claims, regulatory and other matters
recorded in the consolidated income statement during the six months ended 30
June 2024 amounted to €2,562 thousand (30 June 2023: €14,148 thousand),
include a credit amount of €3,198 thousand representing an amount recovered
on the conclusion of open examinations of governmental bodies and amounts from
litigations settled, directly recognised in the consolidated income statement
(30 June 2023: nil).
Some information required by 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.
29. Contingent liabilities and commitments
As part of the services provided to its customers, the Group enters into
various irrevocable commitments and contingent liabilities. These consist of
financial guarantees, letters of credit and other undrawn commitments to lend.
Even though these obligations may not be recognised on the consolidated
balance sheet, they do entail credit risk and are therefore part of the
overall credit risk exposure of the Group (Note 32.1).
29.1 Capital commitments
Capital commitments for the acquisition of property, equipment and intangible
assets as at 30 June 2024 amount to €18,824 thousand (31 December 2023:
€20,139 thousand).
29.2. Contingent liabilities
The Group, as part of the 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
(Note 28.3).
30. Cash and cash equivalents
Cash and cash equivalents comprise:
30 June 31 December 2023
2024
€000 €000
Cash and non‑obligatory balances with central banks 7,167,795 9,555,323
Loans and advances to banks with original maturity less than three months 314,638 282,998
7,482,433 9,838,321
Analysis of cash and balances with central banks and loans and advances to
banks
30 June 31 December 2023
2024
€000 €000
Cash and non‑obligatory balances with central banks 7,167,795 9,555,323
Obligatory balances with central banks 119,426 59,179
Total cash and balances with central banks 7,287,221 9,614,502
Loans and advances to banks with original maturity less than three months 314,638 282,998
Restricted loans and advances to banks 69,474 101,804
Total loans and advances to banks 384,112 384,802
Restricted loans and advances to banks include collaterals under derivative
transactions of €16,017 thousand (31 December 2023: €13,970 thousand)
which are not immediately available for use by the Group, but are released
once the transactions are terminated. As at 30 June 2024, no cash collaterals
were placed for the reverse repurchase agreements (31 December 2023: €29,524
thousand).
The average balance of obligatory deposits that should be maintained with
central banks was set at €187,854 thousand for the period of June 2024 to
July 2024 (31 December 2023: €186,794 thousand for the period December 2023
to January 2024).
31. Analysis of assets and liabilities by expected maturity
30 June 2024 31 December 2023
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 7,167,795 119,426 7,287,221 9,555,323 59,179 9,614,502
Loans and advances to banks 314,638 69,474 384,112 282,998 101,804 384,802
Derivative financial assets 5,909 61,203 67,112 859 50,196 51,055
Investments 592,120 3,366,634 3,958,754 736,664 2,958,745 3,695,409
Reverse repurchase agreements - 1,014,858 1,014,858 - 403,199 403,199
Loans and advances to customers 1,144,117 8,940,850 10,084,967 1,192,800 8,628,988 9,821,788
Life insurance business assets attributable to policyholders 30,754 691,828 722,582 27,632 621,580 649,212
Prepayments, accrued income and other assets 356,901 239,391 596,292 350,152 234,767 584,919
Stock of property 185,670 578,243 763,913 191,818 634,297 826,115
Investment properties 12,661 42,953 55,614 10,605 51,500 62,105
Deferred tax assets 37,909 164,808 202,717 37,909 163,359 201,268
Property, equipment and intangible assets - 328,028 328,028 - 334,203 334,203
9,848,474 15,617,696 25,466,170 12,386,760 14,241,817 26,628,577
Liabilities
Deposits by banks 159,750 245,688 405,438 202,850 268,706 471,556
Funding from central banks - - - 2,043,868 - 2,043,868
Derivative financial liabilities 736 21,230 21,966 14,079 3,901 17,980
Customer deposits 6,133,559 13,589,133 19,722,692 5,984,800 13,352,115 19,336,915
Changes in the fair value of hedged items in portfolio hedges of interest rate - (7,261) (7,261) - - -
risk
Insurance liabilities 89,394 612,802 702,196 88,616 569,808 658,424
Accruals, deferred income and other liabilities and provisions for pending 465,736 209,018 674,754 371,498 229,270 600,768
litigations, claims, regulatory and other matters
Debt securities in issue and subordinated liabilities - 1,283,799 1,283,799 - 978,419 978,419
Deferred tax liabilities 1,622 31,312 32,934 1,622 30,684 32,306
6,850,797 15,985,721 22,836,518 8,707,333 15,432,903 24,140,236
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.
32. 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, develops and sets credit risk policies,
guidelines and approval limits which are necessary to manage and control or
mitigate the credit and concentration risk of the Group. The Credit Risk
Control and Monitoring department monitors compliance with credit risk
policies applicable to each business line and the quality of the Group's loans
and advances portfolio. 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 complemented by the methods/models used for the
assessment of the customers' creditworthiness (credit rating and credit
scoring systems).
The loan portfolio is analysed on the basis of the customers'
creditworthiness, their economic sector of activity and geographical
concentration.
The credit risk exposure of the Group is diversified across the various
industry sectors of the economy. Credit Risk Management department determines
concentration limits for each industry sector, sets prohibited sectors and
defines sectors which may require prior approval before credit applications
are submitted.
The Market & Liquidity Risk department assesses the credit risk relating
to exposures to Credit Institutions and Governments and other debt securities
as well as reverse repurchase agreements.
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.
32.1 Maximum exposure to credit risk and collateral and other credit
enhancements
Loans and advances to customers
The Credit Risk Management department determines the effective credit
standards required for the granting of new loans to customers. The assessment
of financial position/repayment ability is the determining factor when
assessing the granting of a new loan. The Group obtains collaterals which are
used for risk mitigation.
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 contracts of sale 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. Reverse repurchase agreements are generally secured
by bonds.
In accordance with the terms of the reverse repurchase agreements of a
carrying value of €1,015 million (31 December 2023: €403 million) that are
held by the Group as at 30 June 2024, the Group accepts collateral that it is
permitted to sell. At 30 June 2024, the total fair value of the collateral
received was €987 million (31 December 2023: €426 million), none of which
had been resold or repledged. As at 30 June 2024, cash collateral of €21
million has been received from the counterparties (31 December 2023: cash
collateral of €30 million was placed with the counterparties). The effective
yield of the reverse repurchase agreements is approximately 3.0% p.a. and the
average duration is estimated at approximately 2.5 years.
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 2024, the majority of
derivative exposures are covered by ISDA netting arrangements. An analysis of
derivative asset and liability exposures is available in Note 17. Information
about the Group's collaterals under derivative transactions is provided in
Note 30.
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.
Maximum Exposure to credit risk
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 2023
2024
€000 €000
Balances with central banks 7,201,357 9,521,961
Loans and advances to banks (Note 30) 384,112 384,802
Other non‑equity securities at FVPL (Note 16) 3,754 3,611
Debt securities classified at amortised cost and FVOCI (Note 16) 3,828,083 3,547,782
Reverse repurchase agreements 1,014,858 403,199
Derivative financial instruments (Note 17) 67,112 51,055
Loans and advances to customers (Note 19) 10,084,967 9,821,788
Debtors (Note 21) 65,497 34,662
Insurance and reinsurance contract assets (Note 21) 59,136 57,494
Deferred purchase payment consideration (Note 21) 251,244 243,013
Other assets (Note 21) 99,763 109,314
On‑balance sheet total 23,059,883 24,178,681
Contingent liabilities
Acceptances and endorsements 2,549 2,580
Guarantees 693,164 703,044
Commitments
Documentary credits 10,973 10,251
Undrawn formal stand‑by facilities, credit lines and other commitments to 1,942,980 1,948,482
lend
Off‑balance sheet total 2,649,666 2,664,357
25,709,549 26,843,038
32.2 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, as well as the geographical concentration, is presented
below.
The geographical analysis, for credit risk concentration purposes, is based on
the Group's Country Risk Policy which is followed for monitoring the Group's
exposures. Market and Liquidity Risk department 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.
30 June 2024 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000
Trade 913,816 8,706 1 - 15,313 937,836
Manufacturing 292,882 43,367 148 - 37,100 373,497
Hotels and catering 998,397 35,337 37,644 - 39,351 1,110,729
Construction 462,985 8,612 4 - 314 471,915
Real estate 840,164 109,379 1,899 - 34,276 985,718
Private individuals 4,609,039 8,997 41,218 10,879 45,815 4,715,948
Professional and other services 578,374 578 5,231 6 50,992 635,181
Shipping 38,430 4 - - 233,062 271,496
Other sectors 561,499 13,773 1 5 45,550 620,828
9,295,586 228,753 86,146 10,890 501,773 10,123,148
30 June 2024 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000
Corporate 3,427,941 50,644 151 - 169 3,478,905
IBU & International corporate
‑ IBU 90,195 1,439 5,673 6,974 17,702 121,983
‑ International corporate 152,727 172,006 44,430 - 451,116 820,279
SMEs 970,147 477 1,144 - 2,324 974,092
Retail
‑ housing 3,420,183 2,361 23,949 82 16,320 3,462,895
‑ consumer, credit cards and other 1,001,927 1,754 452 - 5,411 1,009,544
Restructuring
‑ corporate 58,763 - 616 32 308 59,719
‑ SMEs 24,504 - 166 - - 24,670
‑ retail housing 51,450 - 1,140 123 682 53,395
‑ retail other 17,254 2 4 - 28 17,288
Recoveries
‑ corporate 3,245 - 124 157 280 3,806
‑ SMEs 10,173 1 969 1,403 1,114 13,660
‑ retail housing 41,667 51 6,639 1,825 6,016 56,198
‑ retail other 25,410 18 689 294 303 26,714
9,295,586 228,753 86,146 10,890 501,773 10,123,148
31 December 2023 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000
Trade 868,039 277 40 - 15,340 883,696
Manufacturing 287,524 43,971 192 - 31,194 362,881
Hotels and catering 928,910 29,454 36,704 - 39,368 1,034,436
Construction 486,622 8,332 14 - 331 495,299
Real estate 871,544 108,635 1,863 - 51,349 1,033,391
Private individuals 4,543,985 9,680 56,074 12,075 48,080 4,669,894
Professional and other services 535,994 572 5,242 352 54,846 597,006
Shipping 20,622 15 - - 222,422 243,059
Other sectors 512,666 - - 2 30,184 542,852
9,055,906 200,936 100,129 12,429 493,114 9,862,514
31 December 2023 (restated) Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000
Corporate 3,326,556 30,487 193 324 185 3,357,745
IBU & International corporate
‑ IBU 87,127 1,688 6,544 6,901 18,618 120,878
‑ International corporate 115,212 164,103 43,401 - 439,512 762,228
SMEs 945,018 482 1,177 - 2,316 948,993
Retail
‑ housing 3,369,111 2,320 27,728 86 17,634 3,416,879
‑ consumer, credit cards and other 956,834 1,775 480 - 4,953 964,042
Restructuring
‑ corporate 48,440 - 611 - - 49,051
‑ SMEs 33,212 - 261 532 61 34,066
‑ retail housing 57,685 - 2,468 122 212 60,487
‑ retail other 19,164 22 2 - 23 19,211
Recoveries
‑ corporate 6,079 - 182 173 911 7,345
‑ SMEs 13,419 1 1,173 1,623 1,183 17,399
‑ retail housing 50,927 50 14,718 2,399 7,231 75,325
‑ retail other 27,122 8 1,191 269 275 28,865
9,055,906 200,936 100,129 12,429 493,114 9,862,514
The loans and advances to customers include lending exposures in Cyprus with
collaterals in Greece with a carrying value as at 30 June 2024 of €158,574
thousand (31 December 2023: €128,705 thousand).
