TIDMBOCH
RNS Number : 7393G
Bank of Cyprus Holdings PLC
27 November 2020
Announcement
Group Financial Results for the nine months ended 30 September
2020
and Medium-Term Strategic Targets
Nicosia, 27 November 2020
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014.
Key Highlights for the nine months ended 30 September 2020
COVID-19 Developments
-- Cypriot economy more resilient in 3Q2020 than anticipated earlier in the year
-- We continue to support the recovery of the Cypriot economy
-- New lending of EUR288 mn for 3Q2020 recovering post lockdown,
driven by retail housing, reaching c.EUR1 bn for 9M2020
-- Careful on-going monitoring of credit quality of loans under moratorium
Positive Performance in 3Q2020
-- Total income of EUR137 mn; operating profit of EUR44 mn
-- Cost of risk of 97 bps
-- Profit after tax of EUR4 mn
Operating Efficiency
-- Total operating expenses (excluding special levy and
contributions to SRF and DGF) at EUR84 mn for 3Q2020, up by 4% qoq
as more normal business operations have resumed post lockdown, and
EUR249 mn for 9M2020 down by 13% yoy
-- Cost to income ratio (excluding special levy and
contributions to SRF and DGF) at 62% for 3Q2020 and 59% for
9M2020
Good Capital, Strong Liquidity
-- CET1 ratio of 14.7% and Total Capital ratio of 18.2% (both
pro forma for Helix 2 and on a transitional basis)
-- Deposits at EUR16.4 bn, broadly flat qoq
-- Significant surplus liquidity of EUR4.1 bn (LCR at 256%)
Balance Sheet Repair Continues
-- Organic NPE reduction of EUR230 mn for 3Q2020, with pace returning to pre-lockdown levels
-- EUR0.9 bn NPE sale (Helix 2) agreed in August 2020
-- NPEs reduced to EUR2.4 bn (EUR1.0 bn net), pro forma for Helix 2
-- Gross NPE ratio reduced to 21% (10% net) and coverage
maintained at 59%, all pro forma for Helix 2
Strategy and Outlook
-- Clear path to reduce NPE ratio to single digit by end of 2022
and to c.5% in the medium term
-- Enhance revenues in a more capital efficient way, capitalising on strong market position
-- Improve operating efficiency through leaner operations, digitisation and automation
-- Initiate MREL issuance and refinance Tier 2, subject to market conditions
-- Position the Bank on the path for sustainable profitability
delivering shareholders returns; target of ROTE of c.7% in the
medium term
Group Chief Executive Statement
"Signs of economic recovery to pre-pandemic levels marked the
third quarter of the year, with the Cypriot economy showing more
resilience than initially anticipated, proving its open, small and
flexible characteristics. However, as the number of new COVID-19
cases has increased in recent weeks, local restrictions have been
re-imposed to contain the spread, which is likely to lead to some
loss of momentum in economic recovery in the fourth quarter. The
latest news for an effective vaccine is encouraging, which in time
should support a return to more normal conditions.
Our strategic priorities of strengthening our balance sheet and
improving our asset quality and efficiency, while supporting our
customers, colleagues and community through COVID-19 remain
unchanged.
During the third quarter of the year we continued to support the
Cypriot economy and extended a further EUR288 mn in new loans, up
by over 20% compared to the previous quarter, as new demand
increased post lockdown, driven by retail housing, supported by the
Government's interest rate subsidy scheme. Overall, we have granted
c.EUR1 bn new loans in the first nine months of the year.
During the third quarter of the year, we generated total income
of EUR137 mn and a positive operating result of EUR44 mn. Cost of
risk was maintained at below 100 bps. Q3 was profitable and the
profit after tax for the quarter was EUR4 mn. The overall result
for the nine months was a loss after tax of EUR122 mn, when
including the loss on Project Helix 2 and loan credit losses for
potential future NPE sales, both recorded in the previous
quarter.
In the nine months of the year we reduced our total operating
expenses by EUR40 mn or 13% on a yearly basis, reflecting our
on-going efforts to contain costs. The quarterly increase of 4% is
reflective of the lower cost base in the second quarter as a result
of the restrictive measures for COVID-19.
The Bank's capital position remains good and comfortably in
excess of our regulatory requirements. As at 30 September 2020, our
capital ratios (on a transitional basis) were 18.2% for the Total
Capital ratio and 14.7% for CET1 ratio, both pro forma for Helix 2.
Our liquidity position also remains strong as we continue to
operate with a significant surplus of EUR4.1 bn (LCR at 256%).
Deposits on our balance sheet remained broadly flat in the quarter
at EUR16.4 bn.
During the third quarter of the year we maintained our focus on
dealing with legacy issues. The pace of organic NPE reduction
returned to pre-lockdown levels, as we reduced NPEs further by
EUR230 mn, bringing the total organic reduction in the first nine
months of the year to over EUR500 mn. Together with the sales of
loans achieved earlier this year (Helix 2 and Velocity 2), we have
substantially reduced NPEs by EUR1.5 bn in the first nine months of
2020. Overall, since the peak in 2014, we have now reduced the
stock of delinquent loans by EUR12.6 bn or 84% to EUR2.4 bn (on a
pro forma basis) and our NPE ratio from 63% to 21% (on a pro forma
basis). NPE coverage was maintained at 59%, reducing the residual
risk on our balance sheet to EUR1 bn.
We remain committed to completing the de-risking of the balance
sheet and we will continue to assess the potential to accelerate
NPE reduction through additional sales. At the same time, we
continue to monitor the credit quality of loans under
moratorium.
Although there remains uncertainty in the broader operating
environment as a result of the pandemic, our vision for the future
of the Bank is clear, together with our confidence in delivering
our strategic objectives.
Bank of Cyprus has been through a period of considerable change
and we are now laying the foundations for delivering greater
shareholder value. Our near term priorities include the completion
of our balance sheet de-risking and ensuring our cost base remains
appropriate whilst further investing in our digital capabilities;
and our medium term priorities include capitalising on our strong
market position, enhancing revenues, driving down costs and
navigating a clear path to sustainable profitability."
Panicos Nicolaou
A. Group Financial Results - Underlying Basis
Unaudited Consolidated Condensed Interim Income Statement
------
qoq
EUR mn 9M2020 9M2019(1) 3Q2020 2Q2020 + % yoy +%
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Net interest income 250 260 82 83 -1% -4%
Net fee and commission income 106 111 35 33 6% -4%
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution
of subsidiaries and associates 14 34 2 6 -76% -59%
Insurance income net of claims and commissions 42 42 13 18 -28% 0%
Net gains/ (losses) from revaluation and disposal of investment
properties and on disposal
of stock of properties 2 26 2 (1) - -90%
Other income 11 22 3 4 -13% -48%
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Total income 425 495 137 143 -5% -14%
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Staff costs (145) (167) (49) (47) 5% -12%
Other operating expenses (104) (122) (35) (34) 4% -15%
Special levy and contributions to Single Resolution Fund (SRF) and
Deposit Guarantee Fund
(DGF) (24) (18) (9) (6) 42% 28%
Total expenses (273) (307) (93) (87) 7% -11%
------ --------- ------ ------ ----
Operating profit 152 188 44 56 -23% -19%
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Loan credit losses (118) (117) (31) (23) 28% 1%
Impairments of other financial and non-financial assets (36) (9) (7) (25) -73% -
Provisions for litigation, claims, regulatory and other matters (4) (3) 0 (2) -83% 33%
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Total loan credit losses, impairments and provisions (158) (129) (38) (50) -26% 22%
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
(Loss)/profit before tax and non-recurring items (6) 59 6 6 7% -
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Tax (7) (1) (2) (3) -18% -
Loss/(profit) attributable to non-controlling interests 4 (2) 0 4 -96% -
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
(Loss)/profit after tax and before non-recurring items
(attributable to the owners of the
Company) (9) 56 4 7 -38% -116%
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Advisory and other restructuring costs - organic (9) (14) (3) (3) 1% -36%
=================================================================== ====== ========= ====== ====== ==== ======
(Loss)/profit after tax - organic (attributable to the owners of
the Company) (18) 42 1 4 -71% -
=================================================================== ====== ========= ====== ====== ==== ======
Provisions/net loss relating to NPE sales, including restructuring
expenses(2) (104) (6) 3 (104) - -
Loss on remeasurement of investment in associate upon
classification as held for sale (CNP)
net of share of profit from associates - (21) - - - -
Reversal of impairment of DTA and impairment of other tax
receivables - 101 - - - -
(Loss)/profit after tax (attributable to the owners of the Company) (122) 116 4 (100) - -
------ --------- ------ ------ ----
A. Group Financial Results - Underlying Basis (continued)
Unaudited Consolidated Condensed Interim Income Statement - Key Performance Ratios
----------------------------------------------------------------------------------------------------------- -------
qoq
Key Performance Ratio s(3) 9M2020 9M2019(1) 3Q2020 2Q2020 + % yoy +%
------------------------------------------------------------- ------- --------- ------ ------- ------- -------
Net Interest Margin (annualised) 1.87% 1.92% 1.79% 1.88% -9 bps -5 bps
------------------------------------------------------------- ------- --------- ------ ------- ------- -------
Cost to income ratio 64% 62% 68% 61% +7 p.p. +2 p.p.
------------------------------------------------------------- ------- --------- ------ ------- ------- -------
Cost to income ratio excluding special levy and contributions
to SRF and DGF 59% 58% 62% 57% +5 p.p. +1 p.p.
------------------------------------------------------------- ------- --------- ------ ------- ------- -------
Operating profit return on average assets (annualised) 1.0% 1.2% 0.8% 1.1% -30 bps -20 bps
------------------------------------------------------------- ------- --------- ------ ------- ------- -------
Basic (losses)/earnings per share attributable to the owners
of the Company - organic (EUR
cent) (4.07) 9.23 0.24 0.82 -0.58 -13.30
------------------------------------------------------------- ------- --------- ------ ------- ------- -------
Basic (losses)/earnings per share attributable to the owners
of the Company (EUR cent) (27.25) 25.92 0.91 (22.35) +23.26 -53.17
------------------------------------------------------------- ------- --------- ------ ------- ------- -------
1. The interest income, non-interest income, staff costs, other operating expenses and loan
credit losses related to Project Helix are disclosed under 'Provisions/net loss relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction. 2. 'Provisions/net loss relating to NPE
sales including restructuring expenses' refer to the net loss on transactions completed during
each period, net loan credit losses on transactions under consideration and for potential
further sales at each reporting date, as well as the restructuring costs relating to these
trades. For further details please refer to Section A.2.4. 3. Including the NPE portfolios
classified as "Non-current assets and disposal groups held for sale".
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point
Commentary on Underlying Basis
The financial information presented in this Section provides an
overview of the Group financial results for the nine months ended
30 September 2020 on the 'underlying basis' which the management
believes best fits the true measurement of the performance and
position of the Group.
Reconciliations between statutory basis and underlying basis are
included in section F.1 'Reconciliation of income statement between
statutory basis and underlying basis' and in Section G 'Definitions
and Explanations', to allow for the comparability of the underlying
basis to statutory information.
With respect to the 'Balance Sheet Analysis', please note the
following in relation to the disclosure of pro forma figures and
ratios with respect to Project Helix 2 (as explained below). All
relevant figures are based on 30 September 2020 financial results,
unless otherwise stated. Numbers on a pro forma basis are based on
the 30 September 2020 underlying basis figures and are adjusted for
Project Helix 2 and assume completion of the transaction, which
remains subject to customary regulatory and other approvals. Where
numbers are provided on a pro forma basis this is stated.
Project Helix 2 refers to the agreement the Group reached in
August 2020 with funds affiliated with Pacific Investment
Management Company LLC ("PIMCO"), for the sale of a portfolio of
loans with gross book value of EUR0.9 bn. Further details on the
transaction are provided in Section A.1.5 'Loan Portfolio
quality'.
In addition, the following change was made in the underlying
basis, when compared with previous disclosures.
Reclassifications effected to comparative information were made
so that 'advisory and other restructuring costs' for 9M2019 of c.
EUR6.5 mn (relating to the Project Helix 2 loan portfolio,
classified as held for sale as at 30 September 2020), were
reclassified as non-recurring items within 'Provisions/net loss
relating to NPE sales, including restructuring expenses' in the
underlying basis.
A. Group Financial Results - Underlying Basis (continued)
Unaudited Consolidated Condensed Interim Balance Sheet
==================================================================================================================
EUR mn 30.09.2020 31.12.2019 + %
======================================== ============= ===================== ================= ===============
Cash and balances with central
banks 5,507 5,060 9%
Loans and advances to banks 529 321 65%
Debt securities, treasury bills
and equity investments 2,026 1,906 6%
Net loans and advances to customers 10,047 10,722 -6%
Stock of property 1,358 1,378 -1%
Investment properties 130 136 -4%
Other assets 1,558 1,574 -1%
Non-current assets and disposal
groups held for sale 361 26 -
======================================== ============= ===================== ================= ===============
Total assets 21,516 21,123 2%
======================================== ============= ===================== ================= ===============
Deposits by banks 405 533 -24%
Funding from central banks 997 - -
Repurchase agreements 124 168 -26%
Customer deposits 16,384 16,692 -2%
Subordinated loan stock 267 272 -2%
Other liabilities 1,208 1,169 3%
======================================== ============= ===================== ================= ===============
Total liabilities 19,385 18,834 3%
======================================== ============= ===================== ================= ===============
Shareholders' equity 1,886 2,040 -8%
======================================== ============= ===================== ================= ===============
Other equity instruments 220 220 -
======================================== ============= ===================== ================= ===============
Total equity excluding non-controlling
interests 2,106 2,260 -7%
======================================== ============= ===================== ================= ===============
Non-controlling interests 25 29 -14%
======================================== ============= ===================== ================= ===============
Total equity 2,131 2,289 -7%
======================================== ============= ===================== ================= ===============
Total liabilities and equity 21,516 21,123 2%
======================================== ============= ===================== ================= ===============
Key Balance Sheet figures and 30.09.2020
ratios (proforma)(1) 30.09.2020 +(2)
(as reported)(2) 31.12.2019
======================================== ================== ===================== ============ ===============
Gross loans (EUR mn) 11,427 12,309 12,822 -4%
======================================== ================== ===================== ============ ===============
Allowance for expected loan
credit losses (EUR mn) 1,391 1,933 2,096 -8%
======================================== ================== ===================== ============ ===============
Customer deposits (EUR mn) 16,384 16,384 16,692 -2%
======================================== ================== ===================== ============ ===============
Loans to deposits ratio (net) 61% 63% 64% -1 p.p.
======================================== ================== ===================== ============ ===============
NPE ratio 21% 26% 30% -4 p.p.
======================================== ================== ===================== ============ ===============
NPE coverage ratio 59% 60% 54% +6 p.p.
======================================== ================== ===================== ============ ===============
Leverage ratio 9.1% 9.1% 10.0% -0.9 p.p.
======================================== ================== ===================== ============ ===============
Capital ratios and risk weighted
assets 30.09.2020 30.09.2020 31.12.2019 +(2)
(proforma)(1) (as reported)(2)
======================================== ================== ===================== ============ ===============
Common Equity Tier 1 (CET1)
ratio (transitional for IFRS
9)(3) 14.7% 14.6% 14.8% -20 bps
======================================== ================== ===================== ============ ===============
Total capital ratio 18.2% 18.1% 18.0% +10 bps
======================================== ================== ===================== ============ ===============
Risk weighted assets (EUR mn) 11,780 11,888 12,890 -8 %
======================================== ================== ===================== ============ ===============
1. Pro forma for the sale of NPEs of EUR0.9 bn (Project Helix 2);
calculations on a pro forma basis assume completion of Project Helix
2, which remains subject to customary regulatory and other approvals.
2. As reported: Including the NPE portfolios classified as "Non-current
assets and disposal groups held for sale". 3.The CET1 fully loaded
ratio as at 30 September 2020 amounts to 12.8% and 12.9% pro forma
for Helix 2 (compared to 12.6% and 12.7% pro forma for Helix 2 as
at 30 June 2020 and 13.1% as at 31 December 2019). p.p. = percentage
points, bps = basis points, 100 basis points (bps) = 1 p.p.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis
A.1.1 Capital Base
Total equity excluding non-controlling interests totalled
EUR2,106 mn at 30 September 2020, compared to EUR2,095 mn at 30
June 2020 and EUR2,260 mn at 31 December 2019. Shareholders' equity
totalled EUR1,886 mn at 30 September 2020, compared to EUR1,875 mn
at 30 June 2020 and EUR2,040 mn at 31 December 2019.
The Common Equity Tier 1 capital (CET1) ratio on a transitional
basis stood at 14.6% at 30 September 2020 and 14.7% pro forma for
the Project Helix 2 sale agreement signed in 3Q2020 (referred to as
"pro forma for Helix 2"), compared to 14.3% at 30 June (and 14.4%
pro forma for Helix 2) and to 14.8% at 31 December 2019. During
3Q2020, the CET1 ratio was further positively impacted by the
amendments to the capital regulations in relation to the temporary
treatment of unrealised loss on certain financial instruments and
IFRS 9, introduced in June 2020 in response to COVID-19 by c.10
bps.
The Group has elected to apply the EU transitional arrangements
for regulatory capital purposes (EU Regulation 2017/2395) where the
impact on the impairment amount from the initial application of
IFRS 9 on the capital ratios is phased-in gradually. The amount
added each year decreases based on a weighting factor until the
impact of IFRS 9 is fully absorbed back to CET1 at the end of the
five years. The impact on the capital position for the year 2018
was 5% of the impact on the impairment amounts from the initial
application of IFRS 9, increasing to 15% (cumulative) for the year
2019 and to 30% (cumulative) for the year 2020. In June 2020,
Regulation (EU) 2020/873, regarding certain adjustments in response
to the COVID-19 pandemic, came into force, extending the IFRS 9
transitional arrangements and introducing further relief measures
to CET1, such as allowing to temporarily add back unrealised gains
or losses on certain financial instruments measured at fair value
through other comprehensive income. Further details are set out
further below under 'Implications on capital from the Outbreak of
COVID-19'.
The CET1 ratio on a fully loaded basis amounted to 12.8% as at
30 September 2020 and 12.9% pro forma for Helix 2, compared to
12.6% as at 30 June 2020 and 12.7% pro forma for Helix 2, and to
13.1% as at 31 December 2019. On a transitional basis and on a
fully phased-in basis, after the transition period is complete, the
impact of IFRS 9 is expected to be manageable and within the
Group's capital plans.
The Total Capital ratio stood at 18.1% as at 30 September 2020
(and 18.2% pro forma for Helix 2), compared to 17.8% as at 30 June
2020 (and 17.9% pro forma for Helix 2), and to 18.0% as at 31
December 2019.
The Group's capital ratios are above the Supervisory Review and
Evaluation Process (SREP) requirements.
In the context of ECB's capital easing measures for COVID-19,
the Bank received an amendment to the December 2019 SREP decision
effective as of 12 March 2020, reducing the Group's minimum
phased-in Common Equity Tier 1 (CET1) capital ratio to 9.7%
(comprising a 4.5% Pillar I requirement, a 1.7% Pillar II
requirement, the Capital Conservation Buffer of 2.5% and the Other
Systemically Important Institution Buffer of 1.0%), following the
frontloading of the new rules on the Pillar II Requirement
composition, to allow banks to use Additional Tier 1 (AT1) capital
and Tier 2 (T2) capital to meet Pillar II Requirements and not only
by CET1, initially scheduled to come into effect in January
2021.
The SREP Total Capital Requirement remained unchanged at 14.5%,
comprising an 8.0% Pillar I requirement (of which up to 1.5% can be
in the form of AT1 capital and up to 2.0% in the form of T2
capital), a 3.0% Pillar II requirement (in the form of CET1), the
Capital Conservation Buffer of 2.5% and the Other Systemically
Important Institution Buffer of 1.0%. The ECB has also provided
non-public guidance for an additional Pillar II CET1 buffer. Pillar
II add-on capital requirements derive from the context of the SREP,
which is a point in time assessment, and are therefore subject to
change over time. The final 2019 SREP decision became effective on
1 January 2020.
In accordance with the provisions of the Macroprudential
Oversight of Institutions Law of 2015, the CBC is the responsible
authority for the designation of banks that are Other Systemically
Important Institutions (O-SIIs) and for the setting of the O-SII
buffer requirement for these systemically important banks. The
Group has been designated as an O-SII and the O-SII buffer
currently set by the CBC for the Group is 2%. This buffer is being
phased-in gradually, having started from 1 January 2019 at 0.5% and
increasing by 0.5% every year thereafter, until being fully
implemented (2.0%). In April 2020, the CBC decided to delay the
phasing-in (0.5%) of the O-SII buffer on 1 January 2021 and 1
January 2022 by 12 months. Consequently, the O-SII buffer will be
fully phased-in on 1 January 2023, instead of 1 January 2022 as
originally set.
In November 2020, the Group received communication from the ECB
according to which no SREP decision will be issued for the 2020
SREP cycle and that the 2019 SREP will remain in force, hence
leaving the Group's capital requirements unchanged, as well as
other requirements established by the 2019 SREP decision. The
communication follows relevant announcement by the ECB earlier in
the year that ECB will be taking a pragmatic approach towards the
SREP for the 2020 cycle.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.1 Capital Base (continued)
Further analysis on the recent developments on the regulatory
capital ratios due to the COVID-19 outbreak is set out further
below under 'Implications on capital from the Outbreak of
COVID-19'.
The European Banking Authority (EBA) final guidelines on SREP
and supervisory stress testing and the Single Supervisory
Mechanism's (SSM) 2018 SREP methodology provide that own funds held
for the purposes of Pillar II Guidance 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 2019 SREP decision, the new provisions became
effective since January 2020.
Based on the SREP decisions of prior years, the Company and the
Bank were under a regulatory prohibition for equity dividend
distribution and therefore no dividends were declared or paid
during years 2019 and 2018. Following the 2020 SREP communication,
the Company and the Bank are still under equity dividend
distribution prohibition as the 2019 SREP decision remains in
force. This prohibition does not apply if the distribution is made
via the issuance of new ordinary shares to the shareholders, which
are eligible as CET1 capital. No prohibition applies to the payment
of coupons on any AT1 capital instruments issued by the Company or
the Bank.
The ECB, as part of its supervisory role, has completed an
onsite inspection and review on the value of the Group's foreclosed
assets with reference date 30 June 2019. The findings, which relate
to a possible prudential charge of up to c.50 bps, are currently
being reviewed by the Bank's Joint Supervisory Team and no decision
has been communicated to the Bank at this stage. The size and
timing of the prudential charge (if any) that the Bank may be
requested to take in order to address the findings of this review
remain uncertain and will depend in part on the Bank's progress in
de-risking its balance sheet.
Share premium reduction
Bank
The Bank, having obtained approval by its shareholders, the ECB
and the Court of Cyprus, implemented a capital reduction process in
October 2020, which resulted in the reclassification of c.EUR619 mn
of the Bank's share premium balance as distributable reserves. Such
reduction of capital will not have any impact on regulatory capital
or the total equity position of the Bank or the Group.
The distributable reserves provide the basis for the calculation
of distributable items under the Capital Requirements Regulation
(EU) No. 575/2013 ( CRR), which provides that coupons on AT1
capital instruments may only be funded from distributable
items.
Company
The Company (Bank of Cyprus Holdings PLC), following relevant
resolution of its shareholders at the May 2020 AGM and subsequent
approval by the ECB and the Irish High Court, implemented a capital
reduction process in November 2020, which resulted in the
reclassification of EUR700 mn of the Company's share premium
balance as distributable reserves. Such capital reduction will not
have any impact on regulatory capital or the total equity position
of the Company, the Bank or the Group.
The distributable reserves provide the basis for the calculation
of distributable items under the CRR, which provides that coupons
on AT1 capital instruments may only be funded from distributable
items recognised in the audited full year financial statements. The
distributable reserves and distributable items created pursuant to
the capital reduction process are expected to be reflected in the
audited financial statements for the financial year ended 31
December 2020.
Project Helix 2
In August 2020, the Group signed an agreement for the sale of a
portfolio of loans with gross book value of EUR0.9 bn, known as
Project Helix 2. Loan credit losses in relation to the agreement of
c.EUR68 mn, including transaction costs were recognised during
2Q2020. At completion, currently expected in 1H2021, and including
the losses recognised in 2Q2020, the transaction is expected to
have a negative impact of c.40 bps on the Group's CET1 ratio. Upon
the full payment of the deferred consideration and without taking
into consideration any positive impact from the earnout, depending
on the performance of the portfolio, the transaction is expected to
have an overall positive capital impact of c.10 bps on the Group's
CET1 ratio.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.1 Capital Base (continued)
Further NPE sales in the future
The Group remains committed to assess the potential to
accelerate the decrease in NPEs through further NPE sales in the
future and in the context of IFRS 9, the Bank recognised additional
loan credit losses of EUR21 mn in 2Q2020 (compared to nil in 3Q2020
and 1Q2020), resulting in a decrease on the Group's CET1 ratio of
c.14 bps in 2Q2020. On completion of an NPE trade, the Group's
capital ratios would benefit from any associated RWA reduction,
subject to regulatory approval.
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) were
adopted by the Cyprus Parliament and published in the Official
Gazette of the Republic in March 2019. The law amendments cover the
utilisation of income tax losses transferred from Laiki Bank to the
Bank in March 2013. The introduction of CRD IV in January 2014 and
its subsequent phasing-in led to a more capital-intensive treatment
of this DTA for the Bank. The law amendments resulted in an
improved regulatory capital treatment, under CRR , of the DTA
amounting to c.EUR285 mn or a CET1 uplift of c.190 bps in March
2019.
The Group understands that, in response to concerns raised by
the European Commission with regard to the provision of state aid
arising out of the treatment of such tax losses, the Cyprus
Government is considering the adoption of modifications to the Law,
potentially including requirements for an additional annual fee
over and above the 1.5% annual guarantee fee already acknowledged,
to maintain the conversion of such DTAs into tax credits. In
anticipation of such modifications the Group recorded an additional
amount of EUR13 mn in 4Q2019 by way of an estimated additional fee
(for the years 2018 and 2019), bringing the total guarantee fee
recognised for FY2019 to EUR19 mn .
