TIDMBOCH
RNS Number : 3545K
Bank of Cyprus Holdings PLC
01 September 2021
Announcement
Group Financial Results for the six months ended 30 June
2021
Nicosia, 1 September 2021
Key Highlights for the six months ended 30 June 2021
Strong recovery underway
-- 12.9% GDP growth in 2Q2021
-- Continuing to support this recovery; new lending of EUR894 mn in 1H2021, up 30% yoy
-- Tourism demonstrating signs of recovery; July 2021 arrivals
+358% yoy or 54% of July 2019 levels
-- 78% of the adult population in Cyprus vaccinated with the
first dose(1) and 74% have completed their vaccination regime
Positive Operating Performance
-- Total income of EUR152 mn for 2Q2021, up 11% qoq, Operating
profit of EUR57 mn for 2Q2021 up 28% qoq
-- Cost of risk of 52 bps for 2Q2021, improved by 14 bps qoq
-- Profit after tax and before non-recurring items of EUR34 mn
for 2Q2021 and EUR51 mn for 1H2021
-- After recognising exceptional costs, loss after tax of EUR7
mn for 2Q2021 and profit after tax of EUR1 mn for 1H2021
Operating Efficiency
-- Total operating expenses(2) of EUR89 mn for 2Q2021, up 7%
qoq, reflecting seasonality in prior quarter
-- Cost to income ratio(2) at 58% for 2Q2021, down 2 p.p. qoq
Good Capital, Strong Liquidity
-- CET1 ratio of 14.2%(3) and Total Capital ratio of 19.2%(3)
-- MREL interim requirement of 1 Jan 2022 already achieved
through the successful refinancing of Tier 2 and the inaugural
issuance of Senior Preferred notes in 2Q2021
-- Deposits at EUR16.8 bn, up 3% qoq; Significant surplus liquidity of EUR5.7 bn (LCR at 303%)
Balance Sheet Repair Continuing
-- EUR1.3 bn NPE sale (Helix 2 Portfolios A and B) completed in 2Q2021
-- NPEs at EUR1.6 bn (EUR0.6 bn net)
-- Gross NPE ratio reduced to 14.6% (6.4% net); organic NPE reduction of EUR171 mn in 1H2021
-- Coverage improved to 60% over the quarter
-- 96% of performing loans(4) under expired payment deferrals
with an instalment due by 12 August 2021, presented no arrears
1. Data as at 28 August 2021 (Source: Ministry of Health)
2. Excluding special levy on deposits and other levies/contributions
3. Allowing for IFRS 9 and temporary treatment for certain FVOCI
instruments transitional arrangements
4. As at 30 June 2021
Group Chief Executive Statement
"Strong recovery in economic activity marked the second quarter
of the year, against the backdrop of increasing vaccination
coverage across Cyprus and the relaxation of restrictions.
Leveraging on the stronger economic environment in the quarter, our
strategy is beginning to deliver results, demonstrated by the
improvement in our performance before non-recurring items which
nearly doubled on the prior quarter. At the same time, we further
strengthened our balance sheet through the completion of Project
Helix 2, and successfully accessed the markets twice in the
quarter, refinancing our Tier 2 capital notes, as well as early
achieving our interim regulatory MREL requirement.
Vaccinations have a catalytic effect, unlocking both the economy
and society. 78% of the adult population in Cyprus have been
vaccinated with the first dose and 74% have completed their
vaccination regime. Further underscoring our commitment to continue
to support the country's return to growth, we extended EUR407 mn of
new loans in the quarter, reaching EUR894 mn of new loans in the
first half of the year, an increase of 30% compared to the same
period last year.
During the second quarter of the year, we generated total income
of EUR152 mn and a positive operating result of EUR57 mn, up by 28%
on the prior quarter. Our cost of risk reduced by a further 14 bps
to 52 bps. We delivered a profit after tax and before non-recurring
items of EUR34 mn. After recognising non-recurring items, the most
significant of which are EUR12 mn of costs relating to the Tier 2
Capital Notes tender offer and EUR26 mn of costs relating to the
NPE sales of which more than half will be unwound over time, the
overall result for the quarter was a loss after tax of EUR7 mn. The
overall result for the first six months of the year was a profit of
EUR1 mn.
Our cost to income ratio (excluding levies and contributions)
for the second quarter improved by 2 percentage points, despite a
7% increase in total operating expenses, as a result of the 11%
quarterly increase in total income. As previously disclosed, we
anticipate that our cost to income ratio will rise in the near term
as revenues remain under pressure and operating expenses increase
due to higher IT/digitisation investment costs before decreasing to
our target of mid-50% in the medium term.
The Bank's capital position remains sound and comfortably in
excess of our regulatory requirements. As at 30 June 2021, our
capital ratios (on a transitional basis) were 19.2% for the Total
Capital ratio and 14.2% for CET1 ratio. Following the successful
refinancing of our Tier 2 Capital Notes in April 2021, we proceeded
with the inaugural issuance of EUR300 mn senior preferred notes in
June 2021 thereby early achieving our interim regulatory MREL
requirement. Our liquidity position also remains strong and we
operate with EUR5.7 bn surplus liquidity and an LCR of 303%.
Deposits on our balance sheet increased in the quarter by 3% to
EUR16.8 bn.
The process of balance sheet repair continues. In June 2021 we
completed Project Helix 2 and derecognised EUR1.3 bn NPEs from our
balance sheet. We also organically reduced NPEs by EUR171 mn in the
first half of the year. Overall, since the peak in 2014, we have
now reduced the stock of NPEs by EUR13.4 bn or 89% to EUR1.6 bn and
the NPE ratio by 48 percentage points, from 62.9% to 14.6%. We
continue to actively explore strategies to accelerate de-risking
including further portfolio sales, and remain on track with
achieving a single digit NPE ratio by the end of 2022. At the same
time, we continue to closely monitor the performance of loans which
had been granted payment deferrals in the previous year. 96% of
performing loans whose payment deferrals have expired and had an
instalment by mid-August, presented no arrears. This is a better
performance than expected, now nearly eight months after deferral
expiry, and bodes well for future trends.
Whilst remaining alert to the uncertainties that the pandemic
continues to bring, we anticipate the economic recovery to continue
in the second half of the year and into 2022, as economic activity
continues to improve. In addition, the implementation of the Cyprus
Recovery and Resilience Plan is expected to support domestic
activity and employment through higher investment and to enhance
growth potential through reforms. As the leading bank in Cyprus, we
remain committed to being part of this recovery through the
continued support to our customers, colleagues and community,
whilst remaining absolutely committed to our strategic initiatives
of completing de-risking, revenue enhancement and cost optimisation
through business transformation in order to deliver shareholder
returns in the medium term."
Panicos Nicolaou
A. Group Financial Results - Statutory Basis
Interim Consolidated Income Statement for the six months ended
30 June 2021
Six months ended
30 June
2021 2020
---------- ----------
EUR000 EUR000
---------- ----------
391 ,
Turnover 367 376,652
========== ==========
Interest income 179,272 198,749
---------- ----------
Income similar to interest income 17,626 24,398
---------- ----------
Interest expense (28,670) (31,998)
---------- ----------
Expense similar to interest expense (16,015) (23,349)
---------- ----------
Net interest income 152,213 167,800
---------- ----------
Fee and commission income 87,610 74,909
---------- ----------
Fee and commission expense (3,753) (3,664)
---------- ----------
Net foreign exchange gains 6,550 10,543
---------- ----------
Net ( losses)/gains on financial instrument transactions
and disposal/dissolution of subsidiaries and
associates (14,076) 4,848
---------- ----------
Insurance income net of claims and commissions 31,068 28,915
---------- ----------
Net losses from revaluation and disposal of investment
properties (1,381) (2,329)
---------- ----------
Net gains on disposal of stock of property 7,372 2,676
---------- ----------
Other income 6,597 8,043
---------- ----------
272,200 291,741
---------- ----------
Staff costs (100,866) (96,208)
---------- ----------
Special levy on deposits and other levies/ contributions (15,255) (15,323)
---------- ----------
Other operating expenses (95,588) (94,564)
---------- ----------
60,491 85,646
---------- ----------
Net gains on derecognition of financial assets
measured at amortised cost 1,053 2,617
---------- ----------
Credit losses to cover credit risk on loans and
advances to customers (48,349) (183,711)
========== ==========
Credit losses of other financial instruments (3,814) (626)
========== ==========
Impairment net of reversals of non-financial
assets (7,398) (28,584)
---------- ----------
Profit/(loss) before share of profit/(loss) from
associates 1,983 (124,658)
---------- ----------
Share of profit/( loss ) from associates 137 (206)
---------- ----------
Profit/(loss) before tax 2,120 (124,864)
---------- ----------
Income tax (968) (4,259)
---------- ----------
Profit/(loss) after tax for the period 1,152 (129,123)
========== ==========
Attributable to:
---------- ----------
Owners of the Company 739 (125,618)
---------- ----------
Non-controlling interests 413 (3,505)
---------- ----------
Profit/(loss) for the period 1,152 (129,123)
========== ==========
Basic and diluted profit/(loss) per share attributable
to the owners of the Company (EUR cent) 0.2 (28.2)
========== ==========
A. Group Financial Results - Statutory Basis (continued)
Interim Consolidated Balance Sheet as at 30 June 2021
30 June 31 December
2021 2020
Assets EUR000 EUR000
------------ ------------
Cash and balances with central banks 8,227,491 5,653,315
------------ ------------
Loans and advances to banks 436,091 402,784
------------ ------------
Derivative financial assets 8,343 24,627
------------ ------------
Investments 882,743 1,876,009
------------ ------------
Investments pledged as collateral 1,315,329 37,105
------------ ------------
Loans and advances to customers 9,966,542 9,886,047
------------ ------------
Life insurance business assets attributable
to policyholders 518,094 474,187
------------ ------------
Prepayments, accrued income and other assets 685,162 249,877
------------ ------------
Stock of property 1,284,820 1,349,609
------------ ------------
Deferred tax assets 303,390 341,360
------------ ------------
Investment properties 127,149 128,088
------------ ------------
Property and equipment 260,813 272,474
------------ ------------
Intangible assets 184,650 185,256
------------ ------------
Investments in associates and joint venture - 2,462
------------ ------------
Non-current assets and disposal groups held
for sale 10,696 630,931
------------ ------------
Total assets 24,211,313 21,514,131
============ ============
Liabilities
------------ ------------
Deposits by banks 400,681 391,949
------------ ------------
Funding from central banks 2, 985,225 994,694
------------ ------------
Derivative financial liabilities 42,153 45,978
------------ ------------
Customer deposits 16, 801,251 16,533,212
------------ ------------
Insurance liabilities 708,373 671,603
------------ ------------
Accruals, deferred income, other liabilities
and other provisions 355,819 359,892
------------ ------------
Pending litigation, claims, regulatory and other
matters 155,765 123,615
------------ ------------
Loan stock 645,099 272,152
------------ ------------
Deferred tax liabilities 46, 465 45,982
------------ ------------
Total liabilities 22,140,831 19,439,077
------------ ------------
Equity
------------ ------------
Share capital 44,620 44,620
------------ ------------
Share premium 594,358 594,358
------------ ------------
Revaluation and other reserves 214,163 209,153
------------ ------------
Retained earnings 972,533 982,513
------------ ------------
Equity attributable to the owners of the Company 1, 825,674 1,830,644
------------ ------------
Other equity instruments 220,000 220,000
------------ ------------
Total equity excluding non--controlling interests 2, 045,674 2,050,644
------------ ------------
Non--controlling interests 24, 808 24,410
------------ ------------
Total equity 2, 070,482 2,075,054
------------ ------------
Total liabilities and equity 24,211,313 21,514,131
============ ============
B. Group Financial Results - Underlying Basis
Interim Condensed Consolidated Income Statement
---------------------------------------------------------------------------------------
EUR mn 1H2021 1H2020 2Q2021 1Q2021 qoq +% yoy +%
--------------------------------------- ------ ------ ------ ------ ------ ------
Net interest income 152 168 76 76 -1% -9%
Net fee and commission
income 84 71 45 39 18% 18%
Net foreign exchange
gains and net gains on
financial instrument
transactions and disposal/dissolution
of subsidiaries and associates 8 12 6 2 122% -35%
Insurance income net
of claims and commissions 31 29 18 13 36% 7%
Net gains/(losses) from
revaluation and disposal
of investment properties
and on disposal of stock
of properties 6 0 4 2 66% -
Other income 7 8 3 4 -17% -18%
--------------------------------------- ------ ------ ------ ------ ------ ------
Total income 288 288 152 136 11% 0%
--------------------------------------- ------ ------ ------ ------ ------ ------
Staff costs (101) (96) (51) (50) 2% 5%
Other operating expenses (70) (69) (38) (32) 14% 1%
Special levy on deposits
and other levies/contributions (15) (15) (6) (9) -32% 0%
Total expenses (186) (180) (95) (91) 3% 3%
------ ------ ------ ------ ------
Operating profit 102 108 57 45 28% -6%
--------------------------------------- ------ ------ ------ ------ ------ ------
Loan credit losses (35) (87) (15) (20) -25% -60%
Impairments of other
financial and non-financial
assets (11) (29) (6) (5) 12% -62%
Provisions for litigation,
claims, regulatory and
other matters (4) (4) (3) (1) - 8%
--------------------------------------- ------ ------ ------ ------ ------ ------
Total loan credit losses,
impairments and provisions (50) (120) (24) (26) -6% -58%
--------------------------------------- ------ ------ ------ ------ ------ ------
Profit/(loss) before
tax and non-recurring
items 52 (12) 33 19 74% -
--------------------------------------- ------ ------ ------ ------ ------ ------
Tax (1) (5) 1 (2) - -77%
(Profit)/loss attributable
to non-controlling interests (0) 4 (0) (0) 59% -
Profit/(loss) after tax
and before non-recurring
items (attributable to
the owners of the Company) 51 (13) 34 17 99% -
------ ------ ------ ------ ------
Advisory and other restructuring
costs - organic (18) (6) (15) (3) - -
--------------------------------------- ------ ------ ------ ------ ------ ------
Profit/(loss) after
tax - organic (attributable
to the owners of the
Company) 33 (19) 19 14 30% -
--------------------------------------- ------ ------ ------ ------ ------ ------
Provisions/net loss relating
to NPE sales, including
restructuring expenses(1) (32) (107) (26) (6) - -70%
Profit/(loss) after tax
(attributable to the
owners of the Company) 1 (126) (7) 8 - -
------ ------ ------ ------ ------
B. Group Financial Results - Underlying Basis (continued)
Interim Condensed Consolidated Income Statement - Key Performance Ratios
---------------------------------------------------------------------------------------------
Key Performance Ratios(2) 1H2021 1H2020 2Q2021 1Q2021 qoq +% yoy +%
------------------------------------- ------- ------- ------ ------ --------- ---------
Net Interest Margin (annualised) 1.56% 1.90% 1.49% 1.63% -14 bps -34 bps
------------------------------------- ------- ------- ------ ------ --------- ---------
Cost to income ratio 64% 62% 62% 67% -5 p.p. +2 p.p.