The loans and advances to customers reported within 'Other countries' as at 30
June 2024 include exposures of €1,3 million in Ukraine (31 December 2023:
€1,7 million) and €4,6 million in Israel (31 December 2023: €4,9
million).
32.3 Analysis of loans and advances to customers
The movement of the gross loans and advances to customers at amortised cost by
staging is presented in the tables below:
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2024 €000 €000 €000 €000 €000
1 January 8,275,589 1,161,271 326,883 98,771 9,862,514
Transfers to stage 1 446,343 (446,343) - - -
Transfers to stage 2 (219,562) 249,275 (29,713) - -
Transfers to stage 3 (6,976) (499) 7,475 - -
Foreign exchange and other adjustments - - -
4 4
Write offs (306) (431) (30,409) (3,555) (34,701)
Interest accrued and other adjustments 222,795 33,990 21,935 2,528 281,248
New loans originated or purchased and drawdowns of existing facilities 1,102,448 57,803 1,477 11,344 1,173,072
Loans derecognised or repaid (excluding write offs) (945,783) (130,942) (43,772) (40,698) (1,161,195)
Changes to contractual cash flows due to modifications 1,880 2,206
191 207 (72)
30 June 8,876,428 924,315 254,087 68,318 10,123,148
Stage 1 Stage 2 Stage 3 POCI Total
31 December 2023 €000 €000 €000 €000 €000
1 January 7,867,256 1,565,603 371,018 113,458 9,917,335
Transfers to stage 1 786,990 (785,026) (1,964) - -
Transfers to stage 2 (514,415) 546,249 (31,834) - -
Transfers to stage 3 (38,959) (83,436) 122,395 - -
Foreign exchange and other adjustments - - -
10 10
Write offs (594) (588) (79,286) (5,282) (85,750)
Interest accrued and other adjustments 388,970 39,662 47,804 8,001 484,437
New loans originated or purchased and drawdowns of existing facilities 1,827,530 89,118 8,125 1,847 1,926,620
Loans derecognised or repaid (excluding write offs) (2,038,389) (210,331) (107,490) (22,753) (2,378,963)
Changes to contractual cash flows due to modifications (2,800) (1,895) (149) (4,824)
20
Acquisition of Velocity 2 portfolio - - - 3,649 3,649
31 December 8,275,589 1,161,271 326,883 98,771 9,862,514
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'.
The analysis of gross loans and advances to customers at amortised cost by
staging and by business line concentration is included in Note 19.
32.4 Credit losses of loans and advances to customers
The movement in ECL of loans and advances to customers is as follows:
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2024 €000 €000 €000 €000 €000
1 January 24,205 30,257 103,996 20,995 179,453
Transfers to stage 1 9,120 (9,120) - - -
Transfers to stage 2 (634) 3,224 (2,590) - -
Transfers to stage 3 (101) (602) - -
703
Impact on transfer between stages during the period* (6,726) 3,820 3,840 (133)
801
Foreign exchange and other adjustments - -
2 (22) (20)
Write offs (306) (431) (30,409) (3,555) (34,701)
Interest (provided) not recognised in the income statement - - 1,989 2,550
561
New loans originated or purchased* 1,593 - - 1,843
250
Loans derecognised or repaid (excluding write offs)* (3,126) (559) (6,576) (320) (10,581)
Write offs* 6,022 6,727
235 285 185
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL (12,890) 11,617 27,169 26,805
calculations* 909
Changes to contractual cash flows due to modifications not resulting in (119)
derecognition* 87 181 (10) 139
30 June 11,251 38,580 104,303 18,882 173,016
Individually assessed 3,127 14,379 45,446 12,864 75,816
Collectively assessed 8,124 24,201 58,857 6,018 97,200
11,251 38,580 104,303 18,882 173,016
* Individual components of the 'Impairment net of reversals on loans and
advances to customers' (Note 13).
The impairment loss for the six months ended 30 June 2024 was driven mainly
from the calibration of the provisioning models, the removal of prior year
overlays, as well as the introduction of a floor to LGD during the first half
of 2024, as disclosed in Note 6.2 under section 'Calibration of IFRS 9 models
and removal of overlays in relation to economic conditions'.
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2023 €000 €000 €000 €000 €000
1 January 22,288 27,041 113,573 15,540 178,442
Transfers to stage 1 8,441 (8,441) - - -
Transfers to stage 2 (933) 4,583 (3,650) - -
Transfers to stage 3 (455) - -
(62) 517
Impact on transfer between stages during the period* (4,696) 2,670 2,572 544
(2)
Foreign exchange and other adjustments - -
2 10 12
Write offs (188) (310) (17,728) (2,958) (21,184)
Interest (provided) not recognised in the income statement - - 1,653 2,117
464
New loans originated or purchased* 1,124 - - 1,128
4
Loans derecognised or repaid (excluding write offs)* (771) (159) (308) (241) (1,479)
Write offs* 3,171 4,208
170 244 623
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL (3,514) 8,466 24,083 5,005 34,040
calculations*
Changes to contractual cash flows due to modifications not resulting in (601) (176)
derecognition* 498 352 73
30 June 21,258 34,139 124,245 18,259 197,901
Individually assessed 8,928 11,882 58,998 11,640 91,448
Collectively assessed 12,330 22,257 65,247 6,619 106,453
21,258 34,139 124,245 18,259 197,901
* Individual components of the 'Impairment net of reversals on loans and
advances to customers' (Note 13).
The analysis of credit losses of loans and advances to customers by business
line is presented in the table below:
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2024 €000 €000 €000 €000 €000
Corporate 3,801 13,688 16,093 1,782 35,364
IBU & International corporate
‑ IBU
102 583 91 3 779
‑ International corporate 1,487 2,002 3,537
42 6
SMEs 1,028 2,959 3,068 7,185
130
Retail
‑ housing 2,807 12,892 4,848 21,091
544
‑ consumer, credit cards and other 1,828 4,881 4,883 12,403
811
Restructuring
‑ corporate 23,040 11,310 34,625
16 259
‑ SMEs 3,136 3,986
105 300 445
‑ retail housing 15,661 16,953
37 801 454
‑ retail other 8,225 8,982
40 215 502
Recoveries
‑ corporate - - 1,011 1,311
300
‑ SMEs - - 3,418 3,597
179
‑ retail housing - - 10,884 1,100 11,984
‑ retail other - - 9,903 1,316 11,219
11,251 38,580 104,303 18,882 173,016
Stage 1 Stage 2 Stage 3 POCI Total
31 December 2023 (restated) €000 €000 €000 €000 €000
Corporate 12,993 11,727 32,761 5,169 62,650
IBU & International corporate
‑ IBU 529
161 323 40 5
‑ International corporate 1,498 2,358
816 38 6
SMEs 2,424 2,403 1,200 6,330
303
Retail
‑ housing 3,098 6,435 3,804 13,823
486
‑ consumer, credit cards and other 3,693 5,665 4,969 1,164 15,491
Restructuring
‑ corporate 1,635 6,962 9,964 18,582
21
‑ SMEs 4,334 5,610
134 589 553
‑ retail housing 12,393 13,112
75 440 204
‑ retail other 7,060 7,881
108 224 489
Recoveries
‑ corporate - - 3,342 3,609
267
‑ SMEs - - 4,794 4,944
150
‑ retail housing - - 13,772 1,094 14,866
‑ retail other - - 8,527 1,141 9,668
24,205 30,257 103,996 20,995 179,453
During the six months ended 30 June 2024 the total non‑contractual
write‑offs recorded by the Group amounted to €25,103 thousand (30 June
2023: €11,582 thousand). The contractual amount outstanding on financial
assets that were written off during the six months ended 30 June 2024 and that
are still subject to enforcement activity is €187,830 thousand (31 December
2023: €566,451 thousand).
For the calculation of expected credit losses three scenarios were used; base,
adverse and favourable with 50%, 30% and 20% probability respectively both for
the six months ended 30 June 2024 and the year ended 31 December 2023.
For Stage 3 individually assessed 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 one 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.
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 with reference date 30 June 2024 and 31 December 2023.
