REG - Bank of Cyprus Hldgs - Preliminary FY2022 Group Financial Results
20/02/2023 07:16
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RNS Number : 4149Q Bank of Cyprus Holdings PLC 20 February 2023
Announcement
Preliminary Group Financial Results for the year ended 31 December 2022
and Updated Financial Targets
Nicosia, 20 February 2023
Key Highlights for the year ended 31 December 2022
Cypriot economy outperforms Eurozone
· Economic growth of 4.4%(1) in 4Q2022, and expected growth of
c.3.0%(1) for 2023 well above the eurozone average
· Record new lending of €2.1 bn up 17% yoy
· Net performing loan book of €9.6 bn, up 3% yoy
Strong growth of underlying profitability
· NII of €370 mn up 25% yoy, of which €136 mn in 4Q2022, up 53%
qoq
· Total operating expenses(2) down 1% yoy; cost to income ratio(2)
at 49% down 11 p.p. yoy
· Profit after tax before non-recurring items of €188 mn, up 107%
yoy reflecting positive gearing to rising interest rates
· Profit after tax of €80 mn for 4Q2022 vs loss of €59 mn for
3Q2022 including one-off Voluntary Staff Exit Plan (VEP) charge of €101 mn
· Profit after tax of €71 mn for FY2022 vs €30 mn for FY2021
· Recurring ROTE(3) of 11.3% for FY2022 and 19.1% for 4Q2022
Robust capital and liquidity
· CET1 ratio of 15.4%(,4) and Total Capital ratio of 20.6%(4)
· Deposits at €19.0 bn up 8% yoy and broadly flat qoq
· Strong liquidity position with €7.6 bn(5) placed at the ECB;
well positioned to benefit from further interest rate increases
NPE ratio at 4.0%
· NPE ratio at 4.0% (1.3%(6) net) down 8.4 p.p. yoy
· Coverage at 69%; cost of risk at 44 bps
· €0.6 bn NPE sale (Helix 3) completed in November 2022
· Strong fundamentals with performing loan book better positioned
to face external shocks
1. Source: Ministry of Finance
2. Excluding special levy on deposits and other levies/contributions
3. Recurring ROTE is calculated as Profit after Tax and before
non-recurring items divided by (average Shareholders' equity minus Intangible
assets)
4. Allowing for IFRS 9 and temporary treatment for certain FVOCI
instruments transitional arrangements
5. Excluding TLTRO III of €2.0 bn
6. Calculated as NPEs net of provisions over net loans
Group Chief Executive Statement
"We are pleased to announce a positive set of financial results for 2022,
exceeding our targets and confirming the sustainability of our business model
with well-diversified revenues and disciplined cost containment despite
inflationary pressures. Our profit after tax before non-recurring items of
€188 mn has more than doubled on the prior year, corresponding to a return
on tangible equity of 11.3%.
Against the backdrop of the challenging global and European economic
environment, the Cypriot economy is proving resilient and is delivering strong
growth notwithstanding headwinds. In the fourth quarter, GDP increased by 4.4%
in Cyprus and is forecast to grow by c.3.0% in 2023, according to the Ministry
of Finance, outperforming the Eurozone average.
As the largest financial group in Cyprus, we continued to support the economy
by extending a record €2.1 bn of new loans in 2022, an increase of 17% on
the prior year, whilst maintaining strict lending criteria. Our net performing
loan book of €9.6 bn grew by 3% in 2022 and it demonstrates strong
fundamentals to withstand uncertainties in the macroeconomic outlook.
During 2022 we generated total income of €699 mn and a positive operating
result of €318 mn, up 62% on 2021. Net interest income amounted to €370
mn, up 25% on the prior year, of which €136 mn was generated in the fourth
quarter. Our non-interest income was marked by strong performance in net fee
and commission income as well as exceptionally strong insurance income in 2022
and contributed 47% to total income.
Operating expenses decreased by 1% as the efficiency actions undertaken during
the year more than offset inflationary pressures. As a result our cost to
income ratio, excluding special levies and other contributions, improved by 11
p.p. in the year to 49%. Our cost of risk of 44 bps remained well within our
target range, reflecting healthy asset quality performance. The reported
result was a profit of €71 mn for the year ended 31 December 2022,
reflecting the large restructuring charge we took earlier in the year for our
Voluntary Staff Exit Plan.
In November 2022 we completed Project Helix 3 and derecognised c.€550 mn
NPEs from our balance sheet. Together with further organic NPE reduction of
€360 mn our NPE ratio stood at 4% as at 31 December 2022, achieving our 2022
NPE ratio target of sub-5%.
Our capital position remains robust and comfortably in excess of our
regulatory requirements. We ended the year with a Total Capital ratio and CET1
ratio of 20.6% and 15.4% respectively, both on a transitional basis. Our
liquidity position remains strong, as such our cash balances with ECB
(excluding TLTRO III of €2.0 bn) amounted to €7.6 bn, leaving the Bank
well positioned to benefit from further interest rate increases. Deposits on
our balance sheet remained broadly flat during the quarter but increased by 8%
on the prior year, to €19.0 bn.
Capitalising on this strong performance we are today upgrading our ROTE target
for 2023 to over 13% from over 10%, laying the foundations to commence
meaningful dividend distributions from 2023 onwards, subject to regulatory
approval and market conditions. The ROTE target upgrade is facilitated by our
positive gearing to rising interest rates, the significant contribution from
non-interest income whilst maintaining cost discipline, a healthy loan
portfolio and solid capital position."
Panicos Nicolaou
A. Preliminary Group Financial Results - Statutory Basis
Unaudited Consolidated Income Statement for the year ended 31 December 2022
2022 2021
(restated)*
€000 €000
Turnover 904,213 754,633
Interest income 428,849 360,928
Income similar to interest income 22,119 27,621
Interest expense (65,821) (67,057)
Expense similar to interest expense (14,840) (25,192)
Net interest income 370,307 296,300
Fee and commission income 202,583 180,212
Fee and commission expense (10,299) (8,416)
Net foreign exchange gains 31,291 16,503
Net gains/(losses) on financial instruments 10,052 (21,323)
Net gains on derecognition of financial assets measured at amortised cost 5,235 3,859
Income from assets under insurance and reinsurance contracts 114,681 205,861
Expenses from liabilities under insurance and reinsurance contracts (43,542) (144,817)
Net losses from revaluation and disposal of investment properties (999) (1,828)
Net gains on disposal of stock of property 13,970 13,296
Other income 16,681 14,244
Total operating income 709,960 553,891
Staff costs (294,361) (218,633)
Special levy on deposits and other levies/contributions (38,492) (36,350)
Provisions for pending litigations, regulatory and other matters (net of (11,880) 523
reversals)
Other operating expenses (166,365) (167,711)
Operating profit before credit losses and impairment 198,862 131,720
Credit losses on financial assets (59,529) (46,144)
Impairment net of reversals on non-financial assets (29,549) (49,456)
Profit before tax 109,784 36,120
Income tax (35,812) (4,243)
Profit after tax for the year 73,972 31,877
Attributable to:
Owners of the Company 71,106 29,709
Non-controlling interests 2,866 2,168
Profit for the year 73,972 31,877
Basic and diluted profit per share attributable to the owners of the Company 15.9 6.7
(€ cent)
* Comparative information was restated following certain changes in the
presentation of the primary statements.
A. Preliminary Group Financial Results - Statutory Basis (continued)
Unaudited Consolidated Balance Sheet as at 31 December 2022
2022 2021 (restated)*
Assets €000 €000
Cash and balances with central banks 9,567,258 9,230,883
Loans and advances to banks 204,811 291,632
Derivative financial assets 48,153 6,653
Investments at FVPL 190,209 199,194
Investments at FVOCI 467,375 748,695
Investments at amortised cost 2,046,119 1,191,274
Loans and advances to customers 9,953,252 9,836,405
Life insurance business assets attributable to policyholders 542,321 551,797
Prepayments, accrued income and other assets 639,764 616,219
Stock of property 1,041,032 1,111,604
Investment properties 85,099 117,745
Deferred tax assets 227,521 265,481
Property and equipment 253,378 252,130
Intangible assets 168,322 184,034
Non-current assets and disposal groups held for sale - 358,951
Total assets 25,434,614 24,962,697
Liabilities
Deposits by banks 507,658 457,039
Funding from central banks 1,976,674 2,969,600
Derivative financial liabilities 16,169 32,452
Customer deposits 18,998,319 17,530,883
Insurance liabilities 679,951 736,201
Accruals, deferred income, other liabilities and other provisions 384,004 361,977
Provisions for pending litigation, claims, regulatory and other matters 127,607 104,108
Debt securities in issue 297,636 302,555
Subordinated liabilities 302,104 340,220
Deferred tax liabilities 43,822 46,435
Total liabilities 23,333,944 22,881,470
Equity
Share capital 44,620 44,620
Share premium 594,358 594,358
Revaluation and other reserves 178,240 213,192
Retained earnings 1,041,152 986,623
Equity attributable to the owners of the Company 1,858,370 1,838,793
Other equity instruments 220,000 220,000
Non‑controlling interests 22,300 22,434
Total equity 2,100,670 2,081,227
Total liabilities and equity 25,434,614 24,962,697
* Comparative information was restated following certain changes in the
presentation of the primary statements.
B. Preliminary Group Financial Results - Underlying Basis
Unaudited Consolidated Income Statement
€ mn FY2022 FY2021 4Q2022 3Q2022 2Q2022 1Q2022 qoq +% yoy +%
(restated)(1)
Net interest income 370 296 136 89 74 71 53% 25%
Net fee and commission income 192 172 50 48 50 44 4% 12%
Net foreign exchange gains and net gains/(losses) on financial instruments 36 25 12 13 5 6 -8% 45%
Insurance income net of claims and commissions 71 61 23 15 17 16 53% 17%
Net gains/(losses) from revaluation and disposal of investment properties and 13 13 2 4 2 5 -36% 4%
on disposal of stock of properties
Other income 17 14 5 3 5 4 57% 17%
Total income 699 581 228 172 153 146 33% 20%
Staff costs (190) (202) (44) (46) (50) (50) -6% -6%
Other operating expenses (153) (145) (45) (35) (37) (36) 25% 5%
Special levy on deposits and other levies/contributions (38) (36) (11) (10) (7) (10) 17% 6%
Total expenses (381) (383) (100) (91) (94) (96) 9% -1%
Operating profit 318 198 128 81 59 50 60% 62%
Loan credit losses (47) (66) (11) (13) (11) (12) -10% -30%
Impairments of other financial and non-financial assets (33) (36) (13) (7) (8) (5) 72% -9%
Provisions for pending litigations, regulatory and other matters (net of (11) 2 (8) (2) (1) (0) 202% -
reversals)
Total loan credit losses, impairments and provisions (91) (100) (32) (22) (20) (17) 42% -8%
Profit before tax and non-recurring items 227 98 96 59 39 33 67% 133%
Tax (36) (5) (16) (8) (6) (6) 94% -
Profit attributable to non-controlling interests (3) (2) (1) (1) (1) 0 -16% 32%
Profit after tax and before non-recurring items (attributable to the owners of 188 91 79 50 32 27 64% 107%
the Company)
Advisory and other restructuring costs - organic (11) (22) (1) (5) (4) (1) -70% -48%
Profit after tax - organic (attributable to the owners of the Company) 177 69 78 45 28 26 78% 155%
Provisions/net profit/(loss) relating to NPE sales(2) 1 (7) 2 (1) 1 (1) - -109%
Restructuring and other costs relating to NPE sales(2) (3) (16) 0 (2) 0 (1) -79% -82%
Restructuring costs - Voluntary Staff Exit Plan (VEP) (104) (16) - (101) - (3) -100% -
Profit/(loss) after tax (attributable to the owners of the Company) 71 30 80 (59) 29 21 - 139%
B. Preliminary Group Financial Results - Underlying Basis (continued)
Unaudited Consolidated Income Statement- Key Performance Ratios
Key Performance Ratios(3) FY2022 FY2021 4Q2022 3Q2022 2Q2022 1Q2022 qoq +% yoy +%
Net Interest Margin (annualised) 1.65% 1.45% 2.36% 1.53% 1.33% 1.32% 83 bps 20 bps
Cost to income ratio 54% 66% 44% 53% 61% 66% -9 p.p. -12 p.p.
Cost to income ratio excluding special levy on deposits and other 49% 60% 38% 47% 57% 59% -9 p.p. -11 p.p.
levies/contributions
Operating profit return on average assets (annualised) 1.2% 0.8% 2.0% 1.2% 0.9% 0.8% 80 bps 40 bps
Basic earnings/(losses) per share attributable to the owners of the Company 15.94 6.66 17.98 (13.27) 6.45 4.78 31.25 9.28
(€ cent)
Basic earnings after tax and before non-recurring items per share attributable 42.35 20.50 17.92 10.91 7.31 6.20 7.01 21.85
to the owners of the Company (€ cent)
Return on tangible equity (ROTE) after tax and before non-recurring items 11.3% 5.5% 19.1% 11.7% 7.8% 6.7% 7.4 p.p. 5.8 p.p.
(annualised)
Return on tangible equity (ROTE) 4.3% 1.8% 19.2% (14.2%) 6.9% 5.2% 33.4 p.p. 2.5 p.p.
1. Comparative information was restated following a reclassification of
approximately €1 million loss relating to disposal/dissolution of
subsidiaries and associates from 'Net foreign exchange gains and net
gains/(losses) on financial instruments' to 'Other income'.
2. 'Provisions/net loss relating to NPE sales' refer to the net loss on
transactions completed during the year/period, whilst 'Restructuring and other
costs relating to NPE sales' refer mainly to the costs relating to these
trades. For further details please refer to Section B.2.4.
3. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Commentary on Underlying Basis
The financial information presented in this Section provides an overview of
the preliminary Group financial results for the year ended 31 December 2022 on
an 'underlying basis', which the management believes best fits the true
measurement of the performance and position of the Group, as this presents
separately the exceptional and one-off items.
Reconciliations between the statutory basis and the underlying basis are
included in Section B.1 'Unaudited reconciliation of consolidated income
statement for the year ended 31 December 2022 between statutory basis and
underlying basis' and will also be available in the Annual Financial Report
for the year ended 31 December 2022 under 'Definitions and Explanations on
Alternative Performance Measures', to facilitate the comparability of the
underlying basis to the statutory information.
Please note the following in relation to the disclosure of pro forma figures
and ratios throughout this announcement.
Project Helix 3 refers to the agreement the Group reached in November 2021
with funds affiliated with PIMCO, for the sale of a portfolio of gross loans
with gross book value of €555 mn (of which €551 mn relate to NPEs), as
well as real estate properties with book value of €88 mn, as at 30 September
2022. Project Helix 3 was completed in November 2022.
Project Sinope refers to the agreement the Group reached in December 2021 for
the sale of a portfolio of NPEs with gross book value of €12 mn, as well as
properties in Romania with carrying value of €0.6 mn as at 31 December 2021.
Project Sinope was completed in August 2022.
Any references to pro forma figures and ratios as at 30 September 2022 refer
to Project Helix 3 whilst references to pro forma figures and ratios as at 31
December 2021 refer to both Project Helix 3 and Project Sinope and will be
referred to as "Pro forma for held for sale" or "Pro forma for HFS".
