TIDMBOCH
RNS Number : 7745I
Bank of Cyprus Holdings PLC
09 August 2023
Announcement
Group Financial Results for the six months ended 30 June
2023
Nicosia, 9 August 2023
Key Highlights for the six months ended 30 June 2023
Positive Economic outlook
* Strong economic growth; Cyprus GDP expanded by
3.4%(1) in 1Q2023, the second highest in the
Eurozone; 2023 growth expected of c.2.8%(1)
* New lending stable at EUR1.1 bn, despite the rising
interest rate environment
* Gross performing loan book flat qoq and yoy at EUR9.9
bn as ongoing repayments offset new lending
Strong profitability continuing to benefit from tailwinds
* NII of EUR 358 mn up 146% yoy, underpinned by rising
interest rates and continued low deposit pass-through
* Total operating expenses(2) down 2% yoy, reflecting
efficiency actions taken in FY2022; cost to income
ratio(2) reduced to 32%
* Profit after tax of EUR 220 mn, of which EUR125 mn in
2Q2023 (vs EUR 43 mn in 1H2022)
* ROTE of 24.0% vs 4.9% in 1H2022, supported by strong
NII growth
Liquid and resilient balance sheet
* Asset quality in line with target; NPE ratio at 3.6%
(0.8% on net basis) down 7 p.p. yoy
* Coverage increased to 78%; Cost of risk at 48 bps
* Sticky, retail funded deposit base at EUR 19.2 bn, up
4% yoy and broadly flat qoq
* Highly liquid balance sheet with EUR9.1 bn placed at
the ECB
* 2025 MREL requirement already achieved post
successful issuance of EUR350 mn senior preferred
notes in July 2023
Robust capital and shareholder focus
* Organic capital generation of c.220 bps(3) in 1H2023,
of which c.120 bps(3) in 2Q2023
* CET1 ratio of 16.0%(4) and Total Capital ratio of
21.1%(4)
* Successful refinancing of EUR 220 mn AT1 Capital
Securities
* Payment of dividend in June 2023; payout ratio of 14%
out of 2022 earnings(5)
Key takeaways from the Investor Update Event in June 2023
* ROTE raised to >17% for 2023 and >16% for 2025 (on an
illustrative 15% CET1 ratio)
* Strong capital generation of c.200-250 bps per annum
pre-distributions for 2023-2025
* Group's dividend policy reiterated; payout ratio
expected to build prudently and progressively to
30-50% of adjusted recurring profitability(6)
1. In accordance with Ministry of Finance
2. Excluding special levy on deposits and other levies/contributions
3. Based on profit after tax
4. Includes reviewed profits for 1H2023 and is net of dividend
accrual (refer to section B.2.1 'Capital Base'). Any recommendation
for a dividend is subject to regulatory approval
5. On adjusted recurring profitability as reported in 2022 Financials
6. Profit after tax before non-recurring items (attributable to
the owners of the Company) taking into consideration distributions
under other equity instruments such as the annual AT1 coupon
*On 1 January 2023, the Group adopted IFRS 17 'Insurance
contracts which replaced IFRS 4 'Insurance contracts'. 2022
comparative information presented throughout are on a restated
basis unless otherwise stated. Further information on IFRS 17 is
provided under the sections "Commentary on Underlying Basis' and in
the Note 3.3.1 of the Consolidated Condensed Interim Financial
Statements in the Interim Financial Report 2023.
Group Chief Executive Statement
"In the first half of 2023 we delivered a strong financial and
operational performance, on the back of continuing interest rate
rises, improving efficiency and a broadly stable cost of risk,
generating a profit after tax of EUR 220 mn, equivalent to a ROTE
of 24.0%. This performance demonstrates that we are well on track
to achieve our 2023 targets presented during our inaugural investor
update event in June 2023.
Total income amounted to EUR 511 mn, of which EUR 358 mn relates
to net interest income, more than double last year's level, a
reflection of the higher interest rate environment supported by
continued low deposit pass-through levels. Our tight cost
management is proving successful despite persistent inflationary
pressures with total operating expenses reduced by 2% yoy and our
cost to income ratio ( excluding levies and contributions) at 32%
.
Our cost of risk remained broadly stable yoy at 48 bps,
underpinned by a low NPE ratio of 3.6% and an improved level of
coverage of 78% as at 30 June 2023.
We have a highly liquid balance sheet and are therefore
benefitting significantly from higher rates; over one third of our
assets are cash balances with central banks while our deposit base
grew modestly by 4% yoy to EUR 19.2 bn.
Despite uncertainty in the global and European economic outlook,
the Cypriot economy remains robust with strong economic growth of
3.4% in 1Q2023, the second highest in the Eurozone. As the largest
financial group in Cyprus, we continued to support the economy by
extending EUR1.1 bn of new loans in 1H2023, while maintaining
strict lending criteria. Our performing loan book remained broadly
flat qoq and yoy at EUR9.9 bn, as ongoing repayments offset new
lending.
Our capital position remains robust and comfortably in excess of
our regulatory requirements, with approximately 220 bps of
organically generated capital in 1H2023. We ended the first half
with a CET1 ratio of 16.0% and a Total Capital ratio of 21.1%.
Recently the Group made a successful return to capital markets with
the refinancing of the EUR220 mn AT1 Capital securities in June
2023 and the issuance of EUR 350 mn MREL-eligible senior preferred
notes in July 2023. In this respect, the Group is now already in
full compliance with its 2025 MREL requirements.
In June 2023, we made our first dividend payment for 12 years,
marking the Group's transformation into a strong, diversified,
well-capitalised and sustainably profitable banking and financial
services organisation. The Group's strong financial performance is
progressing well, in line with our targets, and lays the
foundations for shareholder value creation and sustainable
returns."
Panicos Nicolaou
A. Group Financial Results - Statutory Basis
Interim Consolidated Income Statement for the six months ended
30 June 2023
Six months ended
3 0 June
---------------
2023 2022
(restated)(1)
----------------- ---------------
EUR000 EUR000
----------------- ---------------
Turnover 646,203 414,966
================= ===============
Interest income 403,852 181,470
----------------- ---------------
Income similar to interest income 22,172 9,518
----------------- ---------------
Interest expense (56,083) (37,514)
----------------- ---------------
Expense similar to interest expense (11,599) (7,752)
----------------- ---------------
Net interest income 358,342 145,722
----------------- ---------------
Fee and commission income 93,879 98,086
----------------- ---------------
Fee and commission expense (4,275) (4,447)
----------------- ---------------
Net foreign exchange gains 15,839 11,898
----------------- ---------------
Net gains/(losses) on financial instruments 5,680 (10,183)
----------------- ---------------
Net gains on derecognition of financial assets
measured at amortised cost 5,861 1,648
----------------- ---------------
Net insurance finance income/(expense) and net
reinsurance finance income/(expense) 263 2,653
----------------- ---------------
Net insurance service result 34,086 31,268
----------------- ---------------
Net reinsurance service result (9,788) (10,197)
----------------- ---------------
Net gains/(losses) from revaluation and disposal
of investment properties 788 (1,372)
----------------- ---------------
Net gains on disposal of stock of property 3,906 8,242
----------------- ---------------
Other income 12,200 8,927
----------------- ---------------
Total operating income 516,781 282,245
----------------- ---------------
Staff costs (93,043) (98,303)
----------------- ---------------
Special levy on deposits and other levies/ contributions (18,236) (16,507)
----------------- ---------------
Provisions for pending litigations, claims, regulatory
and other matters (net of reversals) (14,148) (594)
----------------- ---------------
Other operating expenses (70,456) (75,824)
----------------- ---------------
Operating profit before credit losses and impairment 320,898 91,017
----------------- ---------------
Credit losses on financial assets (36,772) (24,826)
================= ===============
Impairment net of reversals on non-financial
assets (23,206) (12,157)
----------------- ---------------
Profit before tax 260,920 54,034
----------------- ---------------
Income tax (39,768) (11,158)
----------------- ---------------
Profit after tax for the period 221,152 42,876
================= ===============
Attributable to:
----------------- ---------------
Owners of the Company 220,247 42,214
----------------- ---------------
Non-controlling interests 905 662
----------------- ---------------
Profit for the period 221,152 42,876
================= ===============
Basic profit per share attributable to the owners
of the Company (EUR cent) 49.4 9.5
================= ===============
Diluted profit per share attributable to the
owners of the Company (EUR cent) 49.3 9.5
================= ===============
(1.) 2022 comparative information has been restated to reflect
the impact of IFRS 17. Refer to Note 3.3.1 of the Consolidated
Condensed Interim Financial Statements in the Interim Financial
Report 2023.