The Group has applied sensitivity analysis to 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 2023
2024
€000 €000
Increase the adverse weight by 5% and decrease the favourable weight by 5%
2,050 1,297
Decrease the adverse weight by 5% and increase the favourable weight by 5%
(2,063) (1,629)
Increase the expected recovery period by 1 year
4,506 6,090
Decrease the expected recovery period by 1 year
(3,728) (7,863)
Increase the collateral realisation haircut by 5%
8,151 8,816
Decrease the collateral realisation haircut by 5%
(6,600) (9,495)
Increase in the PDs of stages 1 and 2 by 20%*
14,714 5,424
Decrease in the PDs of stages 1 and 2 by 20%*
(8,020) (5,880)
The increase/(decrease) on ECL, for loans and advances to customers at
amortised cost is presented per stage in the table below:
Stage 1 Stage 2 Stage 3 Total
30 June 2024 €000 €000 €000 €000
Increase the adverse weight by 5% and decrease the favourable weight by 5% 285 475 1,290 2,050
Decrease the adverse weight by 5% and increase the favourable weight by 5% (282) (491) (1,290) (2,063)
Increase the expected recovery period by 1 year 181 876 3,449 4,506
Decrease the expected recovery period by 1 year (137) (710) (2,881) (3,728)
Increase the collateral realisation haircut by 5% 307 1,442 6,402 8,151
Decrease the collateral realisation haircut by 5% (200) (1,040) (5,360) (6,600)
Increase in the PDs of stages 1 and 2 by 20%* 1,530 13,184 - 14,714
Decrease in the PDs of stages 1 and 2 by 20%* (1,940) (6,080) - (8,020)
Stage 1 Stage 2 Stage 3 Total
31 December 2023 €000 €000 €000 €000
Increase the adverse weight by 5% and decrease the favourable weight by 5% 295 204 798 1,297
Decrease the adverse weight by 5% and increase the favourable weight by 5% (235) (267) (1,127) (1,629)
Increase the expected recovery period by 1 year 727 1,201 4,162 6,090
Decrease the expected recovery period by 1 year (695) (1,121) (6,047) (7,863)
Increase the collateral realisation haircut by 5% 1,037 1,692 6,087 8,816
Decrease the collateral realisation haircut by 5% (900) (1,406) (7,189) (9,495)
Increase in the PDs of stages 1 and 2 by 20%* 2,624 2,800 - 5,424
Decrease in the PDs of stages 1 and 2 by 20%* (1,325) (4,555) - (5,880)
*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 2023 31 December 2023
2024
2024
(restated)
(restated)
€000 €000 €000 €000
Corporate 810 (681) 2,708 (2,521)
IBU & International corporate
‑ IBU 11 (5)
9 (6)
‑ International corporate 25 (15) (55)
65
SMEs 491 (417) (324)
365
Retail
‑ housing 1,080 (763) 1,128 (811)
‑ consumer, credit cards and other 291 (219) (286)
336
Restructuring
‑ corporate 1,706 (1,695) 1,029 (3,337)
‑ SMEs 258 (219) (300)
233
‑ retail housing 1,041 (872) (616)
694
‑ retail other 209 (186) (175)
196
Recoveries
‑ corporate 69 (42) (111)
123
‑ SMEs 462 (314) (319)
932
‑ retail housing 1,171 (775) (455)
693
‑ retail other 527 (397) (179)
305
8,151 (6,600) 8,816 (9,495)
32.5 Currency concentration of loans and advances to customers
The following table presents the currency concentration of the Group's loans
and advances to customers at amortised cost.
30 June 31 December
2024
2023
Gross loans at amortised cost €000 €000
Euro 9,558,764 9,336,828
US Dollar 471,825 409,555
British Pound 75,276 87,610
Russian Rouble - 324
Swiss Franc 16,556 27,358
Other currencies 727 839
10,123,148 9,862,514
32.6 Forbearance/Restructuring
Forborne/restructured loans are those loans that have been modified because
the borrower is considered 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/restructuring 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.
Forborne/restructured loans and advances are 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 forbearance/restructuring it must meet certain
criteria including the viability of the customer. 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 requirements.
Forbearance/restructuring activities may include measures that restructure the
borrower's business (operational restructuring) and/or measures that
restructure the borrower's financing (financial restructuring).
Forbearance/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:
i. 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.
ii. 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.
iii. 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:
i. Interest rate reduction: permanent or temporary reduction of interest
rate (fixed or variable) into a fair and sustainable rate.
ii. 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.
iii. Sale of Assets: Part of the restructuring can be the agreement with
the borrower for immediate or over time sale of assets (mainly real estate) to
reduce borrowing.
iv. Modification of existing terms of previous decisions: In the context
of the new sustainable restructuring solution, any terms of previous decisions
are assessed not feasible to be met are revisited.
v. 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.
vi. Hard Core Current Account Limit: In such cases a loan with a longer
repayment may be offered to replace/reduce the current account limit.
vii. 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.
viii. 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.
ix. 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.
x. Currency Conversion: This solution is provided to match the credit
facility currency and the borrower's income currency.
i. Additional Financing: This solution can be granted, simultaneously
with the restructuring of the existing credit facilities of the borrower, to
cover any financing gap.
ii. Partial or total write off: This solution corresponds to the Group
forfeiting the right to legally recover part or the whole of the amount of
debt outstanding by the borrower.
iii. Debt/equity swaps: debt restructuring that allows partial or full
repayment of the debt in exchange of obtaining an equivalent amount of equity
in the company (either private or limited) 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.
iv. 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 with an appropriate repayment schedule in line with the
borrower's reassessed repayment ability.
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.
Forbearance 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 do not necessarily indicate credit distress affecting payment
ability such that would require the facility to be classified as NPE.
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.
The below table presents the movement of the Group's forborne loans and
advances to customers measured at amortised cost.
30 June 31 December 2023
2024
€000 €000
1 January 455,740 1,106,298
New loans and advances forborne in the period/year 20,727 47,366
Loans no longer classified as forborne and repayments (131,151) (705,103)
Write off of forborne loans and advances (7,194) (41,996)
Interest accrued on forborne loans and advances 15,781 49,102
Foreign exchange adjustments (3) 73
30 June/31 December 353,900 455,740
The forborne loans classification 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 forborne loans and advances to customers
by staging, economic activity and business line classification, as well as the
ECL allowance and tangible collateral held for such forborne loans.
30 June 31 December
2024
2023
€000 €000
Stage 1 - -
Stage 2 203,802 261,091
Stage 3 121,154 173,728
POCI 28,944 20,921
353,900 455,740
Fair value of collateral
30 June 31 December
2024
2023
€000 €000
Stage 1 - -
Stage 2 189,277 241,983
Stage 3 104,053 154,051
POCI 27,462 19,734
320,792 415,768
The fair value of collateral presented above has been computed to the extent
that the collateral mitigates credit risk.
Credit risk concentration
30 June 31 December
2024
2023
By economic activity €000 €000
Trade 10,825 15,578
Manufacturing 8,520 10,195
Hotels and catering 35,787 60,129
Construction 52,043 82,849
Real estate 51,480 61,550
Private individuals 157,835 187,537
Professional and other services 34,862 35,197
Other sectors 2,548 2,705
353,900 455,740
30 June 2024 Stage 1 Stage 2 Stage 3 POCI Total
By business line and staging €000 €000 €000 €000 €000
Corporate - 115,647 27,363 9,722 152,732
IBU & International corporate
‑ IBU - 1,281 295 - 1,576
‑ International corporate - 710 - - 710
SMEs - 17,067 1,378 - 18,445
Retail
‑ housing - 45,737 11,260 2,267 59,264
‑ consumer, credit cards and other - 8,988 3,510 12,571
73
Restructuring
‑ corporate - 2,106 15,645 10,051 27,802
‑ SMEs - 2,315 4,700 1,259 8,274
‑ retail housing - 8,345 18,986 1,313 28,644
‑ retail other - 1,606 4,467 356 6,429
Recoveries
‑ corporate - - 910 160 1,070
‑ SMEs - - 3,850 269 4,119
‑ retail housing - - 21,300 2,807 24,107
‑ retail other - - 7,490 667 8,157
- 203,802 121,154 28,944 353,900
31 December 2023 Stage 1 Stage 2 Stage 3 POCI Total
By business line and staging €000 €000 €000 €000 €000
Corporate - 136,097 71,330 107 207,534
IBU & International corporate
‑ IBU - 2,091 295 - 2,386
‑ International corporate - 768 - - 768
SMEs - 19,414 1,409 - 20,823
Retail
‑ housing - 51,588 13,479 2,020 67,087
‑ consumer, credit cards and other - 13,047 4,089 129 17,265
Restructuring
‑ corporate - 21,254 1,807 10,037 33,098
‑ SMEs - 3,686 6,760 1,303 11,749
‑ retail housing - 11,341 21,633 1,564 34,538
‑ retail other - 1,805 5,249 345 7,399
Recoveries
‑ corporate - - 2,250 230 2,480
‑ SMEs - - 5,668 489 6,157
‑ retail housing - - 30,643 3,853 34,496
‑ retail other - - 9,116 844 9,960
- 261,091 173,728 20,921 455,740
ECL allowance
30 June 31 December
2024
2023
€000 €000
Stage 1 - -
Stage 2 9,656 8,643
Stage 3 45,230 47,840
POCI 12,173 11,510
67,059 67,993
33. Risk management ‑ Market risk
Market risk is the risk of loss from adverse changes in market prices namely
from changes in interest rates, foreign currency exchange rates, property and
security prices. The Market and Liquidity 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 property price risk, liquidity risk and credit risk from
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 primarily by reference to 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. 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 TIER 1 regulatory
capital and as a percentage of the net interest income.
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 Euro and the US Dollar, being the main currencies, using the assumption of
the prevailing market risk policy as at 30 June 2024 and 31 December 2023
respectively.
Impact on Net Interest Income
€000
Currency Interest Rate Scenario 30 June 31 December
2024
2023
(+140 bps/‑120 bps for Euro and +170 bps/‑110 bps for US Dollar)
(+140 bps/‑120 bps for Euro and +170 bps/‑110 bps for US Dollar)
All Parallel up 147,348
104,283
All Parallel down (135,973)
(97,965)
All Steepening (81,265)
(54,715)
All Flattening 112,104
75,339
All Short up 150,679
103,009
All Short down (140,778)
(98,841)
Euro Parallel up 142,318
98,441
Euro Parallel down (132,297)
(93,853)
Euro Steepening (79,595)
(53,237)
Euro Flattening 108,998
72,222
Euro Short up 145,795
97,753
Euro Short down (137,046)
(95,039)
US Dollar Parallel up 5,030
5,842
US Dollar Parallel down (3,676)
(4,112)
US Dollar Steepening (1,670)
(1,478)
US Dollar Flattening 3,106
3,117
US Dollar Short up 4,884
5,256
US Dollar Short down (3,732)
(3,802)
The above sensitivities incorporate assumptions on the pass through rate of
time deposits of 40% for the upside scenario and 50% for the downside scenario
for Euro denominated deposits for the six months ended 30 June 2024 (31
December 2023: 40% for the upside scenario and 50% for the downside scenario
for Euro denominated deposits).
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
€000
Currency Interest Rate Scenario 30 June 31 December 2023
2024
(+140 bps/‑120 bps for Euro and +170 bps/‑110 bps for US Dollar)
(+140 bps/‑120 bps for Euro and +170 bps/‑110 bps for US Dollar)
All Parallel up
(24,684) 62,584
All Parallel down
(15,832) (89,615)
All Steepening
40,551 (511)
All Flattening
(104,642) (11,035)
All Short up
(102,801) 14,117
All Short down
36,994 (40,727)
Euro Parallel up 114,640
(33,851)
Euro Parallel down (60,469)
(1,896)
Euro Steepening 6,669
74,197
Euro Flattening 20,775
(96,733)
Euro Short up 48,756
(103,443)
Euro Short down (27,450)
75,544
US Dollar Parallel up 10,529
18,334
US Dollar Parallel down (29,146)
(13,936)
US Dollar Steepening (3,846)
6,905
US Dollar Flattening (21,422)
(7,909)
US Dollar Short up (10,261)
1,283
US Dollar Short down (13,277)
(778)
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 impacting the profit and loss of the Group.