------------------------------------- ------- ------- ------ ------ --------- ---------
Cost to income ratio excluding
special levy on deposits
and other levies/contributions 59% 57% 58% 60% -2 p.p. +2 p.p.
------------------------------------- ------- ------- ------ ------ --------- ---------
Operating profit return
on average assets (annualised) 0.9% 1.0% 1.0% 0.8% +0.2 p.p. -0.1 p.p.
------------------------------------- ------- ------- ------ ------ --------- ---------
Basic earnings/(losses)
per share attributable
to the owners of the Company
(EUR cent) 0.17 (28.16) (1.66) 1.83 (3.49) 28.33
------------------------------------- ------- ------- ------ ------ --------- ---------
Basic earnings/(losses)
after tax and before non-recurring
items per share attributable
to the owners of the Company
(EUR cent)(3) 11.24 (2.93) 7.48 3.76 3.72 14.17
------------------------------------- ------- ------- ------ ------ --------- ---------
1. 'Provisions/net (loss) relating to NPE sales, including restructuring
expenses' refer to the net loss on transactions completed, net loan credit
losses on transactions under consideration, as well as the restructuring
costs relating to these trades. For further details please refer to Section
B.3.4. 2. Including the NPE portfolios classified as "Non-current assets
and disposal groups held for sale", where relevant . 3. As of 30 June 2021,
the management monitors 'basic earnings/(losses) per share attributable
to the owners of the Company' calculated using 'Profit/(loss) after tax
and before non-recurring items (attributable to the owners of the Company)',
rather than 'Profit/(loss) after tax - organic (attributable to the owners
of the Company)' which was previously the case, as the management believes
it is a more appropriate measure of monitoring recurring performance, as
it excludes ' Advisory and other restructuring costs - organic' which do
not relate to the underlying or recurring business of the Group as a banking
and financial services institution, but mainly to the cost of the Tier 2
Capital Notes tender offer of EUR12 mn, as well as certain costs relating
to restructuring activities the Bank has associated with the organic reduction
of NPEs, which have been decreasing as the level of NPEs is being reduced.
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 six months ended 30
June 2021 on the 'underlying basis' which the management believes
best fits the true measurement of the performance and position of
the Group, as this presents separately the exceptional and one-off
items.
Reconciliations between the statutory basis and the underlying
basis are included in Section B.1 'Reconciliation of the Interim
Condensed Consolidated Income Statement for the six months ended 30
June 2021 between statutory basis and underlying basis' and in
'Definitions and explanations on Alternative Performance Measures
Disclosures' of the 'Interim Financial Report 2021', to facilitate
the comparability of the underlying basis to the statutory
information.
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 (Helix 2 Portfolio A), as
well as to the agreement the Group reached with PIMCO in January
2021 for the sale of an additional portfolio of loans with gross
book value of EUR0.5 bn (Helix 2 Portfolio B). Project Helix 2 sale
was completed in June 2021. In relation to the disclosure of pro
forma figures and ratios with respect to Project Helix 2, where
numbers are provided on a pro forma basis this is stated. Further
details are provided in Section B.2.5 'Loan portfolio quality'.
B. Group Financial Results - Underlying Basis (continued)
Consolidated Condensed Interim Balance Sheet
==================================================================================================
EUR mn 30.6.2021 31.12.2020 + %
======================================== ======= ============= =============== ===============
Cash and balances with central
banks 8,227 5,653 46%
Loans and advances to banks 436 403 8%
Debt securities, treasury bills
and equity investments 2,198 1,913 15%
Net loans and advances to customers 9,967 9,886 1%
Stock of property 1,285 1,350 -5%
Investment properties 127 128 -1%
Other assets 1,960 1,550 26%
Non-current assets and disposal
groups held for sale 11 631 -98%
================================================= ============= =============== ===============
Total assets 24,211 21,514 13%
================================================= ============= =============== ===============
Deposits by banks 401 392 2%
Funding from central banks 2,985 995 -
Customer deposits 16,801 16,533 2%
Loan stock 645 272 -
Other liabilities 1,309 1,247 5%
================================================= ============= =============== ===============
Total liabilities 22,141 19,439 14%
================================================= ============= =============== ===============
Shareholders' equity 1,826 1,831 0%
================================================= ============= =============== ===============
Other equity instruments 220 220 -
================================================= ============= =============== ===============
Total equity excluding non-controlling
interests 2,046 2,051 0%
================================================= ============= =============== ===============
Non-controlling interests 24 24 2%
================================================= ============= =============== ===============
Total equity 2,070 2,075 0%
================================================= ============= =============== ===============
Total liabilities and equity 24,211 21,514 13%
================================================= ============= =============== ===============
Key Balance Sheet figures and 30.6.2021 31.12.2020 +
ratios(1)
======================================== =========== ============= =========== ===============
Gross loans (EUR mn) 10,893 12,261 -11%
================================================= ============= =========== ===============
Allowance for expected loan
credit losses (EUR mn) 947 1,902 -50%
================================================= ============= =========== ===============
Customer deposits (EUR mn) 16,801 16,533 2%
================================================= ============= =========== ===============
Loans to deposits ratio (net) 59% 63% -4 p.p.
================================================= ============= =========== ===============
NPE ratio 14.6% 25.2% -10.6 p.p.
================================================= ============= =========== ===============
NPE coverage ratio 60% 62% -2 p.p.
================================================= ============= =========== ===============
Leverage ratio 7.8% 8.8% -1 p.p.
================================================= ============= =========== ===============
Capital ratios and risk weighted 30.6.2021 31.12.2020 +
assets(1)
======================================== =========== ============= =========== ===============
Common Equity Tier 1 (CET1)
ratio (transitional)(2) 14.2% 14.8% -60 bps
================================================= ============= =========== ===============
Total capital ratio 19.2% 18.4% +80 bps
================================================= ============= =========== ===============
Risk weighted assets (EUR mn) 11,048 11,636 -5%
================================================= ============= =========== ===============
1. Including the NPE portfolios classified as "Non-current assets
and disposal groups held for sale", where relevant. 2.The CET1 fully
loaded ratio as at 30 June 2021 amounts to 12.9% (compared to 13.1%
and 13.3% pro forma for Helix 2 (Portfolios A and B) as at 31 March
2021 and to 12.9% and 13.3% pro forma for Helix 2 (Portfolios A and
B) as at 31 December 2020). p.p. = percentage points, bps = basis
points, 100 basis points (bps) = 1 p.p.
B. Group Financial Results - Underlying Basis (continued)
B. 1 Reconciliation of the Interim Condensed Consolidated Income
Statement for the six months ended 30 June 2021 between statutory
basis and underlying basis
EUR mn Underlying NPE Other Statutory
basis Sales basis
Net interest income 152 - - 152
=========== ======= ====== ==========
Net fee and commission income 84 - - 84
=========== ======= ====== ==========
Net foreign exchange gains and net
gains on financial instrument transactions
and disposal/dissolution of subsidiaries
and associates 8 - (16) (8)
=========== ======= ====== ==========
Insurance income net of claims and
commissions 31 - - 31
=========== ======= ====== ==========
Net gains from revaluation and disposal
of investment properties and on disposal
of stock of properties 6 - - 6
=========== ======= ====== ==========
Other income 7 - - 7
----------- ------- ------ ----------
Total income 288 - (16) 272
=========== ======= ====== ==========
( 16 ( 10 ( 212
Total expenses (186) ) ) )
----------- ------- ------ ----------
( 16 ( 26
Operating profit 102 ) ) 60
=========== ======= ====== ==========
( 47
Loan credit losses (35) ( 16 ) 4 )
=========== ======= ====== ==========
Impairments of other financial and
non-financial assets (11) - - (11)
=========== ======= ====== ==========
Provisions for litigation, claims,
regulatory and other matters (4) - 4 -
=========== ======= ====== ==========
Profit before tax and non-recurring
items 52 (32) (18) 2
=========== ======= ====== ==========
Tax (1) - - (1)
=========== ======= ====== ==========
Profit after tax and before non-recurring
items (attributable to the owners of
the Company) 51 (32) (18) 1
=========== ======= ====== ==========
Advisory and other restructuring costs-organic (18) - 18 -
----------- ------- ------ ----------
Profit after tax - organic* (attributable
to the owners of the Company) 33 (32) - 1
=========== ======= ====== ==========
Provisions/net loss relating to NPE
sales, including restructuring expenses (32) 32 - -
=========== ======= ====== ==========
Profit after tax (attributable to the
owners of the Company) 1 - - 1
=========== ======= ====== ==========
*This is the profit 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
the underlying basis mainly relate to the impact from
'non-recurring items' and are explained as follows:
NPE sales
* Total expenses include restructuring costs of EUR10
mn and other expenses of EUR6 mn relating to the
agreements for 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
EUR2 mn and an amount of EUR14 mn which represents
the effect of discounting the deferred consideration
receivable from Project Helix 2 on initial
recognition and are disclosed under non-recurring
items within 'Provisions/net loss relating to NPE
sales, including restructuring expenses' under the
underlying basis.
Other reclassifications
* Net losses on loans and advances to customers at FVPL
of c.EUR3.5 mn included in 'Loan credit losses' under
the underlying basis are included in 'Net
(losses)/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 their presentation with the loan
credit losses on loans and advances to customers at
amortised cost.
* Net loss on the early redemption of subordinated loan
stock of c.EUR12 mn included in 'Net (losses)/gains
on financial instrument transactions and
disposal/dissolution of subsidiaries and associates'
under the statutory basis is included in 'Advisory
and other restructuring costs--organic' under the
underlying basis, since it represents a one--off
item.
B. Group Financial Results - Underlying Basis (continued)
B. 1 Reconciliation of the Interim Condensed Consolidated Income
Statement for the six months ended 30 June 2021 between statutory
basis and underlying basis (continued)
Other reclassifications (continued)
* Advisory and other restructuring costs of c.EUR6 mn
included in 'Other operating expenses' under the
statutory basis are separately presented under the
underlying basis since they comprise mainly fees to
external advisors in relation to customer loan
restructuring activities.
* Provisions for litigation, claims, regulatory and
other matters amounting to EUR4 mn included in 'Other
operating expenses' under the statutory basis, are
separately presented under the underlying basis,
since they mainly relate to a provision set aside for
a potential penalty on investigation by the ECB.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis
B.2.1 Capital Base
Total equity excluding non-controlling interests totalled
EUR2,046 mn at 30 June 2021, compared to EUR2,064 mn at 31 March
2021 and EUR2,051 mn at 31 December 2020. Shareholders' equity
totalled EUR1,826 mn at 30 June 2021, compared to EUR1,844 mn at 31
March 2021 and EUR1,831 mn at 31 December 2020.
The Common Equity Tier 1 capital (CET1) ratio on a transitional
basis stood at 14.2% at 30 June 2021, compared to 14.4% at 31 March
2021 and 14.6% pro forma for Project Helix 2 (Portfolios A and B)
(referred to as "pro forma for Helix 2"), and to 14.8% at 31
December 2020 and 15.2% pro forma for Helix 2. During 2Q2021, the
CET1 ratio was negatively affected mainly by the prudential charge
relating to the Group's foreclosed assets (see below), the cost
relating to the tender process for the existing Tier 2 Capital
Notes and provisions and impairments, and was positively affected
by the pre-provision income, the impact of the completion of
Project Helix 2 and the decrease in risk-weighted assets
(RWAs).
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 back to CET1 each year decreases based on a weighting factor
until the impact of IFRS 9 is fully absorbed at the end of the five
years. The impact on the capital position for year 2018 was 5% of
the impact on the impairment amount from the initial application of
IFRS 9, increased to 15% (cumulative) for year 2019, 30%
(cumulative) for year 2020 and 50% (cumulative) for year 2021. This
will increase to 75% (cumulative) for year 2022 and will be fully
phased in (100%) by 1 January 2023. The phasing-in of the
impairment amount from the initial application of IFRS 9 had a
negative impact of c.45 bps on the CET1 ratio on 1 January
2021.
The CET1 ratio on a fully loaded basis amounted to 12.9% as at
30 June 2021, compared to 13.1% as at 31 March 2021 (and 13.3% pro
forma for Helix 2) and 12.9% as at 31 December 2020 (and 13.3% pro
forma for Helix 2) . On a transitional basis and on a fully
phased-in basis, after the transition period is completed, the
impact of IFRS 9 is expected to be manageable and within the
Group's capital plans.
The Total Capital ratio stood at 19.2% as at 30 June 2021,
compared to 18.0% as at 31 March 2021 (and 18.3% pro forma for
Helix 2) and 18.4% as at 31 December 2020 (and 18.7% pro forma for
Helix 2).
The Group's capital ratios are above the Supervisory Review and
Evaluation Process (SREP) requirements.
In the context of the European Central Bank's (ECB's) capital
easing measures for COVID-19, in April 2020, 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, 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 SREP, which is a point in time
assessment, and are therefore subject to change over time.
In November 2020, the Group received communication from the ECB
according to which no SREP decision would be issued for the 2020
SREP cycle and that the 2019 SREP decision (as amended in April
2020) 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 in April 2020). The
communication followed a relevant announcement by the ECB earlier
in 2020 that the ECB would be taking a pragmatic approach towards
the SREP for the 2020 cycle.