B. Preliminary Group Financial Results- Underlying Basis (continued)
Unaudited Consolidated Balance Sheet
€ mn 31.12.2022 31.12.2021 +%
Cash and balances with central banks 9,567 9,231 4%
Loans and advances to banks 205 292 -30%
Debt securities, treasury bills and equity investments 2,703 2,139 26%
Net loans and advances to customers 9,953 9,836 1%
Stock of property 1,041 1,112 -6%
Investment properties 85 118 -28%
Other assets 1,881 1,876 0%
Non-current assets and disposal groups held for sale 0 359 -100%
Total assets 25,435 24,963 2%
Deposits by banks 508 457 11%
Funding from central banks 1,977 2,970 -33%
Customer deposits 18,998 17,531 8%
Debt securities in issue 298 303 -2%
Subordinated liabilities 302 340 -11%
Other liabilities 1,251 1,281 -2%
Total liabilities 23,334 22,882 2%
Shareholders' equity 1,859 1,839 1%
Other equity instruments 220 220 -
Total equity excluding non-controlling interests 2,079 2,059 1%
Non-controlling interests 22 22 -1%
Total equity 2,101 2,081 1%
Total liabilities and equity 25,435 24,963 2%
Key Balance Sheet figures and ratios 31.12.2022 31.12.2021(1) +(2)
Gross loans (€ mn) 10,217 10,856 -6%
Allowance for expected loan credit losses (€ mn) 282 792 -64%
Customer deposits (€ mn) 18,998 17,531 8%
Loans to deposits ratio (net) 52% 57% -5 p.p.
NPE ratio 4.0% 12.4% -8.4 p.p.
NPE coverage ratio 69% 59% +10 p.p.
Leverage ratio 7.5% 7.5% -
Capital ratios and risk weighted assets 31.12.2022 31.12.2021(1) +(2)
Common Equity Tier 1 (CET1) ratio (transitional)(2) 15.4% 15.1% 30 bps
Total capital ratio (transitional) 20.6% 20.0% 60 bps
Risk weighted assets (€ mn) 10,114 10,694 -5%
1. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant. 2. The CET1 fully loaded ratio as at 31
December 2022 amounts to 14.7% (compared to 13.5% and 13.9% pro forma for
Helix 3 as at 30 September 2022 and to 13.7% and 14.3% pro forma for HFS as at
31 December 2021). p.p. = percentage points, bps = basis points, 100 basis
points (bps) = 1 p.p.
B. Preliminary Group Financial Results- Underlying Basis (continued)
B.1 Unaudited reconciliation of consolidated income statement for the year
ended 31 December 2022 between statutory basis and underlying basis
€ million Underlying basis NPE Other Statutory
basis
Sales
Net interest income 370 - - 370
Net fee and commission income 192 - - 192
Net foreign exchange gains and net gains on financial instruments 36 - 5 41
Net gains on derecognition of financial assets measured at amortised cost - - 5 5
Insurance income net of claims and commissions 71 - - 71
Net gains from revaluation and disposal of investment properties and on 13 - - 13
disposal of stock of properties
Other income 17 - - 17
Total income 699 - 10 709
Total expenses (381) (3) (126) (510)
Operating profit 318 (3) (116) 199
Loan credit losses (47) 1 46 -
Impairments of other financial and non-financial assets (33) - 33 -
Provisions for pending litigations, regulatory and other matters (net of (11) - 11 -
reversals)
Credit losses on financial assets and impairment net of reversals of - - (89) (89)
non-financial assets
Profit before tax and non-recurring items 227 (2) (115) 110
Tax (36) - - (36)
Profit attributable to non-controlling interests (3) - - (3)
Profit after tax and before non-recurring items (attributable to the owners of 188 (2) (115) 71
the Company)
Advisory and other restructuring costs - organic (11) - 11 -
Profit after tax - organic* (attributable to the owners of the Company) 177 (2) (104) 71
Provisions/net profit relating to NPE sales 1 (1) - -
Restructuring and other costs relating to NPE sales (3) 3 - -
Restructuring costs - Voluntary Staff Exit Plans (VEP) (104) - 104 -
Profit after tax (attributable to the owners of the Company) 71 - - 71
*This is the profit after tax (attributable to the owners of the Company),
before the provisions/net profit relating to NPE sales, related restructuring
and other costs, and restructuring costs related to Voluntary Staff Exit Plans
(VEP).
The reclassification differences between the statutory basis and the
underlying basis mainly relate to the impact from 'non-recurring items' and
are explained as follows:
NPE sales
· Total expenses under the statutory basis include
restructuring costs of €3 million relating to the agreements for the sale of
portfolios of NPEs and are presented within 'Restructuring and other costs
relating to NPE sales ' under the underlying basis.
· Loan credit losses under the statutory basis include a
reversal of loan credit losses relating to Project Helix 3 of approximately
€1 million and are disclosed within 'Provisions/net profit relating to NPE
sales' under the underlying basis.
Other reclassifications
· Net gains on loans and advances to customers at FVPL of
€4 million included in 'Loan credit losses' under the underlying basis are
included in 'Net gains on financial instruments' under the statutory basis.
Their classification under the underlying basis is done to align their
presentation with the loan credit losses on loans and advances to customers at
amortised cost.
B. Preliminary Group Financial Results- Underlying Basis (continued)
B.1 Unaudited reconciliation of consolidated income statement for the year
ended 31 December 2022 between statutory basis and underlying basis
(continued)
· 'Net gains on derecognition of financial assets measured at
amortised cost' of €5 million under the statutory basis comprise of the
below items which are reclassified accordingly under the underlying basis as
follows:
· €6 million net gains on derecognition of loans and advances to customers
included in 'Loan credit losses' under the underlying basis as to align to the
presentation of the loan credit losses arising from loans and advances to
customers.
· Net losses on derecognition of debt securities measured
at amortised cost of approximately €1 million included in 'Net foreign
exchange gains and net gains on financial instruments' under the underlying
basis in order to align their presentation with the gains/(losses) arising on
financial instruments.
· Provisions for pending litigations, regulatory and
other matters (net of reversals) amounting to €11 million included in 'Total
expenses' under the statutory basis, are separately presented under the
underlying basis in conjunction with loan credit losses and impairments.
· Advisory and other restructuring costs of
approximately €11 million included in 'Other operating expenses' under the
statutory basis are separately presented under the underlying basis since they
comprise mainly fees to external advisors in relation to the transformation
programme and other strategic projects of the Group.
· Total expenses under the statutory basis include
restructuring costs relating to Voluntary Staff Exit Plans (VEP) of €104
million and are separately presented under the underlying basis, since they
represent one-off items.
· '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 loan and advances to customers of
€56 million, which are included in 'Loan credit losses' under the underlying
basis, and ii) credit losses of other financial instruments of €3 million
and impairment net of reversals of non-financial assets of €30 million which
are included in 'Impairments of other financial and non-financial assets'
under the underlying basis, as to be presented separately from loan credit
losses.
B. Preliminary Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis
B.2.1 Capital Base
Total equity excluding non-controlling interests totalled €2,079 mn as at 31
December 2022 compared to €2,017 mn as at 30 September 2022, and to €2,059
mn at 31 December 2021. Shareholders' equity totalled €1,859 mn as at 31
December 2022 compared to €1,797 mn as at 30 September 2022 and to €1,839
mn at 31 December 2021.
The Common Equity Tier 1 capital (CET1) ratio on a transitional basis stood at
15.4% as at 31 December 2022, compared to 14.2% as at 30 September 2022 and
14.7% pro forma for Helix 3 and to 15.1% as at 31 December 2021 (and 15.8% pro
forma for held for sale portfolios (referred to as 'pro forma for HFS')).
During 4Q2022, CET1 ratio was positively affected by pre-provision income and
the reduction in risk weighted assets (mainly as a result of the completion of
Project Helix 3), and negatively affected by provisions and impairments as
well as the payment of AT1 coupon. Throughout this announcement, the capital
ratios as at 31 December 2022 include unaudited/preliminary profits for
FY2022.
The Group has elected to apply the EU transitional arrangements for regulatory
capital purposes (EU Regulation 2017/2395) where the impact on the impairment
amount from the initial application of IFRS 9 on the capital ratios is
phased-in gradually, with the impact being fully phased-in (100%) by 1 January
2023. The final phasing-in of the impact of the impairment amount from the
initial application of IFRS 9 is c.65 bps on the CET1 ratio on 1 January 2023.
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 26 bps on Group's CET1 ratio as at 31
December 2022. The reduction of the impact since 30 September 2022 is mainly
the result of impairments recognised during the quarter.
The CET1 ratio on a fully loaded basis amounted to 14.7% as at 31 December
2022 compared to 13.5% as at 30 September 2022 (and 13.9% pro forma for Helix
3), and to 13.7% as at 31 December 2021 (and 14.3% pro forma for HFS).
The CET1 ratio including the final impact of IFRS 9 phasing in on 1 January
2023 and also the €50 mn dividend relating to IFRS 17, distributed to the
Bank in February 2023 is estimated at 15.2%.
The Total Capital ratio stood at 20.6% as at 31 December 2022, compared to
19.1% as at 30 September 2022 (and 19.8% pro forma for Helix 3), and to 20.0%
as at 31 December 2021 (and 20.8% pro forma for HFS).
The Group's capital ratios are above the Supervisory Review and Evaluation
Process (SREP) requirements.
The Group's minimum phased-in CET1 capital ratio requirement as at 31 December
2022 was set at 10.10% comprising a 4.50% Pillar I requirement, a 1.83% Pillar
II requirement, the Capital Conservation Buffer of 2.50%, the O-SII Buffer of
1.25% and the Countercyclical Buffer (CCyB) of 0.02%. The Group's minimum
phased-in Total Capital ratio requirement as at 31 December 2022 was set at
15.03% comprising an 8.00% Pillar I requirement, of which up to 1.50% can be
in the form of AT1 capital and up to 2.00% in the form of T2 capital, a 3.26%
Pillar II requirement, the Capital Conservation Buffer of 2.50%, the O-SII
Buffer of 1.25% and the CCyB of 0.02%. The Pillar 2 included an add-on of
0.26% relating to the ECB's prudential provisioning expectations as per the
2018 ECB Addendum and subsequent ECB announcements and press release in July
2018 and August 2019. Pillar II add-on capital requirements derive from the
SREP, which is a point in time assessment, and are therefore subject to change
over time. The ECB had also provided revised lower non-public guidance for an
additional Pillar II CET1 buffer (P2G) for 2022.
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 since
November 2021 the O-SII buffer has been set to 1.50%. This buffer is being
phased-in gradually, having started from 1 January 2019 at 0.50%. The O-SII
buffer as at 31 December 2022 stood at 1.25% and has been fully phased-in on 1
January 2023.
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.
Following the annual SREP performed by the ECB in 2022 and based on the final
SREP decision received in December 2022, effective from 1 January 2023, the
Pillar II requirement has been revised to 3.08%, compared to the previous
level of 3.26%. The Pillar II requirement includes a revised Pillar II
requirement add-on of 0.33% relating to ECB's prudential provisioning
expectations. When ignoring the Pillar II add-on relating to ECB's prudential
provisioning expectations, the Pillar 2 requirement has been reduced from
3.00% to 2.75%.
B. Preliminary Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
The Group's minimum phased-in CET1 capital ratio and Total Capital ratio
requirements were reduced when ignoring the phasing in of the Other
Systemically Important Institution Buffer. The Group's minimum phased-in CET1
capital ratio is set at 10.25%, 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 0.02%. The Group's minimum phased-in
Total Capital ratio requirement is set at 15.10%, 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 0.02%.
The ECB has also maintained the non-public guidance for an additional Pillar
II CET1 buffer (P2G) unchanged.
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. The new rate of 0.50% must be observed as
from 30 November 2023. Based on the above, the CCyB for the Group is
expected to increase.
Based on the SREP decision, the Company (Bank of Cyprus Holdings PLC) and the
Bank were under a regulatory prohibition for equity dividend distribution and
hence no dividends were declared or paid during 2021-2022. This prohibition
does not apply if the distribution is made via the issuance of new ordinary
shares to the shareholders, which are eligible as CET1 capital. No prohibition
applies to the payment of coupons on any AT1 capital instruments issued by the
Company or the Bank. Based on the final 2021 SREP Decision, the previous
restriction on variable pay was lifted.
Following the 2022 SREP decision effective from 1 January 2023, the equity
dividend distribution prohibition was lifted for both the Company and the
Bank, with any dividend distribution being subject to regulatory approval.
Other equity instruments
At 31 December 2022, the Group's other equity instruments amounted to €220
mn flat both to the prior quarter and prior year and relates to Additional
Tier 1 Capital Securities (the "AT1 securities").
The AT1 securities constitute unsecured and subordinated obligations of the
Company. They carry a coupon of 12.50% per annum, payable semi-annually in
arrears and resettable every five years. The AT1 securities are perpetual and
can be redeemed at the option of the Company on the fifth anniversary of the
issue date (i.e. 19 December 2023) and each subsequent fifth anniversary,
subject to applicable regulatory consents. If the AT1 securities are not
called, the coupon will reset on the fifth anniversary of the issue date
(i.e.19 December 2023).
The Group continues to monitor opportunities for the optimisation of its
capital position.
Voluntary Staff Exit Plan
In July 2022, the Group completed a Voluntary Staff Exit Plan, resulting in a
negative impact of c.95 bps both on the Group's CET1 and Total Capital ratios
as at 30 September 2022. For further information please refer to Section
B.3.2 "Total expenses".
Project Helix 3
In November 2022, Project Helix 3 was completed resulting in a positive
capital impact of c.50 bps on the Group's CET1 ratio mainly from the release
of risk weighted assets on completion. For further information please refer to
Section B.2.5 "Loan portfolio quality".
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific deferred tax
assets (DTA) into deferred tax credits (DTC) became effective in March 2019.
The law amendments cover the utilisation of income tax losses transferred from
Laiki Bank to the Bank in March 2013. The introduction of 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 profitability', according to
CRR/CRD IV and as a result not deducted from CET1, hence improving a credit
institution's capital position.
B. Preliminary Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
Legislative amendments for the conversion of DTA to DTC (continued)
In response to concerns raised by the European Commission with regard to the
provision of state aid arising out of the treatment of such tax losses, the
Cyprus Government has proceeded with the adoption of modifications to the Law,
including requirements for an additional annual fee over and above the 1.5%
annual guarantee fee already provided for in the Law, to maintain the
conversion of such DTAs into tax credits. In May 2022 the Cyprus Parliament
voted these amendments which became effective since then. As prescribed by the
amendments in the Law, the annual fee is to be determined by the Cyprus
Government on an annual basis, providing however 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 mn per year, and also allowing for a higher amount to
be charged in the year the amendments are effective (i.e. in 2022).
The Group since prior years, in anticipation of modifications in the Law,
acknowledged that such increased annual fee may be required to be recorded on
an annual basis until expiration of such losses in 2028. The Group estimates
that such fees could range up to c.€5 mn per year (for each tax year in
scope i.e. since 2018) although the Group understands that such fee may
fluctuate annually as to be determined by the Ministry of Finance. An amount
of €4.8 mn was recorded in FY2022.
B.2.2 Regulations and Directives
B.2.2.1 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 IV and
the BRRD (the "2021 Banking Package"). Amongst other things, the 2021 Banking
Package would implement certain elements of Basel III that have not yet been
transposed into EU law. The 2021 Banking Package is subject to amendment in
the course of the EU's legislative process; and its scope and terms may change
prior to its implementation. In addition, in the case of the proposed
amendments to CRD IV and the BRRD, their terms and effect will depend, in
part, on how they are transposed in each member state. As a general matter, it
is likely to be several years until the 2021 Banking Package begins to be
implemented (currently expected in 2025); and certain measures are expected to
be subject to transitional arrangements or to be phased in over time.