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 2024 €000 €000
+1.7% for US Dollar (2,406) (2,017)
+1.4% for Euro
+3% for British Pound
‑1.1% for US Dollar 2,062 1,728
‑1.2% for Euro
‑3% 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 2023
+1.7% for US Dollar (2,468) (773)
+1.4% for Euro
+3% for British Pound
‑1.1% for US Dollar 2,115 663
‑1.2% for Euro
‑3% for British Pound
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 currency
exchange rates.
In order to manage currency risk, the ALCO has approved open position limits
for the total foreign currency positions. The foreign currency position limits
are lower than those prescribed by the regulator. These limits are managed by
Treasury and monitored daily by Market and Liquidity Risk
Department.
The Group does not maintain a currency trading book.
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 mainly 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
2024 was A1 (31 December 2023: A1). The average rating excluding the Cyprus
Government bonds and non‑rated debt securities as at 30 June 2024 was Aa2
(31 December 2023: 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 property 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 property held.
34. 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 in place an established Liquidity
Risk Policy of managing assets, taking liquidity into consideration and
monitoring cash flows and liquidity on a regular 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
Risk Policy 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,
ensuring compliance with internal policies and regulatory liquidity
requirements and providing direction as to the actions to be taken regarding
liquidity needs. The Treasury Division assesses on a regular basis the
adequacy of the liquid assets and takes the necessary actions to ensure
adequate liquidity position.
Liquidity is also monitored by Market and Liquidity Risk department, to ensure
compliance with both internal policies and limits, and with the limits set by
the regulatory authorities. Market and Liquidity Risk department reports the
liquidity position to ALCO at least monthly. It also provides the results of
various stress tests to ALCO and the Board Risk Committee at least quarterly.
Liquidity is monitored and managed on an ongoing basis through:
(i) Risk appetite: establishes the Group's Risk Appetite
Statement together with the appropriate limits for the management of all risks
including liquidity risk.
(ii) Liquidity Risk Policy: sets the principles, the roles and
responsibilities for managing liquidity risk as well as the liquidity and
funding risk management framework, stress testing and the reporting on
liquidity and funding.
(iii) Liquidity limits: a number of internal and regulatory
limits are monitored on a regular basis. Where applicable, a traffic light
system (RAG) is used for 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 the stock of highly liquid assets is important to
safeguard and ensure the uninterrupted operations of the Group's activities.
Market and Liquidity Risk department prepares a daily report analysing the
internal liquidity buffer and comparing it to the previous day's buffer.
Results are made available to members of the Risk and Treasury Divisions. In
addition, Treasury monitors daily and intraday the customer inflows and
outflows in the main currencies used by the Group.
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.
Market and Liquidity Risk department 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 designing of the stress tests follows guidance and is 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 reviewed on an annual
basis and approved by the Board through its Risk Committee. Whenever it is
considered appropriate to amend the assumptions during the year, approval is
requested from ALCO and the 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.
Weekly
Market and Liquidity Risk department prepares a report indicating the level of
Liquid Assets including Credit Institutions Money Market Placements as per LCR
definitions.
Monthly
Market and Liquidity Risk department 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 business unit
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 mismatch between assets and liabilities is compared to previous
month's mismatch.
Market and Liquidity Risk department also reports the Liquidity Coverage Ratio
(LCR) and Additional Liquidity Monitoring Metrics (ALMM) to the CBC/ECB on a
monthly basis.
Quarterly
The results of the stress testing scenarios are reported to ALCO and the Board
Risk Committee quarterly as part of the quarterly Internal Liquidity Adequacy
Assessment Process (ILAAP) review. Market and Liquidity Risk department also
reports the Net Stable Funding Ratio (NSFR) to the CBC/ECB quarterly.
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 and processes for the identification,
measurement, management and monitoring of liquidity risk as implemented by the
institution.
Market and Liquidity Risk department also prepares annually an ECB/SRB
liquidity report, the 'Joint liquidity template' that runs for five
consecutive days. 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.
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 Crisis
Management Committee for LCP (CMC‑LCP). The LCP sets out the members of this
committee and a series of the possible actions that can be taken. The LCP is
reviewed and tested at least annually.
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), 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 2024, the Group's main source of funding were its deposit base
and wholesale funding. Wholesale funding is becoming an important source of
funding, following the refinancing of the Tier 2 for €300 million in April
2021, the issuances of senior preferred debt of an aggregate nominal amount of
€950 million and the refinancing of AT1 for €220 million in June 2023.
With respect to funding from TLTRO III operations, this was fully repaid in
the six months ended 30 June 2024.
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.
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.
Collateral requirements and other disclosures
Collateral requirements
The carrying values of the Group's encumbered assets as at 30 June 2024 and 31
December 2023 are summarised below:
30 June 31 December 2023
2024
€000 €000
Cash and other liquid assets 71,132 72,800
Investments 40,641 260,011
Loans and advances 3,387,454 3,349,118
3,499,227 3,681,929
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.
As at 30 June 2024 investments are used as supplementary assets for the
covered bond. As at 31 December 2023 investments were mainly used as
collateral for ECB funding or as supplementary assets for the covered bond.
Loans and advances indicated as encumbered as at 30 June 2024 and 31 December
2023 are mainly used as collateral for ECB funding and for the covered bond.
Loans and advances to customers include mortgage loans of a nominal amount of
€1,004 million as at 30 June 2024 (31 December 2023: €1,008 million) in
Cyprus, pledged as collateral for the covered bond issued by BOC PCL in 2011
under its Covered Bond Programme. As at 30 June 2024, although there is no
outstanding funding from the ECB, housing loans of a nominal amount of
€2,351 million (31 December 2023: €2,329 million) in Cyprus, remain in the
collateral pool of the CBC part of the available credit line.
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 of 12 December 2026 and pay an interest rate of 3‑month
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 €16,999 thousand as at 30 June 2024
(31 December 2023: €20,462 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 €32,597 thousand as at 30 June 2024 (31 December 2023:
€40,049 thousand).
35. Risk management ‑ Insurance risk
Insurance risk is the risk that an insured event under an insurance contract
occurs and the related uncertainty of the amount and the timing of the
resulting claim. By the very nature of an insurance contract, this risk is
largely random and therefore unpredictable.
For a portfolio of insurance contracts where the theory of probability is
applied to pricing and provisioning, the principal risk that the Group faces
is that the actual claims and benefit payments will exceed the carrying amount
of insurance liabilities. This could occur because the frequency or severity
of claims and benefits are greater than estimated. Insurance events are
largely random and the actual volume and cost of claims and benefits will vary
from year to year compared to the estimate established using statistical or
actuarial techniques.
The above risk exposure is mitigated by the Group through the diversification
across a large portfolio of insurance contracts. The variability of risks is
also reduced by careful selection and implementation of underwriting strategy
guidelines, as well as the use of reinsurance arrangements. Although the Group
has reinsurance coverage, it is not relieved of its direct obligations to
policyholders and is thus exposed to credit risk with respect to ceded
insurance, to the extent that any reinsurer is unable to meet the obligations
assumed under such reinsurance arrangements. For that reason, the
creditworthiness of reinsurers is evaluated by considering their solvency and
credit rating.
Life and Accident and Health insurance contracts
The main factors that could affect the overall frequency of claims are
epidemics, major lifestyle changes, pandemics and natural disasters.
The underwriting strategy and risk assessment is designed to ensure that risks
are diversified in terms of type of risk and level of insured benefits. This
is largely achieved through the use of medical screening in order to ensure
that pricing takes account of the current medical conditions and family
medical history and through the regular review of actual claims and product
pricing. The Group has the right to decline policy applications, it can impose
additional charges and it has the right to reject the payment of fraudulent
claims.
The most significant risks relating to accident and health insurance contracts
result from lifestyle changes and from climate and environmental changes. The
risks are mitigated by the use of strategic selection and risk‑taking at the
underwriting stage and by thorough investigation for possible fraudulent
claims.
The following sensitivity analysis shows the impact on profit before tax and
equity for reasonably possible movements in key assumptions with all other
assumptions held constant. The correlation of assumptions will have a
significant effect in determining the ultimate impacts, but to demonstrate the
impact due to changes in each assumption, assumptions are changed on an
individual basis while holding all other assumptions constant. It should be
noted that movements in these assumptions are non-linear. Sensitivity
information also varies according to the current economic assumptions.
30 June 2024 Change in assumptions Impact on Profit before Tax Impact on
equity
% €000 €000
Change in mortality rates ‑10%
1,532 1,341
Change in lapsation and surrender rates +10%
(262) (299)
Change in expenses +5%
(1,012) (1,157)
Change in inflation +1%
(1,879) (2,147)
Change in discount rate curve at each projection year ‑0,25%
131 114
31 December 2023 Change in assumptions Impact on Profit before Tax Impact on
equity
% €000 €000
Change in mortality rates ‑10%
1,956 1,711
Change in lapsation and surrender rates +10%
(143) (163)
Change in expenses +5%
(891) (1,019)
Change in inflation +1%
(1,673) (1,912)
Change in discount rate curve at each projection year ‑0,25%
119 104
Some of the sensitivity scenarios shown in respect of changes to both economic
and non-economic variables may have a consequential effect on the valuation
basis when a product is valued on an active basis which is updated to reflect
current economic conditions.
Non‑life insurance contracts other than accident and health
Non‑life insurance business is concentrated in Cyprus and the main claims
during the six months ended 30 June 2024 and the year ended 31 December 2023
related to fire and natural forces and other damage to property, motor vehicle
liability and general liability.
Risks under these policies are usually covered for a period of 12 months, with
the exception of the goods in transit class that covers shorter periods and
the contractors all risks class that covers longer periods.
The liabilities for outstanding claims arising from insurance contracts issued
by the Group are based on experts' estimates and facts known at the balance
sheet date. With time, these estimates are reconsidered and any adjustments
are recognised in the financial statements in the period in which they arise.
The principal assumptions underlying the estimates for each claim are based on
experience and market trends, taking into consideration claims handling costs,
inflation and claim numbers for each accident year. Also, external factors
that may affect the estimate of claims, such as recent court rulings and the
introduction of new legislation are taken into consideration.
The insurance contract liabilities are sensitive to changes in the above key
assumptions. The sensitivity of certain assumptions, such as the introduction
of new legislation and the rulings of court cases, is very difficult to be
quantified. Furthermore, the delays that arise between the occurrence of a
claim and its subsequent notification and eventual settlement increase the
uncertainty over the cost of claims at the reporting date.
