TIDMBOCH
RNS Number : 7193X
Bank of Cyprus Holdings PLC
31 August 2022
Announcement
Group Financial Results for the six months ended 30 June
2022
Nicosia, 31 August 2022
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 and as
the same has been retained in UK law as amended by the Market Abuse
(Amendment) (EU Exit) Regulations (SI 2019/310).
Key Highlights for the six months ended 30 June 2022
Resilient economic outlook
* 6.1%(1) GDP growth in 2Q2022; expected to grow by
over 5%(1) in 2022, outperforming wider Euro area
* Strong new lending of EUR1 .2 bn, up 30% yoy and
ahead of pre-pandemic levels
* 4% growth in net performing loan book(2) in 1H2022
Strong underlying profitability
* Profit after tax before non-recurring items of EUR 59
mn, up 20% yoy underpinned by higher revenue and
lower impairments
* Underlying ROTE(3) of 7.3%
* Profit after tax of EUR 50 mn for 1H2022 vs EUR 1 mn
for 1H2021
Efficiency actions completed ahead of schedule
* Cost to income ratio(4) at 58% for 1H2022, broadly
flat yoy
* Successful completion of Voluntary Staff Exit Plan
(VEP) in 3Q2022 at one-off cost of c.EUR99 mn
* Full time employees reduced by c.16%; estimated
annual saving of c.EUR37 mn (19%) of staff costs
* Branch footprint reduced by 25% year to date
Robust capital and liquidity
* CET1 ratio of 14.2%(5,6) and Total Capital ratio of
19.3%(5,6)
* Deposits at EUR18.5 bn up 4% qoq
* Significant surplus liquidity of EUR6.7 bn; well
positioned to benefit from further interest rate
increases
Mid-single digit NPE ratio (7)
* NPE ratio reduced to 5.7%(7) (2.4%(7,8) net) vs
6.5%(7,8) at March 2022
* Coverage at 59%(7) ; cost of risk at 43 bps
1. Source: Cyprus Statistical Service, Ministry of Finance
2. Non-legacy loan book which includes Corporate, Large and International
corporate, International business unit, Wealth and Markets, SME
and Retail
3. Underlying ROTE is calculated as Profit after Tax and before
non-recurring items divided by (Shareholders' equity minus Intangible
assets)
4. Excluding special levy on deposits and other levies/contributions
5. Allowing for IFRS 9 and temporary treatment for certain FVOCI
instruments transitional arrangements
6. Pro forma for HFS and the completion of VEP
7. Pro forma for HFS
8. Calculated as NPEs net of provisions over net loans
Group Chief Executive Statement
"Bank of Cyprus Group's performance in the first half of 2022
confirms the sustainability of our business model, with
well-diversified and increasing revenues combined with tight cost
control, delivering a healthy 20% increase in profit after tax,
before non-recurring items, of EUR59 mn and a corresponding return
on tangible equity of 7.3%. The business momentum, the actions we
have taken, the improved interest rate environment and our
significant gearing to increasing interest rates give us confidence
in accelerating the delivery of our target of double digit ROTE
earlier, in 2023.
Despite concerns regarding the outlook for global and European
economic growth, the Cypriot economy continued to grow strongly in
the second quarter with GDP increasing by 6.1%, significantly
outperforming the wider Euro area. The strong tourism season is
expected to support growth this year, with GDP in Cyprus projected
to exceed 5% in real terms in 2022, according to the Ministry of
Finance. As the largest financial group in Cyprus, we continued to
support the economy by extending a record EUR 1.2 bn of new loans
in the first six months of 2022, an increase of 30% on the prior
year, whilst maintaining strict lending criteria. As a result, our
net performing loan book grew by 4% during the first six months of
2022 to EUR 9.7 bn.
During the first six months of the year, we generated total
income of EUR299 mn and a positive operating result of EUR109 mn,
up by 7% on the previous year. The second quarter of 2022 reflected
the beginning of recovery in our net interest income due to the
improving interest rate environment. Additionally, the quarter was
marked by a strong performance in net fee and commission income and
stable insurance income whilst operating expenses (excluding levies
and contributions) remain well contained despite inflationary
pressures. Our cost to income ratio stood at 58%, broadly flat yoy,
reflecting our ongoing efforts to contain costs. Our cost of risk
at 43 bps remained well within our normalised target range. The
reported result was a net profit of EUR 50 mn for the first six
months of the year .
In July, we completed a Voluntary Staff Exit Plan (VEP) through
which c.550 applicants were approved to leave at a total one-off
cost of c. EUR 99 mn to be recorded in the third quarter. The
estimated annual saving of EUR 37 mn represents 19% of total staff
costs. Simultaneously we have reduced the number of branches by 20
to 60 year-to-date, a reduction of 25%. Through these two
successful initiatives, the Group has delivered ahead of schedule
on its objective of right-sizing the Bank, which is key for the
improvement of operating efficiency.
The Bank's capital position remains robust and comfortably in
excess of our regulatory requirements, after absorbing in full the
cost of the VEP. As at 30 June 2022, our Total Capital ratio was
19.3% and our CET1 ratio was 14.2%, on both a transitional and pro
forma basis. Our liquidity position also remains strong, as such we
continue to operate with c.EUR6.7 bn of surplus liquidity, being
well positioned to benefit from further interest rate increases.
Deposits on our balance sheet increased by 4% in the quarter to
EUR18.5 bn.
Balance sheet normalisation continued in the second quarter with
a further EUR74 mn of organic NPE reduction, reducing our NPE ratio
to 5.7%, pro forma for NPE sales. We remain on track to achieve our
target NPE ratio of c.5% by the end of this year and less than 3%
by the end of 2025.
2022 is expected to be a transitional year for Bank of Cyprus,
marking the final restructuring actions to transform the Group into
a strong, stable and profitable organisation for banking and
broader financial products and services in Cyprus. Our dynamic
strategy which leverages our strong customer base, our market
leading position, and our investment in our digital infrastructure
and digital offering to clients is proving successful.
Our progress is being noticed. In an announcement on 19 August
2022 the Board expressed its confidence in our strategy and our
prospects with unanimous and unequivocal rejection of three
unsolicited, conditional, non-binding proposals by US private
equity firm Lone star to acquire the entire issued, and to be
issued, share capital of the Bank since 5 May 2022.
We remain focused on creating shareholder value and with today's
upgraded guidance we now expect to achieve a ROTE of over 10% in
2023. This lays the foundations for a meaningful return to dividend
distributions which we expect from 2023 onwards, subject to
regulatory approvals and market conditions.
Panicos Nicolaou
A. Group Financial Results - Statutory Basis
Interim Consolidated Income Statement for the six months ended
30 June 2022
Six months ended
30 June
2022 2021
(restated)
---------- ------------
EUR000 EUR000
---------- ------------
Turnover 414,996 390,624
========== ============
Interest income 181,470 179,272
---------- ------------
Income similar to interest income 9,518 17,626
---------- ------------
Interest expense (37,541) (28,670)
---------- ------------
Expense similar to interest expense (7,752) (16,015)
---------- ------------
Net interest income 145,695 152,213
---------- ------------
Fee and commission income 98,086 87,610
---------- ------------
Fee and commission expense (4,447) (3,753)
---------- ------------
Net foreign exchange gains 11,898 6,550
---------- ------------
Net losses on financial instruments (2,060) (13,196)
---------- ------------
Net gains on derecognition of financial assets
measured at amortised cost 1,648 1,053
---------- ------------
Income from assets under insurance and reinsurance
contracts 29,859 103,824
---------- ------------
Expenses from liabilities under insurance and
reinsurance contracts 3,010 (72,756)
---------- ------------
Net losses from revaluation and disposal of investment
properties (1,372) (1,381)
---------- ------------
Net gains on disposal of stock of property 8,242 7,372
---------- ------------
Other income 8,927 5,854
---------- ------------
Total operating income 299,486 273,390
---------- ------------
Staff costs (103,135) (100,866)
---------- ------------
Special levy on deposits and other levies/ contributions (16,507) (15,255)
---------- ------------
Other operating expenses (80,393) (95,588)
---------- ------------
Operating profit before credit losses and impairment 99,451 61,681
---------- ------------
Credit losses on financial assets (24,965) (52,163)
========== ============
Impairment net of reversals of non-financial
assets (12,157) (7,398)
---------- ------------
Profit before tax 62,329 2,120
---------- ------------
Income tax (11,579) (968)
---------- ------------
Profit after tax for the period 50,750 1,152
========== ============
Attributable to:
---------- ------------
Owners of the Company 50,088 739
---------- ------------
Non-controlling interests 662 413
---------- ------------
Profit for the period 50,750 1,152
========== ============
Basic and diluted profit per share attributable
to the owners of the Company (EUR cent) 11.2 0.2
========== ============
A. Group Financial Results - Statutory Basis (continued)
Interim Consolidated Balance Sheet as at 30 June 2022
30 June 31 December
2021
2022 (restated)
Assets EUR000 EUR000
----------- ------------
Cash and balances with central banks 9,904,549 9,230,883
----------- ------------
Loans and advances to banks 312,308 291,632
----------- ------------
Derivative financial assets 38,150 6,653
----------- ------------
Investments at FVTPL 181,318 199,194
----------- ------------
Investments at FVOCI 529,872 748,695
----------- ------------
Investments at amortised cost 1,391,487 1,191,274
----------- ------------
Loans and advances to customers 10,144,099 9,836,405
----------- ------------
Life insurance business assets attributable
to policyholders 533,696 551,797
----------- ------------
Prepayments, accrued income and other assets 621,955 616,219
----------- ------------
Stock of property 1,054,034 1,111,604
----------- ------------
Deferred tax assets 265,430 265,481
----------- ------------
Investment properties 102,040 117,745
----------- ------------
Property and equipment 245,693 252,130
----------- ------------
Intangible assets 171,403 184,034
----------- ------------
Non-current assets and disposal groups held
for sale 347,698 358,951
----------- ------------
Total assets 25,843,732 24,962,697
=========== ============
Liabilities
----------- ------------
Deposits by banks 492,022 457,039
----------- ------------
Funding from central banks 2,954,808 2,969,600
----------- ------------
Derivative financial liabilities 9,485 32,452
----------- ------------
Customer deposits 18,450,216 17,530,883
----------- ------------
Insurance liabilities 689,798 736,201
----------- ------------
Accruals, deferred income, other liabilities
and other provisions 394,117 361,977
----------- ------------
Pending litigation, claims, regulatory and other
matters 104,793 104,108
----------- ------------
Debt securities in issue 298,899 302,555
----------- ------------
Subordinated liabilities 311,738 340,220
----------- ------------
Deferred tax liabilities 45,235 46,435
----------- ------------
Total liabilities 23,751,111 22,881,470
----------- ------------
Equity
----------- ------------
Share capital 44,620 44,620
----------- ------------
Share premium 594,358 594,358
----------- ------------
Revaluation and other reserves 182,329 213,192
----------- ------------
Retained earnings 1,028,218 986,623
----------- ------------
Equity attributable to the owners of the Company 1,849,525 1,838,793
=========== ============
Other equity instruments 220,000 220,000
-------------------------------------------------- =========== ============
Non--controlling interests 23,096 22,434
----------- ------------
Total equity 2,092,621 2,081,227
----------- ------------
Total liabilities and equity 25,843,732 24,962,697
=========== ============
B. Group Financial Results - Underlying Basis
Interim Condensed Consolidated Income Statement
------------------------------------------------------------------------------------------
EUR mn 1H2022 1H2021 2Q2022 1Q2022 qoq +% yoy +%
(restated)
(1)
--------------------------------- ------- ------------ ------- ------- ------ ------
Net interest income 145 152 74 71 4% -4%
Net fee and commission
income 94 84 50 44 14% 12%
Net foreign exchange
gains and net gains/(losses)
on financial instruments 11 9 5 6 -3% 23%
Insurance income net
of claims and commissions 33 31 17 16 1% 6%
Net gains/(losses) from
revaluation and disposal
of investment properties
and on disposal of stock
of properties 7 6 2 5 -59% 15%
Other income 9 6 5 4 19% 52%
--------------------------------- ------- ------------ ------- ------- ------ ------
Total income 299 288 153 146 5% 4%
--------------------------------- ------- ------------ ------- ------- ------ ------
Staff costs (100) (101) (50) (50) 1% -1%
Other operating expenses (73) (70) (37) (36) 2% 5%
Special levy on deposits
and other levies/contributions (17) (15) (7) (10) -33% 8%
Total expenses (190) (186) (94) (96) -2% 2%
------- ------------ ------- ------- ------
Operating profit before
credit losses and impairments 109 102 59 50 18% 7%
--------------------------------- ------- ------------ ------- ------- ------ ------
Loan credit losses (23) (35) (11) (12) -6% -34%
Impairments of other
financial and non-financial
assets (13) (11) (8) (5) 58% 17%
Provisions for litigation,
claims, regulatory and
other matters (1) (4) (1) (0) 66% -86%
--------------------------------- ------- ------------ ------- ------- ------ ------
Total loan credit losses,
impairments and provisions (37) (50) (20) (17) 14% -27%
--------------------------------- ------- ------------ ------- ------- ------ ------
Profit before tax and
non-recurring items 72 52 39 33 20% 41%
--------------------------------- ------- ------------ ------- ------- ------ ------
Tax (12) (1) (6) (6) 10% -
Profit attributable to
non-controlling interests (1) (0) (1) 0 - 60%
Profit after tax and
before non-recurring
items (attributable to
the owners of the Company) 59 51 32 27 18% 20%
------- ------------ ------- ------- ------
Advisory and other restructuring
costs - organic (5) (18) (4) (1) 219% -70%
--------------------------------- ------- ------------ ------- ------- ------ ------
Profit after tax - organic
(attributable to the
owners of the Company) 54 33 28 26 8% 70%
--------------------------------- ------- ------------ ------- ------- ------ ------
Provisions/net (loss)/profit
relating to NPE sales(2) 0 (16) 1 (1) -172% -97%
Restructuring and other
costs relating to NPE
sales(2) (1) (16) 0 (1) 49% -92%
Restructuring costs -
Voluntary Staff Exit
Plan (VEP) (3) - - (3) -100% -
Profit after tax (attributable
to the owners of the
Company) 50 1 29 21 35% -
------- ------------ ------- ------- ------
B. Group Financial Results - Underlying Basis (continued)
Interim Condensed Consolidated Income Statement - Key Performance RatiosKey Performance Ratios(3) 1H2022 1H2021 2Q2022 1Q2022 qoq +% yoy +%
------- ------- ------- ------- --------
Net Interest Margin (annualised) 1.32% 1.56% 1.33% 1.32% 1 bps -24 bps
-------------------------------- ------- ------- ------- ------- -------- --------
Cost to income ratio 63% 64% 61% 66% -5 p.p. -1 p.p.
-------------------------------- ------- ------- ------- ------- -------- --------
Cost to income ratio excluding
special levy on deposits
and other levies/contributions 58% 59% 57% 59% -2 p.p. -1 p.p.
-------------------------------- ------- ------- ------- ------- -------- --------
Operating profit return
on average assets (annualised) 0.9% 0.9% 0.9% 0.8% 0.1 p.p. -
-------------------------------- ------- ------- ------- ------- -------- --------
Basic earnings per share
attributable to the owners
of the Company (EUR cent) 11.23 0.17 6.45 4.78 1.67 11.06
-------------------------------- ------- ------- ------- ------- -------- --------
Basic earnings after tax
and before non-recurring
items per share attributable
to the owners of the Company
(EUR cent) 13.51 11.24 7.31 6.20 1.11 2.27
-------------------------------- ------- ------- ------- ------- -------- --------
Return on tangible equity
(ROTE) after tax and before
non-recurring items
(annualised) 7.3% 6.1% 7.8% 6.7% 1.1 p.p. 1.2 p.p.
-------------------------------- ------- ------- ------- ------- -------- --------
1. Comparative information was restated following a reclassification of
approximately EUR1 million loss relating to disposal/dissolution of subsidiaries
and associates from 'Net foreign exchange gains and net gains/(losses) on
financial instruments' to 'Other income'. More information is provided in
Note 3.1 of the Consolidated Condensed Interim Financial Statements.
