TIDMBOCH
RNS Number : 4149Q
Bank of Cyprus Holdings PLC
20 February 2023
Announcement
Preliminary Group Financial Results for the year ended 31
December 2022
and Updated Financial Targets
Nicosia, 20 February 2023
Key Highlights for the year ended 31 December 2022
Cypriot economy outperforms Eurozone
* Economic growth of 4.4%(1) in 4Q2022, and expected
growth of c.3.0%(1) for 2023 well above the eurozone
average
* Record new lending of EUR2.1 bn up 17% yoy
* Net performing loan book of EUR 9.6 bn, up 3% yoy
Strong growth of underlying profitability
* NII of EUR 370 mn up 25% yoy, of which EUR 136 mn in
4Q2022, up 53% qoq
* Total operating expenses(2) down 1% yoy; cost to
income ratio(2) at 49% down 11 p.p. yoy
* Profit after tax before non-recurring items of EUR
188 mn, up 107% yoy reflecting positive gearing to
rising interest rates
* Profit after tax of EUR 80 mn for 4Q2022 vs loss of
EUR 59 mn for 3Q2022 including one-off Voluntary
Staff Exit Plan (VEP) charge of EUR 101 mn
* Profit after tax of EUR 71 mn for FY2022 vs EUR 30 mn
for FY2021
* Recurring ROTE(3) of 11.3% for FY2022 and 19.1% for
4Q2022
Robust capital and liquidity
* CET1 ratio of 15.4%(,4) and Total Capital ratio of
20.6%(4)
* Deposits at EUR19.0 bn up 8% yoy and broadly flat qoq
* Strong liquidity position with EUR7.6 bn(5) placed at
the ECB; well positioned to benefit from further
interest rate increases
NPE ratio at 4.0%
* NPE ratio at 4.0% (1.3%(6) net) down 8.4 p.p. yoy
* Coverage at 69%; cost of risk at 44 bps
* EUR 0.6 bn NPE sale (Helix 3) completed in November
2022
* Strong fundamentals with performing loan book better
positioned to face external shocks
1. Source: Ministry of Finance
2. Excluding special levy on deposits and other levies/contributions
3. Recurring ROTE is calculated as Profit after Tax and before
non-recurring items divided by (average Shareholders' equity minus
Intangible assets)
4. Allowing for IFRS 9 and temporary treatment for certain FVOCI
instruments transitional arrangements
5. Excluding TLTRO III of EUR2.0 bn
6. Calculated as NPEs net of provisions over net loans
Group Chief Executive Statement
"We are pleased to announce a positive set of financial results
for 2022, exceeding our targets and confirming the sustainability
of our business model with well-diversified revenues and
disciplined cost containment despite inflationary pressures. Our
profit after tax before non-recurring items of EUR 188 mn has more
than doubled on the prior year, corresponding to a return on
tangible equity of 11.3%.
Against the backdrop of the challenging global and European
economic environment, the Cypriot economy is proving resilient and
is delivering strong growth notwithstanding headwinds. In the
fourth quarter, GDP increased by 4.4% in Cyprus and is forecast to
grow by c.3.0% in 2023, according to the Ministry of Finance,
outperforming the Eurozone average.
As the largest financial group in Cyprus, we continued to
support the economy by extending a record EUR2.1 bn of new loans in
2022, an increase of 17% on the prior year, whilst maintaining
strict lending criteria. Our net performing loan book of EUR 9.6 bn
grew by 3% in 2022 and it demonstrates strong fundamentals to
withstand uncertainties in the macroeconomic outlook.
During 2022 we generated total income of EUR699 mn and a
positive operating result of EUR 318 mn, up 62% on 2021. Net
interest income amounted to EUR 370 mn, up 25% on the prior year,
of which EUR 136 mn was generated in the fourth quarter. Our
non-interest income was marked by strong performance in net fee and
commission income as well as exceptionally strong insurance income
in 2022 and contributed 47% to total income.
Operating expenses decreased by 1% as the efficiency actions
undertaken during the year more than offset inflationary pressures.
As a result our cost to income ratio, excluding special levies and
other contributions, improved by 11 p.p. in the year to 49%. Our
cost of risk of 44 bps remained well within our target range,
reflecting healthy asset quality performance. The reported result
was a profit of EUR 71 mn for the year ended 31 December 2022,
reflecting the large restructuring charge we took earlier in the
year for our Voluntary Staff Exit Plan.
In November 2022 we completed Project Helix 3 and derecognised
c. EUR 550 mn NPEs from our balance sheet. Together with further
organic NPE reduction of EUR 360 mn our NPE ratio stood at 4% as at
31 December 2022, achieving our 2022 NPE ratio target of
sub-5%.
Our capital position remains robust and comfortably in excess of
our regulatory requirements. We ended the year with a Total Capital
ratio and CET1 ratio of 20.6% and 15.4% respectively, both on a
transitional basis. Our liquidity position remains strong, as such
our cash balances with ECB (excluding TLTRO III of EUR 2.0 bn)
amounted to EUR 7.6 bn, leaving the Bank well positioned to benefit
from further interest rate increases. Deposits on our balance sheet
remained broadly flat during the quarter but increased by 8% on the
prior year, to EUR19.0 bn.
Capitalising on this strong performance we are today upgrading
our ROTE target for 2023 to over 13% from over 10%, laying the
foundations to commence meaningful dividend distributions from 2023
onwards, subject to regulatory approval and market conditions. The
ROTE target upgrade is facilitated by our positive gearing to
rising interest rates, the significant contribution from
non-interest income whilst maintaining cost discipline, a healthy
loan portfolio and solid capital position."
Panicos Nicolaou
A. Preliminary Group Financial Results - Statutory Basis
Unaudited Consolidated Income Statement for the year ended 31
December 2022
2022 2021
(restated)*
EUR000 EUR000
---------- -------------
Turnover 904,213 754,633
========== =============
Interest income 428,849 360,928
---------- -------------
Income similar to interest income 22,119 27,621
---------- -------------
Interest expense (65,821) (67,057)
---------- -------------
Expense similar to interest expense (14,840) (25,192)
---------- -------------
Net interest income 370,307 296,300
---------- -------------
Fee and commission income 202,583 180,212
---------- -------------
Fee and commission expense (10,299) (8,416)
---------- -------------
Net foreign exchange gains 31,291 16,503
---------- -------------
Net gains/(losses) on financial instruments 10,052 (21,323)
---------- -------------
Net gains on derecognition of financial assets
measured at amortised cost 5,235 3,859
---------- -------------
Income from assets under insurance and reinsurance
contracts 114,681 205,861
---------- -------------
Expenses from liabilities under insurance
and reinsurance contracts (43,542) (144,817)
---------- -------------
Net losses from revaluation and disposal of
investment properties (999) (1,828)
---------- -------------
Net gains on disposal of stock of property 13,970 13,296
---------- -------------
Other income 16,681 14,244
---------- -------------
Total operating income 709,960 553,891
---------- -------------
Staff costs (294,361) (218,633)
---------- -------------
Special levy on deposits and other levies/
contributions (38,492) (36,350)
---------- -------------
Provisions for pending litigations, regulatory
and other matters (net of reversals) (11,880) 523
---------- -------------
Other operating expenses (166,365) (167,711)
---------- -------------
Operating profit before credit losses and
impairment 198,862 131,720
========== =============
Credit losses on financial assets (59,529) (46,144)
---------- -------------
Impairment net of reversals on non-financial
assets (29,549) (49,456)
---------- -------------
Profit before tax 109,784 36,120
---------- -------------
Income tax (35,812) (4,243)
---------- -------------
Profit after tax for the year 73,972 31,877
========== =============
Attributable to:
---------- -------------
Owners of the Company 71,106 29,709
---------- -------------
Non-controlling interests 2,866 2,168
========== =============
Profit for the year 73,972 31,877
========== =============
Basic and diluted profit per share attributable
to the owners of the Company (EUR cent) 15.9 6.7
========== =============
* Comparative information was restated following certain changes
in the presentation of the primary statements.
A. Preliminary Group Financial Results - Statutory Basis
(continued)
Unaudited Consolidated Balance Sheet as at 31 December 2022
2022 2021 (restated)*
Assets EUR000 EUR000
----------- -----------------
Cash and balances with central banks 9,567,258 9,230,883
----------- -----------------
Loans and advances to banks 204,811 291,632
----------- -----------------
Derivative financial assets 48,153 6,653
----------- -----------------
Investments at FVPL 190,209 199,194
----------- -----------------
Investments at FVOCI 467,375 748,695
----------- -----------------
Investments at amortised cost 2,046,119 1,191,274
----------- -----------------
Loans and advances to customers 9,953,252 9,836,405
----------- -----------------
Life insurance business assets attributable
to policyholders 542,321 551,797
----------- -----------------
Prepayments, accrued income and other assets 639,764 616,219
----------- -----------------
Stock of property 1,041,032 1,111,604
----------- -----------------
Investment properties 85,099 117,745
----------- -----------------
Deferred tax assets 227,521 265,481
----------- -----------------
Property and equipment 253,378 252,130
----------- -----------------
Intangible assets 168,322 184,034
----------- -----------------
Non-current assets and disposal groups held
for sale - 358,951
----------- -----------------
Total assets 25,434,614 24,962,697
=========== =================
Liabilities
----------- -----------------
Deposits by banks 507,658 457,039
----------- -----------------
Funding from central banks 1,976,674 2,969,600
----------- -----------------
Derivative financial liabilities 16,169 32,452
----------- -----------------
Customer deposits 18,998,319 17,530,883
----------- -----------------
Insurance liabilities 679,951 736,201
----------- -----------------
Accruals, deferred income, other liabilities
and other provisions 384,004 361,977
----------- -----------------
Provisions for pending litigation, claims,
regulatory and other matters 127,607 104,108
----------- -----------------
Debt securities in issue 297,636 302,555
----------- -----------------
Subordinated liabilities 302,104 340,220
----------- -----------------
Deferred tax liabilities 43,822 46,435
----------- -----------------
Total liabilities 23,333,944 22,881,470
----------- -----------------
Equity
----------- -----------------
Share capital 44,620 44,620
----------- -----------------
Share premium 594,358 594,358
----------- -----------------
Revaluation and other reserves 178,240 213,192
----------- -----------------
Retained earnings 1,041,152 986,623
----------- -----------------
Equity attributable to the owners of the
Company 1,858,370 1,838,793
----------- -----------------
Other equity instruments 220,000 220,000
----------- -----------------
Non--controlling interests 22,300 22,434
----------- -----------------
Total equity 2,100,670 2,081,227
----------- -----------------
Total liabilities and equity 25,434,614 24,962,697
=========== =================
* Comparative information was restated following certain changes
in the presentation of the primary statements.
B. Preliminary Group Financial Results - Underlying Basis
Unaudited Consolidated Income Statement
------------------------------------------------------------------------------------------------ ---------------
EUR mn FY2022 FY2021 4Q2022 3Q2022 2Q2022 1Q2022 qoq +% yoy +%
(restated)
(1)
-------------------------------- ------- ------------ ------- ------- ------- ------- -------- ----------
Net interest income 370 296 136 89 74 71 53% 25%
Net fee and commission
income 192 172 50 48 50 44 4% 12%
Net foreign exchange
gains and net gains/(losses)
on financial instruments 36 25 12 13 5 6 -8% 45%
Insurance income net
of claims and commissions 71 61 23 15 17 16 53% 17%
Net gains/(losses)
from revaluation and
disposal of investment
properties and on disposal
of stock of properties 13 13 2 4 2 5 -36% 4%
Other income 17 14 5 3 5 4 57% 17%
-------------------------------- ------- ------------ ------- ------- ------- ------- -------- ----------
Total income 699 581 228 172 153 146 33% 20%
-------------------------------- ------- ------------ ------- ------- ------- ------- -------- ----------
Staff costs (190) (202) (44) (46) (50) (50) -6% -6%
Other operating expenses (153) (145) (45) (35) (37) (36) 25% 5%
Special levy on deposits
and other levies/contributions (38) (36) (11) (10) (7) (10) 17% 6%
Total expenses (381) (383) (100) (91) (94) (96) 9% -1%
------- ------------ ------- ------- ------- ------- --------
Operating profit 318 198 128 81 59 50 60% 62%
-------------------------------- ------- ------------ ------- ------- ------- ------- -------- ----------
Loan credit losses (47) (66) (11) (13) (11) (12) -10% -30%
Impairments of other
financial and non-financial
assets (33) (36) (13) (7) (8) (5) 72% -9%
Provisions for pending
litigations, regulatory
and other matters (net
of reversals) (11) 2 (8) (2) (1) (0) 202% -
-------------------------------- ------- ------------ ------- ------- ------- ------- -------- ----------
Total loan credit
losses, impairments
and provisions (91) (100) (32) (22) (20) (17) 42% -8%
-------------------------------- ------- ------------ ------- ------- ------- ------- -------- ----------
Profit before tax
and non-recurring items 227 98 96 59 39 33 67% 133%
-------------------------------- ------- ------------ ------- ------- ------- ------- -------- ----------
Tax (36) (5) (16) (8) (6) (6) 94% -
Profit attributable
to non-controlling
interests (3) (2) (1) (1) (1) 0 -16% 32%
Profit after tax and
before non-recurring
items (attributable
to the owners of the
Company) 188 91 79 50 32 27 64% 107%
------- ------------ ------- ------- ------- ------- --------
Advisory and other
restructuring costs
- organic (11) (22) (1) (5) (4) (1) -70% -48%
-------------------------------- ------- ------------ ------- ------- ------- ------- -------- ----------
Profit after tax -
organic (attributable
to the owners of the
Company) 177 69 78 45 28 26 78% 155%
-------------------------------- ------- ------------ ------- ------- ------- ------- -------- ----------
Provisions/net profit/(loss)
relating to NPE sales(2) 1 (7) 2 (1) 1 (1) - -109%
Restructuring and other
costs relating to NPE
sales(2) (3) (16) 0 (2) 0 (1) -79% -82%
Restructuring costs
- Voluntary Staff Exit
Plan (VEP) (104) (16) - (101) - (3) -100% -
Profit/(loss) after
tax (attributable to
the owners of the Company) 71 30 80 (59) 29 21 - 139%
------- ------------ ------- ------- ------- ------- --------
B. Preliminary Group Financial Results - Underlying Basis (continued)
Unaudited Consolidated Income Statement- Key Performance Ratios
Key Performance
Ratios(3) FY2022 FY2021 4Q2022 3Q2022 2Q2022 1Q2022 qoq +% yoy +%
------ ------ ------ ------- ------ ------ ------
Net Interest Margin
(annualised) 1.65% 1.45% 2.36% 1.53% 1.33% 1.32% 83 bps 20 bps
--------------------- ------ ------ ------ ------- ------ ------ ------ ------
-9 -12
Cost to income ratio 54% 66% 44% 53% 61% 66% p.p. p.p.
--------------------- ------ ------ ------ ------- ------ ------ ------ ------
Cost to income ratio
excluding special
levy on deposits
and other -9 -11
levies/contributions 49% 60% 38% 47% 57% 59% p.p. p.p.