A. Group Financial Results - Statutory Basis (continued)
Interim Consolidated Balance Sheet as at 30 June 2023
30 June 31 December 1 January
2022 2022
2023 (restated) (restated)
Assets EUR000 EUR000 EUR000
----------- ------------ ------------
Cash and balances with central banks 9,127,429 9,567,258 9,230,883
----------- ------------ ------------
Loans and advances to banks 431,812 204,811 291,632
----------- ------------ ------------
Derivative financial assets 49,302 48,153 6,653
----------- ------------ ------------
Investments at FVPL 138,661 190,209 199,194
----------- ------------ ------------
Investments at FVOCI 487,806 467,375 748,695
----------- ------------ ------------
Investments at amortised cost 2,703,240 2,046,119 1,191,274
----------- ------------ ------------
Loans and advances to customers 10,007,819 9,953,252 9,836,405
----------- ------------ ------------
Life insurance business assets attributable
to policyholders 587,882 542,321 551,797
----------- ------------ ------------
Prepayments, accrued income and other assets 609,607 609,054 583,777
----------- ------------ ------------
Stock of property 945,831 1,041,032 1,111,604
----------- ------------ ------------
Investment properties 74,339 85,099 117,745
----------- ------------ ------------
Deferred tax assets 227,953 227,934 265,942
----------- ------------ ------------
Property and equipment 267,410 253,378 252,130
----------- ------------ ------------
Intangible assets 47,546 52,546 54,144
----------- ------------ ------------
Non-current assets and disposal groups held
for sale - - 358,951
----------- ------------ ------------
Total assets 25,706,637 25,288,541 24,800,826
=========== ============ ============
Liabilities
----------- ------------ ------------
Deposits by banks 448,713 507,658 457,039
----------- ------------ ------------
Funding from central banks 2,004,480 1,976,674 2,969,600
----------- ------------ ------------
Derivative financial liabilities 18,391 16,169 32,452
----------- ------------ ------------
Customer deposits 19,166,155 18,998,319 17,530,883
----------- ------------ ------------
Insurance liabilities 631,917 599,992 623,791
----------- ------------ ------------
Accruals, deferred income, other liabilities
and other provisions 429,585 379,182 356,697
----------- ------------ ------------
Provisions for pending litigation, claims, regulatory
and other matters 128,267 127,607 104,108
----------- ------------ ------------
Debt securities in issue 291,976 297,636 302,555
----------- ------------ ------------
Subordinated liabilities 309,348 302,104 340,220
----------- ------------ ------------
Deferred tax liabilities 34,618 34,634 39,817
----------- ------------ ------------
Total liabilities 23,463,450 23,239,975 22,757,162
----------- ------------ ------------
Equity
----------- ------------ ------------
Share capital 44,620 44,620 44,620
----------- ------------ ------------
Share premium 594,358 594,358 594,358
----------- ------------ ------------
Revaluation and other reserves 80,686 76,939 99,541
----------- ------------ ------------
Retained earnings 1,264,795 1,090,349 1,062,711
----------- ------------ ------------
Equity attributable to the owners of the Company 1,984,459 1,806,266 1,801,230
=========== ============ ============
Other equity instruments 235,517 220,000 220,000
------------------------------------------------------- =========== ============ ============
Non--controlling interests 23,211 22,300 22,434
----------- ------------ ------------
Total equity 2,243,187 2,048,566 2,043,664
----------- ------------ ------------
Total liabilities and equity 25,706,637 25,288,541 24,800,826
----------- ------------ ------------
(1) 2022 comparative information has been restated to reflect the impact
of IFRS 17. Refer to Note 3.3.1 of the Consolidated Condensed Interim
Financial Statements in the Interim Financial Report 2023.
B. Group Financial Results - Underlying Basis
Interim Condensed Consolidated Income Statement
------------------------------------------------------------------------- --------------
1H2022
IFRS 17
EUR mn 1H2023 (1) 2Q2023 1Q2023 qoq +% yoy +%
------------------------------------ ------ -------- ------ ---------- ------ ------
Net interest income 358 145 196 162 21% 146%
Net fee and commission
income 90 94 46 44 3% -4%
Net foreign exchange gains
and net gains/(losses)
on financial instruments 21 3 8 13 -35% -
Net insurance result 25 24 15 10 57% 4%
Net gains/(losses) from
revaluation and disposal
of investment properties
and on disposal of stock
of properties 5 7 3 2 99% -32%
Other income 12 9 9 3 218% 37%
------------------------------------ ------ -------- ------ ---------- ------ ------
Total income 511 282 277 234 19% 81%
------------------------------------ ------ -------- ------ ---------- ------ ------
Staff costs (93) (95) (47) (46) 4% -2%
Other operating expenses (69) (69) (35) (34) 1% -1%
Special levy on deposits
and other levies/contributions (18) (17) (7) (11) -36% 10%
Total expenses (180) (181) (89) (91) -2% -1%
------ -------- ------ ---------- ------
Operating profit 331 101 188 143 32% 228%
------------------------------------ ------ -------- ------ ---------- ------ ------
Loan credit losses (24) (23) (13) (11) 18% 6%
Impairments of other financial
and non-financial assets (30) (13) (19) (11) 68% 128%
Provisions for pending
litigations, regulatory
and other matters (net
of reversals) (14) (1) (8) (6) 24% -
------------------------------------ ------ -------- ------ ---------- ------ ------
Total loan credit losses,
impairments and provisions (68) (37) (40) (28) 39% 86%
------------------------------------ ------ -------- ------ ---------- ------ ------
Profit before tax and
non-recurring items 263 64 148 115 30% -
------------------------------------ ------ -------- ------ ---------- ------ ------
Tax (40) (11) (22) (18) 24% 256%
Profit attributable to
non-controlling interests (1) (1) 0 (1) -36% 37%
Profit after tax and before
non-recurring items (attributable
to the owners of the Company) 222 52 126 96 32% -
------ -------- ------ ---------- ------
Advisory and other transformation
costs - organic (2) (5) (1) (1) 11% -57%
------------------------------------ ------ -------- ------ ---------- ------ ------
Profit after tax - organic
(attributable to the owners
of the Company) 220 47 125 95 32% -
------------------------------------ ------ -------- ------ ---------- ------ ------
Provisions/net profit/(loss) - - - - - -
relating to NPE sales
Restructuring and other
costs relating to NPE sales - (1) - - - -100%
Restructuring costs - Voluntary
Staff Exit Plan (VEP) - (3) - - - -100%
Profit after tax (attributable
to the owners of the Company) 220 43 125 95 33% -
------ -------- ------ ---------- ------
B. Group Financial Results - Underlying Basis (continued)
Interim Condensed Consolidated Income Statement - Key Performance
Ratios
1H2022
IFRS
Key Performance Ratios 1H2023 17 (1) 2Q2023 1Q2023 qoq+% yoy+%
--------------------------------- ------ ------- ------ ------ -------- ---------
Net Interest Margin
(annualised) 3.17% 1.32% 3.43% 2.91% 52 bps 185 bps
--------------------------------- ------ ------- ------ ------ -------- ---------
Cost to income ratio 35% 64% 32% 39% -7 p.p. -29 p.p.
--------------------------------- ------ ------- ------ ------ -------- ---------
Cost to income ratio
excluding special levy
on deposits and other
levies/contributions 32% 58% 29% 34% -5 p.p. -26 p.p.
--------------------------------- ------ ------- ------ ------ -------- ---------
Operating profit return
on average assets (annualised) 2.6% 0.8% 3.0% 2.3% 0.7 p.p. 1.8 p.p.
--------------------------------- ------ ------- ------ ------ -------- ---------
Basic earnings per share
attributable to the
owners of the Company
(EUR cent)(2) 49.4 9.5 28.2 21.2 7.0 39.9
--------------------------------- ------ ------- ------ ------ -------- ---------
Return on tangible equity
(ROTE) 24.0% 4.9% 26.6% 21.3% 5.3 p.p. 19.1 p.p.
--------------------------------- ------ ------- ------ ------ -------- ---------
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts
which replaced IFRS 4 'Insurance contracts'. 2022 comparative information
presented throughout are on a restated basis unless otherwise stated.