In accordance with the provisions of the Macroprudential
Oversight of Institutions Law of 2015, the Central Bank of Cyprus
(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 Bank has been designated as an O-SII and the
O-SII buffer currently set by the CBC 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.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
In March 2020, 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
(CCyb). In July 2020, the ECB committed to allow banks to operate
below the P2G and the combined buffer requirement (CCB, CCyb and
O-SII buffer) until at least end of 2022, without automatically
triggering supervisory actions.
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 as of 1 January 2020.
Based on the SREP decisions of prior years, the Company (Bank of
Cyprus Holdings PLC) and the Bank were under a regulatory
prohibition for equity dividend distribution and therefore no
dividends were declared or paid during 2020. Following the 2020
SREP communication, the Company and the Bank are still under equity
dividend distribution prohibition as the 2019 SREP decision (as
amended in April 2020) 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 relate to a
prudential charge which will decrease based on the Bank's progress
in disposing the properties in scope. The amount has been directly
deducted from own funds as at 30 June 2021 resulting in a decrease
in the Group's CET1 ratio by c.44 bps as at 30 June 2021.
The Group participated in the ECB SREP Stress Test of 2021, the
results of which were published by the ECB on 30 July 2021. For
further information please refer to the 'Additional Risk and
Capital Management Disclosures' of the 'Interim Financial Report
2021'.
Project Helix 2
In June 2021, the Company completed Project Helix 2 (Portfolios
A and B), which refers to the sale of portfolios of loans with a
total gross book value of EUR1,331 mn on completion (of which
EUR1,305 mn relate to non-performing exposures), secured over real
estate collateral, to funds affiliated with Pacific Investment
Management Company LLC ("PIMCO"), the agreements for which were
announced on 3 August 2020 and on 18 January 2021.
The consideration for the sale amounts to c.EUR560 mn, of which
c.EUR165 mn were received in cash by completion. The remaining
amount is payable in four instalments up to December 2025 without
any conditions attached. The consideration reflects adjustments
resulting from, inter alia, loan repayments received on the
Portfolios since the reference date of 30 September 2019. The
consideration can be increased through an earnout arrangement,
depending on the performance of each of the Portfolios.
The capital impact of Project Helix 2 on the Group's CET1 ratio
during 2Q2021 is an increase of c.20 bps, of which c.10 bps arises
on completion. Post completion, the transaction is expected to have
an additional positive capital impact of c.64 bps on the Group's
CET1 ratio on the basis of 30 June 2021 figures, upon the full
payment of the deferred consideration and without taking into
consideration any positive impact from the earnout, thus making the
transaction overall capital accretive.
Further details are provided in Section B.2.5 'Loan portfolio
quality'.
Tier 2 Capital Notes
In April 2021, the Company issued EUR300 mn unsecured and
subordinated Tier 2 Capital Notes (the 'New T2 Notes').
Immediately after, the Company and the Bank entered into an
agreement pursuant to which the Company on-lent to the Bank the
entire EUR300 mn proceeds of the issue of the New T2 Notes (the
'Tier 2 Loan') on terms substantially identical to the terms and
conditions of the New T2 Notes. The Tier 2 Loan constitutes an
unsecured and subordinated obligation of the Bank.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
Tier 2 Capital Notes (continued)
The New T2 Notes were priced at par with a fixed coupon of
6.625% per annum, payable annually in arrears and resettable on 23
October 2026. The maturity date for the New T2 Notes is 23 October
2031. The Company will have the option to redeem the New T2 Notes
early on any day during the six-month period from 23 April 2026 to
23 October 2026, subject to applicable regulatory consents.
At the same time, the Bank invited the holders of its EUR250 mn
Fixed Rate Reset Tier 2 Capital Notes due January 2027 (the
'Existing T2 Notes') to tender their Existing T2 Notes for purchase
by the Bank at a price of 105.50%. As a result, a cost of EUR12 mn
was recorded in the income statement in 2Q2021, whilst at the same
time forfeiting the relevant obligation for future coupon payments.
This cost resulted in a negative impact of 11 bps on the Group's
CET1 ratio as at 30 June 2021. Existing T2 Notes of EUR43 mn in
aggregate nominal amount remain outstanding as at 30 June 2021.
The issuance of the New T2 Notes has resulted in the increase of
the Group's Total Capital ratio by c.123 bps as at 30 June 2021,
including c.29 bps relating to the outstanding Existing T2 Notes as
at 30 June 2021. The Existing T2 Notes are redeemable at the option
of the Bank (subject to applicable regulatory consents) in January
2022.
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific
deferred tax assets (DTA) into deferred tax credits (DTC) became
effective in March 2019. The law amendments cover the utilisation
of income tax losses transferred from Laiki Bank to the Bank in
March 2013. The introduction of CRD IV in January 2014 and its
subsequent phasing-in led to a more capital-intensive treatment of
this DTA for the Bank. With this legislation, institutions are
allowed to treat such DTAs as 'not relying on profitability',
according to CRD IV and as a result not deducted from CET1, hence
improving a credit institution's capital position.
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,
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.
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. In this respect, an amount of EUR3 mn was recorded in
4Q2020 to bring the total amount provided for years 2018-2020 to
EUR16 mn, being the maximum expected increased amount for these
years (EUR13 mn in 4Q2019 and EUR19 mn in FY2019).
Voluntary Staff Exit Plans
In December 2020, the Group completed a targeted voluntary staff
exit plan (VEP) at a total cost of EUR6 mn, recorded in the
consolidated income statement in 4Q2020, resulting in a negative
impact of c.5 bps on the Group's CET1 ratio as at 31 December 2020
. For further information please refer to Section B.3.2 'Total
expenses'.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.2. Regulations and Directives
B.2.2.1 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 this was an amending regulation,
the existing provisions of CRR apply, unless they are amended by
CRR II. Being a Regulation, CRR II is directly applicable in each
member state. Member states were required to transpose the CRD V
into national law. CRD V was transposed and implemented in Cyprus
law in early May 2021. Certain provisions took immediate effect
(primarily relating to Minimum Requirement for Own Funds and
Eligible Liabilities, MREL), and most changes became effective as
of June 2021. The key changes introduced consist of, among others,
changes to qualifying criteria for CET1, AT1 and Tier 2
instruments, introduction of MREL requirements and binding Leverage
Ratio and Net Stable Funding Ratio (NSFR) requirements.
Some of the amendments were introduced in June 2020 as part of
the "CRR quick-fix" which brought forward certain CRR II changes in
light of the challenges posed to the banking sector by the
COVID-19. The key measures in the CRR quick fix include an
extension of the IFRS 9 transitional arrangements for the dynamic
component by 2 years, the introduction of a prudential filter on
exposures to central governments, regional governments or local
authorities at FVOCI, the acceleration of CRR II amendments to
exempt certain software assets from capital deduction and to revise
the SME discount factors.
B.2.2.2 Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities
(MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that
from January 2016 EU member states shall apply the BRRD's
provisions requiring EU credit institutions and certain investment
firms to maintain a minimum requirement for own funds and eligible
liabilities (MREL), subject to the provisions of the Commission
Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part of
the reform package for strengthening the resilience and
resolvability of European banks, the BRRD came into effect and was
required to be transposed into national law. BRRD II was transposed
and implemented in Cyprus law in early May 2021. In addition,
certain provisions on MREL have been introduced in CRR which also
came into force on 27 June 2019 as part of the reform package and
took immediate effect.
In April 2021, the Bank received notification from the Single
Resolution Board (SRB) of the final decision for the binding
minimum requirement for own funds and eligible liabilities (MREL)
for the Bank, determined as the preferred resolution point of
entry. As per the decision, the MREL requirement is set at 23.32%
of risk weighted assets and 5.91% of Leverage Ratio Exposure (LRE)
and must be met by 31 December 2025. Furthermore, the Bank must
comply by 1 January 2022 with an interim requirement of 14.94% of
risk weighted assets and 5.91% of LRE. The own funds used by the
Bank to meet the Combined Buffer Requirement (CBR) will not be
eligible to meet its MREL requirements expressed in terms of
risk-weighted assets. The above requirements replace those that
were previously applicable. The Bank must comply with the MREL
requirement at the consolidated level, comprising the Bank and its
subsidiaries.
In June 2021, the Bank executed its inaugural MREL transaction
issuing EUR300 mn of senior preferred notes (the "SP Notes"). The
SP Notes were priced at par with a fixed coupon of 2.50% per annum,
payable annually in arrears and resettable on 24 June 2026. The
maturity date of the SP Notes is 24 June 2027 and the Bank may, at
its discretion, redeem the SP Notes on 24 June 2026, subject to
meeting certain conditions as specified in the Terms and
Conditions, including applicable regulatory consents. The SP Notes
comply with the criteria for MREL and contribute towards the Bank's
MREL requirements.
The MREL ratio of the Bank as at 30 June 2021, calculated
according to the SRB's eligibility criteria currently in effect and
based on the Bank's internal estimate, stood at 18.53% of risk
weighted assets (RWA) and at 10.17% of LRE.
The issuance of the SP Notes contributed to the Bank's MREL
ratio as a percentage of RWA as at 30 June 2021
c.272 bps. The Bank's MREL ratio as at 30 June 2021 includes 39
bps relating to the Existing T2 Notes of EUR43 mn that remain
outstanding as at 30 June 2021 and are redeemable at the option of
the Bank (subject to applicable regulatory consents) in January
2022.
The MREL ratio expressed as a percentage of risk weighted assets
does not include capital used to meet the CBR amount, currently at
3.5% and expected to increase to 4% on 1 January 2022.
The successful Tier 2 capital refinancing in April 2021 and the
inaugural issuance of MREL-compliant senior notes in June 2021 are
part of the Bank's funding plan to meet the interim and final MREL
requirements. The MREL interim requirement of 1 January 2022 has
already been achieved.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.3 Funding and Liquidity
Funding
Funding from Central Banks
At 30 June 2021, the Bank's funding from central banks amounted
to EUR2,985 mn, which relates to ECB funding, comprising solely of
funding through the Targeted Longer-Term Refinancing Operations
(TLTRO) III, compared to EUR2,692 mn as at 31 March 2021 and EUR995
mn as at 31 December 2020.
In June 2021 the Bank borrowed an amount of EUR300 mn under the
eighth TLTRO III operation, increasing the borrowing under TLTRO
III to EUR3.0 bn, as the Bank had already borrowed an amount of
EUR1.7 bn under the seventh TLTRO III operation in March 2021 and
an amount of EUR1 bn under the fourth TLTRO III operation in June
2020, despite its comfortable liquidity position, given the
favourable borrowing terms, in combination with the relaxation of
collateral requirements.
Based on internal estimations (subject to confirmation from the
CBC), the Bank has exceeded the benchmark net lending threshold in
the period 1 March 2020 - 31 March 2021 and is therefore expected
to qualify for a beneficial rate for the period from June 2020 to
June 2021. The Bank estimates the NII benefit from its TLTRO III
borrowing for the period from June 2020 to June 2021 at c.EUR7 mn,
recognised over the respective period in the income statement.
The potential NII benefit from the TLTRO III borrowing for the
period from June 2021 to June 2022 amounts to c.EUR15 mn, based on
current ECB rates and provided the Bank meets the net lending
thresholds.
Deposits
Customer deposits totalled EUR16,801 mn at 30 June 2021
(compared to EUR16,332 mn at 31 March 2021 and EUR16,533 mn at 31
December 2020) and increased by 3% in the second quarter and by 2%
since the year end.
The Bank's deposit market share in Cyprus reached 34.6% as at 30
June 2021, compared to 34.5% as at 31 March 2021 and 35.0% at 31
December 2020. Customer deposits accounted for 69% of total assets
and 76% of total liabilities at 30 June 2021 (compared to 77% of
total assets and 85% of total liabilities at 31 December 2020).
The net Loans to Deposits (L/D) ratio stood at 59% as at 30 June
2021 (compared to 64% as at 31 March 2021 and 63% as at 31 December
2020) and decreased by 5 p.p. in the second quarter, mainly due to
the completion of Project Helix 2 and the increase in deposits.
Loan Stock
At 30 June 2021 the Group's loan stock (including accrued
interest) amounted to EUR645 mn (compared to EUR254 mn at 31 March
2021 and EUR272 mn at 31 December 2020) and relates to unsecured
subordinated Tier 2 Capital Notes and senior preferred notes.
In April 2021, the Company issued EUR300 mn unsecured and
subordinated Tier 2 Capital Notes (the 'New T2 Notes'). In
addition, Existing T2 Notes of EUR43 mn remain outstanding as at 30
June 2021. For further information please refer to Section B.2.1
Capital Base. In June 2021, the Bank executed its inaugural MREL
transaction issuing EUR300 mn of senior preferred notes (the "SP
Notes"). For further information please refer to Section B.2.2.2
Bank Recovery and Resolution Directive (BRRD) / Minimum Requirement
for Own Funds and Eligible Liabilities (MREL).
Liquidity
At 30 June 2021 the Group Liquidity Coverage Ratio (LCR) stood
at 303% (compared to 284% at 31 March 2021 and 254% at 31 December
2020), above the minimum regulatory requirement of 100%. The
liquidity surplus in LCR at 30 June 2021 amounted to EUR5.7 bn
(compared to EUR4.9 bn at 31 March 2021 and EUR4.2 bn at 31
December 2020). The increase in 2Q2021 is mainly due to the
issuance of EUR300 mn senior preferred notes, the completion of
Project Helix 2 and the increase in deposits. The increase in
1Q2021 is driven mainly by the increase in the TLTRO III borrowing
in March 2021.
The NSFR is calculated as the amount of "available stable
funding" (ASF) relative to the amount of "required stable funding"
(RSF). The regulatory limit, enforced in June 2021, has been set at
100% as per CRR II. The NSFR weights under CRR II do not have
material deviations from those under Basel III guidelines which the
Group followed prior to CRR II enforcement. At 30 June 2021 the
Group's NSFR stood at 150% (compared to 140% at 31 March 2021 and
139% at 31 December 2020).
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.4 Loans
Group gross loans totalled EUR10,893 mn at 30 June 2021 ,
compared to EUR12,281 mn at 31 March 2021 and EUR12,261 mn at 31
December 2020, reduced by 11% since the year end following the
completion of Project Helix 2. Gross loans of the Group's Cyprus
operations totalled EUR10,840 mn at 30 June 2021 accounting for
almost all of the Group gross loans.