--------------------- ------ ------ ------ ------- ------ ------ ------ ------
Operating profit
return on average
assets (annualised) 1.2% 0.8% 2.0% 1.2% 0.9% 0.8% 80 bps 40 bps
--------------------- ------ ------ ------ ------- ------ ------ ------ ------
Basic
earnings/(losses)
per share
attributable
to the owners of
the Company (EUR
cent) 15.94 6.66 17.98 (13.27) 6.45 4.78 31.25 9.28
--------------------- ------ ------ ------ ------- ------ ------ ------ ------
Basic earnings after
tax and before
non-recurring
items per share
attributable
to the owners of
the Company (EUR
cent) 42.35 20.50 17.92 10.91 7.31 6.20 7.01 21.85
--------------------- ------ ------ ------ ------- ------ ------ ------ ------
Return on tangible
equity (ROTE) after
tax and before
non-recurring 7.4 5.8
items (annualised) 11.3% 5.5% 19.1% 11.7% 7.8% 6.7% p.p. p.p.
--------------------- ------ ------ ------ ------- ------ ------ ------ ------
Return on tangible 33.4 2.5
equity (ROTE) 4.3% 1.8% 19.2% (14.2%) 6.9% 5.2% p.p. 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'.
2. 'Provisions/net loss relating to NPE sales' refer to the net loss on
transactions completed during the year/period, whilst 'Restructuring and
other costs relating to NPE sales' refer mainly to the costs relating to
these trades. For further details please refer to Section B.2.4.
3. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant.
p.p. = percentage points, bps = basis points, 100 basis points (bps) =
1 percentage point
Commentary on Underlying Basis
The financial information presented in this Section provides an
overview of the preliminary Group financial results for the year
ended 31 December 2022 on an 'underlying basis', which the
management believes best fits the true measurement of the
performance and position of the Group, as this presents separately
the exceptional and one-off items.
Reconciliations between the statutory basis and the underlying
basis are included in Section B.1 'Unaudited reconciliation of
consolidated income statement for the year ended 31 December 2022
between statutory basis and underlying basis' and will also be
available in the Annual Financial Report for the year ended 31
December 2022 under 'Definitions and Explanations on Alternative
Performance Measures', to facilitate the comparability of the
underlying basis to the statutory information.
Please note the following in relation to the disclosure of pro
forma figures and ratios throughout this announcement.
Project Helix 3 refers to the agreement the Group reached in
November 2021 with funds affiliated with PIMCO, for the sale of a
portfolio of gross loans with gross book value of EUR555 mn (of
which EUR551 mn relate to NPEs), as well as real estate properties
with book value of EUR88 mn, as at 30 September 2022. Project Helix
3 was completed in November 2022.
Project Sinope refers to the agreement the Group reached in
December 2021 for the sale of a portfolio of NPEs with gross book
value of EUR12 mn, as well as properties in Romania with carrying
value of EUR 0.6 mn as at 31 December 2021. Project Sinope was
completed in August 2022.
Any references to pro forma figures and ratios as at 30
September 2022 refer to Project Helix 3 whilst references to pro
forma figures and ratios as at 31 December 2021 refer to both
Project Helix 3 and Project Sinope and will be referred to as "Pro
forma for held for sale" or "Pro forma for HFS".
B. Preliminary Group Financial Results- Underlying Basis (continued)
Unaudited Consolidated Balance Sheet
=============================================================================================
EUR mn 31.12.2022 31.12.2021 + %
======================================== ====== =========== ============= ===============
Cash and balances with central
banks 9,567 9,231 4%
Loans and advances to banks 205 292 -30%
Debt securities, treasury bills
and equity investments 2,703 2,139 26%
Net loans and advances to customers 9,953 9,836 1%
Stock of property 1,041 1,112 -6%
Investment properties 85 118 -28%
Other assets 1,881 1,876 0%
Non-current assets and disposal
groups held for sale 0 359 -100%
======================================== ====== =========== ============= ===============
Total assets 25,435 24,963 2%
======================================== ====== =========== ============= ===============
Deposits by banks 508 457 11%
Funding from central banks 1,977 2,970 -33%
Customer deposits 18,998 17,531 8%
Debt securities in issue 298 303 -2%
Subordinated liabilities 302 340 -11%
Other liabilities 1,251 1,281 -2%
======================================== ====== =========== ============= ===============
Total liabilities 23,334 22,882 2%
======================================== ====== =========== ============= ===============
Shareholders' equity 1,859 1,839 1%
======================================== ====== =========== ============= ===============
Other equity instruments 220 220 -
======================================== ====== =========== ============= ===============
Total equity excluding non-controlling
interests 2,079 2,059 1%
======================================== ====== =========== ============= ===============
Non-controlling interests 22 22 -1%
======================================== ====== =========== ============= ===============
Total equity 2,101 2,081 1%
======================================== ====== =========== ============= ===============
Total liabilities and equity 25,435 24,963 2%
======================================== ====== =========== ============= ===============
Key Balance Sheet figures and 31.12.2021
ratios 31.12.2022 (1) + (2)
======================================== ======================= ============= =============
Gross loans (EUR mn) 10,217 10,856 -6%
======================================== ======================= ============= =============
Allowance for expected loan
credit losses (EUR mn) 282 792 -64%
======================================== ======================= ============= =============
Customer deposits (EUR mn) 18,998 17,531 8%
======================================== ======================= ============= =============
Loans to deposits ratio (net) 52% 57% -5 p.p.
======================================== ======================= ============= =============
NPE ratio 4.0% 12.4% -8.4 p.p.
======================================== ======================= ============= =============
NPE coverage ratio 69% 59% +10 p.p.
======================================== ======================= ============= =============
Leverage ratio 7.5% 7.5% -
======================================== ======================= ============= =============
Capital ratios and risk weighted 31.12.2021
assets 31.12.2022 (1) + (2)
======================================== ======================= ============= =============
Common Equity Tier 1 (CET1)
ratio (transitional)(2) 15.4% 15.1% 30 bps
======================================== ======================= ============= =============
Total capital ratio (transitional) 20.6% 20.0% 60 bps
======================================== ======================= ============= =============
Risk weighted assets (EUR mn) 10,114 10,694 -5%
======================================== ======================= ============= =============
1. Including the NPE portfolios classified as "Non-current assets
and disposal groups held for sale", where relevant. 2. The CET1 fully
loaded ratio as at 31 December 2022 amounts to 14.7% (compared to
13.5% and 13.9% pro forma for Helix 3 as at 30 September 2022 and
to 13.7% and 14.3% pro forma for HFS as at 31 December 2021). p.p.
= percentage points, bps = basis points, 100 basis points (bps) =
1 p.p.
B. Preliminary Group Financial Results- Underlying Basis
(continued)
B.1 Unaudited reconciliation of consolidated income statement
for the year ended 31 December 2022 between statutory basis and
underlying basis
EUR million Underlying NPE Other Statutory
basis Sales basis
Net interest income 370 - - 370
=========== ======= ====== ==========
Net fee and commission income 192 - - 192
=========== ======= ====== ==========
Net foreign exchange gains and net
gains on financial instruments 36 - 5 41
=========== ======= ====== ==========
Net gains on derecognition of financial
assets measured at amortised cost - - 5 5
=========== ======= ====== ==========
Insurance income net of claims and
commissions 71 - - 71
=========== ======= ====== ==========
Net gains from revaluation and disposal
of investment properties and on disposal
of stock of properties 13 - - 13
=========== ======= ====== ==========
Other income 17 - - 17
----------- ------- ------ ----------
Total income 699 - 10 709
=========== ======= ====== ==========
Total expenses (381) (3) (126) (510)
----------- ------- ------ ----------
Operating profit 318 (3) (116) 199
=========== ======= ====== ==========
Loan credit losses (47) 1 46 -
=========== ======= ====== ==========
Impairments of other financial and
non-financial assets (33) - 33 -
=========== ======= ====== ==========
Provisions for pending litigations,
regulatory and other matters (net of
reversals) (11) - 11 -
=========== ======= ====== ==========
Credit losses on financial assets and
impairment net of reversals of non-financial
assets - - (89) (89)
=========== ======= ====== ==========
Profit before tax and non-recurring
items 227 (2) (115) 110
=========== ======= ====== ==========
Tax (36) - - (36)
=========== ======= ====== ==========
Profit attributable to non-controlling
interests (3) - - (3)
=========== ======= ====== ==========
Profit after tax and before non-recurring
items (attributable to the owners of
the Company) 188 (2) (115) 71
=========== ======= ====== ==========
Advisory and other restructuring costs
- organic (11) - 11 -
----------- ------- ------ ----------
Profit after tax - organic* (attributable
to the owners of the Company) 177 (2) (104) 71
=========== ======= ====== ==========
Provisions/net profit relating to NPE
sales 1 (1) - -
=========== ======= ====== ==========
Restructuring and other costs relating
to NPE sales (3) 3 - -
=========== ======= ====== ==========
Restructuring costs - Voluntary Staff
Exit Plans (VEP) (104) - 104 -
=========== ======= ====== ==========
Profit after tax (attributable to
the owners of the Company) 71 - - 71
=========== ======= ====== ==========
*This is the profit after tax (attributable to the owners of the
Company), before the provisions/net profit relating to NPE sales,
related restructuring and other costs, and restructuring costs
related to Voluntary Staff Exit Plans (VEP).
The reclassification differences between the statutory basis and
the underlying basis mainly relate to the impact from
'non-recurring items' and are explained as follows:
NPE sales
-- Total expenses under the statutory basis include restructuring
costs of EUR3 million relating to the agreements for the sale of
portfolios of NPEs and are presented within 'Restructuring and other
costs relating to NPE sales ' under the underlying basis.
-- Loan credit losses under the statutory basis include a reversal
of loan credit losses relating to Project Helix 3 of approximately
EUR1 million and are disclosed within 'Provisions/net profit relating
to NPE sales' under the underlying basis.
Other reclassifications
* Net gains on loans and advances to customers at FVPL
of EUR4 million included in 'Loan credit losses'
under the underlying basis are included in 'Net gains
on financial instruments' under the statutory basis.
Their classification under the underlying basis is
done to align their presentation with the loan credit
losses on loans and advances to customers at
amortised cost.
B. Preliminary Group Financial Results- Underlying Basis (continued)
B.1 Unaudited reconciliation of consolidated income statement for
the year ended 31 December 2022 between statutory basis and underlying
basis (continued)
* ' Net gains on derecognition of financial assets
measured at amortised cost' of EUR5 million under the
statutory basis comprise of the below items which are
reclassified accordingly under the underlying basis
as follows:
-- EUR6 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 gains on financial instruments' under the underlying
basis in order to align their presentation with the gains/(losses)
arising on financial instruments.
* Provisions for pending litigations, regulatory and
other matters (net of reversals) amounting to EUR11
million included in 'Total expenses' under the
statutory basis, are separately presented under the
underlying basis in conjunction with loan credit
losses and impairments.
* Advisory and other restructuring costs of
approximately EUR11 million included in 'Other
operating expenses' under the statutory basis are
separately presented under the underlying basis since
they comprise mainly fees to external advisors in
relation to the transformation programme and other
strategic projects of the Group.
* Total expenses under the statutory basis include
restructuring costs relating to Voluntary Staff Exit
Plans (VEP) of EUR104 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
EUR56 million, which are included in 'Loan credit
losses' under the underlying basis, and ii) credit
losses of other financial instruments of EUR3 million
and impairment net of reversals of non-financial
assets of EUR30 million which are included in
'Impairments of other financial and non-financial
assets' under the underlying basis, as to be
presented separately from loan credit losses.
B. Preliminary Group Financial Results - Underlying Basis
(continued)
B.2. Balance Sheet Analysis
B.2.1 Capital Base
Total equity excluding non-controlling interests totalled
EUR2,079 mn as at 31 December 2022 compared to EUR2,017 mn as at 30
September 2022, and to EUR2,059 mn at 31 December 2021 .
Shareholders' equity totalled EUR1,859 mn as at 31 December 2022
compared to EUR1,797 mn as at 30 September 2022 and to EUR1,839 mn
at 31 December 2021.
The Common Equity Tier 1 capital (CET1) ratio on a transitional
basis stood at 15.4% as at 31 December 2022, compared to 14.2% as
at 30 September 2022 and 14.7% pro forma for Helix 3 and to 15.1%
as at 31 December 2021 (and 15.8% pro forma for held for sale
portfolios (referred to as 'pro forma for HFS')). During 4Q2022,
CET1 ratio was positively affected by pre-provision income and the
reduction in risk weighted assets (mainly as a result of the
completion of Project Helix 3), and negatively affected by
provisions and impairments as well as the payment of AT1 coupon.
Throughout this announcement, the capital ratios as at 31 December
2022 include unaudited/preliminary profits for FY2022.
The Group has elected to apply the EU transitional arrangements
for regulatory capital purposes (EU Regulation 2017/2395) where the
impact on the impairment amount from the initial application of
IFRS 9 on the capital ratios is phased-in gradually, with the
impact being fully phased-in (100%) by 1 January 2023. The final
phasing-in of the impact of the impairment amount from the initial
application of IFRS 9 is c.65 bps on the CET1 ratio on 1 January
2023. In addition, a prudential charge in relation to the onsite
inspection on the value of the Group's foreclosed assets is being
deducted from own funds since June 2021, the impact of which is 26
bps on Group's CET1 ratio as at 31 December 2022. The reduction of
the impact since 30 September 2022 is mainly the result of
impairments recognised during the quarter.
The CET1 ratio on a fully loaded basis amounted to 14.7% as at
31 December 2022 compared to 13.5% as at 30 September 2022 (and
13.9% pro forma for Helix 3), and to 13.7% as at 31 December 2021
(and 14.3% pro forma for HFS) .
The CET1 ratio including the final impact of IFRS 9 phasing in
on 1 January 2023 and also the EUR 50 mn dividend relating to IFRS
17, distributed to the Bank in February 2023 is estimated at
15.2%.
The Total Capital ratio stood at 20.6% as at 31 December 2022,
compared to 19.1% as at 30 September 2022 (and 19.8% pro forma for
Helix 3), and to 20.0% as at 31 December 2021 (and 20.8% pro forma
for HFS).
The Group's capital ratios are above the Supervisory Review and
Evaluation Process (SREP) requirements.
The Group's minimum phased-in CET1 capital ratio requirement as
at 31 December 2022 was set at 10.10% comprising a 4.50% Pillar I
requirement, a 1.83% Pillar II requirement, the Capital
Conservation Buffer of 2.50%, the O-SII Buffer of 1.25% and the
Countercyclical Buffer (CCyB) of 0.02%. The Group's minimum
phased-in Total Capital ratio requirement as at 31 December 2022
was set at 15.03% comprising an 8.00% Pillar I requirement, of
which up to 1.50% can be in the form of AT1 capital and up to 2.00%
in the form of T2 capital, a 3.26% Pillar II requirement, the
Capital Conservation Buffer of 2.50%, the O-SII Buffer of 1.25% and
the CCyB of 0.02%. The Pillar 2 included an add-on of 0.26%
relating to the ECB's prudential provisioning expectations as per
the 2018 ECB Addendum and subsequent ECB announcements and press
release in July 2018 and August 2019. Pillar II add-on capital
requirements derive from the SREP, which is a point in time
assessment, and are therefore subject to change over time. The ECB
had also provided revised lower non-public guidance for an
additional Pillar II CET1 buffer (P2G) for 2022.
The Bank has been designated as an Other Systemically Important
Institution (O-SII) by the Central Bank of Cyprus (CBC) in
accordance with the provisions of the Macroprudential Oversight of
Institutions Law of 2015, and since November 2021 the O-SII buffer
has been set to 1.50%. This buffer is being phased-in gradually,
having started from 1 January 2019 at 0.50%. The O-SII buffer as at
31 December 2022 stood at 1.25% and has been fully phased-in on 1
January 2023.
Own funds held for the purposes of P2G cannot be used to meet
any other capital requirements (Pillar I, Pillar II requirements or
the combined buffer requirement), and therefore cannot be used
twice.