The Group, in anticipation of modifications in the Law,
acknowledges that such increased annual fee may be required to be
recorded on an annual basis until expiration of such losses in
2028. The determination and conditions of such amount will be
prescribed in the Law to be amended and the amount determined by
the Government on an annual basis. Amendments to the Law will need
to be adopted by the Cyprus Parliament and published in the
Official Gazette of the Republic for the amendments to be
effective. The Group, however, understands that contemplated
amendments to the Law may provide that the minimum fee to be
charged will be 1.5% of the annual instalment and can range up to a
maximum amount of EUR10 mn per year. The Group estimates that such
increased fees could range up to EUR5.3 mn per year (for each tax
year in scope i.e. since 2018) although the Group understands that
such fee may fluctuate annually as to be determined by the Ministry
of Finance.
Project Helix
In June 2019, Project Helix was completed resulting in a
positive impact of c.140 bps on both the Group's CET1 and Total
Capital ratios, mainly from the release of risk weighted assets.
Project Helix had an overall net positive impact on the Group
capital ratios of c.60 bps.
Sale of investment in CNP Cyprus Insurance Holdings Ltd
In October 2019, the sale of the Group's investment in its
associate CNP Cyprus Insurance Holdings Limited ("CNP") was
completed, resulting in a positive impact of c.30 bps on both the
Group's CET1 and Total Capital ratios, mainly from the release of
risk weighted assets. The shareholding had been acquired as part of
the acquisition of certain operations of Laiki Bank in 2013 and was
sold to CNP Assurances S.A. for a cash consideration of EUR97.5
mn.
Voluntary Staff Exit Plan
In October 2019, the Group completed a voluntary staff exit plan
(VEP) at a total cost of EUR81 mn, recorded in the consolidated
income statement in 4Q2019, resulting in a negative impact of c.60
bps on both the Group's CET1 and Total Capital ratios.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.1 Capital Base (continued)
Implications on capital from the Outbreak of COVID-19
The Group continues to closely monitor developments in, and the
effects of COVID-19 on both the global and Cypriot economy. The ECB
announced a package of positive measures that should help to
support the capital position of the Bank, in order to secure
favourable conditions of financing for the economy with the aim to
mitigate the effects of the crisis. Specifically, the measures
increase the Group's capital base available to absorb potential
losses due to the crisis. In addition, the early adoption of CRD V
for the composition of the Pillar II Requirement provide
flexibility regarding the Group's compliance with the minimum
capital requirement of Pillar II.
In the context of the ECB's capital easing measures for
COVID-19, the Bank received an amendment to the December 2019 SREP
decision effective as of 12 March 2020, r educing the Group's
minimum phased-in CET1 capital ratio to 9.7%. In addition, the ECB
announced that banks are temporarily allowed to operate below the
level of Pillar II Guidance (P2G), the capital conservation buffer
(CCB) and the countercyclical buffer. The CBC has set the level of
the countercyclical buffer for Cyprus at 0% for the years 2020 and
2019. In July 2020, the ECB committed to allow banks to operate
below the P2G and the combined buffer requirement until at least
end of 2022, without automatically triggering supervisory
actions.
In addition, in April 2020, the CBC decided to delay the
phasing-in of the O-SII buffer. Further details are given
above.
In June 2020, Regulation (EU) 2020/873, in response to the
COVID-19 pandemic, came into force, bringing forward some of the
capital-relieving measures that were due to come into force at a
later stage and introducing modifications as part of the wider
efforts of competent authorities to provide the support necessary
to the institutions. The main amendments affecting the Group's own
funds relate to the acceleration of the implementation of the new
SME discount factor under CRR II introduced in June 2020, instead
of June 2021, extending the IFRS 9 transitional arrangements and
introducing further relief measures to CET1, advancing the
application of prudential treatment of software assets as amended
by CRR II, and introducing temporary treatment of unrealized gains
and losses to exposures to central governments, regional
governments or local authorities, measured at fair value through
other comprehensive income.
With respect to the SME discount factor, banks will be required
to hold less capital against SMEs as revised capital discount
factors come into effect. These changes became effective in June
2020 and added 44 bps to capital as at 30 June 2020.
The amendments to the existing IFRS 9 transitional arrangements
relate to the extension of the transitional period for the
recalculation of the transitional adjustment on credit losses on
Stages 1 and 2 loans (dynamic component). A 100% add back of IFRS 9
provisions is allowed for the years 2020 and 2021 reducing to 75%
in 2022, to 50% in 2023 and to 25% in 2024. The calculation at each
reporting period is to be made against Stage 1 and Stage 2
provisions as at 1 January 2020, instead of 1 January 2018. The
calculation of the static component has not been amended. These
amendments became effective in June 2020 and added 11 bps to
capital as at 30 September 2020.
In relation to the prudential treatment of intangibles, software
assets will no longer need to be deducted in full in CET1
calculations, subject to certain criteria. The relevant technical
standards have been issued by the EBA and need to be adopted by the
European Commission, expected in 4Q2020.
Finally, institutions may remove from the calculation of their
CET1 the amount of unrealised gains and losses accumulated since 31
December 2019 accounted for as 'fair value changes of debt
instruments measured at fair value through other comprehensive
income' in the balance sheet, corresponding to exposures to central
governments, to regional governments or to local authorities and to
public sector entities, excluding those financial assets that are
credit-impaired, subject to a scaling factor set at 100% from
January to December 2020, at 70% from January to December 2021 and
at 40% from January to December 2022. The Bank applies the
temporary relief as of 3Q2020 and contributed 6 bps to capital as
at 30 September 2020.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.2. Regulations and Directives
A.1.2.1 Revised rules on capital and liquidity (CRR II and CRD
V)
On 27 June 2019, the revised rules on capital and liquidity (CRR
II and CRD V) came into force. As an amending regulation, the
existing provisions of CRR apply, unless they are amended by CRR
II. Member states are required to transpose the CRD V into national
law. Certain provisions took immediate effect (primarily relating
to Minimum Requirement for Own Funds and Eligible Liabilities,
MREL), but most changes will start to apply from mid-2021. Certain
aspects of CRR II are dependent on final technical standards to be
issued by the EBA and adopted by the European Commission. The key
changes introduced consist of, among others, changes to qualifying
criteria for CET1, AT1 and Tier 2 instruments, introduction of
requirements for MREL and a binding Leverage Ratio requirement and
a Net Stable Funding Ratio (NSFR).
A.1.2.2 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 came into effect and must
be transposed into national law. In addition, certain provisions on
MREL have been introduced in CRR which also came into force on 27
June 2019 as part of the reform package and took immediate
effect.
In May 2020, the Bank received formal notification from the CBC
in its capacity as National Resolution Authority, of the final
decision by the Single Resolution Board (SRB), for the binding
minimum requirement for own funds and eligible liabilities (MREL)
for the Bank, determined as the preferred resolution point of
entry. The MREL requirement was set at 28.36% of risk weighted
assets as of 30 June 2019 and must be met by 31 December 2025. This
MREL requirement would be equivalent to 18.54% of total liabilities
and own funds (TLOF) as at 30 June 2019. The MREL requirement is in
line with the Bank's expectations, and largely in line with its
funding plans.
This decision is based on the current legislation, is expected
to be updated annually and could be subject to subsequent changes
by the resolution authorities, especially considering that next
year's decision will be under the BRRD II, which among others may
affect the quantum of the MREL requirement, the final compliance
period and the subordination requirements, and is expected to
impose a binding interim target for 1 January 2022.
The MREL ratio of the Bank as at 30 September 2020, calculated
according to SRB's eligibility criteria currently in effect and
based on the Bank's internal estimate, stood at 18.55% of RWAs.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.3 Funding and Liquidity
Funding
Funding from Central Banks
At 30 September 2020, the Bank's funding from central banks
amounted to EUR997 mn, which relates to ECB funding, comprising
solely of funding through the Targeted Longer-Term Refinancing
Operations (TLTRO III) (compared to no funding from central banks
as at 31 December 2019). In June 2020, the Bank borrowed EUR1 bn
from the fourth TLTRO III operation, despite its comfortable
liquidity position, given the favourable borrowing rate, in
combination with the relaxation of collateral terms.
Deposits
Customer deposits totalled EUR16,384 mn at 30 September 2020
(compared to EUR16,303 mn at 30 June 2020 and EUR16,692 mn at 31
December 2019), remaining broadly flat in the third quarter and
reduced by 2% since the year end.
The Bank's deposit market share in Cyprus reached 35.0% as at 30
September 2020, at similar levels as at 30 June 2020 and 31
December 2019. Customer deposits accounted for 76% of total assets
and 85% of total liabilities at 30 September 2020 (compared to 79%
of total assets and 89% of total liabilities at 31 December
2019).
The net Loans to Deposit ratio (L/D) stood at 63% as at 30
September 2020 (compared to 64% as at 30 June 2020 and 31 December
2019). The L/D ratio had reached a peak of 151% as at 31 March
2014.
Subordinated Loan Stock
At 30 September 2020 the Bank's subordinated loan stock
(including accrued interest) amounted to EUR267 mn (compared to
EUR261 mn at 30 June 2020 and EUR272 mn at 31 December 2019) and
relates to unsecured subordinated Tier 2 Capital Notes of nominal
value EUR250 mn, issued by the Bank in January 2017.
Liquidity
At 30 September 2020 the Group Liquidity Coverage Ratio (LCR)
stood at 256% (compared to 257% at 30 June 2020 and 208% at 31
December 2019), in compliance with the minimum regulatory
requirement of 100%.
The liquidity surplus in LCR at 30 September 2020 amounted to
EUR4.1 bn (compared to EUR3.9 bn at 30 June 2020 and EUR3.2 bn at
31 December 2019). The increase in 9M2020 is driven mainly by the
borrowing of EUR1 bn TLTRO III in June 2020.
The Net Stable Funding Ratio (NSFR) has not yet been introduced.
It will be enforced as a regulatory ratio under CRR II in 2021,
with the limit set at 100%. At 30 September 2020, the Group's NSFR,
on the basis of Basel standards, stood at 135% (compared to 134% at
30 June 2020 and 127% at 31 December 2019).
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.3 Funding and Liquidity (continued)
Regulatory measures to mitigate the impact of COVID-19 crisis on
banks' liquidity position
Resulting from the outbreak of COVID-19, the ECB has adopted a
broad set of policy measures to mitigate the economic impact of the
crisis and to ensure that its directly supervised banks can
continue to fulfil their role in funding the real economy. The main
measures which have a direct or indirect impact on the liquidity
position of banks are summarised below:
-- The ECB allows banks to operate below the defined level of
100% of the LCR until at least end-2021 .
-- Collateral easing measures: The package included a set of
collateral easing measures, which resulted in increasing the banks'
borrowing capacity at the ECB operations and improving the
liquidity buffers due to the lower haircuts applied to the ECB
eligible collaterals the bank holds, that consist of bonds and
Additional Credit Claims (ACC). The collateral easing packages are
designed mainly as temporary measures, that will remain in place
until September 2021 with the flexibility to be extended or
modified. Furthermore, the ECB enlarged the scope of the ACC
framework, increasing the universe of eligible loans. In addition,
the ECB announced changes in collateral rules, temporarily
accepting collaterals with a rating below investment grade, up to a
certain rating level.
-- Favourable terms of LTRO operations: the package contained
measures to provide liquidity support to the euro area financial
system, such as a series of LTROs which ran from March to June 2020
so participants could shift their outstanding LTRO amounts to TLTRO
III, as well as significant favourable amendments in the terms and
characteristics of TLTRO III. Furthermore, a new series of
additional longer-term refinancing operations, called Pandemic
Emergency longer-term refinancing operations (PELTROs), were
introduced with an interest rate of 25 basis points below the
average rate applied in the Eurosystem's main refinancing
operations (currently 0%) over the life of the respective PELTROs
that are maturing in the third quarter of 2021.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.4 Loans
Group gross loans totalled EUR12,309 mn at 30 September 2020 ,
compared to EUR12,491 mn at 30 June 2020 and EUR12,822 mn at 31
December 2019. Gross loans of the Group's Cyprus operations
totalled EUR12,237 mn at 30 September 2020 accounting for 99% of
Group gross loans. Pro forma for Helix 2, gross loans are reduced
by EUR882 mn to EUR11,427 mn as at 30 September 2020.
New loans granted in Cyprus reached EUR977 mn for 9M2020,
compared to EUR1,602 mn for 9M2019, down by 39% yoy, impacted by
the outbreak of COVID-19. New loans granted in Cyprus reached
EUR288 mn for 3Q2020, compared to EUR238 mn for 2Q2020 (up by 21%
qoq) and to EUR491 mn for 3Q2019 (down by 41% yoy). The qoq
increase reflects demand for new loans picking up post lockdown,
driven by retail housing loans.
At 30 September 2020, the Group net loans and advances to
customers totalled EUR10,047 mn (compared to EUR10,104 mn at 30
June 2020 and EUR10,722 mn at 31 December 2019). In addition, at 30
September 2020 net loans and advances to customers of EUR349 mn
were classified as held for sale in line with IFRS 5 and relate to
Project Helix 2 (EUR340 mn) and Helix Tail (EUR9 mn), compared to
EUR362 mn as at 30 June 2020 relating to Project Helix 2 (EUR352
mn) and Helix Tail (EUR10 mn) and to EUR26 mn as at 31 December
2019 relating to Helix Tail and Velocity 2.
The Bank is the single largest credit provider in Cyprus with a
market share of 41.5% at 30 September 2020, compared to 41.7% at 30
June 2020 and to 41.1% at 31 December 2019.
A.1.5 Loan portfolio quality
Tackling the Group's loan portfolio quality remains a top
priority for management. The Group has continued to make steady
progress across all asset quality metrics and the loan
restructuring activity has continued despite challenges brought
upon by COVID-19. The Group has been successful in engineering
restructuring solutions across the spectrum of its loan
portfolio.
Non-performing exposures (NPEs) as defined by the European
Banking Authority (EBA) were reduced by EUR230 mn or 7% during
3Q2020, compared to a reduction of EUR270 mn in 2Q2020 (comprising
an organic reduction of NPEs of EUR137 mn and a reduction through
the completion of Project Velocity 2 of EUR133 mn) despite the
COVID-19 lockdown in March 2020, to EUR3,238 mn at 30 September
2020 (compared to EUR3,468 mn at 30 June 2020 and EUR3,880 mn at 31
December 2019). The Group has recorded organic NPE reductions for
twenty-two consecutive quarters. Pro forma for Helix 2, NPEs are
reduced by a further EUR864 mn to EUR2,374 mn on the basis of 30
September 2020 figures.
The NPEs account for 26% of gross loans as at 30 September 2020,
compared to 28% as at 30 June 2020 and 30% at 31 December 2019, on
the same basis, i.e. including the NPE portfolios classified as
"Non-current assets and disposal groups held for sale". Pro forma
for Helix 2 the NPE ratio is reduced to 21% on the basis of 30
September 2020 figures.
The NPE coverage ratio improved to 60% at 30 September 2020,
compared to 59% at 30 June 2020 and 54% at 31 December 2019, on the
same basis, i.e. including the NPE portfolios classified as
"Non-current assets and disposal groups held for sale". When taking
into account tangible collateral at fair value, NPEs are fully
covered. Pro forma for Helix 2 the NPE coverage ratio is reduced to
59% on the basis of 30 September 2020 figures.
30.09.2020 31.12.2019
% gross % gross
EUR loans EUR mn loans
mn
=============================== ==== ======= ======== ======== ========= ===========
NPEs as per EBA definition 3,238 26.3% 3,880 30.3%
Of which, in pipeline
to exit:
-NPEs with forbearance
measures, no arrears(1) 312 2.5% 428 3.3%
============================================== ======== ======== ========= ===========
1. The analysis is performed on a customer basis.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.5 Loan portfolio quality (continued)
Project Helix 2
In August 2020, the Group signed an agreement for the sale of a
portfolio of loans with gross book value of c.EUR898 mn (of which
EUR886 mn related to non-performing exposures) as at 30 June 2020,
known as Project Helix 2. This portfolio had a contractual balance
of EUR1.46 bn as at the reference date of 30 September 2019 and
comprises mainly retail and small-to-medium-sized enterprises,
secured by real estate collateral. This portfolio is classified as
a disposal group held for sale since 30 June 2020 and it includes
other assets (comprising properties and cash already received since
the reference date) amounting to c.EUR34 mn as at 30 June 2020.
The gross consideration amounts to 46% of the gross book value
as at 30 June 2020 and 29% of the contractual balance, payable in
cash, of which 35% is payable at completion, currently expected in
1H2021, and the remaining 65% is deferred without any conditions
attached. The deferred component is payable in three broadly equal
instalments over 48 months from completion. The consideration can
be increased through an earnout arrangement, depending on the
performance of the portfolio.
This portfolio will be transferred to a licensed Cypriot Credit
Acquiring Company (the "CyCAC") by the Bank. The shares of the
CyCAC will then be acquired by certain funds affiliated with
Pacific Investment Management Company LLC (PIMCO), the purchaser of
the portfolio.
Following a transitional period where servicing will be retained
by the Bank, it is intended that the servicing of the portfolio
will be carried out by a third party servicer selected and
appointed by the CyCAC. Arrangements in relation to the migration
of servicing from the Bank to the servicer, including the timing of
the migration, remain under discussion between the parties.
Project Helix 2 accelerates the Group's strategy of de-risking
its balance sheet, by reducing its stock of NPEs by 27% to EUR2,374
mn pro forma on the basis of the 30 September 2020 figures, and its
NPE ratio by 5 p.p., to 21% pro forma on the basis of the 30
September 2020 figures.
Project Velocity 2
In May 2020, the Group completed the sale of a non-performing
loan portfolio of primarily retail unsecured exposures, with a
contractual balance of EUR398 mn and gross book value of EUR144 mn
as at the reference date of 31 August 2019 (known as Project
Velocity 2) to B2Kapital Cyprus Ltd. This portfolio comprised
c.10.000 borrowers, including c.8.400 private individuals and
c.1.600 small-to-medium-sized enterprises. The gross book value of
this portfolio as at the date of disposal was EUR133 mn. The sale
was broadly neutral to both the profit and loss and to capital.
Project Helix
In June 2019, the Group announced the completion of Project
Helix, that refers to the sale of a portfolio of loans with a gross
book value of EUR2.8 bn (of which EUR2.7 bn related to
non-performing loans) secured by real estate collateral to certain
funds affiliated with Apollo Global Management LLC, the agreement
of which was announced on 28 August 2018. Cash consideration of
c.EUR1.2 bn was received on completion, reflecting adjustments
resulting from, inter alia, loan repayments received on the Helix
portfolio since the reference date of 31 March 2018. The
participation of the Bank in the senior debt in relation to
financing the transaction was syndicated down from the initial
level of EUR450 mn to c.EUR45 mn, representing c.4% of the total
acquisition funding. Upon completion, the NPE ratio was reduced by
c.11 p.p. to 33% as at 30 June 2019, c.70% lower than its peak in
2014.
Project Velocity 1
In June 2019, the Group completed the sale of a non-performing
loan portfolio of primarily retail unsecured exposures, with a
contractual balance of EUR245 mn and a gross book value of EUR34 mn
as at the reference date of 30 September 2018 (known as Project
Velocity 1) to APS Delta s.r.o. This portfolio comprised 9,700
heavily delinquent borrowers, including 8,800 private individuals
and 900 small-to-medium-sized enterprises. The gross book value of
this portfolio as at the date of disposal was EUR30 mn. The sale
was broadly neutral to both the profit and loss and to capital.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.5 Loan portfolio quality (continued)
ESTIA
In July 2018 the Government announced a scheme aimed at
addressing NPEs backed by primary residence, known as ESTIA (the
'Scheme'). Approximately one thousand completed applications were
received corresponding to retail core NPEs of c.EUR250 mn. The
Scheme is expected to resolve c.EUR93 mn of these NPEs, to identify
non-viable customers for which alternative restructuring solutions
are being considered (including by the Government) corresponding to
c.EUR96 mn of these NPEs, and to facilitate the resolution of the
remaining customers, mainly by focusing on realising collateral
through consensual and non-consensual foreclosures. All figures are
as per the latest available data in November 2020.
Additional strategies to accelerate de-risking
The Group remains committed to assess the potential to
accelerate the decrease in NPEs through further NPE sales in the
future and in the context of IFRS 9, other than the loan credit
losses of EUR68 mn recorded in 2Q2020 for Project Helix 2, the Bank
recognised additional loan credit losses of EUR21 mn in 2Q2020 as a
result of potential further NPE sales in the future . In December
2019, additional loan credit losses of EUR75 mn had been recognised
as a result of the anticipated balance sheet de-risking at the
time.
As at 30 September 2020, a portfolio of credit facilities
related to Project Helix of mainly secured non-performing exposures
(known as 'Helix Tail') with gross book value of EUR37 mn (compared
to EUR44 mn as at 30 June 2020 and EUR46 mn as at 31 December
2019), was classified as a disposal group held for sale.
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.6 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) on-boarded EUR74 mn of
assets in 9M2020 (down by 53% yoy), via the execution of debt for
asset swaps and repossessed properties. The focus for REMU has
shifted from on-boarding of assets resulting from debt for asset
swaps towards the disposal of these assets. The Group completed
organic disposals of EUR48 mn in 9M2020 (compared to EUR159 mn in
9M2019), resulting in a profit on disposal of EUR6 mn for 9M2020
(compared to a profit on disposal of EUR26 mn for 9M2019).
During the nine months ended 30 September 2020, the Group
executed sale-purchase agreements (SPAs) for disposals with
contract value of EUR56 mn (320 properties), compared to EUR195 mn
(433 properties) for 9M2019, excluding the sale of Cyreit. In
addition, the Group had signed SPAs for disposals of assets with
contract value of EUR54 mn as at 30 September 2020, compared to
EUR53 mn as at 30 June 2020 and EUR65 mn as at 30 September 2019
.
Project Helix 2
Stock of property with a carrying value of EUR11 mn as at 30
September 2020 and as at 30 June 2020 is classified as non-current
assets and disposal groups held for sale as it is included in the
Helix 2 portfolio.
Completion of sale of Cyreit
In 2Q2019, the Group completed the sale of its entire holding in
the investment shares of the Cyreit Variable Capital Investment
Company PLC (Cyreit) (21 properties), recognising a loss of c. EUR1
mn. The total proceeds from the disposal of Cyreit were EUR160
mn.
Completion of Project Helix
With the completion of Project Helix in 2Q2019, properties with
a carrying value of EUR109 mn, in the Project Helix portfolio, were
derecognised as of 30 June 2019.
Assets held by REMU
As at 30 September 2020, assets held by REMU had a carrying
value of EUR1,467 mn (comprising properties of EUR1,358 mn
classified as 'Stock of property' and EUR109 mn as 'Investment
properties'), compared to EUR1,456 mn as at 30 June 2020
(comprising properties of EUR1,344 mn classified as 'Stock of
property' and EUR112 mn as 'Investment properties') and to EUR1,490
mn as at 31 December 2019 (comprising properties of EUR1,378 mn
classified as 'Stock of property' and EUR112 mn as 'Investment
properties').
In addition to assets held by REMU, properties classified as
'Investment properties' with carrying value of EUR21 mn as at 30
September 2020 (compared to EUR23 mn as at 30 June 2020 and to
EUR24 mn as at 31 December
2019), relate to legacy properties held by the Bank before the set-up of REMU in January 2016.
Assets held by REMU (Group) qoq
EUR mn 9M2020 9M2019 3Q2020 2Q2020 + % yoy +%
------ ------ ------ ------ ----
Opening balance 1,490 1,530 1,456 1,484 -2% -3%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
On-boarded assets (including construction cost) 74 159 44 18 147% -53%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Sales (48) (159) (24) (10) 148% -70%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Impairment loss (38) (12) (9) (25) -70% 218%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Transfer to non-current assets and disposal groups held for sale (11) (5) - (11) - 120%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
Closing balance 1,467 1,513 1,467 1,456 1% -3%
----------------------------------------------------------------- ------ ------ ------ ------ ---- ------
A. Group Financial Results - Underlying Basis (continued)
A.1. Balance Sheet Analysis (continued)
A.1.6 Real Estate Management Unit (REMU) (continued)
Analysis by type and country Cyprus Greece Romania Total
30 September 2020 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 177 25 0 202
Offices and other commercial
properties 219 26 6 251
Manufacturing and industrial
properties 74 26 0 100
Hotels 24 0 - 24
Land (fields and plots) 619 7 2 628
Golf courses and golf-related
property 262 - - 262
Total 1,375 84 8 1,467
------- ------- --------
Cyprus Greece Romania Total
31 December 2019 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 182 26 0 208
Offices and other commercial
properties 200 29 6 235
Manufacturing and industrial
properties 73 32 0 105
Hotels 24 0 - 24
Land (fields and plots) 628 7 3 638
Golf courses and golf-related
property 280 - - 280
Total 1,387 94 9 1,490
------- ------- --------
A.1.7 Non-core overseas exposures
The remaining non-core overseas net exposures (including both
on-balance sheet and off-balance sheet exposures) at 30 September
2020 are as follows:
EUR mn 30 September 2020 31 December 2019
------------------
Greece 128 139
Romania 20 25
Russia 12 19
Total 160 183
------------------
The Group continues its efforts for further deleveraging and
disposal of non-essential assets and operations in Greece, Romania
and Russia.