For further details, please refer to Note 3.3.1 of the Consolidated
Condensed Interim Financial Statements in the Interim Financial
Report 2023.
2. The diluted earnings per share attributable to the owners of
the Company for 2Q2023 amounted to 49.3 cents
p.p. = percentage points, bps = basis points, 100 basis points
(bps) = 1 percentage point
Commentary on Underlying Basis
The financial information presented in this Section provides an
overview of the Group financial results for the six months ended 30
June 2023 on the 'underlying basis' which management believes best
fits the true measurement of the performance and position of the
Group, as this presents separately any non-recurring items and also
includes certain reclassifications of items, other than
non-recurring items, which are done for presentational purposes
under the underlying basis for aligning their presentation with
items of a similar nature.
Reconciliations between the statutory basis and the underlying
basis to facilitate the comparability of the underlying basis to
the statutory information, are included in Section B.1
'Reconciliation of the Interim Condensed Consolidated Income
Statement for the six months ended 30 June 2023 between statutory
and underlying basis' and in 'Alternative Performance Measures
Disclosures' of the Interim Financial Report 2023.
Throughout this announcement, financial information in relation
to FY2022 and quarterly 2022 financial information has been
restated for the effects of transition to IFRS 17 which was adopted
on 1 January 2023 and applied retrospectively. As a result, such
2022 financial information, ratios and metrics are presented on a
restated basis unless otherwise stated. Further information on
impact of IFRS 17 transition is provided below and in Note 3.3.1 of
the Consolidated Condensed Interim Financial Statements in the
Interim Financial Report 2023.
Throughout this announcement, the capital ratios as at 31
December 2022 have been restated in order to take into
consideration the 2022 dividend declaration. This refers to the
proposal by the Board of Directors to the shareholders of a final
dividend in respect of the FY2022 earnings following the approval
by the European Central Bank ('ECB'). The proposed final dividend
was declared at the Annual General Meeting ('AGM') which was held
on 26 May 2023. This dividend amounted to EUR22.3 mn in total and
had a negative impact of 22 bps on the Group's CET1 ratio and Total
Capital ratio as at 31 December 2022. As a result the 31 December
2022 capital ratios are presented as restated for the 2022 dividend
unless otherwise stated. Further details are provided in Section
'B.2.1 Capital Base'.
Transition to IFRS 17
On 1 January 2023 the Group adopted IFRS 17 'Insurance
Contracts' ('IFRS 17') which replaced IFRS 4 'Insurance contracts.
IFRS 17 is an accounting standard that was implemented on 1 January
2023, with retrospective application and establishes principles for
the recognition, measurement, presentation and disclosure of
insurance contracts issued, investment contracts with discretionary
participation features issued and reinsurance contracts held. In
substance, IFRS 17 impacts the phasing of profit recognition for
insurance contracts as profitability is spread over the lifetime of
the contract compared to being recognised substantially up-front
under IFRS 4. This new accounting standard does not change the
economics of the insurance contracts but decreases the volatility
of the Group's insurance companies profitability.
The Group's total equity as at 31 December 2022 as restated for
IFRS 17 compared to IFRS 4, was reduced by overall EUR 52 mn
(predominantly relating to the life insurance business of the
Group) from the below changes:
-- The removal of the present value of in-force life insurance
contracts ('PVIF') asset including the associated deferred tax
liability, resulting in a reduction of EUR 101 mn in the Group's
total equity.
Commentary on Underlying Basis (continued)
Transition to IFRS 17 (continued)
-- The remeasurement of insurance assets and liabilities
(including the impact of the contractual service margin('CSM'))
resulting in an increase in the Group's equity by EUR49 mn.
The estimated future profit of insurance contracts is included
in the measurement of the insurance contract liabilities 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. A contractual service margin liability
of c.EUR 42 mn was recognised as at 31 December 2022 (reflected in
the impact from the remeasurement of insurance liabilities
mentioned above).
With regards to the Group's income statement for the year ended
31 December 2022, as restated for IFRS 17, the profit after tax
(attributable to the owners of the Company) was reduced by EUR14 mn
to EUR57 mn (vs EUR71 mn under IFRS 4) reflecting mainly :
-- Profit is deferred and held as CSM liability as mentioned
above to be recognised in the income statement over the contract
service period.
-- The impact of assumption changes relating to the future
service is also deferred through CSM liability and is recognised in
the income statement over the contract service period.
-- There is increased use of current market values in the
measurement of insurance assets and liabilities (for unit-linked
business) and market volatility on unit-linked business is deferred
to the CSM, thereby reducing the volatility in the income
statement.
The transition to IFRS 17 had no impact on the Group's
regulatory capital. However, as a result of the benefit arising
from the remeasurement of the insurance assets and liabilities, 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. Going forward, meaningful dividend generation from the
insurance business is expected to continue.
B. Group Financial Results- Underlying Basis (continued)
Interim Condensed Consolidated Balance Sheet
==============================================================================================================
EUR mn 30.06.2023 31.12.2022 + %
IFRS 17
(1)
========================================================= =========== =============== =====================
Cash and balances with central
banks 9,127 9,567 -5%
Loans and advances to banks 432 205 111%
Debt securities, treasury bills
and equity investments 3,330 2,704 23%
Net loans and advances to customers 10,008 9,953 1%
Stock of property 946 1,041 -9%
Investment properties 74 85 -13%
Other assets 1,790 1,734 3%
Total assets 25,707 25,289 2%
=========== ===============
Deposits by banks 449 508 -12%
Funding from central banks 2,004 1,977 1%
Customer deposits 19,166 18,998 1%
Debt securities in issue 292 298 -2%
Subordinated liabilities 309 302 2%
Other liabilities 1,244 1,157 7%
========================================================= =========== =============== =====================
Total liabilities 23,464 23,240 1%
========================================================= =========== =============== =====================
Shareholders' equity 1,984 1,807 10%
========================================================= =========== =============== =====================
Other equity instruments 236 220 7%
========================================================= =========== =============== =====================
Total equity excluding non-controlling
interests 2,220 2,027 10%
========================================================= =========== =============== =====================
Non-controlling interests 23 22 4%
========================================================= =========== =============== =====================
Total equity 2,243 2,049 10%
========================================================= =========== =============== =====================
Total liabilities and equity 25,707 25,289 2%
========================================================= =========== =============== =====================
Key Balance Sheet figures and 30.06.2023 31.12.2022 +
ratios (1)
========================================================= ============================ =========== ========
Gross loans (EUR mn) 10,277 10,217 1%
========================================================= ============================ =========== ========
Allowance for expected loan
credit losses (EUR mn) 288 282 2%
========================================================= ============================ =========== ========
Customer deposits (EUR mn) 19,166 18,998 1%
========================================================= ============================ =========== ========
Loans to deposits ratio (net) 52% 52% -
========================================================= ============================ =========== ========
NPE ratio 3.6% 4.0% -40 bps
========================================================= ============================ =========== ========
NPE coverage ratio 78% 69% +9 p.p.
========================================================= ============================ =========== ========
Leverage ratio 8.5% 7.8% +70 bps
========================================================= ============================ =========== ========
Capital ratios and risk weighted 30.06.2023 (3) 31.12.2022 +
assets (2)
========================================================= ============================ =========== ========
Common Equity Tier 1 (CET1)
ratio (transitional) 16.0% 15.2% 80 bps
========================================================= ============================ =========== ========
Total capital ratio (transitional) 21.1% 20.4% 70 bps
========================================================= ============================ =========== ========
Risk weighted assets (EUR mn) 10,257 10,114 1%
========================================================= ============================ =========== ========
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts
which replaced IFRS 4 'Insurance contracts'. 2022 comparative information
presented throughout are on a restated basis unless otherwise stated.
Please refer to Note 3.3.1 of the Consolidated Condensed Interim Financial
Statements 2023.
2. The capital ratios have been restated to take into consideration
the dividend in respect of FY2022 earnings. For further details please
refer to section B.2.1.
3. Includes reviewed profits for 1H2023 and is net of dividend accrual
(refer to section B.2.1 'Capital Base'). Any recommendation for a
dividend is subject to regulatory approval
p.p. = percentage points, bps = basis points, 100 basis points (bps)
= 1 p.p.