The risk of a non‑life insurance contract occurs from the uncertainty of the
amount and time of presentation of the claim. Therefore, the level of risk is
determined by the frequency of such claims, their severity and their evolution
from one period to the next.
The main risks for the non‑life insurance business arise from major
catastrophic events like natural disasters. These risks vary depending on
location, type and nature. The variability of risks is mitigated by the
diversification of risk of loss to a large portfolio of insurance contracts,
as a more diversified portfolio is less likely to be affected by changes in
any subset of the portfolio. The Group's exposure to insurance risks from
non‑life insurance contracts is also mitigated by the following measures:
adherence to underwriting policies, frequent review and processing of claims
to minimise the possibility of negative developments in the future, and use of
effective reinsurance arrangements to minimise the impact of risks, especially
for catastrophic events.
36. 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, support
its strategy and maximise shareholders' value.
The capital adequacy framework, as in force, was incorporated through the
Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)
which came into effect on 1 January 2014 with certain specified provisions
implemented gradually. The CRR and CRD transposed the 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 the acceleration of the implementation of the
new SME discount factor (lower RWAs), extending the IFRS 9 transitional
arrangements and introducing further relief measures to CET1 allowing to fully
add back to CET1 any increase in ECL recognised in 2020 and 2021 for
non‑credit impaired financial assets and phasing‑in this starting from
2022 (phasing‑in at 25% in 2022, 50% in 2023 and 75% in 2024) and advancing
the application of prudential treatment of software assets as amended by CRR
II (which came into force in December 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 the CRR, CRD and the BRRD (the '2021 Banking Package').
Amongst other things, the 2021 Banking Package would implement certain
elements of Basel III that have not yet been transposed into EU law. 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. In December 2023, the preparatory bodies of the Council and
European Parliament endorsed the amendments to the CRR and the CRD and the
legal texts were published on the Council and the Parliament websites. In
April 2024, the European Parliament voted to adopt the amendments to the CRR
and the CRD; Regulation (EU 2024/1623 (known as CRR III) and Directive (EU)
2024/1619 (known as CRD VI) were published in the EU's official journal in
June 2024, with entry into force 20 days from the date of the publication.
Most provisions of CRR III will become effective on 1 January 2025 with
certain measures subject to transitional arrangements or to be phased in over
time. Member states shall adopt and publish, by 10 January 2026, the laws,
regulations and administrative provisions necessary to comply with CRD VI and
shall apply most of those measures by 11 January 2026.
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 Cyprus
Investment Firm (CIF) of the Group, The Cyprus Investment and Securities
Corporation Ltd (CISCO) complies with the minimum capital adequacy ratio
requirements. The payment services subsidiary of the Group, JCC Payment
Services Ltd, complies with regulatory capital requirements under the
Provision and Use of Payment Services and Access to Payment Systems Laws of
2018 to 2023.
Additional information on regulatory capital is disclosed in the 'Risk and
Capital Management Report', which is included in the Interim Financial Report
2024.
37. 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. Connected persons for the purpose of this disclosure include spouses,
minor/dependent children and companies in which the directors/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.
Aggregate amounts outstanding and additional transactions
The tables below show the deposits, loans and advances 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 2023
2024
€000 €000
Loans and advances
‑ members of the Board of Directors and key management personnel 1,817 1,926
‑ connected persons 539 577
2,356 2,503
Deposits
‑ members of the Board of Directors and key management personnel 3,267 3,923
‑ connected persons 3,309 3,371
6,576 7,294
The above table does not include period/year‑end balances for members of the
Board of Directors, key management personnel and their connected persons who
resigned during the period/year, nor balances of customers that do not meet
the definition of connected persons as at the reporting dates.
The aggregate expected credit loss allowance on the above loans and credit
facilities is below €9 thousand as at 30 June 2024 (31 December 2023: below
€11 thousand). All principal and 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 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.
The table below discloses interest, commission and insurance premium income,
as well as 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
2024 2023
€000 €000
Interest income for the period 49
53
Interest expense for the period 2
16
Commission income for the period - 1
Insurance premium income for the period 221 236
Insurance expenses and subscriptions for the period 381
3
Fees and emoluments for the period 2,824 2,808
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.
Fees and emoluments are included for the period that they serve as members of
the Board of Directors or key management personnel.
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 €122 thousand as at 30 June 2024 (31
December 2023: €116 thousand).
There were also contingent liabilities and commitments to key management
personnel and their connected persons amounting to €1,168 thousand as at 30
June 2024 (31 December 2023: €1,197 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 their connected persons (using forced‑sale values
for tangible collaterals and assigning no value to other types of collaterals)
at 30 June 2024 amounted to €1,332 thousand (31 December 2023: €1,489
thousand).
During the six months ended 30 June 2024 premiums of €89 thousand (30 June
2023: €89 thousand) and nil claims (30 June 2023: nil) were paid by/to the
members of the Board of Directors of the Company and their connected persons
to/from the insurance subsidiaries of the Group.
There were no other transactions during the six months ended 30 June 2024 and
the six months ended 30 June 2023 with connected persons of the current
members of the Board of Directors or with any members who resigned during the
periods.
38. 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 2024 are:
Company Country of incorporation 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 Development of inter‑banking systems, processing of card transactions, other 75
payment services and other activities
The Cyprus Investment and Securities Corporation Ltd (CISCO) Cyprus Investment banking, brokerage, discretionary asset management and investment 100
advice services
Jinius Ltd Cyprus Digital Economy Platform 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 ‑ In run‑down
MC Investment Assets Management LLC Russia Problem asset management company ‑ In run‑down 100
Fortuna Astrum Ltd Serbia Problem asset management company ‑ In run‑down 100
In addition to the above companies, as at 30 June 2024 BOC PCL had 100%
shareholding in the companies listed below, whose activity is the ownership
and management of immovable property:
Cyprus: Hamura Properties Ltd, Tolmeco Properties Ltd, Pelika Properties Ltd,
Cobhan Properties Ltd, Nalmosa Properties Ltd, Emovera Properties Ltd, Skellom
Properties Ltd, Blodar Properties Ltd, Cranmer Properties Ltd, Les Coraux
Estates Ltd, Natakon Company Ltd, Oceania Ltd, Dominion Industries Ltd, Ledra
Estate Ltd, Laiki Lefkothea Center Ltd, Labancor Ltd, Joberco Ltd, Zecomex
Ltd, Domita Estates Ltd, Memdes Estates Ltd, Kernland Properties Ltd, Jobelis
Properties Ltd, Melsolia Properties Ltd, Koralmon Properties Ltd, Spacous
Properties Ltd, Solomaco Properties Ltd, Linaland Properties Ltd, Unital
Properties Ltd, Neraland Properties Ltd, Wingstreet Properties Ltd, Nolory
Properties Ltd, Lisbo Properties Ltd, Mantinec Properties Ltd, Colar
Properties Ltd, Provezaco Properties Ltd, Hillbay Properties Ltd, Forenaco
Properties Ltd, Hovita Properties Ltd, Astromeria Properties Ltd, Barosca
Properties Ltd, Fogland Properties Ltd, Tebasco 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,
Thermano Properties Ltd, Venicous Properties Ltd, Lorman Properties Ltd,
Eracor Properties Ltd, Rulemon Properties Ltd, Maledico Properties Ltd,
Balasec Properties Ltd, Bendolio Properties Ltd, Diafor Properties Ltd,
Kartama Properties Ltd, Paramina Properties Ltd, Nouralia Properties Ltd,
Resocot Properties Ltd, Soblano Properties Ltd, Talamon Properties Ltd, Weinar
Properties Ltd, Zemialand Properties Ltd, Coeval Properties Ltd, Finevo
Properties Ltd, Mazima Properties Ltd, Riveland Properties Ltd, Rosalica
Properties Ltd, Secretsky Properties Ltd, Senadaco Properties Ltd, Tasabo
Properties Ltd, Venetolio Properties Ltd, Zandexo Properties Ltd, Odolo
Properties Ltd, Molemo Properties Ltd, Samilo Properties Ltd, Alezia
Properties Ltd, Zenoplus Properties Ltd, Enelo Properties Ltd, Monata
Properties Ltd, Vertilia Properties Ltd, Amary Properties Ltd, Aparno
Properties Ltd, Lomenia Properties Ltd, Midelox Properties Ltd, Montira
Properties Ltd, Orilema Properties Ltd, Cramonco Properties Ltd, Carilo
Properties Ltd, Olisto Properties Ltd, Holstone Properties Ltd, Gelimo
Properties Ltd and Philiki 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 2024 BOC PCL had 100% shareholding in 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 2024 BOC PCL had 100% shareholding in BOC Terra AIF V.C.I. Plc
which is a real estate alternative investment fund, currently inactive.
At 30 June 2024 BOC PCL had 100% shareholding in the companies listed below
which are reserved to accept property:
Cyprus: Rifelo Properties Ltd, Avaleto Properties Ltd and Larizemo 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: Laiki Bank (Nominees) Ltd, Paneuropean Ltd, Nelcon Transport Co. Ltd,
Canosa Properties Ltd, Hοmirova Properties Ltd and Finerose 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.
BOC PCL also holds indirectly 75% of Settle Cyprus Ltd, which is inactive.
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 2024 and during the year ended 31 December
2023 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 2024. CYCMC IV Ltd was dissolved during the six months ended 30 June
2024. Regetona Properties Ltd, Soluto Properties Ltd, Camela Properties Ltd,
Baleland Properties Ltd, Ramendi Properties Ltd, Fitrus Properties Ltd and
Estaga Properties Ltd were disposed of during the six months ended 30 June
2024.
As at 30 June 2024, 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,
Fairford Properties Ltd, Sylvesta Properties Ltd, Battersee Real Estate SRL,
Iperi Properties Ltd, Prodino Properties Ltd, Thryan Properties Ltd, Obafemi
Holdings Ltd, Birkdale Properties Ltd and Ensolo Properties Ltd.
39. Investments in associates and joint venture
Percentage holding
Investments in associates (%)
Aris Capital Management LLC 30.0
Rosequeens Properties Limited (in the process of dissolution) 33.3
Fairways Automotive Holdings Ltd 45.0
The carrying values of the investments in associates are considered to be
fully impaired and their value has been restricted to zero.
Percentage holding
Investment in joint venture (%)
Tsiros (Agios Tychon) Ltd 50.0
The carrying value of the investment in the joint venture is considered to be
fully impaired and its value has been restricted to zero.