2. 'Provisions/net loss relating to NPE sales' refer to the net loss on
transactions completed during the year/period and the net loan credit losses
on transactions under consideration, whilst 'Restructuring and other costs
relating to NPE sales' refer mainly to the costs relating to these trades.
For further details please refer to Section B.3.4.
3. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant .
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Commentary on Underlying Basis
The financial information presented in this Section provides an
overview of the Group financial results for the six months ended 30
June 2022 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 2022 between statutory and underlying basis' and in
'Definitions and Explanations on Alternative Performance Measures
Disclosures of the Interim Financial Report 2022', to facilitate
the comparability of the underlying basis to the statutory
information.
Please note the following in relation to the disclosure of pro
forma figures and ratios throughout this announcement.
References to pro forma figures and ratios as at 30 June 2022
refer to Project Helix 3, Project Sinope and to VEP (as explained
below). All relevant figures are based on 30 June 2022, unless
otherwise stated. The completion of Project Helix 3 remains subject
to customary regulatory and other approvals and is currently
expected to occur in 2H2022. Project Sinope was completed in August
2022. As at 30 June 2022, the portfolios of loans, as well as the
real estate properties included in Project Helix 3 and Project
Sinope, were classified as disposal groups held for sale. VEP
refers to the Voluntary Staff Exit Plan that the Group completed in
July 2022, through which c.550 applicants were approved to leave at
a total cost of c. EUR 99 mn, expected to be recorded in the 3Q2022
income statement.
Where numbers are provided on a pro forma basis, this is stated
and referred to as 'Pro forma for held for sale and Voluntary Staff
Exit Plan' or 'Pro forma for HFS and VEP', unless otherwise
stated.
Project Helix 3 refers to the agreement the Group reached in
November 2021 with funds affiliated with PIMCO, for the sale of a
portfolio of NPEs with gross book value of EUR568 mn, as well as
real estate properties with book value of c.EUR120 mn, as at 30
September 2021.
Project Sinope refers to the agreement the Group reached in
December 2021 for the sale of a portfolio of NPEs with gross book
value of EUR12 mn, as well as properties in Romania with carrying
value EUR0.6 mn, as at 31 December 2021. Project Sinope was
completed in August 2022.
Further details on the NPE trades are provided in Section B.2.5
'Loan portfolio quality'.
B. Group Financial Results - Underlying Basis (continued)
Consolidated Condensed Interim Balance Sheet
====================================================================================================================
EUR mn 30.6.2022 31.12.2021 + %
=================================== ============== ===================== ======================= ===============
Cash and balances with central
banks 9,905 9,231 7%
Loans and advances to banks 312 292 7%
Debt securities, treasury bills
and equity investments 2,102 2,139 -2%
Net loans and advances to
customers 10,144 9,836 3%
Stock of property 1,054 1,112 -5%
Investment properties 102 118 -13%
Other assets 1,877 1,876 0%
Non-current assets and disposal
groups held for sale 348 359 -3%
=================================== ============== ===================== ======================= ===============
Total assets 25,844 24,963 4%
=================================== ============== ===================== ======================= ===============
Deposits by banks 492 457 8%
Funding from central banks 2,955 2,970 0%
Customer deposits 18,450 17,531 5%
Debt securities in issue 299 303 -1%
Subordinated liabilities 312 340 -8%
Other liabilities 1,243 1,281 -3%
=================================== ============== ===================== ======================= ===============
Total liabilities 23,751 22,882 4%
=================================== ============== ===================== ======================= ===============
Shareholders' equity 1,850 1,839 1%
=================================== ============== ===================== ======================= ===============
Other equity instruments 220 220 -
=================================== ============== ===================== ======================= ===============
Total equity excluding
non-controlling
interests 2,070 2,059 1%
=================================== ============== ===================== ======================= ===============
Non-controlling interests 23 22 3%
=================================== ============== ===================== ======================= ===============
Total equity 2,093 2,081 1%
=================================== ============== ===================== ======================= ===============
Total liabilities and equity 25,844 24,963 4%
=================================== ============== ===================== ======================= ===============
Key Balance Sheet figures and
ratios 30.06.2022 30.06.2022 31.12.2021 + (2)
(pro forma)(1) (as reported)(2) (as reported)(2)
=================================== =================== ===================== ================== ===============
Gross loans (EUR mn) 10,477 11,047 10,856 2%
=================================== =================== ===================== ================== ===============
Allowance for expected loan
credit losses (EUR mn) 355 677 792 -14%
=================================== =================== ===================== ================== ===============
Customer deposits (EUR mn) 18,450 18,450 17,531 5%
=================================== =================== ===================== ================== ===============
Loans to deposits ratio (net) 55% 56% 57% -1 p.p.
=================================== =================== ===================== ================== ===============
NPE ratio 5.7% 10.6% 12.4% -1.8 p.p.
=================================== =================== ===================== ================== ===============
NPE coverage ratio 59% 58% 59% -1 p.p.
=================================== =================== ===================== ================== ===============
Leverage ratio 7.4% 7.4% 7.6% -20 bps
=================================== =================== ===================== ================== ===============
Capital ratios and risk weighted
assets 31.06.2022 31.06.2022 31.12.2021 + (2)
(pro forma)(1) (as reported)(2) (as reported)(2)
=================================== =================== ===================== ================== ===============
Common Equity Tier 1 (CET1)
ratio (transitional)(3) 14.2% 14.6% 15.1% -50 bps
=================================== =================== ===================== ================== ===============
Total capital ratio 19.3% 19.5% 20.0% -50 bps
=================================== =================== ===================== ================== ===============
Risk weighted assets (EUR mn) 10,260 10,600 10,694 -1%
=================================== =================== ===================== ================== ===============
1. Pro forma for HFS and VEP (please refer to 'Commentary on Underlying
Basis'). 2. Including the NPE portfolios classified as "Non-current
assets and disposal groups held for sale", where relevant. 3. The
CET1 fully loaded ratio as at 30 June 2022 amounts to 13.9% and 13.4%
pro forma for HFS and completion of VEP (compared to 13.9% and 14.5%
pro forma for HFS as at 31 March 2022 and to 13.7% and 14.3% pro forma
for HFS as at 31 December 2021). p.p. = percentage points, bps = basis
points, 100 basis points (bps) = 1 p.p.
B. Group Financial Results-Underlying Basis (continued)
B.1 Reconciliation of the Interim Condensed Consolidated Income
Statement for the six months ended 30 June 2022 between statutory
and underlying basis
EUR million Underlying NPE Other Statutory
basis Sales basis
Net interest income 145 - - 145
=========== ======= ====== ==========
Net fee and commission income 94 - - 9 4
=========== ======= ====== ==========
Net foreign exchange gains and net ( 1
gains/(losses) on financial instruments 11 - ) 10
=========== ======= ====== ==========
Net gains/(losses) on derecognition
of financial assets measured at amortised
cost - - 2 2
=========== ======= ====== ==========
Insurance income net of claims and
commissions 33 - - 33
=========== ======= ====== ==========
Net gains/(losses) from revaluation
and disposal of investment properties
and on disposal of stock of properties 7 - - 7
=========== ======= ====== ==========
Other income 9 - - 9
----------- ------- ------ ----------
Total income 299 - 1 300
=========== ======= ====== ==========
( 190 ( 9 ( 200
Total expenses ) (1) ) )
----------- ------- ------ ----------
Operating profit before credit losses ( 8
and impairments 109 (1) ) 100
=========== ======= ====== ==========
Loan credit losses (2 3 ) - 2 3 -
=========== ======= ====== ==========
Impairments of other financial and
non-financial assets ( 13 ) - 13 -
=========== ======= ====== ==========
Provision for litigation, claims, regulatory
and other matters (1) - 1 -
=========== ======= ====== ==========
Credit losses on financial assets and
impairment net of reversals of non-financial
assets - - (37) (37)
=========== ======= ====== ==========
Profit before tax and non-recurring ( 8
items 72 ( 1 ) ) 63
=========== ======= ====== ==========
( 12
Tax ( 12 ) - - )
=========== ======= ====== ==========
Profit attributable to non-controlling
interest (1) - - (1)
=========== ======= ====== ==========
Profit after tax and before non-recurring
items (attributable to the owners of ( 8
the Company) 59 ( 1 ) ) 50
=========== ======= ====== ==========
Advisory and other restructuring costs-organic ( 5 ) - 5 0
----------- ------- ------ ----------
Profit after tax - organic* (attributable
to the owners of the Company) 54 ( 1 ) (3) 50
=========== ======= ====== ==========
Provisions/net ( loss )/ profit relating
to NPE sales 0 - - 0
=========== ======= ====== ==========
Restructuring and other costs relating
to NPE sales (1) 1 - 0
=========== ======= ====== ==========
Restructuring costs - Voluntary Staff
Exit Plan (VEP) (3) - 3 0
=========== ======= ====== ==========
Profit after tax (attributable to
the owners of the Company) 50 - - 50
=========== ======= ====== ==========
*This is the profit after tax (attributable to the owners of the
Company), before the provisions/net (loss)/profit relating to NPE
sales, related restructuring and other costs, and restructuring
costs related to a Voluntary Staff Exit Plan (VEP) of a
subsidiary.
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 EUR1
million relating to the agreements for the sale of
portfolios of NPEs and are presented within
'Restructuring and other costs relating to NPE sales
' under the underlying basis.
Other reclassifications
* Net losses on loans and advances to customers at FVPL
of EUR2 million included in 'Loan credit losses'
under the underlying basis are included in 'Net
losses on financial instruments' under the statutory
basis. Their classification under the underlying
basis is done to align their presentation with the
loan credit losses on loans and advances to customers
at amortised cost.
Group Financial Results-Underlying Basis (continued)
B.1 Reconciliation of the Interim Condensed Consolidated Income
Statement for the six months ended 30 June 2022 between statutory
and underlying basis (continued)
* 'Net gains/(losses) on derecognition of financial
assets measured at amortised cost' of c.EUR 2 million
under the statutory basis comprise of the below items
which are reclassified accordingly under the
underlying basis as follows:
* EUR3 million net gains on derecognition of loans and
advances to customers included in 'Loan credit
losses' under the underlying basis as to align to the
presentation of the loan credit losses arising from
loans and advances to customers.
* Net losses on derecognition of debt securities
measured at amortised cost of approximately EUR1
million included in 'Net foreign exchange gains and
net losses on financial instruments' under the
underlying basis in order to align their presentation
with the gains/(losses) arising on financial
instruments.
* 'Provision for litigation, claims, regulatory and
other matters' amounting to EUR1 million included in
'Other operating expenses' under the statutory basis,
is separately presented under the underlying basis,
since it mainly relates to cases that arose outside
the normal activities of the Group.
* Advisory and other restructuring costs of
approximately EUR5 million included in 'Other
operating expenses' under the statutory basis are
separately presented under the underlying basis since
they comprise mainly fees to external advisors in
relation to the transformation programme and other
strategic projects of the Group.
* Total expenses under the statutory basis include
restructuring costs relating to the voluntary staff
exit plan (VEP) of JCC Payment Systems Ltd of EUR3
million and are separately presented under the
underlying basis, since they represent one-off items.
* 'Credit losses on financial assets and impairment net
of reversals of non-financial assets' under the
statutory basis include i) credit losses to cover
credit risk on loan and advances to customers of
EUR24 million, which are included in 'Loan credit
losses' under the underlying basis and ii) credit
losses of other financial instruments of EUR1 million
and impairment net of reversals of non-financial
assets of EUR12 million which are included in
'Impairments of other financial and non-financial
assets' under the underlying basis as to be presented
separately from loan credit losses.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis
B.2.1 Capital Base
Total equity excluding non-controlling interests totalled
EUR2,070 mn as at 30 June 2022 compared to EUR2,069 mn at 31 March
2022 and to EUR2,059 mn at 31 December 2021 . Shareholders' equity
totalled EUR1,850 mn as at 30 June 2022 compared to EUR1,849 mn at
31 March 2022 and to EUR1,839 mn at 31 December 2021.
The Common Equity Tier 1 capital (CET1) ratio on a transitional
basis stood at 14.6% as at 30 June 2022 and 14.2% pro forma for
held for sale portfolios and Voluntary Staff Exit Plan
(collectively referred to as 'pro forma for HFS and VEP') compared
to 14.6% as at 31 March 2022 and 15.2% pro forma for held for sale
portfolios (referred to as 'pro forma for HFS') and to 15.1% as at
31 December 2021 (and 15.8% pro forma for HFS). During 2Q2022, the
CET1 ratio was positively affected mainly by the pre-provision
income, and negatively affected mainly by provisions and
impairments, the payment of AT1 interest and the movement in the
fair value through Other Comprehensive Income Reserves. Throughout
this announcement, the capital ratios (and pro forma capital
ratios) as at 30 June 2022 include reviewed profits for 1H2022,
unless otherwise stated.
The Group has elected to apply the EU transitional arrangements
for regulatory capital purposes (EU Regulation 2017/2395) where the
impact on the impairment amount from the initial application of
IFRS 9 on the capital ratios is phased-in gradually, with the
impact being fully phased-in (100%) by 1 January 2023. The
phasing-in for 2022, of the impairment amount from the initial
application of IFRS 9 had a negative impact of c.60 bps on the CET1
ratio on 1 January 2022. In addition, a prudential charge in
relation to the onsite inspection on the value of the Group's
foreclosed assets is being deducted from own funds since June 2021,
the impact of which is 36 bps on Group's CET1 ratio as at 30 June
2022.
The CET1 ratio on a fully loaded basis amounted to 13.9% as at
30 June 2022 and 13.4% pro forma for HFS and VEP compared to 13.9%
as at 31 March 2022 (and 14.5% pro forma for HFS), and to 13.7% as
at 31 December 2021 (and 14.3% pro forma for HFS) .
The Total Capital ratio stood at 19.5% as at 30 June 2022 and
19.3% pro forma for HFS and VEP compared to 19.6% as at 31 March
2022 (and 20.3% pro forma for HFS), and to 20.0% as at 31 December
2021 (and 20.8% pro forma for HFS).
The Group's capital ratios are above the Supervisory Review and
Evaluation Process (SREP) requirements.
In the context of the annual SREP conducted by the European
Central Bank (ECB) in 2021 and based on the final 2021 SREP
Decision received in February 2022, the Pillar II requirement has
been set at 3.26%, compared to the previous level of 3.00%. The
additional Pillar II requirement add-on of 0.26% relates to ECB's
prudential provisioning expectations as per the 2018 ECB Addendum
and subsequent ECB announcements and press release in July 2018 and
August 2019. This component of the Pillar II requirement add-on
takes into consideration Project Helix 3.
The Bank has been designated as an Other Systemically Important
Institution (O-SII) by the Central Bank of Cyprus (CBC) in
accordance with the provisions of the Macroprudential Oversight of
Institutions Law of 2015, and since November 2021 the O-SII buffer
has been set to 1.50%. This buffer is being phased-in gradually,
having started from 1 January 2019 at 0.50%. Currently the O-SII
buffer stands at 1.25% and will be fully phased-in on 1 January
2023.
As a result, the Group's minimum phased-in CET1 capital ratio
has been set at 10.08% compared to the previous level of 9.69%
(comprising a 4.50% Pillar I requirement, a 1.83% Pillar II
requirement, the Capital Conservation Buffer of 2.50% and the O-SII
Buffer of 1.25%) and the Group's Total Capital requirement was set
at 15.01% compared to the previous level of 14.50% (comprising an
8.00% Pillar I requirement, of which up to 1.50% can be in the form
of AT1 capital and up to 2.00% in the form of T2 capital, a 3.26%
Pillar II requirement, the Capital Conservation Buffer of 2.50% and
the O-SII Buffer of 1.25%). The ECB has also provided revised lower
non-public guidance for an additional Pillar II CET1 buffer (P2G).
Pillar II add-on capital requirements derive from the SREP, which
is a point in time assessment, and are therefore subject to change
over time. The new SREP requirements became effective as from 1
March 2022.
Own funds held for the purposes of P2G cannot be used to meet
any other capital requirements (Pillar I, Pillar II requirements or
the combined buffer requirement), and therefore cannot be used
twice.