In addition to the above, as at 30 September 2020, there were
overseas exposures of EUR270 mn in Greece, relating to both loans
and properties (compared to EUR269 mn at 30 June 2020 and to EUR265
mn at 31 December 2019), not identified as non-core exposures,
since they are considered by management as exposures arising in the
normal course of business.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis
A.2.1 Total income
qoq
EUR mn 9M2020 9M2019(1) 3Q2020 2Q2020 + % yoy +%
------ --------- ------ ------ ------
Net interest income 250 260 82 83 -1% -4%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
Net fee and commission income 106 111 35 33 6% -4%
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution
of subsidiaries and associates 14 34 2 6 -76% -59%
Insurance income net of claims and commissions 42 42 13 18 -28% 0%
Net gains/ (losses) from revaluation and disposal of investment
properties and on disposal
of stock of properties 2 26 2 (1) - -90%
Other income 11 22 3 4 -13% -48%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
Non-interest income 175 235 55 60 -9% -25%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
Total income 425 495 137 143 -5% -14%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
Net Interest Margin (annualised)(2) 1.87% 1.92% 1.79% 1.88% -9 bps -5 bps
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
Average interest earning assets
(EUR mn)(2) 17,865 18,103 18,191 17,690 3% -1%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
1. The interest income, non-interest income, staff costs, other operating expenses and loan
credit losses related to Project Helix are disclosed under 'Provisions/net loss relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction. 2. Including the NPE portfolios classified
as "Non-current assets and disposal groups held for sale". p.p. = percentage points, bps =
basis points, 100 basis points (bps) = 1 percentage point
Net interest income (NII) and net interest margin (NIM) for
9M2020 amounted to EUR250 mn and 1.87% respectively, down by 4%
year on year, mainly due to the lower volume of new loans. NII and
NIM for 3Q2020 amounted to EUR82 mn (compared to EUR83 mn for
2Q2020) and 1.79% (compared to 1.88% for 2Q2020) respectively.
Average interest earning assets for 9M2020 amounted to EUR17,865
mn, down by 1% yoy, mainly driven by the reduction in net loans.
Quarterly average interest earning assets for 3Q2020 amounted to
EUR18,191 mn, compared to EUR17,690 mn for 2Q2020 (up by 3% qoq),
following the increase of liquid assets resulting from the
participation in TLTRO III in June 2020, partly offset by the
reduction in net loans.
Non-interest income for 9M2020 amounted to EUR175 mn (compared
to EUR235 mn in 9M2019, down by 25% yoy), comprising net fee and
commission income of EUR106 mn, net foreign exchange gains and net
gains on financial instrument transactions and disposal/dissolution
of subsidiaries and associates of EUR14 mn, net insurance income of
EUR42 mn, net gains/(losses) from revaluation and disposal of
investment properties and on disposal of stock of properties of
EUR2 mn and other income of EUR11 mn. Non-interest income for
3Q2020 amounted to EUR55 mn (compared to EUR60 mn for 2Q2020) down
by 9% qoq, negatively impacted by lower insurance fees and
revaluation loss on financial instruments, partly offset by an
increase in net fees and commission income.
Net fee and commission income for 9M2020 amounted to EUR106 mn,
compared to EUR111 mn for 9M2019, reflecting the COVID-19 lockdown
in 1H2020. Net fee and commission income for 3Q2020 amounted to
EUR35 mn, compared to EUR33 mn for 2Q2020, as transactional volumes
gradually recovered post the COVID-19 lockdown.
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and
associates of EUR14 mn for 9M2020 (comprising net foreign exchange
gains of EUR15 mn and net revaluation losses on financial
instrument transactions of EUR1 mn) decreased by 59% yoy. The yoy
decrease is mainly driven by lower net revaluation gains and lower
net foreign exchange gains in 9M2020. Net foreign exchange gains
and net gains on financial instrument transactions and
disposal/dissolution of subsidiaries and associates of EUR2 mn for
3Q2020 (comprising net foreign exchange gains of EUR4 mn and net
revaluation losses on financial instrument transactions of EUR2 mn)
decreased by 76% qoq, driven by higher revaluation loss on
financial instruments in 3Q2020 (c.EUR7 mn) and higher net foreign
exchange gains.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.1 Total income (continued)
Net insurance income of EUR42 mn for 9M2020, remained flat yoy.
Net insurance income of EUR13 mn for 3Q2020, compared to EUR18 mn
for 2Q2020 (down by 28% qoq ), mainly due to lower claims in 2Q2020
as a result of the lockdown and lower management fee income from
unit-linked funds in 3Q2020 reflecting the performance of the
market.
Net gains/(losses) from revaluation and disposal of investment
properties and on disposal of stock of properties for 9M2020
amounted to EUR2 mn (comprising a profit on disposal of stock of
properties of EUR6 mn and loss from revaluation of investment
properties of EUR4 mn), compared to EUR26 mn in 9M2019, impacted by
the COVID-19 lockdown. Net gains from revaluation and disposal of
investment properties and on disposal of stock of properties for
3Q2020 amounted to EUR2 mn (compared to net losses of EUR1 mn in
2Q2020), as sales volume gradually picked up in 3Q2020 post
COVID-19 lockdown. REMU profit remains volatile.
Total income for 9M2020 amounted to EUR425 mn, compared to
EUR495 mn for 9M2019 (down by 14% yoy ). Total income for 3Q2020
amounted to EUR137 mn, compared to EUR143 mn for 2Q2020.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.2 Total expenses
qoq
EUR mn 9M2020 9M2019(1) 3Q2020 2Q2020 + % yoy +%
------ --------- ------ ------ -------
Staff costs (145) (167) (49) (47) 5% -12%
Other operating expenses (104) (122) (35) (34) 4% -15%
Total operating expenses (249) (289) (84) (81) 4% -13%
------ --------- ------ ------ -------
Special levy and contributions to Single Resolution Fund (SRF)
and Deposit Guarantee Fund
(DGF) (24) (18) (9) (6) 42% 28%
--------------------------------------------------------------- ------ --------- ------ ------ ------- -------
Total expenses (273) (307) (93) (87) 7% -11%
--------------------------------------------------------------- ------ --------- ------ ------ ------- -------
Cost to income ratio(2) 64% 62% 68% 61% +7 p.p. +2 p.p.
--------------------------------------------------------------- ------ --------- ------ ------ ------- -------
Cost to income ratio excluding special levy and contributions
to SRF and DGF(2) 59% 58% 62% 57% +5 p.p. +1 p.p.
--------------------------------------------------------------- ------ --------- ------ ------ ------- -------
1. The interest income, non-interest income, staff costs, other operating expenses and loan
credit losses related to Project Helix are disclosed under 'Provisions/net loss relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction. 2. Including the NPE portfolios classified
as "Non-current assets and disposal groups held for sale". p.p. = percentage points, bps =
basis points, 100 basis points (bps) = 1 percentage point
Total expenses for 9M2020 were EUR273 mn (compared to EUR307 mn
for 9M2019 and down by 11% yoy), 53% of which related to staff
costs (EUR145 mn), 38% to other operating expenses (EUR104 mn) and
9% (EUR24 mn) to special levy and contributions to Single
Resolution Fund (SRF) and Deposit Guarantee Fund (DGF). The yoy
decrease is driven by lower other operating expenses and lower
staff costs.
Total operating expenses for 9M2020 were EUR249 mn, compared to
EUR289 mn for 9M2019 (down by 13% yoy). Total operating expenses
for 3Q2020 were EUR84 mn, compared to EUR81 mn for 2Q2020 (up by 4%
qoq).
Staff costs of EUR145 mn for 9M2020 decreased by 12% yoy
(compared to EUR167 mn in 9M2019), mainly driven by cost savings
following the completion of the voluntary staff exit plan (VEP) in
4Q2019, through which c.11% of the Group's full-time employees were
approved to leave at a total cost of EUR81 mn, recorded in the
consolidated income statement in 4Q2019. The annual savings net of
the impact from the renewal of the collective agreement for 2019
and 2020, are estimated at EUR23 mn or 11% of staff costs. Staff
costs of EUR49 mn for 3Q2020 increased by 5% qoq (compared to EUR47
mn in 2Q2020), following the normalisation of staff costs post
COVID-19 lockdown measures in 2Q2020 (special annual leaves to
vulnerable groups and suspension of the contribution to the
national health system).
The Group employed 3,577 persons as at 30 September 2020
(compared to 3,579 as at 30 June 2020 and 3,672 as at 31 December
2019, including c.100 persons relating to Project Helix who were
transferred to the buyer upon full migration in January 2020). The
staff costs related to these persons are included under
'Provisions/net loss relating to NPE sales, including restructuring
expenses' in the underlying basis.
Other operating expenses for 9M2020 were EUR104 mn, decreased by
15% yoy from EUR122 mn in 9M2019, mainly due to lower consultancy,
marketing and property-related expenses in 9M2020. Other operating
expenses for 3Q2020 were EUR35 mn, at similar levels as 2Q2020.
Special levy and contributions to Single Resolution Fund (SRF)
and Deposit Guarantee Fund (DGF) for 9M2020 was EUR24 mn, compared
to EUR18 mn in 9M2019 (increased by 28% yoy). Special levy and
contributions to Single Resolution Fund (SRF) and Deposit Guarantee
Fund (DGF) for 3Q2020 was EUR9 mn, compared to EUR6 mn in 2Q2020
(increased by 42% qoq). The increase of EUR6 mn yoy and of EUR3 mn
qoq is driven by the contribution of the Bank to the Deposit
Guarantee Fund (DGF) of which EUR3 mn relates to 1H2020 and EUR3 mn
relates to 2H2020 and is recorded in 1Q2020 and 3Q2020
respectively, in line with IFRSs.
As from 1 January 2020 and until 3 July 2024 the Bank is subject
to contribution to the Deposit Guarantee Fund (DGF) on a
semi-annual basis. The contributions are calculated based on the
Risk Based Methodology (RBM) as approved by the management
committee of the Deposit Guarantee and Resolution of Credit and
Other Institutions Schemes (DGS) and is publicly available on the
CBC's website. In line with the RBM, the contributions are broadly
calculated on the covered deposits of all authorised institutions
and the target level is to reach at 0.8% of these deposits by 3
July 2024.
The cost to income ratio excluding special levy and
contributions to Single Resolution Fund (SRF) and Deposit Guarantee
Fund (DGF) for 9M2020 was 59%, broadly flat yoy. The cost to income
ratio excluding special levy and contributions to SRF and DGF for
3Q2020 was 62%, compared to 57% in 2Q2020, reflecting a 4% qoq
increase in total operating expenses and a 5% qoq decrease in total
income.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2.3 (Loss)/profit before tax and non-recurring items
qoq
EUR mn 9M2020 9M2019(1) 3Q2020 2Q2020 + % yoy +%
------ --------- ------ ------ -------
Operating profit 152 188 44 56 -23% -19%
---------------------------------------------------------------- ------ --------- ------ ------ ------- ------
Loan credit losses (118) (117) (31) (23) 28% 1%
Impairments of other financial and non-financial assets (36) (9) (7) (25) -73% -
Provisions for litigation, claims, regulatory and other matters (4) (3) 0 (2) -83% 33%
---------------------------------------------------------------- ------ --------- ------ ------ ------- ------
Total loan credit losses, impairments and provisions (158) (129) (38) (50) -26% 22%
---------------------------------------------------------------- ------ --------- ------ ------ ------- ------
(Loss)/profit before tax and non-recurring items (6) 59 6 6 7% -
---------------------------------------------------------------- ------ --------- ------ ------ ------- ------
Cost of risk(2) 1.25% 1.19% 0.97% 0.76% +21 bps +6 bps
---------------------------------------------------------------- ------ --------- ------ ------ ------- ------
1. The interest income, non-interest income, staff costs, other operating expenses and loan
credit losses related to Project Helix are disclosed under 'Provisions/net loss relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction. 2. Including the NPE portfolios classified
as "Non-current assets and disposal groups held for sale". p.p. = percentage points, bps =
basis points, 100 basis points (bps) = 1 percentage point
Operating profit for 9M2020 was EUR152 mn, compared to EUR188 mn
for 9M2019, down by 19% yoy. Operating profit for 3Q2020 was EUR44
mn, compared to EUR56 mn for 2Q2020, down by 23% qoq, reflecting a
7% qoq increase in total expenses and a 5% qoq decrease in total
income.
The loan credit losses for 9M2020 totalled EUR118 mn, broadly
flat yoy. The loan credit losses for 3Q2020 totalled EUR31 mn,
compared to EUR23 mn for 2Q2020 (up by 28% qoq). Regarding the
economic effects of COVID-19, the impact of IFRS 9 Forward Looking
Information (FLI) driven by the deterioration of the macroeconomic
outlook, resulted in a EUR5 mn charge included in 3Q2020 loan
credit losses (compared to charges of EUR10 mn and EUR28 mn
included in 2Q2020 and 1Q2020 loan credit losses respectively).
The annualised loan credit losses charge (cost of risk) for
9M2020 accounted for 1.25% of gross loans, of which 45 bps reflect
the deterioration of the macroeconomic outlook in 9M2020 (compared
to an annualised loan credit losses charge of 1.19% for
9M2019).
At 30 September 2020, the allowance for expected loan credit
losses, including residual fair value adjustment on initial
recognition and credit losses on off-balance sheet exposures
totalled EUR1,933 mn (compared to EUR2,043 mn at 30 June 2020 and
EUR2,096 mn at 31 December 2019) and accounted for 15.7% of gross
loans (compared to 16.4% at 30 June 2020 and 16.3% at 31 December
2019). The decrease in the allowance for expected loan credit
losses in 3Q2020 amounted to EUR110 mn (compared to a decrease of
EUR66 mn in 2Q2020).
Impairments of other financial and non-financial assets for
9M2020 amounted to EUR36 mn (compared to EUR9 mn for 9M2019) and
for 3Q2020 to EUR7 mn (compared to EUR25 mn for 2Q2020). The
increased impairments in 2Q2020 related mainly to specific, large,
illiquid REMU properties.
Provisions for litigation, claims, regulatory and other matters
for 9M2020 totalled EUR4 mn, compared to EUR3 mn for 9M2019.
Provisions for litigation, claims, regulatory and other matters for
3Q2020 were nil, compared to EUR2 mn for 2Q2020.
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2. 4 (Loss)/profit after tax (attributable to the owners of
the Company)
qoq
EUR mn 9M2020 9M2019(1) 3Q2020 2Q2020 + % yoy +%
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
(Loss)/profit before tax and non-recurring items (6) 59 6 6 7% -
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Tax (7) (1) (2) (3) -18% -
Loss/(profit) attributable to non-controlling interests 4 (2) 0 4 -96% -
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
(Loss)/profit after tax and before non-recurring items
(attributable to the owners of the
Company) (9) 56 4 7 -38% -116%
------------------------------------------------------------------- ------ --------- ------ ------ ---- ------
Advisory and other restructuring costs - organic (9) (14) (3) (3) 1% -36%
=================================================================== ====== ========= ====== ====== ==== ======
(Loss)/profit after tax - organic (attributable to the owners of
the Company) (18) 42 1 4 -71% -
=================================================================== ====== ========= ====== ====== ==== ======
Provisions/net loss relating to NPE sales, including restructuring
expenses(2) (104) (6) 3 (104) - -
Loss on remeasurement of investment in associate upon
classification as held for sale (CNP)
net of share of profit from associates - (21) - - - -
Reversal of impairment of DTA and impairment of other tax
receivables - 101 - - - -
(Loss)/profit after tax (attributable to the owners of the Company) (122) 116 4 (100) - -
------ --------- ------ ------ ----
1. The interest income, non-interest income, staff costs, other operating expenses and loan
credit losses related to Project Helix are disclosed under 'Provisions/net loss relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction. 2. 'Provisions/net loss relating to NPE
sales including restructuring expenses' refer to the net loss on transactions completed during
each period, net loan credit losses on transactions under consideration and for potential
further sales at each reporting date, as well as the restructuring costs relating to these
trades. For further details please see below. p.p. = percentage points, bps = basis points,
100 basis points (bps) = 1 percentage point
The tax charge for 9M2020 is EUR7 mn, compared to EUR1 mn for
9M2019. The tax charge for 3Q2020 is EUR2 mn, compared to EUR3 mn
for 2Q2020.
Loss after tax and before non-recurring items (attributable to
the owners of the Company) for 9M2020 was EUR9 mn, compared to a
profit of EUR56 mn for 9M2019. Profit after tax and before
non-recurring items (attributable to the owners of the Company) for
3Q2020 was EUR4 mn, compared to a profit of EUR7 mn for 2Q2020.
Advisory and other restructuring costs - organic for 9M2020
amounted to EUR9 mn, compared to EUR14 mn for 9M2019. Advisory and
other restructuring costs - organic for 3Q2020 amounted to EUR3 mn,
at the same level as for 2Q2020.
Loss after tax arising from the organic operations (attributable
to the owners of the Company) for 9M2020 amounted to EUR18 mn,
compared to a profit of EUR42 mn for 9M2019. Profit after tax
arising from the organic operations (attributable to the owners of
the Company) for 3Q2020 amounted to EUR1 mn, compared to EUR4 mn
for 2Q2020.
Provisions/net loss relating to NPE sales, including
restructuring expenses for 9M2020 amounts to EUR104 mn (compared to
EUR6 mn for 9M2019) and for 3Q2020 amounts to a reversal of
provisions of EUR3 mn (compared to provisions/net loss of EUR104 mn
for 2Q2020). The amount of EUR104 mn for 2Q2020 included mainly the
loan credit losses in relation to the then anticipated Project
Helix 2 agreement of EUR68 mn and additional loan credit losses of
EUR21 mn as a result of potential further NPE sales in the future.
Restructuring costs relating to NPE sales of EUR1 mn for 2Q2020
were also included (Nil for 3Q2020).
Loss on remeasurement of investment in associate upon
classification as held for sale (CNP) net of share of profit from
associates totalled EUR21 mn for 9M2019, comprising a loss on
remeasurement of investment in associate upon classification as
held for sale of EUR26 mn and a share of profit from associates of
EUR5 mn. In October 2019, the Group completed the sale of its
entire shareholding of 49.9% in its associate CNP Cyprus Insurance
Holdings Limited (CNP) that had been acquired as part of the
acquisition of certain operations of Laiki Bank in 2013 , for a
cash consideration of EUR97.5 mn .
A. Group Financial Results - Underlying Basis (continued)
A.2. Income Statement Analysis (continued)
A.2 .4 (Loss)/profit after tax (attributable to the owners of
the Company) (continued)
The reversal of impairment of DTA and impairment of other tax
receivables totalled EUR101 mn for 9M2019, comprising the net
positive impact of EUR109 mn following amendments to the Income Tax
legislation in Cyprus adopted in March 2019, and an impairment of
EUR8 mn relating to Greek tax receivables adversely impacted from
legislative changes. The carrying value of the remaining receivable
as at 30 September 2020 was EUR5 mn (compared to EUR5 mn as at 30
June 2020 and 31 December 2019).
Loss after tax attributable to the owners of the Company for
9M2020 was EUR122 mn , compared to a profit of EUR116 mn for
9M2019. Profit after tax attributable to the owners of the Company
for 3Q2020 was EUR4 mn , compared to a loss of EUR100 mn for
2Q2020.
B. Operating Environment
The COVID-19 pandemic is having a significant adverse effect on
the global economy with economic contraction only moderated by
aggressive monetary and fiscal policies. An effective vaccine,
however, and latest news in this area are encouraging, will allow a
return to normality much more quickly and change the economic
outlook. Public finances will remain strained, and economies by and
large, will exhibit low growth amidst low inflation and rising debt
levels until the pandemic is brought under control.
According to the IMF's World Economic Outlook (Autumn 2020), the
global economy in 2020 will contract by 4.2% when the world effects
of the pandemic will be felt the most. Global disruptions will be
significant and global trade will drop. Real GDP will contract
across all regions in 2020, but more importantly so in the advanced
economies and the Euro Area, than in emerging and developing
economies. In the US, output is expected to contract by 4.3%
compared with marginally positive growth expected in China.
The eurozone economy recorded a steep collapse in the first half
of 2020 wiping out all growth since the global financial crisis.
Italy, Portugal, Spain and France were hit the worst. Northern core
countries like Germany, the Netherlands, Austria and Denmark were
less affected. There has been a substantial recovery in the third
quarter, but output is still declining on a year-on-year basis.
Cyprus' economic recovery following the crisis of 2012-2014 has
been relatively solid. Real GDP expanded by 4.6% annually on
average in the period 2015-2019, and unemployment dropped to 6.7%
seasonally adjusted, in the fourth quarter of 2019. The COVID-19
pandemic is having a severe impact on economic activity
particularly in sectors that are more open to international travel
and trade. Tourist activity has been most affected. Total arrivals
in the year to September 2020 for which actual data is available
dropped by 84% from a year earlier and revenues by 87% through to
August 2020. Real GDP dropped by 12.3% in the second quarter and by
4.4% in the third, after rising by 1.5% in the first quarter and by
3.1% in the whole of 2019. In addition to tourism, the contraction
was driven by the trade and transport, manufacturing and the
construction sectors.
On the expenditure side the contraction was driven by a steep
drop in fixed investment, and to a lesser extent by a drop also in
private consumption. Exports of goods and services also dropped
steeply. The contraction was moderated by higher government
consumption and by a steep drop in imports.
Real GDP is estimated to contract by 6.2% in 2020 and to recover
by 3.7% and by 3% respectively in 2021 and 2022 according to the
European Commission (European Forecasts, Autumn 2020). Economic
activity is expected to be rebounding from the third quarter of
2020, but the pace of recovery will be constrained by Cyprus' heavy
dependence on the travel and tourism sectors which will continue to
face disruption until an effective vaccine is produced.
Unemployment which stood at 7% in the second quarter of the year
(Eurostat) was contained by the Government's jobs protection
schemes and business subsidies, but it might rise moderately in
2021 as support schemes are scaled back. Weak consumer confidence,
moderately higher unemployment rate and lower wages combined are
expected to limit private consumption at a slower pace than for
output overall. Private consumption is expected to recover as
confidence improves. Public consumption is also expected to
moderate in 2021, following a steep rise in 2020 that reflected the
Government's substantial fiscal response to the COVID-19
pandemic.
Gross fixed investment is influenced by ship registrations and
de-registrations and so tends to be highly volatile from quarter to
quarter. However, the decline in construction activity in the year
and the uncertainty that prevailed led to a significant contraction
in fixed investment. As uncertainty is reduced and as existing
multi-year projects are revived, particularly in the tourism
sector, fixed investment is expected to rise.
The termination of the investor citizenship scheme is expected
to reduce demand for high-end residences, and thus may have a
modest adverse effect on the building part of fixed investment. The
scheme in itself was beneficial for the Cyprus economy mostly for
its indirect effects on macroeconomic stabilisation. Its direct
growth contribution was positive but modest. Economic conditions
are now significantly different than when the investor for
citizenship scheme was introduced.
Consumer inflation was moderate in the first quarter of the year
and turned negative in the remainder of the year to October 2020.
In total for the ten months, consumer prices declined by 0.7%
reflecting weak domestic demand, lower energy prices in world
markets, and the cut to the VAT rate for the tourism sector in
July-December 2020. Consumer inflation will likely remain around
current levels or a little lower for the remainder of the year. The
current monetary and fiscal stimulus are not expected to feed into
higher prices as people are still saving more and spending less.
However, as the economy starts to emerge from recession in 2021,
and as energy prices start to strengthen, inflation is expected to
pick up gradually.
The current account balance is expected to deteriorate in 2020
as the services and incomes surplus shrinks sharply and the trade
deficit narrows only modestly. The collapse of travel and transport
earnings are causing a steep drop in the services surplus. The
current account imbalance is expected to narrow from 2021 onwards
as service earnings start to recover and EU recovery funds are
credited in the secondary income account. Oil prices will likely be
rising in the medium term, but remain low by the standards of
recent years, thus helping to restrict the trade deficit relative
to GDP.
B. Operating Environment (continued)
Cyprus recorded a fiscal surplus of 1.5% of GDP in 2019, which
reduced the debt-to-GDP ratio to 94% from 99.2% at the end of 2018.
The outbreak of the COVID-19 pandemic and the measures introduced
to contain it and support companies and employment, are expected to
push the budget into deficit which is expected to be substantial.
Spending will be significantly higher in the year and tax revenues
will be lower amidst the deep recession. As a result, the general
government budget is expected to post a significant deficit of
about 6.1% of GDP according to the European Commission and the debt
to rise to 112.6% of GDP. The budget deficit is expected to
contract in 2021-2022 as the economy strengthens and the Government
scales back spending as a share of GDP. Also, the public debt ratio
is expected to start to decline from 2021 onwards.
The potential realisation of contingent liabilities is a risk to
public finances, in particular the large exposure of the state to
the implementation of the National Health System (NHS). Other risks
stem from the explicit contingent liabilities of the state through
the asset protection schemes provided to Hellenic Bank in the
context of the sale and dissolution of the Cooperative Central Bank
in 2018.
The ECB has been overly accommodative since the global financial
crisis of 2008 and particularly after 2012 to preserve the currency
union. In response to the COVID-19 crisis, the ECB extended its
quantitative easing programme and negative interest rates, and
introduced additional measures, most importantly the Pandemic
Emergency Purchase Programme (PEPP). This programme was initiated
in March 2020 with an initial size of EUR750 bn and has been
increased to EUR1.35 trillion in June 2020 and extended until at
least mid-2021. The maturing principal payments from securities
purchased under the PEPP will be reinvested until at least the end
of 2022. The ECB also maintains ample liquidity in the banking
system through its refinancing operations, but also by easing the
rules around collateral that banks can use in exchange for central
bank liquidity. The ECB is strongly committed to preventing
financial fragmentation in the eurozone which keeps funding costs
low and minimises the risk of a sovereign debt crisis in highly
leveraged economies. The ECB is therefore the lender of last
resort, but the size of the current crisis requires large scale
fiscal intervention by governments and EU-led regional
transfers.
In April 2020, the EU introduced a significant fiscal programme
totalling EUR540 bn. This consisted of the European Stability
Mechanism (ESM) Pandemic crisis support for EUR240 bn; the European
Investment Bank (EIB) guarantee fund for loans to SMEs for EUR200
bn; and the SURE employment support for EUR100 bn.
In July 2020, following three days of intense negotiations, the
governments of the 27 member states of the European Union reached
an agreement on the initial proposals of the European Commission
for a COVID-19 recovery programme. This consists of a EUR750 bn
fund that will be incorporated into the EU's seven-year budget
framework 2021-2027. A total of EUR390 bn will be allotted as
grants (instead of the initial proposal for EUR500 bn grants), and
the remaining EUR360 bn will be allotted as loans. The European
Commission will be allowed to borrow from debt markets and will
primarily aid southern countries hit hard by the pandemic,
including Cyprus.
Private debt continued to decline in 2020 both in absolute terms
and in relation to GDP. Total outstanding balances of non-financial
companies and households dropped further in the year to September
2020 to EUR23.5 bn, for which data is available, driven by
restructuring measures and reductions in non-performing loans.