B.2.2.2 Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that from January
2016 EU member states shall apply the BRRD's provisions requiring EU credit
institutions and certain investment firms to maintain a minimum requirement
for own funds and eligible liabilities (MREL), subject to the provisions of
the Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part
of the reform package for strengthening the resilience and resolvability of
European banks, the BRRD ΙΙ came into effect and was required to be
transposed into national law. BRRD II was transposed and implemented in Cyprus
law in early May 2021. In addition, certain provisions on MREL have been
introduced in CRR ΙΙ which also came into force on 27 June 2019 as part of
the reform package and took immediate effect.
In February 2023, the Bank received notification from the Single Resolution
Board (SRB) of the final decision for the binding minimum requirement for own
funds and eligible liabilities (MREL) for the Bank, determined as the
preferred resolution point of entry. As per the decision, the final MREL
requirement was set at 24.35% of risk weighted assets and 5.91% of Leverage
Ratio Exposure (LRE) (as defined in the CRR) and must be met by 31 December
2025. Furthermore, the binding interim requirement of 1 January 2022 set at
14.94% of risk weighted assets and 5.91% of LRE must continue to be met. The
own funds used by the Bank to meet the Combined Buffer Requirement (CBR) are
not eligible to meet its MREL requirements expressed in terms of risk-weighted
assets. The Bank must comply with the MREL requirement at the consolidated
level, comprising the Bank and its subsidiaries.
The MREL ratio of the Bank as at 31 December 2022, calculated according to the
SRB's eligibility criteria currently in effect and based on the Bank's
internal estimate, stood at 21.42% of risk weighted assets (RWA) and at 10.13%
of LRE. The MREL ratio expressed as a percentage of risk weighted assets does
not include capital used to meet the CBR amount, which stands at 3.77% since 1
January 2022 and is expected to increase to 4.02% on 1 January 2023.
Throughout this announcement, the MREL ratios as at 31 December 2022 include
unaudited/preliminary profits for FY2022.
The Bank will continue to evaluate opportunities to advance the build-up of
its MREL liabilities.
B. Preliminary Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.3 Funding and Liquidity
Funding
Funding from Central Banks
At 31 December 2022, the Bank's funding from central banks amounted to
€1,977 mn, which relates to ECB funding, comprising solely of funding
through the Targeted Longer-Term Refinancing Operations (TLTRO) III, compared
to €2,952 mn at 30 September 2022 and to €2,970 mn as at 31 December 2021.
The Bank borrowed an overall amount of €3 bn under TLTRO III by June 2021,
despite its comfortable liquidity position, given the favourable borrowing
terms, in combination with the relaxation of collateral requirements.
The Bank exceeded the benchmark net lending threshold in the period 1 March
2020 - 31 March 2021 and qualified for the beneficial rate of -1% for the
period from June 2020 to June 2021. The NII benefit from its TLTRO III
borrowing for the period from June 2020 to June 2021 stood at c.€7 mn and
was recognised over the respective period in the income statement.
In addition, the Bank has exceeded the benchmark net lending threshold in the
period 1 October 2020 - 31 December 2021 and qualified for a beneficial rate
for the period from June 2021 to June 2022. The NII benefit from its TLTRO III
borrowing for the period from June 2021 to June 2022 stood at c.€15 mn and
was recognised over the respective period in the income statement.
The Group recognised an additional net NII benefit of c.€8 mn from the TLTRO
III borrowing for the period 24 June 2022 to 22 November 2022, of which c.€5
mn was recognised in the income statement in 4Q2022.
Following the changes in the terms of the TLTRO III announced by the ECB in
October 2022, and given the Bank's strong liquidity position, the Bank
proceeded with the repayment of €1 bn TLTRO III funding in December 2022.
Deposits
Customer deposits totalled €18,998 mn at 31 December 2022 (compared to
€18,792 mn at 30 September 2022 and to €17,531 mn at 31 December 2021)
broadly flat in the fourth quarter and increased by 8% since the year end.
The Bank's deposit market share in Cyprus reached 37.2% as at 31 December
2022, compared to 37.1% as at 30 September 2022 and to 34.8% as at 31 December
2021. Customer deposits accounted for 75% of total assets and 81% of total
liabilities at 31 December 2022 (4 p.p. up since 31 December 2021).
The net loans to deposits (L/D) ratio stood at 52% as at 31 December 2022
(compared to 55% as at 30 September 2022 and to 57% as at 31 December 2021 on
the same basis), reflecting the ongoing increase in customer deposits and the
derecognition of Helix 3 portfolio following completion.
Subordinated liabilities
At 31 December 2022, the Group's subordinated liabilities (including accrued
interest) amounted to €302 mn (compared to €317 mn at 30 September 2022
and €340 mn at 31 December 2021) 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 31 December 2022, the Group's debt securities in issue (including accrued
interest) amounted to €298 mn (compared to €299 mn at 30 September 2022
and €303 mn at 31 December 2021) and relate to senior preferred notes.
B. Preliminary Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.3 Funding and Liquidity (continued)
Debt securities in issue (continued)
In June 2021, the Bank executed its inaugural MREL transaction issuing €300
mn of senior preferred notes (the "SP Notes"). The SP Notes were priced at par
with a fixed coupon of 2.50% per annum, payable annually in arrears and
resettable on 24 June 2026. The maturity date of the SP Notes is 24 June 2027
and the Bank may, at its discretion, redeem the SP Notes on 24 June 2026,
subject to meeting certain conditions as specified in the Terms and
Conditions, including applicable regulatory consents. The SP Notes comply with
the criteria for MREL and contribute towards the Bank's MREL requirements.
Liquidity
At 31 December 2022, the Group Liquidity Coverage Ratio (LCR) stood at 291%
(compared to 300% at 30 September 2022 and to 298% at 31 December 2021), well
above the minimum regulatory requirement of 100%. The LCR surplus as at 31
December 2022 amounted to €7.2 bn (compared to €6.8 bn at 30 September
2022 and €6.3 bn at 31 December 2021), well positioned to benefit from
further interest rate increases. The increase in liquidity surplus in 4Q2022
reflects primarily the increase in customer deposits and the cash
consideration received with Helix 3 completion.
At 31 December 2022, the Group Net Stable Funding Ratio (NSFR) stood at 168%
(compared to 160% at 30 September 2022 and 147% at 31 December 2021), well
above the minimum regulatory requirement of 100%.
B.2.4 Loans
Group gross loans totalled €10,217 mn at 31 December 2022, compared to
€10,913 mn at 30 September 2022 and €10,856 mn at 31 December 2021,
reduced by 6% since the beginning of the year attributed mainly to the
completion of Project Helix 3.
New lending granted in Cyprus reached €444 mn for 4Q2022 (compared to €489
mn for 3Q2022, €537 mn for 2Q2022 and €622 mn for 1Q2022) and totalled a
record of €2,092 mn for FY2022 (compared to €1,792 mn for FY2021) up by
17% yoy, whilst maintaining strict lending criteria. The yoy increase is
driven by the increase in lending activity across all sectors, with corporate
being the main driver. New lending in 4Q2022 comprised €234 mn of corporate
loans, €165 mn of retail loans (of which €122 mn were housing loans),
€44 mn of SME loans and €1 mn of shipping and international loans.
At 31 December 2022, the Group net loans and advances to customers totalled
€9,953 mn (compared to €10,088 mn at 30 September 2022 and €9,836 mn at
31 December 2021, excluding those classified as held for sale), increased by
1% since the beginning of the year.
The Bank is the largest credit provider in Cyprus with a market share of 40.9%
at 31 December 2022, compared to 41.1% at 30 September 2022 and 38.8% at 31
December 2021, increased by 2 p.p. yoy despite the derecognition of Helix 3
portfolio following completion.
B.2.5 Loan portfolio quality
The Group has continued to make steady progress across all asset quality
metrics. As the balance sheet de-risking is largely complete, the Group's
priorities remain unchanged; maintaining high quality new lending with strict
underwriting standards and preventing asset quality deterioration following
the ongoing macroeconomic uncertainty.
The loan credit losses for 4Q2022 totalled €11 mn (excluding 'Provisions/net
(loss)/profit relating to NPE sales'), compared to €13 mn for 3Q2022 and
totalled €47 mn for FY2022, compared to €66 mn for FY2021. Further details
regarding loan credit losses are provided in Section B.3.3 'Profit before tax
and non-recurring items'.
The elevated inflation combined with the rising interest rate environment are
expected to weigh on the purchasing power of the Bank's customers. Despite
these persisting pressures there are no signs of asset quality deterioration
to date. While defaults have been limited, the additional monitoring and
provisioning for sectors vulnerable to the deteriorated 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.
B. Preliminary Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
Non-performing exposures reduction
Non-performing exposures (NPEs) as defined by the European Banking Authority
(EBA) were reduced by €607 mn, or 60% in 4Q2022, compared to a reduction of
€150 mn in 3Q2022, to €411 mn at 31 December 2022 (compared to €1,018 mn
at 30 September 2022 and €1,343 mn at 31 December 2021). The reduction in
4Q2022 is mainly driven by the completion of Project Helix 3 of €550 mn and
the net organic NPE reductions of €57 mn (inflows minus outflows).
As a result, the NPEs account for 4.0% of gross loans as at 31 December 2022,
compared to 9.3% at 30 September 2022 and 12.4% as at 31 December 2021.
The NPE coverage ratio stands at 69% at 31 December 2022, compared to 60% as
at 30 September 2022 and 59% as at 31 December 2021. When taking into account
tangible collateral at fair value, NPEs are fully covered.
Project Helix 3
In November 2022, the Group completed Project Helix 3, that refers to the sale
of a portfolio of loans with a gross book value of €555 mn (of which €551
mn relate to non-performing exposures), as well as real estate properties with
a book value of €88 mn as at 30 September 2022, to funds managed by Pacific
Investment Management Company LLC, the agreement for which was announced on 15
November 2021.
Cash consideration of c.€350 mn was received by completion, reflecting
adjustments resulting from, inter alia, loan repayments received on the
Portfolio since the reference date of 31 May 2021.
The Transaction represented a milestone in the successful delivery of one of
the Group's strategic priorities of improving asset quality through the
reduction of NPEs with the NPE ratio reducing below 5%.
Project Sinope
In December 2021, the Bank entered into an agreement for the sale of a
portfolio of NPEs, with a contractual balance of €146 mn and a gross book
value of €12 mn as at 31 December 2021, as well as properties in Romania
with carrying value €0.6 mn as at 31 December 2021 (known as 'Project
Sinope'). Project Sinope was completed in August 2022.
Overall, since the peak in 2014 and following the completion of Helix 3, the
stock of NPEs has been reduced by €14.6 bn or 97% to €0.4 bn and the NPE
ratio by 59 percentage points, from 63% to 4%.
B.2.6 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) is focused on the disposal of
on-boarded properties resulting from debt for asset swaps. Cumulative sales
since the beginning of 2017 amount to €1.5 bn and exceed properties
on-boarded in the same period of €1.4 bn.
The Group completed disposals of €162 mn in FY2022 (compared to €140 mn in
FY2021), resulting in a profit on disposal of €16 mn for FY2022 (compared to
a profit of €14 mn for FY2021). Asset disposals are across all property
classes, with half of sales by value in FY2022 relating to land.
During FY2022, the Group executed sale-purchase agreements (SPAs) for
disposals of 674 properties with contract value of €184 mn, compared to SPAs
for disposals of 703 properties, with contract value of €149 mn for FY2021.
In addition, the Group had a strong pipeline of €70 mn by contract value as
at 31 December 2022, of which €47 mn related to SPAs signed (compared to a
pipeline of €109 mn as at 31 December 2021, of which €47 mn related to
SPAs signed).
REMU on-boarded €86 mn of assets in FY2022 (compared to additions of €34
mn in FY2021), via the execution of debt for asset swaps and repossessed
properties.
The carrying value of assets held by REMU that were classified as "non-current
assets and disposal groups held for sale" since 2021 and amounting to €88 mn
as at 30 September 2022 were derecognised with the completion of Project Helix
3. They comprised stock of properties of €83 mn and investment properties of
€5 mn.
As at 31 December 2022, assets held by REMU had a carrying value of €1,116
mn (comprising properties of €1,041 mn classified as 'Stock of property' and
€75 mn as 'Investment properties'), compared to €1,215 mn as at 31
December 2021 (comprising properties of €1,112 mn classified as 'Stock of
property' and €103 mn as 'Investment properties').
B. Preliminary Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.6 Real Estate Management Unit (REMU) (continued)
Assets held by REMU
Assets held by REMU (Group) FY2022 FY2021 4Q2022 3Q2022 qoq +% yoy +%
€ mn
Opening balance 1,215 1,473(1) 1,161 1,146 1% -17%
On-boarded assets 86 34 2 58 -96% 150%
Sales (162) (140)(2) (37) (38) 0% 17%
Net impairment loss (23) (50) (10) (5) 82% -54%
Transfer to non-current assets and disposal groups held for sale - (102) - - -100%
Closing balance 1,116 1,215 1,116 1,161 -4% -8%
1 . Following
certain segmental reclassifications to better align with current management
information, investment properties of €16 mn relating to land, were
transferred under REMU.
2 . Sales in FY2021
have been adjusted to include properties of €5 mn relating to Project Helix
2 that had been transferred to non-current assets and disposal groups held for
sale in 1Q2021.
Analysis by type and country Cyprus Greece Romania Total
31 December 2022 (€ mn)
Residential properties 69 21 0 90
Offices and other commercial properties 180 14 0 194
Manufacturing and industrial properties 48 19 0 67
Hotels 24 0 0 24
Land (fields and plots) 502 4 0 506
Golf courses and golf-related property 235 0 0 235
Total 1,058 58 0 1,116
Cyprus Greece Romania Total
31 December 2021 (€ mn)
Residential properties 82 23 0 105
Offices and other commercial properties 208 23 0 231
Manufacturing and industrial properties 54 24 0 78
Hotels 25 - - 25
Land (fields and plots) 524 5 1 530
Golf courses and golf-related property 246 - - 246
Total 1,139 75 1 1,215
B. Preliminary Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis
B.3.1 Total income
€ mn FY2022 FY2021 4Q2022 3Q2022 2Q2022 1Q2022 qoq +% yoy +%
(restated(1))
Net interest income 370 296 136 89 74 71 53% 25%
Net fee and commission income 192 172 50 48 50 44 4% 12%
Net foreign exchange gains and net gains/(losses) on financial instruments 36 25 12 13 5 6 -8% 45%
Insurance income net of claims and commissions 71 61 23 15 17 16 53% 17%
Net gains/(losses) from revaluation and disposal of investment properties and 13 13 2 4 2 5 -36% 4%
on disposal of stock of properties
Other income 17 14 5 3 5 4 57% 17%
Non-interest income 329 285 92 83 79 75 11% 16%
Total income 699 581 228 172 153 146 33% 20%
Net Interest Margin (annualised)(2) 1.65% 1.45% 2.36% 1.53% 1.33% 1.32% 83 bps 20 bps
Average interest earning assets 22,483 20,436 22,855 22,997 22,436 21,942 -1% 10%
(€ mn)(2)
1. Comparative information was restated following a reclassification of
approximately €1 million loss relating to disposal/dissolution of
subsidiaries and associates from 'Net foreign exchange gains and net
gains/(losses) on financial instruments' to 'Other income'
2. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Net interest income (NII) for FY2022 amounted to €370 mn (including NII of
c.€12 mn relating to Helix 3 which was completed in November 2022), compared
to €296 mn in FY2021. The yoy increase of 25% reflects positive gearing to
higher rates and to a lesser extend the growth of the performing loan book and
fixed income portfolio, notwithstanding the foregone NII on the Helix 2
portfolio (c.€15 mn in FY2021). Net interest income (NII) for 4Q2022
amounted to €136 mn, compared to €89 mn for 3Q2022, up 53% qoq, driven by
the immediate liquid assets repricing (including fixed income portfolio) and
Euribor repricing.