Following the annual SREP performed by the ECB in 2022 and based
on the final SREP decision received in December 2022, effective
from 1 January 2023, the Pillar II requirement has been revised to
3.08%, compared to the previous level of 3.26%. The Pillar II
requirement includes a revised Pillar II requirement add-on of
0.33% relating to ECB's prudential provisioning expectations. When
ignoring the Pillar II add-on relating to ECB's prudential
provisioning expectations, the Pillar 2 requirement has been
reduced from 3.00% to 2.75%.
B. Preliminary Group Financial Results - Underlying Basis
(continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
The Group's minimum phased-in CET1 capital ratio and Total
Capital ratio requirements were reduced when ignoring the phasing
in of the Other Systemically Important Institution Buffer. The
Group's minimum phased-in CET1 capital ratio is set at 10.25%,
comprising a 4.50% Pillar I requirement, a 1.73% Pillar II
requirement, the Capital Conservation Buffer of 2.50%, the O-SII
Buffer of 1.50% and the CCyB of 0.02%. The Group's minimum
phased-in Total Capital ratio requirement is set at 15.10%,
comprising an 8.00% Pillar I requirement, of which up to 1.50% can
be in the form of AT1 capital and up to 2.00% in the form of T2
capital, a 3.08% Pillar II requirement, the Capital Conservation
Buffer of 2.50%, the O-SII Buffer of 1.50% and the CCyB of 0.02%.
The ECB has also maintained the non-public guidance for an
additional Pillar II CET1 buffer (P2G) unchanged.
On 30 November 2022, the CBC, following the revised methodology
described in its macroprudential policy, decided to increase the
CCyB from 0.00% to 0.50% of the total risk exposure amounts in
Cyprus of each licensed credit institution incorporated in Cyprus.
The new rate of 0.50% must be observed as from 30 November 2023.
Based on the above, the CCyB for the Group is expected to
increase.
Based on the SREP decision, the Company (Bank of Cyprus Holdings
PLC) and the Bank were under a regulatory prohibition for equity
dividend distribution and hence no dividends were declared or paid
during 2021-2022. This prohibition does not apply if the
distribution is made via the issuance of new ordinary shares to the
shareholders, which are eligible as CET1 capital. No prohibition
applies to the payment of coupons on any AT1 capital instruments
issued by the Company or the Bank. Based on the final 2021 SREP
Decision, the previous restriction on variable pay was lifted.
Following the 2022 SREP decision effective from 1 January 2023,
the equity dividend distribution prohibition was lifted for both
the Company and the Bank, with any dividend distribution being
subject to regulatory approval.
Other equity instruments
At 31 December 2022, the Group's other equity instruments
amounted to EUR220 mn flat both to the prior quarter and prior year
and relates to Additional Tier 1 Capital Securities (the "AT1
securities").
The AT1 securities constitute unsecured and subordinated
obligations of the Company. They carry a coupon of 12.50% per
annum, payable semi-annually in arrears and resettable every five
years. The AT1 securities are perpetual and can be redeemed at the
option of the Company on the fifth anniversary of the issue date
(i.e. 19 December 2023) and each subsequent fifth anniversary,
subject to applicable regulatory consents. If the AT1 securities
are not called, the coupon will reset on the fifth anniversary of
the issue date (i.e.19 December 2023).
The Group continues to monitor opportunities for the
optimisation of its capital position.
Voluntary Staff Exit Plan
In July 2022, the Group completed a Voluntary Staff Exit Plan ,
resulting in a negative impact of c.95 bps both on the Group's CET1
and Total Capital ratios as at 30 September 2022. F or further
information please refer to Section B.3.2 "Total expenses".
Project Helix 3
In November 2022, Project Helix 3 was completed resulting in a
positive capital impact of c.50 bps on the Group's CET1 ratio
mainly from the release of risk weighted assets on completion. For
further information please refer to Section B.2.5 "Loan portfolio
quality".
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific
deferred tax assets (DTA) into deferred tax credits (DTC) became
effective in March 2019. The law amendments cover the utilisation
of income tax losses transferred from Laiki Bank to the Bank in
March 2013. The introduction of the Capital Requirements Regulation
(CRR) and Capital Requirements Directive (CRD) IV in January 2014
and its subsequent phasing-in led to a more capital-intensive
treatment of this DTA for the Bank. With this legislation,
institutions are allowed to treat such DTAs as 'not relying on
profitability', according to CRR/CRD IV and as a result not
deducted from CET1, hence improving a credit institution's capital
position.
B. Preliminary Group Financial Results - Underlying Basis
(continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
Legislative amendments for the conversion of DTA to DTC
(continued)
In response to concerns raised by the European Commission with
regard to the provision of state aid arising out of the treatment
of such tax losses, the Cyprus Government has proceeded with the
adoption of modifications to the Law, including requirements for an
additional annual fee over and above the 1.5% annual guarantee fee
already provided for in the Law, to maintain the conversion of such
DTAs into tax credits. In May 2022 the Cyprus Parliament voted
these amendments which became effective since then. As prescribed
by the amendments in the Law, the annual fee is to be determined by
the Cyprus Government on an annual basis, providing however that
such fee to be charged is set at a minimum fee of 1.5% of the
annual instalment and can range up to a maximum amount of 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).
The Group since prior years, in anticipation of modifications in
the Law, acknowledged that such increased annual fee may be
required to be recorded on an annual basis until expiration of such
losses in 2028. The Group estimates that such fees could range up
to c.EUR5 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 EUR4.8
mn was recorded in FY2022.
B.2.2 Regulations and Directives
B.2.2.1 The 2021 Banking Package (CRR III and CRD VI and
BRRD)
In October 2021, the European Commission adopted legislative
proposals for further amendments to the Capital Requirements
Regulation (CRR), CRD IV and the BRRD (the "2021 Banking Package").
Amongst other things, the 2021 Banking Package would implement
certain elements of Basel III that have not yet been transposed
into EU law. The 2021 Banking Package is subject to amendment in
the course of the EU's legislative process; and its scope and terms
may change prior to its implementation. In addition, in the case of
the proposed amendments to CRD IV and the BRRD, their terms and
effect will depend, in part, on how they are transposed in each
member state. As a general matter, it is likely to be several years
until the 2021 Banking Package begins to be implemented (currently
expected in 2025); and certain measures are expected to be subject
to transitional arrangements or to be phased in over time.
B.2.2.2 Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities
(MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that
from January 2016 EU member states shall apply the BRRD's
provisions requiring EU credit institutions and certain investment
firms to maintain a minimum requirement for own funds and eligible
liabilities (MREL), subject to the provisions of the Commission
Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part of
the reform package for strengthening the resilience and
resolvability of European banks, the BRRD 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 February 2023, the Bank received notification from the Single
Resolution Board (SRB) of the final decision for the binding
minimum requirement for own funds and eligible liabilities (MREL)
for the Bank, determined as the preferred resolution point of
entry. As per the decision, the final MREL requirement was set at
24.35% of risk weighted assets and 5.91% of Leverage Ratio Exposure
(LRE) (as defined in the CRR) and must be met by 31 December 2025.
Furthermore, the binding interim requirement of 1 January 2022 set
at 14.94% of risk weighted assets and 5.91% of LRE must continue to
be met. The own funds used by the Bank to meet the Combined Buffer
Requirement (CBR) are not eligible to meet its MREL requirements
expressed in terms of risk-weighted assets. The Bank must comply
with the MREL requirement at the consolidated level, comprising the
Bank and its subsidiaries.
The MREL ratio of the Bank as at 31 December 2022, calculated
according to the SRB's eligibility criteria currently in effect and
based on the Bank's internal estimate, stood at 21.42% of risk
weighted assets (RWA) and at 10.13% of LRE. The MREL ratio
expressed as a percentage of risk weighted assets does not include
capital used to meet the CBR amount, which stands at 3.77% since 1
January 2022 and is expected to increase to 4.02% on 1 January
2023. Throughout this announcement, the MREL ratios as at 31
December 2022 include unaudited/preliminary profits for FY2022
.
The Bank will continue to evaluate opportunities to advance the
build-up of its MREL liabilities.
B. Preliminary Group Financial Results - Underlying Basis
(continued)
B.2. Balance Sheet Analysis (continued)
B.2.3 Funding and Liquidity
Funding
Funding from Central Banks
At 31 December 2022, the Bank's funding from central banks
amounted to EUR 1,977 mn , which relates to ECB funding, comprising
solely of funding through the Targeted Longer-Term Refinancing
Operations (TLTRO) III, compared to EUR 2,952 mn at 30 September
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 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.
The Group recognised an additional net NII benefit of c.EUR8 mn
from the TLTRO III borrowing for the period 24 June 2022 to 22
November 2022, of which c.EUR5 mn was recognised in the income
statement in 4Q2022.
Following the changes in the terms of the TLTRO III announced by
the ECB in October 2022, and given the Bank's strong liquidity
position, the Bank proceeded with the repayment of EUR 1 bn TLTRO
III funding in December 2022.
Deposits
Customer deposits totalled EUR18,998 mn at 31 December 2022
(compared to EUR18,792 mn at 30 September 2022 and to EUR17,531 mn
at 31 December 2021) broadly flat in the fourth quarter and
increased by 8% since the year end.
The Bank's deposit market share in Cyprus reached 37.2% as at 31
December 2022, compared to 37.1% as at 30 September 2022 and to
34.8% as at 31 December 2021. Customer deposits accounted for 75%
of total assets and 81% of total liabilities at 31 December 2022 (4
p.p. up since 31 December 2021).
The net loans to deposits (L/D) ratio stood at 52% as at 31
December 2022 (compared to 55% as at 30 September 2022 and to 57%
as at 31 December 2021 on the same basis), reflecting the ongoing
increase in customer deposits and the derecognition of Helix 3
portfolio following completion.
Subordinated liabilities
At 31 December 2022, the Group's subordinated liabilities
(including accrued interest) amounted to EUR302 mn (compared to
EUR317 mn at 30 September 2022 and EUR340 mn at 31 December 2021)
and relate to unsecured subordinated Tier 2 Capital Notes ('T2
Notes').
The T2 Notes were priced at par with a fixed coupon of 6.625%
per annum, payable annually in arrears and resettable on 23 October
2026. The maturity date of the T2 Notes is 23 October 2031. The
Company will have the option to redeem the T2 Notes early on any
day during the six-month period from 23 April 2026 to 23 October
2026, subject to applicable regulatory approvals.
Debt securities in issue
At 31 December 2022, the Group's debt securities in issue
(including accrued interest) amounted to EUR298 mn (compared to
EUR299 mn at 30 September 2022 and EUR303 mn at 31 December 2021)
and relate to senior preferred notes.
B. Preliminary Group Financial Results - Underlying Basis
(continued)
B.2. Balance Sheet Analysis (continued)
B.2.3 Funding and Liquidity (continued)
Debt securities in issue (continued)
In June 2021, the Bank executed its inaugural MREL transaction
issuing 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.
Liquidity
At 31 December 2022, the Group Liquidity Coverage Ratio (LCR)
stood at 291% (compared to 300% at 30 September 2022 and to 298% at
31 December 2021), well above the minimum regulatory requirement of
100%. The LCR surplus as at 31 December 2022 amounted to EUR7.2 bn
(compared to EUR6.8 bn at 30 September 2022 and EUR6.3 bn at 31
December 2021), well positioned to benefit from further interest
rate increases. The increase in liquidity surplus in 4Q2022
reflects primarily the increase in customer deposits and the cash
consideration received with Helix 3 completion.
At 31 December 2022, the Group Net Stable Funding Ratio (NSFR)
stood at 168% (compared to 160% at 30 September 2022 and 147% at 31
December 2021), well above the minimum regulatory requirement of
100%.
B.2.4 Loans
Group gross loans totalled EUR10,217 mn at 31 December 2022 ,
compared to EUR10,913 mn at 30 September 2022 and EUR10,856 mn at
31 December 2021, reduced by 6% since the beginning of the year
attributed mainly to the completion of Project Helix 3.
New lending granted in Cyprus reached EUR444 mn for 4Q2022
(compared to EUR489 mn for 3Q2022, EUR537 mn for 2Q2022 and EUR622
mn for 1Q2022) and totalled a record of EUR2,092 mn for FY2022
(compared to EUR1,792 mn for FY2021) up by 17% yoy, whilst
maintaining strict lending criteria. The yoy increase is driven by
the increase in lending activity across all sectors, with corporate
being the main driver. New lending in 4Q2022 comprised EUR234 mn of
corporate loans, EUR165 mn of retail loans (of which EUR122 mn were
housing loans), EUR44 mn of SME loans and EUR1 mn of shipping and
international loans.
At 31 December 2022, the Group net loans and advances to
customers totalled EUR9,953 mn (compared to EUR10,088 mn at 30
September 2022 and EUR9,836 mn at 31 December 2021, excluding those
classified as held for sale), increased by 1% since the beginning
of the year.
The Bank is the largest credit provider in Cyprus with a market
share of 40.9% at 31 December 2022, compared to 41.1% at 30
September 2022 and 38.8% at 31 December 2021, increased by 2 p.p.
yoy despite the derecognition of Helix 3 portfolio following
completion.
B.2.5 Loan portfolio quality
The Group has continued to make steady progress across all asset
quality metrics. As the balance sheet de-risking is largely
complete, t he Group's priorities remain unchanged; maintaining
high quality new lending with strict underwriting standards and
preventing asset quality deterioration following the ongoing
macroeconomic uncertainty.
The loan credit losses for 4Q2022 totalled EUR11 mn (excluding
'Provisions/net (loss)/profit relating to NPE sales'), compared to
EUR13 mn for 3Q2022 and totalled EUR47 mn for FY2022, compared to
EUR66 mn for FY2021. Further details regarding loan credit losses
are provided in Section B.3.3 'Profit before tax and non-recurring
items'.
The elevated inflation combined with the rising interest rate
environment are expected to weigh on the purchasing power of the
Bank's customers. Despite these persisting pressures there are no
signs of asset quality deterioration to date. While defaults have
been limited, the additional monitoring and provisioning for
sectors vulnerable to the deteriorated macroeconomic environment
remain in place to ensure that potential difficulties in the
repayment ability are identified at an early stage, and appropriate
solutions are provided to viable customers.
B. Preliminary Group Financial Results - Underlying Basis
(continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
Non-performing exposures reduction
Non-performing exposures (NPEs) as defined by the European
Banking Authority (EBA) were reduced by EUR607 mn, or 60% in
4Q2022, compared to a reduction of EUR 150 mn in 3Q2022, to EUR411
mn at 31 December 2022 (compared to EUR1,018 mn at 30 September
2022 and EUR1,343 mn at 31 December 2021). The reduction in 4Q2022
is mainly driven by the completion of Project Helix 3 of EUR 550 mn
and the net organic NPE reductions of EUR57 mn (inflows minus
outflows).
As a result, the NPEs account for 4.0% of gross loans as at 31
December 2022, compared to 9.3% at 30 September 2022 and 12.4% as
at 31 December 2021.
The NPE coverage ratio stands at 69% at 31 December 2022,
compared to 60% as at 30 September 2022 and 59% as at 31 December
2021. When taking into account tangible collateral at fair value,
NPEs are fully covered.
Project Helix 3
In November 2022, the Group completed Project Helix 3 , that
refers to the sale of a portfolio of loans with a gross book value
of EUR555 mn (of which EUR551 mn relate to non-performing
exposures), as well as real estate properties with a book value of
EUR88 mn as at 30 September 2022, to funds managed by Pacific
Investment Management Company LLC, the agreement for which was
announced on 15 November 2021.