Private debt still exceeds GDP on a gross basis and drops
marginally below GDP on a net basis. This contrasts with the start
of the crisis at the end of 2012, when private debt outstanding was
2.5x GDP.
The stock of NPEs in the Cypriot banking system declined from
EUR20.9 bn at the end of December 2017 to EUR10.4 bn as at
end-December 2018 after the sale of loans by the Bank (Project
Helix) and the resolution of the Cyprus Cooperative Bank. NPEs
dropped to EUR9.1 bn at the end of December 2019 and further to
EUR6.7 bn at the end of June 2020, which consisted of EUR3.3 bn
from households and EUR3.0 bn from non-financial companies, with
financial companies comprising the remaining EUR0.4 bn. The ratio
of NPEs to gross loans was 22.3% at the end of June 2020 from 28.0%
at end-December 2019 and 30.5% at end December-2018. The share of
restructured facilities was 46.6% and the coverage ratio stood at
55.3% at the end of June 2020. More visibility on the impact of the
pandemic on the loan asset quality of the banking sector is
expected after the expiration of the loan moratorium at the end of
the year.
Sovereign ratings
The sovereign risk ratings of the Cyprus Government improved
considerably in recent years reflecting improvements in economic
resilience and consistent fiscal outperformance. Cyprus
demonstrated policy commitment to correcting fiscal imbalances
through reform and restructuring of its banking system. Fitch
Ratings maintains a Long-Term Issuer Default rating of investment
grade at BBB- since November 2018, affirmed in April and October
2020. Its outlook was upgraded to positive in October 2019 and
revised it to stable in April 2020, reflecting the significant
impact the global COVID-19 pandemic might have on the Cyprus
economy and fiscal position. S&P Global Ratings maintains an
investment grade rating of BBB- with a stable outlook since
September 2018. The rating and the outlook were affirmed in March
and September 2020. Moody's Investors Service maintains a long-term
credit rating of Ba2 since July 2018 and a positive outlook since
September 2019. In June 2020 Moody's Investors Service issued their
Regular Update on their credit opinion for the Cyprus Sovereign and
revised their forecasts for the Cyprus economy in view of the
COVID-19 outbreak. According to the opinion, the outbreak will
weigh on near term growth and fiscal prospects, but the impact on
the credit profile is expected to be temporary. Most recently, in
November 2020, DBRS Ratings affirmed the Republic of Cyprus's
Long-Term Foreign and Local Currency - Issuer Ratings at BBB (low)
with a stable trend.
C. Business Overview
The Group's financial performance is highly correlated to the
economic and operating conditions in Cyprus. In November 2020,
Moody's Investors Service affirmed the Bank's long-term deposit
rating of B3 (positive outlook). In October 2020, Fitch Ratings
affirmed their long-term issuer default rating of B- (negative
outlook). In April 2020, Fitch Ratings revised their outlook to
negative, reflecting the significant impact the outbreak of
COVID-19 might have on the Cypriot economy and consequently on the
Bank. In July 2020, Standard and Poor's affirmed their long-term
issuer credit rating on the Bank of 'B+' (stable outlook).
The Group continues to deliver on its strategic priorities while
supporting its customers, colleagues and community in which it
operates through the COVID-19 crisis, ensuring at the same time
that all of its branches operate in accordance with the guidelines
and recommendations issued by the Ministry of Health.
Additionally, the Group continues to closely monitor
developments in, and the effects of COVID-19 on both the global and
Cypriot economy. Signs of economic recovery to pre-pandemic levels
marked the third quarter of the year, with the Cypriot economy
showing more resilience than initially anticipated, proving its
open, small and flexible characteristics. However, as the number of
new COVID-19 cases has increased in recent weeks, local
restrictions have been re-imposed to contain the spread, which is
likely to lead to some loss of momentum in economic recovery in the
fourth quarter. The latest news for an effective vaccine is
encouraging, which in time should support a return to more normal
conditions.
The changed economic environment resulted in lower levels of
economic activity and credit formation, which gradually recovered
in the third quarter of the year. In common with other European
banks, the prolonged low interest rate environment also continues
to present a challenge to the Group's profitability. As a
consequence of the pandemic, the Bank has updated its macroeconomic
assumptions underlying the IFRS 9 calculation of loan credit losses
in 9M2020 in line with the relevant regulatory guidance, resulting
in increased organic loan credit losses for 9M2020 of EUR43 mn. As
at 30 September 2020, the Bank expects, under the base scenario,
the Cypriot economy to contract by 6.0% in 2020, with gradual
recovery from 2021 onwards, with GDP growth of 4.0% for 2021. The
Bank's projections are in line with those published by the IMF, the
Cyprus Ministry of Finance, the European Commission and the
Economics Research Centre of the University of Cyprus.
The Bank's medium-term strategic priorities remain clear, with a
sustained focus on strengthening its balance sheet, and improving
asset quality and efficiency, whilst maintaining a good capital
position, in order to continue to play a vital role in supporting
the recovery of the Cypriot economy. The Group continues to explore
opportunities to improve efficiency through its digital
transformation programme in order to provide products and services
while reducing operating costs.
Upon the outbreak of COVID-19 in March 2020, the Pandemic
Incident Management Plan (PIMP) of the Group was invoked and a
dedicated team has been monitoring the situation domestically and
globally and providing guidance on health and safety measures,
travel advice and business continuity for the Group. Local
government guidelines are being followed in response to the
virus.
In accordance with the Pandemic Plan, the Group adopted a set of
measures to ensure minimum disruption to its operations. The
measures comprise rules for quarantine for vulnerable employees due
to health conditions and for those returning from epicentres of the
infection. The Group replaced face-to-face meetings with
telecommunications, adjusting the customary etiquette of personal
contact, including those with customers. Staff of critical
functions have been split into separate locations. In addition, to
ensure continuity of business, a number of employees have been
working from home and the remote access capability has been
upgraded significantly. Additionally, the Group follows strict
rules of hygiene, increased intensity of cleaning and disinfection
of spaces, and other measures to protect the health and safety of
staff and customers. Some of these measures were gradually relaxed
in 3Q2020. However, as the number of new COVID-19 cases has
increased in recent weeks and local restrictions have been
re-imposed to contain the spread, these measures are now becoming
stricter and close monitoring of the situation continues.
Also, the potential economic implications for the sectors where
the Group is active in are being assessed in order to identify
possible mitigating actions for supporting the economy, such as
supporting viable affected businesses and households with new
lending to cover liquidity, working capital, capital expenditure
and investments related to the activity of the borrower.
The package of policy measures announced by the ECB and the
European Commission, as well as the unprecedented fiscal and other
measures of the Cyprus Government, should help reduce the negative
impact and support the recovery of the Cypriot economy.
As part of the measures to support borrowers affected by
COVID-19 and the wider Cypriot economy, the Cyprus Parliament voted
for the suspension of loan repayments for interest and principal
for the period to the end of the year, for all eligible borrowers
with no arrears for more than 30 days as at the end of February
2020. Over 25,000 customers were approved, relating to gross loans
of c.EUR5.9 bn as at 30 September 2020 (comprising gross loans to
individuals of EUR2.1 bn and gross loans to businesses of EUR3.8
bn), representing 65% of total gross loans excluding the legacy
book.
C. Business Overview (continued)
The Group continues to monitor the credit quality of loans under
moratorium (payment holiday). A review campaign was initiated in
May 2020 for gross loans of EUR5.2 bn . Approximately 80% of the
review campaign has been completed with no significant change in
the 'unlikely to pay' (UTP) status. However, as stricter measures -
with a direct impact on the economy - are being imposed in recent
weeks following the increase in the number of new COVID-19 cases,
the monitoring and review of the credit quality of loans under
moratorium remain both on-going and dynamic. In addition, borrowers
representing 31% of loans of private individuals under moratorium
have paid at least one instalment by 31 October 2020. These
payments of instalments during FY2020 are accounted for as
prepayments towards FY2021 instalments.
The strategic focus of the Group on asset quality, funding,
capital and efficiency aims to ensure that it maintains its
financial strength.
Tackling the Bank's loan portfolio quality is of utmost
importance for the Group. Despite the challenging market conditions
resulting from the outbreak of COVID-19, the Group signed an
agreement for the sale of a portfolio of loans with gross book
value of c.EUR898 mn (of which EUR886 mn related to non-performing
exposures) as at 30 June 2020, known as Project Helix 2, another
significant disposal of NPEs by the Bank. The combined de-risking
actions in the first nine months of 2020, including Project Helix
2, have reduced NPEs by EUR1.5 bn on a pro forma basis. Overall,
since the peak in 2014, the stock of NPEs has been reduced by
EUR12.6 bn or 84% to EUR2.4 bn and the NPE ratio is reduced to
21%.
Project Helix 2 marks further progress against delivering on the
Group's strategic objectives of becoming a stronger, safer and more
efficient institution. The Group is now better positioned to manage
the challenges resulting from the impact of the ongoing COVID-19
crisis, and to support the recovery of the Cypriot economy.
The Group remains committed to further de-risking of the balance
sheet and it will continue to seek solutions to achieve this. The
Group will continue to assess the potential to accelerate the
decrease in NPEs on the balance sheet through additional sales of
NPEs. At the same time, following the outbreak of COVID-19 the
Group will remain focused on arresting any potential asset quality
deterioration and early managing arrears.
The foreclosure process which had been suspended following the
outbreak of COVID-19, from 18 March 2020 until 31 August 2020, in
line with the decision of the Association of Cyprus Banks, resumed
on 1 September 2020.
The Group continues to provide high quality new loans via
prudent underwriting standards and 99% of new exposures in Cyprus
since 2016 are performing. Growth in new lending in Cyprus has been
focused on selected industries more in line with the Bank's target
risk profile, such as tourism, trade, real estate, professional
services, information/communication technologies, energy, education
and green projects, and following the outbreak of COVID-19, the
focus remains to support the Cypriot economy in order to overcome
this crisis. During the quarter ended 30 September 2020, new
lending amounted to EUR288 mn, increased by 21% qoq as demand is
picking up post the COVID-19 lockdown and driven by retail housing
in the context of the Government scheme for interest rate subsidy.
The pipeline for new housing loans is strong at over EUR148 mn as
at mid-November 2020 (compared to over EUR65 mn as at mid-August
2020 published with the 2Q2020 financial results).
Following the outbreak of COVID-19, the sectors most adversely
affected are tourism, trade, transport and construction. The Group
has a well - diversified performing loan portfolio. As at 30
September 2020, the Group's non-legacy loan book exposure to
tourism was limited to EUR1.1 bn, out of a total non-legacy loan
book of EUR9.1 bn. Respectively, the Group's non-legacy loan book
exposure to trade was also EUR1.0 bn, whilst to construction was
limited to EUR0.5 bn.
Aiming at supporting investments by SMEs and mid-caps to boost
the Cypriot economy, and create new jobs for young people, the Bank
continues to provide joint financed schemes. To this end, the Bank
continues its partnership with the European Investment Bank (EIB),
the European Investment Fund (EIF), the European Bank for
Reconstruction and Development (EBRD) and the Cyprus
Government.
Management is also placing emphasis on diversifying income
streams by optimising fee income from international transaction
services, wealth management and insurance. The Group's insurance
companies, EuroLife Ltd and General Insurance of Cyprus Ltd (GIC)
operating in the sectors of life and general insurance
respectively, are leading players in the insurance business in
Cyprus, and have been providing a stable, recurring fee income,
further diversifying the Group's income streams. The insurance
income net of claims and commissions for 9M2020 amounted to EUR42
mn, flat yoy, contributing to 24% of non-interest income.
In order to further optimise its funding structure, the Bank
continues to focus on the shape and cost of deposit franchise,
taking advantage of the increased customer confidence towards the
Bank. The cost of deposits has been reduced by 70 bps to 6 bps over
the last 33 months. The reduction in the cost of deposits amounts
to 10 bps in 9M2020, compared to a reduction of 22 bps in
9M2019.
C. Business Overview (continued)
In addition, there are efforts underway to improve credit
spreads, despite competition pressures. Moreover, liquidity fees
for specific customer groups were introduced in March 2020. The
introduction of liquidity fees to a broader group of corporate
clients, that was delayed due to the COVID-19 pandemic, is expected
to be implemented in 1Q2021. In August 2020 the Ministry of Finance
issued three decrees, setting a limit on charges and fees charged
in a calendar year to accounts with certain characteristics and for
certain transactions, effected in November 2020. The revision of
fees and commission charges is underway, whilst transactional fee
volumes are expected to recover to pre-COVID-19 levels, as the
Cypriot economy recovers. Finally, in June 2020, the Bank borrowed
EUR1 bn from the fourth TLTRO III operation, despite its
comfortable liquidity position, given the favourable borrowing
rate, in combination with the relaxation of collateral terms. The
annual potential benefit to the net interest income is estimated at
EUR5 mn.
A key focus of the Group remains the active management of
funding costs and on-going running expenses. The Digital
Transformation Programme that started in 2017 has begun to deliver
an improved customer experience (see section below), whilst the
branch footprint rationalisation to date, further improved the
Bank's operating model. The number of branches was reduced by 18%
in 2019 and the branch network is now less than half the size it
was in 2013. Management remains focused on further improvement in
efficiency.
Digital Transformation
As part of its vision to be the leading financial hub in Cyprus,
the Bank continues its Digital Transformation Programme, which
focuses on three strategic pillars: developing digital services and
products that enhance the customer experience, streamlining
internal processes, and introducing new ways of working to improve
the workplace environment.
In recent months, a number of new features have been introduced
within the Bank of Cyprus mobile app. Users can now use the app to
apply and obtain an eIDAS-certified digital signature which enables
them to electronically sign documents on any device, at any time.
Additionally, a new feature has been introduced whereby 1bank users
are able to top-up their CYTA and Epic telephony cards through the
Bank's mobile app. Moreover, a new method for contacting 1bank
subscribers is now in place. Users now have the option to receive
push notifications in place of SMS messages for certain alerts.
Push notifications are an instant, more secure channel that incurs
no message specific cost to the bank. At this point in time, alerts
relating to card purchases and ATM withdrawals are offered, however
more of our alerts will gradually become available. The ability to
send push notifications has been released in September 2020. Up to
now, approximately 15,000 subscribers have been enrolled to receive
Push Notifications.
The adoption of digital products and services continued to grow
and gain momentum in 2020. As at the end of October 2020, 83.5% of
the number of transactions involving deposits, cash withdrawals and
internal/external transfers were performed through digital channels
(up by 19 p.p from 65% in September 2017 when the digital
transformation programme was initiated). Regarding the use of
mobile banking, the number of active users increased by 20% in
2019, and by a further 17% in the ten months to the end of October
2020. In addition, the rate of QuickPay active users has been
steadily increasing. The highest number of active users in 2020 to
date was recorded in October 2020 with c.81,000 active users.
Likewise, the highest number of payments was also recorded in
October 2020 with 197,000 transactions.
In 2020, as a result of the COVID-19 restrictive measures, a
reduction in cash withdrawals and deposits performed through the
branch network has been observed. An increase in the adoption of
digital products and services and in digital subscriber penetration
has also been observed as more customers have gained access to
digital channels and more cards have been issued. As at the end of
October 2020, 74% of customers were digitally engaged (up by 14
p.p. from 60% since the digital transformation programme was
initiated in September 2017). A further increase is expected in
4Q2020 driven by the increase in the number of subscribers and the
number of cards that have been issued.
As part of the Bank's ambition to be one of the cornerstones of
the digital economy, customers have been enabled to authorise the
release of their identification details to the Government, using
the internet banking credentials thus enabling a digital
registration on the Government Gateway Portal (Ariadni), where they
can use electronic services that are made available by the
Government of Cyprus (up until now citizens needed to be physically
present to identify themselves).
In addition, Bank of Cyprus is the first Bank in the EU to offer
its customers the ability to obtain a Qualified Digital Signature
through the BoC mobile app without the need of physical presence. A
Qualified Digital Signature has the same legal effect as the
physical signature and thus can be used to sign digitally any
document. Signing can be done substantially faster than before and
offers an enhanced customer experience. The Bank currently offers
the signing of some of the Bank's documentation with the use of a
Digital Signature and has a roadmap in place to gradually offer the
digital signing of the majority of the Bank's documents.
Furthermore, as part of the Digital Transformation Programme,
major changes are underway in relation to enabling a modern and
more efficient workplace. New technologies and tools have been
introduced that will drastically change the employee experience,
improving collaboration and knowledge sharing across the
organisation. Further enhancements will be implemented in 2021 and
the full impact will be seen over the coming months.
D. Strategy and Outlook
The strategic objectives for the Group are to become a stronger,
safer and a more efficient institution capable of supporting the
recovery of the Cypriot economy and delivering appropriate
shareholder returns in the medium term.
The key pillars of the Group's strategy are to:
-- Complete balance sheet de-risking
-- Grow revenues in a more capital efficient way; by enhancing
revenue generation via growth in performing book
and less capital-intensive banking and financial services
operations (Insurance and Digital economy)
-- Improve operating efficiency; by achieving leaner operations
through digitisation and automation
-- Enhance organisational resilience and ESG (Environmental,
Social and Governance) agenda; by building a forward-looking
organisation with a clear strategy supported by effective corporate
governance aligned with ESG priorities
KEY STRATEGIC PILLARS PLAN OF ACTION
Complete balance sheet de-risking
* Gross NPE reduction in 2021, through both organic and
inorganic actions, expected to more than offset NPE
inflows
* Continue to assess potential to accelerate NPE
reduction through additional NPE sales
---------------------------------------------------------------------
Grow revenues in a more capital efficient way;
by enhancing revenue generation via growth * Mitigating actions against NII challenges put in
in performing book, and less capital-intensive place, e.g. growing performing book and pricing
banking and financial services operations away/price correctly deposits
(Insurance
and Digital economy)
* Enhance fee and commission income, e.g. extension of
liquidity fees to broader group of customers,
introduction of a new price list, increase average
product holding through cross selling, new sources of
revenue through introduction of Digital Economy
Platform
* Profitable insurance business with further
opportunities to grow, e.g. focus on high margin
products, leverage on Bank's strong franchise and
customer base for more targeted cross selling enabled
by DT
---------------------------------------------------------------------
Improve operating efficiency; by achieving
leaner operations through digitisation and * Offer exit solutions to release full time employees
automation
* Achieve further branch footprint rationalisation
* Contain restructuring costs following completion of
balance sheet de-risking
* Enhance procurement control
* Reduce total operating expenses by c.10% despite
inflation
---------------------------------------------------------------------
Enhance organisational resilience and ESG
(Environmental, Social and Governance) agenda; * Enhanced structure and corporate governance
by building a forward-looking organisation
with a clear strategy supported by effective
corporate * Focus on our people
governance aligned with ESG priorities
* Priority on ESG agenda
---------------------------------------------------------------------
D. Strategy and Outlook (continued)
Although there remains uncertainty in the broader economic
environment as a result of the pandemic, the Management remains
confident in delivering on the strategic objectives for the
Group.
The Group has been through a period of considerable change and
is now laying the foundations for delivering appropriate
shareholder returns in the medium term.
Specifically, the near-term priorities include completing the
balance sheet de-risking, whilst managing the post-pandemic NPE
inflow; positioning the Bank on the path for sustainable
profitability; ensuring the cost base remains appropriate, whilst
further investing in the digital transformation programme in order
to modernise the BOC franchise; addressing the challenges from low
rates and surplus liquidity; and initiating MREL issuance and
refinancing of Tier 2 subject to market conditions.
The medium-term priorities include delivering sustainable
profitability and shareholder returns, enhancing revenues by
capitalising on the Group's market leading position; enhancing
operating efficiency; and optimising capital management.
The Group's medium-term strategic targets are set out below.
Strategic targets 2022 Medium-Term
Profitability Return on Tangible Equity (ROTE)(1) 7%
-------------------------------------------------- -----------------
Total operating expenses(2) <EUR350 mn
------------------------------------- ----------- -----------------
Asset Quality NPE ratio <10% 5%
------------------------------------- ----------- -----------------
Cost of risk 70-80 bps
-------------------------------------------------- ------------------- -----------------
Capital Supported by CET1 ratio of At least 13%
------------------------------------- ------------------------------
1. Return on Tangible Equity (ROTE) is calculated as Profit
after Tax divided by Shareholders' equity minus intangibles
assets.
2. Total operating expenses comprise staff costs and other
operating expenses. Total operating expenses do not include the
special levy or contributions to the Single Resolution Fund (SRF)
or Deposit Guarantee Fund (DGF) and do not include any advisory or
other restructuring costs.
Maintaining a strong capital base has been a key priority for
management over the past few years and this remains equally
important for the Group going forward. The business plan is based
on maintaining a CET1 ratio of at least 13% over the entire period
of the plan. The Group's capital is to be supported by organic
capital generation and by focus on less capital-intensive
businesses, the further reduction of high intensity risk weighted
assets and the Helix 2 risk weighted asset benefit upon full
repayment of deferred consideration. At the same time, factors that
could potentially have a negative impact on the Group's capital
ratios include the IFRS 9 phasing-in, any potential regulatory
impacts, as well as one-off cost optimisation charges. Until the
completion of the de-risking and the restructuring of the business,
there may be volatility in the capital ratios due to the timing of
potential future impacts from regulatory changes and one-off
restructuring costs.
The Group has a clear strategy in place, leveraging on its
strong customer base, its renewed customer trust, its market
leadership position, and further developing digital knowledge and
infrastructure, in order to complete the turnaround of its business
and set the Bank on a path for profitability and delivering value
for shareholders.
E . Financial Results - Statutory Basis
Unaudited Interim Consolidated Income Statement
Nine months ended
30 September
2020 2019
(restated)
---------- ------------
EUR000 EUR000
---------- ------------
Turnover 565,188 716,164
========== ============
Interest income 295,959 363 , 353
---------- ------------
Income similar to interest income 35,679 40 , 178
---------- ------------
Interest expense (47,311) (73,082)
---------- ------------
Expense similar to interest expense (34,452) (36,440)
---------- ------------
Net interest income 249,875 294 , 009
---------- ------------
Fee and commission income 111,910 129 , 631
---------- ------------
( 9 , 211
Fee and commission expense (5,330) )
---------- ------------
Net foreign exchange gains 14,636 21 , 151
---------- ------------
Net gains on financial instrument transactions
and disposal/dissolution of subsidiaries 4,252 14 , 540
---------- ------------
Insurance income net of claims and commissions 41,581 41 , 731
---------- ------------
Net (losses)/ gains from revaluation and disposal
of investment properties (3,851) 1 , 473
---------- ------------
Net gains on disposal of stock of property 6,341 24 , 180
---------- ------------
Other income 11,162 21 , 639
---------- ------------
430,576 539 , 143
---------- ------------
( 169 ,
Staff costs (145,561) 982 )
---------- ------------
Special levy on deposits on credit institutions
in Cyprus, contribution to Single Resolution ( 24 ,
Fund and other levies (24,039) 970 )
---------- ------------
( 167 ,
Other operating expenses (134,309) 809 )
---------- ------------
126,667 176 , 382
---------- ------------
Net gains on derecognition of financial assets
measured at amortised cost 1,760 6 , 298
---------- ------------
Credit losses to cover credit risk on loans and ( 211,322 ( 140 ,
advances to customers ) 750 )
========== ============
( 5 , 032
Credit losses of other financial instruments (229) )
========== ============
( 12 ,
Impairment of non-financial assets (35,677) 993 )
---------- ------------
(Loss)/profit before share of (loss)/profit from
associates (118,801) 23 , 905
---------- ------------
Remeasurement of investment in associate classified ( 25 ,
as held for sale - 943 )
---------- ------------
Share of (loss)/profit from associates (97) 5 , 400
---------- ------------
(Loss)/profit before tax from continuing operations (118,898) 3 , 362
---------- ------------
Income tax (6,329) 114 , 514
---------- ------------
(Loss)/profit after tax for the period (125,227) 117 , 876
========== ============
Attributable to:
Owners of the Company (121,568) 115,614
---------- --------
Non-controlling interests (3,659) 2,262
---------- --------
(Loss)/profit for the period (125,227) 117,876
========== ========
Basic and diluted (loss)/profit per share attributable (27 .
to the owners of the Company (EUR cent) 3) 25.9
====== =====
E . Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Comprehensive
Income
Nine months ended
30 September
2020 2019
---------- --------
EUR000 EUR000
---------- --------
(Loss)/profit for the period (125,227) 117,876
---------- --------
Other comprehensive income (OCI)
---------- --------
OCI that may be reclassified in the consolidated
income statement in subsequent periods
---------- --------
Fair value reserve (debt instruments)
---------- --------
Net (losses)/gains on investments in debt instruments
measured at fair value through OCI (FVOCI) (12,447) 10,644
---------- --------
Transfer to the consolidated income statement (3,653) -
on disposal
---------- --------
(16,100) 10,644
---------- --------
Foreign currency translation reserve
---------- --------
Profit/(loss) on translation of net investment
in foreign branches and subsidiaries 25,360 (8,528)
---------- --------
(Loss)/profit on hedging of net investments in
foreign branches and subsidiaries (23,983) 9,668
---------- --------
Transfer to the consolidated income statement
on dissolution of foreign subsidiary 122 (422)
---------- --------
1,499 718
---------- --------
Total OCI that may be reclassified in the consolidated 11,3 6
income statement in subsequent periods (14,601) 2
---------- --------
OCI not to be reclassified in the consolidated
income statement in subsequent periods
---------- --------
Fair value reserve (equity instruments)
---------- --------
Share of net gains from fair value changes of
associates - 4,200
---------- --------
Net (losses)/gains on investments in equity instruments
designated at FVOCI (197) 188
---------- --------
(197) 4,388
---------- --------
Property revaluation reserve
---------- --------
Deferred tax (459) 29
---------- --------
(459) 29
---------- --------
Actuarial losses on the defined benefit plans
---------- --------
Remeasurement losses on defined benefit plans (3,773) (5,022)
---------- --------
Total OCI not to be reclassified in the consolidated
income statement in subsequent periods (4,429) (605)
---------- --------
Other comprehensive (loss)/income for the period
net of taxation (19,030) 10,757
---------- --------
Total comprehensive (loss)/income for the period (144,257) 128,633
========== ========
Attributable to:
---------- --------
Owners of the Company (140,457) 126,344
---------- --------
Non-controlling interests (3,800) 2,28 9
---------- --------
Total comprehensive (loss)/income for the period (144,257) 128,633
========== ========
E . Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Balance Sheet
30 September 31 December
2020 2019
Assets EUR000 EUR000
------------- ------------
Cash and balances with central banks 5,506,401 5,060,042
------------- ------------
Loans and advances to banks 529,393 320,881
------------- ------------
Derivative financial assets 20,956 23,060
------------- ------------
Investments 1,849,449 1,682,869
------------- ------------
Investments pledged as collateral 176,797 222,961
------------- ------------
Loans and advances to customers 10,046,718 10,721,841
------------- ------------
Life insurance business assets attributable
to policyholders 453,128 458,852
------------- ------------
Prepayments, accrued income and other assets 284,275 243,930
------------- ------------
Stock of property 1,358,046 1,377,453
------------- ------------
Deferred tax assets 341,333 379,126
------------- ------------
Investment properties 130,222 136,197
------------- ------------
Property and equipment 278,187 288,054
------------- ------------
Intangible assets 177,351 178,946
------------- ------------
Investments in associates and joint venture 2,296 2,393
------------- ------------
Non-current assets and disposal groups held
for sale 360,990 26,217
------------- ------------
Total assets 21,515,542 21,122,822
============= ============
Liabilities
------------- ------------
Deposits by banks 404,800 533,404
------------- ------------
Funding from central banks 997,250 -
------------- ------------
Repurchase agreements 124,092 168,129
------------- ------------
Derivative financial liabilities 49,699 50,593
------------- ------------
Customer deposits 16,384,131 16,691,531
------------- ------------
Insurance liabilities 640,680 640,013
------------- ------------
Accruals, deferred income, other liabilities
and other provisions 358,797 324,246
------------- ------------
Pending litigation, claims, regulatory and other
matters 111,545 108,094
------------- ------------
Subordinated loan stock 266,508 272,170
------------- ------------
Deferred tax liabilities 47,593 46,015
------------- ------------
Total liabilities 19,385,095 18,834,195
------------- ------------
Equity
------------- ------------
Share capital 44,620 44,620
------------- ------------
Share premium 1,294,358 1,294,358
------------- ------------
Revaluation and other reserves 200,635 210,701
------------- ------------
Retained earnings 346,112 490,286
------------- ------------
Equity attributable to the owners of the Company 1,885,725 2,039,965
------------- ------------
Other equity instruments 220,000 220,000
------------- ------------
Total equity excluding non--controlling interests 2,105,725 2,259,965
------------- ------------
Non--controlling interests 24,722 28,662
------------- ------------
Total equity 2,130,447 2,288,627
------------- ------------
Total liabilities and equity 21,515,542 21,122,822
============= ============
E . Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Balance Sheet (continued)
Comparative information was restated as follows:
-- 'Fee and commission income' and 'Fee and commission expense'
as restated, include elimination of intragroup amounts between 'Fee
and commission income' and 'Fee and commission expense' amounting
to EUR2,194 thousand, in line with the respective restatement made
in Note 10 of the annual consolidated financial statements for the
year ended 31 December 2019, in order to reflect the impact in the
nine month comparative period.