Average interest earning assets (AIEA) for FY2022 amounted to €22,483 mn, up
by 10% yoy driven by the increase in liquid assets as a result of the increase
in deposits by €1.5 bn yoy and the increase in the fixed income portfolio by
c.€0.6 bn yoy. Quarterly average interest earning assets for 4Q2022
decreased by 1%, driven by the repayment of the TLTRO III borrowing of €1 bn
in December 2022.
Net interest margin (NIM) for FY2022 amounted to 1.65% (compared to 1.45% for
FY2021) supported by the rising interest rate environment. Net interest margin
(NIM) for 4Q2022 stood at 2.36%, up 83 bps qoq, attributed by the repricing of
liquid assets and loans.
Non-interest income for FY2022 amounted to €329 mn (compared to €285 mn
for FY2021, up by 16% yoy), comprising net fee and commission income of €192
mn, net foreign exchange gains and net gains/(losses) on financial instruments
of €36 mn, net insurance income of €71 mn, net gains/(losses) from
revaluation and disposal of investment properties and on disposal of stock of
properties of €13 mn and other income of €17 mn. The yoy increase is
driven by higher net fee and commission income, higher insurance income net of
claims and commissions and higher net foreign exchange gains and net
gains/(losses) on financial instruments.
Non-interest income for 4Q2022 amounted to €92 mn (compared to €83 mn for
3Q2022, up by 11% qoq), comprising net fee and commission income of €50 mn,
net foreign exchange gains and net gains/(losses) on financial instruments of
€12 mn, net insurance income of €23 mn, net gains/(losses) from
revaluation and disposal of investment properties and on disposal of stock of
properties of €2 mn and other income of €5 mn. The qoq increase relates
mainly to higher insurance income net of claims and commissions.
Net fee and commission income for FY2022 amounted to €192 mn, (compared to
€172 mn for FY2021, up 12% yoy), driven by the introduction of a revised
price list in February 2022 and the extension of liquidity fees to a wider
customer group in March 2022. Liquidity fees were fully abolished in December
2022. Net fee and commission income for FY2022 includes an amount of c.€6 mn
relating to a NPE sale-related servicing fee, for a transitional period ending
in 1Q2023.
B. Preliminary Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.1 Total income (continued)
Net fee and commission income for 4Q2022 amounted to €50 mn, up 4% qoq
(compared to €48 mn for 3Q2022) due to higher non-transactional fees
partially offset by the phasing out of the liquidity fees in December 2022.
Net foreign exchange gains and net gains/(losses) on financial instruments of
€36 mn for FY2022 (comprising net foreign exchange gains of €31 mn and net
gains on financial instruments of €5 mn), compared to €25 mn for FY2021
(comprising net foreign exchange gains of €16 mn and net gains on financial
instruments of €9 mn). The increase of 45% yoy reflects higher foreign
exchange gains through FX swaps.Net foreign exchange gains and net
gains/(losses) on financial instruments are volatile profit contributors.
Net foreign exchange gains and net gains/(losses) on financial instruments
amounted to €12 mn for 4Q2022, compared to €13 mn in the previous quarter,
impacted by one-off gain of c.€5.5 mn of a financial instrument in the
previous quarter and higher foreign exchange gains in the fourth quarter.
Net insurance income amounted to €71 mn for FY2022, compared to €61 mn for
FY2021, up 17% yoy mainly due to increased new business and the positive
changes in valuation assumptions, partially offset by higher insurance claims.
Net insurance income amounted to €23 mn for 4Q2022, up 53% qoq, driven by
exceptionally strong new business, the positive changes in valuation
assumptions and lower insurance claims.
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties for FY2022 amounted to €13 mn (comprising
net gains on disposal of stock of properties of €16 mn, and net losses from
revaluation of investment properties of €3 mn), broadly flat compared to the
previous year.
Net gains/(losses) from revaluation and disposal of investment properties and
on disposal of stock of properties for 4Q2022 amounted to €2 mn, compared to
€4 mn for 3Q2022. REMU profit remains volatile.
Total income for FY2022 amounted to €699 mn, compared to €581 mn for
FY2021 (up 20% yoy), mainly driven by the increases in the net interest
income, net fee and commission income and insurance income net of claims and
commissions as explained above. Total income for 4Q2022 stood at €228 mn,
compared to €172 mn for 3Q2022, up by 33% qoq, reflecting mainly the
increased net interest income by 53% qoq.
B. Preliminary Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
€ mn FY2022 FY2021 4Q2022 3Q2022 2Q2022 1Q2022 qoq +% yoy +%
(restated(1))
Staff costs (190) (202) (44) (46) (50) (50) -6% -6%
Other operating expenses (153) (145) (45) (35) (37) (36) 25% 5%
Total operating expenses (343) (347) (89) (81) (87) (86) 8% -1%
Special levy on deposits and other levies/contributions (38) (36) (11) (10) (7) (10) 17% 6%
Total expenses (381) (383) (100) (91) (94) (96) 9% -1%
Cost to income ratio(2) 54% 66% 44% 53% 61% 66% -9 p.p. -12 p.p.
Cost to income ratio excluding special levy on deposits and other 49% 60% 38% 47% 57% 59% -9 p.p. -11 p.p.
levies/contributions(2)
1. Comparative information was restated following a reclassification of
approximately €1 million loss relating to disposal/dissolution of
subsidiaries and associates from 'Net foreign exchange gains and net
gains/(losses) on financial instruments' to 'Other income'
2. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
B.3.2 Total expenses
Total expenses for FY2022 were €381 mn (compared to €383 mn for FY2021),
down 1% yoy, 50% of which related to staff costs (€190 mn), 40% to other
operating expenses (€153 mn) and 10% to special levy on deposits and other
levies/contributions (€38 mn). Total expenses for 4Q2022 were €100 mn,
compared to €91 mn for 3Q2022, up 9% qoq. The increase is driven by the 25%
qoq increase in other operating expenses.
Total operating expenses for 4Q2022 were €89 mn (compared to €81 mn for
3Q2022) up 8% qoq driven by inflationary pressures and seasonally higher other
operating expenses. Total operating expenses totalled €343 mn for FY2022,
compared to €347 mn for FY2021 (down by 1% yoy), remaining under control on
the back of successful completion of efficiency actions, despite elevated
inflation.
Staff costs for FY2022 were €190 mn, compared to €202 mn for FY2021, down
6% yoy, resulting from the Voluntary Staff Exit Plans that took place during
2022. Staff costs for 4Q2022 amounted to €44 mn down 6% qoq mainly due to
saving from the completion of the VEP in July 2022 partially offset by the
impact of the introduction of new pay grading structure and long-term
incentive plan. The VEP led to the reduction of the Group's full time
employees by 16%, at a total cost of €104 mn of which €101 mn was recorded
in the consolidated income statement in 3Q2022. Following the completion of
the VEP, the gross annual savings are estimated at c.€37 mn or 19% of staff
costs with a payback period of 2.7 years. The estimated savings of the VEP are
expected to be partially offset by the renewal of the collective agreement in
2023.
In addition, in January 2022 the Group through one of its subsidiaries
completed a Voluntary Staff Exit Plan (VEP), through which a small number of
its employees were approved to leave at a total cost of €3 mn, recorded in
the consolidated income statement in 1Q2022 as a non-recurring item in the
underlying basis.
The Group employed 2,889 persons as at 31 December 2022 compared to 2,955
persons as at 30 September 2022 and 3,438 persons as at 31 December 2021.
In July 2021, the Bank reached agreement with the Cyprus Union of Bank
Employees for the renewal of the collective agreement for the years 2021 and
2022. The agreement related to certain changes including the introduction of a
new pay grading structure linked to the value of each position of employment,
and of a performance-related pay component as part of the annual salary
increase, both of which have been long-standing objectives of the Bank and are
in line with market best-practice. The impact of the renewal was an increase
in staff costs for 2022 by 3-4% per annum, in line with the impact of renewals
in previous years.
During December 2022 the Group has granted to eligible employees share awards
under a long-term incentive plan ("2022 LTIP" or the "2022 Plan"). The 2022
Plan 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. The employees eligible for 2022 LTIP are the
members of the Extended EXCO. The 2022 LTIP stipulates that performance will
be measured over a 3 year period and 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.
B. Preliminary Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.2 Total expenses (continued)
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. For the year ended 31
December 2022, the Group recognised in the Group's Income Statement an expense
of less than €0.5 mn regarding the Plan. Based on the market value of these
awards on the grant date, the expense deferred to future periods is estimated
to c.€1.1 mn. Actual amounts to be expensed in future periods may vary,
e.g., due to forfeiture of awards.
Other operating expenses for FY2022 were €153 mn, compared to €145 mn for
FY2021, up 5% yoy, driven by inflationary pressures. Other operating expenses
for 4Q2022 amounted to €45 mn, compared to €35 mn for 3Q2022, up by 25%
qoq reflecting seasonally higher professional fees, marketing expenses and IT
costs and inflationary pressures.
Special levy on deposits and other levies/contributions for FY2022 amounted to
€38 mn (compared to €36 mn for FY2021) up 6% yoy, driven by the increase
in deposits of €1.5 bn yoy. Special levy on deposits and other
levies/contributions for 4Q2022 were €11 mn broadly flat qoq, reflecting
mainly the net impact of a levy in the form of an annual guarantee fee
relating to the expected revised Income Tax legislation of €4.8 mn recorded
in 4Q2022 (see Section B.2.1 'Capital Base') and the contribution of the Bank
to the Deposit Guarantee Fund (DGF) of €3 mn which relates to 2H2022 and was
recorded in 3Q2022, in line with IFRSs.
The cost to income ratio excluding special levy on deposits and other
levies/contributions for FY2022 was 49%, compared to 60% for FY2021. The cost
to income ratio excluding special levy on deposits and other
levies/contributions for 4Q2022 was 38%, compared to 47% for 3Q2022. The qoq
decrease of 9 p.p. is driven by the higher total income.
The cost to income ratio excluding special levy on deposits and other
levies/contributions for 2023 is expected to decrease to mid-40s, reflecting
management's ongoing focus on efficiency and cost discipline in an
inflationary environment. This target includes a commitment of maintaining
total operating expenses of a range between €350-360 mn, reflecting some
upward pressure on costs from investments in transformation and digitalisation
and the renewal of collective agreement in 2023. The cost to income ratio
excluding special levy on deposits and other levies/contributions for 2024 is
expected to remain around similar levels to 2023.
B. Preliminary Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.3 Profit before tax and non-recurring items
€ mn FY2022 FY2021 4Q2022 3Q2022 2Q2022 1Q2022 qoq+% yoy +%
(restated(1))
Operating profit 318 198 128 81 59 50 60% 62%
Loan credit losses (47) (66) (11) (13) (11) (12) -10% -30%
Impairments of other financial and non-financial assets (33) (36) (13) (7) (8) (5) 72% -9%
Provisions for pending litigations, regulatory and other matters (net of (11) 2 (8) (2) (1) (0) 202% -
reversals)
Total loan credit losses, impairments and provisions (91) (100) (32) (22) (20) (17) 42% -8%
Profit before tax and non-recurring items 227 98 96 59 39 33 67% 133%
Cost of risk(2) 0.44% 0.57% 0.42% 0.45% 0.41% 0.44% -3 bps -13 bps
1. Comparative information was restated following a reclassification of
approximately €1 million loss relating to disposal/dissolution of
subsidiaries and associates from 'Net foreign exchange gains and net
gains/(losses) on financial instruments' to 'Other income'
2. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Operating profit for 4Q2022 amounted to €128 mn (compared to €81 mn for
3Q2022) and totaled €318 mn for FY2022, up 62% yoy, driven mainly the
significant increase in net interest income in the fourth quarter.
Loan credit losses for FY2022 totaled €47 mn, compared to €66 mn for
FY2021 (down by 30% yoy). Loan credit losses for 4Q2022 amounted to €11 mn
compared to €13 mn for 3Q2022, down 10% qoq.
Cost of risk for FY2022 was 44 bps, compared to a cost of risk of 57 bps for
FY2021, down by 13 bps reflecting strong asset quality performance in 2022.
Cost of risk for 4Q2022 accounted for 42 bps broadly flat on the prior
quarter.
At 31 December 2022, 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 Section F. 'Definitions &
Explanations' for definition) totalled €282 mn (compared to €610 mn at 30
September 2022 and €792 mn at 31 December 2021) and accounted for 2.8% of
gross loans (compared to 5.6% (2.8% pro forma for Helix 3) and 7.3% (4.5% pro
forma for HFS) of gross loans at 30 September 2022 and 31 December 2021
respectively).
Impairments of other financial and non-financial assets for FY2022 amounted to
€33 mn, compared to €36 mn for FY2021, down by 9% yoy. Impairments of
other financial and non-financial assets for 4Q2022 amounted to €13 mn,
compared to €7 mn for 3Q2022, driven by higher impairments on specific,
large, illiquid REMU stock properties.
Provisions for pending litigations, regulatory and other matters (net of
reversals) for FY2022 amounted to €11 mn, compared to a reversal of €2 mn
for FY2021. Provisions for pending litigations, regulatory and other matters
(net of reversals) for 4Q2022 amounted to €8 mn compared to €2 mn for
3Q2022, impacted by a one-off charge of c.€5.5 mn in relation to a revised
approach on pending litigation fees.
Profit before tax and non-recurring items for FY2022 totalled €227 mn,
compared to €98 mn for FY2021 (more than doubled yoy). Profit before tax and
non-recurring items for 4Q2022 amounted to €96 mn compared to €59 mn for
3Q2022 (up by 67% qoq).
B. Preliminary Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.4 Profit after tax (attributable to the owners of the Company)
€ mn FY2022 FY2021 4Q2022 3Q2022 2Q2022 1Q2022 qoq +% yoy +%
(restated(1))
Profit before tax and non-recurring items 227 98 96 59 39 33 67% 133%
Tax (36) (5) (16) (8) (6) (6) 94% -
Profit attributable to non-controlling interests (3) (2) (1) (1) (1) 0 -16% 32%
Profit after tax and before non-recurring items (attributable to the owners of 188 91 79 50 32 27 64% 107%
the Company)
Advisory and other restructuring costs - organic (11) (22) (1) (5) (4) (1) -70% -48%
Profit after tax - organic (attributable to the owners of the Company) 177 69 78 45 28 26 78% 155%
Provisions/net profit/(loss) relating to NPE sales(2) 1 (7) 2 (1) 1 (1) - -109%
Restructuring and other costs relating to NPE sales(2) (3) (16) 0 (2) 0 (1) -79% -82%
Restructuring costs - Voluntary Staff Exit Plan (VEP) (104) (16) - (101) - (3) -100% -
Profit/(loss) after tax (attributable to the owners of the Company) 71 30 80 (59) 29 21 - 139%
1. Comparative information was restated following a reclassification of
approximately €1 million loss relating to disposal/dissolution of
subsidiaries and associates from 'Net foreign exchange gains and net
gains/(losses) on financial instruments' to 'Other income'
2. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant.
The tax charge for 4Q2022 is €16 mn, up 94% qoq and totalled to €36 mn for
FY2022, compared to €5 mn for FY2021.
Profit after tax and before non-recurring items (attributable to the owners of
the Company) for FY2022 is €188 mn, compared to €91 mn for FY2021. Return
on Tangible Equity (ROTE) before non-recurring items calculated using 'profit
after tax and before non-recurring items (attributable to the owners of the
Company)' amounts to 11.3% for FY2022, compared to 5.5% for FY2021. Profit
after tax and before non-recurring items (attributable to the owners of the
Company) for 4Q2022 amounted to €79 mn, reflecting a ROTE before
non-recurring items of 19.1%, compared to €50 mn for 3Q2022 (and a ROTE
before non-recurring items of 11.7%).