Based on the SREP decision of prior years, the Company (Bank of
Cyprus Holdings PLC) and the Bank are under a regulatory
prohibition for equity dividend distribution and hence no dividends
were declared or paid during 2021. Following the final 2021 SREP
Decision received in February 2022, the Company and the Bank still
remain under equity dividend distribution prohibition for 2022.
This prohibition does not apply if the distribution is made via the
issuance of new ordinary shares to the shareholders, which are
eligible as CET1 capital. No prohibition applies to the payment of
coupons on any AT1 capital instruments issued by the Company or the
Bank. Following the final 2021 SREP Decision, the previous
restriction on variable pay was lifted.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
The Group participated in the 2022 ECB supervisory Climate Risk
Stress Test and participated in the 2021 ECB SREP Stress Test. For
further information please refer to the 'Additional Risk and
Capital Management Disclosures' of the 'Interim Financial Report
2022' and the 'Annual Financial Report 2021'.
Voluntary Staff Exit Plan
In July 2022, the Group completed a Voluntary Staff Exit Plan
with an estimated cost of c.EUR 99 mn which will be recognised in
the consolidated income statement in the third quarter, resulting
in a negative impact of c.95 bps both on the Group's CET1 and Total
Capital ratios.
For further information please refer to Section "B.3.2 Total
expenses".
Project Helix 3
In November 2021, the Group reached agreement for the sale of a
portfolio of NPEs with gross book value of EUR568 mn as at 30
September 2021, as well as real estate properties with book value
of c.EUR120 mn as at 30 September 2021, known as Project Helix 3.
Further details are provided in Section B.2.5 'Loan portfolio
quality'.
Project Helix 3 is expected to have a positive capital impact of
c.60 bps on the Group's CET1 ratio on the basis of 30 June 2022
figures.
Pro forma calculations are based on 30 June 2022 financial
results, unless otherwise stated, and assume completion of the
transaction, which remains subject to customary regulatory and
other approvals.
Tier 2 Capital Notes
In April 2021, the Company issued EUR300 mn unsecured and
subordinated Tier 2 Capital Notes (the 'New T2 Notes').
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.
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 'Old T2
Notes') to tender their Old T2 Notes for purchase by the Bank at a
price of 105.50%, after which Old T2 Notes of EUR43 mn remained
outstanding. On 19 January 2022, the Bank exercised its option and
redeemed the outstanding EUR43 mn Old T2 Notes.
The Group continues to monitor opportunities for the
optimisation of its capital position, including Additional Tier 1
capital.
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 Capital Requirements Directive
(CRD) IV in January 2014 and its subsequent phasing-in led to a
more capital-intensive treatment of this DTA for the Bank. With
this legislation, institutions are allowed to treat such DTAs as
'not relying on profitability', according to CRD IV and as a result
not deducted from CET1, hence improving a credit institution's
capital position.
In response to concerns raised by the European Commission with
regard to the provision of state aid arising out of the treatment
of such tax losses, the Cyprus Government has proceeded with the
adoption of modifications to the Law, including requirements for an
additional annual fee over and above the 1.5% annual guarantee fee
already provided for in the Law, to maintain the conversion of such
DTAs into tax credits. In May 2022 the Cyprus Parliament voted
these amendments which became effective since then. As prescribed
by the amendments in the Law, the annual fee is to be determined by
the Cyprus Government on an annual basis, providing however that
such fee to be charged is set at a minimum fee of 1.5% of the
annual instalment and can range up to a maximum amount of EUR10 mn
per year, and also allowing for a higher amount to be charged in
the year the amendments are effective (i.e. in 2022).
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
Legislative amendments for the conversion of DTA to DTC (
continued)
The Group since prior years, in anticipation of modifications in
the Law, acknowledged that such increased annual fee may be
required to be recorded on an annual basis until expiration of such
losses in 2028. The Group estimates that such fees could range up
to 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. An amount of EUR5.3
mn was recorded in FY2021, bringing the total amount provided by
the Group for such increased fee to c.EUR21 mn for the years
2018-2021. In 3Q2022 the Group has been levied an amount within the
provisions level maintained.
B.2.2 Regulations and Directives
B.2.2.1 The 2021 Banking Package (CRR III and CRD VI and
BRRD)
In October 2021, the European Commission adopted legislative
proposals for further amendments to Capital Requirements Regulation
(CRR), CRD IV and the BRRD (the "2021 Banking Package"). Amongst
other things, the 2021 Banking Package would implement certain
elements of Basel III that have not yet been transposed into EU
law. The 2021 Banking Package is subject to amendment in the course
of the EU's legislative process; and its scope and terms may change
prior to its implementation. In addition, in the case of the
proposed amendments to CRD IV and the BRRD, their terms and effect
will depend, in part, on how they are transposed in each member
state. As a general matter, it is likely to be several years until
the 2021 Banking Package begins to be implemented (currently
expected in 2025); and certain measures are expected to be subject
to transitional arrangements or to be phased in over time.
B.2.2.2 Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities
(MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that
from January 2016 EU member states shall apply the BRRD's
provisions requiring EU credit institutions and certain investment
firms to maintain a minimum requirement for own funds and eligible
liabilities (MREL), subject to the provisions of the Commission
Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part of
the reform package for strengthening the resilience and
resolvability of European banks, the BRRD 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 December 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 final MREL requirement was set at
23.74% of risk weighted assets and 5.91% of Leverage Ratio Exposure
(LRE) (as defined in the CRR) and must be met by 31 December 2025.
Furthermore, an interim requirement to be met by 1 January 2022 was
set at 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 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 2022, calculated
according to the SRB's eligibility criteria currently in effect and
based on the Bank's internal estimate, stood at 18.61% of risk
weighted assets (RWA) and at 9.28% of LRE. Pro forma for HFS and
VEP, the MREL ratio of the Bank as at 30 June 2022, calculated on
the same basis, stood at 18.47% of risk weighted assets. The MREL
ratio expressed as a percentage of risk weighted assets does not
include capital used to meet the CBR amount, which stands at 3.75%
since 1 January 2022 and is expected to increase to 4.0% on 1
January 2023. Throughout this announcement, t he MREL ratios (and
MREL ratios pro forma for HFS) as at 30 June 2022 include
unaudited/unreviewed profits for 1H2022, unless otherwise
stated.
The successful Tier 2 capital refinancing in April 2021 and the
inaugural issuance of MREL-compliant senior notes in June 2021 mark
the foundation for the Bank's plan to meet applicable MREL
requirements. The interim MREL requirement as at 1 January 2022 was
satisfied, and the Bank will continue to evaluate opportunities to
advance the build-up of its MREL liabilities.
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 2022, the Bank's funding from central banks amounted
to EUR 2,955 mn , which relates to ECB funding, comprising solely
of funding through the Targeted Longer-Term Refinancing Operations
(TLTRO) III, compared to EUR2,962 mn at 31 March 2022 and to
EUR2,970 mn as at 31 December 2021.
The Bank borrowed an overall amount of EUR3 bn under TLTRO III
by June 2021, despite its comfortable liquidity position, given the
favourable borrowing terms, in combination with the relaxation of
collateral requirements. The participation in TLTRO III is expected
to be maintained to maturity, subject to no change in terms and
conditions.
The Bank exceeded the benchmark net lending threshold in the
period 1 March 2020 - 31 March 2021 and qualified for the
beneficial rate of -1% for the period from June 2020 to June 2021.
The NII benefit from its TLTRO III borrowing for the period from
June 2020 to June 2021 stood at c.EUR7 mn and was recognised over
the respective period in the income statement.
In addition, the Bank has exceeded the benchmark net lending
threshold in the period 1 October 2020 - 31 December 2021 and
qualified for a beneficial rate for the period from June 2021 to
June 2022. The NII benefit from its TLTRO III borrowing for the
period from June 2021 to June 2022 stood at c.EUR15 mn and was
recognised over the respective period in the income statement.
Deposits
Customer deposits totalled EUR18,450 mn at 30 June 2022
(compared to EUR17,660 mn at 31 March 2022 and to EUR17,531 mn at
31 December 2021) and increased by 4% in the second quarter.
The Bank's deposit market share in Cyprus reached 36.8% as at 30
June 2022, compared to 35.8% as at 31 March 2022 and to 34.8% as at
31 December 2021. Customer deposits accounted for 71% of total
assets and 78% of total liabilities at 30 June 2022 (1 p.p. up
since 31 December 2021).
The net Loans to Deposits (L/D) ratio stood at 56% as at 30 June
2022 (compared to 58% as at 31 March 2022 and to 57% as at 31
December 2021 on the same basis). Pro forma for HFS, the L/D ratio
as at 30 June 2022 stood at 55%.
Subordinated liabilities
At 30 June 2022, the Group's subordinated liabilities (including
accrued interest) amounted to EUR312 mn (compared to EUR307 mn at
31 March 2022 and EUR340 mn at 31 December 2021) and relates to
unsecured subordinated Tier 2 Capital Notes.
For further information please refer to Section B.2.1 'Capital
Base' .
Debt securities in issue
At 30 June 2022, the Group's debt securities in issue (including
accrued interest) amounted to EUR299 mn (compared to EUR304 mn at
31 March 2022 and EUR303 mn at 31 December 2021) and relates to
senior preferred 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 2022, the Group Liquidity Coverage Ratio (LCR) stood
at 299% (compared to 296% at 31 March 2022 and to 298% at 31
December 2021), well above the minimum regulatory requirement of
100%. The LCR surplus as at 30 June 2022 amounted to EUR6.7 bn
(compared to EUR6.4 bn at 31 March 2022 and EUR6.3 bn at 31
December 2021), well positioned to benefit from further interest
rates increases. The increase in 2Q2022 is mainly driven by the
increase in customer deposits.
At 30 June 2022, the Group Net Stable Funding Ratio (NSFR) stood
at 160% (compared to 145% at 31 March 2022 and 147% at 31 December
2021), well above the minimum regulatory requirement of 100%,
enforced in June 2021 as per CRR II.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.4 Loans
Group gross loans (inclusive of those classified as held for
sale) totalled EUR11,047 mn at 30 June 2022 , compared to EUR10,964
mn at 31 March 2022 and EUR10,856 mn at 31 December 2021, increased
by 2% since the beginning of the year.
New lending granted in Cyprus reached EUR537 mn for 2Q2022
(compared to EUR622 mn for 1Q2022) and totalled EUR1,159 mn for
1H2022 (compared to EUR 894 mn for 1H2021) up by 30% yoy, reaching
higher levels than the equivalent period pre-pandemic (1H2019),
whilst maintaining strict lending criteria. The yoy increase is
driven by increase in lending activity across all sectors, with
corporate being the main driver. New lending in 2Q2022 comprised
EUR238 mn of corporate loans, EUR196 mn of retail loans (of which
EUR145 mn were housing loans), EUR55 mn of SME loans and EUR48 mn
of shipping and international loans.
At 30 June 2022, the Group net loans and advances to customers
(excluding those classified as held for sale) totalled EUR10,144 mn
(compared to EUR10,004 mn at 31 March 2022 and EUR9,836 mn at 31
December 2021).
In addition, at 30 June 2022 net loans and advances to customers
of EUR247 mn were classified as held for sale in line with IFRS 5
of which EUR241 mn related to Project Helix 3 and EUR6 mn to
Project Sinope (see below), compared to EUR248 mn as at 31 March
2022 of which EUR241 mn related to Project Helix 3 and EUR7 mn to
Project Sinope.
The Bank is the single largest credit provider in Cyprus with a
market share of 41.2% at 30 June 2022, compared to 41.9% at 31
March 2022 and 38.8% at 31 December 2021. The increase in 1H2022 is
due to a reduction in loans in the banking system.
B.2.5 Loan portfolio quality
The Group has continued to make steady progress across all asset
quality metrics. As the balance sheet de-risking is largely
complete, t he Group's priorities include maintaining high quality
new lending and preventing asset quality deterioration following
the deteriorating macroeconomic landscape.
The loan credit losses for 2Q2022 totalled EUR11 mn (excluding
'Provisions/net (loss)/profit relating to NPE sales'), compared to
EUR12 mn for 1Q2022 and totalled EUR23 mn for 1H2022, compared to
EUR 35 mn for 1H2021 . Further details regarding loan credit losses
are provided in Section B.3.3 'Profit before tax and non-recurring
items'.
While defaults have been limited, the additional monitoring and
provisioning for sectors vulnerable to the deteriorated
macroeconomic environment remain in place to ensure that potential
difficulties in the repayment ability are identified at an early
stage, and appropriate solutions are provided to viable
customers.
The Group will continue to monitor the situation, so that any
changes arising from the uncertainty on the macroeconomic outlook
and geopolitical developments, are timely captured.
Non-performing exposures reduction
Non-performing exposures (NPEs) as defined by the European
Banking Authority (EBA) were reduced by EUR79 mn, or 6% in 2Q2022
(comprising net organic NPE reductions of EUR 74 mn and further net
NPE reductions of EUR 5 mn relating to the NPE sales lockbox
(inflows minus outflows)), compared to a reduction of EUR 96 mn in
1Q2022 to EUR1,168 mn at 30 June 2022 (compared to EUR1,247 mn at
31 March 2022). Pro forma for HFS, NPEs are reduced by a further
EUR568 mn to EUR600 mn on the basis of 30 June 2022 figures.
The NPEs account for 10.6% of gross loans as at 30 June 2022,
compared to 11.4% at 31 March 2022 and 12.4% as at 31 December
2021, on the same basis, i.e. including the NPE portfolios
classified as 'Non-current assets and disposal groups held for
sale'. Pro forma for HFS, the NPE ratio is reduced to 5.7% on the
basis of 30 June 2022 figures.
The NPE coverage ratio stands at 58% at 30 June 2022, compared
to 59% as at 31 March 2022 on the same basis, i.e. including the
NPE portfolios classified as 'Non-current assets and disposal
groups held for sale'. When taking into account tangible collateral
at fair value, NPEs are fully covered. Pro forma for HFS, NPE
coverage ratio is 59% on the basis of 30 June 2022 figures.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
Project Helix 3
In November 2021, the Group reached agreement for the sale of a
portfolio of NPEs with gross book value of EUR568 mn as at 30
September 2021, as well as real estate properties with book value
of c.EUR120 mn as at 30 September 2021, to funds affiliated with
Pacific Investment Management Company LLC (PIMCO), known as Project
Helix 3. This portfolio of loans had a contractual balance of
EUR993 mn as at the reference date of 31 May 2021 and comprises
c.20,000 loans, mainly to retail clients. As at 30 June 2022, 31
March 2022 and 31 December 2021, this portfolio of loans, as well
as the real estate properties included in Helix 3, were classified
as a disposal group held for sale. At completion, currently
expected to occur in 2H2022, the Bank will receive gross cash
consideration of c.EUR385 mn.
This portfolio of loans (as well as the real estate properties
included in Helix 3) will be transferred to a licensed Cypriot
Credit Acquiring Company (the "CyCAC") by the Bank. The shares of
the CyCAC will then be acquired by certain funds affiliated with
Pacific Investment Management Company LLC (PIMCO), the purchaser of
the portfolio.
Following a transitional period where servicing will be retained
by the Bank, it is intended that the servicing of the portfolio of
loans and the real estate properties included in Helix 3 will be
carried out by a third party servicer selected and appointed by the
purchaser.
Project Helix 3 represents a milestone in the delivery of one of
the Group's core strategic priorities of improving asset quality
through the reduction of NPEs. Pro forma for HFS, the Group's NPE
ratio is in mid-single digit. Helix 3 reduced the stock of NPEs by
50% to EUR600 mn pro forma on the basis of 30 June 2022 figures,
and its NPE ratio by 5 p.p., to 5.7% pro forma on the basis of 30
June 2022 figures.
All relevant figures and pro forma calculations are based on 30
June 2022 financial results, unless otherwise stated, and assume
completion of the transaction, which remains subject to customary
regulatory and other approvals.
Project Sinope
In December 2021, the Bank entered into an agreement for the
sale of a portfolio of NPEs, with a contractual balance of EUR146
mn and a gross book value of EUR12 mn as at 31 December 2021, as
well as properties in Romania with carrying value EUR0.6 mn as at
31 December 2021 (known as 'Project Sinope'). The portfolio has
been classified as held for sale since 31 December 2021. Project
Sinope was completed in August 2022.