-- Levy in the form of a guarantee fee relating to the revised
income tax legislation, Income Tax Law Amendment 28 (I) of 2019
enacted on 1 March 2019, of EUR6,255 thousand has been reclassified
from 'Fee and commission expense' to 'Special levy on deposits on
credit institutions in Cyprus, contribution to Single Resolution
Fund and other levies'. The restatement was made in line with the
presentation in the annual consolidated financial statements for
the year ended 31 December 2019, when the levy in the form of a
guarantee fee was presented for the first time in the line of
'Special levy on deposits on credit institutions in Cyprus,
contribution to Single Resolution Fund and other levies'.
-- Comparative information for 'Turnover' was restated to
include the effect of the change in the 'Fee and commission income'
as described above.
The above restatements are consistent with the presentation of
such amount s in the Consolidated Financial Statements for the year
ended 31 December 2019 within the 2019 Annual Financial Report and
these did not have an impact on the results for the period or the
equity of the Group.
E . Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Changes in
Equity
Attributable to the shareholders of the Company Other Non- Total
equity controlling equity
instruments interests
Share Share Treasury Retained Property Financial Life Foreign Total
capital premium shares earnings revaluation instruments insurance currency
reserve fair in-force translation
value business reserve
reserve reserve
-------- ---------- --------- ---------- ------------ ------------ ---------- ------------ ----------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
-------- ---------- --------- ---------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
1 January 2020 44,620 1,294,358 (21,463) 490,286 79,286 33,900 102,051 16,927 2,039,965 220,000 28,662 2,288,627
-------- ---------- --------- ---------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Loss for the
period - - - (121,568) - - - - (121,568) - (3,659) (125,227)
-------- ---------- --------- ---------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Other
comprehensive
(loss)/income
after
tax for the
period - - - (3,773) (326) (16,291) - 1,501 (18,889) - (141) (19,030)
-------- ---------- --------- ---------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Total
comprehensive
(loss)/income
after
tax for the
period - - - (125,341) (326) (16,291) - 1,501 (140,457) - (3,800) (144,257)
-------- ---------- --------- ---------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Increase in
value
of in-force
life
insurance
business - - - (5,771) - - 5,771 - - - - -
-------- ---------- --------- ---------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Tax on increase
in
value of
in-force
life insurance
business - - - 721 - - (721) - - - - -
-------- ---------- --------- ---------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Change in the
holding
of Undertakings
for
Collective
Investments
in Transferable
Securities
(UCITS) Fund - - - (33) - - - - (33) - - (33)
-------- ---------- --------- ---------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Payment of
coupon
to AT1 holders - - - (13,750) - - - - (13,750) - - (13,750)
-------- ---------- --------- ---------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Dividends paid
to
non-controlling
interests - - - - - - - - - - (140) (140)
-------- ---------- --------- ---------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
30 September
2020 44,620 1,294,358 (21,463) 346,112 78,960 17,609 107,101 18,428 1,885,725 220,000 24,722 2,130,447
======== ========== ========= ========== ============ ============ ========== ============ ========== ============ ============ ==========
E . Financial Results - Statutory Basis (continued)
Unaudited Interim Consolidated Statement of Changes in Equity
(continued)
Attributable to the shareholders of the Company Other Non- Total
equity controlling equity
instruments interests
Share Share Treasury Retained Property Financial Life Foreign Total
capital premium shares earnings revaluation instruments insurance currency
reserve fair value in-force translation
reserve business reserve
reserve
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ----------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
1 January 2019 44,620 1,294,358 (21,463) 591,941 79,433 15,289 101,001 16,151 2,121,330 220,000 25,998 2,367,328
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Profit for the
period - - - 115,614 - - - - 115,614 - 2,262 117,876
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Other
comprehensive
(loss)/income
after
tax for the 10,75
period - - - (5,022) 22 15,012 - 718 10,730 - 27 7
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Total
comprehensive
income after
tax
for the 2,28
period - - - 110,592 22 15,012 - 718 126,344 - 9 128,633
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Increase in
value
of in-force
life
insurance
business - - - (2,000) - - 2,000 - - - - -
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Tax on
increase
in value of
in-force
life
insurance
business - - - 250 - - (250) - - - - -
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Payment of
coupon
to AT1
holders - - - (13,447) - - - - (13,447) - - (13,447)
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Change in the
holding
of
Undertakings
for
Collective
Investments
in
Transferable
Securities
(UCITS) ( 1 ( 1
Fund - - - ( 1 1) - - - - 1) - - 1)
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
30 September 28,28
2019 44,620 1,294,358 (21,463) 687,325 79,455 30,301 102,751 16,869 2,234,216 220,000 7 2,482,503
======== ========== ========= ========= ============ ============ ========== ============ ========== ============ ============ ==========
F. Notes
F.1 Reconciliation of income statement between statutory and underlying basis
EUR million Underlying NPE Other Statutory
basis Sales basis
Net interest income 250 - - 250
=========== ======= ====== ==========
Net fee and commission income 106 - - 106
=========== ======= ====== ==========
Net foreign exchange gains and net
gains on financial instrument transactions
and disposal/dissolution of subsidiaries 14 - 5 19
=========== ======= ====== ==========
Insurance income net of claims and
commissions 42 - - 42
=========== ======= ====== ==========
Net gains from revaluation and disposal
of investment properties and on disposal
of stock of properties 2 - - 2
=========== ======= ====== ==========
Other income 11 - - 11
----------- ------- ------ ----------
Total income 425 - 5 430
=========== ======= ====== ==========
Total expenses (273) (17) (13) (303)
----------- ------- ------ ----------
Operating profit 152 (17) (8) 127
=========== ======= ====== ==========
Loan credit losses (118) (87) (5) (210)
=========== ======= ====== ==========
Impairments of other financial and
non-financial assets (36) - - (36)
=========== ======= ====== ==========
Provisions for litigation, claims,
regulatory and other matters (4) - 4 -
=========== ======= ====== ==========
Loss before tax and non-recurring items (6) (104) (9) (119)
=========== ======= ====== ==========
Tax (7) - - (7)
=========== ======= ====== ==========
Loss attributable to non-controlling
interests 4 - - 4
----------- ------- ------ ----------
Loss after tax and before non-recurring
items (attributable to the owners of
the Company) (9) (104) (9) (122)
=========== ======= ====== ==========
Advisory and other restructuring costs-organic (9) - 9 -
----------- ------- ------ ----------
Loss after tax - organic* (attributable
to the owners of the Company) (18) (104) - (122)
=========== ======= ====== ==========
Provisions/net loss relating to NPE
sales, including restructuring expenses (104) 104 - -
=========== ======= ====== ==========
Loss after tax (attributable to the
owners of the Company) (122) - - (122)
=========== ======= ====== ==========
*This is the loss after tax (attributable to the owners of the
Company), before the provisions/net loss relating to NPE sales,
including restructuring expenses.
The reclassification differences between the statutory basis and
underlying basis mainly relate to the impact from 'non-recurring
items' and are explained as follows:
NPE sales
* Total expenses include restructuring costs of EUR4
million and operating expenses of EUR13 million
mainly relating to the sale of portfolios of NPEs and
are presented within 'Provisions/net loss relating to
NPE sales, including restructuring expenses' under
the underlying basis.
* Loan credit losses under the statutory basis include
the loan credit losses relating to Project Helix 2 of
EUR66 million and additional loan credit losses of
EUR21 million within the context of IFRS 9 as a
result of potential further NPE sales in the future;
these are disclosed under non-recurring items within
'Provisions/net loss relating to NPE sales, including
restructuring expenses' under the underlying basis.
Other reclassifications
* Advisory and other restructuring costs of
approximately EUR9 million included in 'Other
operating expenses' under the statutory basis are
separately presented under the underlying basis since
they represent one off items.
* Provisions for litigation, claims, regulatory and
other matters amounting to EUR4 million included in
'Other operating expenses' under the statutory basis,
are separately presented under the underlying basis,
since they mainly relate to cases that arose outside
the normal activities of the Group.
* Net gains on loans and advances to customers at FVPL
of EUR5 million included in 'Loan credit losses'
under the underlying basis are included in 'Net gains
on financial instrument transactions and
disposal/dissolution of subsidiaries and associates'
under the statutory basis. Their classification under
the underlying basis is done in order to align them
to the net losses on loans and advances to customers
at amortised cost.
F. Notes (continued)
F.2 Customer deposits
The analysis of customer deposits is presented below:
30 September 31 December
2020 2019
By type of deposit EUR000 EUR000
------------- ------------
Demand 7,910,267 7,595,231
------------- ------------
Savings 1,821,208 1,567,344
------------- ------------
Time or notice 6,652,656 7,528,956
------------- ------------
16,384,131 16,691,531
============= ============
By geographical area
------------- ------------
Cyprus 16,384,131 16,691,531
============= ============
By currency
------------- ------------
Euro 14,738,714 15,009,828
------------- ------------
US Dollar 1,245,416 1,286,292
------------- ------------
British Pound 276,333 288,289
------------- ------------
Russian Rouble 30,924 30,113
------------- ------------
Swiss Franc 10,029 10,803
------------- ------------
Other currencies 82,715 66,206
------------- ------------
16,384,131 16,691,531
By customer sector
------------- ------------
Corporate 1,092,571 1,117,222
------------- ------------
Global corporate 641,682 691,550
------------- ------------
SMEs 810,077 770,655
------------- ------------
Retail 10,215,567 10,140,920
------------- ------------
Restructuring
------------- ------------
- Corporate 34,836 52,421
------------- ------------
- SMEs 18,821 28,222
------------- ------------
- Retail other 9,239 10,507
------------- ------------
Recoveries
------------- ------------
- Corporate 3,857 6,140
------------- ------------
International banking services 3,284,057 3,543,315
------------- ------------
Wealth management 273,424 330,579
------------- ------------
16,384,131 16,691,531
============= ============
Deposits by geographical area are based on the originator
country of the deposit.
F.3 Loans and advances to customers
30 September 31 December
2020 2019
EUR000 EUR000
------------- ------------
Gross loans and advances to customers at amortised
cost 10,879,628 12,008,146
------------- ------------
Allowance for ECL for impairment of loans and
advances to customers (1,131,418) (1,655,598)
------------- ------------
Loans and advances to customers at amortised cost 9,748,210 10,352,548
------------- ------------
Loans and advances to customers measured at FVPL 298,508 369,293
------------- ------------
10,046,718 10,721,841
============= ============
F. Notes (continued)
F.4 Credit risk concentration of gross loans and advances to customers
Industry and business lines concentrations and geographical
analysis, based on the country in which loans are managed, of the
Group's gross loans and advances to customers at amortised cost are
presented in the table below:
30 September 2020 31 December 2019
Cyprus Other Total Cyprus Other Total
countries gross countries gross
loans loans
----------- ----------- ----------- ----------- ----------- -----------
By economic activity EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
----------- ----------- ----------- ----------- ----------- -----------
Trade 1,148,654 11,457 1,160,111 1,318,138 11,085 1,329,223
----------- ----------- ----------- ----------- ----------- -----------
Manufacturing 406,322 2,532 408,854 451,470 3,222 454,692
----------- ----------- ----------- ----------- ----------- -----------
Hotels and catering 945,911 782 946,693 915,040 799 915,839
----------- ----------- ----------- ----------- ----------- -----------
Construction 689,858 2,929 692,787 827,567 3,272 830,839
----------- ----------- ----------- ----------- ----------- -----------
Real estate 1,077,241 24,214 1,101,455 1,116,424 23,772 1,140,196
----------- ----------- ----------- ----------- ----------- -----------
Private individuals 5,235,452 791 5,236,243 5,782,571 847 5,783,418
----------- ----------- ----------- ----------- ----------- -----------
Professional and other
services 656,484 28,656 685,140 774,304 41,965 816,269
----------- ----------- ----------- ----------- ----------- -----------
Other sectors 647,733 612 648,345 736,993 677 737,670
----------- ----------- ----------- ----------- ----------- -----------
10,807,655 71,973 10,879,628 11,922,507 85,639 12,008,146
=========== =========== =========== =========== =========== ===========
By business line
----------- ----------- ----------- ----------- ----------- -----------
Corporate 1,929,897 20,050 1,949,947 1,952,457 22,358 1,974,815
----------- ----------- ----------- ----------- ----------- -----------
Global corporate 1,828,349 44,329 1,872,678 1,845,777 53,972 1,899,749
----------- ----------- ----------- ----------- ----------- -----------
SMEs 1,101,151 6,925 1,108,076 1,101,718 8,586 1,110,304
----------- ----------- ----------- ----------- ----------- -----------
Retail
----------- ----------- ----------- ----------- ----------- -----------
- housing 2,894,720 - 2,894,720 2,792,687 - 2,792,687
----------- ----------- ----------- ----------- ----------- -----------
- consumer, credit cards
and other 886,466 669 887,135 895,121 723 895,844
----------- ----------- ----------- ----------- ----------- -----------
Restructuring
----------- ----------- ----------- ----------- ----------- -----------
- corporate 192,012 - 192,012 321,125 - 321,125
----------- ----------- ----------- ----------- ----------- -----------
- SMEs 156,438 - 156,438 317,277 - 317,277
----------- ----------- ----------- ----------- ----------- -----------
- retail housing 164,342 - 164,342 350,534 - 350,534
----------- ----------- ----------- ----------- ----------- -----------
- retail other 98,599 - 98,599 179,045 - 179,045
----------- ----------- ----------- ----------- ----------- -----------
Recoveries
----------- ----------- ----------- ----------- ----------- -----------
- corporate 50,838 - 50,838 90,607 - 90,607
----------- ----------- ----------- ----------- ----------- -----------
- SMEs 228,364 - 228,364 433,578 - 433,578
----------- ----------- ----------- ----------- ----------- -----------
- retail housing 628,234 - 628,234 844,657 - 844,657
----------- ----------- ----------- ----------- ----------- -----------
- retail other 485,798 - 485,798 633,531 - 633,531
----------- ----------- ----------- ----------- ----------- -----------
International banking
services 129,681 - 129,681 133,652 - 133,652
----------- ----------- ----------- ----------- ----------- -----------
Wealth management 32,766 - 32,766 30,741 - 30,741
----------- ----------- ----------- ----------- ----------- -----------
10,807,655 71,973 10,879,628 11,922,507 85,639 12,008,146
=========== =========== =========== =========== =========== ===========
The loans and advances to customers in Cyprus include lending
exposures to Greek entities granted by BOC PCL in Cyprus in its
normal course of business with a carrying value of EUR184,095
thousand (31 December 2019: EUR184,130 thousand) and lending
exposures in Cyprus with collaterals in Greece with a carrying
value of EUR86,256 thousand (31 December 2019: EUR80,324
thousand).
F. Notes (continued)
F.4 Credit risk concentration of gross loans and advances to customers (continued)
Loans and advances to customers classified as held for sale
Industry and business lines concentrations and geographical
analysis , based on the country in which loans are managed, of the
Group's gross loans and advances to customers at amortised cost
classified as held for sale are presented in the tables below:
30 September 2020 31 December 2019
Cyprus Other Total Cyprus Other Total
countries gross countries gross
loans loans
-------- ----------- -------- -------- ----------- --------
By economic activity EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
-------- ----------- -------- -------- ----------- --------
Trade 78,474 - 78,474 18,039 - 18,039
-------- ----------- -------- -------- ----------- --------
Manufacturing 26,445 - 26,445 6,327 - 6,327
-------- ----------- -------- -------- ----------- --------
Hotels and restaurants 20,641 - 20,641 5,164 - 5,164
-------- ----------- -------- -------- ----------- --------
Construction 107,703 - 107,703 10,592 - 10,592
-------- ----------- -------- -------- ----------- --------
Real estate 49,350 - 49,350 1,263 - 1,263
-------- ----------- -------- -------- ----------- --------
Private individuals 501,214 - 501,214 110,663 - 110,663
-------- ----------- -------- -------- ----------- --------
Professional and other
services 60,265 - 60,265 16,578 - 16,578
-------- ----------- -------- -------- ----------- --------
Other sectors 43,926 - 43,926 5,255 - 5,255
-------- ----------- -------- -------- ----------- --------
888,018 - 888,018 173,881 - 173,881
======== =========== ======== ======== =========== ========
By business line
-------- ----------- -------- -------- ----------- --------
Corporate - - - 710 - 710
-------- ----------- -------- -------- ----------- --------
SMEs 1 - 1 5 - 5
-------- ----------- -------- -------- ----------- --------
Retail
-------- ----------- -------- -------- ----------- --------
- consumer, credit cards
and other 39 - 39 330 - 330
-------- ----------- -------- -------- ----------- --------
Restructuring
-------- ----------- -------- -------- ----------- --------
- corporate 68,560 - 68,560 7,618 - 7,618
-------- ----------- -------- -------- ----------- --------
- SMEs 54,227 - 54,227 1,155 - 1,155
-------- ----------- -------- -------- ----------- --------
- retail housing 58,126 - 58,126 1,127 - 1,127
-------- ----------- -------- -------- ----------- --------
- retail other 21,260 - 21,260 40,112 - 40,112
-------- ----------- -------- -------- ----------- --------
Recoveries
-------- ----------- -------- -------- ----------- --------
- corporate 77,594 - 77,594 17,640 - 17,640
-------- ----------- -------- -------- ----------- --------
- SMEs 216,816 - 216,816 20,691 - 20,691
-------- ----------- -------- -------- ----------- --------
- retail housing 225,374 - 225,374 4,752 - 4,752
-------- ----------- -------- -------- ----------- --------
- retail other 166,021 - 166,021 79,674 - 79,674
-------- ----------- -------- -------- ----------- --------
International banking
services - - - 67 - 67
-------- ----------- -------- -------- ----------- --------
888,018 - 888,018 173,881 - 173,881
======== =========== ======== ======== =========== ========
F. Notes (continued)
F.5 Analysis of loans and advances to customers by staging
The following tables present the Group's gross loans and
advances to customers at amortised cost by staging and by business
line concentration:
30 September 2020 Stage Stage Stage POCI Total
1 2 3
By business line EUR000 EUR000 EUR000 EUR000 EUR000
---------- ---------- ---------- -------- -----------
Corporate 1,521,867 351,730 41,210 35,140 1,949,947
---------- ---------- ---------- -------- -----------
Global corporate 1,421,544 303,981 110,757 36,396 1,872,678
---------- ---------- ---------- -------- -----------
SMEs 781,949 288,578 26,178 11,371 1,108,076
---------- ---------- ---------- -------- -----------
Retail
---------- ---------- ---------- -------- -----------
- housing 2,286,107 523,223 73,724 11,666 2,894,720
---------- ---------- ---------- -------- -----------
- consumer, credit cards and
other 611,132 220,501 37,787 17,715 887,135
---------- ---------- ---------- -------- -----------
Restructuring
---------- ---------- ---------- -------- -----------
- corporate 32,023 63,320 80,491 16,178 192,012
---------- ---------- ---------- -------- -----------
- SMEs 20,701 30,351 92,186 13,200 156,438
---------- ---------- ---------- -------- -----------
- retail housing 1,523 8,479 149,621 4,719 164,342
---------- ---------- ---------- -------- -----------
- retail other 179 2,315 92,696 3,409 98,599
---------- ---------- ---------- -------- -----------
Recoveries
---------- ---------- ---------- -------- -----------
- corporate - - 42,576 8,262 50,838
---------- ---------- ---------- -------- -----------
- SMEs - - 205,989 22,375 228,364
---------- ---------- ---------- -------- -----------
- retail housing - - 522,862 105,372 628,234
---------- ---------- ---------- -------- -----------
- retail other 223 4 399,728 85,843 485,798
---------- ---------- ---------- -------- -----------
International banking services 76,431 43,074 9,956 220 129,681
---------- ---------- ---------- -------- -----------
Wealth management 21,071 8,853 1,858 984 32,766
---------- ---------- ---------- -------- -----------
6,774,750 1,844,409 1,887,619 372,850 10,879,628
========== ========== ========== ======== ===========
31 December 2019 Stage Stage Stage POCI Total
1 2 3
By business line EUR000 EUR000 EUR000 EUR000 EUR000
---------- ---------- ---------- -------- -----------
Corporate 1,624,886 247,501 61,917 40,511 1,974,815
---------- ---------- ---------- -------- -----------
Global corporate 1,456,080 258,425 149,464 35,780 1,899,749
---------- ---------- ---------- -------- -----------
SMEs 837,825 221,977 40,219 10,283 1,110,304
---------- ---------- ---------- -------- -----------
Retail
---------- ---------- ---------- -------- -----------
- housing 2,202,044 430,200 149,020 11,423 2,792,687
---------- ---------- ---------- -------- -----------
- consumer, credit cards and
other 646,648 169,063 60,890 19,243 895,844
---------- ---------- ---------- -------- -----------
Restructuring
---------- ---------- ---------- -------- -----------
- corporate 32,879 60,545 197,319 30,382 321,125
---------- ---------- ---------- -------- -----------
- SMEs 49,193 55,345 193,415 19,324 317,277
---------- ---------- ---------- -------- -----------
- retail housing 2,604 3,866 334,892 9,172 350,534
---------- ---------- ---------- -------- -----------
- retail other 430 607 172,079 5,929 179,045
---------- ---------- ---------- -------- -----------
Recoveries
---------- ---------- ---------- -------- -----------
- corporate - - 74,637 15,970 90,607
---------- ---------- ---------- -------- -----------
- SMEs - - 372,046 61,532 433,578
---------- ---------- ---------- -------- -----------
- retail housing - - 702,392 142,265 844,657
---------- ---------- ---------- -------- -----------
- retail other 216 - 499,018 134,297 633,531
---------- ---------- ---------- -------- -----------
International banking services 75,965 44,317 12,788 582 133,652
---------- ---------- ---------- -------- -----------
Wealth management 16,099 11,522 2,121 999 30,741
---------- ---------- ---------- -------- -----------
6,944,869 1,503,368 3,022,217 537,692 12,008,146
========== ========== ========== ======== ===========
F. Notes (continued)
F.5 Analysis of loans and advances to customers by staging (continued)
The following table presents the Group's gross loans and
advances to customers at amortised cost by staging and geographical
analysis, based on the country in which loans are managed:
30 September 2020 Stage Stage Stage POCI Total
1 2 3
EUR000 EUR000 EUR000 EUR000 EUR000
---------- ---------- ---------- -------- -----------
Cyprus 6,774,156 1,844,409 1,816,240 372,850 10,807,655
---------- ---------- ---------- -------- -----------
Other countries 594 - 71,379 - 71,973
---------- ---------- ---------- -------- -----------
6,774,750 1,844,409 1,887,619 372,850 10,879,628
========== ========== ========== ======== ===========
31 December 2019 Stage Stage Stage POCI Total
1 2 3
EUR000 EUR000 EUR000 EUR000 EUR000
---------- ---------- ---------- -------- -----------
Cyprus 6,944,083 1,503,368 2,937,364 537,692 11,922,507
---------- ---------- ---------- -------- -----------
Other countries 786 - 84,853 - 85,639
---------- ---------- ---------- -------- -----------
6,944,869 1,503,368 3,022,217 537,692 12,008,146
========== ========== ========== ======== ===========
Loans and advances to customers classified as held for sale
The following tables present the Group's gross loans and
advances to customers at amortised cost classified as held for sale
by staging and by business line concentration.