New lending granted in Cyprus reached EUR407 mn for 2Q2021
(compared to EUR487 mn for 1Q2021) and totalled EUR894 mn for
1H2021 (up by 30% yoy). New lending in 2Q2021 comprised EUR162 mn
of corporate loans, EUR172 mn of retail loans (of which EUR124 mn
were housing loans), EUR42 mn of SME loans and EUR31 mn of shipping
and international loans. New corporate loans in 2Q2021 have
increased by 64% yoy, as the economic activity continues to
improve. At the same time, demand for retail housing loans remains
strong, supported by Government schemes, and has increased by 22%
qoq.
At 30 June 2021, the Group net loans and advances to customers
totalled EUR9,967 mn (compared to EUR9,960 mn at 31 March 2021 and
EUR9,886 mn at 31 December 2020). At 30 June 2021, there were no
loans and advances to customers classified as held for sale,
whereas, at 31 March 2021 net loans and advances to customers of
EUR472 mn were classified as held for sale in line with IFRS 5 and
related to Project Helix 2 (comprising EUR299 mn relating to
Portfolio A and EUR173 mn relating to Portfolio B), compared to
EUR493 mn as at 31 December 2020 relating to Project Helix 2
(EUR485 mn, comprising EUR310 mn relating to Portfolio A and EUR175
mn relating to Portfolio B) and Helix Tail (EUR8 mn).
The Bank is the single largest credit provider in Cyprus with a
market share of 39.1% at 30 June 2021, compared to 42.4% at 31
March 2021 and 41.9% at 31 December 2020. The decrease as at 30
June 2021 is mainly due to the completion of Project Helix 2.
B.2.5 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.
The Group's near-term priorities include completing the balance
sheet de-risking, whilst managing the post-pandemic NPE inflow.
The loan credit losses for 2Q2021 totalled EUR15 mn (excluding
'Provisions/net loss relating to NPE sales, including restructuring
expenses'), compared to EUR20 mn for 1Q2021 and totalled EUR35 mn
for 1H2021, compared to EUR87 mn in 1H2020.
Further details regarding loan credit losses are provided in
Section B.3.3 'Profit/(loss) before tax and non-recurring items'
below.
Loan moratorium
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
(loan moratorium) for the period to the end of the year 2020, for
all eligible borrowers with no arrears for more than 30 days as at
the end of February 2020. The payment holiday for all these loans
expired on 31 December 2020.
P erforming loans as at 30 June 2021 under expired payment
deferrals amounted to EUR4.9 bn (compared to EUR5.1 bn as at 31
March 2021 and EUR5.3 bn as at 31 December 2020), of which EUR4.8
bn or 96% had an instalment due by 12 August 2021 with a strong
performance; 96% present no arrears (of which EUR0.5 bn have been
restructured) and only 4% are in arrears (of which 95% are less
than 30 days-past-due).
Performing loans to private individuals as at 30 June 2021 under
expired payment deferrals amounted to EUR1.8 bn, of which 98% had
an instalment due by 12 August 2021. Of those, 92% present no
arrears (of which c.EUR28 mn have been restructured) and only 8%
are in arrears (of which 96% are less than 30 days-past-due).
Similarly, performing loans to businesses as at 30 June 2021
under expired payment deferrals amounted to EUR3.15 bn, of which 95
% had an instalment due by 12 August 2021. Of those, 99% present no
arrears (of which EUR0.47 bn have been restructured, mostly in the
tourism sector) and only 1% are in arrears.
In 2Q2021, net reclassifications of EUR184 mn of loans under
expired payment deferrals were made from Stage 1 to Stage 2,
following reclassifications of EUR371 mn of loans under expired
payment deferrals from Stage 1 to Stage 2 as a result of management
overlays and restructurings, and reclassifications of EUR187 mn of
loans under expired payment deferrals from Stage 2 to Stage 1,
mainly due to the good performance after the expiry of the payment
deferrals. In addition, reclassifications of EUR16 mn of loans
under expired payment deferrals were made mainly from Stage 2 to
Stage 3 in 2Q2021. References made to 'loans under expired payment
deferrals' in this paragraph include current account and
overdrafts.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
Loan moratorium (continued)
The Bank will continue to monitor this portfolio closely, to
ensure that potential difficulties in the repayment ability are
identified at an early stage, and appropriate solutions are
provided to viable customers. To that end, the Bank has enhanced
its monitoring process to include transactional analysis to
establish funds availability to meet upcoming instalments and
performance of daily monitoring of arrears and excesses, as well as
NPEs inflows and outflows.
The Bank has a strong track record in dealing with
restructurings. Targeted restructuring solutions are offered to
alleviate pandemic-related short-term cash flow burden, following
rigorous assessment of repayment ability. To date, most
restructurings relate to tourism.
Loan impairments related to COVID-19 amounting to EUR3.5 mn (12
bps) were included in 2Q2021 loan credit losses of EUR15 mn (cost
of risk of 52 bps for 2Q2021), compared to an amount of EUR9 mn (29
bps) included in 1Q2021 loan credit losses of EUR20 mn (cost of
risk of 66 bps for 1Q2021). Overall, in FY2020, the impact of IFRS
9 FLI driven by the update of the macroeconomic assumptions
resulted in a EUR54 mn charge (43 bps) included in the FY2020 loan
credit losses of EUR149 mn (cost of risk of 1.18%).
Finally, the provision coverage of Stage 3 loans under payment
deferrals that expired on 31 December 2020 of c.22% as at 30 June
2021 is considered to be adequate, as it is higher than the
coverage of re-performing NPEs (NPEs in the pipeline to exit,
subject to meeting all exit criteria) of 19%.
The table below presents the loans under payment deferrals that
expired on 31 December 2020, by IFRS 9 staging.
IFRS 9 staging for expired loan payment deferrals (EUR bn)
EUR bn 30.6.2021 31.3.2021 31.12.2020
------------------ ------------------ -------------------
Stage 1 3.58 3.91 3.96
------------------ ------------------ -------------------
Stage 2 1.62 1.47 1.58
------------------ ------------------ -------------------
Stage 3 0.25 0.33 0.33
------------------ ------------------ -------------------
Total 5.45(1) 5.71 5.87
------------------ ------------------ -------------------
1 Includes overdrafts and current accounts of c.EUR0.3 bn (31 March
2021: c.EUR0.3 bn)
A second scheme for the suspension of loan repayments for
interest and principal (loan moratorium) was launched in January
2021 for customers impacted by the second lockdown. Payment
deferrals were offered to the end of June 2021, however, the total
months under loan moratorium, including the loan moratorium offered
in 2020, cannot exceed a total of nine months. The application
period expired on 31 January 2021 and loans of c.EUR20 mn were
approved for the second moratorium. C lose monitoring of the credit
quality of loans in moratoria continues.
Following the outbreak of COVID-19, the sectors most adversely
affected are tourism, trade, transport, manufacturing and
construction. The Group has a well - diversified performing loan
portfolio. For further information on the Group's non-legacy loan
book exposure to tourism and trade and the performance of these
loans after the expiry of the loan moratorium, please refer to
Section D. Business Overview.
For further information please refer to the presentation for the
Group Financial Results for the six months ended 30 June 2021
(slides 7 to 10 and slide 45).
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
Non-performing exposure reduction
Non-performing exposures (NPEs) as defined by the European
Banking Authority (EBA) were reduced by EUR1,423 mn, or 47%, in
2Q2021 to EUR1,589 mn at 30 June 2021 (compared to EUR3,012 mn at
31 March 2021 and EUR3,086 mn at 31 December 2020). The reduction
in 2Q2021 comprises Project Helix 2 loans on completion of EUR1,305
mn (as explained further below), net organic NPE reductions of
EUR112 mn and further net NPE reductions of EUR6 mn relating to
Project Helix 2 loans during the period until completion (compared
to a reduction in NPEs in 1Q2021 by EUR74 mn, comprising net
organic NPE reductions of EUR59 mn and further net NPE reductions
of EUR15 mn relating to Project Helix 2 loans in 1Q2021).
The NPEs account for 14.6% of gross loans as at 30 June 2021,
compared to 24.5% as at 31 March 2021 and 25.2% as at 31 December
2020, down by c.10 percentage points in the quarter, driven by the
completion of Project Helix 2.
The NPE coverage ratio stands at 60% at 30 June 2021 (compared
to 62% at 31 March 2021 and 31 December 2020), down by 2 percentage
points in the quarter following the completion of Project Helix 2.
When taking into account tangible collateral at fair value, NPEs
are fully covered.
As of 1 January 2021, the new regulation on Definition of
Default has been implemented, affecting NPE exposures and the
calculation of Days-Past-Due (please refer to Section F.
Definitions & Explanations for the changes in the definition).
The impact of these changes on the Group on 1 January 2021 is
immaterial.
3 0 . 6 .2021 31.12.2020
--- -------------------
% gross % gross
EUR mn loans EUR mn loans
---------------------------- --------- -------- --------- --------
NPEs as per EBA definition 1,589 14.6% 3,086 25.2%
Of which, in pipeline to exit:
-NPEs with forbearance
measures, no arrears(1) 212 1.9% 303 2.5%
--------------------------------- --------- -------- --------- --------
1. The analysis is performed on a customer basis.
Project Helix 2
In June 2021, the Company completed Project Helix 2 (Portfolios
A and B), which refers to the sale of portfolios of loans with a
total gross book value of EUR1,331 mn as at the completion date (of
which EUR1,305 mn relate to non-performing exposures) ("Portfolios
A and B") secured over real estate collateral, and stock of
properties with carrying value amounting to EUR73 mn, to funds
affiliated with Pacific Investment Management Company LLC
("PIMCO"), the agreements for which were announced on 3 August 2020
and on 18 January 2021. The Bank retains the servicing of these
Portfolios for a transitional period currently expected to end in
early 4Q2021 against a servicing fee (see Section B.3.1).
The consideration for the sale amounts to c.EUR560 mn, of which
c.EUR165 mn were received in cash by completion. The remaining
amount is payable in four instalments up to December 2025 without
any conditions attached. The consideration reflects adjustments
resulting from, inter alia, loan repayments received on the
Portfolios since the reference date of 30 September 2019. The
consideration can be increased through an earnout arrangement,
depending on the performance of each of the Portfolios.
Project Helix 2 represents a further milestone in the delivery
of one of the Group's strategic priorities of improving asset
quality through the reduction of NPEs. Project Helix 2 (Portfolios
A and B) reduces the NPE ratio by c.9 percentage points. Overall,
since the peak in 2014, the stock of NPEs has been reduced by
EUR13.4 bn or 89% and the NPE ratio by 48.3 percentage points, from
62.9% to 14.6%.
Additional strategies to accelerate de-risking
The Group remains committed to further de-risking its balance
sheet and will continue to seek solutions to achieve this. The
Group continues to work with its advisors towards the sale of
portfolios of NPEs in the future, to further accelerate the
decrease in NPEs on the balance sheet through additional sales of
NPEs.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.6 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) is focused on the
disposal of on-boarded properties resulting from debt for asset
swaps. The Group completed disposals of EUR76 mn in 1H2021
(compared to EUR24 mn in 1H2020), resulting in a profit on disposal
of EUR7 mn for 1H2021 (compared to a profit on disposal of EUR3 mn
for 1H2020), following the relaxation of restrictive measures. The
Group completed disposals of EUR52 mn in 2Q2021 (compared to EUR24
mn in 1Q2021 and EUR10 mn in 2Q2020), resulting in a profit on
disposal of EUR4 mn for 2Q2021 (compared to a profit on disposal of
EUR3 mn for 1Q2021). Asset disposals are across all property
classes, with 54% of sales by value in 1H2021 relating to land.
During the six months ended 30 June 2021, the Group executed
sale-purchase agreements (SPAs) for disposals with contract value
of EUR85 mn (387 properties), compared to EUR27 mn (170 properties)
for 1H2020. In addition, the Group had a strong pipeline of EUR85
mn by contract value as at 30 June 2021, of which EUR48 mn related
to SPAs signed (compared to a pipeline of EUR68 mn as at 30 June
2020, of which EUR53 mn related to SPAs signed).
REMU on-boarded EUR21 mn of assets in 1H2021 (compared to
additions of EUR30 mn in 1H2020), via the execution of debt for
asset swaps and repossessed properties.
Details with respect to the prudential charge relating to the
onsite inspection findings are provided in Section B.2.1 'Capital
Base'.
Assets held by REMU
As at 30 June 2021, assets held by REMU had a carrying value of
EUR1,404 mn (comprising properties of EUR1,285 mn classified as
'Stock of property' and EUR119 mn as 'Investment properties'),
compared to EUR1,473 mn as at 31 December 2020 (comprising
properties of EUR1,350 mn classified as 'Stock of property' and
EUR123 mn as 'Investment properties').
In addition to assets held by REMU, properties classified as
'Investment properties' with carrying value of EUR8 mn as at 30
June 2021 (compared to EUR5 mn as at 31 December 2020), relate to
legacy properties held by the
Group before the set-up of REMU in January 2016.