B. Group Financial Results-Underlying Basis (continued)
B.1 Reconciliation of the Interim Condensed Consolidated Income
Statement for the six months ended 30 June 2023 between statutory
and underlying basis
EUR million Underlying Other Statutory
basis basis
Net interest income 358 - 358
=========== ====== ==========
Net fee and commission income 90 - 90
=========== ====== ==========
Net foreign exchange gains and net
gains on financial instruments 21 - 21
=========== ====== ==========
Net gains on derecognition of financial
assets measured at amortised cost - 6 6
=========== ====== ==========
Net insurance result* 25 - 25
=========== ====== ==========
Net gains from revaluation and disposal
of investment properties and on disposal
of stock of properties 5 - 5
=========== ====== ==========
Other income 12 - 12
----------- ------ ----------
Total income 511 6 517
=========== ====== ==========
Total expenses (180) (16) (196)
----------- ------ ----------
Operating profit 331 (10) 321
=========== ====== ==========
Loan credit losses (24) 24 -
=========== ====== ==========
Impairment of other financial and non-financial
assets (30) 30 -
=========== ====== ==========
Provisions for pending litigations,
regulatory and other matters (net of
reversals) (14) 14 -
=========== ====== ==========
Credit losses on financial assets and
impairment net of reversals of non-financial
assets - (60) (60)
=========== ====== ==========
Profit before tax and non-recurring
items 263 (2) 261
=========== ====== ==========
Tax (40) - (40)
=========== ====== ==========
Profit attributable to non-controlling
interests (1) - (1)
=========== ====== ==========
Profit after tax and before non-recurring
items (attributable to the owners of
the Company) 222 (2) 220
=========== ====== ==========
Advisory and other transformation costs
- organic (2) 2 -
----------- ------ ----------
Profit after tax (attributable to
the owners of the Company) 220 - 220
----------- ------ ----------
* Net insurance result per underlying basis comprises the
aggregate of captions 'Net insurance finance income/( expense) and
net reinsurance finance income/(expense)', 'Net insurance service
result' and 'Net reinsurance service result' per the statutory
basis.
The reclassification differences between the statutory basis and
the underlying basis are explained below:
-- Net gains on loans and advances to customers at FVPL of
approximately zero million included in 'Loan credit losses' under
the underlying basis are included in 'Net gains/(losses) on
financial instruments' under the statutory basis. Their
classification under the underlying basis is done to align their
presentation with the loan credit losses on loans and advances to
customers at amortised cost.
-- ' Net gains on derecognition of financial assets measured at
amortised cost' of approximately EUR6 mn under the statutory basis
comprise net gains on derecognition of loans and advances to
customers included in 'Loan credit losses' under the underlying
basis as to align their presentation with the loan credit losses on
loans and advances to customers.
-- Provisions for pending litigations, regulatory and other
matters amounting to EUR14 mn presented within 'Operating profit
before credit losses and impairment' under the statutory basis, are
presented under the underlying basis in conjunction with loan
credit losses and impairments.
-- Advisory and other transformation costs of approximately EUR2
mn included in 'Other operating expenses' under the statutory basis
are separately presented under the underlying basis since they
comprise mainly fees to external advisors in relation to the
transformation programme and other strategic projects of the
Group.
B. Group Financial Results-Underlying Basis (continued)
B.1 Reconciliation of the Interim Condensed Consolidated Income
Statement for the six months ended 30 June 2023 between statutory
and underlying basis (continued)
-- '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 loans and
advances to customers of EUR30 mn, which are included in 'Loan
credit losses' under the underlying basis, and ii) credit losses of
other financial assets of EUR7 mn and impairment
net of reversals of non-financial assets of EUR23 mn, which are
included in 'Impairment of other financial and non-financial
assets' under the underlying basis, as to be presented separately
from loan credit losses.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis
B.2.1 Capital Base
Total equity excluding non-controlling interests totalled
EUR2,220 mn as at 30 June 2023 compared to EUR2,119 mn as at 31
March 2023 and to EUR2,027 mn as at 31 December 2022. S
hareholders' equity totalled to EUR1,984 mn as at 30 June 2023
compared to EUR1,899 mn as at 31 March 2023 and to EUR1,807 mn as
at 31 December 2022 .
The Common Equity Tier 1 capital (CET1) ratio on a transitional
basis stood at 16.0% as at 30 June 2023, compared to 15.2% as at 31
March 2023 and to 15.2% as at 31 December 2022, as restated.
Organic capital generation for 2Q2023 amounted to c.120 bps. During
2Q2023, CET1 ratio was positively affected mainly by pre-provision
income and other movements and negatively affected by provisions
and impairments as well as the AT1 distributions and refinancing
costs and the increase in risk weighted assets. Throughout this
announcement, the capital ratios as at 30 June 2023 include
reviewed profits for the six months ended 30 June 2023 and an
accrual for an estimated final dividend at a payout ratio of 30% of
the Group's adjusted recurring profitability for the period, which
represents the low-end range of the Group's approved dividend
policy. As per the latest SREP decision, any dividend distribution
is subject to regulatory approval. Such dividend accrual does not
constitute a binding commitment for a dividend payment nor does it
constitute a warranty or representation that such a payment will be
made. Group adjusted recurring profitability is defined as the
Group's profit after tax before non-recurring items (attributable
to the owners of the Company) taking into account distributions
under other equity instruments such as the annual AT1 coupon. For
more details please refer to 'Resumption of dividends' further
below in section B.2.1. For Capital Requirements Regulation (CRR)
purposes, a payout ratio of 50% of the Group's adjusted recurring
profitability for the period, the high-end of the payout range of
the Group's approved dividend policy is prescribed, correspon ding
to a CET1 ratio of 15.6% as at 30 June 2023.
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 was 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 was 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 17
bps on Group's CET1 ratio as at 30 June 2023.
The Total Capital ratio stood at 21.1% as at 30 June 2023,
compared to 20.3% as at 31 March 2023 and to 20.4% as at 31
December 2022, as restated. As at 30 June 2023, Existing Capital
Securities (for further details refer to "Other equity Instruments"
section below in B.2.1) of a nominal amount of c.EUR8 mn are
included in Total Capital, the impact of which is c.8 bps on the
Total Capital ratio. For CRR purposes, a payout ratio of 50% of the
Group's adjusted recurring profitability for the period, the
high-end of the payout range of the Group's approved dividend
policy is prescribed, correspon ding to a Total Capital ratio of
20.7% as at 30 June 2023.
The Group's capital ratios are above the Supervisory Review and
Evaluation Process (SREP) requirements.
In the context of 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 disregarding 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%.
The Group's minimum phased-in CET1 capital ratio requirement as
at 30 June 2023 is set at 10.26%, compared to the previous level of
10.10% in 2022, 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 c.0.02%. The Group's
minimum phased-in Total Capital ratio requirement is set at 15.10%,
compared to the previous level of 15.03% in 2022, 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 c.0.02%. The ECB has also
maintained the non-public guidance for an additional Pillar II CET1
buffer (P2G) unchanged compared to the previous year.
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 was phased-in gradually, having
started from 1 January 2019 at 0.50%. The O-SII buffer was fully
phased-in on 1 January 2023 and now stands at 1.50%.
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.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
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.
Further, in June 2023, the CBC announced a further increase of
0.50% in the CcyB of the total risk exposure amounts in Cyprus of
each licensed credit institution incorporated in Cyprus to be
observed from June 2024, increasing the CcyB to 1% from June
2024.
The Group participated in the ECB Stress Test of 2023, the
results of which were published by the ECB on 28 July 2023. For
further information please refer to the 'Risk and Capital
Management Report' of the 'Interim Financial Report 2023.
Resumption of dividend payments
Following the 2022 SREP decision, the equity dividend
distribution prohibition was lifted for both the Company and the
Bank, with any dividend distribution being subject to regulatory
approval.
In April 2023, the Company obtained the approval of the European
Central Bank to pay a dividend. Following this approval, the Board
of Directors of the Company recommended to the shareholders a final
dividend of EUR0.05 per ordinary share in respect of earnings for
the year ended 31 December 2022 ('Dividend'). The proposed final
dividend was declared at the Annual General Meeting ('AGM') which
was held on 26 May 2023. This Dividend amounted to EUR22.3 mn in
total and was equivalent to a payout ratio of 14% of the FY2022
Group's adjusted recurring profitability or 31% based on FY2022
profit after tax (as reported in the 2022 Annual Financial Report).
The Dividend was paid in cash on 16 June 2023.