Advisory and other restructuring costs - organic for FY2022 amounted to €11
mn, compared to €22 mn for FY2021, down by 48% yoy mainly due to ad-hoc cost
related to the tender offer for Existing Tier 2 Capital Notes amounting to
€12 mn in FY2021. Advisory and other restructuring costs - organic for
4Q2022 amounted to €1 mn, compared to €5 mn for 3Q2022 and relate to the
transformation programme and other strategic projects of the Group.
Profit after tax arising from the organic operations (attributable to the
owners of the Company) for FY2022 amounted to €177 mn, compared to €69 mn
for FY2021. Profit after tax arising from the organic operations
(attributable to the owners of the Company) for 4Q2022 is €78 mn, compared
to €45 mn for 3Q2022, up 78% qoq.
Provisions/net profit/(loss) relating to NPE sales for FY2022 amounted to a
profit of €1 mn, compared to a loss of €7 mn for FY2021 (relating to Helix
2 and Helix 3). Provisions/net profit/(loss) relating to NPE sales for 4Q2022
was a net profit of €2 mn, compared to a net loss of €1 mn in 3Q2022.
Restructuring and other costs relating to NPE sales for FY2022 was €3 mn,
compared to €16 mn for FY2021 (relating to the agreements for the sale of
portfolios of NPEs). Restructuring and other costs relating to NPE sales for
4Q2022 is nil compared to €2 mn for 3Q2022.
Restructuring costs relating to the Voluntary Staff Exit Plan (VEP) amounted
to €104 mn for FY2022, compared to €16 mn for FY2021. For further details
please refer to Section B.3.2 'Total expenses'.
Profit/(loss) after tax attributable to the owners of the Company for FY2022
was a profit of €71 mn, compared to a profit of €30 mn for FY2021.
Profit/(loss) after tax attributable to the owners of the Company for 4Q2022
amounted to a profit €80 mn, compared to a loss of €59 mn for 3Q2022.
C. Operating Environment
According to the IMF's revised World Economic Outlook published at the end of
January, the global economy is expected to slow in 2023 before picking up
again in 2024. Growth will remain weak by historical standards as a result of
tighter monetary conditions in the fight against inflation and the negative
impact of the war in Ukraine. Global growth is expected to slow from 3.4% in
2022 to 2.9% in 2023, before recovering to 3.1% in 2024. In the euro area,
despite signs of resilience to the energy crisis, a mild winter and generous
fiscal support, growth is expected to be around 0.7% in 2023 resulting from
tighter monetary conditions, a negative terms-of-trade shock from higher
energy prices and increased uncertainty as the war in Ukraine is expected to
escalate further.
As expected, the ECB continued to raise interest rates at the start of 2023.
At the most recent Governing Council meeting on 8 February 2023, the ECB
raised its main refinancing operations rate by 50 basis points to 3%. The ECB
raised its marginal lending facility to 3.25% and its deposit facility to
2.5%. Rising inflation and a more aggressive monetary policy stance by the
Federal Reserve are expected to force the ECB to take a more aggressive
approach. The ECB began raising rates in July 2022, when the main refinancing
operations rate was zero and the deposit facility was at -0.5%. Financing
conditions are expected to tighten further in 2023 and interest rates to
remain high throughout the year.
In a challenging international environment, the Cypriot economy has shown
considerable resilience. The contraction of 4.4% in 2020 was modest compared
to other southern countries. The economy rebounded strongly in 2021, with real
GDP growing by 6.6%. Growth remained strong in 2022 averaging 5.7% which is
well above the euro area average. In the fourth quarter of 2022, economic
growth stood at 4.4%. However, growth is expected to decelerate in 2023,
towards 3%, according to the Ministry of Finance.
On the fiscal side, the recovery in 2021 is underpinned by a significant
increase in general government revenue and a relative decline in government
expenditure. As a result, the budget deficit narrowed to 1.7% of GDP from a
deficit of 5.8% of GDP in 2020, reflecting government measures to support the
economy in the midst of a deep recession induced by the Covid pandemic.
Developments in 2022 were favourable for public finances. Revenues grew by
16.7% in the first three quarters of the year, while expenditures increased by
1.3%, indicating a significant surplus in the period. Part of the increase in
revenues is a windfall related to the energy crisis, but overall, the current
state of public finances is positive. Public debt is sustainable and firmly on
a downward path. With a budget surplus in 2022 and inflation at around 8.1%,
the debt-to-GDP ratio is expected to fall towards 87%, according to the
Ministry of Finance. In the longer term, public debt dynamics will depend on
interest rate developments, inflation, and growth.
On the supply side, growth in the first three quarters of the year for which
data are available, was almost entirely driven by services. Trade, transport,
and accommodation services accounted for more than half of the growth over the
period. Information and communications and professional and administrative
services also made significant contributions. In the industrial sector, growth
came from the utilities, electricity, and water sectors, with only a marginal
contribution from manufacturing. Construction activity declined slightly and
made a negative contribution.
On the demand side, growth in the first three quarters was driven by private
consumption and investment, especially inventory accumulation, while the
external sector made a negative contribution due to faster growth in imports.
Total investment includes transport equipment, which includes ship
registrations.
Tourist activity recovered strongly during the year. Arrivals reached 3.2
million persons, or 80% of the corresponding arrivals in 2019. Receipts
reached an estimated €2.4 billion in the year, or 90% of corresponding
receipts in 2019. The increase in arrivals was mainly due to increases from
the United Kingdom and, to a lesser extent, from other European countries and
Israel. Travel from Russia and Ukraine has been affected by the war and
sanctions.
Rising energy costs, exacerbated by the war in Ukraine, are affecting both
consumers and businesses. The government has taken initial steps to mitigate
the impact. The government lowered VAT rates on electricity and reduced excise
duties on petrol and diesel for a limited period until June 2022. The latter
remained in force until the end of January 2023. In September 2022, the
government introduced a graduated system of subsidies for electricity
consumption to replace the reduced VAT.
Cyprus received the first disbursement from the Recovery and Resilience
Facility of €157 million in September 2021, following the approval of the
National Recovery Plan in July of the previous year. This was a pre-financing
of 13% of the total disbursements for the period 2021-26. Furthermore, the
European Commission disbursed the first payment of €85 million to Cyprus
under the Recovery and Resilience Facility, in December 2022 following the
passage of conditional legislation in parliament. The release of the funds is
conditional on the strict implementation of the reforms agreed in the National
Recovery Plan. The funds will be used, among other things, to increase
investment in the digital and green transition and to improve the efficiency
of public and local administrations, and of the judicial system.
Harmonised inflation in Cyprus fell from 10.6% in July 2022 to 7.6% in
December 2022. The annual average was 8.1% in Cyprus and 8.4% in the euro
area. Average inflation was higher in the EU, reflecting strong inflation
increases in some Member States, mainly in Central and Eastern Europe. In
Cyprus, energy contributed 2.6 percentage points and food 0.5 percentage
points to total harmonised inflation. Other influences accounted for 5
percentage points. Cyprus does not use gas for energy consumption or
electricity production and is entirely dependent on oil, the price of which
has not risen as much as that of natural gas.
C. Operating Environment (continued)
The banking sector has undergone significant restructuring since the financial
crisis of 2013. Banks have reduced their foreign exposures, significantly
shrunk their balance sheets, increased their capital buffers, and restructured
and refocused their domestic operations. Prudential supervision has been
strengthened and a new legal framework for private debt restructuring,
including the sale of loans, is now in place. Total non-performing exposures
(NPEs) at the end of November 2022 amounted to €2.7 billion, or 10.5% of
gross loans. NPEs at the end of 2021 amounted to € 3 billion or 11.1% of
gross loans. 47.8% of total NPEs at the end of November 2022 were restructured
facilities and the coverage ratio was 52.2%. Private debt has continued to
decline since mid-2012, shrinking by more than half by the end of December
2022. The decline reflects the long process of deleveraging since the start of
the financial crisis and includes the sale or transfer of non-performing loans
in recent years. Private debt, as measured by loans to residents excluding the
government, stands at 80% of nominal GDP at the end of December 2022. Pure new
business lending, which excludes renegotiated amounts, reached €3.1 billion
in 2022 as a whole, exactly the same level as pure new lending in 2019.
Cyprus' current account deficit narrowed from 10.1% of GDP in 2020 to 6.8% in
2021 and is estimated at 9.6% in 2022 according to the European Commission's
autumn forecast. From 2023 onwards, the deficit is expected to gradually
narrow as services revenues recover and EU recovery and resilience funds are
credited to the secondary income account. However, the current account deficit
will remain higher than pre-pandemic levels in the medium term, partly due to
strong import growth linked to higher energy prices and EU investment plans,
which will weigh on the trade balance. The size of the country's deficits is
partly structural, a consequence of special purpose vehicles domiciled in
Cyprus.
Sovereign ratings
The sovereign risk ratings of the Cyprus Government improved considerably in
recent years reflecting reduced banking sector risks, and improvements in
economic resilience and consistent fiscal outperformance. Cyprus demonstrated
policy commitment to correcting fiscal imbalances through reform and
restructuring of its banking system. Public debt remains high in relation to
GDP but large-scale asset purchases from the ECB ensure favourable funding
costs for Cyprus and ample liquidity in the sovereign bond market.
Most recently, in October 2022, DBRS Morningstar affirmed the Republic of
Cyprus's Long-Term Foreign and Local Currency - Issuer Ratings at BBB (low)
and maintained the trend Stable. The affirmation is supported by a stable
political environment, the government's sound fiscal and economic policies and
the favourable government debt profile. The stable outlook balances recent
favourable fiscal dynamics against downside risks for the economic outlooks
(including further escalation of the crisis in Ukraine).
In September 2022, S&P Global Ratings upgraded Cyprus' investment grade
rating of BBB/A-2 and has changed the outlook from positive to stable. The
upgrade reflects the resiliency of the Cypriot economy to recent external
shock (including the COVID-19 pandemic). The stable outlook balances risks
from the crisis in Ukraine and the economy's diversified structure and the
expectation that the government's fiscal position will continue to improve.
In September 2022, Fitch Ratings affirmed Cyprus' Long-Term Issuer Default
rating at investment grade BBB- since November 2018 and stable outlook. The
stable outlook reflects the view that despite Cyprus' exposure to Russia
through its tourism and investment linkages, near-term risks are mitigated by
a strengthened government fiscal position, and continued normalisation of
spending after the pandemic shock. Meanwhile, medium-term growth prospects
remain positive on the back of the government's Recovery and Resilience Plan
(RRP).
In August 2022, Moody's Investors Service affirmed the Government of Cyprus'
long-term issuer and senior unsecured ratings to Ba1 and changed the outlook
from stable to positive. The key drivers reflecting the affirmation are the
strong reduction in Cyprus' public debt ratio in 2022, stronger-than expected
economic resilience to Russia's invasion of Ukraine and the COVID-19 pandemic
as well the ongoing strengthening of the banking sector.
D. Business Overview
Credit ratings
The Group's financial performance is highly correlated to the economic and
operating conditions in Cyprus. In December 2022, Fitch Ratings upgraded the
Bank's long-term issuer default rating to B+ from B-, whilst maintaining the
positive outlook. The two-notch upgrade reflects improved Bank's asset
quality, supported by the completion of Project Helix 3 together with the
organic reduction of impaired assets. The upgrade is also underpinned by
Fitch's view of the resilience of the Cypriot's economy, even in light of
growing economic uncertainties. In October 2022, Moody's Investors Service
upgraded the Bank's long-term deposit rating to Ba2 from Ba3, maintaining the
positive outlook. The main drivers for this upgrade are the resilience of the
Cypriot economy, that is supporting the operating conditions of the banking
system to external shocks and the gradual improvement in credit conditions. In
September 2022, S&P Global Ratings raised the long-term issuer credit
rating of the Bank to BB- from B+ and revised the outlook to stable from
positive. The upgrade reflects the improvement in asset quality and easing
economic risks.
Upgrade of financial targets
The Group is a diversified, leading, financial and technology hub in Cyprus.
During 2022 the Group delivered positive financial results and exceeded its
2022 financial targets, confirming the sustainability of its business model
with well-diversified revenues and disciplined cost containment despite
inflationary pressures. Overall the Group achieved a recurring ROTE of 11.3%
for the year. The positive performance is expected to continue in 2023,
leading to an upgrade of targeted ROTE to over 13% from over 10% facilitated
by the Group's positive gearing to rising interest rates, improved
efficiencies, healthy loan portfolio and robust capital position. Therefore,
the intention to commence meaningful dividend distributions from 2023 onwards,
subject to regulatory approval and market conditions is reiterated. The Group
expects to achieve ROTE over 13% for 2024, on the back of stabilising margins
and growth of the loan portfolio.
Favourable interest rate environment
The structure of the Group's balance sheet is geared towards higher interest
rates facilitating immediate growth in net interest income. As at 31 December
2022, cash balances with ECB (excluding TLTRO of c.€2.0 bn) amounted to
c.€7.6 bn, well positioned to benefit from further interest rate rises. The
repricing of the reference rates gradually benefits the interest income on
loans, as over 95% of the Group's loan portfolio is variable rate. The Group
benefited from the steep and fast increase of interest rates in 2022. The net
interest income for FY2022 stood at €370 mn, reflecting an increase of 25%
yoy. Factoring in the current expectations for the evolution of the interest
rates, the net interest income guidance for 2023 is upgraded and the net
interest income is now expected to grow by 40-50% year on year. This
incorporates assumptions of continuing to rebuild the fixed income portfolio,
increased costs of funding, gradual increase in cost of deposits and gradual
change in deposit mix towards time deposits. Following the completion of
Project Helix 3 and the end of TLTRO III favourable terms, an overall amount
of c.€28 mn, will not be repeated in net interest income for 2023. The
growth in the fixed income portfolio is expected to broadly offset foregone
net interest income from TLTRO III and higher wholesale funding costs.
Growing revenues in a more capital efficient way
The Group remains focused on growing revenues in a more capital efficient way.
The Group aims to continue to grow its high-quality new lending, drive growth
in niche areas for further market penetration and diversify through
non-banking services, such as insurance and digital products.
The Group has continued to provide high quality new lending in FY2022 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 year ended 31 December 2022, new lending amounted to a record of
€2.1 bn, up by 17% yoy, returning to pre-pandemic levels. The yoy increase
is driven by increased activity across all sectors, with corporate being the
main driver. As a result, the net performing loan book expanded to €9.6 bn
up by 3% yoy, despite uncertainties in the macroeconomic environment. However,
due to the continuing interest rate rises, demand for new loans is expected to
slow down in 2023. The short-term net interest income is expected to be
supported primarily by asset repricing and higher investments in securities.
As at 31 December 2022, the fixed income portfolio of the Group amounted to
€2.5 bn, up by 30% on the prior year and represents 10% of total assets. The
portfolio comprises highly rated fixed rate bonds with low average duration,
giving the Group the flexibility to take advantage of rising interest rates.
The completion of the balance sheet de-risking and the Group's comfortable
liquidity position is expected to allow the Group to continue rebuilding the
fixed income portfolio in 2023, subject to market conditions.
D. Business Overview (continued)
Growing revenues in a more capital efficient way (continued)
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. In 1Q2022, a revised price list for charges and fees was
implemented and liquidity fees were extended to a wider customer group. The
net fee and commission income for FY2022 remained strong at €192 mn,
reflecting an increase of 12% yoy. The net fee and commission income for
FY2022 included c.€16 mn from the liquidity fees which were fully abolished
in December 2022 and c.€6 mn of servicing fee relating to a NPE sale that
will be phased out in 1Q2023.