Assets held by REMU (Group)
EUR mn 1H2021 1H2020 2Q2021 1Q2021 qoq +% yoy +%
-------- -------- -------- --------- ------
Opening balance 1,473(1) 1,506(1) 1,449(1) 1,473(1) -2% -2%
----------------------------------------------------------- -------- -------- -------- --------- ------ ------
On-boarded assets (including construction cost) 21 30 10 11 -14% -30%
----------------------------------------------------------- -------- -------- -------- --------- ------ ------
Sales (76) (24) (52) (24) 113% 222%
----------------------------------------------------------- -------- -------- -------- --------- ------ ------
Net impairment loss (9) (29) (3) (6) -53% -71%
----------------------------------------------------------- -------- -------- -------- --------- ------ ------
Transfer to non-current assets and disposal groups held for
sale (5) (11) - (5) - -47%
----------------------------------------------------------- -------- -------- -------- --------- ------ ------
Closing balance 1,404 1,472(1) 1,404 1,449(1) -3% -5%
----------------------------------------------------------- -------- -------- -------- --------- ------ ------
1 Following certain segmental reclassifications to better align with current management information,
investment properties of EUR16 mn as at 30 June 2021 (31 December 2020: EUR16 mn) relating
to land, have been transferred under REMU. Comparative information was restated to account
for this change.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.6 Real Estate Management Unit (REMU) (continued)
Analysis by type and country Cyprus Greece Romania Total
30 June 2021 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 143 24 0 167
Offices and other commercial
properties 237 26 4 267
Manufacturing and industrial
properties 69 25 0 94
Hotels 25 - - 25
Land (fields and plots) 582 5 2 589
Golf courses and golf-related
property 262 - - 262
Total 1,318 80 6 1,404
------- ------- --------
Cyprus Greece Romania Total
31 December 2020 (restated)(1)
(EUR mn)
-------------------------------------- --------- -------- --------- -------
Residential properties 158 24 0 182
Offices and other commercial
properties 240 26 5 271
Manufacturing and industrial
properties 74 29 0 103
Hotels 24 1 - 25
Land (fields and plots) 622 6 2 630
Golf courses and golf-related
property 262 - - 262
Total 1,380 86 7 1,473
--------- -------- ---------
1 Following certain segmental reclassifications to better align
with current management information, investment properties of EUR16
mn as at 30 June 2021 (31 December 2020: EUR16 mn) relating to
land, have been transferred under REMU. Comparative information
was restated to account for this change.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis
B.3.1 Total income
EUR mn 1H2021 1H2020 2Q2021 1Q2021 qoq +% yoy +%
------- ------ ------ ------ -------
Net interest income 152 168 76 76 -1% -9%
------------------------------------------ ------- ------ ------ ------ ------- -------
Net fee and commission
income 84 71 45 39 18% 18%
Net foreign exchange
gains and net gains on
financial instrument
transactions and disposal/dissolution
of subsidiaries and associates 8 12 6 2 122% -35%
Insurance income net
of claims and commissions 31 29 18 13 36% 7%
Net gains/(losses) from
revaluation and disposal
of investment properties
and on disposal of stock
of properties 6 0 4 2 66% -
Other income 7 8 3 4 -17% -18%
------------------------------------------ ------- ------ ------ ------ ------- -------
Non-interest income 136 120 76 60 26% 12%
------------------------------------------ ------- ------ ------ ------ ------- -------
Total income 288 288 152 136 11% 0%
------------------------------------------ ------- ------ ------ ------ ------- -------
Net Interest Margin (annualised)(1) 1.56% 1.90% 1.49% 1.63% -14 bps -34 bps
------------------------------------------ ------- ------ ------ ------ ------- -------
Average interest earning
assets
(EUR mn)(1) 19,652 17,741 20,381 18,978 7% 11%
------------------------------------------ ------- ------ ------ ------ ------- -------
1. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant .
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Net interest income (NII) for 1H2021 amounted to EUR152 mn,
compared to EUR168 mn in 1H2020, down by 9% yoy mainly due to
continuing pressure from the low interest rate environment, lower
volume of loans, as well as lower interest collections on NPEs,
partially offset by the reduction in cost of deposits and the
increase in TLTRO III in March 2021. Net interest income (NII) for
2Q2021 amounted to EUR76 mn, at the same levels as for 1Q2021.
The net interest income (NII) includes an amount of EUR15 mn for
1H2021 and c.EUR8 mn for 2Q2021 which relates to the net interest
income of the loans included in Helix 2 (Portfolios A and B) which
has been derecognised as of 30 June 2021, following completion in
June 2021. The reduction in NII as a result of the completion of
Project Helix 2 will be partially set off by an amount of EUR5 mn
in 2H2021 and c.EUR8.5 mn p.a. in 2022-2023 relating to the
unwinding of the net present value and interest income of the
deferred consideration, reducing thereafter on the basis of
repayments and assuming no early repayment in 2023.
Average interest earning assets (AIEA) for 1H2021 amounted to
EUR19,652 mn, up by 11% yoy driven by the increase in liquid assets
following the increase in the borrowing under TLTRO III by EUR2.0
bn in 1H2021 . Quarterly average interest earning assets for 2Q2021
amounted to EUR20,381 mn, up by 7% qoq, mainly due to the increase
in liquid assets following the increase in customer deposits by
c.EUR470 mn, the increase in the borrowing under TLTRO III by
EUR300 mn in June 2021, the proceeds from the issuance of the
senior preferred notes of EUR300 mn and the net proceeds from the
refinancing of the Tier 2 Capital Notes of c.EUR75 mn.
Net interest margin (NIM) for 1H2021 amounted to 1.56% (compared
to 1.90% for 1H2020) negatively impacted by the decrease in NII and
the increase in average interest earning assets. Net interest
margin (NIM) for 2Q2021 amounted to 1.49% (compared to 1.63% in
1Q2021) negatively impacted mainly by the increase in the quarterly
average interest earning assets. Adjusting for the TLTRO III of
EUR3.0 bn (i.e. removing the TLTRO from AIEA and the respective
benefit recognised over the period from the Net interest income),
the NIM amounts to 1.71% for 1H2021 and to 1.66% for 2Q2021,
compared to 1.77% for 1Q2021.
Non-interest income for 1H2021 amounted to EUR136 mn (compared
to EUR120 mn for 1H2020), up by 12% yoy, comprising net fee and
commission income of EUR84 mn, net foreign exchange gains and net
gains on financial instrument transactions and disposal/dissolution
of subsidiaries and associates of EUR8 mn, net insurance income of
EUR31 mn, net gains/(losses) from revaluation and disposal of
investment properties and on disposal of stock of properties of
EUR6 mn and other income of EUR7 mn. The yoy increase is driven by
higher net fee and commission income, as well as higher REMU
disposal gains and lower revaluation losses on investment
properties.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.1 Total income (continued)
Non-interest income for 2Q2021 amounted to EUR76 mn (compared to
EUR60 mn for 1Q2021), up by 26% qoq , comprising net fee and
commission income of EUR45 mn, net foreign exchange gains and net
gains on financial instrument transactions and disposal/dissolution
of subsidiaries and associates of EUR6 mn, net insurance income of
EUR18 mn, net gains/(losses) from revaluation and disposal of
investment properties and on disposal of stock of properties of
EUR4 mn and other income of EUR3 mn. The qoq increase is mainly due
to higher net fee and commission income, higher net insurance
income and higher revaluation gains on financial instruments.
Net fee and commission income for 1H2021 amounted to EUR84 mn
(compared to EUR71 mn for 1H2020, up by 18% yoy) which includes an
amount of c.EUR5 mn relating to an NPE sales-related servicing fee,
for a transitional period currently expected to end in early
4Q2021. Net fee and commission income for 2Q2021 amounted to EUR45
mn, compared to EUR39 mn for 1Q2021 (up by 18% qoq), mainly due to
the extension of liquidity fees to a broader pool of customers and
the introduction of a revised price list in February 2021, as well
as higher volume of transactions in 2Q2021 following the lockdown
in the previous quarter. Net fee and commission income for 2Q2021
includes a fee of c.EUR2 mn relating to a specific client
transaction .
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and
associates of EUR8 mn for 1H2021 (comprising net foreign exchange
gains of EUR7 mn and net gains on financial instrument transactions
of EUR1 mn), compared to EUR12 mn for 1H2020 and decreased by 35%
yoy. The decrease yoy is mainly driven by the lower net foreign
exchange gains in 1H2021, impacted by the lockdown.
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and
associates of EUR6 mn for 2Q2021 (comprising net foreign exchange
gains of EUR3 mn and net gains on financial instrument transactions
of EUR3 mn), compared to EUR2 mn for 1Q2021 (up by 122% qoq). The
qoq increase is mainly driven by higher revaluation gains on
financial instruments.
Net insurance income of EUR31 mn for 1H2021, compared to EUR29
mn for 1H2020, up by 7% yoy, driven by lower claims and improved
commissions in the life insurance business. Net insurance income of
EUR18 mn in 2Q2021, compared to EUR13 mn in 1Q2021, up by 36% qoq,
driven by better quarterly performance of investments (c.EUR2 mn),
lower claims and improved pricing in the life insurance business,
and growth in premiums, lower claims and seasonality in the general
insurance business.
Net gains from revaluation and disposal of investment properties
and on disposal of stock of properties for 1H2021 amounted to EUR6
mn (comprising a profit on disposal of stock of properties of EUR7
mn and net losses from revaluation of investment properties of EUR1
mn) , compared to Nil in 1H2020 which had been impacted by the
lockdown measures.
Net gains from revaluation and disposal of investment properties
and on disposal of stock of properties for 2Q2021 amounted to EUR4
mn (comprising a profit on disposal of stock of properties of
c.EUR4.5 mn and net losses from revaluation of investment
properties of c.EUR0.5 mn) , compared to EUR2 mn in 1Q2021. REMU
profit remains volatile.
Total income for 1H2021 amounted to EUR288 mn, flat yoy. Total
income for 2Q2021 amounted to EUR152 mn, compared to EUR136 mn for
1Q2021 (up by 11% qoq ).
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.2 Total expenses
EUR mn 1H2021 1H2020 2Q2021 1Q2021 qoq +% yoy +%
------- ------- ------- ------- --------
Staff costs (101) (96) (51) (50) 2% 5%
Other operating expenses (70) (69) (38) (32) 14% 1%
------------------------------------- ------- ------- ------- ------- -------- --------
Total operating expenses (171) (165) (89) (82) 7% 3%
------------------------------------- ------- ------- ------- ------- -------- --------
Special levy on deposits
and other levies/contributions (15) (15) (6) (9) -32% 0%
Total expenses (186) (180) (95) (91) 3% 3%
------- ------- ------- ------- --------
Cost to income ratio(1) 64% 62% 62% 67% -5 p.p. +2 p.p.
------------------------------------- ------- ------- ------- ------- -------- --------
Cost to income ratio
excluding special levy
on deposits and other
levies/contributions
(1) 59% 57% 58% 60% -2 p.p. +2 p.p.
------------------------------------- ------- ------- ------- ------- -------- --------
1. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant .
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Total expenses for 1H2021 were EUR186 mn (compared to EUR180 mn
for 1H2020, up by 3% yoy), 54% of which related to staff costs
(EUR101 mn), 38% to other operating expenses (EUR70 mn) and 8%
(EUR15 mn) to special levy on deposits and other
levies/contributions. Total expenses for 2Q2021 were EUR95 mn
compared to EUR91 mn for 1Q2021, up by 3% qoq. The yoy increase of
3% is driven by the 5% yoy increase in staff costs. The qoq
increase of 3% is driven by the 14% qoq increase in other operating
expenses. More information on these is provided further below.
Total operating expenses for 1H2021 were EUR171 mn, compared to
EUR165 mn for 1H2020 (up by 3% yoy). Total operating expenses for
2Q2021 were EUR89 mn, compared to EUR82 mn for 1Q2021 (up by 7%
qoq).
Staff costs for 1H2021 were EUR101 mn, compared to EUR96 mn for
1H2020 (up by 5% yoy). Staff costs for 2Q2021 were EUR51 mn,
compared to EUR50 mn for 1Q2021 (up by 2% qoq). The Group employed
3,558 as at 30 June 2021, compared to 3,557 as at 31 March 2021 and
3,573 as at 31 December 2020.
In December 2020, the Group completed a targeted voluntary staff
exit plan (VEP) with a total cost of EUR6 mn, recorded in the
consolidated income statement in 4Q2020 (as a non-recurring item in
the underlying basis). The gross annual savings are estimated at
c.EUR2 mn or c.1% of staff costs.
In July 2021, the Bank reached agreement with the Cyprus Union
of Bank Employees for the renewal of the collective agreement for
the years 2021 and 2022. The agreement relates to certain changes
including the introduction of a new pay grading structure linked to
the value of each position of employment, and of a
performance-related pay component as part of the annual salary
increase, both of which have been long-standing objectives of the
Bank and are in line with market best-practice. This renewal is
expected to increase staff costs for 2021 and 2022 by 3-4% per
annum, in line with the impact of renewals in previous years. The
Group's medium-term guidance, which includes maintaining annual
'total operating expenses' below EUR350 mn, remains unchanged.
Other operating expenses for 1H2021 were EUR70 mn, compared to
EUR69 mn for 1H2020 (up by 1% yoy). Other operating expenses for
2Q2021 were EUR38 mn, compared to EUR32 mn for 1Q2021 (up by 14%
qoq), mainly due to seasonally lower marketing, consultancy and
professional fees in the previous quarter.
Special levy on deposits and other levies/contributions for
1H2021 amounted to EUR15 mn, flat yoy. Special levy on deposits and
other levies/contributions for 2Q2021 amounted to EUR6 mn (compared
to EUR9 mn for 1Q2021), down by 32% qoq, owing to the EUR3 mn
contribution of the Bank to the Deposit Guarantee Fund (DGF) which
relates to 1H2021 and was recorded in 1Q2021, 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.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.2 Total expenses (continued)
The cost to income ratio excluding special levy on deposits and
other levies/contributions for 1H2021 was 59%, compared to 57% for
1H2020 (up by 2 p.p. yoy). The cost to income ratio excluding
special levy on deposits and other levies/contributions for 2Q2021
was 58%, compared to 60% for 1Q2021, with the improvement of 2 p.p.
qoq reflecting a higher qoq increase in total income, compared to
the qoq increase in total operating expenses.
Adjusting for the interest income on the Helix 2 Portfolios, the
cost to income ratio excluding special levy on deposits and other
levies/contributions for 1H2021 increases to 62%, compared to 60%
for 1H2020 (up by 2 p.p. yoy), whilst for 2Q2021 was 61%, compared
to 64% for 1Q2021 (down by 3 p.p qoq).
The cost to income ratio excluding special levy on deposits and
other levies/contributions is expected to rise in the near term as
revenues remain under pressure and operating expenses increase due
to higher IT/digitisation investment costs, whilst it is expected
to decrease to mid-50% in the medium term.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.3 Profit/(loss) before tax and non-recurring items
EUR mn 1H2021 1H2020 2Q2021 1Q2021 qoq +% yoy +%
-------- -------- ------- ------- --------
Operating profit 102 108 57 45 28% -6%
----------------------------------- -------- -------- ------- ------- -------- --------
Loan credit losses (35) (87) (15) (20) -25% -60%
Impairments of other
financial and non-financial
assets (11) (29) (6) (5) 12% -62%
Provisions for litigation,
claims, regulatory and
other matters (4) (4) (3) (1) - 8%
----------------------------------- -------- -------- ------- ------- -------- --------
Total loan credit losses,
impairments and provisions (50) (120) (24) (26) -6% -58%
----------------------------------- -------- -------- ------- ------- -------- --------
Profit/(loss) before
tax and non-recurring
items 52 (12) 33 19 74% -
----------------------------------- -------- -------- ------- ------- -------- --------
Cost of risk(1) 0.61% 1.39% 0.52% 0.66% -14 bps -78 bps
----------------------------------- -------- -------- ------- ------- -------- --------
1. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant .
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Operating profit for 1H2021 was EUR102 mn, compared to EUR108 mn
for 1H2020 (down by 6% yoy). Operating profit for 2Q2021 was EUR57
mn, compared to EUR45 mn for 1Q2021 (up by 28% qoq), mainly due to
higher total income qoq.
Loan credit losses for 1H2021 totalled EUR35 mn, compared to
EUR87 mn for 1H2020. Loan credit losses for 2Q2021 totalled EUR15
mn, compared to EUR20 mn for 1Q2021.
The annualised loan credit losses charge (cost of risk) for
1H2021 accounted for 0.61% of gross loans, of which 21 bps reflect
loan impairments related to COVID-19 (compared to an annualised
loan credit losses charge of 1.39% for 1H2020, of which 59 bps
reflect loan impairments related to COVID-19). C ost of risk for
2Q2021 amounted to 52 bps (EUR15 mn), of which 12 bps (EUR3.5 mn)
reflect loan impairments related to COVID-19, compared to a cost of
risk of 66 bps (EUR20 mn) for 1Q2021, of which 29 bps (EUR9 mn)
reflect loan impairments related to COVID-19. Further details on
the loan moratorium are provided in Section B.2.5 'Loan portfolio
quality'.
At 30 June 2021, the allowance for expected loan credit losses,
including residual fair value adjustment on initial recognition and
credit losses on off-balance sheet exposures totalled EUR947 mn
(compared to EUR1,869 mn at 31 March 2021 and EUR1,902 mn at 31
December 2020) and accounted for 8.7% of gross loans (compared to
15.2% and 15.5% of gross loans including portfolios held for sale
at 31 March 2021 and at 31 December 2020 respectively). The
decrease in the allowance for expected loan credit losses in 2Q2021
amounted to EUR922 mn (compared to a decrease of EUR33 mn in
1Q2021), following the completion of Project Helix 2.
Impairments of other financial and non-financial assets for
1H2021 amounted to EUR11 mn, compared to EUR29 mn for 1H2020 (down
by 62% yoy), driven by lower revaluation losses on properties yoy.
Impairments of other financial and non-financial assets for 2Q2021
amounted to EUR6 mn, compared to EUR5 mn for 1Q2021 (up by 12%
qoq).
Provisions for litigation, claims, regulatory and other matters
for 1H2021 totalled EUR4 mn, at the same levels as for 1H2020.
Provisions for litigation, claims, regulatory and other matters for
2Q2021 totalled EUR3 mn (compared to EUR1 mn for 1Q2021) and
relates mainly to a potential fine to be imposed on the Bank
relating to the findings of a regulatory investigation with regards
to transfer of liquidity by the Bank to its subsidiaries in the
period 2016-2017 allegedly without prior regulatory approval.
Profit before tax and non-recurring items for 1H2021 totalled
EUR52 mn, compared to a loss of EUR12 mn for 1H2020. Profit before
tax and non-recurring items for 2Q2021 totalled EUR33 mn, compared
to EUR19 mn for 1Q2021 (up by 74% qoq).
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3. 4 Profit/(loss) after tax (attributable to the owners of
the Company)
EUR mn 1H2021 1H2020 2Q2021 1Q2021 qoq +% yoy +%
--------------------------------------- ------- ------- ------- ------- ------- -------
Profit/(loss) before
tax and non-recurring
items 52 (12) 33 19 74% -
--------------------------------------- ------- ------- ------- ------- ------- -------
Tax (1) (5) 1 (2) - -77%
(Profit)/loss attributable
to non-controlling interests (0) 4 (0) (0) 59% -
Profit/(loss) after tax
and before non-recurring
items (attributable to
the owners of the Company) 51 (13) 34 17 99% -
------- ------- ------- ------- -------
Advisory and other restructuring
costs - organic (18) (6) (15) (3) - -
--------------------------------------- ------- ------- ------- ------- ------- -------
Profit/(loss) after
tax - organic (attributable
to the owners of the
Company) 33 (19) 19 14 30% -
--------------------------------------- ------- ------- ------- ------- ------- -------
Provisions/net loss relating
to NPE sales, including
restructuring expenses(1) (32) (107) (26) (6) - -70%
Profit/(loss) after tax
(attributable to the
owners of the Company) 1 (126) (7) 8 - -
------- ------- ------- ------- -------
1. 'Provisions/net (loss) relating to NPE sales, including restructuring
expenses' refer to the net loss on transactions completed, net loan credit
losses on transactions under consideration, 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 1H2021 is EUR1 mn, compared to EUR5 mn for
1H2020. The tax credit for 2Q2021 is EUR1 mn, compared to a tax
charge of EUR2 mn for 1Q2021.
Profit after tax and before non-recurring items (attributable to
the owners of the Company) for 1H2021 was EUR51 mn, compared to a
loss of EUR13 mn for 1H2020. Profit after tax and before
non-recurring items (attributable to the owners of the Company) for
2Q2021 was EUR34 mn, compared to EUR17 mn for 1Q2021. Return on
Tangible Equity (ROTE) before non-recurring items calculated using
'profit after tax and before non-recurring items (attributable to
the owners of the Company)' amounts to 8.1% for 2Q2021 and 6.1% for
1H2021.
Advisory and other restructuring costs - organic for 1H2021
amounted to EUR18 mn, compared to EUR6 mn for 1H2020. Advisory and
other restructuring costs - organic for 2Q2021 amounted to EUR15 mn
(compared to EUR3 mn for 1Q2021), of which EUR12 mn related to the
tender offer for Existing Tier 2 Capital Notes (due January 2027)
with aggregate nominal amount of EUR207 mn, thereby forfeiting the
relevant obligation for future coupon payments.
Profit after tax arising from the organic operations
(attributable to the owners of the Company) for 1H2021 amounted to
EUR33 mn, compared to a loss of EUR19 mn for 1H2020. Profit after
tax arising from the organic operations (attributable to the owners
of the Company) for 2Q2021 amounted to EUR19 mn, compared to EUR14
mn for 1Q2021.
Provisions/net loss relating to NPE sales, including
restructuring expenses for 1H2021 was EUR32 mn (compared to EUR107
mn for 1H2020). Provisions/net loss relating to NPE sales,
including restructuring expenses for 2Q2021 was EUR26 mn (compared
to EUR6 mn for 1Q2021), which includes an amount of EUR14 mn
relating to the completion mechanics for Project Helix 2, expected
to unwind over time in 'net interest income' until the full payment
of the deferred consideration. Restructuring costs relating to NPE
sales of EUR6 mn for 2Q2021 were also included, compared to EUR4 mn
for 1Q2021.
Profit after tax attributable to the owners of the Company for
1H2021 was EUR1 mn (compared to a loss of EUR126 mn for 1H2020).
Loss after tax attributable to the owners of the Company for 2Q2021
was EUR7 mn (compared to a profit of EUR8 mn for 1Q2021).
C. Operating Environment
Following a contraction by 5.1% in 2020 and a modest drop by
2.1% in the first quarter of 2021, year-on-year, real GDP
seasonally adjusted in Cyprus increased steeply by 12.9% in the
second quarter. This partly reflects base effects given that second
quarter GDP in 2020 had dropped by 12.5%. Growth was driven by the
sectors that were most severely impacted by the pandemic the year
before, namely tourism, construction, manufacturing, transport and
trade. The recovery under way appears solid, and the outlook for
the medium term is positive. Driven by the gradual recovery of the
tourism sector and other business services, and supported by the
EU's resilience and recovery funds, real GDP is expected to grow by
c.5.5% in 2021 according to the Ministry of Finance (significantly
higher than initially anticipated; c.3.6% in April 2021) and by
4.3% in 2021 and by 3.8% in 2022 according to the European
Commission's latest summer European forecasts.
In the EU a s well , the GDP contraction in the first quarter of
the year was marginal, and milder than initially anticipated.
Second quarter growth rates are not yet available for all
countries, but preliminary results reported thus far, point to a
very strong rebound, reflecting the impact of the lifting of
restrictions during the quarter. Consumer confidence and service
sector activity picked up sharply, catching up with already
resurgent manufacturing activity. The European Commission, in their
summer European forecasts, expects annual GDP growth of 4.8% in
2021 and 4.5% in 2022.
At another development, the ECB kept its policy stance unchanged
at its meeting on 22 July 2021 and reaffirmed its commitment to
continue purchases under the pandemic emergency purchase programme
at a 'significantly higher pace'. The most important change was the
adjustment of the forward guidance on interest rates as a
consequence of its strategic review which was announced in early
July. The main decision was to adopt a symmetric 2% inflation
target compared with previously defined price stability of
inflation below but close to 2%. Hence, inflation that temporarily
surpasses 2% will not automatically trigger a policy
tightening.
Recovery in international tourism in Cyprus has started to
accelerate from July 2021. Tourist arrivals in July 2021 increased
significantly compared to July 2020 (+358% yoy) and reached 54% of
the levels in July 2019. Tourist arrivals in August and September
2021 are expected to show similar trends. The reduction in
international tourist arrivals in 2021 compared to the pre-pandemic
levels of 2019 is expected to be partially offset by domestic
tourism.
Other short-term indicators point in the direction of strong
recovery in the year on average. Indices of construction activity
increased strongly and building permits were up in January-May by
35.4% and 38.2% respectively for volume and dwellings. The index of
industrial production was up 9.6% in January-May driven by a 12.2%
increase in manufacturing. On the demand side, the volume of retail
sales excluding vehicles were up by 8.2% also in January-May and
total vehicle registrations increased by 18.6% in the second
quarter. In housing, total sales almost doubled in the second
quarter after more than halving in the same period the year
before.
Consumer inflation rose to 3.1% in the second quarter after
dropping by 1.4% in the first and rose by 4.0% in July, bringing
the seven-month year-on-year average to 1.1%. The acceleration of
inflation in the second quarter was driven by clothing items,
housing, and transportation costs. The latter two reflect higher
energy and shipping costs.
Public finances deteriorated sharply in 2020 as a result of the
government's response to the coronavirus pandemic. Cyprus recorded
a deficit of 5.7% of GDP in 2020 compared with a surplus of 1.5% of
GDP in 2019. The budget deficit can be expected to moderate in 2021
but to remain sizeable nonetheless, and to diminish subsequently as
the economy strengthens and the government scales back its
spending. Public debt rose to 119.1% of GDP in 2020 and can be
expected to decline gradually in the medium term.
In the banking sector, total non-performing exposures at the end
of May 2021 were EUR5.16 bn compared with EUR5.14 bn at the end of
December 2020. Non-performing exposures were 18.0% of gross loans
at the end of May 2021 compared with 17.7% of gross loans at end
December 2020 and 28.0% at the end of 2019. The non-performing
exposures ratio in the non-financial companies' segment was 14.8%
at the end of May 2021 and that for households was at 23.7%. The
coverage ratio was 51.2% at end May 2021.
Following the financial crisis of 2012-2014, economic recovery
was relatively solid and real GDP increased at an annual pace of
4.6% on average in 2015-2019. The coronavirus pandemic reversed
some of these gains and real GDP contracted by 5.1% in 2020. The
contraction was less steep than the Eurozone average of 6.4%
despite Cyprus' considerable exposure to the pandemic shock and its
impact on travel and tourism. Tourist arrivals and receipts
declined by about 85% in 2020. The impact was mitigated by strong
government support for households and businesses. The European
Commission forecasts a strong recovery in 2021-2022 driven mainly
by domestic demand. Most restrictions were lifted in May and a
partial rebound in tourist activity will help restore the economy
to growth especially in the second half of the year. The main risk
concerns the epidemiological outlook, however the government's
vaccination plan is well underway.
C. Operating Environment (continued)
Real economic activity in the medium term is expected to be
supported by the recovery in tourism and to be aided by higher
investment activity linked with the Recovery and Resilience Fund
through which Cyprus is set to receive EUR1.2 bn or 5.5% of its GDP
in 2021-2026. Effectiveness will depend on the implementation of
structural reforms, mainly to improve the efficiency of the
judiciary and of the public and local administration. Effectiveness
will also depend on absorption capacity and whether the funds are
directed towards productive investment and activities. Separately,
in August 2021, the European Commission approved the loan
government guarantee scheme of c.EUR1.0 bn to facilitate liquidity
(guarantee of 70%); the amended legislation is pending approval by
Parliament.
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.
Most recently in July 2021, Moody's Investors Service upgraded
the Government of Cyprus' long-term issuer and senior unsecured
ratings to Ba1 from Ba2 (since July 2018) and changed the outlook
from positive to stable. The primary driver for the upgrade was the
material improvement in the underlying credit strength of the
domestic banking system, which also reduces the risks of a systemic
banking crisis.
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, and in March
2021. In March 2021, S&P Global Ratings affirmed its rating and
outlook, balancing the risks from the pandemic's protracted adverse
impact on growth, fiscal, and banking sector performance against
benefits of the EU's Recovery and Resilience Facility (RRF)
transfers, as well as further improvement in the government's debt
profile.
Fitch Ratings maintains a Long-Term Issuer Default rating of
investment grade at BBB- since November 2018, affirmed in April and
October 2020, and in March 2021. Its outlook was upgraded to
positive in October 2019 and revised to stable in April 2020,
reflecting the significant impact the global COVID-19 pandemic
might have on the Cyprus economy and fiscal position. The stable
outlook was affirmed in March 2021.
In May 2021, DBRS Ratings confirmed Cyprus' Long-Term Foreign
and Local Currency Issuer Ratings at BBB (low) with a stable trend
reflecting a balanced view on the risks despite the deterioration
in public finances caused by the COVID-19 pandemic. According to
the ratings firm, Cyprus' ratings are supported by a prudent public
debt management framework, a good track record in fiscal deficit
reduction, Eurozone membership fostering sustainable macroeconomic
policies, and openness to investment encouraging a favourable
business environment.