This Dividend resulted in a negative capital impact of 22 bps on
the Group's CET1 ratio and Total Capital ratio as at 31 December
2022. Throughout this announcement, the capital ratios as at 31
December 2022 have been restated in order to take into
consideration the dividend payment.
The resumption of dividend payments after 12 years underpins the
Group's position as a strong and well-diversified organisation,
capable of delivering sustainable shareholder returns.
Dividend policy
In April 2023 the Board of Directors approved the Group dividend
policy. The Group aims to provide a sustainable return to
shareholders. Dividend payments are expected to build prudently and
progressively over time, towards a payout ratio in the range of
30-50% of the Group's adjusted recurring profitability. The
dividend policy takes into consideration market conditions as well
as the outcome of capital and liquidity planning.
Other equity instruments
At 30 June 2023, the Group's other equity instruments relate to
Additional Tier 1 Capital Securities (the "AT1 securities") and
amounted to EUR236 mn, up 7% on the prior quarter and prior
year.
In June 2023, the Company successfully launched and priced an
issue of EUR220 mn Fixed Rate Reset Perpetual Additional Tier 1
Capital Securities (the 'New Capital Securities').
The New Capital Securities constitute unsecured and subordinated
obligations of the Company, are perpetual and are issued at par.
They carry an initial coupon of 11.875% per annum, payable
semi-annually and resettable on 21 December 2028 and every 5 years
thereafter. The Company will have the option to redeem the New
Capital Securities from, and including, 21 June 2028 to, and
including, 21 December 2028 and on each interest payment date
thereafter, subject to applicable regulatory consents and the
relevant conditions to redemption.
The issue was met with exceptional demand, attracting interest
from c.240 institutional investors, with the final order book over
12 times over-subscribed and final pricing 62.5 bps tighter than
the initial pricing indication. The pricing also reflects
significant improvement in the credit spread to c.910 bps compared
to c.1,260 bps for the previous AT1 issue in 2018 ('Existing
Capital Securities').
The net proceeds of the issue of the New Capital Securities were
on-lent by the Company to the Bank to be used for general corporate
purposes. The on-loan qualifies as Additional Tier 1 capital for
the Bank.
The issue of the New Capital Securities will maintain the
Group's optimised capital structure and contributes to the Group's
Total Capital Ratio by c.215 bps.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
Other equity instruments (continued)
At the same time, the Company invited the holders of its
outstanding EUR220 mn Fixed Rate Reset Perpetual Additional Tier 1
Capital Securities callable in December 2023 to tender their
Existing Capital Securities at a purchase price of 103% of the
principal amount. The Company received valid tenders of c.EUR204 mn
in aggregate principal amount, or c.93% of the outstanding Existing
Capital Securities, all of which were accepted by the Company.
As a result, a cost of c.EUR7 mn was recorded directly in the
Company's equity in 2Q2023, forfeiting the relevant future coupon
payments. Transaction costs of EUR3.5 mn in relation to the
transactions were recorded directly in equity in June 2023.
Existing Capital Securities of c.EUR 16 mn in aggregate principal
amount remain outstanding as at 30 June 2023. In July 2023, the
Company purchased in the open market Existing Capital Securities of
c.EUR7 mn further reducing the outstanding nominal amount of the
Existing Capital Securities to c.EUR8 mn.
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 legislative 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.
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 at that time. 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).
In anticipation of modifications to the Law, the Group has since
prior years 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.
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. The European Council's proposal on CRR and CRD was
published on 8 November 2022. During February 2023, the European
Parliament's ECON Committee voted to adopt Parliament's proposed
amendments to the Commission's proposal, and the 2021 Banking
Package is currently in the final stage of the EU legislative
process. It is expected that the 2021 Banking Package will enter
into force on 1 January 2025; and certain measures are expected to
be subject to transitional arrangements or to be phased in over
time.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.2 Regulations and Directives (continued)
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 as at 30 June 2023, calculated according to the
SRB's eligibility criteria currently in effect and based on
internal estimate, stood at 21.5% of risk weighted assets (RWA) and
at 10.2% of LRE. The MREL ratio as at 30 June 2023 includes an
amount of c.EUR8 mn that remained following the tender offer and
open market purchases of the Existing Capital Securities, which
have a call option in December 2023. The impact of this amount is
contributing c.8 bps to the MREL ratio expressed as a percentage of
RWA and c.3 bps to the MREL ratio expressed as a percentage of LRE.
In July 2023 the Bank proceeded with an issue of EUR 350 mn senior
preferred notes (the 'Notes'). The Notes comply with the MREL
criteria and are expected to contribute towards the Bank's MREL
requirements. When accounting for the Notes, the Bank's MREL ratio
improves to 24.9% of RWA and 11.4% of LRE. For further details,
please refer to section B.2.3 'Debt Securities in Issue'. The MREL
ratio expressed as a percentage of risk weighted assets does not
include capital used to meet the CBR requirement, which stood at
4.02% on 30 June 2023 (compared to 3.77% as at 31 December 2022),
expected to increase further on 30 November 2023 following increase
in CcyB from 0.00% to 0.50% of the total risk exposure amounts in
Cyprus and to 1% from June 2024 as announced by Central Bank of
Cyprus.
Throughout this announcement, the MREL ratios as at 30 June 2023
include profits for the six months ended 30 June 2023 and an
accrual for an estimated final dividend at a payout ratio of 30% of
the Group's adjusted recurring profitability for the period, which
represents the low-end range of the Group's approved dividend
policy. For CRR purposes, a payout ratio of 50% of the Group's
adjusted recurring profitability for the period, the high-end of
the payout range of the Group's approved dividend policy is
prescribed, corresponding to an MREL ratio expressed as a
percentage of RWAs of 21.1% and MREL ratio expressed as a
percentage of LRE of 10.1% as at 30 June 2023; pro forma for the
Notes issuance, MREL ratio expressed as a percentage of RWA s
stands at 24.5% and MREL ratio expressed as a percentage of LRE
stands at 11.3%.
When accounting for the Notes issued in July 2023, the Bank
meets the final MREL requirement currently set by the SRB well
ahead the compliance date of 31 December 2025. Acknowledging that
the MREL requirement (amount and date) is subject to annual review
by the regulator, the Bank continues to evaluate opportunities to
optimise the build-up of its MREL.
B.2.3 Funding and Liquidity
Funding
Funding from Central Banks
At 30 June 2023, the Bank's funding from central banks amounted
to EUR 2,004 mn , which relates to ECB funding, comprising solely
of funding through the Targeted Longer-Term Refinancing Operations
(TLTRO) III, compared to EUR 1,988 mn at 31 March 2023 and to EUR
1,977 mn at 31 December 2022.
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.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.3 Funding and Liquidity (continued)
Funding (continued)
Funding from Central Banks (continued)
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. The maturity date of the Bank's
funding of EUR 1.7 bn under the seventh TLTRO III operation is in
March 2024, whilst the EUR 300 mn under the eighth TLTRO III
operation is in June 2024.
Deposits
Customer deposits totalled EUR19,166 mn at 30 June 2023
(compared to EUR18,974 mn at 31 March 2023, to EUR18,998 mn at 31
December 2022 and to EUR18,450 mn at 30 June 2022) broadly flat in
the second quarter and up 4% year on year. Customer deposits are
mainly retail-funded and almost 60% of deposits are protected under
the deposit guarantee scheme as at 30 June 2023.
The Bank's deposit market share in Cyprus reached 37.4% as at 30
June 2023, compared to 37.3% as at 31 March 2023 and to 37.2% as at
31 December 202 2 . Customer deposits accounted for 75% of total
assets and 82% of total liabilities at 30 June 2023 (flat since 31
December 2022).
The net loans to deposits (L/D) ratio stood at 52% as at 30 June
2023 (compared to 53% as at 31 March 2023 and to 52% as at 31
December 2022 on the same basis), broadly flat in the second
quarter.
Subordinated liabilities
At 30 June 2023, the carrying amount of the Group's subordinated
liabilities (including accrued interest) amounted to EUR309 mn
(compared to EUR307 mn at 31 March 2023 and to EUR302 mn at 31
December 2022) 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 30 June 2023, the carrying value of the Group's debt
securities in issue (including accrued interest) amounted to EUR292
mn (compared to EUR300 mn at 31 March 2023 and to EUR298 mn at 31
December 2022) and relate to senior preferred notes.
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.