Net fee and commission income is also 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 8% of total non interest income and
amounted to €27 mn in FY2022, up 22% yoy, backed by strong transaction
volume.
The Group's insurance companies, EuroLife Ltd (Eurolife) and Genikes Insurance
of Cyprus Ltd (GI) are respectively leading players in the life and general
insurance business in Cyprus, and have been providing a recurring and
improving income, further diversifying the Group's income streams. The
insurance income net of claims for FY2022 contributed 22% of non-interest
income and amounted to €71 mn, up 17% yoy, driven by exceptionally strong
new business in life insurance and the positive changes in valuation
assumptions, partially offset by higher insurance claims. Specifically,
Eurolife increased its total regular income by 17% yoy, whilst GI increased
its gross written premiums by 11% yoy. Following the adoption of IFRS 17,
total profits will remain unchanged. However, the new standard will impact the
timing of when profits emerge, improving the predictability of profit over the
long-term and is expected to result in a modest annual negative impact on the
contribution to profits of the Group's insurance business in the near term.
For information on IFRS 17 please refer to the relevant subsection below.
Finally, the Group through the Digital Economy Platform (Jinius) aims to
generate new revenue sources over the medium term, leveraging on the Bank's
market position, knowledge and digital infrastructure. The Platform aims to
bring stakeholders together, link businesses with each other and with
consumers and to drive opportunities in lifestyle banking and beyond. The
Platform is expected to allow the Bank to enhance the engagement of its
customer base, attract new customers, optimise the cost of the Bank's own
processes, and position the Bank next to the customer at the point and time of
need. Currently, around 1,500 companies were registered in the platform.
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.
The efficiency actions of the Group in 2022 to maintain operating expenses
under control in an inflationary environment included further branch footprint
optimisation and substantial streamline of workforce. In July 2022 the Group
successfully completed a Voluntary Staff Exit Plan (VEP) through which 16% of
the Group's full-time employees were approved to leave at a total cost of
€101 mn. Following the completion of the Plan, the gross annual savings were
estimated at c.€37 mn or 19% of staff costs with a payback period of 2.7
years. Additionally in January 2022 one of the Bank's subsidiaries completed a
small-scale targeted Voluntary Staff Exit Plan (VEP), through which a small
number of full-time employees were approved to leave at a total cost of €3
mn. In relation to branch restructuring, during 2022 the Group has reduced the
number of branches by 20 to 60, a reduction of 25%. Through these successful
initiatives, the Group has delivered ahead of schedule on its commitment to
reduce its workforce by c.15% and its number of branches by 25%. As a result,
the cost to income ratio excluding special levy on deposits and other
levies/contributions for FY2022 was reduced to 49%, 11 p.p. down compared to
previous year, surpassing its target of low-50s for 2022.
During December 2022 the Group has granted to eligible employees share awards
under a long-term incentive plan ("2022 LTIP" or the "2022 Plan"). The 2022
Plan 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. The employees eligible for 2022 LTIP are the
members of the Extended EXCO. The 2022 LTIP stipulates that performance will
be measured over a 3 year period and 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.
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. For the year ended 31
December 2022, the Group recognised in the Group's Income Statement an expense
of less than €0.5 mn regarding the Plan. Based on the market value of these
awards on the grant date, the expense deferred to future periods is estimated
to c.€1.1 mn. Actual amounts to be expensed in future periods may vary,
e.g., due to forfeiture of awards.
D. Business Overview (continued)
Lean operating model (continued)
The cost to income ratio excluding special levy on deposits and other
levies/contributions for 2023 is expected to decrease to mid-40s, reflecting
management's ongoing focus on efficiency and cost discipline in an
inflationary environment. This target includes a commitment of maintaining
total operating expenses of a range between €350-360 mn, reflecting some
upward pressure on costs from investments in transformation and digitalisation
and the renewal of collective agreement in 2023. The cost to income ratio
excluding special levy on deposits and other levies/contributions for 2024 is
expected to remain around similar levels to 2023.
Transformation plan
The Group 's focus continues to deepen the relationship with its customers as
a customer centric organisation. A transformation plan is already in progress
and 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
The Bank's digital transformation focuses on developing digital services and
products that improve the customer experience, streamlining internal
processes, and introducing new ways for improving the workplace environment.
During 4Q2022, the Bank continued to enrich and improve its digital portfolio
with new innovative services to its customers. The introduction of the
QuickLoan new lending products available through the Group's digital channels
(Mobile App and Internet Banking), further differentiates the Bank within the
Cypriot market and enhances its status as a digital leader in banking. The
introduction of QuickLoan allows the Bank's retail customers to apply for a
loan and have an instant update of the approval status of their application.
The adoption of digital products and services continued to grow and gained
momentum in the fourth quarter of 2022 and beyond. As at the end of December
2022, 93.9% of the number of transactions involving deposits, cash withdrawals
and internal/external transfers were performed through digital channels (up by
27.5 p.p. from 66.4% in September 2017 when the digital transformation
programme was initiated). In addition, 81.7% of individual customers were
digitally engaged (up by 21.5 p.p. from 60.2% in September 2017), choosing
digital channels over branches to perform their transactions. As at the end of
December 2022, active mobile banking users and active QuickPay users have
grown by 12.8% and 31.3% respectively over the last 12 months. The highest
number of QuickPay users to date was recorded in December 2022 with 169
thousand active users. Likewise, the highest number of QuickPay payments was
recorded in December 2022 with 565 thousand transactions.
Asset quality
Balance sheet de-risking was largely completed in 2022, marked by the
completion of Project Helix 3 which refers to the sale of non-performing
exposures with gross book value of €550 mn as at the date of completion.
Project Helix 3 represents a further milestone in the delivery of one of the
Group's strategic priorities of improving asset quality through the reduction
of NPEs. Overall, since the beginning of 2022, and including organic NPE
reductions of €360 mn, the Group reduced its NPEs by 69% and its NPE ratio
from 12.4% to 4.0% delivering the 2022 NPE ratio target of sub-5%. As a
result, the Group's priorities remain intact, maintaining high quality new
lending with strict underwriting standards and preventing asset quality
deterioration in this uncertain outlook.
The cost of risk target and NPE ratio target display conservative assumptions
on both NPE inflows and provisioning to weather the ongoing macroeconomic
uncertainty. Although there are currently no signs of asset quality
deterioration, the cost of risk target of 50-80 bps and NPE ratio target of
sub 5% remain unchanged for 2023. The cost of risk is expected to start
normalising from 2024 onwards to around 40-50 bps.
D. Business Overview (continued)
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 Bank 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 2022, the Company received a rating of AA (on
a scale of AAA-CCC) in the MSCI ESG Ratings assessment.
The ESG strategy formulated in 2021 is continuously expanding. The Bank is
maintaining its leading role in the Social and Governance pillars and focus on
increasing the Bank's positive impacts on the Environment by transforming not
only its own operations, but also the operations of its customer.
The Bank has committed to the following primary ESG targets, which reflect the
pivotal role of ESG in the Bank' strategy:
● Become carbon neutral by 2030
● Become Net Zero by 2050
● Steadily increase Green Asset Ratio
● Steadily increase Green Mortgage Ratio
● ≥30% women in Group's management bodies (defined as the
Executive Committee (EXCO) and the Extended EXCO) by 2030
For the Bank to articulate the delivery of its primary ESG targets and address
regulatory expectations, a comprehensive ESG working plan has been established
in 2022. The ESG working plan is closely monitored by the Sustainability
Committee, Executive Committee and the Board of Directors at frequent
intervals.
Environmental Pillar
The Bank has estimated the Scope 1 and Scope 2 emissions of 2021 relating to
own operations in order to set the baseline for carbon neutrality target.
Following the estimation of own operations emissions, the Bank in 2022,
designed the strategy to meet the carbon neutrality target by 2030 and
progress towards Net Zero target of 2050. The Bank plans to invest in energy
efficient installations and actions and replace fuel intensive machineries and
vehicles from 2023 to 2025, which would lead to c.7% reduction in Scope 1 and
Scope 2 emissions by 2025 compared to 2021. The Bank expects that the Scope 2
emissions will be reduced further when the energy market in Cyprus shifts
further towards renewable energy. The Bank through installation of solar
panels and other energy efficiency actions performed in 2021 and 2022 achieved
a reduction in electricity consumption by 1.8 mn KWh (11% reduction) in FY2022
compared to the baseline year of 2021.
The Bank of Cyprus is the first bank in Cyprus who joined the Partnership for
Carbon Accounting Financials (PCAF) in October 2022. The Bank is currently in
process to estimate its financed Scope 3 emissions derived from the loan
portfolio based on transparent, harmonized methodologies in conformance with
the requirements of the GHG Protocol Corporate Value Chain (Scope 3)
Accounting and Reporting Standard as provided by PCAF. Following the
estimation of financed Scope 3 emissions derived from loan portfolio and in
conjunction with the materiality assessment's results on climate and
environmental risks the Bank will be able to identify the carbon-intensive
areas so to take the necessary actions to minimise the environmental and
climate impact associated with the loan portfolio by offering targeted climate
friendly products and engaging with the customers.
The Bank in 2022 launched a low emission vehicle loan product (either hybrid
or electric) and intends to further expand its range of environmentally
friendly products that are expected to be launched in 2023. In addition, the
Bank is currently finalising the Sustainable Finance Framework which will
enable the Bank to issue Green/Social and/or Sustainable bonds in the future.
The proceeds of such bonds are designated to flow in whole or partly to
Sustainable projects which meet the eligibility criteria set by the Bank. In
2023, following the identification of carbon intensive sectors and asset
classes the Bank is expected to set decarbonisation targets aligned with
climate scenario (Science based targets) which will assist in the formulation
of the Bank's strategy going forward.
Moreover, the Bank is making continuous progress on the materiality
assessment, identification and quantification of the Bank's Climate and
Environmental (C&E) risks. The Bank is currently in progress to
incorporate C&E risks on the formulation of business strategy and
establish an ESG questionnaire with the aim to develop an ESG scorecard which
will form part of the loan origination process in the future. The Bank is
developing the risk quantification methodology to assess how the portfolio is
affected by C&E risks and incorporate the above elements into the stress
testing infrastructure.
D. Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental, Social and
Governance) agenda (continued)
During 2022 in order to enhance the awareness and skillset towards the ESG,
performed several trainings to the Board of Directors, Senior Management and
employees. In addition, the internal communication channels are enhanced by
establishing an ESG internal portal and launching Green@work which provides
tips on energy efficiency actions at work. Early in 2023 the Bank launched a
campaign on new Visa Debit cards produced from recyclable plastic extracted
from the ocean. The campaign aims to inform the public on the level of water
contamination from plastic and the impact on life below water.
Social Pillar
At the centre of the Bank's leading social role lie its investments in the
Bank of Cyprus Oncology Centre (with an overall investment of c.€70 mn since
1998, whilst 60% of diagnosed cancer cases in Cyprus are being treated at the
Centre), the work of SupportCY Network, which developed in 2020, the
contribution of the Bank of Cyprus Cultural Centre in promoting the cultural
heritage of the island, and the Work of IDEA Innovation Centre. The Cultural
Centre undertook a number of innovative projects such as «AISTHISEIS» -
Multi sensory museum experience for people with disabilities and Faneromeni
arts Festival promoting youth. The IDEA Innovation Centre provided education
to 7,000 entrepreneurs, invested c.€4 mn in start-up business creation and
supported creation of 82 new companies to date. Staff have continued to engage
in voluntary initiatives to support charities, foundations, people in need and
initiatives to protect the environment.
The Bank has continued to upgrade its staff's skill set by providing training
and development opportunities to all staff, and capitalising on modern
delivery methods. In 2022, the Bank heightened its emphasis on staff wellness
by offering webinars, team building activities and family events with sole
purpose to enhance mental, physical, financial and social health, attended by
1,424 employees through its 'Well at Work program'.
Governance Pillar
The Bank continues to operate successfully within a complex regulatory
framework of a holding company which is registered in Ireland, listed on two
Stock Exchanges and run 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 Bank operates within a framework of prudent and effective
controls, which enable risk assessment and risk management based on the
relevant policies under the leadership of the Board of Directors. The Bank has
set up a robust Governance Structure to oversee its ESG agenda. Progress on
the implementation and evolution of the Group's ESG strategy is monitored by
the Sustainability Committee and the Board of Directors. The Sustainability
Committee is a dedicated executive committee set up in early 2021 to oversee
the ESG agenda of the Group, review the evolution of the Group's ESG strategy,
monitor the development and implementation of the Group's ESG objectives and
the embedding of ESG priorities in the Group's business targets. The Group's
ESG Governance structure will continue to evolve, so as to better address the
Bank's evolving ESG needs. The Bank's regulatory compliance continues to be an
undisputed priority.
The Board composition of the Company and the Bank is diverse, with 40% of the
Board members being female as at 31 December 2022. The Board displays a strong
skill set stemming from broad international experience. Moreover, the Bank
aspires to achieve a representation of at least 30% women in Group's
management bodies (Defined as the EXCO and the Extended EXCO) by 2030. As at
31 December 2022, there is a 27% representation of women in Group's management
bodies and a 39% representation of women at key positions below the Extended
EXCO level (defined as positions between Assistant Manager and Manager).
D. Business Overview (continued)
IFRS 17
IFRS 17, is effective from 1 January 2023, and impacts the phasing of profit
recognition for insurance contracts. The Group's insurance-related retained
earnings will be restated and the reporting of insurance new business revenue
will be spread over time, as the Group provides service to its policyholders
(versus recognised up-front under current accounting standards), with the
quantum and timing of the impact dependent on, inter alia, the amount and mix
of new business and extent of assumption changes in any given year following
implementation.
· Under IFRS 17, there will be no present value of in-force life
insurance contracts ('PVIF') asset recognised. Instead, the estimated future
profit will be included in the measurement of the insurance contract liability
as the contractual service margin ('CSM') and this will be gradually
recognised in revenue as services are provided over the duration of the
insurance contract. While the profit over the life of an individual contract
will be unchanged, its emergence will be later under IFRS 17.
· IFRS 17 requires the increased use of current market values in
the measurement of insurance assets and liabilities hence insurance
liabilities and related assets will be adjusted to reflect IFRS 17 measurement
requirements.
· In accordance with IFRS 17, directly attributable costs will be
incorporated in the CSM and will be presented as a deduction to reported
revenue. This will result in a reduction in operating expenses.
The Group continues to make progress on the implementation of IFRS 17 and
assessing the impact on the financial statements.
On transition the following impact has been estimated:
a) the removal of value in force from the life insurance business (including
associated deferred tax liability) of c.€101 mn as per the Group's
consolidated balance sheet as at 31 December 2022, which will reduce Group
accounting equity by a respective amount (with no impact on the Group
regulatory capital or tangible equity), and
b) the remeasurement of insurance assets and liabilities and the creation of a
contractual service margin (CSM) liability is estimated to result in an
increase in the equity of the insurance business of the Group (predominantly
relating to the life insurance business of the Group) in the range of €70-80
mn as at 1 January 2022, which is a consequence of life insurance products.
The estimated effect on equity of the insurance business of the Group as at 1
January 2023 (roll forwarding the impact on 2022 profits and taking into
consideration other movements in reserves in 2022) is an increase in the range
of €50-60 mn, compared to the closing equity as at 31 December 2022 as
reported under the previous accounting standard, IFRS4.