40. Events after the reporting period
Share repurchase programme
During the period from 1 July 2024 to 6 August 2024 464 thousand shares were
further purchased under the share repurchase programme launched in April 2024,
at a total cost of €1,920 thousand. As at 6 August 2024, the Company holds
44 thousand shares, all arising from the share repurchase programme.
Proposal to list to Athens Stock Exchange and delist from London Stock
Exchange
The Board has been assessing how to enhance the liquidity of the ordinary
shares of the Group which are currently listed on the London Stock Exchange
('LSE') and the Cyprus Stock Exchange ('CSE'). Following extensive
communication with Group's stakeholders, the Board has reached the view that
listing the ordinary shares on the Athens Stock Exchange ('ATHEX') in
conjunction with a delisting from the LSE will yield a number of long‑term
strategic and capital market benefits. The ordinary shares of the Group will
continue to be listed on the CSE. An Extraordinary General Meeting will be
convened to propose a resolution to shareholders to consider the proposed
listing on ATHEX. The effectiveness of the listing on ATHEX will also be
subject to and conditional upon, being approved by the ATHEX Listings
Committee.
No other significant non‑adjusting events have taken place since 30 June
2024.
Independent review report to Bank of Cyprus Holdings Public Limited Company
Report on the consolidated condensed interim financial statements
Our conclusion
We have reviewed Bank of Cyprus Holdings Public Limited Company's consolidated
condensed interim financial statements (the "interim financial statements") in
the Interim Financial Report of Bank of Cyprus Holdings Public Limited Company
for the six month period ended 30 June 2024 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and 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 interim financial statements, comprise:
· The Interim Consolidated Balance Sheet as at 30 June 2024;
· the Interim Consolidated Income Statement and the Interim
Consolidated Statement of Comprehensive Income for the period then ended;
· the Interim Consolidated Statement of Cash Flows for the period then
ended;
· the Interim Consolidated Statement of Changes in Equity for the
period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Financial Report have
been prepared in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and 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.
As disclosed in note 3.2 to the interim financial statements, the financial
reporting framework that has been applied in the preparation of the full
annual financial statements of the group is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (Ireland) 2410, 'Review of Interim Financial Information Performed
by the Independent Auditor of the Entity' ("ISRE (Ireland) 2410") issued for
use in Ireland. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (Ireland) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Interim Financial Report
and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (Ireland) 2410. However future events or conditions may cause the group
to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Interim Financial Report, including the interim financial statements, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the Interim Financial Report in accordance with
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. In preparing the
Interim Financial Report including the interim financial statements, the
directors are responsible for assessing the group's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend
to liquidate the group or to cease operations, or have no realistic
alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Interim Financial Report based on our review. Our
conclusion, including our Conclusions relating to going concern, is based on
procedures that are less extensive than audit procedures, as described in the
Basis for conclusion paragraph of this report. This report, including the
conclusion, has been prepared for and only for the company for the purpose of
complying with 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 and
for no other purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom this
report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
PricewaterhouseCoopers
Chartered Accountants
7 August 2024
Dublin
Alternative Performance Measures Disclosures
30 June 2024
DEFINITIONS
Adjusted recurring profitability The Group's profit after tax before non-recurring items (attributable to the
owners of the Company) taking into account distributions under other equity
instruments such as the annual AT1 coupon.
Advisory and other transformation costs Comprise mainly of fees of external advisors in relation to the transformation
program and other strategic projects of the Group.
Allowance for expected loan credit losses Comprises (i) allowance for expected credit losses (ECL) on loans and advances
to customers (including allowance for expected credit losses on loans and
advances to customers held for sale, where applicable), (ii) the residual fair
value adjustment on initial recognition of loans and advances to customers
(including residual fair value adjustment on initial recognition of loans and
advances to customers classified as held for sale, where applicable), (iii)
allowance for expected credit losses on off-balance sheet exposures (financial
guarantees and commitments) disclosed on the balance sheet within other
liabilities, and (iv) the aggregate fair value adjustment on loans and
advances to customers classified and measured at FVPL.
Basic profit per share (attributable to the owners of the Company) Basic profit per share (attributable to the owners of the Company) is the
Profit/(loss) after tax (attributable to the owners of the Company) divided by
the weighted average number of shares in issue during the period/year,
excluding treasury shares.
Carbon neutral The reduction and balancing (through a combination of offsetting investments
or emission credits) of greenhouse gas emissions from own operations.
Cost to Income ratio Cost-to-income ratio is calculated as total expenses (as defined), divided by
total income (as defined).
Digital transactions ratio This is the ratio of the number of digital transactions performed by
individuals and legal entity customers to the total number of transactions.
Transactions include deposits, cash withdrawals, internal and external
transfers. Digital channels include mobile, browser and ATMs.
Digitally engaged customers ratio This is the ratio of digitally engaged individual customers to the total
number of individual customers. Digitally engaged customers are the
individuals who use the digital channels of the Bank (mobile banking app,
browser and ATMs) to perform banking transactions, as well as digital enablers
such as a bank-issued card to perform online card purchases, based on an
internally developed scorecard.
Diluted earnings per share (attributable to the owners of the Company) Diluted earnings per share is the Profit/(loss) after tax (attributable to the
owners of the Company) divided by the weighted average number of ordinary
shares in issue during the period/year, excluding treasury shares, adjusted to
take into account the potential dilutive effect for the ordinary shares that
may arise in respect of share awards granted to executive directors and senior
management of the Group under the Long-Term Incentive Plan and Short-Term
Incentive Plan, where applicable.
Green Asset ratio The proportion of a credit institution's assets financing and invested in EU
Taxonomy-aligned economic activities as a share of total covered assets.
Green Mortgage ratio The proportion of a credit institution's assets financing EU Taxonomy-aligned
mortgages (acquisition, construction or renovation of buildings) as a share of
total mortgage assets.
Gross loans Gross loans comprise: (i) gross loans and advances to customers measured at
amortised cost before the residual fair value adjustment on initial
recognition (including loans and advances to customers classified as
non-current assets held for sale, where applicable) and (ii) loans and
advances to customers classified and measured at FVPL adjusted for the
aggregate fair value adjustment.
The residual fair value adjustment on initial recognition relates mainly to
loans acquired from Laiki Bank (calculated as the difference between the
outstanding contractual amount and the fair value of loans acquired at
acquisition date).
Interest earning assets Interest earning assets include: cash and balances with central banks, plus
loans and advances to banks, plus reverse repurchase agreements, plus net
loans and advances to customers (including net loans and advances to customers
classified as non-current assets held for sale, where applicable) (as
defined), plus deferred consideration receivable ('DPP'), plus investments
(excluding equities, mutual funds and other non-interest bearing investments).
Legacy exposures Legacy exposures are exposures relating to (i) Restructuring and Recoveries
Division (RRD), (ii) Real Estate Management Unit (REMU), and (iii) Non-core
overseas exposures.
Leverage ratio The leverage ratio is the ratio of tangible total equity to total assets as
presented on the balance sheet. Tangible total equity comprises of equity
attributable to the owners of the Company and other equity instruments minus
intangible assets.
Loan credit losses (PL) Loan credit losses comprise: (i) credit losses to cover credit risk on loans
and advances to customers, (ii) net gains/(losses) on derecognition of
financial assets measured at amortised cost relating to loans and advances to
customers and (iii) net gains/(losses) on loans and advances to customers at
FVPL, for the reporting period/year.
Loan credit losses charge (cost of risk) Loan credit losses charge (cost of risk) (year-to-date) is calculated as the
loan credit losses (as defined) (annualised based on year-to-date days)
divided by the average gross loans. The average gross loans are calculated as
the average of the opening balance and the closing balance of Gross loans (as
defined), for the reporting period/year.
Market Shares Both deposit and loan market shares are based on data from the CBC.
Net Interest Margin Net interest margin is calculated as the net interest income (annualized based
on year-to-date days) divided by the quarterly average interest earning assets
(as defined).
Net loans and advances to customers Net loans and advances to customers comprise gross loans (as defined) net of
allowance for expected loan credit losses (as defined, but excluding allowance
for expected credit losses on off-balance sheet exposures disclosed on the
balance sheet within other liabilities).
Net loans to deposits ratio Net loans to deposits ratio is calculated as gross loans (as defined) net of
allowance for expected loan credit losses (as defined), divided by customer
deposits.
Net performing loan book Net performing loan book is the total net loans and advances to customers (as
defined) excluding net loans included in the legacy exposures (as defined).
Net zero emissions The reduction of greenhouse gas emissions to net zero through a combination of
reduction activities and offsetting investments.
New lending includes the disbursed amounts of the new and existing
non-revolving facilities (excluding forborne or re-negotiated accounts) as
New lending well as the average year-to-date change (if positive) of the current accounts
and overdraft facilities between the balance at the beginning of the period
and the end of the period. Recoveries are excluded from this calculation since
their overdraft movement relates mostly to accrued interest and not to new
lending.
Non-interest income Non-interest income comprises: Net fee and commission income, Net foreign
exchange gains/(losses) and net gains/(losses) on financial instruments
(excluding net gains on loans and advances to customers at FVPL), Net
insurance result, Net gains/(losses) from revaluation and disposal of
investment properties and on disposal of stock of properties, and Other
income.
Non-performing exposures (NPEs) As per the EBA standards and the ECB's Guidance to Banks on Non-Performing
Loans (which was published in March 2017), NPEs are defined as those exposures
that satisfy one of the following conditions:
(i) The borrower is assessed as unlikely to pay its credit obligations
in full without the realisation of the collateral, regardless of the existence
of any past due amount or of the number of days past due.
(ii) Defaulted or impaired exposures as per the approach provided in the
Capital Requirement Regulation (CRR), which would also trigger a default under
specific credit adjustment, diminished financial obligation and obligor
bankruptcy.
(iii) Material exposures as set by the CBC, which are more than 90 days
past due.
(iv) Performing forborne exposures under probation for which additional
forbearance measures are extended.
(v) Performing forborne exposures previously classified as NPEs that
present more than 30 days past due within the probation period.
From 1 January 2021 two regulatory guidelines came into force that affect NPE
classification and Days-Past-Due calculation. More specifically, these are the
RTS on the Materiality Threshold of Credit Obligations Past-Due
(EBA/RTS/2016/06) and the Guideline on the Application of the Definition of
Default under article 178 (EBA/RTS/2016/07).
The Days-Past-Due (DPD) counter begins counting DPD as soon as the arrears or
excesses of an exposure reach the materiality threshold (rather than as of the
first day of presenting any amount of arrears or excesses). Similarly, the
counter will be set to zero when the arrears or excesses drop below the
materiality threshold. Payments towards the exposure that do not reduce the
arrears/excesses below the materiality threshold, will not impact the counter.