O verall, since the peak in 2014 and pro forma for HFS, the
stock of NPEs has been reduced by EUR14.4 bn or 96% to EUR0.6 bn
and the NPE ratio by over 57 percentage points, from 63% to
5.7%.
The Group has already achieved a mid-single digit NPE ratio and
is on track to achieve a target NPE ratio of c.5% by the end of
2022 and less than 3% by the end of 2025.
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. Cumulative sales since the beginning of 2017 amount to
EUR1.46 bn and exceed properties on-boarded in the same period of
EUR1.35 bn.
During the six months ended 30 June 2022 the Group completed
disposals of EUR87 mn (compared to EUR 76 mn in 1H2021 ), resulting
in a profit on disposal of c.EUR8 mn for 1H2022 (compared to a
profit on disposal of EUR 7 mn for 1H2021). Asset disposals are
across all property classes, with over 60% of sales by value in
1H2022 relating to land.
As at 30 June 2022 the carrying value of assets held by REMU
transferred to " non-current assets and disposal groups held for
sale" amounted to EUR 90 mn (compared to EUR 94 mn at 31 March
2022). They relate to Project Helix 3 and Project Sinope and
comprise stock of property of EUR 85 mn and investment property of
EUR 5 mn as at 30 June 2022 (compared to stock of property of EUR
89 mn and investment properties of EUR 5 mn as at 31 March
2022).
During the six months ended 30 June 2022, the Group executed
sale-purchase agreements (SPAs) for disposals of 373 properties
with contract value of c.EUR99 mn, compared to SPAs for disposals
of 387 properties (with contract value of EUR85 mn) for 1H2021.
In addition, the Group had a strong pipeline of EUR81 mn by
contract value as at 30 June 2022, of which EUR41 mn related to
SPAs signed (compared to a pipeline of EUR85 mn as at 30 June 2021,
of which EUR48 mn related to SPAs signed).
REMU on-boarded EUR26 mn of assets in 1H2022 (compared to
additions of EUR21 mn in 1H2021), via the execution of debt for
asset swaps and repossessed properties.
As at 30 June 2022, assets held by REMU (excluding assets
classified as held for sale) had a carrying value of EUR1,146 mn
(comprising properties of EUR1,054 mn classified as 'Stock of
property' and EUR92 mn as 'Investment properties'), compared to
EUR1,215 mn as at 31 December 2021 (comprising properties of
EUR1,112 mn classified as 'Stock of property' and EUR103 mn as
'Investment properties').
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.6 Real Estate Management Unit (REMU) (continued)
Assets held by REMU
Assets held by REMU (Group)
EUR mn 1H2022 1H2021 2Q2022 1Q2022 qoq +% yoy +%
------ ------ ------ ------ ------
Opening balance 1,215 1,473 1,174 1,215 -3% -17%
------------------------------------------------------------------ ------ ------ ------ ------ ------ ------
On-boarded assets 26 21 18 8 118% 20%
------------------------------------------------------------------ ------ ------ ------ ------ ------ ------
Sales (87) (76) (43) (44) -2% 15%
------------------------------------------------------------------ ------ ------ ------ ------ ------ ------
Net impairment loss (8) (9) (3) (5) -25% -6%
------------------------------------------------------------------ ------ ------ ------ ------ ------ ------
Transfer to non-current assets and disposal groups held for sale - (5) - - - -100%
------------------------------------------------------------------ ------ ------ ------ ------ ------ ------
Closing balance 1,146 1,404 1,146 1,174 -2% -18%
------------------------------------------------------------------ ------ ------ ------ ------ ------ ------
Analysis by type and country Cyprus Greece Romania Total
30 June 2022 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 77 21 0 98
Offices and other commercial
properties 207 15 0 222
Manufacturing and industrial
properties 53 24 0 77
Hotels 24 0 0 24
Land (fields and plots) 474 5 0 479
Golf courses and golf-related
property 246 0 0 246
Total 1,081 65 0 1,146
------- ------- --------
Cyprus Greece Romania Total
31 December 2021 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 82 23 0 105
Offices and other commercial
properties 208 23 0 231
Manufacturing and industrial
properties 54 24 0 78
Hotels 25 - - 25
Land (fields and plots) 524 5 1 530
Golf courses and golf-related
property 246 - - 246
Total 1,139 75 1 1,215
------- ------- --------
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis
B.3.1 Total income
EUR mn 1H2022 1H2021 2Q2022 1Q2022 qoq +% yoy +%
(restated)
(1)
------- ------------ ------- ------- ------
Net interest income 145 152 74 71 4% -4%
------------------------------------ ------- ------------ ------- ------- ------ -------
Net fee and commission
income 94 84 50 44 14% 12%
Net foreign exchange
gains and net gains/(losses)
on financial instruments 11 9 5 6 -3% 23%
Insurance income net
of claims and commissions 33 31 17 16 1% 6%
Net gains/(losses) from
revaluation and disposal
of investment properties
and on disposal of stock
of properties 7 6 2 5 -59% 15%
Other income 9 6 5 4 19% 52%
------------------------------------ ------- ------------ ------- ------- ------ -------
Non-interest income 154 136 79 75 6% 13%
------------------------------------ ------- ------------ ------- ------- ------ -------
Total income 299 288 153 146 5% 4%
------------------------------------ ------- ------------ ------- ------- ------ -------
Net Interest Margin (annualised)(2) 1.32% 1.56% 1.33% 1.32% 1 bps -24 bps
------------------------------------ ------- ------------ ------- ------- ------ -------
Average interest earning
assets
(EUR mn)(1) 22,235 19,652 22,436 21,942 2% 13%
------------------------------------ ------- ------------ ------- ------- ------ -------
1. Comparative information was restated following a reclassification of
approximately EUR1 million loss relating to disposal/dissolution of subsidiaries
and associates from 'Net foreign exchange gains and net gains/(losses) on
financial instruments' to 'Other income'. More information is provided in
Note 3.1 of the Consolidated Condensed Interim Financial Statements.
2. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant .
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Net interest income (NII) for 1H2022 amounted to EUR145 mn,
compared to EUR 152 mn in 1H2021 , down 4% yoy reflecting the
foregone NII on the Helix 2 portfolio (c.EUR 15 mn in 1H2021) . Net
interest income (NII) for 2Q2022 amounted to EUR 74 mn, compared to
EUR 7 1 mn for 1Q2022, driven by the growth in the performing
(non-legacy) loan book, loan yields improvement in line with rising
interest rates and the effect of two additional calendar days in
the second quarter.
Quarterly average interest earning assets (AIEA) for 1H2022
amounted to EUR22,235 mn, up by 13% yoy driven by the increase in
liquid assets following the increase in deposits by EUR1.6 bn yoy .
Quarterly average interest earning assets for 2Q2022 increased by
2% .
Net interest margin (NIM) for 1H2022 amounted to 1.32% (compared
to 1.56% for 1H2021) negatively impacted by the corresponding
decrease in NII and the increase in average interest earning
assets. Net interest margin (NIM) for 2Q2022 stood at 1.33% flat
qoq.
Non-interest income for 1H2022 amounted to EUR154 mn (compared
to EUR136 mn for 1H2021, up by 13% yoy), comprising net fee and
commission income of EUR94 mn, net foreign exchange gains and net
gains/(losses) on financial instruments of EUR11 mn, net insurance
income of EUR33 mn, net gains/(losses) from revaluation and
disposal of investment properties and on disposal of stock of
properties of EUR7 mn and other income of EUR9 mn. The yoy increase
is mainly due to higher net fee and commission income, following
the introduction of a revised price list and extension of liquidity
fees to a wider customer group in 1Q2022.
Non-interest income for 2Q2022 amounted to EUR79 mn (compared to
EUR75 mn for 1Q2022, up by 6% qoq), comprising net fee and
commission income of EUR50 mn, net foreign exchange gains and net
gains/(losses) on financial instruments of EUR5 mn, net insurance
income of EUR17 mn, net gains/(losses) from revaluation and
disposal of investment properties and on disposal of stock of
properties of EUR2 mn and other income of EUR5 mn. The qoq increase
relates to higher net fee and commission income partially offset by
lower net gains/(losses) from revaluation and disposal of
investment properties and on disposal of stock of properties.
Net fee and commission income for 1H2022 amounted to EUR94 mn,
(compared to EUR 84 mn for 1H2021, up 12% yoy), driven mainly by
the introduction of a revised price list in February 2022 and the
extension of liquidity fees to a wider customer group in March
2022. Net fee and commission income for 2Q2022 amounted to EUR50
mn, up 14% qoq (compared to EUR44 mn for 1Q2022), due to higher
volume of transaction fees, the full impact of the introduction of
the revised price list and extension of liquidity fees as well as
higher credit card commissions due to seasonality.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.1 Total income (continued)
Net foreign exchange gains and net gains/(losses) on financial
instruments of EUR11 mn for 1H2022 (comprising net foreign exchange
gains of EUR 12 mn and net losses on financial instruments of EUR 1
mn), compared to EUR9 mn for 1H2021 ( comprising net foreign
exchange gains of EUR 7 mn and net gains on financial instruments
of EUR2 mn ) and increased by 23% yoy. The increase yoy is mainly
due to the lower net foreign exchange gains in 1H2021, impacted by
the lockdown and the higher interest rates compared to previous
years.
Net foreign exchange gains and net gains/(losses) on financial
instruments amounted to EUR5 mn for 2Q2022, broadly flat qoq .
Net insurance income amounted to EUR33 mn for 1H2022, compared
to EUR31 mn for 1H2021. The increase of 6% yoy is mainly due to
increased new business and the positive changes in valuation
assumptions, partially offset by higher insurance claims. Net
insurance income amounted to EUR 17 mn for 2Q2022, broadly flat
qoq.
Net gains/(losses) from revaluation and disposal of investment
properties and on disposal of stock of properties for 1H2022
amounted to EUR7 mn (comprising net gains on disposal of stock of
properties of c.EUR8 mn, and net losses from revaluation of
investment properties of c.EUR1 mn) , compared to EUR6 mn in 1H2021
which was impacted by the lockdown.
Net gains/(losses) from revaluation and disposal of investment
properties and on disposal of stock of properties for 2Q2022
amounted to EUR 2 mn, compared to EUR 5 mn for 1Q2022. REMU profit
remains volatile.
Total income for 1H2022 amounted to EUR299 mn, compared to
EUR288 mn for 1H2021 (up 4% yoy), mainly driven by the changes in
the non-interest income as explained above. Total income for 2Q2022
stood at EUR 153 mn, compared to EUR1 46 mn for 1Q2022, up by 5%
qoq, driven by 14% increase in net fee and commission income and 4%
increase in net interest income.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.2 Total expenses
EUR mn 1H2022 1H2021 2Q2022 1Q2022 qoq +% yoy +%
(restated)
(1)
-------- ------------ ------- ------- -------
Staff costs (100) (101) (50) (50) 1% -1%
Other operating expenses (73) (70) (37) (36) 2% 5%
---------------------------------- -------- ------------ ------- ------- ------- -------
Total operating expenses (173) (171) (87) (86) 2% 2%
---------------------------------- -------- ------------ ------- ------- ------- -------
Special levy on deposits
and other levies/contributions (17) (15) (7) (10) -33% 8%
Total expenses (190) (186) (94) (96) -2% 2%
-------- ------------ ------- ------- -------
Cost to income ratio(2) 63% 64% 61% 66% -5 p.p. -1 p.p.
---------------------------------- -------- ------------ ------- ------- ------- -------
Cost to income ratio
excluding special levy
on deposits and other
levies/contributions
(2) 58% 59% 57% 59% -2 p.p. -1 p.p.
---------------------------------- -------- ------------ ------- ------- ------- -------
1. Comparative information was restated following a reclassification of
approximately EUR1 million loss relating to disposal/dissolution of subsidiaries
and associates from 'Net foreign exchange gains and net gains/(losses) on
financial instruments' to 'Other income'. More information is provided in
Note 3.1 of the Consolidated Condensed Interim Financial Statements.
2. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant .
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Total expenses for 1H2022 were EUR190 mn (compared to EUR186 mn
for 1H2021), up by 2% yoy, 53% of which related to staff costs
(EUR100 mn), 38% to other operating expenses (EUR73 mn) and 9% to
special levy on deposits and other levies/contributions (EUR17 mn).
The yoy increase of 2% is driven by the 5% yoy increase in other
operating expenses and 8% yoy increase in special levy on deposits
and other levies/contributions. Total expenses for 2Q2022 were EUR
94 mn, compared to EUR 96 mn for 1Q2022, down by 2% qoq. The qoq
decrease is driven by the 33% qoq decrease in special levy on
deposits and other levies/contributions.
Total operating expenses for 2Q2022 were EUR87 mn (compared to
EUR86 mn for 1Q2022) up 2% and totalled EUR173 mn for 1H2022,
compared to EUR171 mn for 1H2021 (up by 2% yoy).
Staff costs for 1H2022 were EUR100 mn, compared to EUR 101 mn
for 1H2021, broadly flat yoy, resulting from the combined impact of
the Voluntary Staff Exit Plans that took place in the previous
quarters, the renewal of the collective agreement, and despite
rising inflation. Staff costs for 2Q2022 amounted to EUR 50 mn flat
qoq.
The Group employed 3,422 persons as at 30 June 2022 compared to
3,395 persons as at 31 March 2022 and 3,438 persons as at 31
December 2021.
In July 2022 the Group completed a Voluntary Staff Exit Plan,
through which c.550 applicants were approved to leave at a total
cost of c.EUR 99 mn, expected to be recorded in the consolidated
income statement in the third quarter. Following the completion of
the VEP, the overall number of employees is reduced by c.16%, with
an estimated annual saving of c. EUR 37 mn or c.19% of staff
costs.
In addition, in January 2022 the Group through one of its
subsidiaries completed a Voluntary Staff Exit Plan (VEP), through
which a small number of its employees were approved to leave at a
total cost of EUR3 mn, recorded in the consolidated income
statement in 1Q2022 as a non-recurring item in the underlying
basis.
In July 2021, the Bank reached agreement with the Cyprus Union
of Bank Employees for the renewal of the collective agreement for
the years 2021 and 2022. The agreement related to certain changes
including the introduction of a new pay grading structure linked to
the value of each position of employment, and of a
performance-related pay component as part of the annual salary
increase, both of which have been long-standing objectives of the
Bank and are in line with market best-practice. The expected impact
of the renewal was an increase in staff costs for 2021 and 2022 by
3-4% per annum, in line with the impact of renewals in previous
years.
Other operating expenses for 1H2022 were EUR73 mn, compared to
EUR70 mn in 1H2021 (up 5% yoy) reflecting the pandemic-related
lockdown in 1Q2021. Other operating expenses for 2Q2022 amounted to
EUR37 mn, compared to EUR36 mn for 1Q2022, up by 2% qoq driven by
seasonally higher marketing expenses.
Special levy on deposits and other levies/contributions for
1H2022 amounted to EUR17 mn (compared to EUR15 mn for 1H2021) up 8%
yoy, driven by the increase in deposits of over EUR 1.6 bn yoy .
Special levy on deposits and other levies/contributions for 2Q2022
were EUR 7 mn down by 33% qoq, due to the EUR 3 mn contribution of
the Bank to the Deposit Guarantee Fund (DGF) which relates to
1H2022 and was recorded in 1Q2022, in line with IFRSs.
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 1H2022 was 58%, compared to 59% for
1H2021. The cost to income ratio excluding special levy on deposits
and other levies/contributions for 2Q2022 was 57%, compared to 59%
for 1Q2022. The qoq decrease of 2 p.p. is driven by the qoq
increase in total income.