In July 2023, the Bank has successfully launched and priced an
issuance of EUR350 mn of senior preferred notes (the "Notes"). The
Notes were priced at par with a fixed coupon of 7.375% per annum,
payable annually in arrear, until the Optional Redemption Date i.e.
25 July 2027. The maturity date of the Notes is 25 July 2028;
however, the Bank may, at its discretion, redeem the Notes on the
Optional Redemption Date subject to meeting certain conditions
(including applicable regulatory consents) as specified in the
Terms and Conditions. If the Notes are not redeemed by the Bank,
the coupon payable from the Optional Redemption Date until the
Maturity Date will convert from a fixed rate to a floating rate,
and will be equal to 3-month Euribor + 409.5 bps, payable quarterly
in arrear. The issuance was met with strong demand, attracting
interest from more than 90 institutional investors, with a peak
orderbook of EUR950 mn and final pricing 37.5 bps tighter than the
initial pricing indication. The Notes comply with the criteria for
the Minimum Requirement for Own Funds and Eligible Liabilities
("MREL") and contribute towards the Bank's MREL requirements.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
Liquidity
At 30 June 2023, the Group Liquidity Coverage Ratio (LCR) stood
at 316% (compared to 303% at 31 March 2023 and to 291% at 31
December 2022), well above the minimum regulatory requirement of
100%. The LCR surplus as at 30 June 2023 amounted to EUR7.7 bn
(compared to EUR7.4 bn at 31 March 2023 and to EUR7.2 bn at 31
December 2022). The increase in liquidity surplus in 2Q2023
reflects primarily the increase in deposits . When disregarding the
TLTRO III and including the EUR350 mn of the senior preferred notes
issued on July 2023, the Group's liquidity position remains strong
with an LCR of 270% and liquidity surplus of EUR6.1 bn.
At 30 June 2023, the Group Net Stable Funding Ratio (NSFR) stood
at 165% (compared to 160% at 31 March 2023 and to 168% at 31
December 2022), well above the minimum regulatory requirement of
100%.
B.2.4 Loans
Group gross loans totalled EUR10,277 mn at 30 June 2023 ,
compared to EUR10,278 mn at 31 March 2023 and to EUR10,217 mn at 31
December 2022, flat on the prior quarter as ongoing repayments
offset new lending.
New lending granted in Cyprus reached EUR494 mn for 2Q2023
(compared to a seasonally strong new lending of EUR624 mn for
1Q2023 and to EUR444 mn for 4Q2022) down by 21% qoq. New lending in
2Q2023 comprised EUR212 mn of corporate loans, EUR184 mn of retail
loans (of which EUR119 mn were housing loans), EUR48 mn of SME
loans and EUR50 mn of shipping and international loans. During
1H2023, new lending remained strong at EUR1,118 mn, mainly driven
by strong demand for business loans.
At 30 June 2023, the Group net loans and advances to customers
totalled EUR10,008 mn (compared to EUR10,013 mn at 31 March 2023
and to EUR9,953 mn at 31 December 2022), up 1% since the beginning
of the year.
The Bank is the largest credit provider in Cyprus with a market
share of 42.4% at 30 June 2023, compared to 42.4% at 31 March 2023
and to 40.9% at 31 December 2022.
B.2.5 Loan portfolio quality
The Group has continued to make steady progress across all asset
quality metrics. Today, t he Group's priorities focus mainly on
maintaining high quality new lending with strict underwriting
standards and preventing asset quality deterioration following the
ongoing macroeconomic uncertainty.
The loan credit losses for 2Q2023 totalled EUR13 mn, compared to
EUR11 mn for 1Q2023. 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 customer behaviour. 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 and individuals
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.
Non-performing exposures
Non-performing exposures (NPEs) as defined by the European
Banking Authority (EBA) were reduced by EUR18 mn, or 5% in 2Q2023,
compared to a net organic reduction of EUR22 mn in 1Q2023, to
EUR371 mn at 30 June 2023 (compared to EUR389 mn at 31 March 2023
and EUR 411 mn at 31 December 2022 ).
As a result, the NPEs account for 3.6% of gross loans as at 30
June 2023, compared to 3.8% at 31 March 2023 and to 4.0% at 31
December 2022.
The NPE coverage ratio stands at 78% at 30 June 2023, compared
to 73% at 31 March 2023 and to 69% as at 31 December 2022. When
taking into account tangible collateral at fair value, NPEs are
fully covered.
Overall, since the peak in 2014, the stock of NPEs has been
reduced by EUR14.6 bn or 98% to below EUR0.4 bn and the NPE ratio
by 59 percentage points, from 63% to below 4%.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
Mortgage-To-Rent Scheme ("MTR)
In July 2023, the Mortgage-to-Rent Scheme ('MTR') was approved
by the Council of Ministers and aims for the reduction of NPEs
backed by primary residence and simultaneously protect the primary
residence of vulnerable borrowers. The eligible criteria
include:
-- Borrowers that were non-performing as at 31 December 2021 and
remained non-performing as at 31 December 2022 with facilities
backed by primary residence with open market value up to EUR250 k
;
-- Borrowers that that had a fully completed application to
Estia Scheme and were assessed as eligible but not viable with a
primary residence of up to EUR350k Open Market Value; and
-- all applicants that were approved under Estia Scheme but their inclusion was terminated.
The eligible applicants will be able to reside in their primary
residence as tenants and are e xempted from their mortgage loan, as
the state will be covering fully the required rent on their behalf.
The eligible applicants will be able to acquire the primary
residence after 5 years at a favourable price, below the Open
Market Value.
The scheme has not been launched yet; it is expected to act as
another tool to address NPEs in the Retail sector.
B.2.6 Fixed income portfolio
Fixed income portfolio amounts to EUR3,178 mn as at 30 June
2023, compared to EUR2,747 mn as at 31 March 2023 and to EUR2,500
mn as at 31 December 2022, increased by 16% on the prior quarter.
The quarterly increase reflects incremental new investments in the
2Q2023 ahead of expected maturities in 2H2023. The portfolio
represents 13% of total assets (net of TLTRO III) and comprises
EUR2,703 mn (85%) measured at amortised cost and EUR475 mn (15%) at
fair value through other comprehensive income ('FVOCI').
The fixed income portfolio measured at amortised cost is held to
maturity and therefore no fair value gains/losses are recognised in
the Group's income statement or equity. This fixed income portfolio
has high average rating at A1 or at Aa2 when Cyprus government
bonds are excluded. The fair value of the amortised cost fixed
income portfolio as at 30 June 2023 amounts to EUR2,619 mn,
reflecting an unrealised fair value loss of EUR 84 mn, equivalent
to c.80 bps of CET1 ratio .
B.2.7 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 2019 amount to
EUR0.8 bn and exceed properties on-boarded in the same period of
EUR0.5 bn.
During the six months ended 30 June 2023, the Group completed
disposals of EUR71 mn (compared to EUR 87 mn in 1H2022 ), resulting
in a profit on disposal of EUR4 mn for 1H2023 (compared to a profit
of c.EUR 8 mn for 1H2022). Asset disposals are across all property
classes, with almost 45% by value in 1H2023 relating to land.
During the six months ended 30 June 2023, the Group executed
sale-purchase agreements (SPAs) for disposals of 273 properties
with contract value of EUR78 mn, compared to SPAs for disposals of
373 properties with contract value of c.EUR99 mn for 1H2022.
In addition, the Group had a strong pipeline of EUR66 mn by
contract value as at 30 June 2023, of which EUR38 mn related to
SPAs signed (compared to a pipeline of EUR81 mn as at 30 June 2022,
of which EUR41 mn related to SPAs signed).
REMU on-boarded EUR6 mn of assets in 1H2023 (compared to
additions of EUR26 mn in 1H2022), via the execution of debt for
asset swaps and repossessed properties.
As at 30 June 2023, assets held by REMU had a carrying value of
EUR1,010 mn, of which EUR 974 mn are repossessed properties
(comprising properties of EUR946 mn classified as 'Stock of
property' and EUR64 mn as 'Investment properties'), compared to
EUR1,116 mn as at 31 December 2022 (comprising properties of
EUR1,041 mn classified as 'Stock of property' and EUR75 mn as
'Investment properties').