Cash consideration of c.EUR350 mn was received by completion,
reflecting adjustments resulting from, inter alia, loan repayments
received on the Portfolio since the reference date of 31 May
2021.
The Transaction represented a milestone in the successful
delivery of one of the Group's strategic priorities of improving
asset quality through the reduction of NPEs with the NPE ratio
reducing below 5%.
Project Sinope
In December 2021, the Bank entered into an agreement for the
sale of a portfolio of NPEs, with a contractual balance of 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') . Project Sinope was
completed in August 2022.
O verall, since the peak in 2014 and following the completion of
Helix 3, the stock of NPEs has been reduced by EUR14.6 bn or 97% to
EUR0.4 bn and the NPE ratio by 59 percentage points, from 63% to
4%.
B.2.6 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) is focused on the
disposal of on-boarded properties resulting from debt for asset
swaps. Cumulative sales since the beginning of 2017 amount to
EUR1.5 bn and exceed properties on-boarded in the same period of
EUR1.4 bn.
The Group completed disposals of EUR162 mn in FY2022 (compared
to EUR 140 mn in FY2021 ), resulting in a profit on disposal of
EUR16 mn for FY2022 (compared to a profit of EUR 14 mn for FY2021
). Asset disposals are across all property classes, with half of
sales by value in FY2022 relating to land.
During FY2022, the Group executed sale-purchase agreements
(SPAs) for disposals of 674 properties with contract value of
EUR184 mn, compared to SPAs for disposals of 703 properties, with
contract value of EUR149 mn for FY2021.
In addition, the Group had a strong pipeline of EUR70 mn by
contract value as at 31 December 2022, of which EUR47 mn related to
SPAs signed (compared to a pipeline of EUR109 mn as at 31 December
2021, of which EUR47 mn related to SPAs signed).
REMU on-boarded EUR86 mn of assets in FY2022 (compared to
additions of EUR34 mn in FY2021), via the execution of debt for
asset swaps and repossessed properties.
The carrying value of assets held by REMU that were classified
as "non-current assets and disposal groups held for sale" since
2021 and amounting to EUR88 mn as at 30 September 2022 were
derecognised with the completion of Project Helix 3. They comprised
stock of properties of EUR83 mn and investment properties of EUR5
mn.
As at 31 December 2022, assets held by REMU had a carrying value
of EUR1,116 mn (comprising properties of EUR1,041 mn classified as
'Stock of property' and EUR75 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. Preliminary Group Financial Results - Underlying Basis
(continued)
B.2. Balance Sheet Analysis (continued)
B.2.6 Real Estate Management Unit (REMU) (continued)
Assets held by REMU
Assets held by REMU (Group)
EUR mn FY2022 FY2021 4Q2022 3Q2022 qoq +% yoy +%
------ --------- ------ ------ ------
Opening balance 1,215 1,473 (1) 1,161 1,146 1% -17%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
On-boarded assets 86 34 2 58 -96% 150%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
Sales (162) (140) (2) (37) (38) 0% 17%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
Net impairment loss (23) (50) (10) (5) 82% -54%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
Transfer to non-current assets and disposal groups held for sale - (102) - - -100%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
Closing balance 1,116 1,215 1,116 1,161 -4% -8%
----------------------------------------------------------------- ------ --------- ------ ------ ------ ------
1 . Following certain segmental reclassifications to better align with current management
information, investment properties of EUR 16 mn relating to land, were transferred under REMU.
2 . Sales in FY2021 have been adjusted to include properties of EUR5 mn relating to Project
Helix 2 that had been transferred to non-current assets and disposal groups held for sale
in 1Q2021.
Analysis by type and country Cyprus Greece Romania Total
31 December 2022 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 69 21 0 90
Offices and other commercial
properties 180 14 0 194
Manufacturing and industrial
properties 48 19 0 67
Hotels 24 0 0 24
Land (fields and plots) 502 4 0 506
Golf courses and golf-related
property 235 0 0 235
Total 1,058 58 0 1,116
------- ------- --------
Cyprus Greece Romania Total
31 December 2021 (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. Preliminary Group Financial Results - Underlying Basis
(continued)
B.3. Income Statement Analysis
B.3.1 Total income
EUR mn FY2022 FY2021 4Q2022 3Q2022 2Q2022 1Q2022 qoq +% yoy +%
(restated
(1) )
------- ----------- ------- ------- ------- ------- ------
Net interest income 370 296 136 89 74 71 53% 25%
------------------------------ ------- ----------- ------- ------- ------- ------- ------ ------
Net fee and commission
income 192 172 50 48 50 44 4% 12%
Net foreign exchange
gains and net gains/(losses)
on financial instruments 36 25 12 13 5 6 -8% 45%
Insurance income
net of claims and
commissions 71 61 23 15 17 16 53% 17%
Net gains/(losses)
from revaluation
and disposal of investment
properties and on
disposal of stock
of properties 13 13 2 4 2 5 -36% 4%
Other income 17 14 5 3 5 4 57% 17%
------------------------------ ------- ----------- ------- ------- ------- ------- ------ ------
Non-interest income 329 285 92 83 79 75 11% 16%
------------------------------ ------- ----------- ------- ------- ------- ------- ------ ------
Total income 699 581 228 172 153 146 33% 20%
------------------------------ ------- ----------- ------- ------- ------- ------- ------ ------
Net Interest Margin
(annualised)(2) 1.65% 1.45% 2.36% 1.53% 1.33% 1.32% 83 bps 20 bps
------------------------------ ------- ----------- ------- ------- ------- ------- ------ ------
Average interest
earning assets
(EUR mn)(2) 22,483 20,436 22,855 22,997 22,436 21,942 -1% 10%
------------------------------ ------- ----------- ------- ------- ------- ------- ------ ------
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'
2. Including the NPE portfolios classified as "Non-current assets and disposal
groups held for sale", where relevant .
p.p. = percentage points, bps = basis points, 100 basis points (bps) =
1 percentage point
Net interest income (NII) for FY2022 amounted to EUR370 mn
(including NII of c. EUR 12 mn relating to Helix 3 which was
completed in November 2022) , compared to EUR 296 mn in FY2021. The
yoy increase of 25% reflects positive gearing to higher rates and
to a lesser extend the growth of the performing loan book and fixed
income portfolio, notwithstanding the foregone NII on the Helix 2
portfolio (c.EUR15 mn in FY2021). Net interest income (NII) for
4Q2022 amounted to EUR136 mn, compared to EUR 89 mn for 3Q2022, up
53% qoq, driven by the immediate liquid assets repricing (including
fixed income portfolio) and Euribor repricing.
Average interest earning assets (AIEA) for FY2022 amounted to
EUR22,483 mn, up by 10% yoy driven by the increase in liquid assets
as a result of the increase in deposits by EUR1.5 bn yoy and the
increase in the fixed income portfolio by c.EUR 0.6 bn yoy .
Quarterly average interest earning assets for 4Q2022 decreased by
1%, driven by the repayment of the TLTRO III borrowing of EUR 1 bn
in December 2022.
Net interest margin (NIM) for FY2022 amounted to 1.65% (compared
to 1.45% for FY2021) supported by the rising interest rate
environment. Net interest margin (NIM) for 4Q2022 stood at 2.36%,
up 83 bps qoq, attributed by the repricing of liquid assets and
loans .
Non-interest income for FY2022 amounted to EUR329 mn (compared
to EUR 285 mn for FY2021 , up by 16% yoy), comprising net fee and
commission income of EUR192 mn, net foreign exchange gains and net
gains/(losses) on financial instruments of EUR36 mn, net insurance
income of EUR71 mn, net gains/(losses) from revaluation and
disposal of investment properties and on disposal of stock of
properties of EUR13 mn and other income of EUR17 mn. The yoy
increase is driven by higher net fee and commission income, higher
insurance income net of claims and commissions and higher net
foreign exchange gains and net gains/(losses) on financial
instruments.
Non-interest income for 4Q2022 amounted to EUR92 mn (compared to
EUR83 mn for 3Q2022, up by 11% qoq), comprising net fee and
commission income of EUR50 mn, net foreign exchange gains and net
gains/(losses) on financial instruments of EUR12 mn, net insurance
income of EUR23 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 mainly to higher insurance income net of claims and
commissions.
Net fee and commission income for FY2022 amounted to EUR192 mn,
(compared to EUR172 mn for FY2021 , up 12% yoy), driven by the
introduction of a revised price list in February 2022 and the
extension of liquidity fees to a wider customer group in March
2022. Liquidity fees were fully abolished in December 2022. Net fee
and commission income for FY2022 includes an amount of c.EUR6 mn
relating to a NPE sale-related servicing fee, for a transitional
period ending in 1Q2023.
B. Preliminary Group Financial Results - Underlying Basis
(continued)
B.3. Income Statement Analysis (continued)
B.3.1 Total income (continued)
Net fee and commission income for 4Q2022 amounted to EUR50 mn,
up 4% qoq (compared to EUR48 mn for 3Q2022) due to higher
non-transactional fees partially offset by the phasing out of the
liquidity fees in December 2022.
Net foreign exchange gains and net gains/(losses) on financial
instruments of EUR36 mn for FY2022 (comprising net foreign exchange
gains of EUR31 mn and net gains on financial instruments of EUR5
mn), compared to EUR 25 mn for FY202 1 ( comprising net foreign
exchange gains of EUR 16 mn and net gains on financial instruments
of EUR9 mn ) . The increase of 45% yoy reflects higher foreign
exchange gains through FX swaps.Net foreign exchange gains and net
gains/(losses) on financial instruments are volatile profit
contributors.
Net foreign exchange gains and net gains/(losses) on financial
instruments amounted to EUR12 mn for 4Q2022, compared to EUR 13 mn
in the previous quarter, impacted by one-off gain of c.EUR5.5 mn of
a financial instrument in the previous quarter and higher foreign
exchange gains in the fourth quarter.
Net insurance income amounted to EUR71 mn for FY2022, compared
to EUR61 mn for FY2021, up 17% yoy mainly due to increased new
business and the positive changes in valuation assumptions,
partially offset by higher insurance claims.
Net insurance income amounted to EUR23 mn for 4Q2022, up 53%
qoq, driven by exceptionally strong new business, the positive
changes in valuation assumptions and lower insurance claims.
Net gains/(losses) from revaluation and disposal of investment
properties and on disposal of stock of properties for FY2022
amounted to EUR13 mn (comprising net gains on disposal of stock of
properties of EUR16 mn, and net losses from revaluation of
investment properties of EUR3 mn) , broadly flat compared to the
previous year.
Net gains/(losses) from revaluation and disposal of investment
properties and on disposal of stock of properties for 4Q2022
amounted to EUR2 mn, compared to EUR 4 mn for 3Q2022. REMU profit
remains volatile.
Total income for FY2022 amounted to EUR699 mn, compared to
EUR581 mn for FY202 1 (up 20% yoy), mainly driven by the increases
in the net interest income, net fee and commission income and
insurance income net of claims and commissions as explained above.
Total income for 4Q2022 stood at EUR228 mn, compared to EUR172 mn
for 3Q2022, up by 33% qoq, reflecting mainly the increased net
interest income by 53% qoq.
B. Preliminary Group Financial Results - Underlying Basis
(continued)
B.3. Income Statement Analysis (continued)
EUR mn FY2022 FY2021 4Q2022 3Q2022 2Q2022 1Q2022 qoq +% yoy +%
(restated
(1) )
------- ----------- ------- ------- ------- ------- -------
Staff costs (190) (202) (44) (46) (50) (50) -6% -6%
Other operating expenses (153) (145) (45) (35) (37) (36) 25% 5%
-------------------------------- ------- ----------- ------- ------- ------- ------- ------- --------
Total operating
expenses (343) (347) (89) (81) (87) (86) 8% -1%
-------------------------------- ------- ----------- ------- ------- ------- ------- ------- --------
Special levy on deposits
and other levies/contributions (38) (36) (11) (10) (7) (10) 17% 6%
Total expenses (381) (383) (100) (91) (94) (96) 9% -1%
------- ----------- ------- ------- ------- ------- -------
Cost to income ratio(2) 54% 66% 44% 53% 61% 66% -9 p.p. -12 p.p.
-------------------------------- ------- ----------- ------- ------- ------- ------- ------- --------
Cost to income ratio
excluding special
levy on deposits
and other levies/contributions
(2) 49% 60% 38% 47% 57% 59% -9 p.p. -11 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'
2. Including the NPE portfolios classified as "Non-current assets and
disposal groups held for sale", where relevant .
p.p. = percentage points, bps = basis points, 100 basis points (bps)
= 1 percentage point
B .3.2 Total expenses
Total expenses for FY2022 were EUR381 mn (compared to EUR383 mn
for FY2021), down 1% yoy, 50% of which related to staff costs
(EUR190 mn), 40% to other operating expenses (EUR153 mn) and 10% to
special levy on deposits and other levies/contributions (EUR38 mn).
Total expenses for 4Q2022 were EUR100 mn, compared to EUR91 mn for
3Q2022, up 9 % qoq. The increase is driven by the 25% qoq increase
in other operating expenses.
Total operating expenses for 4Q2022 were EUR89 mn (compared to
EUR81 mn for 3Q2022) up 8% qoq driven by inflationary pressures and
seasonally higher other operating expenses. Total operating
expenses totalled EUR343 mn for FY2022, compared to EUR347 mn for
FY2021 (down by 1% yoy), remaining under control on the back of
successful completion of efficiency actions, despite elevated
inflation.
Staff costs for FY2022 were EUR190 mn, compared to EUR202 mn for
FY202 1, down 6% yoy, resulting from the Voluntary Staff Exit Plans
that took place during 2022. Staff costs for 4Q2022 amounted to
EUR44 mn down 6% qoq mainly due to saving from the completion of
the VEP in July 2022 partially offset by the impact of the
introduction of new pay grading structure and long-term incentive
plan. The VEP led to the reduction of the Group's full time
employees by 16%, at a total cost of EUR104 mn of which EUR101 mn
was recorded in the consolidated income statement in 3Q2022.
Following the completion of the VEP, the gross annual savings are
estimated at c. EUR 37 mn or 19% of staff costs with a payback
period of 2.7 years. The estimated savings of the VEP are expected
to be partially offset by the renewal of the collective agreement
in 2023.
In addition, in January 2022 the Group through one of its
subsidiaries completed a Voluntary Staff Exit Plan (VEP), through
which a small number of its employees were approved to leave at a
total cost of EUR3 mn, recorded in the consolidated income
statement in 1Q2022 as a non-recurring item in the underlying
basis.
The Group employed 2,889 persons as at 31 December 2022 compared
to 2,955 persons as at 30 September 2022 and 3,438 persons as at 31
December 2021.
In July 2021, the Bank reached agreement with the Cyprus Union
of Bank Employees for the renewal of the collective agreement for
the years 2021 and 2022. The agreement related to certain changes
including the introduction of a new pay grading structure linked to
the value of each position of employment, and of a
performance-related pay component as part of the annual salary
increase, both of which have been long-standing objectives of the
Bank and are in line with market best-practice. The impact of the
renewal was an increase in staff costs for 2022 by 3-4% per annum,
in line with the impact of renewals in previous years.
During December 2022 the Group has granted to eligible employees
share awards under a long-term incentive plan ("2022 LTIP" or the
"2022 Plan"). The 2022 Plan involves the granting of share awards
and is driven by scorecard achievement, with measures and targets
set to align pay outcomes with the delivery of the Group's
strategy. The employees eligible for 2022 LTIP are the members of
the Extended EXCO. The 2022 LTIP stipulates that performance will
be measured over a 3 year period and financial and non-financial
objectives to be achieved. At the end of the performance period,
the performance outcome will be used to assess the percentage of
the awards that will vest.