The cost to income ratio excluding special levy on deposits and
other levies/contributions for 2022 is revised downwards to around
current levels from initial expectations of mid-60s , reflecting
mainly the rising revenue on improving interest rate environment
and management's ongoing efforts to contain costs. In 2023 the cost
to income ratio excluding special levy on deposits and other
levies/contributions is expected to decrease further to c.50%, as
efficiency actions on staff and branch reduction unlock meaningful
savings in 2023.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.3 Profit before tax and non-recurring items
EUR mn 1H2022 1H2021 2Q2022 1Q2022 qoq+%
(restated)
(1) yoy +%
-------- ------------- -------- ------- ------
Operating profit before
credit losses and impairments 109 102 59 50 18% 7%
---------------------------------- -------- ------------- -------- ------- ------ -------
Loan credit losses (23) (35) (11) (12) -6% -34%
Impairments of other
financial and non-financial
assets (13) (11) (8) (5) 58% 17%
Provisions for litigation,
claims, regulatory and
other matters (1) (4) (1) (0) 66% -86%
---------------------------------- -------- ------------- -------- ------- ------ -------
Total loan credit losses,
impairments and provisions (37) (50) (20) (17) 14% -27%
---------------------------------- -------- ------------- -------- ------- ------ -------
Profit before tax and
non-recurring items 72 52 39 33 20% 41%
---------------------------------- -------- ------------- -------- ------- ------ -------
Cost of risk(2) 0.43% 0.61% 0.41% 0.44% -3 bps -18 bps
---------------------------------- -------- ------------- -------- ------- ------ -------
1. Comparative information was restated following a reclassification of
approximately EUR1 million loss relating to disposal/dissolution of subsidiaries
and associates from 'Net foreign exchange gains and net gains/(losses) on
financial instruments' to 'Other income'. More information is provided in
Note 3.1 of the Consolidated Condensed Interim Financial Statements.
2. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant .
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Operating profit before credit losses and impairments for 1H2022
was EUR109 mn, compared to EUR102 mn for 1H2021 (up by 7% yoy).
Operating profit before credit losses and impairments for 2Q2022
amounted to EUR 59 mn, compared to EUR 50 mn for 1Q2022, up by 18%
qoq driven by the increase in total income qoq.
Loan credit losses for 1H2022 totalled EUR23 mn, compared to
EUR35 mn for 1H2021 (down by 34% yoy), as 1H2021 loan credit losses
included COVID-19 charges. Loan credit losses for 2Q2022 amounted
to EUR 11 mn compared to EUR 12 mn for 1Q2022, down 6% qoq.
C ost of risk for 1H2022 was 43 bps, compared to a cost of risk
of 61 bps for 1H2021, down by 18 bps as 1H2021 cost of risk
included 21 bps credit losses related to COVID-19. Cost of risk for
2Q2022 accounted for 41 bps, broadly flat qoq and includes 18 bps
(c.EUR 5 mn) reflecting management overlays on sectors (such as
tourism, private individuals, transportation, construction and real
estate) that may be impacted by the ongoing geopolitical
uncertainty and soaring energy prices resulting to pressure on
domestic economy and a release of 5 bps due to the improved 2022
macroeconomic outlook for the Cypriot economy compared to the
previous quarter projections.
At 30 June 2022, the allowance for expected loan credit losses,
including residual fair value adjustment on initial recognition and
credit losses on off-balance sheet exposures (please refer to
Section F. 'Definitions & Explanations' for definition)
totalled EUR677 mn (compared to EUR 734 mn at 31 March 2022 and
EUR792 mn at 31 December 2021) and accounted for 6.1% of gross
loans including portfolios held for sale (compared to 6.7% and 7.3%
of gross loans including portfolios held for sale at 31 March 2022
and 31 December 2021 respectively).
Impairments of other financial and non-financial assets for
1H2022 amounted to EUR13 mn, compared to EUR 11 mn for 1H2021 .
Impairments of other financial and non-financial assets for 2Q2022
amounted to EUR 8 mn, compared to EUR 5 mn for 1Q2022, up by 58%
qoq, impacted mainly by higher impairment charges on net legacy
overseas exposures.
Provisions for litigation, claims, regulatory and other matters
for 1H2022 amounted to EUR 1 mn, compared to EUR4 mn for 1H2021.
Provisions for litigation, claims, regulatory and other matters for
2Q2022 were broadly flat qoq.
Profit before tax and non-recurring items for 1H2022 totalled
EUR72 mn, compared to EUR52 mn for 1H2021 (up by 41% yoy). Profit
before tax and non-recurring items for 2Q2022 amounted to EUR 39 mn
compared to EUR 33 mn for 1Q2022 (up by 20% qoq).
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3. 4 Profit after tax (attributable to the owners of the
Company)
EUR mn 1H2022 1H2021 2Q2022 1Q2022 qoq +%
(restated)
(1) yoy +%
----------------------------------- -------- ------------- ------- ------- ------ ------
Profit before tax and
non-recurring items 72 52 39 33 20% 41%
----------------------------------- -------- ------------- ------- ------- ------ ------
Tax (12) (1) (6) (6) 10% -
Profit attributable to
non-controlling interests (1) (0) (1) 0 - 60%
Profit after tax and
before non-recurring
items (attributable to
the owners of the Company) 59 51 32 27 18% 20%
-------- ------------- ------- ------- ------
Advisory and other restructuring
costs - organic (5) (18) (4) (1) 219% -70%
----------------------------------- -------- ------------- ------- ------- ------ ------
Profit after tax - organic
(attributable to the
owners of the Company) 54 33 28 26 8% 70%
----------------------------------- -------- ------------- ------- ------- ------ ------
Provisions/net (loss)/profit
relating to NPE sales(2) 0 (16) 1 (1) -172% -97%
Restructuring and other
costs relating to NPE
sales(2) (1) (16) 0 (1) 49% -92%
Restructuring costs -
Voluntary Staff Exit
Plan (VEP) (3) - - (3) -100% -
Profit after tax (attributable
to the owners of the
Company) 50 1 29 21 35% -
-------- ------------- ------- ------- ------
1. Comparative information was restated following a reclassification of
approximately EUR1 million loss relating to disposal/dissolution of subsidiaries
and associates from 'Net foreign exchange gains and net gains/(losses) on
financial instruments' to 'Other income'. More information is provided in
Note 3.1 of the Consolidated Condensed Interim Financial Statements.
2. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant .
The tax charge for 2Q2022 is EUR6 mn, at the same levels as for
1Q2022 and totalled to EUR 12 mn for 1H2022, compared to EUR 1 mn
for 1H2021.
Profit after tax and before non-recurring items (attributable to
the owners of the Company) for 1H2022 is EUR59 mn, compared to
EUR51 mn for 1H2021. 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 7.3% for 1H2022, compared to 6.1% for 1H2021. Profit
after tax and before non-recurring items (attributable to the
owners of the Company) for 2Q2022 amounted to EUR 32 mn, reflecting
a ROTE before non-recurring items of 7.8%, compared to EUR 27 mn
for 1Q2022 (and a ROTE of 6.7%).
Advisory and other restructuring costs - organic for 1H2022
amounted to EUR5 mn, compared to EUR18 mn for 1H2021, down by 70%
mainly due to ad-hoc cost related to the tender offer for Existing
Tier 2 Capital Notes amounting to EUR 12 mn in 1H2021. Advisory and
other restructuring costs - organic for 2Q2022 amounted to EUR 4
mn, compared to EUR 1 mn for 1Q2022 and relate to the
transformation programme and other strategic projects of the
Group.
Profit after tax arising from the organic operations
(attributable to the owners of the Company) for 1H2022 amounted to
EUR54 mn, compared to EUR33 mn for 1H2021. Profit after tax arising
from the organic operations (attributable to the owners of the
Company) for 2Q2022 is EUR28 mn, compared to EUR 26 mn for 1Q2022,
up 8% qoq.
Provisions/net (loss)/profit relating to NPE sales for 1H2022
amounted to less than EUR 1 mn relating to Helix 3, compared to
EUR16 mn for 1H2021 (relating to Helix 2). Provisions/net
(loss)/profit relating to NPE sales for 2Q2022 was a net profit of
EUR 1 mn, compared to a net loss of EUR 1 mn in 1Q2022.
Restructuring and other costs relating to NPE sales for 1H2022
was EUR1 mn, compared to EUR16 mn for 1H2021 (relating to the
agreements for the sale of portfolios of NPEs). Restructuring and
other costs relating to NPE sales for 2Q2022 was minimal, compared
to EUR 1 mn for 1Q2022.
Restructuring costs relating to the Voluntary Staff Exit Plan
(VEP) amounted to EUR3 mn for 1H2022, compared to Nil for 1H2021.
For further details please refer to Section B.3.2 'Total
expenses'.
Profit after tax attributable to the owners of the Company for
1H2022 was EUR50 mn, compared to EUR1 mn for 1H2021. Profit after
tax attributable to the owners of the Company for 2Q2022 amounted
to EUR 29 mn, compared to EUR 21 mn for 1Q2022.
C. Operating Environment
Real GDP increased by 6.1% in the second quarter 2022 on a
seasonally adjusted basis, compared to 6% in the first quarter
2022, which was revised upwards from an initial estimate of 5.6%.
Economic growth in the first six months of 2022 was 6.1% compared
to 5.6% in 2021, facilitated mainly by the faster-than-expected
recovery of tourism and the continuing expansion of exports of
other services. The economic fallout of the war in Ukraine and
Western sanctions on Russia was offset by strong economic activity
broadly in the economy, but significant headwinds remain, as a
result of higher inflation, the ongoing energy crisis and monetary
tightening.
Tourism in Cyprus and in Europe in general, is expected to be
stronger than in 2021. Governments have rolled back
COVID-19-related travel restrictions and as a result entering
countries does not require pre-departure tests. Airlines have
increased capacity in anticipation of firmer passenger demand.
Tourism-dependent economies like Cyprus are expected to benefit
from a recovery in arrivals in 2022, although significant
uncertainty remains regarding demand for tourism in 2023.
Tourist arrivals in the first seven months of 2022 reached 1.7
million people or 77% of the corresponding arrivals in 2019,
recovering towards pre-pandemic levels. Likewise, receipts in the
first six months of the year reached 83% of corresponding receipts
in 2019. The prospects for the sector remain positive for the
remainder of the tourist season, based on data on planned
international flights and surveys on reservations for tourist
accommodation, despite a sizeable loss of tourism from Russia
(c.20% of 2019 levels).
Other short-term indicators are relatively mixed on the supply
side and stronger on the demand side. Thus, retail sales in volume
terms recovered strongly in May-June 2022, driven by non-food items
except of automotive fuel, after a slump in March-April 2022. Total
car registrations were down in January-July 2022, which may reflect
global supply constraints in car manufacturing and export. In the
construction sector the volume of building permits in the first
five months of 2022 were down driven by drops in April and March
after positive first three months.
Consumer inflation has been accelerating from the third quarter
of 2021 onward, as a result mainly of supply chain disruptions, the
resulting higher energy and food prices, and other shortages in
commodities and industrial goods. The harmonised index of consumer
prices increased by 7.4% in the Euro area on average in
January-July, from one year earlier, rising by 8.9% in July alone
according to the Eurostat. Respectively in Cyprus, the harmonised
index of consumer prices increased by 7.7% in January-July and by
10.6% in July. Energy prices increased by 35% in Cyprus in
January-July 2022. The overall index excluding energy increased by
4.9% and by 4.3% when food is also excluded. The all-services index
was up 4.4% in the period. Thus, core inflation is considerably
lower than headline inflation, but still higher than in previous
periods.
Higher and more persistent inflation has driven the ECB to adopt
a more aggressive monetary stance. In their last meeting of the
policy setting governing council in July 2022, the ECB raised its
main refinancing operations rate, by 50 basis points, the first
interest rate increase in eleven years, and also approved a new
policy tool, the Transmission Protection Instrument (TPI). This is
a country specific bond purchasing instrument, designed to counter
undue pressures on individual member countries' bond yields, that
are not justified by their economic fundamentals and to prevent
marked interest rate divergences in the euro area. By approving the
new instrument, the ECB has signalled its resolve to intervene as
necessary to keep market dynamics from disrupting its policy
transmission mechanism.
Rising inflation and interest rates do not pose any immediate
threats to financial stability in the Eurozone provided highly
indebted countries ensure debt sustainability in the medium term,
which presupposes a series of reforms and restructuring. The
debt-to-GDP ratio drops for a period of time, as inflation and
nominal GDP rise in tandem.
The recovery in 2021 underpinned a significant increase in
general government revenue and a relative drop in government
spending. As a result, the budget deficit narrowed to 1.6% of GDP
from a deficit of 5.7% of GDP in 2020 when the government
implemented measures to support the economy amidst a deep recession
induced from the COVID-19 pandemic. The public debt to GDP ratio
dropped to 103.6% in 2021 from a bloated 115% in 2020. During the
first six months of 2022 there has been a significant improvement
in public finances. Driven by higher inflation and a higher nominal
GDP, total revenues increased by 16.7% from the year before while
total spending declined by 1%. As a result, the budget was near
balanced in the period, and a small surplus may be expected for the
year as a whole. The debt-to-GDP ratio is expected to decline
further in 2022.
The underlying resilience of the banking system improved
steadily in recent years, and starting positions are vastly
different today than what they were more than ten years ago. Banks
restructured their operations, shrunk their balance sheets, and
bolstered liquidity and capital positions. They refocused their
operations domestically and reduced markedly their overseas
exposures. Prudential oversight has been strengthened within the EU
supervisory framework. However, weaknesses persist evidenced in
high cost to income, low profitability and concerns about a renewed
rise in NPEs if problems in some sectors related with the COVID-19
pandemic and the Ukrainian crisis, persist. Banks managed to
weather the pandemic crisis well, with their liquidity and capital
buffers intact. Non-performing loans continued their declining
trend attributed mostly to sales packages by the two largest banks.
However, amidst uncertain conditions asset quality remains a focal
point for bank management and the supervisory authorities. The
Russia-Ukraine war poses new challenges, and close monitoring of
developments will be required. Total NPEs at the end of May 2022
amounted to EUR3 billion, unchanged since December 2021. The ratio
to gross loans was 11.4% and the coverage ratio of provisions to
non-performing exposures was 50.7%. Loans to residents excluding
the government, dropped to EUR23.3 bn at the end of June 2022, or
about 90% of expected nominal GDP at year end.
C. Operating Environment (continued)
Cyprus received the first disbursement from the Recovery and
Resilience Facility of EUR157 mn in September 2021 and applied for
the second disbursement of EUR85 mn in July 2022. The allocation in
grants and loans amount to EUR1.2 bn in total (EUR1 bn in grants
and EUR200 mn in loans) and will be conditional on the
implementation of the reforms agreed in the national recovery plan.
The plan allocates 41% of the funds to green investments and an
additional 23% to digital investments. Reforms include increasing
the efficiency of the public sector and local government; improving
the governments of state-owned enterprises; improving the
efficiency of the judicial system; and accelerating anti-corruption
reforms.
Economic activity remained resilient in the year so far, despite
the fallout of the war in Ukraine and Western sanctions on Russia.
According to an announcement from the press office of the Minister
of Finance, real GDP is expected to grow by over 5% in 2022,
outperforming the Euro area. Real GDP is expected to slow in 2023,
as the external environment, particularly in Europe is expected to
deteriorate .
Sanctions and Russia's retaliation by cutting supplies, will
exacerbate Europe's energy crisis in the coming winter. Gas
shortages can be expected, and rationing may become necessary in
the industrial sectors. Households will be affected, and industrial
activity may be disrupted. All countries will be impacted by
soaring energy prices, fall in confidence and weaker external
trade. Europe's efforts to decouple from Russia and secure
alternative sources of gas supply will continue but will face
limitations. In these conditions the risk of disruption increases,
and confidence is undermined. The agreement reached in the EU for
the voluntary reduction of gas usage by 15% will be helpful in
reducing disruption but sharing across member states may become
necessary in some cases. Higher prices will likely persist which
will have real income effects.
Sovereign ratings
The sovereign risk ratings of the Cyprus Government improved
considerably in recent years reflecting reduced banking sector
risks, and improvements in economic resilience and consistent
fiscal outperformance. Cyprus demonstrated policy commitment to
correcting fiscal imbalances through reform and restructuring of
its banking system. Public debt remains high in relation to GDP but
large-scale asset purchases from the ECB ensure favourable funding
costs for Cyprus and ample liquidity in the sovereign bond
market.
Most recently in August 2022, Moody's Investors Service affirmed
the Government of Cyprus' long-term issuer and senior unsecured
ratings to Ba1 and changed the outlook from stable to positive. The
key drivers reflecting the affirmation are the strong reduction in
Cyprus' public debt ratio in 2022, stronger-than expected economic
resilience to Russia's invasion of Ukraine and the COVID-19
pandemic as well the ongoing strengthening of the banking
sector.