As a result of the benefit arising from IFRS 17 on 1 January 2023 as referred
to in (b) above, the life insurance subsidiary distributed €50 mn as
dividend to the Bank in February 2023, which benefited Group regulatory
capital by an equivalent amount on the same date, enhancing CET1 ratio by c.50
bps.
The adoption of IFRS 17 is expected to result in a modest annual negative
impact on the contribution to profits of the Group's insurance business in the
near term.
D. Business Overview (continued)
Ukrainian 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, geopolitical tension persists and
inflation remains elevated, impacted by the soaring energy prices and
disruptions in supply chains. The high inflation weighs on business confidence
and consumers' purchasing power. 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.
Direct impact
The Group does not have any banking operations in Russia or Ukraine, following
the sale of its operations in Ukraine in 2014 and in Russia in 2015. The Group
has run down its legacy net exposure to less than €1 mn as at 31 December
2022 in Russia through write-offs and provisions.
The Group has no exposure to Russian bonds or banks which are subject to
sanctions.
The Group has limited direct exposure with loans related to Ukraine, Russia
and Belarus, representing 0.4% of total assets or c.1% of net loans as at 31
December 2022. The net book value of these loans stood at €108 mn as at 31
December 2022, of which €98 mn are performing, whilst the remaining were
classified as NPEs well before the current crisis. The portfolio is granular
and secured mainly by real estate properties in Cyprus.
Customer deposits related to Ukrainian, Russian and Belarusian customers
account for only 6% of total customer deposits as at 31 December 2022. This
exposure is not material, given the Group's strong liquidity position. The
Group operates with a significant surplus liquidity of €7.2 bn (LCR ratio of
291%) as at 31 December 2022.
Indirect impact
Although the Group's direct exposure to Ukraine, Russia or Belarus is limited,
the crisis in Ukraine had a negative impact on the Cypriot economy, mainly
arising from the tourism and professional services sectors, increasing energy
prices fuelling inflation and disruptions to global supply chains. During 2022
the performance of the tourism sector was strong despite challenges and
represents 80% of 2019 levels, despite the sizeable loss of tourist arrivals
from Russia and Ukraine. The Group continues to monitor the exposures in
sectors likely impacted by the prolonged geopolitical uncertainty and
persistent inflationary pressures and remains in close contact with customers
to offer solutions as necessary.
Cyprus has no energy dependence on Russia as it imports oil from Greece, Italy
and the Netherlands; however it is indirectly affected by pricing pressures in
the international energy markets. The focus on renewables increases, marked by
a steady improvement in contribution at 18% in 2022 (compared to 16% in 2021).
Professional services account for c.10% of GDP (based on FY2021) of which some
relate to Russia or Ukraine and thus expected to be adversely impacted. There
is however no credit risk exposure as the sector is not levered.
Between 2018-2020, Cyprus recorded net foreign direct investment (FDI) outflow
to Russia. While Russian gross FDI flows in and out of Cyprus may be quite
large, these often reflect the typical set-up of Special Purpose Entities,
with limited actual impact on the Cypriot economy, hence likely to have
limited impact on domestic activity levels.
Overall, the Group expects limited impact from its direct exposure, while any
indirect impact depends on the duration and severity of the crisis and its
impact on the Cypriot economy.
The Group continues to closely monitor the situation, taking all necessary and
appropriate measures to minimise the impact on its operations and financial
performance, as well as to manage all related risks and comply with the
applicable sanctions.
E. Strategy and Outlook
The strategic objectives for the Group are to become a stronger, safer and a
more efficient institution with a sustainable and well-diversified business
model committed to deliver sustainable shareholder returns.
The key pillars of the Group's strategy are to:
· Grow revenues in a more capital efficient way; by enhancing
revenue generation via growth in performing book
and less capital-intensive banking and financial services operations
(Insurance and Digital Economy)
· Improve operating efficiency; by achieving leaner operations
through digitisation and automation
· Strengthen asset quality; maintaining high quality new lending,
completing legacy de-risking, normalising cost of risk and reducing (other)
impairments
· Enhance organisational resilience and ESG (Environmental, Social
and Governance) agenda; by continuing to work towards building a
forward-looking organisation with a clear strategy supported by effective
corporate governance aligned with ESG agenda priorities
KEY STRATEGIC PILLARS ACTION TAKEN IN FY2022 and to date PLAN OF ACTION
Growing revenues in a more capital efficient way; by enhancing revenue • A revised price list for charges and fees was implemented in • The structure of the Group's balance sheet is geared towards higher
generation via growth in performing book, and less capital-intensive banking February 2022 interest rates facilitating immediate growth in net interest income
and financial services operations (Insurance and Digital Economy)
• Liquidity fees were extended to a wider customer group in March • Grow performing book and increase in high quality new lending over
2022 and abolished in December 2022 following interest rate rises the medium term
• Net performing loan book grew to €9.6 bn, an increase of 3% in • Expand fixed income portfolio in 2023, subject to market conditions,
FY2022, despite macroeconomic uncertainty to take advantage of the rising yields
• Fixed income portfolio grew to €2.5 bn, an increase of 30% in • Enhance fee and commission income, e.g. on-going review of price
FY2022 list for charges and fees, increase average product holding through cross
selling, new sources of revenue through introduction of Digital Economy
• For further information, please refer to Section B.2.5 'Loan Platform
portfolio quality' and Section D 'Business Overview'
• Profitable insurance business with further opportunities to grow,
e.g. focus on high margin products, leverage on Bank's strong franchise and
customer base for more targeted cross selling enabled by digital
transformation
Improving operating efficiency; by achieving leaner operations through • Completion of a VEP in July 2022, which led to the reduction of • Committed to maintain cost discipline in an inflationary environment
digitisation and automation full time employees by 16% in FY2022; estimated gross annual saving of c.€37
mn (19%) of staff costs • Effectively eliminate restructuring costs as de-risking is largely
complete
• Rationalisation of branch footprint as 20 branches closed down in
2022 • Enhance procurement control
• Completion of a small-scale targeted VEP in 1Q2022, by one of the Committing to maintain total operating expenses for 2023 to a range of
Bank's subsidiaries, through which a small number of the Group's employees €350-360 mn
were approved to leave
The cost to income ratio excluding special levy on deposits and other
• Further developments in the Transformation Plan and the levies/contributions for 2023 is expected to decrease to mid-40s and to remain
digitisation of the Bank around similar levels in 2024
E. Strategy and Outlook (continued)
KEY STRATEGIC PILLARS ACTION TAKEN IN FY2022 and to date PLAN OF ACTION
Strengthening asset quality • Completion of Project Helix 3 in November 2022 (sale of NPE • Prevent asset quality deterioration in an uncertain outlook
portfolio with gross book value of €0.55 bn)
• Maintain strict discipline on new business
• Balance sheet de-risking continued in FY2022 with further c.€360
mn of organic NPE reduction
• NPE ratio reduced to 4.0% as at 31 December 2022, delivering the NPE ratio target of <5% for 2023 remains unchanged
2022 NPE ratio target of sub-5%
Cost of risk target of 50-80 bps for 2023 remains unchanged, starting to
• For further information, please refer to Section B.2.5 'Loan normalise to 40-50 bps from 2024 onwards
portfolio quality' and Section D. 'Business Overview'
Enhancing organisational resilience and ESG (Environmental, Social and • First Bank in Cyprus joining the Partnership for Carbon Accounting • Set decarbonisation targets on specific sectors and asset classes
Governance) agenda; by continuing to work towards building a forward-looking Financials (PCAF) which enable the Bank to initiate the estimation of financed
organisation with a clear strategy supported by effective corporate governance emissions (Scope 3) derived from loan portfolio • Establish ESG questionnaire and ESG scorecard in the loan
aligned with ESG agenda priorities
origination process
• Initiated the development of ESG questionnaire and ESG scorecard
that will be introduced in loan origination process • Incorporate loan decarbonisation targets in the business strategy of
the Bank
• Concluded on the materiality assessment and identification of
climate and environmental risks. • Evolution of the ESG strategy with a continued focus on the climate
and environmental risks
• Determined the decarbonisation strategy for Scope 1 and Scope 2
emissions • Continue to embed ESG in the Bank's culture
• Launch of low emission vehicle loan product (hybrid or electric) • Continuous enhancement of structure and corporate governance
• Finalising the Sustainable Finance Framework which will enable the • Invest in people and promote talent
issue of Green/Social/Sustainable bonds
• Provision of ESG training to the Board of Directors, Senior
Management and all staff to increase awareness and skills
• Introduced the ESG internal portal communication as well as
Green@Work which enable the employees to take energy efficient actions at work
• Launched «AISTHISEIS» - Multi sensory museum experience for people
with disabilities
• Introduction of a new visa debit card made from recycled plastic
collected from the ocean
• For further information, please refer to Section D. 'Business
Overview'
E. Strategy and Outlook (continued)
During 2022 the Group delivered strong financial results, exceeding its 2022
financial targets. This was marked by the recovery of revenues driven by the
expansion in net interest income, lower operating expenses despite
inflationary pressures and strong performance in asset quality, delivering NPE
ratio of sub-5%. As a result the Group achieved a double-digit recurring ROTE
in 2022, building momentum throughout the year.
In 2023 the momentum is expected to continue, leading to an upgrade of
targeted ROTE to over 13% from 10% facilitated by the positive gearing to
rising interest rates, improved efficiencies, healthy loan portfolio and
robust capital position. This lays the foundations to commence meaningful
dividend distributions from 2023 onwards, subject to regulatory approval and
market conditions. The Group expects to achieve ROTE over 13% for 2024, on the
back of stabilising margins and growth of the loan portfolio.
Key Metrics 2022 Guidance FY2022 FY2023 Previous guidance FY2023 Updated guidance
Date November 2022 November 2022 February 2023
NII >€350 mn €370 mn €450-470 mn 40-50% yoy
(€520-550 mn)
Cost to income ratio(1) Low-50s 49% c.50% mid-40s
Return on Tangible Equity (ROTE)(2) c.10% (recurring) 4.3% >10% >13%
11.3% (recurring)
NPE ratio <5.0% 4.0% <5% <5%
Cost of risk Mid-40 bps 44 bps 50-80 bps 50-80 bps
1. Calculated using total operating expenses which comprise staff
costs and other operating expenses. Total operating expenses do not include
the special levy on deposits or other levies/contributions and do not include
any advisory or other restructuring costs.
2. Return on Tangible Equity (ROTE) is calculated as Profit after Tax
(annualised) divided by average Shareholders' equity minus intangible assets.
F. Definitions & Explanations
Advisory and other restructuring costs Comprise mainly (a) fees of external advisors in relation to: (i) disposal of
operations and non-core assets, and (ii) customer loan restructuring
activities, and (b) the cost of the tender offer for the T2 Capital Notes,
where applicable.
Allowance for expected loan credit losses (previously 'Accumulated Comprises (i) allowance for expected credit losses (ECL) on loans and advances
provisions') to customers (including allowance for expected credit losses on loans and
advances to customers held for sale), (ii) the residual fair value adjustment
on initial recognition of loans and advances to customers (including residual
fair value adjustment on initial recognition on loans and advances to
customers classified as held for sale), (iii) allowance for expected credit
losses for off-balance sheet exposures (financial guarantees and commitments)
disclosed on the balance sheet within other liabilities, and (iv) the
aggregate fair value adjustment on loans and advances to customers classified
and measured at FVPL.
AT1 AT1 (Additional Tier 1) is defined in accordance with the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II applicable as at the
reporting date.
Basic earnings after tax and before non-recurring items per share Basic earnings after tax and before non-recurring items per share
(attributable to the owners of the Company) (attributable to the owners of the Company) is the Profit/(loss) after tax and
before non-recurring items (as defined below) (attributable to the owners of
the Company) divided by the weighted average number of shares in issue during
the period, excluding treasury shares.
Carbon neutral The reduction and balancing (through a combination of offsetting investments
or emission credits) of greenhouse gas emissions from own operations.
CET1 capital ratio (transitional basis) CET1 capital ratio (transitional basis) is defined in accordance with the
Capital Requirements Regulation (EU) No 575/2013, as amended by CRR II
applicable as at the reporting date.
CET1 fully loaded (FL) ratio The CET1 fully loaded (FL) ratio is defined in accordance with the Capital
Requirements Regulation (EU) No 575/2013, as amended by CRR II applicable as
at the reporting date.
Cost to Income ratio Cost-to-income ratio comprises total expenses (as defined) divided by total
income (as defined).
Data from the Statistical Service The latest data from the Statistical Service of the Republic of Cyprus, Cyprus
Statistical Service, was published on 14 February 2023.
Digital transactions ratio This is the ratio of the number of digital transactions performed by
individuals and legal entity customers to the total number of transactions.
Transactions include deposits, withdrawals, internal and external transfers.
Digital channels include mobile, browser and ATMs.
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.
ECB European Central Bank
F. Definitions & Explanations (continued)
Green Asset ratio The proportion of the share of 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 the share of credit institution's assets financing EU
Taxonomy-aligned mortgages (acquisition, construction or renovation of
buildings) as a share of total mortgages 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) and (ii) loans and advances to customers
classified and measured at FVPL adjusted for the aggregate fair value
adjustment
Gross loans are reported before the residual fair value adjustment on initial
recognition relating mainly to loans acquired from Laiki Bank (calculated as
the difference between the outstanding contractual amount and the fair value
of loans acquired) amounting to €86 mn as at 31 December 2022 (compared to
€116 mn as at 30 September 2022 and €178 mn at 31 December 2021).
Additionally, gross loans include loans and advances to customers classified
and measured at fair value through profit or loss adjusted for the aggregate
fair value adjustment of €211 mn as at 31 December 2022 (compared to €229
mn as at 30 September 2022 and €336 mn at 31 December 2021).
Group The Group consists οf Bank of Cyprus Holdings Public Limited Company, "BOC
Holdings" or the "Company", its subsidiary Bank of Cyprus Public Company
Limited, the "Bank" and the Bank's subsidiaries.
Legacy exposures Legacy exposures are exposures relating to (i) Restructuring and Recoveries
Division (RRD), (ii) Real Estate Management Unit (REMU), and (iii) non-core
overseas exposures.
Leverage ratio The leverage ratio is the ratio of tangible total equity (including Other
equity instruments) to total assets as presented on the balance sheet.
Tangible total equity comprises of equity attributable to the owners of the
Company minus intangible assets.
Leverage Ratio Exposure (LRE) Leverage Ratio Exposure (LRE) is defined in accordance with the Capital
Requirements Regulation (EU) No 575/2013, as amended.
Loan credit losses (PL) (previously 'Provision charge') Loan credit losses comprise: (i) credit losses to cover credit risk on loans
and advances to customers, (ii) net gains on derecognition of financial assets
measured at amortised cost and (iii) net gains on loans and advances to
customers at FVPL, for the reporting period/year.
Loan credit losses charge (previously 'Provisioning charge') (cost of risk) Loan credit losses charge (cost of risk) (year-to-date) is calculated as the
annualised 'loan credit losses' (as defined) divided by average gross loans.
The average gross loans are calculated as the average of the opening balance
and the closing balance, for the reporting period/year.
Market Shares Both deposit and loan market shares are based on data from the CBC. The Bank
is the single largest credit provider in Cyprus with a market share of 40.9%
as at 31 December 2022, compared to 41.1% as at 30 September 2022 and 38.8% at
31 December 2021. The increase during 2022 is mainly due to a reduction in
loans in the banking system.
MSCI ESG Rating The use by the Company and the Bank of any MSCI ESG Research LLC or its
affiliates ('MSCI') data, and the use of MSCI Logos, trademarks, service marks
or index names herein, do not constitute a sponsorship, endorsement,
recommendation or promotion of the Company or the Bank by MSCI. MSCI Services
and data are the property of MSCI or its information providers and are
provided "as-is" and without warranty. MSCI Names and logos are trademarks or
service marks of MSCI.