B. Preliminary Group Financial Results - Underlying Basis
(continued)
B.3. Income Statement Analysis (continued)
B.3.2 Total expenses (continued)
These shares will then normally vest in six tranches, with the
first tranche vesting after the end of the performance period and
the last tranche vesting on the fifth anniversary of the first
vesting date. For the year ended 31 December 2022, the Group
recognised in the Group's Income Statement an expense of less than
EUR0.5 mn regarding the Plan. Based on the market value of these
awards on the grant date, the expense deferred to future periods is
estimated to c.EUR1.1 mn. Actual amounts to be expensed in future
periods may vary, e.g., due to forfeiture of awards.
Other operating expenses for FY2022 were EUR153 mn, compared to
EUR 145 mn for FY2021, up 5% yoy, driven by inflationary pressures.
Other operating expenses for 4Q2022 amounted to EUR45 mn, compared
to EUR35 mn for 3Q2022, up by 25% qoq reflecting seasonally higher
professional fees, marketing expenses and IT costs and inflationary
pressures.
Special levy on deposits and other levies/contributions for
FY2022 amounted to EUR38 mn (compared to EUR36 mn for FY202 1) up
6% yoy, driven by the increase in deposits of EUR1.5 bn yoy .
Special levy on deposits and other levies/contributions for 4Q2022
were EUR11 mn broadly flat qoq, reflecting mainly the net impact of
a levy in the form of an annual guarantee fee relating to the
expected revised Income Tax legislation of EUR4.8 mn recorded in
4Q2022 (see Section B.2.1 'Capital Base') and the contribution of
the Bank to the Deposit Guarantee Fund (DGF) of EUR3 mn which
relates to 2H2022 and was recorded in 3Q2022, in line with
IFRSs.
The cost to income ratio excluding special levy on deposits and
other levies/contributions for FY2022 was 49%, compared to 60% for
FY2021. The cost to income ratio excluding special levy on deposits
and other levies/contributions for 4Q2022 was 38%, compared to 47%
for 3Q2022. The qoq decrease of 9 p.p. is driven by the higher
total income.
The cost to income ratio excluding special levy on deposits and
other levies/contributions for 2023 is expected to decrease to
mid-40s, reflecting management's ongoing focus on efficiency and
cost discipline in an inflationary environment. This target
includes a commitment of maintaining total operating expenses of a
range between EUR350-360 mn , reflecting some upward pressure on
costs from investments in transformation and digitalisation and the
renewal of collective agreement in 2023. The cost to income ratio
excluding special levy on deposits and other levies/contributions
for 2024 is expected to remain around similar levels to 2023.
B. Preliminary Group Financial Results - Underlying Basis
(continued)
B.3. Income Statement Analysis (continued)
B.3.3 Profit before tax and non-recurring items
EUR mn FY2022 FY2021 4Q2022 3Q2022 2Q2022 1Q2022 qoq+% yoy +%
(restated
(1) )
------- ----------- ------- ------- ------- ------- ------
Operating profit 318 198 128 81 59 50 60% 62%
----------------------------- ------- ----------- ------- ------- ------- ------- ------ -------
Loan credit losses (47) (66) (11) (13) (11) (12) -10% -30%
Impairments of other
financial and non-financial
assets (33) (36) (13) (7) (8) (5) 72% -9%
Provisions for pending
litigations, regulatory
and other matters
(net of reversals) (11) 2 (8) (2) (1) (0) 202% -
----------------------------- ------- ----------- ------- ------- ------- ------- ------ -------
Total loan credit
losses, impairments
and provisions (91) (100) (32) (22) (20) (17) 42% -8%
----------------------------- ------- ----------- ------- ------- ------- ------- ------ -------
Profit before tax
and non-recurring
items 227 98 96 59 39 33 67% 133%
----------------------------- ------- ----------- ------- ------- ------- ------- ------ -------
Cost of risk(2) 0.44% 0.57% 0.42% 0.45% 0.41% 0.44% -3 bps -13 bps
----------------------------- ------- ----------- ------- ------- ------- ------- ------ -------
1. Comparative information was restated following a reclassification of
approximately 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'
2. Including the NPE portfolios classified as "Non-current assets and
disposal groups held for sale", where relevant .
p.p. = percentage points, bps = basis points, 100 basis points (bps) =
1 percentage point
Operating profit for 4Q2022 amounted to EUR 128 mn (compared to
EUR 81 mn for 3Q2022) and totaled EUR 318 mn for FY2022, up 62%
yoy, driven mainly the significant increase in net interest income
in the fourth quarter.
Loan credit losses for FY2022 totaled EUR47 mn, compared to
EUR66 mn for FY202 1 (down by 30% yoy). Loan credit losses for
4Q2022 amounted to EUR11 mn compared to EUR 13 mn for 3Q2022, down
10% qoq.
C ost of risk for FY2022 was 44 bps, compared to a cost of risk
of 57 bps for FY202 1, down by 13 bps reflecting strong asset
quality performance in 2022. Cost of risk for 4Q2022 accounted for
42 bps broadly flat on the prior quarter .
At 31 December 2022, the allowance for expected loan credit
losses, including residual fair value adjustment on initial
recognition and credit losses on off-balance sheet exposures
(please refer to Section F. 'Definitions & Explanations' for
definition) totalled EUR282 mn (compared to EUR610 mn at 30
September 2022 and EUR792 mn at 31 December 2021) and accounted for
2.8% of gross loans (compared to 5.6% (2.8% pro forma for Helix 3)
and 7.3% (4.5% pro forma for HFS) of gross loans at 30 September
2022 and 31 December 2021 respectively).
Impairments of other financial and non-financial assets for
FY2022 amounted to EUR33 mn, compared to EUR 36 mn for FY202 1,
down by 9% yoy . Impairments of other financial and non-financial
assets for 4Q2022 amounted to EUR13 mn, compared to EUR 7 mn for
3Q2022, driven by higher impairments on specific, large, illiquid
REMU stock properties.
Provisions for pending litigations, regulatory and other matters
(net of reversals) for FY2022 amounted to EUR11 mn, compared to a
reversal of EUR 2 mn for FY2021 . Provisions for pending
litigations, regulatory and other matters (net of reversals) for
4Q2022 amounted to EUR8 mn compared to EUR2 mn for 3Q2022, impacted
by a one-off charge of c. EUR 5.5 mn in relation to a revised
approach on pending litigation fees.
Profit before tax and non-recurring items for FY2022 totalled
EUR227 mn, compared to EUR98 mn for FY202 1 (more than doubled
yoy). Profit before tax and non-recurring items for 4Q2022 amounted
to EUR96 mn compared to EUR59 mn for 3Q2022 (up by 67% qoq).
B. Preliminary Group Financial Results - Underlying Basis
(continued)
B.3. Income Statement Analysis (continued)
B.3. 4 Profit after tax (attributable to the owners of the
Company)
EUR mn FY2022 FY2021 4Q2022 3Q2022 2Q2022 1Q2022 qoq +%
(restated
(1) ) yoy +%
----------------------------- ------- ----------- ------- ------- ------- ------- ------ ------
Profit before tax
and non-recurring
items 227 98 96 59 39 33 67% 133%
----------------------------- ------- ----------- ------- ------- ------- ------- ------ ------
Tax (36) (5) (16) (8) (6) (6) 94% -
Profit attributable
to non-controlling
interests (3) (2) (1) (1) (1) 0 -16% 32%
Profit after tax
and before non-recurring
items (attributable
to the owners of
the Company) 188 91 79 50 32 27 64% 107%
------- ----------- ------- ------- ------- ------- ------
Advisory and other
restructuring costs
- organic (11) (22) (1) (5) (4) (1) -70% -48%
----------------------------- ------- ----------- ------- ------- ------- ------- ------ ------
Profit after tax
- organic (attributable
to the owners of
the Company) 177 69 78 45 28 26 78% 155%
----------------------------- ------- ----------- ------- ------- ------- ------- ------ ------
Provisions/net profit/(loss)
relating to NPE sales(2) 1 (7) 2 (1) 1 (1) - -109%
Restructuring and
other costs relating
to NPE sales(2) (3) (16) 0 (2) 0 (1) -79% -82%
Restructuring costs
- Voluntary Staff
Exit Plan (VEP) (104) (16) - (101) - (3) -100% -
Profit/(loss) after
tax (attributable
to the owners of
the Company) 71 30 80 (59) 29 21 - 139%
------- ----------- ------- ------- ------- ------- ------
1. Comparative information was restated following a reclassification of
approximately 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'
2. Including the NPE portfolios classified as "Non-current assets and
disposal groups held for sale", where relevant .
The tax charge for 4Q2022 is EUR16 mn, up 94% qoq and totalled
to EUR 36 mn for FY2022, compared to EUR 5 mn for FY2021 .
Profit after tax and before non-recurring items (attributable to
the owners of the Company) for FY2022 is EUR188 mn, compared to
EUR91 mn for FY202 1. Return on Tangible Equity (ROTE) before
non-recurring items calculated using 'profit after tax and before
non-recurring items (attributable to the owners of the Company)'
amounts to 11.3% for FY2022 , compared to 5.5% for FY202 1. Profit
after tax and before non-recurring items (attributable to the
owners of the Company) for 4Q2022 amounted to EUR79 mn, reflecting
a ROTE before non-recurring items of 19.1%, compared to EUR50 mn
for 3Q2022 (and a ROTE before non-recurring items of 11.7%).
Advisory and other restructuring costs - organic for FY2022
amounted to EUR11 mn, compared to EUR22 mn for FY2021, down by 48%
yoy mainly due to ad-hoc cost related to the tender offer for
Existing Tier 2 Capital Notes amounting to EUR 12 mn in FY2021.
Advisory and other restructuring costs - organic for 4Q2022
amounted to EUR1 mn, compared to EUR5 mn for 3Q2022 and relate to
the transformation programme and other strategic projects of the
Group.
Profit after tax arising from the organic operations
(attributable to the owners of the Company) for FY2022 amounted to
EUR177 mn, compared to EUR69 mn for FY202 1. Profit after tax
arising from the organic operations (attributable to the owners of
the Company) for 4Q2022 is EUR78 mn, compared to EUR 45 mn for
3Q2022, up 78% qoq.
Provisions/net profit/(loss) relating to NPE sales for FY2022
amounted to a profit of EUR 1 mn, compared to a loss of EUR7 mn for
FY202 1 (relating to Helix 2 and Helix 3). Provisions/net
profit/(loss) relating to NPE sales for 4Q2022 was a net profit of
EUR2 mn, compared to a net loss of EUR 1 mn in 3Q2022.
Restructuring and other costs relating to NPE sales for FY2022
was EUR3 mn, compared to EUR16 mn for FY2021 (relating to the
agreements for the sale of portfolios of NPEs). Restructuring and
other costs relating to NPE sales for 4Q2022 is nil compared to EUR
2 mn for 3Q2022 .
Restructuring costs relating to the Voluntary Staff Exit Plan
(VEP) amounted to EUR104 mn for FY2022, compared to EUR16 mn for
FY2021. For further details please refer to Section B.3.2 'Total
expenses'.
Profit/(loss) after tax attributable to the owners of the
Company for FY2022 was a profit of EUR71 mn, compared to a profit
of EUR30 mn for FY2021. Profit/(loss) after tax attributable to the
owners of the Company for 4Q2022 amounted to a profit EUR 80 mn,
compared to a loss of EUR 59 mn for 3Q2022.
C. Operating Environment
According to the IMF's revised World Economic Outlook published
at the end of January, the global economy is expected to slow in
2023 before picking up again in 2024. Growth will remain weak by
historical standards as a result of tighter monetary conditions in
the fight against inflation and the negative impact of the war in
Ukraine. Global growth is expected to slow from 3.4% in 2022 to
2.9% in 2023, before recovering to 3.1% in 2024. In the euro area,
despite signs of resilience to the energy crisis, a mild winter and
generous fiscal support, growth is expected to be around 0.7% in
2023 resulting from tighter monetary conditions, a negative
terms-of-trade shock from higher energy prices and increased
uncertainty as the war in Ukraine is expected to escalate
further.
As expected, the ECB continued to raise interest rates at the
start of 2023. At the most recent Governing Council meeting on 8
February 2023, the ECB raised its main refinancing operations rate
by 50 basis points to 3%. The ECB raised its marginal lending
facility to 3.25% and its deposit facility to 2.5%. Rising
inflation and a more aggressive monetary policy stance by the
Federal Reserve are expected to force the ECB to take a more
aggressive approach. The ECB began raising rates in July 2022, when
the main refinancing operations rate was zero and the deposit
facility was at -0.5%. Financing conditions are expected to tighten
further in 2023 and interest rates to remain high throughout the
year.
In a challenging international environment, the Cypriot economy
has shown considerable resilience. The contraction of 4.4% in 2020
was modest compared to other southern countries. The economy
rebounded strongly in 2021, with real GDP growing by 6.6%. Growth
remained strong in 2022 averaging 5.7% which is well above the euro
area average. In the fourth quarter of 2022, economic growth stood
at 4.4%. However, growth is expected to decelerate in 2023, towards
3%, according to the Ministry of Finance.
On the fiscal side, the recovery in 2021 is underpinned by a
significant increase in general government revenue and a relative
decline in government expenditure. As a result, the budget deficit
narrowed to 1.7% of GDP from a deficit of 5.8% of GDP in 2020,
reflecting government measures to support the economy in the midst
of a deep recession induced by the Covid pandemic. Developments in
2022 were favourable for public finances. Revenues grew by 16.7% in
the first three quarters of the year, while expenditures increased
by 1.3%, indicating a significant surplus in the period. Part of
the increase in revenues is a windfall related to the energy
crisis, but overall, the current state of public finances is
positive. Public debt is sustainable and firmly on a downward path.
With a budget surplus in 2022 and inflation at around 8.1%, the
debt-to-GDP ratio is expected to fall towards 87%, according to the
Ministry of Finance. In the longer term, public debt dynamics will
depend on interest rate developments, inflation, and growth.
On the supply side, growth in the first three quarters of the
year for which data are available, was almost entirely driven by
services. Trade, transport, and accommodation services accounted
for more than half of the growth over the period. Information and
communications and professional and administrative services also
made significant contributions. In the industrial sector, growth
came from the utilities, electricity, and water sectors, with only
a marginal contribution from manufacturing. Construction activity
declined slightly and made a negative contribution.
On the demand side, growth in the first three quarters was
driven by private consumption and investment, especially inventory
accumulation, while the external sector made a negative
contribution due to faster growth in imports. Total investment
includes transport equipment, which includes ship
registrations.
Tourist activity recovered strongly during the year. Arrivals
reached 3.2 million persons, or 80% of the corresponding arrivals
in 2019. Receipts reached an estimated EUR2.4 billion in the year,
or 90% of corresponding receipts in 2019. The increase in arrivals
was mainly due to increases from the United Kingdom and, to a
lesser extent, from other European countries and Israel. Travel
from Russia and Ukraine has been affected by the war and
sanctions.
Rising energy costs, exacerbated by the war in Ukraine, are
affecting both consumers and businesses. The government has taken
initial steps to mitigate the impact. The government lowered VAT
rates on electricity and reduced excise duties on petrol and diesel
for a limited period until June 2022. The latter remained in force
until the end of January 2023. In September 2022, the government
introduced a graduated system of subsidies for electricity
consumption to replace the reduced VAT.