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.7 Real Estate Management Unit (REMU) (continued)
Assets held by REMU
Assets held by REMU (Group)
EUR mn 1H2023 1H2022 2Q2023 1Q2023 qoq +% yoy +%
------ ------ ------ ------ ------
Opening balance 1,116 1,215 1,050 1,116 -6% -8%
--------------------------------- ------ ------ ------ ------ ------ ------
On-boarded assets 6 26 4 2 85% -78%
--------------------------------- ------ ------ ------ ------ ------ ------
Sales (71) (87) (30) (41) -26% -19%
--------------------------------- ------ ------ ------ ------ ------ ------
Net impairment loss (23) (8) (15) (8) 77% 181%
--------------------------------- ------ ------ ------ ------ ------ ------
Transfer to/from own properties (18) - 1 (19) - -
--------------------------------- ------ ------ ------ ------ ------ ------
Closing balance 1,010 1,146 1,010 1,050 -4% -12%
--------------------------------- ------ ------ ------ ------ ------ ------
Analysis by type and country Cyprus Greece Total
30 June 2023 (EUR mn)
----------------------------------------- ------- ------- ------
Residential properties 57 20 77
Offices and other commercial properties 142 14 156
Manufacturing and industrial properties 47 17 64
Hotels 22 0 22
Land (fields and plots) 462 4 466
Golf courses and golf-related property 225 0 225
Total 955 55 1,010
------- -------
Cyprus Greece Total
31 December 2022 (EUR mn)
----------------------------------------- ------- ------- ------
Residential properties 69 21 90
Offices and other commercial properties 180 14 194
Manufacturing and industrial properties 48 19 67
Hotels 24 0 24
Land (fields and plots) 502 4 506
Golf courses and golf-related property 235 0 235
Total 1,058 58 1,116
------- -------
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis
B.3.1 Total income
1H2022
IFRS 17
EUR mn 1H2023 (1) 2Q2023 1Q2023 qoq +% yoy +%
------- --------- ------- ------ ------
Net interest income 358 145 196 162 21% 146%
------------------------------------- ------- --------- ------- ------ ------ -------
Net fee and commission
income 90 94 46 44 3% -4%
Net foreign exchange
gains and net gains/(losses)
on financial instruments 21 3 8 13 -35% -
Net insurance result 25 24 15 10 57% 4%
Net gains/(losses) from
revaluation and disposal
of investment properties
and on disposal of stock
of properties 5 7 3 2 99% -32%
Other income 12 9 9 3 218% 37%
------------------------------------- ------- --------- ------- ------ ------ -------
Non-interest income 153 137 81 72 14% 12%
------------------------------------- ------- --------- ------- ------ ------ -------
Total income 511 282 277 234 19% 81%
------------------------------------- ------- --------- ------- ------ ------ -------
Net Interest Margin (annualised) 3.17% 1.32% 3.43% 2.91% 52 bps 185 bps
------------------------------------- ------- --------- ------- ------ ------ -------
Average interest earning
assets
(EUR mn) 22,781 22,235 22,903 22,638 1% 2%
------------------------------------- ------- --------- ------- ------ ------ -------
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further
details, please refer to Note 3.3.1 of the Consolidated Condensed Interim
Financial Statements in the Interim Financial Report 2023.
p.p. = percentage points, bps = basis points, 100 basis points (bps) =
1 percentage point
Net interest income (NII) for 1H2023 amounted to EUR358 mn
compared to EUR145 mn for 1H2022, up 146% yoy driven mainly by the
repricing of loans and liquids to higher rates, the limited
increase in funding costs and the increase of fixed income
portfolio, notwithstanding the foregone NII on the NPE sale Helix 3
portfolio (c.EUR8 mn in 1H2022) and end of TLTRO favourable terms
(c.EUR7 mn in 1H2022).
Net interest income (NII) for 2Q2023 amounted to EUR196 mn
compared to EUR162 mn for 1Q2023, up 21% qoq, attributable to the
rising interest rates and the continued low deposit
pass-through.
Quarterly average interest earning assets (AIEA) for 1H2023
amounted to EUR22,781 mn, up 2% yoy driven by the increase in
liquid assets mainly as a result of the increase in fixed income
portfolio and deposits by c.EUR 1.3 bn yoy and EUR0.7 bn yoy
respectively, partly offset by the repayment of EUR1.0 bn TLTRO
funding in December 2022 . Quarterly average interest earning
assets for 2Q2023 remained broadly flat on the prior quarter.
Net interest margin (NIM) for 1H2023 amounted to 3.17% (compared
to 1.32% for 1H2022), up 185 bps yoy driven by interest rate rises
and the increase in average interest earning assets. Net interest
margin (NIM) for 2Q2023 stood at 3.43% (compared to 2.91% for
1Q2023) up 52 bps supported by interest rate rises.
Non-interest income for 1H2023 amounted to EUR153 mn (compared
to EUR137 mn for 1H2022, up 12% yoy) comprising net fee and
commission income of EUR90 mn, net foreign exchange gains and net
gains/(losses) on financial instruments of EUR21 mn, net insurance
result of EUR25 mn, net gains/(losses) from revaluation and
disposal of investment properties and on disposal of stock of
properties of EUR5 mn and other income of EUR12 mn. The yoy
increase is mainly driven by higher net foreign exchange gains and
net gains/(losses) on financial instruments.
Non-interest income for 2Q2023 amounted to EUR81 mn (compared to
EUR72 mn for 1Q2023, up 14% qoq) comprising net fee and commission
income of EUR46 mn, net foreign exchange gains and net
gains/(losses) on financial instruments of EUR8 mn, net insurance
result of EUR15 mn, net gains/(losses) from revaluation and
disposal of investment properties and on disposal of stock of
properties of EUR3 mn and other income of EUR9 mn. The qoq increase
mainly relates to higher net insurance result as well as a
non-recurring insurance receivable of c.EUR5 mn included in other
income.
Net fee and commission income for 1H2023 amounted to EUR90 mn
(compared to EUR94 mn for 1H2022, down 4% yoy); when disregarding
the impact of the liquidity fees and NPE sale-related servicing
fee, net fee and commission income was up 8% yoy, reflecting the
introduction of a revised price list in February 2022 and higher
net credit card commissions.
Net fee and commission income for 2Q2023 amounted to EUR46 mn,
up 3% qoq mainly due to higher net credit card commissions driven
by higher volume of transactions.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.1 Total income (continued)
Net foreign exchange gains and net gains/(losses) on financial
instruments of EUR21 mn for 1H2023 (comprising net foreign exchange
gains of EUR16 mn and net gains on financial instruments of EUR5
mn), compared to EUR3 mn for 1H2022 , reflecting higher foreign
exchange income through FX swaps and higher net gains on financial
instruments .
Net foreign exchange gains and net gains/(losses) on financial
instruments amounted to EUR8 mn for 2Q2023, compared to EUR 13 mn
for 1Q2023, down 35% qoq, due to higher net revaluation gains on
financial instruments in the previous quarter . Net foreign
exchange gains and net gains/(losses) on financial instruments are
considered volatile profit contributors.
Net insurance result amounted to EUR25 mn for 1H2023, compared
to EUR 24 mn for 1H2022, up 4% yoy.
Net insurance result amounted to EUR15 mn for 2Q2023, compared
to EUR 10 mn for 1Q2023, up 57% qoq. The quarterly increase is
attributed to the improved experience variance (life insurance) and
lower claims.
Net gains/(losses) from revaluation and disposal of investment
properties and on disposal of stock of properties for 1H2023
amounted to EUR5 mn (comprising net gains on disposal of stock of
properties of EUR4 mn, and net gains from revaluation of investment
properties of EUR1 mn) , compared to EUR7 mn for 1H2022. REMU
profit remains volatile.
Net gains/(losses) from revaluation and disposal of investment
properties and on disposal of stock of properties for 2Q2023
amounted to EUR3 mn (comprising net gains on disposal of stock of
properties of EUR2 mn, and net gains from revaluation of investment
properties of EUR1 mn) , compared to EUR2 mn for 1Q2023.
Total income amounted to EUR511 mn for 1H2023 (compared to
EUR282 mn for 1H2022 , up 81% yoy), and to EUR277 mn for 2Q2023
(compared to EUR234 mn for 1Q2023 , up 19% qoq), mainly driven by
strong growth in net interest income, as explained above .