In March 2022, Fitch Ratings affirmed Cyprus' Long-Term Issuer
Default rating at investment grade BBB- since November 2018 and
stable outlook. The stable outlook reflects the view that despite
Cyprus' exposure to Russia through its tourism and investment
linkages, near-term risks are mitigated by a strengthened
government fiscal position, and continued normalisation of spending
after the pandemic shock. Meanwhile, medium-term growth prospects
remain positive on the back of the government's Recovery and
Resilience Plan (RRP).
Also in March 2022, S&P Global Ratings affirmed Cyprus'
investment grade rating of BBB- and positive outlook. The positive
outlook reflects the view that Cyprus' sovereign rating could be
upgraded within the next 24 months if the country's economic and
budgetary performance continues to strengthen, supported by the
Government's implementation of structural reforms. While the crisis
in Ukraine weighs on Cyprus' economic performances via the
sanctions imposed on Russia, medium-term economic prospects remain
solid according to S&P.
In April 2022, DBRS Morningstar upgraded the Republic of
Cyprus's Long-Term Foreign and Local Currency - Issuer Ratings from
BBB (low) to BBB and changed the trend from Positive to Stable. The
rating upgrades reflect Cyprus' stronger-than-anticipated economic
and public finance performance during 2021 and the expectation of
DBRS Morningstar that medium term conditions remain supportive of
Cyprus' debt reduction efforts, despite risks posed by Russia's
invasion of Ukraine and the pandemic.
D. Business Overview
Credit ratings
The Group's financial performance is highly correlated to the
economic and operating conditions in Cyprus. In June 2022, Standard
and Poor's affirmed their long-term issuer credit rating on the
Bank of B+, maintaining the positive outlook, despite the
deteriorating macroeconomic environment and escalating inflation.
In December 2021, Moody's Investors Service upgraded the Bank's
long-term deposit rating to Ba3 from B1, maintaining the positive
outlook. The upgrade reflects significant ongoing improvement in
the Bank's asset quality following the agreement reached for
Project Helix 3 in November 2021. In December 2021, Fitch Ratings
affirmed the Bank's long-term issuer default rating of B- and
revised the outlook to positive from negative. The revision of the
outlook reflects significant improvement in asset quality following
the agreement reached for Project Helix 3, as well as in
organically reducing problem assets since the end of 2019, despite
an adverse operating environment in Cyprus, together with an
expectation that this trend will continue in the near future.
Strategic priorities for the medium term
The Group is a diversified, leading, financial and technology
hub in Cyprus. In February 2022, the Group updated its medium term
strategic targets with an increased focus on creating shareholder
value and increased its medium term return on tangible equity
(ROTE) target to over 10% (2025), providing the foundations for a
return to dividend distributions, subject to performance and
relevant approvals. The prolonged geopolitical crisis in Ukraine
has changed the economic landscape, reflecting potential slowdown
in economic growth impacted by the escalating inflationary
pressures and rising interest rate outlook. As a result of the
changing and dynamic economic outlook, the Group will benefit
substantially from the interest rate increases, setting NII to
growth trajectory and outweighing potential pressures on total
operating costs and cost of risk. Overall, return on tangible
equity (ROTE) is now expected to reach to over 10% in 2023,
supporting the ability to make meaningful dividend distributions
from 2023 onwards, subject to regulatory approvals and market
conditions. A ROTE in excess of 10% for 2024-2025 is
reaffirmed.
Favourable interest rate environment
The structure of the Group's balance sheet is geared towards
higher interest rates. As at 30 June 2022, cash balances with ECB
(including TLTRO of c.EUR 3.0 bn and Exempt Tier of c.EUR 1.0 bn )
amounted to c.EUR9. 9 bn and following the uplift of 50 bps of ECB
deposit rate in July 2022, the Group will have an immediate NII
benefit of c.EUR 12 mn. The repricing of the reference rates will
gradually benefit the interest income on loans, as around 50% of
the loan book is priced on Euribor. Overall, the rising interest
rate environment facilitates faster growth in net interest income,
with FY2022 NII expected to reach to c.EUR 320 mn. NII is expected
to increase further in 2023 by a range of EUR 100 mn to EUR 120 mn
on a yearly basis. These improvements in NII demonstrate faster
repricing of loans and liquids than funding costs and incorporate
assumptions on partial pass-through to deposits, gradual change in
deposit mix, and higher wholesale funding costs.
Growing revenues in a more capital efficient way
The Group has a renewed focus on growing revenues in a more
capital efficient way. It aims to grow its high quality new
lending, drive growth in niche areas for further market penetration
and diversify through non-banking services, such as insurance and
digital products.
The Group has continued to provide high quality new loans in
1H2022 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 .
During 1H2022, new lending amounted to EUR1.2 bn, increased by
30% yoy, returning to pre-pandemic levels, whilst maintaining
strict lending criteria . The yoy increase is driven by increased
activity across all sectors. As a result, the net performing loan
book expanded further to EUR 9.7 bn reflecting an increase of 4%
during the six months 2022. Aiming at supporting investments by
SMEs and Mid-Caps, the Bank continues its collaboration with the
European Investment Bank (EIB), the European Investment Fund (EIF)
and the Cyprus Government.
Separately, the Group aims to increase revenues over the medium
term through multiple less capital-intensive initiatives, with a
focus on fees and commissions, insurance and non-banking
opportunities, leveraging on the Group's digital capabilities. In
1Q2022, a revised price list for charges and fees was implemented
and liquidity fees were extended to a wider customer group. As a
result, net fee and commission income for 1H2022 remained strong at
EUR94 mn, reflecting an increase of 12% yoy. Net fee and commission
income is likely to be under pressure in the near term mainly due
to the phasing out of liquidity fees in 2023.
Net fee and commission income is also enhanced by transaction
fees from the Group's subsidiary, JCC Payment Systems Ltd (JCC), a
leading player in the card processing business, 75% owned by the
Bank. JCC's net fee and commission income contributed 9% of
non-interest income and amounted to EUR 12 mn in 1H2022, up 26%
yoy, backed by strong transaction volume.
D. Business Overview (continued)
Strategic priorities for the medium term (continued)
Growing revenues in a more capital efficient way (continued)
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 income, further diversifying the
Group's income streams. The insurance income net of claims and
commissions for 1H2022 contributed to 21% of non-interest income
and amounted to EUR33 mn, up 6% yoy, driven by increased new
business and the positive changes in valuation assumptions,
partially offset by higher insurance claims. Specifically, Eurolife
increased its total regular income by 19% yoy, whilst GIC increased
its gross written premiums by 8% yoy. Furthermore, there are
initiatives underway to further enhance the value of the insurance
companies by business growth supported by digitisation and a lean
operating structure. For information on IFRS 17 please refer to the
relevant subsection below.
Finally, the Group through the Digital Economy Platform (Jinius)
aims to generate new revenue sources over the medium term,
leveraging on the Bank's market position, knowledge and digital
infrastructure. The Platform aims to bring stakeholders together,
link businesses with each other and with consumers and to drive
opportunities in lifestyle banking and beyond. The platform is
expected to allow the Bank to enhance the engagement of its
customer base, attract new customers, optimise the cost of the
Bank's own processes, and position the Bank next to the customer at
the point and time of need.
Lean operating model
Striving for a lean operating model is a key strategic pillar
for the Group in order to deliver shareholder value in the medium
term, whilst funding its digital transformation and investing in
the business. Management also expects that restructuring costs will
be effectively eliminated as balance sheet de-risking is largely
complete.
Management remains focused on further improvement in efficiency,
through for example further branch footprint optimisation and
substantial streamline of workforce. In July 2022 the Group
successfully completed a voluntary staff exit plan (VEP) through
which c.550 applicants were approved to leave at a total cost of
c.EUR 99 mn. Following the completion of the Plan, the overall
number of employees is reduced by c.16% whilst the annual savings
are estimated at c. EUR 37 mn or 19% of staff costs. Additionally
in January 2022 one of the Bank's subsidiaries completed a
small-scale targeted voluntary staff exit plan (VEP), through which
a small number of full-time employees were approved to leave at a
total cost of EUR3 mn. In relation to branch restructuring, the
Group has reduced its number of branches by 20 year-to-date to 60,
a reduction of 25%. Through these two successful initiatives, the
Group has delivered ahead of schedule on its commitment to reduce
its workforce by c.15% and its number of branches by 25%.
The cost to income ratio excluding special levy on deposits and
other levies/contributions in 2022 is revised downwards to around
current levels compared to initial expectations of mid-60s,
reflecting mainly the rising revenue on improving interest rate
environment and management's ongoing efforts to contain costs. In
2023 the cost to income ratio excluding special levy on deposits
and other levies/contributions is expected to decrease further to
c.50%, as efficiency actions on staff and branch reduction unlock
meaningful savings in 2023.
Transformation plan
The Group continues to work towards becoming a more customer
centric organisation. A transformation plan is already in progress
and aims to enable the shift to modern banking by digitally
transforming customer service, as well as internal operations. The
holistic transformation aims to (i) shift to a more
customer-centric operating model by defining customer segment
strategies, (ii) redefine our distribution model across existing
and new channels, (iii) digitally transform the way we serve our
customers and operate internally, and (iv) improve employee
engagement through a robust set of organisational health
initiatives.
Digital transformation
The Bank's digital transformation focuses on developing digital
services and products that improve the customer experience,
streamlining internal processes, and introducing new ways of
working to improve the workplace environment.
During the second quarter of the year, the Bank continued to
enrich and improve its digital portfolio launching a new innovative
service to its customers, the mobile cheque deposit functionality,
which allows the Bank's retail customers to deposit their cheques
through the Bank's mobile app without the need to visit a branch
for this service. This solution further differentiates the BOC
within the Cypriot market and enhances its status as a digital
leader in banking.
D. Business Overview (continued)
Strategic priorities for the medium term (continued)
Digital transformation (continued)
The adoption of digital products and services continued to grow
and gained momentum in the second quarter of 2022 and beyond. As at
the end of July 2022, 93.0% of the number of transactions involving
deposits, cash withdrawals and internal/external transfers were
performed through digital channels (up by 26.6 p.p. from 66.4% in
September 2017 when the digital transformation programme was
initiated). In addition, 79.9% of individual customers were
digitally engaged (up by 19.7 p.p. from 60.2% in September 2017),
choosing digital channels over branches to perform their
transactions. As at the end of July 2022, active mobile banking
users and active QuickPay users have grown by 17.4% and 37.4%
respectively in the last 12 months. The highest number of QuickPay
users to date was recorded in July 2022 with 154 thousand active
users. Likewise, the highest number of QuickPay payments was
recorded in July 2022 with 470 thousand transactions. New features,
such as managing fixed deposits accounts, as well as the opening of
new lending products entirely through the Group's digital channels
will soon be available to customers.
Strengthening asset quality
Ensuring the Bank's loan portfolio quality remains healthy is a
priority for the Group and is aiming to maintain high quality of
new lending and complete legacy de-risking.
Balance sheet normalisation continued in the first six months of
2022 with further c.EUR170 mn of organic NPE reduction, reducing
the Group's NPE ratio to 5.7%, pro forma for NPE sales. During
2021, the Group completed Project Helix 2 and reached an agreement
for Project Helix 3. Overall, since the beginning of 2021, and
including organic NPE reductions of c.EUR570 mn, the Group reduced
its NPEs by 81% and its NPE ratio from 25.2% to 5.7%, on a pro
forma basis. For further information please refer to Section B.2.5
'Loan portfolio quality'.
The Group has already achieved a mid-single digit NPE ratio and
is on track to achieve a target ratio of c.5% by the end of 2022
and less than 3% by the end of 2025.
In 2022 the cost of risk is expected to reach to c.50 bps. The
cost of risk is expected to range between 50-80 bps in 2023,
reflecting the prevailing uncertainty on macroeconomic outlook. The
normalised cost of risk target of 40-50 bps remains unchanged.
Enhancing organisational resilience and ESG (Environmental,
Social and Governance) agenda
Moving to a sustainable economy is the challenge of our time. As
part of its vision to be the leading financial hub in Cyprus, the
Bank is determined to lead the transition of Cyprus to a
sustainable future.
The Group has set the foundations to enhance its organisational
resilience and ESG (Environmental, Social and Governance) agenda
and continues to work towards building a forward-looking
organisation with a clear strategy supported by effective corporate
governance aligned with ESG agenda priorities.
In 2022, the Company received a rating of AA (on a scale of
AAA-CCC) in the MSCI ESG Ratings assessment. In 2020, the Bank
received a rating of A in the MSCI ESG Ratings assessment.
In 2021, the first ESG strategy of the Group was formulated,
whereby, in addition to maintaining its leading role in the social
and governance pillars, there will be a shift of focus on
increasing the Bank's positive impact on the environment by
transforming not only its own operations, but also the operations
of its client chain.
The Bank has committed to the following primary ESG targets,
which reflect the pivotal role of ESG in the Bank' strategy:
-- Become carbon neutral by 2030
-- Become Net Zero by 2050
-- Steadily increase Green Asset Ratio
-- Steadily increase Green Mortgage Ratio
-- >=30% women in Group's management bodies (defined as the
Executive Committee (EXCO) and the Extended EXCO) by 2030
The Board composition of the Company and the Bank is diverse,
with one third of the Board members being female as at 30 June
2022. The Board displays a strong skill set stemming from broad
international experience. Moreover, the Bank aspires to achieve a
representation of at least 30% women in Group's management bodies
(defined as the EXCO and the Extended EXCO) by 2030. As at 30 June
2022, there is a 26% representation of women in Group's management
bodies and 38% representation of women at key positions below the
Extended EXCO level (defined as positions between Assistant Manager
and Manager).
D. Business Overview (continued)
Ukrainian crisis
The economic environment has evolved rapidly since February 2022
following Russia's invasion in Ukraine. In response to the war in
Ukraine, the EU, the UK and the US, in a coordinated effort joined
by several other countries imposed a variety of financial sanctions
and export controls on Russia, Belarus and certain regions of
Ukraine as well as various related entities and individuals. As the
war is prolonged, geopolitical tension persists and inflation
accelerates, impacted by the soaring energy prices and disruptions
in supply chains. The escalating inflation weighs on business
confidence and consumers' purchasing power. In this context the
Group is closely monitoring the developments, utilising dedicated
governance structures including a Crisis Management Committee as
required and has assessed the impact it has on the Group's
operations and financial performance.
Direct impact
The Group does not have any banking operations in Russia or
Ukraine, following the sale of its operations in Ukraine in 2014
and in Russia in 2015. The Group has run down its legacy net
exposure to less than EUR1 mn as at 30 June 2022 in Russia through
write-offs and provisions.
The Group has no exposure to Russian bonds or banks which are
the subject of sanctions.
The Group has limited direct exposure with loans related to
Ukraine, Russia and Belarus, representing 0.4% of total assets or
1% of net loans as at 30 June 2022. The net book value of these
loans stood at EUR108 mn as at 30 June 2022, of which EUR95 mn are
performing, whilst the remaining were classified as NPEs well
before the current crisis. The portfolio is granular and secured
mainly by real estate properties in Cyprus.
Customer deposits related to Ukrainian, Russian and Belarusian
customers account for only 5% of total customer deposits as at 30
June 2022. This exposure is not material, given the Group's strong
liquidity position. The Group operates with a significant surplus
liquidity of EUR6.7 bn (LCR ratio of 299%) as at 30 June 2022.
Only c.3% of the Group's 2021 net fee and commission income is
derived from Ultimate Beneficiary Owners (UBOs) from Ukraine,
Russia or Belarus.
Indirect impact
Although the Group's direct exposure to Ukraine, Russia or
Belarus is limited, the crisis in Ukraine may have an adverse
impact on the Cypriot economy, mainly due to a negative impact on
the tourism and professional services sectors, increasing energy
prices resulting in inflationary pressures, and disruptions to
global supply chains.