Cyprus received the first disbursement from the Recovery and
Resilience Facility of EUR157 million in September 2021, following
the approval of the National Recovery Plan in July of the previous
year. This was a pre-financing of 13% of the total disbursements
for the period 2021-26. Furthermore, the European Commission
disbursed the first payment of EUR85 million to Cyprus under the
Recovery and Resilience Facility, in December 2022 following the
passage of conditional legislation in parliament. The release of
the funds is conditional on the strict implementation of the
reforms agreed in the National Recovery Plan. The funds will be
used, among other things, to increase investment in the digital and
green transition and to improve the efficiency of public and local
administrations, and of the judicial system.
Harmonised inflation in Cyprus fell from 10.6% in July 2022 to
7.6% in December 2022. The annual average was 8.1% in Cyprus and
8.4% in the euro area. Average inflation was higher in the EU,
reflecting strong inflation increases in some Member States, mainly
in Central and Eastern Europe. In Cyprus, energy contributed 2.6
percentage points and food 0.5 percentage points to total
harmonised inflation. Other influences accounted for 5 percentage
points. Cyprus does not use gas for energy consumption or
electricity production and is entirely dependent on oil, the price
of which has not risen as much as that of natural gas.
C. Operating Environment (continued)
The banking sector has undergone significant restructuring since
the financial crisis of 2013. Banks have reduced their foreign
exposures, significantly shrunk their balance sheets, increased
their capital buffers, and restructured and refocused their
domestic operations. Prudential supervision has been strengthened
and a new legal framework for private debt restructuring, including
the sale of loans, is now in place. Total non-performing exposures
(NPEs) at the end of November 2022 amounted to EUR2.7 billion, or
10.5% of gross loans. NPEs at the end of 2021 amounted to EUR 3
billion or 11.1% of gross loans. 47.8% of total NPEs at the end of
November 2022 were restructured facilities and the coverage ratio
was 52.2%. Private debt has continued to decline since mid-2012,
shrinking by more than half by the end of December 2022. The
decline reflects the long process of deleveraging since the start
of the financial crisis and includes the sale or transfer of
non-performing loans in recent years. Private debt, as measured by
loans to residents excluding the government, stands at 80% of
nominal GDP at the end of December 2022. Pure new business lending,
which excludes renegotiated amounts, reached EUR3.1 billion in 2022
as a whole, exactly the same level as pure new lending in 2019.
Cyprus' current account deficit narrowed from 10.1% of GDP in
2020 to 6.8% in 2021 and is estimated at 9.6% in 2022 according to
the European Commission's autumn forecast. From 2023 onwards, the
deficit is expected to gradually narrow as services revenues
recover and EU recovery and resilience funds are credited to the
secondary income account. However, the current account deficit will
remain higher than pre-pandemic levels in the medium term, partly
due to strong import growth linked to higher energy prices and EU
investment plans, which will weigh on the trade balance. The size
of the country's deficits is partly structural, a consequence of
special purpose vehicles domiciled in Cyprus.
Sovereign ratings
The sovereign risk ratings of the Cyprus Government improved
considerably in recent years reflecting reduced banking sector
risks, and improvements in economic resilience and consistent
fiscal outperformance. Cyprus demonstrated policy commitment to
correcting fiscal imbalances through reform and restructuring of
its banking system. Public debt remains high in relation to GDP but
large-scale asset purchases from the ECB ensure favourable funding
costs for Cyprus and ample liquidity in the sovereign bond
market.
Most recently, in October 2022, DBRS Morningstar affirmed the
Republic of Cyprus's Long-Term Foreign and Local Currency - Issuer
Ratings at BBB (low) and maintained the trend Stable. The
affirmation is supported by a stable political environment, the
government's sound fiscal and economic policies and the favourable
government debt profile. The stable outlook balances recent
favourable fiscal dynamics against downside risks for the economic
outlooks (including further escalation of the crisis in
Ukraine).
In September 2022, S&P Global Ratings upgraded Cyprus'
investment grade rating of BBB/A-2 and has changed the outlook from
positive to stable. The upgrade reflects the resiliency of the
Cypriot economy to recent external shock (including the COVID-19
pandemic). The stable outlook balances risks from the crisis in
Ukraine and the economy's diversified structure and the expectation
that the government's fiscal position will continue to improve.
In September 2022, Fitch Ratings affirmed Cyprus' Long-Term
Issuer Default rating at investment grade BBB- since November 2018
and stable outlook. The stable outlook reflects the view that
despite Cyprus' exposure to Russia through its tourism and
investment linkages, near-term risks are mitigated by a
strengthened government fiscal position, and continued
normalisation of spending after the pandemic shock. Meanwhile,
medium-term growth prospects remain positive on the back of the
government's Recovery and Resilience Plan (RRP).
In August 2022, Moody's Investors Service affirmed the
Government of Cyprus' long-term issuer and senior unsecured ratings
to Ba1 and changed the outlook from stable to positive. The key
drivers reflecting the affirmation are the strong reduction in
Cyprus' public debt ratio in 2022, stronger-than expected economic
resilience to Russia's invasion of Ukraine and the COVID-19
pandemic as well the ongoing strengthening of the banking
sector.
D. Business Overview
Credit ratings
The Group's financial performance is highly correlated to the
economic and operating conditions in Cyprus. In December 2022,
Fitch Ratings upgraded the Bank's long-term issuer default rating
to B+ from B-, whilst maintaining the positive outlook. The
two-notch upgrade reflects improved Bank's asset quality, supported
by the completion of Project Helix 3 together with the organic
reduction of impaired assets. The upgrade is also underpinned by
Fitch's view of the resilience of the Cypriot's economy, even in
light of growing economic uncertainties. In October 2022, Moody's
Investors Service upgraded the Bank's long-term deposit rating to
Ba2 from Ba3, maintaining the positive outlook. The main drivers
for this upgrade are the resilience of the Cypriot economy, that is
supporting the operating conditions of the banking system to
external shocks and the gradual improvement in credit conditions.
In September 2022, S&P Global Ratings raised the long-term
issuer credit rating of the Bank to BB- from B+ and revised the
outlook to stable from positive. The upgrade reflects the
improvement in asset quality and easing economic risks.
Upgrade of financial targets
The Group is a diversified, leading, financial and technology
hub in Cyprus. During 2022 the Group delivered positive financial
results and exceeded its 2022 financial targets, confirming the
sustainability of its business model with well-diversified revenues
and disciplined cost containment despite inflationary pressures.
Overall the Group achieved a recurring ROTE of 11.3% for the year.
The positive performance is expected to continue in 2023, leading
to an upgrade of targeted ROTE to over 13% from over 10%
facilitated by the Group's positive gearing to rising interest
rates, improved efficiencies, healthy loan portfolio and robust
capital position. Therefore, the intention to commence meaningful
dividend distributions from 2023 onwards, subject to regulatory
approval and market conditions is reiterated. The Group expects to
achieve ROTE over 13% for 2024, on the back of stabilising margins
and growth of the loan portfolio.
Favourable interest rate environment
The structure of the Group's balance sheet is geared towards
higher interest rates facilitating immediate growth in net interest
income. As at 31 December 2022, cash balances with ECB (excluding
TLTRO of c.EUR2.0 bn ) amounted to c.EUR7.6 bn, well positioned to
benefit from further interest rate rises. The repricing of the
reference rates gradually benefits the interest income on loans, as
over 95% of the Group's loan portfolio is variable rate. The Group
benefited from the steep and fast increase of interest rates in
2022. The net interest income for FY2022 stood at EUR370 mn,
reflecting an increase of 25% yoy. Factoring in the current
expectations for the evolution of the interest rates, the net
interest income guidance for 2023 is upgraded and the net interest
income is now expected to grow by 40-50% year on year. This
incorporates assumptions of continuing to rebuild the fixed income
portfolio, increased costs of funding, gradual increase in cost of
deposits and gradual change in deposit mix towards time deposits.
Following the completion of Project Helix 3 and the end of TLTRO
III favourable terms, an overall amount of c.EUR 28 mn, will not be
repeated in net interest income for 2023. The growth in the fixed
income portfolio is expected to broadly offset foregone net
interest income from TLTRO III and higher wholesale funding
costs.
Growing revenues in a more capital efficient way
The Group remains focused on growing revenues in a more capital
efficient way. The Group aims to continue to grow its high-quality
new lending, drive growth in niche areas for further market
penetration and diversify through non-banking services, such as
insurance and digital products.
The Group has continued to provide high quality new lending in
FY2022 via prudent underwriting standards. Growth in new lending in
Cyprus has been focused on selected industries in line with the
Bank's target risk profile .
During the year ended 31 December 2022, new lending amounted to
a record of EUR2.1 bn, up by 17% yoy, returning to pre-pandemic
levels . The yoy increase is driven by increased activity across
all sectors, with corporate being the main driver. As a result, the
net performing loan book expanded to EUR9.6 bn up by 3% yoy,
despite uncertainties in the macroeconomic environment. However,
due to the continuing interest rate rises, demand for new loans is
expected to slow down in 2023. The short-term net interest income
is expected to be supported primarily by asset repricing and higher
investments in securities.
As at 31 December 2022, the fixed income portfolio of the Group
amounted to EUR 2.5 bn, up by 30% on the prior year and represents
10% of total assets. The portfolio comprises highly rated fixed
rate bonds with low average duration, giving the Group the
flexibility to take advantage of rising interest rates. The
completion of the balance sheet de-risking and the Group's
comfortable liquidity position is expected to allow the Group to
continue rebuilding the fixed income portfolio in 2023, subject to
market conditions.
D. Business Overview (continued)
Growing revenues in a more capital efficient way (continued)
Separately, the Group focuses to continue improving revenues
through multiple less capital-intensive initiatives, with a focus
on fees and commissions, insurance and non-banking opportunities,
leveraging on the Group's digital capabilities. In 1Q2022, a
revised price list for charges and fees was implemented and
liquidity fees were extended to a wider customer group. The net fee
and commission income for FY2022 remained strong at EUR192 mn,
reflecting an increase of 12% yoy. The net fee and commission
income for FY2022 included c.EUR 16 mn from the liquidity fees
which were fully abolished in December 2022 and c. EUR 6 mn of
servicing fee relating to a NPE sale that will be phased out in
1Q2023.
Net fee and commission income is also enhanced by transaction
fees from the Group's subsidiary, JCC Payment Systems Ltd (JCC), a
leading player in the card processing business and payment
solutions, 75% owned by the Bank. JCC's net fee and commission
income contributed 8% of total non interest income and amounted to
EUR27 mn in FY2022, up 22% yoy, backed by strong transaction
volume.
The Group's insurance companies, EuroLife Ltd (Eurolife) and
Genikes Insurance of Cyprus Ltd (GI) are respectively leading
players in the life and general insurance business in Cyprus, and
have been providing a recurring and improving income, further
diversifying the Group's income streams. The insurance income net
of claims for FY2022 contributed 22% of non-interest income and
amounted to EUR71 mn, up 17% yoy, driven by exceptionally strong
new business in life insurance and the positive changes in
valuation assumptions, partially offset by higher insurance claims.
Specifically, Eurolife increased its total regular income by 17%
yoy, whilst GI increased its gross written premiums by 11% yoy.
Following the adoption of IFRS 17, total profits will remain
unchanged. However, the new standard will impact the timing of when
profits emerge, improving the predictability of profit over the
long-term and is expected to result in a modest annual negative
impact on the contribution to profits of the Group's insurance
business in the near term. For information on IFRS 17 please refer
to the relevant subsection below.
Finally, the Group through the Digital Economy Platform (Jinius)
aims to generate new revenue sources over the medium term,
leveraging on the Bank's market position, knowledge and digital
infrastructure. The Platform aims to bring stakeholders together,
link businesses with each other and with consumers and to drive
opportunities in lifestyle banking and beyond. The Platform is
expected to allow the Bank to enhance the engagement of its
customer base, attract new customers, optimise the cost of the
Bank's own processes, and position the Bank next to the customer at
the point and time of need. Currently, around 1,500 companies were
registered in the platform.
Lean operating model
Striving for a lean operating model is a key strategic pillar
for the Group in order to deliver shareholder value, without
constraining funding its digital transformation and investing in
the business.
The efficiency actions of the Group in 2022 to maintain
operating expenses under control in an inflationary environment
included further branch footprint optimisation and substantial
streamline of workforce. In July 2022 the Group successfully
completed a Voluntary Staff Exit Plan (VEP) through which 16% of
the Group's full-time employees were approved to leave at a total
cost of EUR101 mn. Following the completion of the Plan, the gross
annual savings were estimated at c. EUR 37 mn or 19% of staff costs
with a payback period of 2.7 years. Additionally in January 2022
one of the Bank's subsidiaries completed a small-scale targeted
Voluntary Staff Exit Plan (VEP), through which a small number of
full-time employees were approved to leave at a total cost of EUR3
mn. In relation to branch restructuring, during 2022 the Group has
reduced the number of branches by 20 to 60, a reduction of 25%.
Through these successful initiatives, the Group has delivered ahead
of schedule on its commitment to reduce its workforce by c.15% and
its number of branches by 25%. As a result, the cost to income
ratio excluding special levy on deposits and other
levies/contributions for FY2022 was reduced to 49%, 11 p.p. down
compared to previous year, surpassing its target of low-50s for
2022.
During December 2022 the Group has granted to eligible employees
share awards under a long-term incentive plan ("2022 LTIP" or the
"2022 Plan"). The 2022 Plan involves the granting of share awards
and is driven by scorecard achievement, with measures and targets
set to align pay outcomes with the delivery of the Group's
strategy. The employees eligible for 2022 LTIP are the members of
the Extended EXCO. The 2022 LTIP stipulates that performance will
be measured over a 3 year period and financial and non-financial
objectives to be achieved. At the end of the performance period,
the performance outcome will be used to assess the percentage of
the awards that will vest.
These shares will then normally vest in six tranches, with the
first tranche vesting after the end of the performance period and
the last tranche vesting on the fifth anniversary of the first
vesting date. For the year ended 31 December 2022, the Group
recognised in the Group's Income Statement an expense of less than
EUR0.5 mn regarding the Plan. Based on the market value of these
awards on the grant date, the expense deferred to future periods is
estimated to c.EUR1.1 mn. Actual amounts to be expensed in future
periods may vary, e.g., due to forfeiture of awards.
D. Business Overview (continued)
Lean operating model (continued)
The cost to income ratio excluding special levy on deposits and
other levies/contributions for 2023 is expected to decrease to
mid-40s, reflecting management's ongoing focus on efficiency and
cost discipline in an inflationary environment. This target
includes a commitment of maintaining total operating expenses of a
range between EUR 350-360 mn, reflecting some upward pressure on
costs from investments in transformation and digitalisation and the
renewal of collective agreement in 2023. The cost to income ratio
excluding special levy on deposits and other levies/contributions
for 2024 is expected to remain around similar levels to 2023.
Transformation plan
The Group 's focus continues to deepen the relationship with its
customers as a customer centric organisation. A transformation plan
is already in progress and aims to enable the shift to modern
banking by digitally transforming customer service, as well as
internal operations. The holistic transformation aims to (i) shift
to a more customer-centric operating model by defining customer
segment strategies, (ii) redefine distribution model across
existing and new channels, (iii) digitally transform the way the
Group serves its customers and operates internally, and (iv)
improve employee engagement through a robust set of organisational
health initiatives.
Digital transformation
The Bank's digital transformation focuses on developing digital
services and products that improve the customer experience,
streamlining internal processes, and introducing new ways for
improving the workplace environment.
During 4Q2022, the Bank continued to enrich and improve its
digital portfolio with new innovative services to its customers.