For retail debtors, when a specific part of the exposures of a customer that
fulfils the NPE criteria set out above is greater than 20% of the gross
carrying amount of all on balance sheet exposures of that customer, then the
total customer exposure is classified as non-performing; otherwise only the
specific part of the exposure is classified as non-performing. For non-retail
debtors, when an exposure fulfils the NPE criteria set out above, then the
total customer exposure is classified as non-performing.
Material arrears/excesses are defined as follows:
- Retail exposures: Total arrears/excess amount greater than €100,
- Exposures other than retail: Total arrears/excess amount greater
than €500
and the amount in arrears/excess of the customer's total exposure is at least
1%.
The NPEs are reported before the deduction of allowance for expected loan
credit losses (as defined).
Non-recurring items Non-recurring items as presented in the 'Consolidated Income Statement -
Underlying basis' relate to 'Advisory and other transformation costs -
organic', if applicable.
NPE coverage ratio The NPE coverage ratio is calculated as the allowance for expected loan credit
losses (as defined) over NPEs (as defined).
NPE ratio NPE ratio is calculated as the NPEs (as defined) divided by Gross loans (as
defined).
Operating profit Operating profit on the underlying basis comprises profit before loan credit
losses (as defined), impairments of other financial and non-financial assets,
provisions for pending litigations, claims, regulatory and other matters (net
of reversals), tax, profit attributable to non-controlling interests and
non-recurring items (as defined).
Operating profit return on average assets Operating profit return on average assets is calculated as the annualised
operating profit (as defined) divided by the quarterly average of total assets
for the relevant period. Average total assets exclude total assets of
discontinued operations at each quarter end, if applicable.
Profit/(loss) after tax and before non-recurring items (attributable to the Profit/(loss) after tax and before non-recurring items (attributable to the
owners of the Company) owners of the Company) is the operating profit (as defined) adjusted for loan
credit losses (as defined), impairments of other financial and non-financial
assets, provisions for litigation, claims, regulatory and other matters (net
of reversals), tax and (profit)/loss attributable to non-controlling
interests.
Profit/(loss) after tax - organic (attributable to the owners of the Company) Profit/(loss) after tax - organic (attributable to the owners of the Company)
is the profit/(loss) after tax and before non-recurring items (attributable to
the owners of the Company)(as defined), adjusted for the 'Advisory and other
transformation costs - organic', if applicable.
Return on Tangible equity (ROTE) Return on Tangible Equity (ROTE) is calculated as Profit/(loss) after tax
(attributable to the owners of the Company) (annualised based on year-to-date
days), divided by the quarterly average of Shareholders' equity (as defined)
minus intangible assets at each quarter end.
Return on Tangible equity (ROTE) excluding amounts reserved for distributions Return on Tangible equity (ROTE) excluding amounts reserved for distributions
is calculated as Profit/(loss) after tax (attributable to the owners of the
Company) (as defined) (annualised based on year-to-date days), divided by the
quarterly average of Shareholders' equity (as defined) minus intangible assets
and the amounts approved/recommended for distribution in respect of earnings
of the relevant year the distribution relates to.
Shareholders' equity Shareholders' equity comprise total equity adjusted for non-controlling
interest and other equity instruments. It is represented by equity
attributable to the owners of the Company (as per statutory basis).
Tangible book value per share Tangible book value per share is calculated as Shareholders' equity (as
defined) less intangible assets at each quarter end, divided by the number of
shares in issue at the end of the period/year, excluding treasury shares.
Tangible equity Tangible equity comprises of equity attributable to the owners of the Company
(as per statutory basis) and other equity instruments minus intangible assets.
Time deposits Calculated as a percentage of the cost (interest expense) of Time and Notice
deposits over the average 6-month Euribor rate for the period.
pass-through
Total expenses Total expenses on the underlying basis comprise the total staff costs, special
levy on deposits and other levies/contributions and other operating expenses
(excluding 'Advisory and other transformation costs-organic', (on an
underlying basis) as reconciled in the table further below).
Total income Total income on the underlying basis comprises the total of Net interest
income, Net fee and commission income, Net foreign exchange gains, Net
gains/(losses) on financial instruments (excluding net gains/(losses) on loans
and advances to customers at FVPL), Net insurance result, Net gains/(losses)
from revaluation and disposal of investment properties and on disposal of
stock of property and Other income (on an underlying basis). A reconciliation
of these amounts between the statutory and the underlying bases is disclosed
in the Interim Management Report under section 'Group financial results on the
underlying basis'.
Underlying basis The underlying basis is computed by adjusting the results as per the statutory
basis for the reclassification of certain items as explained in the
'Reconciliation of the Interim Consolidated Income Statement for the six
months ended 30 June 2024 between the audited statutory basis and the
underlying basis' within the Interim Management Report.
Reconciliations
For the purpose of the 'Alternative Performance Measures Disclosures',
reference to 'Note' relates to the respective note in the Consolidated
Condensed Interim Financial Statements for the six months ended 30 June 2024.
Reconciliations between the non-IFRS performance measures and the most
directly comparable IFRS measures which allow for the comparability of the
underlying basis to the statutory basis are disclosed below.
1. Reconciliation of Gross loans and advances to customers
30 June 31 December 2023
2024
€000 €000
Gross loans and advances to customers as per the underlying basis (as defined 10,317,551 10,069,828
above)
Reconciling items:
Residual fair value adjustment on initial recognition (Note 19) (61,051) (69,534)
Loans and advances to customers measured at FVPL (Note 19) (134,835) (138,727)
Aggregate fair value adjustment on loans and advances to customers measured at 1,483 947
FVPL
Gross loans and advances to customers at amortised cost as per the 10,123,148 9,862,514
Consolidated Condensed Interim Financial Statements (Note 19)
2. Reconciliation of Allowance for expected credit losses
(ECL) on loans and advances to customers
30 June 31 December 2023
2024
€000 €000
Allowance for expected credit losses on loans and advances to customers (ECL) 250,610 267,232
as per the underlying basis (as defined above)
Reconciling items:
Residual fair value adjustment on initial recognition (Note 19) (61,051) (69,534)
Aggregate fair value adjustment on loans and advances to customers measured at 1,483 947
FVPL
Provisions for financial guarantees and commitments (Note 25) (18,026) (19,192)
Allowance for ECL for impairment of loans and advances to customers as per the 173,016 179,453
Consolidated Condensed Interim Financial Statements (Note 19)
Reconciliations (continued)
3. Reconciliation of NPEs
30 June 31 December 2023
2024
€000 €000
NPEs as per the underlying basis (as defined above) 293,571 365,450
Reconciling items:
POCI (NPEs) (Note 1 below) (40,664) (37,273)
Residual fair value adjustment on initial recognition on loans and advances to 1,180 (1,294)
customers (NPEs) classified as Stage 3 (Note 19)
Stage 3 gross loans and advances to customers at amortised cost as per the 254,087 326,883
Consolidated Condensed Interim Financial Statements (Note 19)
NPE ratio
NPEs (as per table above) (€000) 293,571 365,450
Gross loans and advances to customers (as per table 1 above) (€000) 10,317,551 10,069,828
Ratio of NPE/Gross loans (%) 2.8% 3.6%
NPE Coverage ratio 30 June 31 December 2023
2024
Allowance for expected credit losses (ECL) on loans and advances to customers 250,610 267,232
(as per table 2 above) (€000)
NPEs (as per table above) (€000) 293,571 365,450
NPE Coverage ratio (%) 85% 73%
Note 1: Gross loans and advances to customers at amortised cost before
residual fair value adjustment on initial recognition include an amount of
€40,664 thousand POCI - NPEs (out of a total of €69,823 thousand POCI
loans) (31 December 2023: €37,273 thousand POCI - NPEs (out of a total of
€100,197 thousand POCI loans)) as disclosed in Note 19 of the Consolidated
Condensed Interim Financial Statements for the six months ended 30 June 2024.
4. Reconciliation of Loan credit losses
Six months ended
30 June
2024 2023
€000 €000
Loan credit losses as per the underlying basis 15,503 24,397
Loan credit losses (as defined) are reconciled to the statutory basis as
follows:
Credit losses to cover credit risk on loans and advances to customers (Note 17,145 30,290
13)
Net gains on derecognition of financial assets measured at amortised cost - (1,106) (5,902)
loans and advances to customers (see further below)
Net (gains)/losses on loans and advances to customers at FVPL (536) 9
(Note 10)
15,503 24,397
Net gains on derecognition of financial assets measured at amortised cost
presented in the Interim Consolidated Income Statement amount to €1,106
thousand (30 June 2023: €5,861 thousand) and comprise €1,106 thousand (30
June 2023: €5,902 thousand) net gains on derecognition of loans and advances
to customers and nil (30 June 2023: €41 thousand) net losses on
derecognition of debt securities measured at amortised cost.
Reconciliations (continued)
5. Reconciliation of Adjusted recurring profitability to
Profit after tax for the period attributable to the owners of the Company
Six months ended
30 June
2024 2023
€000 €000
Adjusted recurring profitability as per the underlying basis (as defined 270,353 222,504
above)
Reconciling items:
Advisory and other transformation costs (non-recurring) (Note 12) - (2,257)
Profit after tax for the period attributable to the owners of the Company as 270,353 220,247
per the Interim Consolidated Income Statement
Key Performance Ratios Information
1. Net Interest Margin (NIM)
The components for the calculation of net interest margin are provided below:
Six months ended
30 June
2024 2023
1.1. Net interest income used in the calculation of NIM €000 €000
Net interest income as per the underlying basis/statutory basis 419,883 358,342
Net interest income used in the calculation of NIM (annualised) 844,380 722,623
1.2. Interest earning assets 30 June 31 March 31 December
2024 2024 2023
€000 €000 €000
Cash and balances with central banks 7,287,221 7,217,046 9,614,502
Loans and advances to banks 384,112 383,707 384,802
Reverse repurchase agreements 1,014,858 707,526 403,199
Loans and advances to customers 10,084,967 10,027,893 9,821,788
Prepayments, accrued income and other assets - Deferred consideration 251,244 247,107 243,013
receivable ('DPP') (Note 21)
Investments
Debt securities (Note 16) 3,828,083 3,742,838 3,547,782
Total interest earning assets 22,850,485 22,326,117 24,015,086
1.3. Quarterly average interest earning assets (€000)
- as at 30 June 2024 23,063,896
- as at 30 June 2023 22,780,590
Key Performance Ratios Information (continued)
1.
Net Interest Margin (NIM) (continued)
1.2.