Net fee and commission income over total income Fee and commission income less fee and commission expense divided by total
income (as defined).
F. Definitions & Explanations (continued)
Net Interest Margin Net interest margin is calculated as the net interest income (annualised)
divided by the 'quarterly average interest earning assets' (as defined).
Net loans and advances to customers Net loans and advances to customers comprise gross loans (as defined) net of
allowance for expected loan credit losses (as defined, but excluding allowance
for expected credit losses on off-balance sheet exposures disclosed on the
balance sheet within other liabilities).
Net loans to deposits ratio Net loans to deposits ratio is calculated as gross loans (as defined) net of
allowance for expected loan credit losses (as defined) divided by customer
deposits.
Net performing loan book Net performing loan book is the total net loans and advances to customers (as
defined) excluding the legacy exposures (as defined).
Net Stable Funding Ratio (NSFR) The NSFR is calculated as the amount of "available stable funding" (ASF)
relative to the amount of "required stable funding" (RSF). The regulatory
limit, enforced in June 2021, has been set at 100% as per the CRR II.
Net zero emissions The reduction of greenhouse gas emissions to net zero through a combination of
reduction activities and offsetting investments
New lending New lending includes the disbursed amounts of the new and existing
non-revolving facilities (excluding forborne or re-negotiated accounts) as
well as the average year-to-date change (if positive) of the current accounts
and overdraft facilities between the balance at the beginning of the period
and the end of the period. Recoveries are excluded from this calculation since
their overdraft movement relates mostly to accrued interest and not to new
lending.
Non-interest income Non-interest income comprises Net fee and commission income, Net foreign
exchange gains/(losses) and net gains/(losses) on financial instruments and
(excluding net gains on loans and advances to customers at FVPL), Insurance
income net of claims and commissions, Net gains/(losses) from revaluation and
disposal of investment properties and on disposal of stock of properties, and
Other income.
Non-performing exposures (NPEs) As per the European Banking Authorities (EBA) standards and European Central
Bank's (ECB) Guidance to Banks on Non-Performing Loans (which was published in
March 2017), non-performing exposures (NPEs) are defined as those exposures
that satisfy one of the following conditions:
(i) The borrower is assessed as unlikely to pay its credit obligations in
full without the realisation of the collateral, regardless of the existence of
any past due amount or of the number of days past due.
(ii) Defaulted or impaired exposures as per the approach provided in the
Capital Requirement Regulation (CRR), which would also trigger a default under
specific credit adjustment, diminished financial obligation and obligor
bankruptcy.
(iii) Material exposures as set by the CBC, which are more than 90 days past
due.
(iv) Performing forborne exposures under probation for which additional
forbearance measures are extended.
(v) Performing forborne exposures previously classified as NPEs that present
more than 30 days past due within the probation period.
From 1 January 2021 two regulatory guidelines came into force that affect NPE
classification and Days-Past-Due calculation. More specifically, these are the
RTS on the Materiality Threshold of Credit Obligations Past-Due
(EBA/RTS/2016/06), and the Guideline on the Application of the Definition of
Default under article 178 (EBA/RTS/2016/07).
The Days-Past-Due (DPD) counter begins counting DPD as soon as the arrears or
excesses of an exposure reach the materiality threshold (rather than as of the
first day of presenting any amount of arrears or excesses). Similarly, the
counter will be set to zero when the arrears or excesses drop below the
materiality threshold. Payments towards the exposure that do not reduce the
arrears/excesses below the materiality threshold, will not impact the counter.
For retail debtors, when a specific part of the exposures of a customer that
fulfils the NPE criteria set out above is greater than 20% of the gross
carrying amount of all on balance sheet exposures of that customer, then the
total customer exposure is classified as non‑performing; otherwise only the
specific part of the exposure is classified as non‑performing. For
non‑retail debtors, when an exposure fulfils the NPE criteria set out above,
then the total customer exposure is classified as non‑performing.
F. Definitions & Explanations (continued)
Non-performing exposures (NPEs) Material arrears/excesses are defined as follows: (a) Retail exposures: Total
arrears/excess amount greater than €100, (b) Exposures other than retail:
Total arrears/excess amount greater than €500 and the amount in
arrears/excess in relation to the customer's total exposure is at least 1%.
Non-recurring items Non-recurring items as presented in the 'Interim Condensed Consolidated Income
Statement - Underlying basis' relate to the following items, as applicable:
(i) Advisory and other restructuring costs - organic, (ii) Provisions/net
profit/(loss) relating to NPE sales, (iii) Restructuring and other costs
relating to NPE sales, and (iv) Restructuring costs relating to the Voluntary
Staff Exit Plan.
NPE coverage ratio (previously 'NPE Provisioning coverage ratio') The NPE coverage ratio is calculated as the allowance for expected loan credit
losses (as defined) over NPEs (as defined).
NPE ratio NPEs ratio is calculated as the NPEs as per EBA (as defined) divided by gross
loans (as defined).
NPE sales NPE sales refer to sales of NPE portfolios completed, as well as contemplated
and potential future sale transactions, irrespective of whether or not they
met the held for sale classification criteria at the reporting dates.
Operating profit The operating profit comprises profit before Total loan credit losses,
impairments and provisions (as defined), tax, (profit)/loss attributable to
non-controlling interests and non-recurring items (as defined).
Operating profit return on average assets Operating profit return on average assets is calculated as the annualised
operating profit (as defined) divided by the quarterly average of total assets
for the relevant period. Average total assets exclude total assets of
discontinued operations at each quarter end, if applicable.
Phased-in Capital Conservation Buffer (CCB) In accordance with the legislation in Cyprus which has been set for all credit
institutions, the applicable rate of the CCB is 1.25% for 2017, 1.875% for
2018 and 2.5% for 2019 (fully phased-in).
Profit after tax and before non-recurring items (attributable to the owners of This refers to the profit after tax (attributable to the owners of the
the Company) Company), excluding any 'non-recurring items' (as defined).
Profit/(loss) after tax - organic (attributable to the owners of the Company) This refers to the profit or loss after tax (attributable to the owners of the
Company), excluding any 'non-recurring items' (as defined, except for the
'advisory and other restructuring costs - organic').
Project Helix 2 Project Helix 2 refers to the sale of portfolios of loans with a total gross
book value of €1.3 bn completed in June 2021.
Project Helix 3 Project Helix 3 refers to the agreement the Group reached in November 2021 for
the sale of a portfolio of NPEs with gross book value of €551 mn, as well as
real estate properties with book value of c.€88 mn as at 30 September 2022.
Project Helix 3 was completed in November 2022. For further information please
refer to section B.2.5 Loan portfolio quality.
F. Definitions & Explanations (continued)
Project Sinope Project Sinope refers to the agreement the Group reached in December 2021 for
the sale of a portfolio of NPEs with gross book value of €12 mn as at 31
December 2021, as well as properties in Romania with carrying value €0.6 mn
as at 31 December 2021. Project Sinope was completed in August 2022.
Quarterly average interest earning assets This relates to the average of 'interest earning assets' as at the beginning
and end of the relevant quarter. Average interest earning assets exclude
interest earning assets of any discontinued operations at each quarter end, if
applicable. Interest earning assets include: cash and balances with central
banks (including cash and balances with central banks classified as
non-current assets held for sale), plus loans and advances to banks, plus net
loans and advances to customers (including loans and advances to customers
classified as non-current assets held for sale), plus 'deferred consideration
receivable' included within 'other assets', plus investments (excluding
equities and mutual funds).
Qoq Quarter on quarter change
Return on Tangible equity (ROTE) after tax and before non-recurring items Return on Tangible Equity (ROTE) after tax and before non-recurring items is
calculated as Profit/(loss) after tax and before non-recurring items
(attributable to the owners of the Company) (as defined) (annualised), -
(based on year to date days)), divided by the quarterly average of
Shareholders' equity minus intangible assets at each quarter end.
Return on Tangible equity (ROTE) Return on Tangible Equity (ROTE) 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 minus intangible assets at each quarter end.
Special levy on deposits and other levies/contributions Relates to the special levy on deposits of credit institutions in Cyprus,
contributions to the Single Resolution Fund (SRF), contributions to the
Deposit Guarantee Fund (DGF), as well as the DTC levy, where applicable.
Total Capital ratio Total capital ratio is defined in accordance with the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II applicable as at the
reporting date.
Total expenses Total expenses comprise staff costs, other operating expenses and the special
levy on deposits and other levies/contributions. It does not include (i)
'advisory and other restructuring costs-organic', (ii) restructuring and other
costs relating to NPE sales, or (iii) restructuring costs relating to the
Voluntary Staff Exit Plan. (i) 'Advisory and other restructuring
costs-organic' amounted to €1 mn for 4Q2022 (compared to €5 mn for 3Q2022,
€4 mn for 2Q2022 and €1 mn for 1Q2022) (ii) Restructuring costs relating
to NPE sales for 4Q2022 amounted to €0.3 mn (compared to €1 mn for 3Q2022,
€0.8 mn for 2Q2022 and €1 mn for 1Q2022 and €0.2 mn for 4Q2021), and
(iii) Restructuring costs relating to the Voluntary Staff Exit Plan (VEP) for
4Q2022 was nil (compared to 3Q2022 was €101 mn, nil for 2Q2022 and €3 mn
for 1Q2022).
Total income Total income comprises net interest income and non-interest income (as
defined).
Total loan credit losses, impairments and provisions Total loan credit losses, impairments and provisions comprises loan credit
losses (as defined), plus impairments of other financial and non-financial
assets, plus (provisions)/net reversals for litigation, claims, regulatory and
other matters.
Underlying basis This refers to the statutory basis after being adjusted for certain items as
explained in the Basis of Presentation.
Write offs Loans together with the associated loan credit losses are written off when
there is no realistic prospect of future recovery. Partial write-offs,
including non-contractual write-offs, may occur when it is considered that
there is no realistic prospect for the recovery of the contractual cash flows.
In addition, write-offs may reflect restructuring activity with customers and
are part of the terms of the agreement and subject to satisfactory
performance.
Yoy Year on year change
Basis of Presentation
This announcement covers the results of Bank of Cyprus Holdings Public Limited
Company, "BOC Holdings" or "the Company", its subsidiary Bank of Cyprus Public
Company Limited, the "Bank" or "BOC PCL", and together with the Bank's
subsidiaries, the "Group", for the year ended 31 December 2022.
At 31 December 2016, the Bank was listed on the Cyprus Stock Exchange (CSE)
and the Athens Exchange. On 18 January 2017, BOC Holdings, incorporated in
Ireland, was introduced in the Group structure as the new holding company of
the Bank. On 19 January 2017, the total issued share capital of BOC Holdings
was admitted to listing and trading on the LSE and the CSE.
Financial information presented in this announcement is being published for
the purposes of providing an overview of the Group financial results for the
year ended 31 December 2022.
The financial information in this announcement is not audited and does not
constitute statutory financial statements of BOC Holdings within the meaning
of section 340 of the Companies Act 2014. The Group statutory financial
statements for the year ended 31 December 2022 are expected to be delivered to
the Registrar of Companies of Ireland within 56 days of 30 September 2023 (as
at the date of this report, such statutory financial statements have not been
reported on by independent auditors of BOC Holdings). The Board of Directors
approved this financial information on 17 February 2023. BOC Holdings' most
recent statutory financial statements for the purposes of Chapter 4 of Part 6
of the Companies Act 2014 of Ireland for the year ended 31 December 2021, upon
which the auditors have given an unqualified audit report, were published on
30 March 2022 and have been annexed to the annual return and delivered to the
Registrar of Companies of Ireland.
Statutory basis: Statutory information is set out on pages 4-5. However, a
number of factors have had a significant effect on the comparability of the
Group's financial position and performance. Accordingly, the results are also
presented on an underlying basis.
Underlying basis: The financial information presented under the underlying
basis provides an overview of the Group financial results for the year ended
31 December 2022, which the management believes best fits the true measurement
of the financial performance and position of the Group. For further
information, please refer to 'Commentary on Underlying Basis' on page 7. The
statutory results are adjusted for certain items (as described on pages 9-10)
to allow a comparison of the Group's underlying financial position and
performance, as set out on pages 4-5.
The financial information included in this announcement is neither reviewed
nor audited by the Group's external auditors.
This announcement and the presentation for the Group Financial Results for the
year ended 31 December 2022 have been posted on the Group's website
www.bankofcyprus.com (Group/Investor Relations/Financial Results).
Definitions: The Group uses definitions in the discussion of its business
performance and financial position which are set out in section F, together
with explanations.
The Group Financial Results for the year ended 31 December 2022 are presented
in Euro (€) and all amounts are rounded as indicated. A comma is used to
separate thousands and a dot is used to separate decimals.
Forward Looking Statements
This document contains certain forward-looking statements which can usually be
identified by terms used such as "expect", "should be", "will be" and similar
expressions or variations thereof or their negative variations, but their
absence does not mean that a statement is not forward-looking. Examples of
forward-looking statements include, but are not limited to, statements
relating to the Group's near term, medium term and longer term future capital
requirements and ratios, intentions, beliefs or current expectations and
projections about the Group's future results of operations, financial
condition, expected impairment charges, the level of the Group's assets,
liquidity, performance, prospects, anticipated growth, provisions,
impairments, business strategies and opportunities. By their nature,
forward-looking statements involve risk and uncertainty because they relate to
events, and depend upon circumstances, that will or may occur in the future.
Factors that could cause actual business, strategy and/or results to differ
materially from the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements made by the Group include, but
are not limited to: general economic and political conditions in Cyprus and
other European Union (EU) Member States, interest rate and foreign exchange
fluctuations, legislative, fiscal and regulatory developments, information
technology, litigation and other operational risks, adverse market conditions,
the impact of outbreaks, epidemics or pandemics, such as the COVID-19 pandemic
and ongoing challenges and uncertainties posed by the COVID-19 pandemic for
businesses and governments around the world. Russian invasion of Ukraine has
led to heightened volatility across global markets and to the coordinated
implementation of sanctions on Russia, Russian entities and nationals. The
Russian invasion of Ukraine has already caused significant population
displacement, and as the conflict continues, the disruption will likely
increase. The scale of the conflict and the speed and extent of sanctions, as
well as the uncertainty as to how the situation will develop, may have
significant adverse effects on the market and macroeconomic conditions,
including in ways that cannot be anticipated. This creates significantly
greater uncertainty about forward-looking statements. Should any one or more
of these or other factors materialise, or should any underlying assumptions
prove to be incorrect, the actual results or events could differ materially
from those currently being anticipated as reflected in such forward looking
statements. The forward-looking statements made in this document are only
applicable as at the date of publication of this document. Except as required
by any applicable law or regulation, the Group expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward looking statement contained in this document to reflect any change in
the Group's expectations or any change in events, conditions or circumstances
on which any statement is based.
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial services group
in Cyprus, providing a wide range of financial products and services which
include retail and commercial banking, finance, factoring, investment banking,
brokerage, fund management, private banking, life and general insurance. At 31
December 2022, the Bank of Cyprus Group operated through a total of 64
branches in Cyprus, of which 4 operated as cash offices. The Bank of Cyprus
Group employed 2,889 staff worldwide. At 31 December 2022, the Group's Total
Assets amounted to €25.4 bn and Total Equity was €2.1 bn. The Bank of
Cyprus Group comprises Bank of Cyprus Holdings Public Limited Company, its
subsidiary Bank of Cyprus Public Company Limited and its subsidiaries.
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