At this stage, it is considered that the impact on the Cypriot
economy is expected to come from higher inflation and a
consequential slowdown in economic activity. The performance of
tourism sector in the first seven months of 2022 is better than
initially anticipated and represents 77% of 2019 respective levels,
despite the loss from Russia and Ukraine. The Group continues to
monitor the exposures in sectors likely impacted by the prolonged
geopolitical uncertainty and persistent inflationary pressures and
remains in close contact with customers to offer solutions as
necessary.
Cyprus has no energy dependence on Russia as it imports oil from
Greece, Italy and the Netherlands; however it is indirectly
affected by pricing pressures in the international energy
markets.
Professional services account for c.10% of GDP (based on FY2020)
of which some relate to Russia or Ukraine and thus expected to be
adversely impacted. There is however no credit risk exposure as the
sector is not levered.
Between 2018-2020, Cyprus recorded net foreign direct investment
(FDI) outflow to Russia. While Russian gross FDI flows in and out
of Cyprus may be quite large, these often reflect the typical
set-up of Special Purpose Entities, with limited actual impact on
the Cypriot economy, hence likely to have limited impact on
domestic activity levels.
Conclusion
Overall, the Group expects limited impact from its direct
exposure, while any indirect impact will depend on the duration and
severity of the crisis and its impact on the Cypriot economy, which
remains uncertain at this stage.
The Group will continue to closely monitor the situation, taking
all necessary and appropriate measures to minimise the impact on
its operations and financial performance, as well as to manage all
related risks and comply with the applicable sanctions.
D. Business Overview (continued)
IFRS 17
IFRS 17, an accounting standard that will be effective from 1
January 2023, impacts the phasing of profit recognition for
insurance contracts. Upon implementation, the Group's
insurance-related retained earnings will be restated and the
reporting of insurance new business revenue will be spread over
time, as the Group provides service to its policyholders (versus
recognised up-front under current accounting standards), with the
quantum and timing of the impact dependent on, inter alia, the
amount and mix of new business and extent of assumption changes in
any given year following implementation. As highlighted in our 2021
Annual Financial Report, IFRS 17 requires a number of key changes
compared with our current accounting policies for insurance.
-- Under IFRS 17, there will be no present value of in-force
insurance contracts ('PVIF') asset recognised. Instead, the
estimated future profit will be included in the measurement of the
insurance contract liability as the contractual service margin
('CSM') and this will be gradually recognised in revenue as
services are provided over the duration of the insurance contract.
While the profit over the life of an individual contract will be
unchanged, its emergence will be later under IFRS 17.
-- IFRS 17 requires the increased use of current market values
in the measurement of insurance assets and liabilities hence
insurance liabilities and related assets will be adjusted to
reflect IFRS 17 measurement requirements.
-- In accordance with IFRS 17, directly attributable costs will
be incorporated in the CSM and, as recognised, will be presented as
a deduction to reported revenue. This will result in a reduction in
operating expenses.
The Group continues to make progress on the implementation of
IFRS 17 and preliminary management estimate on the impact is as
previously communicated and included below. However, industry
practice and interpretation of the standard are still developing,
hence uncertainty remains as to the final transition impact.
Additionally, the impact on the forecast future returns of the
Group's insurance business is dependent on the growth, duration and
composition of its insurance contract portfolio. These estimates
are therefore subject to change in the period up to adoption of the
standard.
For the purposes of planning the Group's financial resources,
the initial estimate is that the accounting changes will result
in:
a) the removal of value in force from the insurance business
(including associated deferred tax liability) of c.EUR105 mn as per
the Group's consolidated balance sheet as at 30 June 2022, which
will reduce Group accounting equity by a respective amount (with no
impact on the Group regulatory capital or tangible equity), and
b) the remeasurement of insurance assets and liabilities and the
creation of a contractual service margin (CSM) liability which will
increase both the insurance business and the Group's equity by an
amount of c.EUR50 mn, predominantly relating to the life business
of the Group.
The adoption of IFRS 17 may result in a modest annual negative
impact on the contribution to profits of the Group's insurance
business in the near term which has been incorporated in the Group
business plan.
The day 1 benefit from IFRS 17 arising from the net
remeasurement of insurance liabilities of c.EUR50 mn (including the
creation of the CSM liability), referred to in (b) above, enables
an equivalent dividend distribution to the Bank which would benefit
Group regulatory capital by an equivalent amount (upon the payment
of dividend by the subsidiary), enhancing CET1 ratio by c.50
bps.
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:
-- Grow revenues in a more capital efficient way; by enhancing
revenue generation via growth in performing book
and less capital-intensive banking and financial services
operations (Insurance and Digital Economy)
-- Improve operating efficiency; by achieving leaner operations
through digitisation and automation
-- Strengthen asset quality; maintaining high quality new
lending, completing legacy de-risking, normalising cost of risk and
reducing (other) impairments
-- Enhance organisational resilience and ESG (Environmental,
Social and Governance) agenda; by continuing to work towards
building a forward-looking organisation with a clear strategy
supported by effective corporate governance aligned with ESG agenda
priorities
KEY STRATEGIC ACTION TAKEN IN 1H2022 and to date PLAN OF ACTION
PILLARS
Growing revenues
in a more capital * A revised price list for charges and fees was * Grow net performing book and increase in new lending
efficient way; by implemented in February 2022 over the medium term
enhancing revenue
generation via
growth * Liquidity fees were extended to a wider customer * Enhance fee and commission income, e.g. on-going
in performing group in March 2022 review of price list for charges and fees, increase
book, and less average product holding through cross selling, new
capital-intensive sources of revenue through introduction of Digital
banking and * Net performing loan book grew to EUR 9.7 bn, an Economy Platform
financial increase of 4% in 1H2022
services
operations * Phasing out of liquidity fees in 2023
(Insurance * For further information, please refer to Section
and Digital B.2.5 'Loan portfolio quality' and 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 digital transformation
--------------------------------------------------------------- ------------------------------------------------------------
Improving
operating * Completion of a Voluntary staff exit plan in July * Effectively eliminate restructuring costs as
efficiency; by 2022, through which c.550 applicants were approved to de-risking is largely complete
achieving leaner leave at a total cost of c. EUR 99 mn; estimated
operations annual saving of c. EUR 37 mn (19%) of staff costs
through * Enhance procurement control
digitisation and
automation * Rationalisation of branch footprint as 15 branches
closed down in July 2022; a reduction of 25% year-to-
date Cost to income ratio (excluding special levy on deposits
and other levies/contributions)
revised downwards to around current levels for 2022,
* Completion of a small-scale targeted voluntary staff compared to initial expectations of mid-60s
exit plan (VEP) in 1Q2022, by one of the Bank's
subsidiaries, through which a small number of the
Group's full-time employees were approved to leave at
a total cost of EUR3 mn
* Further developments in the Transformation Plan and
the digitisation of the Bank
--------------------------------------------------------------- ------------------------------------------------------------
E. Strategy and Outlook (continued)
KEY STRATEGIC ACTION TAKEN IN 1H2022 and to date PLAN OF ACTION
PILLARS
Strengthening
asset quality * Balance sheet normalisation continued in 1H2022 with * The Group is on track to achieve a target NPE ratio
further c.EUR170 mn of organic NPE reduction of c.5% by the end of 2022 and of less than 3% by th
e
end of 2025
* NPE ratio (pro forma for HFS) reduced to mid-single
digit of 5.7% as at 30 June 2022
* For further information, please refer to Section
B.2.5 'Loan portfolio quality' and Section D.
'Business Overview'
-------------------------------------------------------------- -----------------------------------------------------------
Enhancing
organisational * Initiation of ESG training to Board of Directors and * Implement ESG strategy with a shift of focus on
resilience and staff to increase awareness environment
ESG
(Environmental,
Social and * Initiation of decarbonisation of the Group's * Embed ESG sustainability in the Bank's culture
Governance) operations and portfolio
agenda;
by continuing * Continuous enhancement of structure and corporate
to work towards * Approval of Green Lending Policy based on the Green governance
building a Loan Principles (GLPs)
forward-looking
organisation * Invest in people and promote talent
with a clear * Environmental products launched e.g. under the
strategy Fil-eco product scheme
supported by
effective
corporate * For further information, please refer to Section D.
governance 'Business Overview'
aligned with
ESG agenda
priorities
-------------------------------------------------------------- -----------------------------------------------------------
In November 2020 the Group, after a considerable period of
change, announced for the first time its medium-term targets and
its priorities to set the Group on a path for sustainable
profitability. These included completion on balance sheet
de-risking, delivery of sustainable profitability, enhancement on
operating efficiency, modernisation of the Bank's franchise,
including IT and digital investment, addressing challenges from low
rates and surplus liquidity, initiation of MREL issuance and Tier 2
refinancing and optimisation on capital management. Since then, the
Group's progress was remarkable, delivering on all fronts. In
summary the key achievements were:
-- 81% NPE reduction through organic and inorganic actions; NPE
ratio is approaching to 5% and is on track with 2022 target
-- Completion of several Voluntary Staff Exit Plans and branch footprint rationalisation
-- 26% increase in active digital users
-- Net interest income bottomed out and now is reverting to growth
-- Inaugural MREL issuance and Tier 2 refinancing, regaining market access
The medium-term recurring ROTE target of c.7% was achieved in
1H2022, two years ahead of schedule and is on path to achieve a
double-digit ROTE in 2023. The CET1 ratio since September 2020
remained broadly flat, absorbing in full the restructurings and is
now positioned for dividend resumptions.
As a result the medium-term strategic targets have evolved,
reflecting a dynamic strategy, capitalising on the changed
macroeconomic outlook and the Group's strong performance.
Overall, a return on tangible equity (ROTE) over 10% is now
expected to be achieved in 2023 and to be sustained for the
following years 2024 and 2025, supporting the ability to make
meaningful dividend distributions from 2023 onwards, subject to
regulatory approvals and market conditions.
Also, higher profitability will be positive for the Group's CET1
ratio, which is expected to be further increased following the
adoption of IFRS 17 on 1 January 2023. Specifically, a day 1
benefit from IFRS 17 on Group regulatory capital by c.EUR50 mn is
estimated, thereby enhancing Group CET1 ratio by c.50 bps.
E. Strategy and Outlook (continued)
The Group's progress is being noticed. In an announcement on 19
August 2022 the Board noted the announcement made by LSF XI
Investments LLC ('Lone Star') and confirmed that it has received
and unanimously rejected three unsolicited, conditional,
non-binding proposals from Lone Star relating to a possible cash
offer for the entire issued, and to be issued, share capital of the
Company.
The Board expressed its confidence in the Group's strategy and
remains committed to delivering its strategy of becoming a
stronger, safer and a more focused institution capable of further
supporting the recovery of the Cypriot economy. In addition, the
Board remains confident in its ability to implement its strategic
objectives, delivering strong shareholder returns in the medium and
long term, and accordingly has unequivocally rejected the proposal
from Lone Star.
The evolution of the Group's medium term strategic targets are
set out below:
Key Metrics November 2020 February 2022 May 2022 August 2022
2024 2025 2025 2025
-------------- ------------------- ------------------ ------------------
Profitability Return on Tangible c.7% in 2024 >10% in 2025 >10% from 2024
Equity (ROTE)(1)
>10% from 2023
onwards
------------------- -------------- ------------------- ------------------ ------------------
Cost to income ratio(2) Mid-50s 50-55% 50%-55% c.50%
---------------------------------------- -------------- ------------------- ------------------ ------------------
Asset Quality NPE ratio c.5% <3% <3% <3%
------------------- -------------- ------------------- ------------------ ------------------
Cost of risk 70-80 bps 40-50 bps 40-50 bps 40-50 bps
---------------------------------------- -------------- ------------------- ------------------ ------------------
Capital returns Dividend No guidance Consider from 2023 Consider Meaningful from
onwards(3) meaningful from 2023
2023 onwards(3) onwards (4)
------------------- -------------- ------------------- ------------------ ------------------
Capital CET1 ratio at least 13% Supported by CET1 ratio of Supported by
13.5%-14.5% CET1 ratio
of
13.5%-14.5%
------------------- -------------- --------------------------------------- ------------------
1. Return on Tangible Equity (ROTE) is calculated as Profit after Tax (annualised) divided
by Shareholders' equity minus intangible assets.
2. Calculated using total operating expenses which comprise staff costs and other operating
expenses. Total operating expenses do not include the special levy on deposits or other levies/contributions
and do not include any advisory or other restructuring costs.
3. Subject to performance and regulatory approvals
4. Subject to regulatory approvals and market conditions
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 Old
T2 Capital Notes, where applicable.
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 (including residual fair
value adjustment on initial recognition on loans
and advances to customers classified as held for
sale), (iii) allowance for expected credit losses
for off-balance sheet exposures (financial guarantees
and commitments) disclosed on the balance sheet within
other liabilities, and (iv) the aggregate fair value
adjustment on loans and advances to customers classified
and measured at FVPL.
AT1 AT1 (Additional Tier 1) is defined in accordance
with the Capital Requirements Regulation (EU) No
575/2013, as amended by CRR II applicable as at the
reporting date.
Basic earnings/(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.
Carbon neutral The reduction and balancing (through a combination
of offsetting investments or emission credits) of
greenhouse gas emissions from own operations.
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 29 August 2022.
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
F. Definitions & Explanations (continued)
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 EUR 145 mn as at 30 June 2022 (compared to EUR149
mn at 31 March 2022 and EUR178 mn at 31 December
2021).
Additionally, gross loans include loans and advances
to customers classified and measured at fair value
through profit or loss adjusted for the aggregate
fair value adjustment of EUR 313 mn as at 30 June
2022 (compared to EUR312 mn at 31 March 2022 and
EUR336 mn at 31 December 2021).
Group The Group consists f Bank of Cyprus Holdings Public
Limited Company, "BOC Holdings" or the "Company",
its subsidiary Bank of Cyprus Public Company Limited,
the "Bank" and the Bank's subsidiaries.
Legacy exposures Legacy exposures are exposures relating to (i) Restructuring
and Recoveries Division (RRD), (ii) Real Estate Management
Unit (REMU), and (iii) non-core overseas exposures.
Leverage ratio The leverage ratio is the ratio of tangible total
equity (including Other equity instruments) to total
assets as presented on the balance sheet. Tangible
total equity comprises of equity attributable to
the owners of the Company minus intangible assets.
Leverage Ratio Leverage Ratio Exposure (LRE) is defined in accordance
Exposure (LRE) with the Capital Requirements Regulation (EU) No
575/2013, as amended.
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-date)
losses charge is calculated as the annualised 'loan credit losses'
(previously (as defined) divided by average gross loans. The
'Provisioning 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
41.2% as at 30 June 2022 compared to 41.9% at 31
March 2022 and 38.8% at 31 December 2021. The increase
during the first six months 2022 is mainly due to
a reduction in loans in the banking system.
MSCI ESG Rating The use by the Company and the Bank of any MSCI ESG
Research LLC or its affiliates ('MSCI') data, and
the use of MSCI Logos, trademarks, service marks
or index names herein, do not constitute a sponsorship,
endorsement, recommendation or promotion of the Company
or the Bank by MSCI. MSCI Services and data are the
property of MSCI or its information providers and
are provided "as-is" and without warranty. MSCI Names
and logos are trademarks or service marks of MSCI.
Net fee and 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 performing Net performing loan book is the total net loans and
loan book advances to customers (as defined) excluding the
legacy exposures (as defined).
F. Definitions & Explanations (continued)
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, enforced
in June 2021, has been set at 100% as per the CRR
II.
Net zero emissions The reduction of greenhouse gas emissions to net
zero through a combination of reduction activities
and offsetting investments
New lending New lending includes the disbursed amounts of the
new and existing non-revolving facilities (excluding
forborne or re-negotiated accounts) as well as the
average year-to-date change (if positive) of the
current accounts and overdraft facilities between
the balance at the beginning of the period and the
end of the period. Recoveries are excluded from this
calculation since their overdraft movement relates
mostly to accrued interest and not to new lending.
Non-interest Non-interest income comprises Net fee and commission
income income, Net foreign exchange gains/(losses) and net
gains/(losses) on financial instruments and (excluding
net gains on loans and advances to customers at FVPL),
Insurance income net of claims and commissions, Net
gains/(losses) from revaluation and disposal of investment
properties and on disposal of stock of properties,
and Other income.
Non-performing 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 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:
(a) Retail exposures: Total arrears/excess amount
greater than EUR100, (b) 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%.