1.4. Net Interest Margin (NIM) Six months ended
30 June
2024 2023
Net interest income (annualised) (as per table 1.1. above) (€000) 844,380 722,623
Quarterly average interest earning assets (as per table 1.3. above) (€000) 23,063,896 22,780,590
NIM (%) 3.66% 3.17%
2. Cost to income ratio
2.1 Reconciliation of the components of total expenses used in the cost
to income ratio calculation from the underlying basis to the statutory basis
is provided below:
2.1.1.
2.1.1.
2.1.1 Reconciliation of Staff costs Six months ended
30 June
2024 2023
€000 €000
Staff costs as per the underlying basis/statutory basis 96,135 93,043
2.1.2 Reconciliation of Other operating expenses Six months ended
30 June
2024 2023
€000 €000
Other operating expenses as per the underlying basis 70,989 68,199
Reclassifications for:
Advisory and other transformation costs - organic, separately presented under - 2,257
the underlying basis
Other operating expenses as per the statutory basis (Note 12) 70,989 70,456
2.1.3 Total Expenses as per the underlying basis Six months ended
30 June
2024 2023
€000 €000
Staff costs as per the underlying basis/statutory basis (as per table 2.1.1 96,135 93,043
above)
Special levy on deposits and other levies/contributions as per the underlying 18,784 18,236
basis/statutory basis
Other operating expenses as per the underlying basis (as per table 2.1.2 70,989 68,199
above)
Total Expenses as per the underlying basis 185,908 179,478
Key Performance Ratios Information (continued)
2. Cost to income ratio (continued)
2.2 Reconciliation of the components of total income used in
the cost to income ratio calculation from the underlying basis to the
statutory basis is provided below:
2.2.1 Total Income as per the underlying basis Six months ended
30 June
2024 2023
€000 €000
Net interest income as per the underlying basis/statutory basis (as per table 419,883 358,342
1.1 above)
Net fee and commission income as per the underlying basis/statutory basis 86,215 89,604
Net foreign exchange gains, Net gains on financial instruments and Net gains 13,227 21,487
on derecognition of financial assets measured at amortised cost as per the
underlying basis (as per table 2.2.2 below)
Net insurance result* 22,775 24,561
Net gains from revaluation and disposal of investment properties and Net gains 1,327 4,694
on disposal of stock of properties (as per the statutory basis)
Other income (as per the statutory basis) 5,218 12,200
Total Income as per the underlying basis 548,645 510,888
*Net insurance result comprises the aggregate of captions 'Net insurance
finance income/(expense) and net reinsurance finance income/(expense)', 'Net
insurance service result' and 'Net reinsurance service result' per the
statutory basis.
2.2.2.
2.2.2 Reconciliation of Net foreign exchange gains, Net gains on financial Six months ended
instruments and Net gains on derecognition of financial assets measured at
amortised cost between the statutory basis and the underlying basis 30June
2024 2023
€000 €000
Net foreign exchange gains, Net gains on financial instruments and Net gains 13,227 21,487
on derecognition of financial assets measured at amortised cost as per the
underlying basis
Reclassifications for:
Net gains/(losses) on loans and advances to customers at FVPL disclosed within 536 (9)
'Loan credit losses' per the underlying basis (as per table 4 in Section
'Reconciliations' above)
Net gains on derecognition of financial assets measured at amortised 1,106 5,902
cost-loans and advances to customers, disclosed within 'Loan credit losses'
per the underlying basis (as per table 4 in Section 'Reconciliations' above)
Net foreign exchange gains, Νet gains on financial instruments and Net gains 14,869 27,380
on derecognition of financial assets measured at amortised cost as per the
statutory basis (see below)
Net foreign exchange gains, Net gains on financial instruments and Net gains
on derecognition of financial assets measured at amortised cost (as per table
above) are reconciled to the statutory basis as follows:
Net foreign exchange gains 13,034 15,839
Net gains on financial instruments (Note 10) 729 5,680
Net gains on derecognition of financial assets measured at amortised cost 1,106 5,861
14,869 27,380
Key Performance Ratios Information (continued)
2. Cost to income ratio (continued)
Six months ended
30 June
2024 2023
Cost to income ratio
Total expenses (as per table 2.1.3 above) (€000) 185,908 179,478
Total income (as per table 2.2.1 above) (€000) 548,645 510,888
Total expenses/Total income (%) 34% 35%
Cost to income ratio excluding special levy on deposits and other Six months ended
levies/contributions
30 June
2024 2023
Total expenses (as per table 2.1.3 above) (€000) 185,908 179,478
Less: Special levy on deposits and other levies/contributions (as per table (18,784) (18,236)
2.1.3 above) (€000)
Total expenses excluding special levy on deposits and other 167,124 161,242
levies/contributions
Total income (as per table 2.2.1 above) (€000) 548,645 510,888
Total expenses excluding special levy on deposits and other 30% 32%
levies/contributions / Total income (%)
3. Operating profit return on average assets
The components used in the determination of the operating profit return on
average assets are provided below:
30 June 2024 31 March 31 December
2024 2023
€000 €000 €000
Total assets used in the computation of the operating profit return on average 25,466,170 24,940,672 26,628,577
assets per the Interim Consolidated Balance Sheet
Quarterly average total assets (€000)
- as at 30 June 2024 25,678,473
- as at 30 June 2023 25,460,661
2024 2023
Total income for the six months ended 30 June (as per table 2.2.1 above) - 1,103,319 1,030,244
annualised (€000)
Total expenses for the six months ended 30 June (as per table 2.1.3 above) - (373,859) (361,931)
annualised (€000)
Operating profit -annualised (€000) 729,460 668,313
Quarterly average total assets as at 30 June (as per table above) (€000) 25,678,473 25,460,661
Operating profit return on average assets (annualized) (%) 2.8% 2.6%
Key Performance Ratios Information (continued)
4. Cost of Risk
Six months ended
30 June
2024 2023
€000 €000
Loan credit losses (as per table 4 in Section 'Reconciliation' above) - 31,176 49,198
annualised
Average gross loans (as defined) (as per table 1 in Section 'Reconciliation' 10,193,690 10,247,455
above)
Cost of Risk (CoR) % 0.31% 0.48%
5. Basic profit per share attributable to the owners of
the Company
The components used in the determination of the 'Basic profit per share
attributable to the owners of the Company (€ cent)' are provided below:
2024 2023
Profit after tax (attributable to the owners of the Company) per the 270,353 220,247
underlying basis/statutory basis for the six months ended 30 June (€000)
Weighted average number of shares in issue during the period, excluding 445,760 446,058
treasury shares (thousand)
Basic profit per share attributable to the owners of the Company for the six 60.6 49.4
months ended 30 June (€ cent)
6. Return on tangible equity (ROTE)
The components used in the determination of 'Return on tangible equity (ROTE)'
are provided below:
2024 2023
Profit after tax for the period (attributable to the owners of the Company) 543,677 444,145
(annualised) per the underlying basis/statutory basis for the six months ended
30 June (€000)
Quarterly average tangible shareholders' equity as at 30 June (as per table 2,291,470 1,846,802
6.2 below) (€000)
ROTE (annualised) (%) 23.7% 24.0%
6.1 Tangible shareholders' equity 30 June 31 March 31 December 2023
2024 2024
€000 €000 €000
Equity attributable to the owners of the Company (as per the statutory basis) 2,387,383 2,380,876 2,247,080
Less: Intangible assets (as per the statutory basis) (45,686) (46,609) (48,635)
Total tangible shareholders' equity 2,341,697 2,334,267 2,198,445
6.2 Quarterly average tangible shareholders' equity (€000)
- as at 30 June 2024 2,291,470
- as at 30 June 2023 1,846,802
Key Performance Ratios Information (continued)
7. Return on tangible equity (ROTE) on 15% CET1 ratio
The components used in the determination of 'Return on tangible equity (ROTE)
on 15% CET1 ratio', are provided below:
2024 2023
Profit after tax (attributable to the owners of the Company) (annualised) per 543,677 444,145
the underlying basis/statutory basis for the six months ended 30 June (€000)
Quarterly average tangible shareholders' equity adjusted for excess CET1 1,838,202 1,753,953
capital on a 15% CET1 ratio as at 30 June (as per table 7.2 below) (€000)
ROTE on 15% CET1 ratio (%) 29.6% 25.3%
7.1 Tangible shareholders' equity on 15% CET1 ratio 30 June 31 March 31 December
2024 2024 2023
€000 €000 €000
Equity attributable to the owners of the Company (as per the statutory basis) 2,387,383 2,380,876 2,247,080
Less: Intangible assets (as per the statutory basis) (45,686) (46,609) (48,635)
Less: approved FY2023 distribution** (19,011) (136,590) (136,590)
Less: excess CET1 capital* on a 15% CET1 ratio (479,000) (341,460) (247,153)
Total tangible shareholders' equity on 15% CET1 ratio 1,843,686 1,856,217 1,814,702
*Includes the amount of foreseeable charge for shareholders' distribution
accrual at the top-end range of the Group's approved distribution policy
deducted from the CET1 ratio as applicable.
** Approved FY2023 distribution is adjusted to the extent not already deducted
from the Equity attributable to the owners of the Company (as per the
statutory basis) at each period end. As at 30 June 2024, only the amount
relating to the approved share buyback of €25 million not yet executed is
adjusted. For prior periods, the full amount of the FY2023 distribution is
adjusted.
7.2 Quarterly average tangible shareholders' equity on 15% CET1 ratio
(€000)
- as at 30 June 2024 1,838,202
- as at 31 December 2023 1,779,597
- as at 30 June 2023 1,753,953
8. Tangible book value per share
30 June 30 June
2024 2023
€000 €000
Tangible shareholder's equity (as per table 6.1 above) (€000) 2,341,697 1,936,913
Number of shares in issue at the end of the period, excluding treasury shares 444,560 446,058
(thousand)
Tangible book value per share (€) 5.27 4.34
Key Performance Ratios Information (continued)
9. Leverage ratio
30 June 31 March 31 December
2024 2024 2023
Tangible total equity (including Other equity instruments) (as per table 9.1 2,561,697 2,554,267 2,418,445
below) (€000)
Total assets as per the statutory basis (€000) 25,466,170 24,940,672 26,628,577
Leverage ratio 10.1% 10.2% 9.1%
9.1 Tangible total equity 30 June 31 March 31 December
2024 2024 2023
€000 €000 €000
Equity attributable to the owners of the Company (as per the statutory basis) 2,387,383 2,380,876 2,247,080
Other equity instruments 220,000 220,000 220,000
Less: Intangible assets (as per the statutory basis) (45,686) (46,609) (48,635)
Tangible total equity 2,561,697 2,554,267 2,418,445
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