D. Business Overview
Credit ratings
The Group's financial performance is highly correlated to the
economic and operating conditions in Cyprus. In July 2021, Moody's
Investors Service upgraded the Bank's long-term deposit rating to
B1 from B3, maintaining the positive outlook. In January 2021,
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).
COVID-19 impact
The Group continues to closely monitor developments in, and the
effects of COVID-19 on both the global and Cypriot economy. Strong
recovery in economic activity marked the second quarter of the
year, against the backdrop of increasing vaccination coverage
across Cyprus and relaxation of restrictions. At the same time, the
Group has continued its focus on providing support to its
customers, colleagues and community.
Statistics are encouraging, as 78% of the adult population in
Cyprus have been vaccinated with the first dose and 74% have
completed their vaccination regime (Ministry of Health, as of 28
August 2021).
Upon the outbreak of COVID-19 in March 2020, the Pandemic
Incident Management Plan of the Group was invoked and a dedicated
team (Pandemic Incident Management 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, which are still in place according to the current
pandemic status, to ensure minimum disruption to its operations.
The Pandemic Incident Management Team and the Crisis Management
Committee continue to closely monitor the dynamic COVID-19 pandemic
developments and status. 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, whilst at the
same time maintaining relevant control procedures to ensure
authorisation in line with the Group's governance structure.
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.
The potential economic implications for the sectors in which the
Group is active have been assessed and possible mitigating actions
for supporting the economy have been identified, 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, have helped and should continue
to 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
(loan moratorium) for the period to the end of the year 2020, for
all eligible borrowers with no arrears for more than 30 days as at
the end of February 2020. The payment holiday for all these loans
expired on 31 December 2020.
P erforming loans as at 30 June 2021 under expired payment
deferrals amounted to EUR4.9 bn (compared to EUR5.1 bn as at 31
March 2021 and EUR5.3 bn as at 31 December 2020), of which EUR4.8
bn or 96% had an instalment due by 12 August 2021 with a strong
performance; 96% present no arrears (of which EUR0.5 bn have been
restructured) and 4% are in arrears.
Further details are provided in Section B.2.5 'Loan portfolio
quality'. Close monitoring of the credit quality of these loans
continues and customers with early arrears are offered solutions.
The Bank has a strong track record in dealing with restructurings.
Targeted restructuring solutions are offered to alleviate
pandemic-related short-term cash flow burden, following rigorous
assessment of repayment ability.
Following the outbreak of COVID-19, the sectors most adversely
affected are tourism being the sector with the highest impact, and
trade, transport, manufacturing and construction with medium
impact. The Group has a well - diversified performing loan
portfolio.
D. Business Overview (continued)
COVID-19 impact (continued)
As at 30 June 2021, the Group's non-legacy loan book exposure to
tourism was limited to EUR1.14 bn (out of a total non-legacy loan
book of EUR9.4 bn), of which c.EUR0.93 bn of performing loans as at
30 June 2021 were under expired payment deferrals. 94% of those had
an instalment due by 12 August 2021 and of those, c.100% present no
arrears (of which c.EUR281 mn have been restructured).
Tourism is demonstrating signs of recovery. Tourist arrivals in
July 2021 have increased by 358% yoy and amount to 54% of July 2019
levels, whilst the reduction in international tourist arrivals in
2021 compared to 2019 is expected to be partly offset by domestic
tourism. It is important to note, that the majority of
'accommodation' customers entered the crisis with significant
liquidity, following strong performance in recent years and that
96% of the tourism portfolio is secured by property. Close
monitoring of developments continues.
Respectively, as at 30 June 2021 the Group's non-legacy loan
book exposure to trade was EUR0.91 bn, of which EUR0.32 bn of
performing loans as at 30 June 2021 were under expired payment
deferrals. 94% of those had an instalment due by 12 August 2021 and
of those, 97% present no arrears (of which EUR10 mn have been
restructured) and 3% present arrears. It is important to note that
c.29% of the exposure to trade relates to lower-risk essential
retail services, not materially impacted by the pandemic.
Strategic priorities for the medium term
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 grow revenues in a more capital efficient way and
to improve efficiency through its digital transformation programme
in order to provide products and services while reducing operating
costs. In addition, the Bank is looking to enhance its
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 agenda priorities.
Completing balance sheet de-risking
Tackling the Bank's loan portfolio quality is of utmost
importance for the Group.
In June 2021, the Company completed Project Helix 2 (Portfolios
A and B), which refers to the sale of portfolios of loans with a
total gross book value of EUR1,331 mn as at the completion date (of
which EUR1,305 mn relate to non-performing exposures) ("Portfolios
A and B"), secured over real estate collateral, to funds affiliated
with Pacific Investment Management Company LLC ("PIMCO"), the
agreements for which were announced on 3 August 2020 and on 18
January 2021.
Project Helix 2 represents a further milestone in the delivery
of one of the Group's strategic priorities of improving asset
quality through the reduction of NPEs. Project Helix 2 (Portfolios
A and B) reduces the NPE ratio by c.9 percentage points. Overall,
since the peak in 2014, the stock of NPEs has been reduced by
EUR13.4 bn or 89% and the NPE ratio by 48.3 percentage points, from
62.9% to 14.6%.
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 further support the recovery of the Cypriot
economy.
The Group remains committed to further de-risking its balance
sheet and will continue to seek solutions to achieve this. The
Group continues to work with its advisors towards the sale of
portfolios of NPEs in the future, to further accelerate the
decrease in NPEs on the balance sheet through additional sales of
NPEs. At the same time, following the outbreak of COVID-19 and the
expiration of the 2020 loan moratorium at the end of year 2020, the
Group continues to closely monitor the performance of loans under
expired payment deferrals and nearly eight months after deferral
expiry, the performance is better than initially expected.
Following the outbreak of COVID-19, all foreclosures were
suspended between March - August 2020, and then between January -
March 2021 but only for specific categories including primary
residences with open market value up to EUR350 thousand. In early
May 2021, further legislation was enacted by the Cyprus Parliament
by which foreclosures were suspended until the end of July 2021,
for primary residences with open market value up to EUR500
thousand, premises of very small businesses (with annual turnover
up to EUR2 mn and less than 10 employees), and agricultural fields
with open market value up to EUR250 thousand. Parliament voted a
further suspension with smaller scope until the end of October 2021
for primary residences with open market value up to EUR350
thousand, premises of very small businesses (with annual turnover
up to EUR750 thousand and less than 10 employees), and agricultural
fields with open market value up to EUR100 thousand. This
legislation has not as yet been enacted and it has been forwarded
to the Supreme Court to decide on whether or not the suspension is
in line with the constitution.
D. Business Overview (continued)
Strategic priorities for the medium term (continued)
Growing revenues in a more capital efficient way
The accelerated de-risking of the balance sheet increases
pressure on revenues in the near term. There are multiple
initiatives underway to increase net interest income and less
capital-intensive non-interest income, with a focus on fees,
insurance and non-banking business.
The Group continues to provide high quality new loans via
prudent underwriting standards. Growth in new lending in Cyprus has
been focused on selected industries more in line with the Bank's
target risk profile, and following the outbreak of COVID-19, the
focus remains to support the Cypriot economy in order to overcome
the crisis. During the six months ended 30 June 2021, new lending
amounted to EUR894 mn, increased by 30% compared to the same period
last year, as demand for new loans is picking up, driven m ainly by
corporate (up by 30% yoy for 1H2021 and up by 64% yoy for 2Q2021),
as economic activity continues to improve. At the same time, the
demand for retail housing loans remains above pre-COVID levels,
supported by the Government interest rate subsidy scheme. The
pipeline for new housing loans remains strong at over EUR100 mn as
at mid-August 2021, whilst new housing loans of c.EUR220 mn have
been approved by the Bank since the beginning of the scheme until
end-July 2021.
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) and the Cyprus Government.
In common with other European banks, the prolonged low interest
rate environment also continues to present a challenge to the
Group's profitability. Over the medium-term, the Group aims to grow
its performing book by c.10%, as well as to grow shipping and
international corporate lending with prudency.
At the same time, 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 73 bps to 3 bps since December 2017. 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, was
implemented as of 1 February 2021. Separately, a new price list for
charges and fees was also implemented as of 1 February 2021, with
the positive impact from both initiatives to be estimated at
c.EUR13 mn per annum. Transactional fee volumes have started to
recover gradually to pre-COVID-19 levels, as the Cypriot economy
recovers.
In the medium-term, the Group aims to increase the average
product holding through cross selling to the under-penetrated
customer base, as well as to introduce the Digital Economy Platform
to generate new revenue sources, through leveraging the Bank's
market position, knowledge and digital infrastructure.
Management is 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 1H2021 amounted to EUR31 mn (up 7% yoy),
contributing to 23% of non-interest income. Furthermore, there are
initiatives underway to enhance revenues from the insurance
business in the medium-term, in order to deliver sustainable
profitability and shareholder returns.
In the medium-term, EuroLife Ltd aims to improve total regular
income mainly by extending its customer base and using a new
distribution philosophy, as well as enhancing digital capabilities.
To date, Eurolife has adjusted characteristics of specific products
to improve its profitability and launched a new loan product that
can be combined with credit facilities of other local banks. At the
same time, the agency force has increased by 13% yoy and the
average productivity per agent has also increased. New incentives
for cross selling have been given and new products have been
launched, leveraging on the close collaboration with the Bank,
whilst e-alteration has been implemented.
In the medium-term, GIC aims to increase its gross written
premiums mainly by leveraging on the Bank's customer base through
revamping its bancassurance channel, and by focusing on high margin
products. Efficiencies through enhancing digital capabilities are
also expected in the medium-term. To date, GIC has increased
high-margin products such as Fire by 10% yoy and Liability by 22%,
as well as the profitable part of the motor segment, by 7%. In
addition, automated paperless digital processes have been launched,
and relationship managers for commercial clients have been
introduced. Finally, incentivisation of the agency force has been
put in place and new portals for bancassurance and agents has been
introduced in 2Q2021.
In 1H2021, the Bank participated in TLTRO III by borrowing an
additional amount of EUR2.0 bn, increasing its participation to
EUR3.0 bn, despite its comfortable liquidity position, given the
favourable borrowing terms, in combination with the relaxation of
collateral requirements. The Bank estimates the NII benefit from
its TLTRO III borrowing for the period from June 2020 to June 2021
at c.EUR7 mn. The potential NII benefit for the period from June
2021 to June 2022 amounts to c.EUR15 mn, based on current ECB rates
and provided the Bank meets the net lending thresholds.
D. Business Overview (continued)
Strategic priorities for the medium term (continued)
Improving operating efficiencies
The Digital Transformation Programme that started in 2017 has
begun to deliver an improved customer experience, whilst the branch
footprint rationalisation to date, has further improved the Bank's
operating model. The branch network is now less than half the size
it was in 2013.
Management remains focused on further improvement in efficiency,
through further branch footprint rationalisation, further exit
solutions to release full time employees, containment of
restructuring costs following the completion of balance sheet
de-risking, enhancement of procurement control, as well as
reduction of total operating expenses by c.10% compared to FY2019
over the medium term despite inflation, facilitated by the Digital
Transformation Programme.
The Group continues to work towards becoming a more customer
centric organisation. A Transformation Office has been established
at the beginning of the year further reinforcing the commitment to
the Bank's modernisation agenda. The transformation programme will
enable the implementation of the strategy with key shifts focusing
on a leaner and more efficient operating model, profitability and
optimisation of the client service and distribution models with an
emphasis on the customer.
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 the last few months, a number of new features promoting
self-service functionalities have been made available to
subscribers through the Bank's mobile banking app. The second phase
of the digital KYC review was rolled out, which included the
functionality of the automatic and live ID verification process.
This allows the users to update their personal information,
including the Identity Card and passport information, held by the
bank, through their mobile app. In many cases, updates are
performed in real time without a staff member having to review
them, thus contributing in operational savings as well.
Additionally, the users have now the ability to purchase home and
motor insurance products from GIC, through a seamless and easy flow
in the Bank's mobile application. This offers more options and
additional services to the bank customers through the digital
channels. Finally, customers have now the ability to receive
directions and navigation to the branches and ATM network quickly
and easily through the mobile application.
The adoption of digital products and services continued to grow
and gained momentum in the second quarter of 2021 and in July 2021.
As at the end of July 2021, 86.6% of the number of transactions
involving deposits, cash withdrawals and internal/external
transfers were performed through digital channels (up by c.22.0
p.p. from 64.6% in September 2017 when the digital transformation
programme was initiated). In addition, 77.0% of individual
customers were digitally engaged (up by c.17.4 p.p. from 59.6% in
September 2017), choosing digital channels over branches to perform
their transactions. As at the end of July 2021, active mobile
banking users and active QuickPay users have grown by 18% and 53 %
respectively in the last 12 months . The highest number of QuickPay
users to date was recorded in July 2021 with 112 thousand active
users. Likewise, the highest number of QuickPay payments was
recorded in July 2021 with 321 thousand transactions.
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.
Enhancing organisational resilience and ESG (Environmental,
Social and Governance) agenda
As part of its responsibility to a wider group of stakeholders,
the Group aims to enhance its organisational resilience and ESG
(Environmental, Social and Governance) agenda and is working
towards building a forward-looking organisation with a clear
strategy supported by effective corporate governance aligned with
ESG agenda priorities.
Earlier this year a dedicated executive committee, the
Sustainability Committee, was set up, that will oversee the ESG
agenda of the Group, review the evolution of the Group's ESG
strategy, monitor the development and implementation of the Group's
ESG objectives and the embedding of ESG priorities in the Group's
business targets.
In order to further strengthen the Bank's corporate
responsibility regarding the protection of the environment the Bank
is proceeding with the launch of 'environmentally friendly' loan
products to promote investment in energy saving and environmentally
friendly products and services.
The Bank maintains a rating of A (on a scale of AAA-CCC) in the
MSCI ESG Ratings assessment since June 2020.