For further information please refer to the Annual
Financial Report 2021.
F. Definitions & Explanations (continued)
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,
(ii) Provisions/net loss relating to NPE sales, (iii)
Restructuring and other costs relating to NPE sales,
and (iv) Restructuring costs relating to the Voluntary
Staff Exit Plan.
NPE coverage The NPE coverage ratio is calculated as the allowance
ratio (previously for expected loan credit losses (as defined) over
'NPE Provisioning NPEs (as defined).
coverage ratio')
NPE ratio NPEs ratio is calculated as the NPEs as per EBA (as
defined) divided by gross loans (as defined).
NPE sales NPE sales refer to sales of NPE portfolios completed,
as well as contemplated and potential future sale
transactions, irrespective of whether or not they
met the held for sale classification criteria at
the reporting dates.
Operating profit The operating profit before credit losses and impairments
before credit comprises profit before Total loan credit losses,
losses and impairments impairments and provisions (as defined), tax, (profit)/loss
attributable to non-controlling interests and non-recurring
items (as defined).
Operating profit Operating profit before credit losses and impairments
return on average return on average assets is calculated as the annualised
assets operating profit (as defined) divided by the quarterly
average of total assets for the relevant period.
Average total assets exclude total assets of discontinued
operations at each quarter end, if applicable.
Phased-in Capital 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)
Pro forma for References to pro forma figures and ratios as at
HFS (held for 30 June 2022 refer to Project Helix 3, Project Sinope
sale) and VEP and to VEP. They are based on 30 June 2022 underlying
(Voluntary Staff basis figures and assume their completion, currently
Exit Plan) expected to occur in 2H2022. The completion of Project
Helix 3 remains subject to customary regulatory and
other approvals. Project Sinope was completed in
August 2022. VEP refers to the Voluntary Staff Exit
Plan that the Group completed in July 2022, through
which c.550 applicants were approved to leave at
a total cost of c.EUR99 mn, expected to be recorded
in the 3Q2022 income statement.
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'.
Project Helix Project Helix 3 refers to the agreement the Group
3 reached in November 2021 for the sale of a portfolio
of NPEs with gross book value of EUR568 mn, as well
as real estate properties with book value of c.EUR120
mn as at 30 September 2021. For further information
please refer to section B.2.5 Loan portfolio quality.
Project Sinope Project Sinope refers to the agreement the Group
reached in December 2021 for the sale of a portfolio
of NPEs with gross book value of EUR12 mn as at 31
December 2021, as well as properties in Romania with
carrying value EUR0.6 mn as at 31 December 2021.
For further information please refer to section B.2.5
'Loan portfolio quality'.
F. Definitions & Explanations (continued)
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
Return on Tangible Return on Tangible Equity (ROTE) after tax and before
equity (ROTE) non-recurring items is calculated as Profit/(loss)
after tax and after tax and before non-recurring items (attributable
before non-recurring to the owners of the Company) (as defined) (annualised),
items - (based on year to date days)), divided by the quarterly
average of Shareholders' equity minus intangible
assets at each quarter end
Return on Tangible Return on Tangible Equity (ROTE) is calculated as
equity (ROTE) Profit/(loss) after tax (attributable to the owners
of the Company) (as defined) (annualised - (based
on year to date days)), divided by the quarterly
average of Shareholders' equity minus intangible
assets at each quarter end
Special levy 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, where
applicable.
Total Capital Total capital ratio is defined in accordance with
ratio the Capital Requirements Regulation (EU) No 575/2013
, as amended by CRR II applicable as at the reporting
date.
Total expenses Total expenses comprise staff costs, other operating
expenses and the special levy on deposits and other
levies/contributions . It does not include (i) 'advisory
and other restructuring costs-organic', (ii) restructuring
costs relating to NPE sales, or (iii) restructuring
costs relating to the Voluntary Staff Exit Plan.
(i) 'Advisory and other restructuring costs-organic'
amounted to EUR4 mn for 2Q2022 (compared to EUR1
mn for 1Q2022 and EUR 3 mn for 4Q2021), (ii) Restructuring
costs relating to NPE sales for 2Q2022 amounted to
EUR 0.8 mn (compared to EUR 1 mn for 1Q2022 and EUR0.2
mn for 4Q2021), and (iii) Restructuring costs relating
to the Voluntary Staff Exit Plan (VEP) for 2Q2022
was nil (compared to EUR 3 mn for 1Q2022 and EUR16
mn for 4Q2021).
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)/ net reversals for litigation, claims,
regulatory and other matters.
Underlying basis This refers to the statutory basis after being adjusted
for certain items as explained in the Basis of Presentation.
Write offs Loans together with the associated loan credit losses
are written off when there is no realistic prospect
of future recovery. Partial write-offs, including
non-contractual write-offs, may occur when it is
considered that there is no realistic prospect for
the recovery of the contractual cash flows. In addition,
write-offs may reflect restructuring activity with
customers and are part of the terms of the agreement
and subject to satisfactory performance.
Yoy Year on year change
Basis of Presentation
This announcement covers the results of Bank of Cyprus Holdings
Public Limited Company, "BOC Holdings" or "the Company", its
subsidiary Bank of Cyprus Public Company Limited, the "Bank" or
"BOC PCL", and together with the Bank's subsidiaries, the "Group",
for the six months ended 30 June 2022.
At 31 December 2016, the Bank was listed on the Cyprus Stock
Exchange (CSE) and the Athens Exchange. On 18 January 2017, BOC
Holdings, incorporated in Ireland, was introduced in the Group
structure as the new holding company of the Bank. On 19 January
2017, the total issued share capital of BOC Holdings was admitted
to listing and trading on the LSE and the CSE.
Financial information presented in this announcement is being
published for the purposes of providing an overview of the Group
financial results for the six months ended 30 June 2022.
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 2021,
upon which the auditors have given an unqualified report, were
published on 30 March 2022 and are expected to be delivered to the
Registrar of Companies of Ireland within 56 days of 30 September
2022. The Board of Directors approved the Group statutory financial
statements for the six months ended 30 June 2022 on 30 August
2022.
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 month ended 30 June 2022, which the management
believes best fits the true measurement of the financial
performance and position of the Group. For further information,
please refer to 'Commentary on Underlying Basis' on page 7. The
statutory results are adjusted for certain items (as described on
pages 9-10) to allow a comparison of the Group's underlying
financial position and performance, as set out on pages 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 2022 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 2022 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 Group/Investor
Relations/Financial Results).
This announcement and the presentation for the Group Financial
Results for the six months ended 30 June2022 have been posted on
the Group's website www.bankofcyprus.com (Group/Investor
Relations/Financial Results).
Definitions: The Group uses definitions in the discussion of its
business performance and financial position which are set out in
section F, together with explanations.
The Group Financial Results for the six months ended 30 June
2022 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. Russian invasion of Ukraine has led to heightened volatility
across global markets and to the coordinated implementation of
sanctions on Russia, Russian entities and nationals. The Russian
invasion of Ukraine has already caused significant population
displacement, and as the conflict continues, the disruption will
likely increase. The scale of the conflict and the speed and extent
of sanctions, as well as the uncertainty as to how the situation
will develop, may have significant adverse effects on the market
and macroeconomic conditions, including in ways that cannot be
anticipated. This creates significantly greater uncertainty about
forward-looking statements. Should any one or more of these or
other factors materialise, or should any underlying assumptions
prove to be incorrect, the actual results or events could differ
materially from those currently being anticipated as reflected in
such forward looking statements. The forward-looking statements
made in this document are only applicable as at the date of
publication of this document. Except as required by any applicable
law or regulation, the Group expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward looking statement contained in this document to reflect any
change in the Group's expectations or any change in events,
conditions or circumstances on which any statement is based.
Further Information
In accordance with Rule 26.1 of the Irish Takeover Rules, a copy
of this announcement will be available on the Company's website at
https://www.bankofcyprus.com/en-gb/group/investor-relations/possible-offer/
by no later than 12.00 (noon) (Irish/UK time) on the business day
following publication of this announcement. The content of the
website referred to in this announcement is not incorporated into,
and does not form part of, this announcement. This announcement is
not intended to, and does not, constitute or form part of any
offer, invitation or the solicitation of an offer to purchase,
otherwise acquire, subscribe for, sell or otherwise dispose of, any
securities, or the solicitation of any vote or approval in any
jurisdiction, pursuant to this announcement or otherwise. Any offer
will be made solely by certain offer documentation which will
contain the full terms and conditions of any offer, including
details of how it may be accepted.
This announcement has been prepared in accordance with and in
compliance with the applicable laws of Ireland, Cyprus and England
and information disclosed may not be the same as that which would
have been prepared in accordance with the laws of other
jurisdictions.
The distribution of this announcement in jurisdictions other
than Ireland, Cyprus and the United Kingdom and the availability of
any offer to shareholders of the Company who are not resident in
Ireland, Cyprus or the United Kingdom may be affected by the laws
of relevant jurisdictions. Therefore, any persons who are subject
to the laws of any jurisdiction other than Ireland, Cyprus or the
United Kingdom or shareholders of the Company who are not resident
in Ireland, Cyprus or the United Kingdom will need to inform
themselves about, and observe, any applicable requirements.
Jurisdiction
The Company is a public limited company incorporated in Ireland
with relevant securities listed and admitted to trading on the Main
Market of the London Stock Exchange and on the Cyprus Stock
Exchange. As a result, any transaction to acquire the Company which
constitutes a "takeover bid" (as defined in Directive 2004/25/EC
(the "Takeover Bids Directive")) will be subject to the shared
jurisdiction of the Irish Takeover Panel and the Cyprus Securities
Exchange Commission in line with the procedures set out in Article
4 of the Takeover Bids Directive, as implemented in Ireland and
Cyprus. Any transaction to acquire control of the Company which
proceeds otherwise than by way of takeover bid will be subject to
the jurisdiction of the Irish Takeover Panel under the Irish
Takeover Rules. Prior to a determination being made as to the
manner in which any transaction to acquire the Company would be
implemented, the possible offer is subject to the jurisdiction of
both the Irish Takeover Panel and the Cyprus Securities Exchange
Commission. There is no certainty that any formal offer to acquire
the Company will be made nor as to the terms on which any offer
might be made.
Further Information (continued)
Responsibility Statement
The Directors of the Company accept responsibility for the
information contained in this announcement. To the best of their
knowledge and belief (having taken all reasonable care to ensure
such is the case), the information contained in this announcement
is in accordance with the facts and does not omit anything likely
to affect the import of such information.
Disclosure requirements of the Irish Takeover Rules
Under Rule 8.3(a) of the Irish Takeover Rules, any person who is
'interested' (directly or indirectly) in 1% or more of any class of
'relevant securities' of the Company must make an 'opening position
disclosure' by no later than 3.30pm (Irish/UK time) on 2 September
2022. An 'opening position disclosure' must contain the details
specified in Rule 8.6(a) of the Irish Takeover Rules, including
details of the person's interests and short positions in any
'relevant securities' of the Company. Relevant persons who deal in
any 'relevant securities' of the Company prior to the deadline for
making an 'opening position disclosure' must instead make a dealing
disclosure as described below.
Under Rule 8.3(b) of the Irish Takeover Rules, any person
'interested' (directly or indirectly) in 1% or more of any class of
'relevant securities' of the Company must disclose all 'dealings'
in such 'relevant securities' during the 'offer period'. The
disclosure of a 'dealing' in 'relevant securities' by a person to
whom Rule 8.3(b) applies must be made by no later than 3.30 pm
(Irish/UK time) on the business day following the date of the
transaction. A dealing disclosure must contain the details
specified in Rule 8.6(b) of the Irish Takeover Rules, including
details of the dealing concerned and of the person's interests and
short positions in any 'relevant securities' of the Company.
In addition, Lone Star must make an 'opening position
disclosure' by no later than 12.00 (noon) (Irish/UK time) on 2
September 2022 and disclose details of any 'dealings' by it or any
person 'acting in concert' with it in 'relevant securities' of the
Company by no later than 12.00 (noon) (Irish/UK time) on the
business day following the date of the transaction.
All 'dealings' in 'relevant securities' of the Company by Lone
Star, or by any party acting in concert with Lone Star, must also
be disclosed by no later than 12 noon (Irish/UK time) on the
'business' day following the date of the relevant transaction. If
two or more persons co-operate on the basis of an agreement, either
express or tacit, either oral or written, to acquire for one or
more of them an interest in relevant securities, they will be
deemed to be a single person for these purposes.
Disclosure tables, giving details of the companies in whose
'relevant securities' 'opening positions' and 'dealings' should be
disclosed, can be found on the Irish Takeover Panel's website at
www.irishtakeoverpanel.ie.
'Interests' in securities arise, in summary, when a person has
long economic exposure, whether conditional or absolute, to changes
in the price of securities. In particular, a person will be treated
as having an 'interest' by virtue of the ownership or control of
securities, or by virtue of any option in respect of, or derivative
referenced to, securities.
Terms in quotation marks in this section are defined in the
Irish Takeover Rules, which can also be found on the Irish Takeover
Panel's website. If you are in any doubt as to whether or not you
are required to disclose a dealing or an opening position under
Rule 8, please consult the Irish Takeover Panel's website at
www.irishtakeoverpanel.ie or contact the Irish Takeover Panel on
telephone number +353 1 678 9020.
Disclosure requirements of the Cypriot Takeover Bids Law
In addition to the requirements under Rule 8 of the Irish
Takeover Rules as outlined above, under section 26 of the Cypriot
Takeover Bids Law, during the 'period of the takeover bid':
a. Lone Star and every person holding a percentage of five per
cent (5%) or more of the voting rights of the Company or Lone Star,
must announce immediately, in accordance with the provisions of the
Cypriot Takeovers Bids Law, every acquisition of securities in the
Company or Lone Star made by themselves or by persons acting in
their own name but on their behalf or in concert with them or by
undertakings controlled by them, as well as the acquisition price
and any voting rights already held in that company; and
b. every person acquiring a percentage equal to half per cent
(0.5%) or greater of the voting rights of the Company or Lone Star,
must make an announcement for this acquisition in accordance with
the provisions of the Cypriot Takeovers Bids Law, as well as every
subsequent acquisition of securities of these companies by
themselves or by persons acting in their own name but on their
behalf or in concert with them or by undertakings controlled by
them, as well as the acquisition price and any voting rights
already held in that company.
Terms in quotation marks in this section are defined in the
Cypriot Takeover Bids Law, which can also be found on the website
of the Securities and Exchange Commission of Cyprus at
www.cysec.gov.cy.
Further Information (continued)
Profit Forecast / Asset Valuations / Quantified Financial
Benefit Statement
The financial results for the period ended 30 June 2022 provided
in this announcement constitute a profit estimate for the purposes
of the Irish Takeover Rules and are subject to Rule 28.5. Other
than the foregoing, no statement in this announcement is intended
to constitute a profit forecast for any period, nor should any
statements be interpreted to mean that earnings or earnings per
share will necessarily be greater or lesser than those for the
relevant preceding financial periods for the Company. No statement
in this announcement constitutes an asset valuation or quantified
financial benefit statement.
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial
services group in Cyprus, providing a wide range of financial
products and services which include retail and commercial banking,
finance, factoring, investment banking, brokerage, fund management,
private banking, life and general insurance. At 30 June 2022, the
Bank of Cyprus Group operated through a total of 86 branches in
Cyprus, of which 11 operated as cash offices*. The Bank of Cyprus
Group employed 3,422 staff worldwide**. The Bank of Cyprus Group
comprises Bank of Cyprus Holdings Public Limited Company, its
subsidiary Bank of Cyprus Public Company Limited and its
subsidiaries.
*The number of branches and cash offices were reduced by 15 and
7 respectively on 1 July 2022.
** The number of staff has been reduced by c.550 employees
following the completion of a voluntary staff exit plan in July
2022.
This information is provided by RNS, the news service of the
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END
IR PBMATMTJJMAT
(END) Dow Jones Newswires
August 31, 2022 02:00 ET (06:00 GMT)
Bank Of Cyprus Holdings ... (LSE:BOCH)
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Bank Of Cyprus Holdings ... (LSE:BOCH)
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から 7 2023 まで 7 2024