30 September 2020 Stage Stage Stage POCI Total
1 2 3
By business line EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- -------- -------- --------
SMEs - - - 1 1
------- ------- -------- -------- --------
Retail
------- ------- -------- -------- --------
- consumer, credit cards and
other - 4 35 - 39
------- ------- -------- -------- --------
Restructuring
------- ------- -------- -------- --------
- corporate 66 894 66,169 1,431 68,560
------- ------- -------- -------- --------
- SMEs 1,667 5,745 44,910 1,905 54,227
------- ------- -------- -------- --------
- retail housing 479 9,281 45,973 2,393 58,126
------- ------- -------- -------- --------
- retail other 234 1,103 19,114 809 21,260
------- ------- -------- -------- --------
Recoveries
------- ------- -------- -------- --------
- corporate - - 62,581 15,013 77,594
------- ------- -------- -------- --------
- SMEs - - 178,903 37,913 216,816
------- ------- -------- -------- --------
- retail housing - - 194,147 31,227 225,374
------- ------- -------- -------- --------
- retail other - - 122,789 43,232 166,021
------- ------- -------- -------- --------
2,446 17,027 734,621 133,924 888,018
======= ======= ======== ======== ========
F. Notes (continued)
F.5 Analysis of loans and advances to customers by staging (continued)
Loans and advances to customers classified as held for sale
(continued)
31 December 2019 Stage Stage Stage POCI Total
1 2 3
By b usiness line EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- -------- ------- --------
Corporate - 360 350 - 710
------- ------- -------- ------- --------
SMEs - - 2 3 5
------- ------- -------- ------- --------
Retail
------- ------- -------- ------- --------
- consumer, credit cards and
other 139 47 144 - 330
------- ------- -------- ------- --------
Restructuring
------- ------- -------- ------- --------
- corporate 20 410 6,162 1,026 7,618
------- ------- -------- ------- --------
- SMEs 7 1 952 195 1,155
------- ------- -------- ------- --------
- retail housing 4 - 1,119 4 1,127
------- ------- -------- ------- --------
- retail other 6 2 36,549 3,555 40,112
------- ------- -------- ------- --------
Recoveries
------- ------- -------- ------- --------
- corporate - - 14,543 3,097 17,640
------- ------- -------- ------- --------
- SMEs - - 15,392 5,299 20,691
------- ------- -------- ------- --------
- retail housing - - 3,954 798 4,752
------- ------- -------- ------- --------
- retail other - - 71,020 8,654 79,674
------- ------- -------- ------- --------
International banking services - - 19 48 67
------- ------- -------- ------- --------
176 820 150,206 22,679 173,881
======= ======= ======== ======= ========
The geographical area , based on the country in which loans are
managed, of the gross loans and advances to customers classified as
held for sale as at 30 September 2020 and 31 December 2019 is
Cyprus.
F.6 Credit losses to cover credit risk on loans and advances to customers
Nine months
ended
30 September
2020 2019
--------- ---------
EUR000 EUR000
--------- ---------
Impairment loss net of reversals on loans and advances
to customers 212,773 164,952
--------- ---------
Recoveries of loans and advances to customers previously
written off (17,734) (18,096)
--------- ---------
17,
Changes in expected cash flows 9 25 (798)
--------- ---------
Financial guarantees and commitments (1,642) (5,308)
--------- ---------
211,322 140,750
========= =========
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to customers (continued)
The movement in ECL of loans and advances, including the loans
and advances to customers held for sale, and the closing balance
analysis by staging, is as follows:
30 September 2020 Cyprus Other countries Total
EUR000 EUR000 EUR000
---------- ---------------- ----------
1 January 1,742,103 61,447 1,803,550
---------- ---------------- ----------
Foreign exchange and other adjustments (348) (4,018) (4,366)
---------- ---------------- ----------
Write offs (272,392) (16,982) (289,374)
---------- ---------------- ----------
Interest (provided) not recognised in
the income statement 63,289 (3,719) 59,570
---------- ---------------- ----------
Disposal of Velocity 2 portfolio (112,098) - (112,098)
---------- ---------------- ----------
Charge for the period 195,541 17,232 212,773
---------- ---------------- ----------
30 September 1,616,095 53,960 1,670,055
========== ================ ==========
Stage 1 23,813 - 23,813
---------- ---------------- ----------
Stage 2 34,590 - 34,590
---------- ---------------- ----------
Stage 3 1,349,418 53,960 1,403,378
---------- ---------------- ----------
POCI 208,274 - 208,274
---------- ---------------- ----------
Total 1,616,095 53,960 1,670,055
========== ================ ==========
30 September 20 19 Cyprus Other countries Total
EUR000 EUR000 EUR000
------------ ---------------- ------------
1 January 3,315,259 146,746 3,462,005
------------ ---------------- ------------
Foreign exchange and other adjustments 6,624 3,732 10,356
------------ ---------------- ------------
Write offs (314,988) (34,978) (349,966)
------------ ---------------- ------------
Interest (provided) not recognised in
the income statement 96,513 4,956 101,469
------------ ---------------- ------------
Disposal of Helix and Velocity portfolios (1,548,060) (54,765) (1,602,825)
------------ ---------------- ------------
Charge for the period 165,069 (117) 164,952
------------ ---------------- ------------
30 September 1,720,417 65,574 1,785,991
============ ================ ============
Stage 1 20,561 3 20,564
------------ ---------------- ------------
Stage 2 40,500 - 40,500
------------ ---------------- ------------
Stage 3 1,449,622 65,571 1,515,193
------------ ---------------- ------------
POCI 209,734 - 209,734
------------ ---------------- ------------
Total 1,720,417 65,574 1,785,991
============ ================ ============
The charge on loans and advances to customers , including the
loans and advances to customers held for sale, by staging for the
period is presented in the table below:
Nine months ended
30 September
2020 2019
--------- ---------
EUR000 EUR000
--------- ---------
Cyprus
--------- ---------
Stage 1 3,969 (10,226)
--------- ---------
Stage 2 (5,373) (79)
--------- ---------
Stage 3 196,945 175,374
--------- ---------
195,541 165,069
--------- ---------
Other countries
--------- ---------
Stage 3 17,232 (117)
--------- ---------
212,773 164,952
========= =========
F. Notes (continued)
F.6 Credit losses to cover credit risk on loans and advances to customers (continued)
The credit losses of loans and advances to customers above
include credit losses relating to loans and advances to customers
classified as held for sale, which are analysed by staging and
geographical analysis in the table below:
30 September 20 20 Stage Stage Stage 3 POCI Total
1 2
EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- -------- ------- --------
Cyprus 1,010 9,297 450,347 77,983 538,637
------- ------- -------- ------- --------
1,010 9,297 450,347 77,983 538,637
======= ======= ======== ======= ========
Collectively assessed 1,010 9,297 450,347 77,983 538,637
======= ======= ======== ======= ========
There were no loans and advances to customers classified as held
for sale as at 30 September 2019.
During the nine months ended 30 September 2020 the total
non--contractual write--offs recorded by the Group amounted to
EUR212,782 thousand (nine months ended 30 September 2019:
EUR185,700 thousand).
Assumptions have been made about the future changes in property
values, as well as the timing for the realisation of collateral,
taxes and expenses on the repossession and subsequent sale of the
collateral as well as any other applicable haircuts. Indexation has
been used as the basis to estimate updated market values of
properties supplemented by management judgement where necessary
given the difficulty in differentiating between short term impacts
and long term structural changes and the shortage of market
evidence for comparison purposes, while assumptions were made on
the basis of a macroeconomic scenario for future changes in
property values. Any positive cumulative average future change in
forecasted property values was capped to zero, whereas any
projected decrease is taken into account, for the nine months ended
30 September 2020 and the year 2019. This applies to all
scenarios.
At 30 September 2020 the weighted average haircut (including
liquidity haircut and selling expenses) used in the collectively
assessed provision calculation for loans and advances to customers
excluding those classified as held for sale is c.32% under the
baseline scenario (31 December 2019: c.32%).
The timing of recovery from real estate collaterals used in the
collectively assessed provision calculation for loans and advances
to customers has been estimated to be on average seven years under
the baseline scenario (31 December 2019: average seven years),
excluding those classified as held for sale.
For the calculation of individually assessed allowances for ECL,
the timing of recovery of collaterals as well as the haircuts used
are based on the specific facts and circumstances of each case.
For the calculation of expected credit losses three scenarios
were used; base, adverse and favourable with 50%, 30% and 20%
probability respectively.
For Stage 3 customers, the base scenario focuses on the
following variables, which are based on the specific facts and
circumstances of each customer: the operational cash flows, the
timing of recovery of collaterals and the haircuts from the
realisation of collateral. The base scenario is used to derive
additional scenarios for either better or worse cases. Under the
adverse scenario operational cash flows are decreased by 50%,
applied haircuts on real estate collateral are increased by 50% and
the timing of recovery of collaterals is increased by one year with
reference to the baseline scenario. Under the favourable scenario,
applied haircuts are decreased by 5%, with no change in the
recovery period with reference to the baseline scenario.
Assumptions used in estimating expected future cash flows
(including cash flows that may result from the realisation of
collateral) reflect current and expected future economic conditions
and are generally consistent with those used in the Stage 3
collectively assessed exposures. In the case of loans and advances
to customers held for sale, the Group has taken into consideration
the timing of expected sale and the estimated sale proceeds in
determining the ECL. Amounts previously written off which are
expected to be recovered through sale, are included in 'Recoveries
of loans and advances to customers previously written off'.
The above assumptions are also influenced by the ongoing
regulatory dialogue BOC PCL maintains with its lead regulator, the
ECB, and other regulatory guidance and interpretations issued by
various regulatory and industry bodies such as the ECB and the EBA,
which provide guidance and expectations as to relevant definitions
and the treatment/classification of certain parameters/assumptions
used in the estimation of allowance for ECL.
Any changes in these assumptions or differences between
assumptions made and actual results could result in significant
changes in the estimated amount of expected credit losses of loans
and advances to customers.
F. Notes (continued)
F.7 Rescheduled loans and advances to customers
The below table presents the Group's rescheduled loans and
advances to customers by staging and geographical classification,
excluding those classified as held for sale.
30 September 2020 31 December 2019
Cyprus Other Total Cyprus Other Total
countries countries
---------- ----------- ---------- ---------- ----------- ----------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
---------- ----------- ---------- ---------- ----------- ----------
Stage 1 250,367 106 250,473 357,658 114 357,772
---------- ----------- ---------- ---------- ----------- ----------
Stage 2 261,597 - 261,597 299,448 - 299,448
---------- ----------- ---------- ---------- ----------- ----------
Stage 3 918,834 30,776 949,610 1,567,155 33,253 1,600,408
---------- ----------- ---------- ---------- ----------- ----------
POCI 131,244 - 131,244 202,502 - 202,502
---------- ----------- ---------- ---------- ----------- ----------
1,562,042 30,882 1,592,924 2,426,763 33,367 2,460,130
========== =========== ========== ========== =========== ==========
F.8 Credit risk disclosures
According to the European Banking Authority's ( EBA) standards
and European Central Bank's (ECB) Guidance to Banks on
Non-Performing loans, 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, distress
restructuring and obligor bankruptcy.
(iii) Material exposures as set by the Central Bank of Cyprus
(CBC), which are more than 90 days past due.
(iv) Performing forborne exposures under probation for which
additional forbearance measures are extended.
(v) Performing forborne exposures under probation that present
more than 30 days past due within the probation period.
Exposures include all on and off balance sheet exposures, except
those held for trading, and are categorised as such for their
entire amount without taking into account the existence of
collateral.
The following materiality criteria are applied:
-- When the problematic exposures of a customer that fulfil the
NPE criteria set out above are 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 problematic part of the exposure is classified
as non-performing.
-- Material arrears/excesses are defined as follows:
- Retail exposures: Total arrears/excesses amount greater than EUR100
- Exposures other than retail: Total arrears/excesses are greater than EUR500
and the amount in arrears/excess in relation to the customer's
total exposure is at least 1%.
NPEs may cease to be considered as non-performing only when all
of the following conditions are met:
(i) The extension of forbearance measures does not lead to the
recognition of impairment or default.
(ii) One year has passed since the forbearance measures were extended.
(iii) Following the forbearance measures and according to the
post-forbearance conditions, there is no past due amount or
concerns regarding the full repayment of the exposure.
(iv) No unlikely-to-pay criteria exist for the debtor.
(v) The debtor has made post-forbearance payments of a
non-insignificant amount of capital (different capital thresholds
exist according to the facility type).
F. Notes (continued)
F.8 Credit risk disclosures (continued)
The tables below present the analysis of loans and advances to
customers in accordance with the EBA standards.
30 September Gross loans and advances to customers Accumulated impairment, accumulated negative
2020 [1] changes in fair value due to credit risk
and provisions
Group Of which Of which exposures Accumulated Of which Of which exposures
gross NPEs with forbearance impairment, NPEs with
customer measures accumulated forbearance measures
loans negative
and changes
advances in fair
([2]) value
due to
credit
risk and
provisions
----------- ---------- ------------------------ ------------ ---------- -----------------------
Total Of which Total Of which
exposures NPEs exposures on NPEs
with with
forbearance forbearance
measures measures
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Loans and
advances to
customers
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
General
governments 57,738 - - - 3,256 - - -
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Other financial
corporations 124,297 13,899 15,529 2,015 15,484 10,073 1,357 725
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Non-financial
corporations 5,656,195 861,483 708,872 451,961 535,910 455,341 218,370 206,546
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which: Small
and
Medium sized
Enterprises(3)
(SMEs) 4,028,232 630,164 641,610 417,040 442,825 380,986 202,364 191,354
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which:
Commercial
real estate
([3]) 4,210,547 488,276 608,395 375,812 320,293 255,213 172,836 162,874
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Non-financial
corporations
by sector
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Construction 686,248 130,152 83,446
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Wholesale and
retail
trade 1,134,238 257,513 143,297
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Accommodation
and food
service
activities 1,102,560 31,163 43,900
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Real estate
activities 1,213,129 211,463 107,132
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Manufacturing 400,830 76,024 50,145
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Other sectors 1,119,190 155,168 107,990
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Households 5,556,052 1,462,541 1,073,020 765,881 792,914 726,576 341,780 331,939
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which:
Residential
mortgage
loans(3) 4,306,230 1,147,452 865,772 621,156 572,237 519,393 256,575 249,084
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which:
Credit for
consumption(3) 684,438 194,180 124,544 102,513 115,605 111,249 51,110 49,864
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
11,394,282 2,337,923 1,797,421 1,219,857 1,347,564 1,191,990 561,507 539,210
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Loans and
advances to
customers as
held for
sale 919,162 899,657 531,773 516,627 569,781 559,589 311,568 303,281
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Total
on-balance
sheet 12,313,444 3,237,580 2,329,194 1,736,484 1,917,345 1,751,579 873,075 842,491
=========== ========== ============ ========== ============ ========== ============ =========
F. Notes (continued)
F.8 Credit risk disclosures (continued)
Gross loans and advances to customers Accumulated impairment, accumulated negative
[4] changes in fair value due to credit risk
and provisions
Group Of which Of which exposures Accumulated Of which Of which exposures
gross NPEs with forbearance impairment, NPEs with forbearance
customer measures accumulated measures
loans negative
and changes
advances in fair
([5]) value
due to
credit
risk and
provisions
----------- ---------- ------------------------ ------------ ---------- -----------------------
Total Of which Total Of which
exposures NPEs exposures on NPEs
with with
31 December forbearance forbearance
2019 measures measures
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Loans and
advances to
customers
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
General
governments 56,921 1 - - 3,389 - - -
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Other financial
corporations 124,343 27,459 18,489 2,366 17,542 14,843 1,466 462
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Non-financial
corporations 6,271,155 1,382,074 1,216,902 737,602 753,848 686,025 348,577 337,290
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which: Small
and
Medium sized
Enterprises(6) 4,662,994 1,073,846 786,069 556,483 636,820 576,635 271,110 261,229
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which:
Commercial
real estate
([6]) 4,270,225 858,998 767,008 480,382 457,622 402,751 219,952 211,902
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Non-financial
corporations
by sector
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Construction 823,276 265,879 144,336
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Wholesale and
retail
trade 1,294,815 371,613 185,720
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Accommodation
and food
service
activities 1,055,448 50,116 44,823
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Real estate
activities 1,266,772 296,406 153,802
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Professional,
scientific
and technical
activities 425,134 90,832 53,916
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Other sectors 1,405,710 307,228 171,251
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Households 6,192,505 2,285,998 1,577,249 1,245,937 1,148,304 1,080,696 526,423 513,772
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which:
Residential
mortgage
loans(6) 4,808,202 1,811,698 1,291,083 1,021,084 842,389 783,146 401,561 392,046
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which:
Credit for
consumption(6) 770,552 280,584 177,047 151,313 158,044 156,642 71,357 70,065
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
12,644,924 3,695,532 2,812,640 1,985,905 1,923,083 1,781,564 876,466 851,524
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Loans and
advances to
customers
classified
as held for
sale 184,964 183,974 45,191 45,028 159,035 158,998 37,438 37,429
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Total
on-balance
sheet 12,829,888 3,879,506 2,857,831 2,030,933 2,082,118 1,940,562 913,904 888,953
=========== ========== ============ ========== ============ ========== ============ =========
F. Notes (continued)
F.9 Pending litigation, claims, regulatory and other matters
The Group in the ordinary course of business , is subject to
enquiries and examinations, requests for information, audits,
investigations, legal and other proceedings by regulators,
governmental and other public bodies, actual and threatened,
relating to the suitability and adequacy of services or advice
given to clients or the absence of advice, lending and pricing
practices, selling and disclosure requirements, record keeping,
filings and a variety of other matters. Further, the Group, as part
of its disposal process of certain of its operations, has provided
various representations, warranties and indemnities to the buyers.
These relate to, among other things, the ownership of the loans,
the validity of the loan securities, data quality, tax exposures
and other matters agreed with the buyers. As a result, the Group
may be obliged to compensate the buyers in the event of a valid
claim by the buyers with respect to these representations,
warranties and indemnities. In addition, as a result of the
deterioration of the Cypriot economy and banking sector in 2012 and
the subsequent restructuring of BOC PCL in 2013 as a result of the
bail-in Decrees, BOC PCL is subject to a large number of
proceedings and investigations that either precede, or result from
the events that occurred during the period of the bail-in Decrees.
Most ongoing investigations and proceedings of significance relate
to matters arising during the period prior to the issue of the
bail-in Decrees. Provisions have been recognised for those cases
where the Group is able to estimate probable losses. Any provision
recognised does not constitute an admission of wrongdoing or legal
liability. While the outcome of these matters is inherently
uncertain, management believes that, based on the information
available to it, appropriate provisions have been made in respect
of legal proceedings and regulatory and other matters.
F.10 Liquidity regulation
The Group has to comply with provisions on the Liquidity
Coverage Ratio (LCR) under CRD IV/CRR (as supplemented by relevant
Regulations). It also monitors its position against the Net Stable
Funding Ratio (NSFR) as proposed under Basel III and expected to
become a regulatory indicator when Capital Requirements Regulation
II (CRR II) is enforced with the limit set at 100%.
The LCR is designed to promote short-term resilience of a
Group's liquidity risk profile by ensuring that it has sufficient
high quality liquid resources to survive an acute stress scenario
lasting for 30 days. The NSFR has been developed to promote a
sustainable maturity structure of assets and liabilities.
As at 30 September 2020 the Group was in compliance with all
regulatory liquidity requirements. As at 30 September 2020, the LCR
stood at 256 % for the Group (compared to 208% at 31 December 2019)
and was in compliance with the minimum regulatory requirement of
100%. As at 30 September 2020 the Group's NSFR, on the basis of the
Basel standards, was 135 % (compared to 127% at 31 December
2019).
F.11 Liquidity reserves
The below table sets out the Group's liquidity reserves:
Composition of 30 September 2020 31 December 2019
the liquidity
reserves
Internal Liquidity reserves Internal Liquidity reserves
Liquidity as per LCR Delegated Liquidity as per LCR Delegated
reserves Reg (EU) reserves Reg (EU)
2015/61 LCR eligible 2015/61 LCR eligible
----------- ------------------------ ----------- ------------------------
Level 1 Level Level Level
2A 1 2A
----------- ------------- --------- ----------- ------------- ---------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
----------- ------------- --------- ----------- ------------- ---------
Cash and balances
with central banks 5,349,685 5,349,685 - 4,898,360 4,898,361 -
----------- ------------- --------- ----------- ------------- ---------
Placements with
banks 336,290 - - 147,086 - -
----------- ------------- --------- ----------- ------------- ---------
Liquid investments 1,386,342 1,261,976 109,772 1,214,197 1,115,196 124,763
----------- ------------- --------- ----------- ------------- ---------
Available ECB
Buffer 719,821 - - 1,116,249 - -
----------- ------------- --------- ----------- ------------- ---------
Total 7,792,138 6,611,661 109,772 7,375,892 6,013,557 124,763
=========== ============= ========= =========== ============= =========
Internal Liquidity Reserves present the total liquid assets as
defined in BOC PCL's Liquidity Policy. Liquidity reserves as per
LCR Delegated Regulation (EU) 2015/61 present the liquid assets as
per the definition of the aforementioned regulation i.e. High
Quality Liquid Assets (HQLA).
F. Notes (continued)
F.11 Liquidity reserves (continued)
Under Liquidity reserves as per LCR, Nostro and placements with
banks are not included, as they are not considered HQLA (they are
part of the LCR Inflows).
Liquid investments under the Liquidity reserves as per LCR are
shown at market values reduced by standard weights as prescribed by
the LCR regulation. Liquid investments under Internal Liquidity
reserves include all LCR and/or ECB eligible investments and are
shown at market values net of haircut based on ECB haircuts and
methodology.
Finally, available ECB buffer is not part of the Liquidity
reserves as per LCR, since the assets in the ECB collateral pool
are not LCR eligible but only eligible as collateral for Eurosystem
credit operations.
The Liquidity Reserves are managed by Treasury.
Resulting from the outbreak of COVID-19, the ECB has adopted a
broad set of policy measures to mitigate the economic impact of the
crisis and to ensure that its directly supervised banks can
continue to fulfil their role in funding the real economy. A
high-level description of the main measures which have a direct or
indirect impact on the liquidity position of banks is described
below.
In July 2020, ECB announced that it will allow banks to operate
below the defined level of 100% of the LCR until at least end-2021.
In addition, the package included a set of collateral easing
measures, which resulted in increasing the banks' borrowing
capacity at the ECB operations and improving the liquidity buffers
due to the lower haircuts applied to the ECB eligible collateral
the bank holds, that comprises of bonds and Additional Credit
Claims (ACC). The collateral easing packages are designed as
temporary measures (with the exception of part of the haircut
reduction on ACCs which is permanent) that will remain in place
until September 2021 with the flexibility to be extended or
modified. Furthermore, the ECB enlarged the scope of the ACC
framework, increasing the universe of eligible loans. In relation
to existing collateral, the ECB announced changes in collateral
rules, temporarily accepting collaterals with a rating below
investment grade, up to a certain rating level.
Additionally, the package contained measures to provide
liquidity support to the euro area financial system, such as a
series of LTROs which ran from March to June 2020 so participants
could shift their outstanding LTRO amounts to TLTRO III, as well as
significant favourable amendments in the terms and characteristics
of TLTRO III. Furthermore, a new series of additional longer-term
refinancing operations, called Pandemic Emergency Longer-Term
Refinancing Operations (PELTROs), were introduced with an interest
rate of 25 basis points below the average rate applied in the
Eurosystem's main refinancing operations (currently 0%) over the
life of the respective PELTROs that are maturing in the third
quarter of 2021.
F.12 Capital management
The primary objective of the Group's capital management is to
ensure compliance with the relevant regulatory capital requirements
and to maintain strong credit ratings and healthy capital adequacy
ratios in order to support its business and maximise shareholders'
value.
The capital adequacy framework, as in force, was incorporated
through the CRR and Capital Requirements Directive IV (CRD IV) and
came into effect on 1 January 2014 with certain specified
provisions implemented gradually. The CRR and CRD IV transposed the
new capital, liquidity and leverage standards of Basel III into the
European Union's legal framework. CRR establishes the prudential
requirements for capital, liquidity and leverage for credit
institutions and investment firms. It is directly applicable in all
EU member states. CRD IV governs access to deposit-taking
activities and internal governance arrangements including
remuneration, board composition and transparency. Unlike the CRR,
member states were required to transpose the CRD IV into national
laws and it allowed national regulators to impose additional
capital buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (CRR
II and CRD V) came into force. As an amending regulation, the
existing provisions of CRR apply, unless they are amended by CRR
II. Member states are required to transpose the CRD V into national
law. Certain provisions took immediate effect (primarily relating
to Minimum Requirement for Own Funds and Eligible Liabilities
(MREL)), but most changes will start to apply as of mid-2021.
Certain aspects of CRR II are dependent on final technical
standards to be issued by the EBA and adopted by the European
Commission. The key changes introduced consist of, among others,
changes to qualifying criteria for Common Equity Tier 1 (CET1),
Additional Tier 1 ( AT1) and Tier 2 (T2) instruments, introduction
of requirements for MREL and a binding Leverage Ratio requirement
and a Net Stable Funding Ratio (NSFR).
In addition, the Regulation (EU) 2016/445 of the ECB on the
exercise of options and discretions available in Union law
(ECB/2016/4) provides certain transitional arrangements which
supersede the national discretions unless they are stricter than
the EU Regulation 2016/445.
F. Notes (continued)
F.12 Capital management (continued)
Moreover, in June 2020 Regulation (EU) 2020/873 came into force
which provides for certain amendments in response to the COVID-19
pandemic, bringing forward some of the capital relieving measures
that were due to come into force at a later stage and introducing
modifications as part of the wider efforts of competent authorities
to provide the support necessary to the institutions. The main
amendments affecting the Group's own funds as at 30 September 2020
relate to the acceleration of the implementation of the new SME
discount factor under CRR II introduced in June 2020 instead of
June 2021 (lower RWAs), extending the IFRS 9 transitional
arrangements and introducing further relief measures to CET1
allowing to fully add back to CET1 any increase in ECL recognised
in 2020 and 2021 for non-credit impaired loans and phasing in this
starting from 2022. In addition, the amendments, introduce
temporary treatment of unrealized gains and losses on exposures to
central governments, to regional governments or to local
authorities measured at fair value through other comprehensive
income, which the Group elected to apply and implemented in the
third quarter of 2020. Lastly finalisation of changes on the
application of prudential treatment of software assets as amended
by CRR II is expected in the fourth quarter of 2020 advancing the
implementation to 2020 instead of 2021.