The introduction of the QuickLoan new lending products available
through the Group's digital channels (Mobile App and Internet
Banking), further differentiates the Bank within the Cypriot market
and enhances its status as a digital leader in banking. The
introduction of QuickLoan allows the Bank's retail customers to
apply for a loan and have an instant update of the approval status
of their application.
The adoption of digital products and services continued to grow
and gained momentum in the fourth quarter of 2022 and beyond. As at
the end of December 2022, 93.9% of the number of transactions
involving deposits, cash withdrawals and internal/external
transfers were performed through digital channels (up by 27.5 p.p.
from 66.4% in September 2017 when the digital transformation
programme was initiated). In addition, 81.7% of individual
customers were digitally engaged (up by 21.5 p.p. from 60.2% in
September 2017), choosing digital channels over branches to perform
their transactions. As at the end of December 2022, active mobile
banking users and active QuickPay users have grown by 12.8% and
31.3% respectively over the last 12 months. The highest number of
QuickPay users to date was recorded in December 2022 with 169
thousand active users. Likewise, the highest number of QuickPay
payments was recorded in December 2022 with 565 thousand
transactions.
Asset quality
Balance sheet de-risking was largely completed in 2022, marked
by the completion of Project Helix 3 which refers to the sale of
non-performing exposures with gross book value of EUR 550 mn as at
the date of completion. Project Helix 3 represents a further
milestone in the delivery of one of the Group's strategic
priorities of improving asset quality through the reduction of
NPEs. Overall, since the beginning of 2022, and including organic
NPE reductions of EUR 360 mn, the Group reduced its NPEs by 69% and
its NPE ratio from 12.4% to 4.0% delivering the 2022 NPE ratio
target of sub-5%. As a result, t he Group's priorities remain
intact, maintaining high quality new lending with strict
underwriting standards and preventing asset quality deterioration
in this uncertain outlook.
The cost of risk target and NPE ratio target display
conservative assumptions on both NPE inflows and provisioning to
weather the ongoing macroeconomic uncertainty. Although there are
currently no signs of asset quality deterioration, the cost of risk
target of 50-80 bps and NPE ratio target of sub 5% remain unchanged
for 2023. The cost of risk is expected to start normalising from
2024 onwards to around 40-50 bps.
D. Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental,
Social and Governance) agenda
Climate change and transition to a sustainable economy is one of
the greatest challenges. As part of its vision to be the leading
financial hub in Cyprus, the Bank is determined to lead the
transition of Cyprus to a sustainable future. The Group
continuously evolves towards its ESG agenda and continues to
progress towards building a forward-looking organisation embracing
ESG in all aspects of business as usual. In 2022, the Company
received a rating of AA (on a scale of AAA-CCC) in the MSCI ESG
Ratings assessment.
The ESG strategy formulated in 2021 is continuously expanding.
The Bank is maintaining its leading role in the Social and
Governance pillars and focus on increasing the Bank's positive
impacts on the Environment by transforming not only its own
operations, but also the operations of its customer.
The Bank has committed to the following primary ESG targets,
which reflect the pivotal role of ESG in the Bank' strategy:
-- Become carbon neutral by 2030
-- Become Net Zero by 2050
-- Steadily increase Green Asset Ratio
-- Steadily increase Green Mortgage Ratio
-- >=30% women in Group's management bodies (defined as the
Executive Committee (EXCO) and the Extended EXCO) by 2030
For the Bank to articulate the delivery of its primary ESG
targets and address regulatory expectations, a comprehensive ESG
working plan has been established in 2022. The ESG working plan is
closely monitored by the Sustainability Committee, Executive
Committee and the Board of Directors at frequent intervals.
Environmental Pillar
The Bank has estimated the Scope 1 and Scope 2 emissions of 2021
relating to own operations in order to set the baseline for carbon
neutrality target. Following the estimation of own operations
emissions, the Bank in 2022, designed the strategy to meet the
carbon neutrality target by 2030 and progress towards Net Zero
target of 2050. The Bank plans to invest in energy efficient
installations and actions and replace fuel intensive machineries
and vehicles from 2023 to 2025, which would lead to c.7% reduction
in Scope 1 and Scope 2 emissions by 2025 compared to 2021. The Bank
expects that the Scope 2 emissions will be reduced further when the
energy market in Cyprus shifts further towards renewable energy.
The Bank through installation of solar panels and other energy
efficiency actions performed in 2021 and 2022 achieved a reduction
in electricity consumption by 1.8 mn KWh (11% reduction) in FY2022
compared to the baseline year of 2021.
The Bank of Cyprus is the first bank in Cyprus who joined the
Partnership for Carbon Accounting Financials (PCAF) in October
2022. The Bank is currently in process to estimate its financed
Scope 3 emissions derived from the loan portfolio based on
transparent, harmonized methodologies in conformance with the
requirements of the GHG Protocol Corporate Value Chain (Scope 3)
Accounting and Reporting Standard as provided by PCAF. Following
the estimation of financed Scope 3 emissions derived from loan
portfolio and in conjunction with the materiality assessment's
results on climate and environmental risks the Bank will be able to
identify the carbon-intensive areas so to take the necessary
actions to minimise the environmental and climate impact associated
with the loan portfolio by offering targeted climate friendly
products and engaging with the customers.
The Bank in 2022 launched a low emission vehicle loan product
(either hybrid or electric) and intends to further expand its range
of environmentally friendly products that are expected to be
launched in 2023. In addition, the Bank is currently finalising the
Sustainable Finance Framework which will enable the Bank to issue
Green/Social and/or Sustainable bonds in the future. The proceeds
of such bonds are designated to flow in whole or partly to
Sustainable projects which meet the eligibility criteria set by the
Bank. In 2023, following the identification of carbon intensive
sectors and asset classes the Bank is expected to set
decarbonisation targets aligned with climate scenario (Science
based targets) which will assist in the formulation of the Bank's
strategy going forward.
Moreover, the Bank is making continuous progress on the
materiality assessment, identification and quantification of the
Bank's Climate and Environmental (C&E) risks. The Bank is
currently in progress to incorporate C&E risks on the
formulation of business strategy and establish an ESG questionnaire
with the aim to develop an ESG scorecard which will form part of
the loan origination process in the future. The Bank is developing
the risk quantification methodology to assess how the portfolio is
affected by C&E risks and incorporate the above elements into
the stress testing infrastructure.
D. Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental,
Social and Governance) agenda (continued)
During 2022 in order to enhance the awareness and skillset
towards the ESG, performed several trainings to the Board of
Directors, Senior Management and employees. In addition, the
internal communication channels are enhanced by establishing an ESG
internal portal and launching Green@work which provides tips on
energy efficiency actions at work. Early in 2023 the Bank launched
a campaign on new Visa Debit cards produced from recyclable plastic
extracted from the ocean. The campaign aims to inform the public on
the level of water contamination from plastic and the impact on
life below water.
Social Pillar
At the centre of the Bank's leading social role lie its
investments in the Bank of Cyprus Oncology Centre (with an overall
investment of c.EUR70 mn since 1998, whilst 60% of diagnosed cancer
cases in Cyprus are being treated at the Centre), the work of
SupportCY Network, which developed in 2020, the contribution of the
Bank of Cyprus Cultural Centre in promoting the cultural heritage
of the island, and the Work of IDEA Innovation Centre. The Cultural
Centre undertook a number of innovative projects such as
<<AISTHISEIS>> - Multi sensory museum experience for
people with disabilities and Faneromeni arts Festival promoting
youth. The IDEA Innovation Centre provided education to 7,000
entrepreneurs, invested c.EUR4 mn in start-up business creation and
supported creation of 82 new companies to date. Staff have
continued to engage in voluntary initiatives to support charities,
foundations, people in need and initiatives to protect the
environment.
The Bank has continued to upgrade its staff's skill set by
providing training and development opportunities to all staff, and
capitalising on modern delivery methods. In 2022, the Bank
heightened its emphasis on staff wellness by offering webinars,
team building activities and family events with sole purpose to
enhance mental, physical, financial and social health, attended by
1,424 employees through its 'Well at Work program'.
Governance Pillar
The Bank continues to operate successfully within a complex
regulatory framework of a holding company which is registered in
Ireland, listed on two Stock Exchanges and run in compliance with a
number of rules and regulations. Its governance and management
structures enable it to achieve present and future economic
prosperity, environmental integrity and social equity across its
value chain. The Bank operates within a framework of prudent and
effective controls, which enable risk assessment and risk
management based on the relevant policies under the leadership of
the Board of Directors. The Bank has set up a robust Governance
Structure to oversee its ESG agenda. Progress on the implementation
and evolution of the Group's ESG strategy is monitored by the
Sustainability Committee and the Board of Directors. The
Sustainability Committee is a dedicated executive committee set up
in early 2021 to oversee the ESG agenda of the Group, review the
evolution of the Group's ESG strategy, monitor the development and
implementation of the Group's ESG objectives and the embedding of
ESG priorities in the Group's business targets. The Group's ESG
Governance structure will continue to evolve, so as to better
address the Bank's evolving ESG needs. The Bank's regulatory
compliance continues to be an undisputed priority.
The Board composition of the Company and the Bank is diverse,
with 40% of the Board members being female as at 31 December 2022.
The Board displays a strong skill set stemming from broad
international experience. Moreover, the Bank aspires to achieve a
representation of at least 30% women in Group's management bodies
(Defined as the EXCO and the Extended EXCO) by 2030. As at 31
December 2022, there is a 27% representation of women in Group's
management bodies and a 39% representation of women at key
positions below the Extended EXCO level (defined as positions
between Assistant Manager and Manager).
D. Business Overview (continued)
IFRS 17
IFRS 17, is effective from 1 January 2023, and impacts the
phasing of profit recognition for insurance contracts. The Group's
insurance-related retained earnings will be restated and the
reporting of insurance new business revenue will be spread over
time, as the Group provides service to its policyholders (versus
recognised up-front under current accounting standards), with the
quantum and timing of the impact dependent on, inter alia, the
amount and mix of new business and extent of assumption changes in
any given year following implementation.
-- Under IFRS 17, there will be no present value of in-force
life insurance contracts ('PVIF') asset recognised. Instead, the
estimated future profit will be included in the measurement of the
insurance contract liability as the contractual service margin
('CSM') and this will be gradually recognised in revenue as
services are provided over the duration of the insurance contract.
While the profit over the life of an individual contract will be
unchanged, its emergence will be later under IFRS 17.
-- IFRS 17 requires the increased use of current market values
in the measurement of insurance assets and liabilities hence
insurance liabilities and related assets will be adjusted to
reflect IFRS 17 measurement requirements.
-- In accordance with IFRS 17, directly attributable costs will
be incorporated in the CSM and will be presented as a deduction to
reported revenue. This will result in a reduction in operating
expenses.
The Group continues to make progress on the implementation of
IFRS 17 and assessing the impact on the financial statements.
On transition the following impact has been estimated:
a) the removal of value in force from the life insurance
business (including associated deferred tax liability) of c.EUR101
mn as per the Group's consolidated balance sheet as at 31 December
2022, which will reduce Group accounting equity by a respective
amount (with no impact on the Group regulatory capital or tangible
equity), and
b) the remeasurement of insurance assets and liabilities and the
creation of a contractual service margin (CSM) liability is
estimated to result in an increase in the equity of the insurance
business of the Group (predominantly relating to the life insurance
business of the Group) in the range of EUR70 -80 mn as at 1 January
2022, which is a consequence of life insurance products. The
estimated effect on equity of the insurance business of the Group
as at 1 January 2023 (roll forwarding the impact on 2022 profits
and taking into consideration other movements in reserves in 2022)
is an increase in the range of EUR 50-60 mn, compared to the
closing equity as at 31 December 2022 as reported under the
previous accounting standard, IFRS4.
As a result of the benefit arising from IFRS 17 on 1 January
2023 as referred to in (b) above, the life insurance subsidiary
distributed EUR 50 mn as dividend to the Bank in February 2023,
which benefited Group regulatory capital by an equivalent amount on
the same date, enhancing CET1 ratio by c.50 bps.
The adoption of IFRS 17 is expected to result in a modest annual
negative impact on the contribution to profits of the Group's
insurance business in the near term.
D. Business Overview (continued)
Ukrainian crisis
The economic environment has evolved rapidly since February 2022
following Russia's invasion in Ukraine. In response to the war in
Ukraine, the EU, the UK and the US, in a coordinated effort joined
by several other countries imposed a variety of financial sanctions
and export controls on Russia, Belarus and certain regions of
Ukraine as well as various related entities and individuals. As the
war is prolonged, geopolitical tension persists and inflation
remains elevated, impacted by the soaring energy prices and
disruptions in supply chains. The high inflation weighs on business
confidence and consumers' purchasing power. In this context the
Group is closely monitoring the developments, utilising dedicated
governance structures including a Crisis Management Committee as
required and has assessed the impact the crisis has on the Group's
operations and financial performance.
Direct impact
The Group does not have any banking operations in Russia or
Ukraine, following the sale of its operations in Ukraine in 2014
and in Russia in 2015. The Group has run down its legacy net
exposure to less than EUR1 mn as at 31 December 2022 in Russia
through write-offs and provisions.
The Group has no exposure to Russian bonds or banks which are
subject to sanctions.
The Group has limited direct exposure with loans related to
Ukraine, Russia and Belarus, representing 0.4% of total assets or
c.1% of net loans as at 31 December 2022. The net book value of
these loans stood at EUR108 mn as at 31 December 2022, of which
EUR98 mn are performing, whilst the remaining were classified as
NPEs well before the current crisis. The portfolio is granular and
secured mainly by real estate properties in Cyprus.
Customer deposits related to Ukrainian, Russian and Belarusian
customers account for only 6% of total customer deposits as at 31
December 2022. This exposure is not material, given the Group's
strong liquidity position. The Group operates with a significant
surplus liquidity of EUR7.2 bn (LCR ratio of 291%) as at 31
December 2022.
Indirect impact
Although the Group's direct exposure to Ukraine, Russia or
Belarus is limited, the crisis in Ukraine had a negative impact on
the Cypriot economy, mainly arising from the tourism and
professional services sectors, increasing energy prices fuelling
inflation and disruptions to global supply chains. During 2022 the
performance of the tourism sector was strong despite challenges and
represents 80% of 2019 levels, despite the sizeable loss of tourist
arrivals from Russia and Ukraine. The Group continues to monitor
the exposures in sectors likely impacted by the prolonged
geopolitical uncertainty and persistent inflationary pressures and
remains in close contact with customers to offer solutions as
necessary.
Cyprus has no energy dependence on Russia as it imports oil from
Greece, Italy and the Netherlands; however it is indirectly
affected by pricing pressures in the international energy markets.
The focus on renewables increases, marked by a steady improvement
in contribution at 18% in 2022 (compared to 16% in 2021).
Professional services account for c.10% of GDP (based on FY2021)
of which some relate to Russia or Ukraine and thus expected to be
adversely impacted. There is however no credit risk exposure as the
sector is not levered.
Between 2018-2020, Cyprus recorded net foreign direct investment
(FDI) outflow to Russia. While Russian gross FDI flows in and out
of Cyprus may be quite large, these often reflect the typical
set-up of Special Purpose Entities, with limited actual impact on
the Cypriot economy, hence likely to have limited impact on
domestic activity levels.
Overall, the Group expects limited impact from its direct
exposure, while any indirect impact depends on the duration and
severity of the crisis and its impact on the Cypriot economy.
The Group continues to closely monitor the situation, taking all
necessary and appropriate measures to minimise the impact on its
operations and financial performance, as well as to manage all
related risks and comply with the applicable sanctions.