E. 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 agenda priorities
KEY STRATEGIC ACTION TAKEN IN 1 2021 and to date PLAN OF ACTION
PILLARS
Complete
balance * Completion of Project Helix 2 (sale NPE portfolio * Continue to work with advisors towards the sale of
sheet with gross book value of EUR1.3 bn) in June 2021 portfolios of NPEs in the future, to further
de-risking reducing NPE ratio by c.9 p.p. accelerate NPE reduction through additional NPE sales
* For further information, please refer to Section
B.2.5 'Loan portfolio quality' and Section D
'Business Overview'
------------------------------------------------------------------- ---------------------------------------------------------------------
Grow revenues in
a more capital * Liquidity fees to corporate clients, that was delay * Mitigating actions against NII challenges put in
efficient way; by ed place, e.g. growing performing book and pricing
enhancing revenue due to the COVID-19 pandemic, was implemented as of away/price correctly deposits
generation via 1
growth February 2021
in performing
book, and less * Enhance fee and commission income, e.g. on-going
capital-intensive review of price list for charges and fees, increase
banking and * New price list for charges and fees was implemented average product holding through cross selling, new
financial as of 1 February 2021 sources of revenue through introduction of Digital
services Economy Platform
operations
(Insurance
and Digital * For further information, please refer to Section D
Economy) 'Business Overview' * Profitable insurance business with further
opportunities to grow, e.g. focus on high margin
products, leverage on Bank's strong franchise and
customer base for more targeted cross selling enabled
by DT
------------------------------------------------------------------- ---------------------------------------------------------------------
E. Strategy and Outlook (continued)
KEY STRATEGIC ACTION TAKEN IN 1 2021 and to date PLAN OF ACTION
PILLARS
Improve
operating * Renewal of collective agreement for 2021-2022 is * Offer exit solutions to release full time employees
efficiency; by expected to increase staff costs for 2021 and 2022 by
achieving 3-4% per annum, in line with the impact of renewals
leaner in previous years. The Group's medium-term guidance, * Achieve further branch footprint rationalisation
operations which includes maintaining annual 'total operating
through expenses' below EUR350 mn, remains unchanged.
digitisation * Contain restructuring costs following completion of
and automation balance sheet de-risking
* Further developments in the Digital Transformation
Programme * Enhance procurement control
* Reduce total operating expenses by c.10% over the
* For further information, please refer to Section D medium term despite inflation
'Business Overview'
----------------------------------------------------------------------- -------------------------------------------------------------------
Enhance
organisational * The Bank reached agreement with the Cyprus Union of * Enhanced structure and corporate governance
resilience and Bank Employees for the renewal of the collective
ESG agreement in respect of 2021 and 2022. The agreement
(Environmental, relates to certain changes including the introduction * Focus on our people
Social and of a new pay grading structure linked to the value of
Governance) each position of employment, and of a
agenda; performance-related pay component as part of the * Priority on ESG agenda, e.g. introduction of
by building a annual salary increase, both of which have been 'environmentally friendly' loan products
forward-looking long-standing objectives of the Bank and are in line
organisation with market best-practice.
with a clear
strategy
supported by * For further information, please refer to Section D
effective 'Business Overview'
corporate
governance
aligned with * Please refer to slide 32 in the 1H2021 Group
ESG agenda Financial Results Investors Presentation
priorities
----------------------------------------------------------------------- -------------------------------------------------------------------
E. 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's 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 the near term
in order to modernise the Bank's franchise (in fact, the cost to
income ratio is expected to rise in the near term as revenues
remain under pressure and operating expenses increase due to higher
digitisation investment costs, and to reduce to mid-50s% in the
medium term); addressing the challenges from low rates and surplus
liquidity.
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
Key Metrics Strategic Targets for
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 (annualised) 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 on deposits or other levies/contributions 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 Group's 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
payment of the deferred consideration. At the same time, factors
that could potentially have a negative impact on the Group's
capital ratios in addition to IFRS 9 phasing-in, include 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.
F. Definitions & Explanations
Advisory and Comprise mainly (a) fees of external advisors in
other restructuring relation to: (i) disposal of operations and non-core
costs assets, and (ii) customer loan restructuring activities,
and (b) the cost of the tender offer for the Existing
Tier 2 Capital Notes.
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 the Capital Requirements Regulation (EU) No
575/2013, as amended by CRR II applicable as at the
reporting date.
Basic earnings/(losses) Basic earnings/(losses) after tax and before non-recurring
after tax and items per share (attributable to the owners of the
before non-recurring Company) is the Profit/(loss) after tax and before
items per share non-recurring items (as defined below) (attributable
(attributable to the owners of the Company) divided by the weighted
to the owners average number of shares in issue during the period,
of the Company) excluding treasury shares.
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.
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 17 August 2021.
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 comprise: (i) gross loans and advances
to customers measured at amortised cost before the
residual fair value adjustment on initial recognition
(including loans and advances to customers classified
as non-current assets held for sale) and (ii) loans
and advances to customers classified and measured
at FVPL adjusted for the aggregate fair value adjustment
Gross loans are reported before the residual fair
value adjustment on initial recognition relating
mainly to loans acquired from Laiki Bank (calculated
as the difference between the outstanding contractual
amount and the fair value of loans acquired) amounting
to EUR185 mn at 30 June 2021 (compared to EUR226
mn at 31 March 2021 and EUR230 mn at 31 December
2020).
Additionally, gross loans include loans and advances
to customers classified and measured at fair value
through profit or loss adjusted for the aggregate
fair value adjustment of EUR332 mn at 30 June 2021
(compared to EUR329 mn at 31 March 2021 and EUR326
mn at 31 December 2020).
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.
F. Definitions & Explanations (continued)
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.
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, for the
reporting period/year.
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 gross loans are calculated as the average
charge') (cost of the opening balance and the closing balance, for
of risk) the reporting period/year.
Market Shares Both deposit and loan market shares are based on
data from the CBC. The Bank is the single largest
credit provider in Cyprus with a market share of
39.1% at 30 June 2021, compared to 42.4% at 31 March
2021 and 41.9% at 31 December 2020. The decrease
as at 30 June 2021 is mainly due to the completion
of Project Helix 2.
MSCI ESG Rating The use by the Bank of any MSCI ESG Research LLC
or its affiliates ('MSCI') data, and the use of MSCI
Logos, trademarks, service marks or index names herein,
do not constitute a sponsorship, endorsement, recommendation
or promotion of the Bank by MSCI. MSCI Services and
data are the property of MSCI or its information
providers and are provided "as-is" and without warranty.
MSCI Names and logos are trademarks or service marks
of MSCI.
Net fee and 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 Net loans and advances to customers comprise gross
advances to loans (as defined) net of allowance for expected
customers loan credit losses (as defined, but excluding allowance
for expected credit losses on off-balance sheet exposures
disclosed on the balance sheet within other liabilities).
Net loans to Net loans to deposits ratio is calculated as gross
deposits 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). The regulatory limit has been
set at 100% as per the CRR II enforced in June 2021.
The NSFR weights under CRR II do not have material
deviations from those under Basel III guidelines
which the Group followed prior to CRR II enforcement.
New lending New lending includes the disbursed amounts of the
new and existing non-revolving facilities (excluding
forborne or re-negotiated accounts) as well as the
average year to date change (if positive) of the
current accounts and overdraft facilities between
the balance at the beginning of the period and the
end of the period. Recoveries are excluded from this
calculation since their overdraft movement relates
mostly to accrued interest and not to new lending.
F. Definitions & Explanations (continued)
Non-interest Non-interest income comprises Net fee and commission
income income, Net foreign exchange gains/(losses) and net
gains/(losses) 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.
Non-performing As per the European Banking Authorities (EBA) standards
exposures (NPEs) and European Central Bank's (ECB) Guidance to Banks
on Non-Performing Loans (which was published in March
2017), non-performing exposures (NPEs) are defined
as those exposures that satisfy one of the following
conditions:
(i) The borrower is assessed as unlikely to pay its
credit obligations in full without the realisation
of the collateral, regardless of the existence of
any past due amount or of the number of days past
due.
(ii) Defaulted or impaired exposures as per the approach
provided in the Capital Requirement Regulation (CRR),
which would also trigger a default under specific
credit adjustment, diminished financial obligation
and obligor bankruptcy.
(iii) Material exposures as set by the 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 previously classified
as NPEs that present more than 30 days past due within
the probation period.
From 1 January 2021 two regulatory guidelines came
into force that affect NPE classification and Days-Past-Due
calculation. More specifically, these are the RTS
on the Materiality Threshold of Credit Obligations
Past - Due (EBA/RTS/2016/06 ), and the Guideline
on the Application of the Definition of Default under
article 178 (EBA/RTS/2016/07).
The Days- Past -Due (DPD) counter begins counting
DPD as soon as the arrears or excesses of an exposure
reach the materiality threshold (rather than as of
the first day of presenting any amount of arrears
or excesses). Similarly, the counter will be set
to zero when the arrears or excesses drop below the
materiality threshold. Payments towards the exposure
that do not reduce the arrears/excesses below the
materiality threshold, will not impact the counter.
For retail debtors, when a specific part of the exposures
of a customer that fulfils the NPE criteria set out
above is greater than 20% of the gross carrying amount
of all on balance sheet exposures of that customer,
then the total customer exposure is classified as
non--performing; otherwise only the specific part
of the exposure is classified as non--performing.
For non--retail debtors, when an exposure fulfils
the NPE criteria set out above, then the total customer
exposure is classified as non--performing.
Material arrears/excesses are defined as follows:
* Retail exposures: Total arrears/excess amount greater
than EUR100
* Exposures other than retail: Total arrears/excess
amount greater than EUR500
and the amount in arrears/excess in relation to the
customer's total exposure is at least 1%.
Non-recurring Non-recurring items as presented in the 'Interim
items Condensed Consolidated Income Statement - Underlying
basis' relate to the following items, as applicable:
(i) advisory and other restructuring costs - organic,
and (ii) Provisions/net loss relating to NPE sales,
including restructuring expenses.
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).
F. Definitions & Explanations (continued)
NPE sales NPE sales refer to sales of NPE portfolios completed,
as well as contemplated and potential future sale
transactions, as the Group continues to work with
its advisors towards the sale of portfolios of NPEs,
to further accelerate the decrease of NPEs on the
balance sheet through additional sales, irrespective
of whether or not they met the held for sale classification
criteria at the reporting dates.
Operating profit The operating profit comprises profit before Total
loan credit losses, impairments and provisions (as
defined), tax, (profit)/loss attributable to non-controlling
interests and non-recurring items (as defined).
Operating profit 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.
Project Helix Project Helix 2 refers to the sale of portfolios
2 of loans with a total gross book value of EUR1.3
bn completed in June 2021. For further information
please refer to section B.2.5 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
(including cash and balances with central banks classified
as non-current assets held for sale), plus loans
and advances to banks, plus net loans and advances
to customers (including loans and advances to customers
classified as non-current assets held for sale),
plus 'deferred consideration receivable' included
within 'other assets', plus investments (excluding
equities and mutual funds).
Qoq Quarter on quarter change
Special levy Relates to the special levy on deposits of credit
on deposits institutions in Cyprus, contributions to the Single
and other levies/contributions Resolution Fund (SRF), contributions to the Deposit
Guarantee Fund (DGF), as well as the DTC levy.
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.
F. Definitions & Explanations (continued)
Total expenses Total expenses comprise staff costs, other operating
expenses and the special levy on deposits and other
levies/contributions . It does not include (i) 'advisory
and other restructuring costs-organic', or (ii) any
restructuring costs relating to NPE sales. (i) 'Advisory
and other restructuring costs-organic' amounted to
EUR15 mn for 2Q2021 (compared to EUR3 mn for 1Q2021
and EUR1 mn for 4Q2020), (ii) Restructuring costs
relating to NPE sales amounted to EUR6 mn for 2Q2021
(compared to EUR4 mn for 1Q2021 and c.EUR1.5 mn for
4Q2020).
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 six months ended 30 June 2021.
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 six months ended 30 June 2021.
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 2020,
upon which the auditors have given an unqualified report, were
published on 30 March 2021 and are expected to be delivered to the
Registrar of Companies of Ireland within 56 days of 30 September
2021. The Board of Directors approved the Group statutory financial
statements for the six months ended 30 June 2021 on 31 August
2021.
Statutory basis: S tatutory information is set out on pages 4-5.
However, a number of factors have had a significant effect on the
comparability of the Group's financial position and performance.
Accordingly, the results are also presented on an underlying
basis.
Underlying basis: The financial information presented under the
underlying basis provides an overview of the Group financial
results for the six months ended 30 June 2021, which the management
believes best fits the true measurement of the financial
performance and position of the Group. For further information,
please refer to 'Commentary on Underlying Basis' on page 7. The
statutory results are adjusted for certain items (as described on
pages 9-10) to allow a comparison of the Group's underlying
financial position and performance, as set out on pages 6-8.
The financial information included in this announcement is
neither reviewed nor audited by the Group's external auditors.
The Consolidated Condensed Interim Financial Statements for the
six months ended 30 June 2021 have not been audited by the Group's
external auditors. The Group's external auditors have conducted a
review of the Consolidated Condensed Interim Financial Statements
in accordance with the International Standard on Review Engagements
2410 'Review of Interim Financial Information performed by the
Independent Auditor of the Entity (UK & Ireland)'.
The Interim Financial Report 2021 is available at the Bank of
Cyprus Holdings Public Limited Company Office (51, Stassinos
Street, Ayia Paraskevi, P.O. Box 24884, 1398, Nicosia, Cyprus) and
on the Group's website www.bankofcyprus.com (Investor
Relations/Financial Results).
This announcement and the presentation for the Group Financial
Results for the six months ended 30 June 2021 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 F.
The Group Financial Results for the six months ended 30 June
2021 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 at the date of publication of this document. Except
as required by any applicable law or regulation, the Group
expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward looking statement
contained in this document to reflect any change in the Group's
expectations or any change in events, conditions or circumstances
on which any statement is based.
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial
services group in Cyprus, providing a wide range of financial
products and services which include retail and commercial banking,
finance, factoring, investment banking, brokerage, fund management,
private banking, life and general insurance. The Bank of Cyprus
Group operates through a total of 91 branches in Cyprus, of which
11 operate as cash offices. Bank of Cyprus also has representative
offices in Russia, Ukraine and China. The Bank of Cyprus Group
employs 3,558 staff worldwide. At 30 June 2021, the Group's Total
Assets amounted to EUR24.2 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.
This information is provided by RNS, the news service of the
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