The CET1 ratio of the Group at 30 September 2020 stands at 14.6%
and the total capital ratio at 18.1% on a transitional basis.
The minimum Pillar I total capital requirement is 8.0% and may
be met, in addition to the 4.5% CET1 requirement, with up to 1.5%
by AT1 capital and with up to 2.0% by T2 capital.
The Group is also subject to additional capital requirements for
risks which are not covered by the Pillar I capital requirements
(Pillar II add-ons).
Following the annual Supervisory Review and Evaluation Process
(SREP) performed by the ECB in 2019 the Group's minimum phased in
CET1 capital ratio and Total Capital Ratio remained unchanged for
2020 compared to 2019, when ignoring the phasing in of the Other
Systemically Important Institution (O-SII) buffer. The Group's
phased-in CET1 capital ratio was set at 11.0%, comprising of 4.5%
Pillar I requirement, 3.0% Pillar II requirement (P2R), the Capital
Conservation Buffer (CCB) of 2.5% (fully phased-in as of 1 January
2019) and the O-SII buffer of 1.0%.
The Group's Total Capital requirement is 14.5%, comprising of
8.0% Pillar I requirement (of which up to 1.50% could be in the
form of AT1 capital and up to 2.00% in the form of T2 capital),
3.0% P2R, the CCB of 2.5% and the O-SII buffer of 1.0%. The ECB has
also provided non-public guidance for an additional Pillar II CET1
buffer. The final 2019 SREP decision is effective from 1 January
2020.
In April 2020, and following ECB and EBA announcements on 12
March 2020 in response to the COVID-19 outbreak, BOC PCL received
an amending SREP decision from the ECB amending the composition of
the Pillar II additional own funds requirement, allowing to use AT1
capital and T2 capital to meet P2R and not only by CET1, compared
to the 2019 final SREP decision received in December 2019 which
required P2R to be met in full by CET1. This decision is effective
from 12 March 2020. This brings forward a measure that was
scheduled to come into force in January 2021 with CRD V. As a
result of this amending decision, the minimum CET1 requirement of
the Group decreased to 9.7%, comprising a 4.5% Pillar I
requirement, a 1.7% P2R, the CCB of 2.5% (fully phased in as of 1
January 2019) and the O-SII buffer of 1.0%. ECB's capital easing
measures for COVID-19 increased the Group's CET1 buffer by 131 bps.
There is no change on the Total Capital requirement.
In addition, the EBA final guidelines on SREP and supervisory
stress testing and the Single Supervisory Mechanism's (SSM) 2018
SREP methodology provide that own funds held for the purposes of
Pillar II Guidance (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. In line
with the final 2019 SREP decision, these new provisions became
effective from 1 January 2020.
In November 2020, the Group received communication from the ECB
according to which no SREP decision will be issued for the 2020
SREP cycle and the 2019 SREP decision will remain in force, hence
leaving the Group's capital requirements unchanged as well as other
requirements established by the 2019 SREP decision (as amended).
The communication follows relevant announcement by the ECB earlier
in the year that ECB will be taking a pragmatic approach towards
the SREP for the 2020 cycle.
The Group's minimum phased-in CET1 capital ratio requirement for
2019 was 10.5%, comprising of 4.5% Pillar I requirement, 3.0% P2R,
CCB of 2.5% and O-SII buffer of 0.5%. The ECB had also provided
non-public guidance for an additional Pillar II CET1 buffer.
The Group's minimum phased-in Total capital ratio requirement
for 2019 was 14.0%, comprising of 8.0% Pillar I requirement (of
which up to 1.50% could be in the form of AT1 capital and up to
2.00% in the form of T2 capital), 3.0% P2R, CCB of 2.5% and O-SII
buffer of 0.5%.
The above minimum ratios apply for both BOC PCL and the
Group.
F. Notes (continued)
F.12 Capital management (continued)
The capital position of the Group and BOC PCL at 30 September
2020 exceeds both their Pillar I and their Pillar II add-on capital
requirements. However, the Pillar II add-on capital requirements
are a point-in-time assessment and therefore are subject to change
over time.
The CBC, in accordance with the Macroprudential Oversight of
Institutions Law of 2015, sets, on a quarterly basis, the
Countercyclical Capital Buffer (CCyB) level in accordance with the
methodology described in this law. The CBC has set the level of the
CCyB for Cyprus at 0% for the years 2020 and 2019.
In accordance with the provisions of this law, the CBC is also
the responsible authority for the designation of banks that are
Other Systemically Important Institutions (O-SIIs) and for the
setting of the O-SII buffer requirement for these systemically
important banks. BOC PCL has been designated as an O-SII and the
CBC set the O-SII buffer for BOC PCL and the Group at 2.0%.
This buffer is being phased in gradually, having started from 1
January 2019 at 0.5% and increasing by 0.5% every year thereafter,
until being fully implemented (2.0%). In April 2020, the CBC
decided to delay the phasing in (0.5%) of the O-SII buffer on 1
January 2021 and 1 January 2022 by 12 months. Consequently, the
O-SII buffer will be fully phased in on 1 January 2023, instead of
1 January 2022 as originally set.
The insurance subsidiaries of the Group comply with the
requirements of the Superintendent of Insurance including the
minimum solvency ratio. The regulated UCITS management company of
the Group, BOC Asset Management Ltd, complies with the regulatory
capital requirements of the Cyprus Securities and Exchange
Commission (CySEC) laws and regulations as at 30 September 2020.
The regulated investment firm (CIF) of the Group, The Cyprus
Investment and Securities Corporation Ltd (CISCO), was behind the
minimum initial capital requirement and the additional capital
conservation buffer as at 30 September 2020 and 31 December 2019,
whereas as at 30 September 2020 it also fell below the minimum
total capital ratio requirement. In November 2020, CISCO took the
necessary steps to restore its regulatory capital and comply with
the minimum capital adequacy ratio requirements.
F.12.1 Capital position
The capital position of the Group and BOC PCL as at the
reporting date (after applying the transitional arrangements) is
presented below:
Regulatory capital Group BOC PCL
30 September 31 December 30 September 31 December
2020 2019 [7] 2020 2019 (7)
------------- ------------ ------------- ------------
EUR000 EUR000 EUR000 EUR000
------------- ------------ ------------- ------------
Transitional Common Equity
Tier 1 (CET1 ) [8] 1,734,560 1,909,049 1,692,782 1,869,105
------------- ------------ ------------- ------------
Transitional Additional
Tier 1 capital (AT1) 220,000 220,000 220,000 220,000
------------- ------------ ------------- ------------
Tier 2 capital (T2) 195,380 189,955 250,000 250,000
------------- ------------ ------------- ------------
Transitional total regulatory
capital 2,149,940 2,319,004 2,162,782 2,339,105
============= ============ ============= ============
Risk weighted assets -
credit risk [9] 10,545,095 11,547,303 10,535,564 11,518,932
------------- ------------ ------------- ------------
Risk weighted assets -
operational risk 1,342,700 1,342,700 1,255,875 1,255,875
------------- ------------ ------------- ------------
Total risk weighted assets 11,887,795 12,890,003 11,791,439 12,774,807
============= ============ ============= ============
% % % %
------------- ------------ ------------- ------------
Transitional Common Equity
Tier 1 ratio 14.6 14.8 14.4 14.6
------------- ------------ ------------- ------------
Transitional total capital
ratio 18.1 18.0 18.3 18.3
------------- ------------ ------------- ------------
F. Notes (continued)
F.12 Capital management (continued)
F.12.1 Capital position (continued)
The capital ratios of the Group and BOC PCL as at the reporting
date on a fully loaded basis are presented below:
Fully loaded Group BOC PCL
30 September 31 December 30 September 31 December
2020 [10] 2019 [11] 2020 (10) 2019 (1)
(1)
------------- ------------ ------------- ------------
% % % %
------------- ------------ ------------- ------------
Common Equity Tier 1 ratio 12.8 13.1 12.6 12.9
------------- ------------ ------------- ------------
Total capital ratio 16.5 16.5 16.6 16.6
------------- ------------ ------------- ------------
During the period ended 30 September 2020 the CET1 was
negatively affected mainly by the phasing-in of IFRS 9 transitional
adjustments on 1 January 2020, the decrease in reserves and the ECL
charges, including provisions recognised as a result of the NPE
sale agreement signed in August (Project Helix 2). Risk weighted
assets movement and pre-provision income had a positive effect on
CET1 ratio. The recently introduced adjustments in response to the
COVID-19 pandemic, affected positively the CET1 ratio through
increasing the IFRS9 add-back (dynamic component), the add-back in
relation to unrealised losses of certain financial instruments
measured at FVOCI and by decreasing Risk Weighted Assets through
the implementation of the new SME discount factor, which expanded
the population of performing exposures that benefit from lower risk
weights and also revised the discount factor applicable to such
exposures resulting in a reduction in RWAs by approximately EUR 380
million.
As a result of the above, the CET1 ratio decreased by c.20 bps
during the nine months ended 30 September 2020.
As part of the relaxation measures following the COVID-19
outbreak, on 12 March 2020, the ECB and the EBA announced that
banks are temporarily allowed to operate below the level of capital
defined by P2G, the CCB and the CCyb. In July 2020, the ECB
committed to allow banks to operate below P2G and the combined
buffer requirement until at least the end of 2022, without
automatically triggering supervisory actions.
The Group has elected in prior years to apply the static-dynamic
approach in relation to the transitional arrangements for the
initial application of IFRS 9, where the impact on the impairment
amount from the initial application of IFRS 9 on the capital ratios
is phased in gradually, pursuant to EU Regulation 2017/2395 and it
therefore applies paragraph 4 of Article 473(a) of the CRR. The
'Static-dynamic' approach allows for recalculation of the
transitional adjustment periodically on Stage 1 and Stage 2 loans,
so as to reflect the increase of the ECL provisions within the
transition period. The Stage 3 ECL remains static over the
transition period as per the impact upon initial recognition.
The amount added each year decreases based on a weighting factor
until the impact of IFRS 9 is fully absorbed back to CET1 at the
end of the five years. The impact on the capital position for the
year 2018 was 5% of the impact on the impairment amounts from the
initial application of IFRS 9, increasing to 15% (cumulative) for
the year 2019 and to 30% (cumulative) for the year 2020.
Following the June 2020 amendments to the CRR, the Group applied
the amendments in relation to the IFRS 9 transitional arrangements
for Stage 1 and Stage 2 loans (i.e. the dynamic component) which
provide for the extension of the transitional period for the
dynamic component. A 100% add back of IFRS 9 provisions is allowed
for the years 2020 and 2021 reducing to 75% in 2022, to 50% in 2023
and to 25% in 2024. The calculation at each reporting period is to
be made against Stage 1 and Stage 2 provisions as at 1 January
2020, instead of 1 January 2018. The calculation of the static
component has not been amended.
In relation to the temporary treatment of unrealized gains and
losses for certain exposures measured at fair value through other
comprehensive income, Regulation EU 2020/873 allows institutions to
remove from their CET1 the amount of unrealized gains and losses
accumulated since 31 December 2019, excluding those of financial
assets that are credit-impaired. The relevant amount is removed at
a scaling factor of 100% from January to December 2020, reduced to
70% from January to December 2021 and to 40% from January to
December 2022. The Bank applies the temporary treatment from the
third quarter of 2020.
F. Notes (continued)
F.12 Capital management (continued)
F.12.1 Capital position (continued)
Template IFRS 9/Article 468-FL: Comparison of institution's own
funds and capital and leverage ratios with and without the
application of transitional arrangements for IFRS 9 or analogous
ECLs, and with and without the application of the temporary
treatment in accordance with Article 468 of the CRR
30 September 30 June 31 March 31 December 30 September
2020 2020 2020 2019 2019*
EUR000 EUR000 EUR000 EUR000 EUR000
--------------------------- ------------- ----------- ----------- ------------ -------------
Common Equity Tier
1 1 (CET1) capital 1,734,560 1,707,010 1,806,926 1,909,049 1,974,153
--------------------------- ------------- ----------- ----------- ------------ -------------
CET1 capital as if
IFRS 9 or analogous
ECLs transitional
arrangements had
2 not been applied 1,502,062 1,479,450 1,590,786 1,646,593 1,711,698
--------------------------- ------------- ----------- ----------- ------------ -------------
CET1 capital as if
the temporary treatment
of unrealised gains
and losses measured
at fair value through
OCI (other comprehensive
income) in accordance
with Article 468
of the CRR had not
2a been applied** 1,726,264 1,707,010 1,806,926 1,909,049 1,974,153
--------------------------- ------------- ----------- ----------- ------------ -------------
3 Tier 1 capital 1,954,560 1,927,010 2,026,926 2,129,049 2,194,153
--------------------------- ------------- ----------- ----------- ------------ -------------
Tier 1 capital as
if IFRS 9 or analogous
ECLs transitional
arrangements had
4 not been applied 1,722,062 1,699,450 1,810,786 1,866,593 1,931,698
--------------------------- ------------- ----------- ----------- ------------ -------------
Tier 1 capital as
if the temporary
treatment of unrealised
gains and losses
measured at fair
value through OCI
in accordance with
Article 468 of the
CRR had not been
4a applied** 1,946,264 1,927,010 2,026,926 2,129,049 2,194,153
--------------------------- ------------- ----------- ----------- ------------ -------------
5 Total capital 2,149,940 2,126,084 2,227,575 2,319,004 2,391,436
--------------------------- ------------- ----------- ----------- ------------ -------------
Total capital as
if IFRS 9 or analogous
ECLs transitional
arrangements had
6 not been applied 1,937,107 1,917,532 2,028,428 2,075,418 2,148,107
--------------------------- ------------- ----------- ----------- ------------ -------------
Total capital as
if the temporary
treatment of unrealised
gains and losses
measured at fair
value through OCI
in accordance with
Article 468 of the
CRR had not been
6a applied** 2,141,644 2,126,084 2,227,575 2,319,004 2,391,436
--------------------------- ------------- ----------- ----------- ------------ -------------
Risk-weighted assets
-------------------------------------------------------------------------------------------------
Total risk-weighted
7 assets 11,887,795 11,960,184 12,598,792 12,890,003 13,757,700
--------------------------- ------------- ----------- ----------- ------------ -------------
Total risk-weighted
assets as if IFRS
9 or analogous ECLs
transitional arrangements
8 had not been applied 11,655,297 11,732,624 12,368,530 12,607,267 13,471,035
--------------------------- ------------- ----------- ----------- ------------ -------------
Capital ratios
--------------------------- ------------- ----------- ----------- ------------ -------------
Capital Ratios
CET1 (as a percentage
of risk exposure
9 amount) 14.6% 14.3% 14.3% 14.8% 14.3%
--------------------------- ------------- ----------- ----------- ------------ -------------
CET1 (as a percentage
of risk exposure
amount) as if IFRS
9 or analogous ECLs
transitional arrangements
10 had not been applied 12.9% 12.6% 12.9% 13.1% 12.7%
--------------------------- ------------- ----------- ----------- ------------ -------------
* Amounts and ratios exclude interim profits.
** The temporary treatment was first applied by the Group in the
third quarter of 2020 and does not impact prior periods
presented.
F. Notes (continued)
F.12 Capital management (continued)
F.12.1 Capital position (continued)
30 September 30 June 31 March 31 December 30 September
2020 2020 2020 2019 2019*
EUR000 EUR000 EUR000 EUR000 EUR000
---------------------------- ------------- ----------- ----------- ------------ -------------
CET1 (as a percentage
of risk exposure amount)
as if the temporary
treatment of unrealised
gains and losses measured
at fair value through
OCI in accordance
with Article 468 of
the CRR had not been
10a applied** 14.5% 14.3% 14.3% 14.8% 14.3%
---------------------------- ------------- ----------- ----------- ------------ -------------
Tier 1 (as a percentage
11 of risk exposure amount) 16.4% 16.1% 16.1% 16.5% 15.9%
---------------------------- ------------- ----------- ----------- ------------ -------------
Tier 1 (as a percentage
of risk exposure amount)
as if IFRS 9 or analogous
ECLs transitional
arrangements had not
12 been applied 14.8% 14.5% 14.6% 14.8% 14.3%
---------------------------- ------------- ----------- ----------- ------------ -------------
Tier 1 (as a percentage
of risk exposure amount)
as if the temporary
treatment of unrealised
gains and losses measured
at fair value through
OCI in accordance
with Article 468 of
the CRR had not been
12a applied** 16.4% 16.1% 16.1% 16.5% 15.9%
---------------------------- ------------- ----------- ----------- ------------ -------------
Total capital (as
a percentage of risk
13 exposure amount) 18.1% 17.8% 17.7% 18.0% 17.4%
---------------------------- ------------- ----------- ----------- ------------ -------------
Total capital (as
a percentage of risk
exposure amount) as
if IFRS 9 or analogous
ECLs transitional
arrangements had not
14 been applied 16.6% 16.3% 16.4% 16.5% 15.9%
---------------------------- ------------- ----------- ----------- ------------ -------------
Total capital (as
a percentage of risk
exposure amount) as
if the temporary treatment
of unrealised gains
and losses measured
at fair value through
OCI in accordance
with Article 468 of
the CRR had not been
14a applied** 18.0% 17.8% 17.7% 18.0% 17.4%
---------------------------- ------------- ----------- ----------- ------------ -------------
Leverage ratio
--------------------------------------------------------------------------------------------------
Leverage ratio total
15 exposure measure 21,377,843 21,219,766 20,316,602 21,075,511 21,088,020
---------------------------- ------------- ----------- ----------- ------------ -------------
16 Leverage ratio 9.1% 9.1% 10.0% 10.1% 10.4%
---------------------------- ------------- ----------- ----------- ------------ -------------
Leverage ratio as
if IFRS 9 or analogous
ECLs transitional
arrangements had not
17 been applied 8.1% 8.1% 9.0% 8.9% 9.3%
---------------------------- ------------- ----------- ----------- ------------ -------------
Leverage ratio as
if the temporary treatment
of unrealised gains
and losses measured
at fair value through
OCI in accordance
with Article 468 of
the CRR had not been
17a applied** 9.1% 9.1% 10.0% 10.1% 10.4%
---------------------------- ------------- ----------- ----------- ------------ -------------
* Amounts and ratios exclude interim profits.
** The temporary treatment was first applied by the Group in the
third quarter of 2020 and does not impact prior periods
presented.
F. Notes (continued)
F.12 Capital management (continued)
F.12.1 Capital position (continued)
The decrease in RWAs is mainly driven by the decrease in the
Credit risk RWA, which is analysed in in sections F.12.2 and F.12.3
below.
The increase in the leverage ratio total exposure measure from
31 December 2019 to 30 September 2020 follows the movements in the
Group's balance sheet assets.
The decrease in the leverage ratio from 31 December 2019 to 30
September 2020 is driven by the decrease in the Capital measure
(Tier 1).
F.12.2 Overview of RWA
RWAs Minimum capital
requirements
30 September 31 December 30 September
2020 2019 2020
----------- ---- --------------------------- ------------- ----------------
EUR000 EUR000 EUR000
----------------------------------------- ------------- ------------ ----------------
Credit risk (excl uding counterparty
1 credit risk (CCR)) 10,417,181 11,411,497 833,374
----------------------------------------- ------------- ------------ ----------------
Of which: the Standardised
2 A pproach 10,417,181 11,411,497 833,374
----------------------------------------- ------------- ------------ ----------------
6 CCR 8,421 12,618 674
----------------------------------------- ------------- ------------ ----------------
7 Of which: mark to market 6,203 9,568 49 7
----------------------------------------- ------------- ------------ ----------------
Of which: Credit Valuation
12 Adjustment (CVA) 2,218 3,050 177
----------------------------------------- ------------- ------------ ----------------
Securitisation exposures
in the banking book (after
14 the cap) 40,304 45,638 3,224
----------------------------------------- ------------- ------------ ----------------
18 Of which: Standardised Approach 40,304 45,638 3,224
----------------------------------------- ------------- ------------ ----------------
23 Operational r isk 1,342,700 1,342,700 107,416
----------------------------------------- ------------- ------------ ----------------
Of which: Standardised A
25 pproach 1,342,700 1,342,700 107,416
----------------------------------------- ------------- ------------ ----------------
Amounts below the thresholds
for deduction (subject to
27 2 5 0% risk weight) 79,189 77,550 6,335
----------------------------------------- ------------- ------------ ----------------
29 Total 11,887,795 12,890,003 951,023
----------------------------------------- ============= ============ ================
The decrease in RWAs is mainly driven by the decrease in the
Credit risk RWA observed in the first line of the table above,
which is analysed in section F.12.3 below.
There were no large exposures for institutions that exceeded the
relevant limits.
F. Notes (continued)
F.12 Capital management (continued)
F.12.3 Standardised approach - Credit risk exposure and Credit Risk Mitigation (CRM) effects
The table below illustrates the analysis of RWA and RWA density
of all exposure classes that comprise the RWA reported in lines 1
and 27 of the table in section F.12.2 above.
Exposure classes 30 September 2020 31 December 2019
RWAs and RWA density RWAs and RWA density
------------------------ -------------------------
RWAs RWA density RWAs RWA density
---------- ------------ ----------- ------------
EUR000 % EUR000 %
---------- ------------ ----------- ------------
Central governm ents or
c entral banks 348,944 5.1 382,591 6.2
---------- ------------ ----------- ------------
Re gional government or
lo cal authorities 657 1.2 542 0.8
---------- ------------ ----------- ------------
P u blic s e ctor entities 3 - 9 -
---------- ------------ ----------- ------------
In stitutions 175,665 23.4 179,648 29.6
---------- ------------ ----------- ------------
Corporates 2,970,094 90.0 3,353,301 99.5
---------- ------------ ----------- ------------
Retail 937,431 71.2 960,387 71.2
---------- ------------ ----------- ------------
Secured by mortgages on
immovable property 1,246,980 36.4 1,180,406 37.5
---------- ------------ ----------- ------------
Expo s ures in de fault 1,581,480 103.8 2,053,619 107.3
---------- ------------ ----------- ------------
H igher-ri sk categories 1,199,227 150.0 1,404,849 150.0
---------- ------------ ----------- ------------
Covered bonds 16,586 10.0 16,333 10.0
---------- ------------ ----------- ------------
Colle ctive inve s tment
undertakings (CIUs) 2,774 74.5 205 100.0
---------- ------------ ----------- ------------
Equity 101,017 188.8 80,275 237.9
---------- ------------ ----------- ------------
1,915,51
Other items 2 97.2 1,876,882 94.1
---------- ------------ ----------- ------------
10,496,3
Total 70 51.2 11,489,047 57.1
========== ============ =========== ============
The decrease in the overall RWA density is mainly derived from:
(a) a change in the balance sheet mix, i.e. balances in
comparatively higher risk asset classes (customer advances, other
assets and properties held for sale) have decreased and balances in
lower risk asset classes (cash and balances with central banks)
have increased; (b) increased NPE curing/settlements/repayments;
and (c) the decreased RWA density in each individual exposure
class, which in turn was mainly driven by the implementation of the
new SME supporting factor under CRR II amendment in June 2020,
which expanded the population of performing exposures that benefit
from lower risk weights in the "Corporate" and "Secured with
mortgages on immovable property" exposure classes and also revised
the discount factor applied to such exposures, resulting in a
reduction of RWAs of approximately EUR380 million. The decrease in
the deferred tax credit amounts with risk weight at 100% improved
the RWA density of "Central governments or central banks".
Similarly, the improved external ratings and residual maturities
contributed to the reduced RWA density of "Institutions" and
"Collective investment undertakings (CIUS)" exposure classes. The
improvement in "Exposures in default" was driven from increased
provision coverage and reduction in the amount of NPEs, whilst the
increase in the RWA density of "Other items" resulted from
increased balances of properties held for sale that have been
on-boarded after a failed auction or that are held for more than 10
years and, following SREP recommendation, their risk weight has
been set at a level higher than the normal 100% risk weight. All
other movements are in line with the balance sheet movements.
F. Notes (continued)
F.13 Internal Capital Adequacy Assessment Process (ICAAP),
Internal Liquidity Assessment Process (ILAAP), Pillar II and
Supervisory Review and Evaluation Process (SREP)
The Group prepares the ICAAP and ILAAP reports annually. Both
reports for 2019 were approved by the Board of Directors and
submitted to the ECB on 30 April 2020. Due to the timing of the two
reports, the business plans and ICAAP and ILAAP stress scenarios
have not been updated to reflect the impact of the COVID-19 in line
with relevant supervisory communication on this issue; however the
COVID-19 preliminary estimated impact on capital and liquidity
(based on scenarios) has been commented in the ICAAP and ILAAP
reports under a separate section.
Based on the end of December 2019 ICAAP, BOC PCL has sufficient
capital throughout the three-year horizon to enable it to comply
with all regulatory ratios, both in the base and adverse scenario,
under the normative approach. Under the economic perspective, a
small capital shortfall arises in the adverse scenario, in 2022,
which however can be neutralised by available mitigants.
The Group has prepared a review of its ICAAP, with reference
date 31 March 2020 and 30 June 2020, based on the reforecast plan,
submitted to the Board of Directors in June 2020. Both reviews
indicate that BOC PCL has sufficient capital throughout the
three-year horizon to enable it to comply with all regulatory
ratios, both in the base and adverse scenario, under the normative
approach. Under the economic perspective, capital shortfalls arise
in the adverse scenario, in 2021 and 2022. Economic capital is
closely monitored to ensure sufficient mitigating actions are in
place to be used in case such a scenario is realised.
The Group will also undertake a quarterly review of its ICAAP
results as at the end of September 2020, considering the latest
actual and forecasted information. During the quarterly review, the
Group's risk profile and risk management policies and processes are
reviewed and any changes since the annual ICAAP exercise are taken
into consideration.