E. Strategy and Outlook
The strategic objectives for the Group are to become a stronger,
safer and a more efficient institution with a sustainable and
well-diversified business model committed to deliver sustainable
shareholder returns.
The key pillars of the Group's strategy are to:
-- Grow revenues in a more capital efficient way; by enhancing
revenue generation via growth in performing book
and less capital-intensive banking and financial services
operations (Insurance and Digital Economy)
-- Improve operating efficiency; by achieving leaner operations
through digitisation and automation
-- Strengthen asset quality; maintaining high quality new
lending, completing legacy de-risking, normalising cost of risk and
reducing (other) impairments
-- Enhance organisational resilience and ESG (Environmental,
Social and Governance) agenda; by continuing to work towards
building a forward-looking organisation with a clear strategy
supported by effective corporate governance aligned with ESG agenda
priorities
KEY STRATEGIC ACTION TAKEN IN FY2022 and to date PLAN OF ACTION
PILLARS
Growing revenues
in a more capital * A revised price list for charges and fees was * The structure of the Group's balance sheet is geared
efficient way; by implemented in February 2022 towards higher interest rates facilitating immediate
enhancing revenue growth in net interest income
generation via
growth * Liquidity fees were extended to a wider customer
in performing group in March 2022 and abolished in December 2022 * Grow performing book and increase in high quality new
book, and less following interest rate rises lending over the medium term
capital-intensive
banking and
financial * Net performing loan book grew to EUR9.6 bn, an * Expand fixed income portfolio in 2023, subject to
services increase of 3% in FY2022, despite macroeconomic market conditions, to take advantage of the rising
operations uncertainty yields
(Insurance
and Digital
Economy) * Fixed income portfolio grew to EUR2.5 bn, an increa * Enhance fee and commission income, e.g. on-going
se review of price list for charges and fees, increase
of 30% in FY2022 average product holding through cross selling, new
sources of revenue through introduction of Digital
Economy Platform
* For further information, please refer to Section
B.2.5 'Loan portfolio quality' and Section D
'Business Overview' * Profitable insurance business with further
opportunities to grow, e.g. focus on high margin
products, leverage on Bank's strong franchise and
customer base for more targeted cross selling enabled
by digital transformation
---------------------------------------------------------- ------------------------------------------------------------
Improving
operating * Completion of a VEP in July 2022, which led to the * Committed to maintain cost discipline in an
efficiency; by reduction of full time employees by 16% in FY2022; inflationary environment
achieving leaner estimated gross annual saving of c.EUR37 mn (19%) o
operations f
through staff costs * Effectively eliminate restructuring costs as
digitisation and de-risking is largely complete
automation
* Rationalisation of branch footprint as 20 branches
closed down in 2022 * Enhance procurement control
* Completion of a small-scale targeted VEP in 1Q2022, Committing to maintain total operating expenses for 2023
by one of the Bank's subsidiaries, through which a to a range of EUR350-360 mn
small number of the Group's employees were approved The cost to income ratio excluding special levy on
to leave deposits and other levies/contributions
for 2023 is expected to decrease to mid-40s and to
remain around similar levels in 2024
* Further developments in the Transformation Plan and
the digitisation of the Bank
---------------------------------------------------------- ------------------------------------------------------------
E. Strategy and Outlook (continued)
KEY STRATEGIC ACTION TAKEN IN FY2022 and to date PLAN OF ACTION
PILLARS
Strengthening
asset quality * Completion of Project Helix 3 in November 2022 (sale * Prevent asset quality deterioration in an uncertain
of NPE portfolio with gross book value of EUR 0.55 outlook
bn)
* Maintain strict discipline on new business
* Balance sheet de-risking continued in FY2022 with
further c.EUR360 mn of organic NPE reduction
NPE ratio target of <5% for 2023 remains unchanged
* NPE ratio reduced to 4.0% as at 31 December 2022, Cost of risk target of 50-80 bps for 2023 remains
delivering the 2022 NPE ratio target of sub-5% unchanged, starting to normalise to 40-50
bps from 2024 onwards
* For further information, please refer to Section
B.2.5 'Loan portfolio quality' and Section D.
'Business Overview'
------------------------------------------------------------ -------------------------------------------------------------
Enhancing
organisational * First Bank in Cyprus joining the Partnership for * Set decarbonisation targets on specific sectors and
resilience and Carbon Accounting Financials (PCAF) which enable the asset classes
ESG Bank to initiate the estimation of financed emissions
(Environmental, (Scope 3) derived from loan portfolio
Social and * Establish ESG questionnaire and ESG scorecard in the
Governance) loan origination process
agenda; * Initiated the development of ESG questionnaire and
by continuing ESG scorecard that will be introduced in loan
to work towards origination process * Incorporate loan decarbonisation targets in the
building a business strategy of the Bank
forward-looking
organisation * Concluded on the materiality assessment and
with a clear identification of climate and environmental risks. * Evolution of the ESG strategy with a continued focus
strategy on the climate and environmental risks
supported by
effective * Determined the decarbonisation strategy for Scope 1
corporate and Scope 2 emissions * Continue to embed ESG in the Bank's culture
governance
aligned with
ESG agenda * Launch of low emission vehicle loan product (hybrid * Continuous enhancement of structure and corporate
priorities or electric) governance
* Finalising the Sustainable Finance Framework which * Invest in people and promote talent
will enable the issue of Green/Social/Sustainable
bonds
* Provision of ESG training to the Board of Directors,
Senior Management and all staff to increase awareness
and skills
* Introduced the ESG internal portal communication as
well as Green@Work which enable the employees to take
energy efficient actions at work
* Launched > - Multi sensory museum experience for
people with disabilities
* Introduction of a new visa debit card made from
recycled plastic collected from the ocean
* For further information, please refer to Section D.
'Business Overview'
------------------------------------------------------------ -------------------------------------------------------------
E. Strategy and Outlook (continued)
During 2022 the Group delivered strong financial results,
exceeding its 2022 financial targets. This was marked by the
recovery of revenues driven by the expansion in net interest
income, lower operating expenses despite inflationary pressures and
strong performance in asset quality, delivering NPE ratio of
sub-5%. As a result the Group achieved a double-digit recurring
ROTE in 2022, building momentum throughout the year.
In 2023 the momentum is expected to continue, leading to an
upgrade of targeted ROTE to over 13% from 10% facilitated by the
positive gearing to rising interest rates, improved efficiencies,
healthy loan portfolio and robust capital position. This lays the
foundations to commence meaningful dividend distributions from 2023
onwards, subject to regulatory approval and market conditions. The
Group expects to achieve ROTE over 13% for 2024, on the back of
stabilising margins and growth of the loan portfolio.
Key Metrics 2022 Guidance FY2022 FY2023 Previous FY2023 Updated
guidance guidance
Date November 2022 November 2022 February 2023
------------------ ------------------- ------------------ -------------------
NII > EUR 350 mn EUR 370 mn EUR 450-470 mn 40-50% yoy
( EUR 520-550 mn)
------------------ ------------------- ------------------ -------------------
Cost to income ratio(1) Low-50s 49% c.50% mid-40s
------------------ ------------------- ------------------ -------------------
Return on Tangible Equity (ROTE)(2) c.10% (recurring) 4.3% >10% >13%
11.3% (recurring)
------------------ ------------------- ------------------ -------------------
NPE ratio <5.0% 4.0% <5% <5%
------------------ ------------------- ------------------ -------------------
Cost of risk Mid-40 bps 44 bps 50-80 bps 50-80 bps
------------------ ------------------- ------------------ -------------------
1. Calculated using total operating expenses which comprise staff costs and other operating
expenses. Total operating expenses do not include the special levy on deposits or other levies/contributions
and do not include any advisory or other restructuring costs.
2. Return on Tangible Equity (ROTE) is calculated as Profit after Tax (annualised) divided
by average Shareholders' equity minus intangible assets.
F. Definitions & Explanations
Advisory and 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 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 Basic earnings 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 14 February 2023.
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)
Green Asset The proportion of the share of credit institution's
ratio assets financing and invested in EU Taxonomy-aligned
economic activities as a share of total covered assets.
Green Mortgage The proportion of the share of credit institution's
ratio assets financing EU Taxonomy-aligned mortgages (acquisition,
construction or renovation of buildings) as a share
of total mortgages assets.
Gross loans Gross loans comprise: (i) gross loans and advances
to customers measured at amortised cost before the
residual fair value adjustment on initial recognition
(including loans and advances to customers classified
as non-current assets held for sale) and (ii) loans
and advances to customers classified and measured
at FVPL adjusted for the aggregate fair value adjustment
Gross loans are reported before the residual fair
value adjustment on initial recognition relating
mainly to loans acquired from Laiki Bank (calculated
as the difference between the outstanding contractual
amount and the fair value of loans acquired) amounting
to EUR86 mn as at 31 December 2022 (compared to EUR
116 mn as at 30 September 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 EUR211 mn as at 31 December
2022 (compared to EUR229 mn as at 30 September 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
40.9% as at 31 December 2022, compared to 41.1% as
at 30 September 2022 and 38.8% at 31 December 2021.
The increase during 2022 is mainly due to a reduction
in loans in the banking system.
MSCI ESG Rating The use by the Company and the Bank of any MSCI ESG
Research LLC or its affiliates ('MSCI') data, and
the use of MSCI Logos, trademarks, service marks
or index names herein, do not constitute a sponsorship,
endorsement, recommendation or promotion of the Company
or the Bank by MSCI. MSCI Services and data are the
property of MSCI or its information providers and
are provided "as-is" and without warranty. MSCI Names
and logos are trademarks or service marks of MSCI.
Net fee and Fee and commission income less fee and commission
commission income expense divided by total income (as defined).
over total income
F. Definitions & Explanations (continued)
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).
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.
F. Definitions & Explanations (continued)
Non-performing Material arrears/excesses are defined as follows:
exposures (NPEs) (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%.
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 profit/(loss) relating to NPE
sales, (iii) Restructuring and other costs relating
to NPE sales, and (iv) Restructuring costs relating
to the Voluntary Staff Exit Plan.
NPE coverage 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 comprises profit before Total
loan credit losses, impairments and provisions (as
defined), tax, (profit)/loss attributable to non-controlling
interests and non-recurring items (as defined).
Operating profit Operating profit return on average assets is calculated
return on average as the annualised operating profit (as defined) divided
assets by the quarterly average of total assets for the
relevant period. Average total assets exclude total
assets of discontinued operations at each quarter
end, if applicable.
Phased-in Capital In accordance with the legislation in Cyprus which
Conservation has been set for all credit institutions, the applicable
Buffer (CCB) rate of the CCB is 1.25% for 2017, 1.875% for 2018
and 2.5% for 2019 (fully phased-in).
Profit after This refers to the profit after tax (attributable
tax and before to the owners of the Company) , excluding any 'non-recurring
non-recurring items' (as defined).
items (attributable
to the owners
of the Company)
Profit/(loss) This refers to the profit or loss after tax (attributable
after tax - to the owners of the Company) , excluding any 'non-recurring
organic (attributable items' (as defined , except for the ' advisory and
to the owners other restructuring costs - organic') .
of the Company)
Project Helix Project Helix 2 refers to the sale of portfolios
2 of loans with a total gross book value of EUR1.3
bn completed in June 2021.
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 EUR551 mn, as well
as real estate properties with book value of c.EUR88
mn as at 30 September 2022. Project Helix 3 was completed
in November 2022. For further information please
refer to section B.2.5 Loan portfolio quality.
F. Definitions & Explanations (continued)
Project Sinope Project Sinope refers to the agreement the Group
reached in December 2021 for the sale of a portfolio
of NPEs with gross book value of EUR12 mn as at 31
December 2021, as well as properties in Romania with
carrying value EUR0.6 mn as at 31 December 2021.
Project Sinope was completed in August 2022.
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
and other costs relating to NPE sales, or (iii) restructuring
costs relating to the Voluntary Staff Exit Plan.
(i) 'Advisory and other restructuring costs-organic'
amounted to EUR 1 mn for 4Q2022 (compared to EUR5
mn for 3Q2022, EUR4 mn for 2Q2022 and EUR1 mn for
1Q2022) (ii) Restructuring costs relating to NPE
sales for 4Q2022 amounted to EUR0.3 mn (compared
to EUR1 mn for 3Q2022, EUR0.8 mn for 2Q2022 and EUR1
mn for 1Q2022 and EUR0.2 mn for 4Q2021), and (iii)
Restructuring costs relating to the Voluntary Staff
Exit Plan (VEP) for 4Q2022 was nil (compared to 3Q2022
was EUR101 mn, nil for 2Q2022 and EUR3 mn for 1Q2022).
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 year ended 31 December 2022.
At 31 December 2016, the Bank was listed on the Cyprus Stock
Exchange (CSE) and the Athens Exchange. On 18 January 2017, BOC
Holdings, incorporated in Ireland, was introduced in the Group
structure as the new holding company of the Bank. On 19 January
2017, the total issued share capital of BOC Holdings was admitted
to listing and trading on the LSE and the CSE.
Financial information presented in this announcement is being
published for the purposes of providing an overview of the Group
financial results for the year ended 31 December 2022.
The financial information in this announcement is not audited
and does not constitute statutory financial statements of BOC
Holdings within the meaning of section 340 of the Companies Act
2014. The Group statutory financial statements for the year ended
31 December 2022 are expected to be delivered to the Registrar of
Companies of Ireland within 56 days of 30 September 2023 (as at the
date of this report, such statutory financial statements have not
been reported on by independent auditors of BOC Holdings). The
Board of Directors approved this financial information on 17
February 2023. BOC Holdings' most recent statutory financial
statements for the purposes of Chapter 4 of Part 6 of the Companies
Act 2014 of Ireland for the year ended 31 December 2021, upon which
the auditors have given an unqualified audit report, were published
on 30 March 2022 and have been annexed to the annual return and
delivered to the Registrar of Companies of Ireland.
Statutory basis: 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 year ended 31 December 2022, which the management
believes best fits the true measurement of the financial
performance and position of the Group. For further information,
please refer to 'Commentary on Underlying Basis' on page 7. The
statutory results are adjusted for certain items (as described on
pages 9-10) to allow a comparison of the Group's underlying
financial position and performance, as set out on pages 4-5.
The financial information included in this announcement is
neither reviewed nor audited by the Group's external auditors.
This announcement and the presentation for the Group Financial
Results for the year ended 31 December 2022 have been posted on the
Group's website www.bankofcyprus.com (Group/Investor
Relations/Financial Results).
Definitions: The Group uses definitions in the discussion of its
business performance and financial position which are set out in
section F, together with explanations.
The Group Financial Results for the year ended 31 December 2022
are presented in Euro (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.
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial
services group in Cyprus, providing a wide range of financial
products and services which include retail and commercial banking,
finance, factoring, investment banking, brokerage, fund management,
private banking, life and general insurance. At 31 December 2022,
the Bank of Cyprus Group operated through a total of 64 branches in
Cyprus, of which 4 operated as cash offices. The Bank of Cyprus
Group employed 2,889 staff worldwide. At 31 December 2022, the
Group's Total Assets amounted to EUR 25.4 bn and Total Equity was
EUR 2.1 bn. The Bank of Cyprus Group comprises Bank of Cyprus
Holdings Public Limited Company, its subsidiary Bank of Cyprus
Public Company Limited and its subsidiaries.
This information is provided by RNS, the news service of the
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END
FR SESSWSEDSESE
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February 20, 2023 02:04 ET (07:04 GMT)
Bank Of Cyprus Holdings ... (LSE:BOCH)
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Bank Of Cyprus Holdings ... (LSE:BOCH)
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