The Group also undertakes a quarterly review for the ILAAP
through quarterly stress tests submitted to the ALCO and the Risk
Committee of the Board of Directors. During the quarterly review,
the liquidity risk drivers are assessed and, if needed, the stress
test assumptions are amended accordingly. Any material changes
since the year-end are assessed in terms of liquidity. The
quarterly review identifies whether the Group has an adequate
liquidity buffer to cover the stress outflows. The Group's ILAAP
analysis demonstrates that the volume and capacity of liquidity
resources available to the Group are adequate.
The ECB, as part of its supervisory role, has been conducting
the SREP and onsite inspections on the Group. SREP is a holistic
assessment of, amongst other things, the Group's business model,
internal governance and institution-wide control arrangements,
risks to capital and adequacy of capital to cover these risks and
risks to liquidity and adequacy of liquidity resources to cover
these risks. The objective of the SREP is for the ECB to form an
up-to-date supervisory view of the Group's risks and viability and
to form the basis for supervisory measures and dialogue with the
Group. Additional capital and other requirements could be imposed
on the Group as a result of these supervisory processes, including
a revision of the level of Pillar II add-ons as the Pillar II
add-ons capital requirements are a point-in-time assessment and
therefore subject to change over time.
The Group is to participate in the ECB SREP stress test of 2021.
Following the postponement of the EU-wide Stress Test Exercise of
2020 due to the outbreak of COVID-19 and its global spread, the EBA
has announced the 2021 EU-wide stress test that will be launched in
January 2021 and the results will be published by 31 July 2021.
While the exercise is coordinated by the EBA, it is carried out in
cooperation with the ECB, the European Systemic Risk Board (ESRB),
the European Commission and the Competent Authorities (CAs) from
all relevant national jurisdictions.
G. Definitions & Explanations
Reconciliations of Alternative Performance Measures
Reconciliations between the calculations of non-IFRS performance
measures and the most directly comparable IFRS measures which allow
for the comparability of the underlying basis to statutory
information are disclosed below:
1. (a) Reconciliation of Gross loans and advances to customers
30 September 31 December
2020 2019
EUR000 EUR000
============= ============
Gross loans and advances to customers (as
defined below) 12,309,248 12,821,838
============= ============
Reconciling items:
============= ============
Residual fair value adjustment on initial
recognition (Note 1 below) (176,796) (201,999)
============= ============
Loans and advances to customers classified
as held for sale (Section F.4) (888,018) (173,881)
============= ============
Residual fair value adjustment on initial
recognition on loans and advances to customers
classified as held for sale (31,144) (11,083)
============= ============
Loans and advances to customers measured
at fair value through profit and loss (Section
F.3) (298,508) (369,293)
============= ============
Aggregate fair value adjustment on loans
and advances to customers measured at fair
value through profit or loss (35,154) (57,436)
------------- ------------
Gross loans and advances to customers at
amortised cost as per section F.3 10,879,628 12,008,146
============= ============
1. (b) Reconciliation of Loans and advances to customers classified as held for sale
30 September 31 December
2020 201 9
EUR000 EUR000
============= ============
Loans and advances to customers classified
as held for sale as per the underlying basis 919,162 184,964
============= ============
Reconciling items:
============= ============
Residual fair value adjustment on initial
recognition on loans and advances to customers (11,08 3
classified as held for sale (31,144) )
============= ============
Loans and advances to customers classified
as held for sale as per Section F.4 888,018 173,881
============= ============
G. Definitions & Explanations (continued)
Reconciliations of Alternative Performance Measures
(continued)
2. (a) Reconciliation of Allowance for expected credit losses on
loans and advances to customers (ECL)
30 September 31 December
2020 2019
EUR000 EUR000
============= ============
Allowance for expected credit losses on loans 2,096,18
and advances to customers (as defined below) 1,933,309 0
============= ============
Reconciling items:
============= ============
Residual fair value adjustment on initial ( 201,999
recognition (Note 1 below) (176,796) )
============= ============
Aggregate fair value adjustment on loans
and advances to customers measured at fair
value through profit or loss (35,154) (57,436)
============= ============
Allowance for expected credit losses on loans
and advances to customers classified as held
for sale (Section F.6) (538,637) (147,952)
============= ============
Residual fair value adjustment on initial
recognition on loans and advances to customers (11,08 3
classified as held for sale (31,144) )
============= ============
( 22,112
Provisions for financial guarantees and commitments (20,160) )
------------- ------------
Allowance for ECL for impairment of loans
and advances to customers as per section 1,655,59
F.3 1,131,418 8
============= ============
2. (b) Reconciliation of Allowance for expected credit losses on
loans and advances to customers classified as held for sale
(ECL)
30 September 31 December
2020 201 9
EUR000 EUR000
============= ============
Allowance for expected credit losses on loans
and advances to customers classified as held
for sale as per the underlying basis 569,781 159,035
============= ============
Reconciling items:
============= ============
Residual fair value adjustment on initial
recognition on loans and advances to customers (11,08 3
classified as held for sale (31,144) )
============= ============
Allowance for ECL for impairment of loans
and advances to customers classified as held
for sale as per section F.6 538,637 147,952
============= ============
G. Definitions & Explanations (continued)
Reconciliations of Alternative Performance Measures
(continued)
3. Reconciliation of NPEs
30 September 31 December
2019
2020 (restated)
EUR000 EUR000
============= ============
NPEs (as defined below and as per Section
F.8) 3,237,580 3,879,508
============= ============
Reconciling items:
============= ============
Loans and advances to customers (NPEs) classified
as held for sale (Note 2 below) (868,220) (172,880)
============= ============
Residual fair value adjustment on initial
recognition on loans and advances to customers
(NPEs) classified as held for sale (Note
3 below) (31,437) (11,096)
============= ============
Loans and advances to customers measured ( 144,866
at fair value through profit and loss (NPEs) (117,285) )
============= ============
( 511,933
POCI (NPEs) (Note 4 below) (318,475) )
============= ============
Residual fair value adjustment on initial
recognition on loans and advances to customers
(NPEs) classified as Stage 3 (14,544) (16,516)
------------- ------------
Stage 3 gross loans and advances to customers
at amortised cost as per section F.5 1,887,619 3,022,217
============= ============
NPE ratio
============= ============
NPEs (as per table above) (EUR000) 3,237,580 3,879,508
============= ============
Gross loans and advances to customers (as
per table above) (EUR000) 12,309,248 12,821,838
============= ============
Ratio of NPE/Gross loans (%) 26.3% 30 . 3 %
============= ============
Note 1 : The fair value adjustment on initial recognition
relates mainly to the loans and advances to customers acquired as
part of the acquisition of certain operations of Laiki Bank in
2013. In accordance with the provisions of IFRS 3, this adjustment
decreased the gross balance of loans and advances to customers.
However, for IFRS 7 disclosure purposes as well as for credit risk
monitoring, the residual of the fair value adjustment on initial
recognition as at each balance sheet date is not presented within
the gross balances of loans and advances as per the statutory
basis. This is applied throughout.
Note 2 : Gross loans at amortised cost after residual fair value
adjustment on initial recognition classified as held for sale
include an amount of EUR734,622 thousand Stage 3 loans (31 December
2019: EUR150,206 thousand Stage 3 loans) and an amount of
EUR133,598 thousand POCI - Stage 3 loans (out of a total of
EUR133,924 thousand POCI loans) (31 December 2019: EUR22,674
thousand POCI - Stage 3 loans (out of a total of EUR22,679 thousand
POCI loans)) as disclosed in Section F.5.
Note 3 : Residual fair value adjustment on initial recognition
of loans and advances to customers classified as held for sale
includes an amount of EUR5,485 thousand for Stage 3 loans (31
December 2019: EUR3,402 thousand for Stage 3 loans) and an amount
of EUR25,952 thousand for POCI - Stage 3 loans (31 December 2019:
EUR7,694 thousand for POCI - Stage 3 loans) as disclosed in Section
F.5.
Note 4 : Gross loans and advances to customers at amortised cost
before residual fair value adjustment on initial recognition
include an amount of EUR318,475 thousand POCI - Stage 3 loans (out
of a total of EUR430,276 thousand POCI loans) (31 December 2019:
EUR511,933 thousand POCI - Stage 3 loans (out of a total of
EUR627,212 thousand POCI loans)) as disclosed in Section F.5.
G. Definitions & Explanations (continued)
Ratios Information
1. Net Interest Margin
Reconciliation of the various components of net interest margin
from the underlying basis to the statutory basis is provided
below:
Nine months ended
30 September
2020 2019
========= =========
1.1. Reconciliation of Net interest income EUR000 EUR000
========= =========
Net interest income as per the underlying basis 249,875 260,047
========= =========
Reclassifications for:
========= =========
Net interest income relating to the Helix portfolio,
disclosed under non-recurring items within
'Provisions/net loss relating to NPE sales'
under the underlying basis - 33,962
--------- ---------
Net interest income as per the Unaudited Interim
Consolidated Income Statement 249,875 294,009
========= =========
Net interest income (annualised) 333,775 347,682
========= =========
1.2. Interest earning assets 30 September 30 June 31 March 31 December
2020 2020 2020 201 9
EUR000 EUR000 EUR000 EUR000
============= =========== =========== ============
Cash and balances with central
banks 5,506,401 5,276,398 4,398,781 5,060,042
============= =========== =========== ============
Loans and advances to banks 529,393 621,960 455,284 320,881
============= =========== =========== ============
Loans and advances to customers 10,046,718 10,104,240 10,596,536 10,721,841
============= =========== =========== ============
Loans and advances to customers
held for sale 349,381 361,652 23,700 25,929
============= =========== =========== ============
Investments
============= =========== =========== ============
Debt securities 1,824,720 1,804,290 1,781,992 1,738,007
============= =========== =========== ============
Less: Investments which are ( 2 3,5
not interest bearing (19,819) (23,887) (21,496) 9 3)
------------- ----------- ----------- ------------
Total interest earning assets 18,236,794 18,144,653 17,234,797 17, 843,107
============= =========== =========== ============
1.3. Quarterly average interest
earning assets (EUR000)
============= =========== =========== ============
* as at 30 September 2020 17,864,837
============= =========== =========== ============
* as at 30 September 2019 18,102,604
============= =========== =========== ============
2. Operating profit return on average assets
The various components used in the determination of the
operating profit return on average assets are provided below:
30 September 30 June 31 March 31 December
2020 2020 2020 2019
EUR000 EUR000 EUR000 EUR000
============= =========== =========== ============
Total assets used in the
computation of the operating
profit return on average
assets/per the Unaudited
Interim Consolidated Balance
Sheet 21,515,542 21,370,808 20,430,792 21,122,822
============= =========== =========== ============
30 September 30 September
2020 2019
EUR000 EUR000
============= =============
Annualised operating profit 203,048 2 51 , 676
============= =============
Quarterly average total assets 21,109,991 21,705,559
============= =============
G. Definitions & Explanations (continued)
Advisory and Comprise mainly: fees of external advisors in relation
other restructuring to: (i) disposal of operations and non-core assets,
costs and (ii) customer loan restructuring activities.
Allowance for Comprises (i) allowance for expected credit losses
expected loan (ECL) on loans and advances to customers (including
credit losses allowance for expected credit losses on loans and
(previously advances to customers held for sale), (ii) the residual
'Accumulated fair value adjustment on initial recognition of loans
provisions') and advances to customers, (iii) allowance for expected
credit losses for off-balance sheet exposures (financial
guarantees and commitments) disclosed on the balance
sheet within other liabilities, and (iv) the aggregate
fair value adjustment on loans and advances to customers
classified and measured at FVPL.
AT1 AT1 (Additional Tier 1) is defined in accordance
with Articles 51 and 52 of the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II
applicable as at the reporting date.
CET1 capital CET1 capital ratio (transitional basis) is defined
ratio (transitional in accordance with the Capital Requirements Regulation
basis) (EU) No 575/2013, as amended by CRR II applicable
as at the reporting date.
CET1 fully loaded The CET1 fully loaded (FL) ratio is defined in accordance
(FL) ratio with the Capital Requirements Regulation (EU) No
575/2013, as amended by CRR II applicable as at the
reporting date.
Contribution Relates to the contribution made to the Deposit Guarantee
to DGF Fund.
Contribution Relates to the contribution made to the Single Resolution
to SRF Fund.
Cost to Income Cost-to-income ratio comprises total expenses (as
ratio defined) divided by total income (as defined).
Data from the The latest data from the Statistical Service of the
Statistical Republic of Cyprus, Cyprus Statistical Service, was
Service published on 13 November 2020.
Digital transactions This is the ratio of the number of digital transactions
ratio 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 This is the ratio of digitally engaged individual
customers ratio 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
Gross loans Gross loans are reported before the residual fair
value adjustment on initial recognition relating
to loans acquired from Laiki Bank (calculated as
the difference between the outstanding contractual
amount and the fair value of loans acquired) amounting
to EUR243 mn at 30 September 2020 (compared to EUR248
mn at 30 June 2020 and EUR271 mn at 31 December 2019).
Additionally, gross loans include loans and advances
to customers classified and measured at fair value
through profit and loss adjusted for the aggregate
fair value adjustment of EUR334 mn at 30 September
2020 (compared to EUR331 mn at 30 June 2020 and EUR427
mn at 31 December 2019).
Group The Group consists f 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.
G. Definitions & Explanations (continued)
Loan credit Loan credit losses comprise: (i) credit losses to
losses (PL) cover credit risk on loans and advances to customers,
(previously (ii) net gains on derecognition of financial assets
'Provision charge') measured at amortised cost and (iii) net gains on
loans and advances to customers at FVPL.
Loan credit Loan credit losses charge (cost of risk) (year to
losses charge date) is calculated as the annualised 'loan credit
(previously losses' (as defined) divided by average gross loans
'Provisioning (the average balance is calculated as the average
charge') (cost of the opening balance and the closing balance).
of risk)
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 41.5% at 30 September
2020, compared to 41.7% at 30 June 2020, 41.0% at
31 March 2020, 41.1% at 31 December 2019, 40.8% at
30 September 2019, 41.3% at 30 June 2019, 46.7% at
31 March 2019, 45.4% at 31 December 2018 and as at
30 September 2018, 38.6% at 30 June 2018 and 37.4%
at 31 March 2018.
The market share on loans was affected as at 30 June
2019 following the derecognition of the Helix portfolio
upon the completion of Project Helix announced on
28 June 2019.
The market share on loans was affected during the
quarter ended 31 March 2019 following a decrease
in total loans in the banking sector of EUR1 bn,
mainly attributed to reclassification, revaluation,
exchange rate and other adjustments (CBC).
The market share on loans was affected as at 30 September
2018 following a decrease in total loans in the banking
sector, mainly attributed to EUR6 bn non-performing
loans of Cyprus Cooperative Bank (CyCB) which remained
to SEDIPES as a result of the agreement between CyCB
and Hellenic Bank.
The market share on loans was affected as at 30 June
2018 following a decrease in total loans in the banking
sector of EUR2.1 bn, due to loan reclassifications,
revaluations, exchange rate or other adjustments
(CBC).
Net fee and Fee and commission income less fee and commission
commission income expense divided by total income (as defined).
over total income
Net Interest Net interest margin is calculated as the net interest
Margin income (annualised) divided by the 'quarterly average
interest earning assets' (as defined).
Net loans and Comprise gross loans (as defined) net of allowance
advances to for expected loan credit losses (as defined, but
customers excluding credit losses on off-balance sheet exposures).
Net loan to Net loan to deposit ratio is calculated as gross
deposit ratio loans (as defined) net of allowance for expected
loan credit losses (as defined) divided by customer
deposits.
Net Stable Funding The NSFR is calculated as the amount of "available
Ratio (NSFR) stable funding" (ASF) relative to the amount of "required
stable funding" (RSF), on the basis of Basel III
standards. Its calculation is a SREP requirement.
The EBA NSFR will be enforced as a regulatory ratio
under CRR II in 2021.
New lending New lending includes the average YTD change (if positive)
for overdraft facilities.
Non-interest Non-interest income comprises Net fee and commission
income income, Net foreign exchange gains and net gains
on financial instrument transactions and disposal/dissolution
of subsidiaries and associates (excluding net gains
on loans and advances to customers at FVPL), Insurance
income net of claims and commissions, Net gains/(losses)
from revaluation and disposal of investment properties
and on disposal of stock of properties, and Other
income.
G. Definitions & Explanations (continued)
Non-performing According to the EBA standards and ECB's Guidance
exposures (NPEs) to Banks on Non-Performing Loans (published in March
2017), NPEs are defined as those exposures that satisfy
one of the following conditions: (i) the borrower
is assessed as unlikely to pay its credit obligations
in full without the realisation of the collateral,
regardless of the existence of any past due amount
or of the number of days past due, (ii) defaulted
or impaired exposures as per the approach provided
in the Capital Requirement Regulation (CRR), which
would also trigger a default under specific credit
adjustment, distress restructuring 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, and (v) performing forborne
exposures under probation that present more than
30 days past due within the probation period. 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. The NPEs are reported
before the deduction of allowance for expected loan
credit losses (as defined).
Non-recurring Non-recurring items as presented in the 'Consolidated
items Condensed Interim Income Statement - Underlying basis'
relate to the following items, as applicable: (i)
advisory and other restructuring costs - organic,
(ii) restructuring costs - Voluntary Staff Exit Plan
(VEP), (iii) Provisions/net loss relating to NPE
sales, including restructuring expenses, (iv) Loss
on remeasurement of investment in associate upon
classification as held for sale (CNP) net of share
of profit from associates, and (v) Reversal of impairment
of DTA and impairment of other tax receivables.
NPE coverage The NPE coverage ratio is calculated as the allowance
ratio (previously for expected loan credit losses (as defined) over
'NPE Provisioning NPEs (as defined).
coverage ratio')
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
in each period and contemplated sale transactions,
as well as potential further NPE sales, at each reporting
date, irrespective of whether or not they met the
held for sale classification criteria at the reporting
dates. They include both Project Helix and Project
Helix 2, as well as other portfolios.
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 Operating profit return on average assets is calculated
return on average as the annualised operating profit (as defined) divided
assets 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 In accordance with the legislation in Cyprus which
Conservation has been set for all credit institutions, the applicable
Buffer (CCB) rate of the CCB is 1.25% for 2017, 1.875% for 2018
and 2.5% for 2019 (fully phased-in).
Profit/(loss) This refers to the profit or loss after tax (attributable
after tax and to the owners of the Company) , excluding any 'non-recurring
before non-recurring items' (as defined).
items (attributable
to the owners
of the Company)
Profit/(loss) This refers to the profit or loss after tax (attributable
after tax - to the owners of the Company) , excluding any 'non-recurring
organic (attributable items' (as defined , except for the ' advisory and
to the owners other restructuring costs - organic') .
of the Company)
Project Helix Project Helix refers to the sale of a portfolio of
loans with a gross book value of EUR2.8 bn completed
in June 2019. For further information please refer
to section A.1.4 Loan portfolio quality.
G. Definitions & Explanations (continued)
Project Helix Project Helix 2 refers to the portfolio of loans
2 with a gross book value of EUR898 mn as at 30 June
2020 for which an agreement for sale was reached
on 3 August 2020. For further information please
refer to section A.1.4 Loan portfolio quality.
Quarterly average This relates to the average of 'interest earning
interest earning assets' as at the beginning and end of the relevant
assets 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,
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 investments (excluding equities and
mutual funds).
Qoq Quarter on quarter change
Special levy Relates to the special levy on deposits of credit
institutions in Cyprus.
Total Capital Total capital ratio is defined in accordance with
ratio 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 and contributions to
the Single Resolution Fund (SRF) and Deposit Guarantee
Fund (DGF). It does not include 'advisory and other
restructuring costs-organic', or any restructuring
costs relating to the Voluntary Staff Exit Plan,
or any restructuring costs relating to NPE sales.
'Advisory and other restructuring costs-organic'
amounted to EUR3 mn for 3Q2020 (compared to EUR3
mn for 2Q2020, EUR3 mn for 1Q2020 and EUR8 mn for
4Q2019). Restructuring costs relating to NPE sales
amounted to Nil for 3Q2020 (compared to EUR1 mn for
2Q2020, EUR3 mn for 1Q2020 and EUR10 mn for 4Q2019).
Restructuring costs relating to the Voluntary Staff
Exit Plan amounted to EUR81 mn for 4Q2019.
Total income Total income comprises net interest income and non-interest
income (as defined).
Total loan credit Total loan credit losses, impairments and provisions
losses, impairments comprises loan credit losses (as defined), plus impairments
and provisions of other financial and non-financial assets, plus
provisions for litigation, claims, regulatory and
other matters.
Underlying basis This refers to the statutory basis after being adjusted
for certain items as explained in the Basis of Presentation.
Write offs Loans together with the associated loan credit losses
are written off when there is no realistic prospect
of future recovery. Partial write-offs, including
non-contractual write-offs, may occur when it is
considered that there is no realistic prospect for
the recovery of the contractual cash flows. In addition,
write-offs may reflect restructuring activity with
customers and are part of the terms of the agreement
and subject to satisfactory performance.
Yoy Year on year change
Basis of Presentation
This announcement covers the results of Bank of Cyprus Holdings
Public Limited Company, "BOC Holdings" or "the Company", its
subsidiary Bank of Cyprus Public Company Limited, the "Bank" or
"BOC PCL", and together with the Bank's subsidiaries, the "Group",
for the nine months ended 30 September 2020.
At 31 December 2016, the Bank was listed on the Cyprus Stock
Exchange (CSE) and the Athens Exchange. On 18 January 2017, BOC
Holdings, incorporated in Ireland, was introduced in the Group
structure as the new holding company of the Bank. On 19 January
2017, the total issued share capital of BOC Holdings was admitted
to listing and trading on the LSE and the CSE.
Financial information presented in this announcement is being
published for the purposes of providing an overview of the Group
financial results for the nine months ended 30 September 2020. The
financial information in this announcement does not constitute
statutory financial statements of BOC Holdings within the meaning
of section 340 of the Companies Act 2014. The Group statutory
financial statements for the year ended 31 December 2019, upon
which the auditors have given an unqualified report, were published
on 29 April 2020 and have been annexed to the annual return and
delivered to the Registrar of Companies of Ireland. The Board of
Directors approved the Group statutory financial statements for the
nine months ended 30 September 2020 on 26 November 2020.
Statutory basis: S tatutory information is set out on pages
32-59. However, a number of factors have had a significant effect
on the comparability of the Group's financial position and results.
Accordingly, the results are also presented on an underlying
basis.
Underlying basis: The statutory results are adjusted for certain
items (as described on page 38) to allow a comparison of the
Group's underlying performance, as set out on pages 4-6.
The financial information included in this announcement is
neither reviewed nor audited by the Group's external auditors.
This announcement and the presentation for the Group Financial
Results for the nine months ended 30 September 2020 have been
posted on the Group's website www.bankofcyprus.com (Investor
Relations/Financial Results).
Definitions: The Group uses definitions in the discussion of its
business performance and financial position which are set out in
section G.
The Group Financial Results for the nine months ended 30
September 2020 are presented in Euro (EUR) and all amounts are
rounded as indicated. A comma is used to separate thousands and a
dot is used to separate decimals.
Forward Looking Statements
This document contains certain forward-looking statements which
can usually be identified by terms used such as "expect", "should
be", "will be" and similar expressions or variations thereof or
their negative variations, but their absence does not mean that a
statement is not forward-looking. Examples of forward-looking
statements include, but are not limited to, statements relating to
the Group's near term, medium term and longer term future capital
requirements and ratios, intentions, beliefs or current
expectations and projections about the Group's future results of
operations, financial condition, expected impairment charges, the
level of the Group's assets, liquidity, performance, prospects,
anticipated growth, provisions, impairments, business strategies
and opportunities. By their nature, forward-looking statements
involve risk and uncertainty because they relate to events, and
depend upon circumstances, that will or may occur in the future.
Factors that could cause actual business, strategy and/or results
to differ materially from the plans, objectives, expectations,
estimates and intentions expressed in such forward-looking
statements made by the Group include, but are not limited to:
general economic and political conditions in Cyprus and other
European Union (EU) Member States, interest rate and foreign
exchange fluctuations, legislative, fiscal and regulatory
developments, information technology, litigation and other
operational risks, adverse market conditions, the impact of
outbreaks, epidemics or pandemics, such as the COVID-19 pandemic
and ongoing challenges and uncertainties posed by the COVID-19
pandemic for businesses and governments around the world. Should
any one or more of these or other factors materialise, or should
any underlying assumptions prove to be incorrect, the actual
results or events could differ materially from those currently
being anticipated as reflected in such forward looking statements.
The forward-looking statements made in this document are only
applicable as from the date of publication of this document. Except
as required by any applicable law or regulation, the Group
expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward looking statement
contained in this document to reflect any change in the Group's
expectations or any change in events, conditions or circumstances
on which any statement is based.
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial
services group in Cyprus, providing a wide range of financial
products and services which include retail and commercial banking,
finance, factoring, investment banking, brokerage, fund management,
private banking, life and general insurance. The Bank of Cyprus
Group operates through a total of 98 branches in Cyprus, of which
14 operate as cash offices. Bank of Cyprus also has representative
offices in Russia, Ukraine and China. The Bank of Cyprus Group
employs 3,577 staff worldwide. At 30 September 2020, the Group's
Total Assets amounted to EUR21.5 bn and Total Equity was EUR2.1 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.
[1] 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).
[2] Excluding loans and advances to central banks and credit institutions.
[3] The analysis shown in lines 'non-financial corporations' and
'households' is non-additive across categories as certain customers
could be in both categories.
[4] 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).
[5] Excluding loans and advances to central banks and credit
institutions.
[6] The analysis shown in lines 'non-financial corporations' and
'households' is non-additive across categories as certain customers
could be in both categories.
[7] As per the Annual Report 2019 and Pillar II Disclosures 2019.
[8] CET1 includes regulatory deductions, comprising, amongst
others, intangible assets amounting to EUR45,098 thousand for the
Group and EUR42,203 thousand for BOC PCL as at 30 September 2020
(31 December 2019: EUR51,204 thousand for the Group EUR48,463
thousand for BOC PCL).
[9] Includes Credit Valuation Adjustments (CVA).
[10] IFRS 9 and application of the temporary treatment in
accordance with Article 468 of CRR fully loaded.
[11] IFRS 9 fully loaded.
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