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
1H2022
IFRS 17
EUR mn 1H2023 (1) 2Q2023 1Q2023 qoq +% yoy +%
------- ---------- ------- ------ -------
Staff costs (93) (95) (47) (46) 4% -2%
Other operating
expenses (69) (69) (35) (34) 1% -1%
------------------------------------ ------- ---------- ------- ------ ------- ---------
Total operating
expenses (162) (164) (82) (80) 3% -2%
------------------------------------ ------- ---------- ------- ------ ------- ---------
Special levy on
deposits and other
levies/contributions (18) (17) (7) (11) -36% 10%
Total expenses (180) (181) (89) (91) -2% -1%
------- ---------- ------- ------ -------
Cost to income ratio 35% 64% 32% 39% -7 p.p. -29 p.p.
------------------------------------ ------- ---------- ------- ------ ------- ---------
Cost to income ratio
excluding special
levy on deposits
and other levies/contributions 32% 58% 29% 34% -5 p.p. -26 p.p.
------------------------------------ ------- ---------- ------- ------ ------- ---------
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further details,
please refer to Note 3.3.1 of the Consolidated Condensed Interim Financial
Statements in the Interim Financial Report 2023. p.p. = percentage points,
bps = basis points, 100 basis points (bps) = 1 percentage point
B .3.2 Total expenses
Total expenses for 1H2023 were EUR180 mn (compared to EUR181 mn
for 1H2022, down 1% yoy), 52% of which related to staff costs
(EUR93 mn), 38% to other operating expenses (EUR69 mn) and 10% to
special levy on deposits and other levies/contributions (EUR18 mn).
The yoy decrease mainly relates to the reduction in staff costs.
Total expenses for 2Q2023 were EUR89 mn (compared to EUR91 mn for
1Q2023, down 2% qoq), mainly driven by the 36% decrease in special
levy on deposits and other levies/contributions.
Total operating expenses amounted to EUR162 mn for 1H2023
(compared to EUR164 mn for 1H2022, down 2% yoy), as benefits from
FY2022 efficiency actions continue to partly offset wage and
inflationary pressures. Total operating expenses amounted to EUR82
mn for 2Q2023 (compared to EUR80 mn for 1Q2023, up 3% qoq).
Staff costs for 1H2023 were EUR93 mn (compared to EUR95 mn for
1H2022, down by 2% yoy) reflecting the savings of the Voluntary
Staff Exit Plan (VEP) that took place in 3Q2022, partially offset
by inflationary pressures and the accrual of termination benefits
cost of c.EUR 3 mn. In addition , staff costs for 1H2023 include c.
EUR3.8 mn staff cost rewards (variable pay), namely the Short-Term
Incentive Plan and the Long-Term Incentive Plan. The Short-Term
Incentive Plan involves variable remuneration to selected employees
and will be driven by both, delivery of the Group's strategy as
well as individual performance. Staff costs for 2Q2023 were EUR47
mn, up 4% qoq attributed mainly to the accrued staff termination
benefits cost.
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 the 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 (driven by both delivery of
the Group's strategy as well as individual performance). 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.
In July 2022 the Group completed a VEP which led to the
reduction of the Group's full-time employees by 16%, at a total
cost of EUR101 mn, recorded in the consolidated income statement in
3Q2022. The gross annual savings were estimated at c.EUR37 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.
As at 30 June 2023, the Group employed 2,902 persons compared to
2,883 persons as at 31 March 2023 and to 2,889 persons as at 31
December 2022.
Other operating expenses for 2Q2023 amounted to EUR35 mn,
broadly flat qoq and totaled EUR69 mn for 1H2023, broadly flat
yoy.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.2 Total expenses (continued)
Special levy on deposits and other levies/contributions for
1H2023 amounted to EUR18 mn compared to EUR17 mn for 1H2022, up 10%
yoy, driven mainly by the increase of deposits of EUR0.7 bn yoy.
Special levy on deposits and other levies/contributions for 2Q2023
amounted to EUR7 mn down by 36% qoq, due to the EUR4 mn
contribution of the Bank to the Deposit Guarantee Fund (DGF)
relating to 1H2023 which was recorded in 1Q2023 (in line with
IFRSs).
The cost to income ratio excluding special levy on deposits and
other levies/contributions for 1H2023 was 32% compared to 58% for
1H2022, down 26 p.p. yoy. The cost to income ratio excluding
special levy on deposits and other levies/contributions for 2Q2023
was 29% compared to 34% for 1Q2023, down 5 p.p. qoq. The qoq and
yoy decrease is driven mainly by the higher total income.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.3 Profit before tax and non-recurring items
1H2022
IFRS
EUR mn 1H2023 17 (1) 2Q2023 1Q2023 qoq+% yoy +%
------- -------- ------- ------ -----
Operating profit 331 101 188 143 32% 228%
---------------------------------------- ------- -------- ------- ------ ----- ------
Loan credit losses (24) (23) (13) (11) 18% 6%
Impairments of other financial
and non-financial assets (30) (13) (19) (11) 68% 128%
Provisions for pending litigations,
regulatory and other matters
(net of reversals) (14) (1) (8) (6) 24% -
---------------------------------------- ------- -------- ------- ------ ----- ------
Total loan credit losses,
impairments and provisions (68) (37) (40) (28) 39% 86%
---------------------------------------- ------- -------- ------- ------ ----- ------
Profit before tax and non-recurring
items 263 64 148 115 30% -
---------------------------------------- ------- -------- ------- ------ ----- ------
Cost of risk 0.48% 0.43% 0.51% 0.44% 7 bps 5 bps
---------------------------------------- ------- -------- ------- ------ ----- ------
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further
details, please refer to Note 3.3.1 of the Consolidated Condensed Interim
Financial Statements in the Interim Financial Report 2023. p.p. = percentage
points, bps = basis points, 100 basis points (bps) = 1 percentage point
Operating profit for 1H2023 amounted to EUR331 mn, compared to
EUR101 mn for 1H2022 (up 228% yoy). Operating profit for 2Q2023
amounted to EUR 188 mn, compared to EUR 143 mn for 1Q2023 (up 32%
qoq). The qoq and yoy increase is driven mainly by the significant
increase in net interest income.
Loan credit losses for 1H2023 were EUR24 mn, compared to EUR23
mn for 1H2022 (up 6% yoy). Loan credit losses for 2Q2023 were EUR13
mn, compared to EUR11 mn for 1Q2023.
Cost of risk for 1H2023 was 48 bps, compared to a cost of risk
of 43 bps for 1H2022 (up 5 bps) . Cost of risk for 2Q2023 was 51
bps, compared to a cost of risk of 44 bps for 1Q2023, up 7 bps and
includes 26 bps (c.EUR 7mn) management overlays on Stage 1 and
Stage 2 exposures to capture conservative assumptions as well as 17
bps (c.EUR4 mn) one-off charge to a specific customer group in
Stage 3 .
At 30 June 2023, 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 and Explanations' for definition) totalled
EUR288 mn (compared to EUR282 mn at 31 March 2023 and to EUR282 mn
at 31 December 2022) and accounted for 2.8% of gross loans
(compared to 2.7% of gross loans for 31 March 2023 and to 2.8% of
gross loans for 31 December 2022).
Impairments of other financial and non-financial assets for
1H2023 amounted to EUR30 mn, compared to EUR13 mn for 1H2022, up
128% yoy, driven mainly by higher impairments on specific, large,
illiquid REMU stock properties. Impairments of other financial and
non-financial assets for 2Q2023 amounted to EUR19 mn compared to
EUR11 mn for 1Q2023, up 68% qoq.
Provisions for pending litigations, regulatory and other matters
(net of reversals) for 1H2023 amounted to EUR14 mn, compared to
EUR1 mn for 1H2022. The yoy increase is driven by the revised
approach on pending litigation fees and provisions relating to
other matters in relation to the run-down and disposal of legacy
and non-core operations of the Group. Provisions for pending
litigations, regulatory and other matters (net of reversals) for
2Q2023 amounted to EUR8 mn compared to EUR6 mn for 1Q2023.
Profit before tax and non-recurring items for 1H2023 totalled
EUR263 mn, compared to EUR64 mn for 1H2022. Profit before tax and
non-recurring items for 2Q2023 amounted to EUR148 mn compared to
EUR 115 mn for 1Q2023 (up 30% qoq).
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3. 4 Profit after tax (attributable to the owners of the
Company)
1H2022
IFRS 17
EUR mn 1H2023 (1) 2Q2023 1Q2023 qoq +% yoy +%
-------------------------------------- ------- --------- ------- ------ ------ ------
Profit before tax and
non-recurring items 263 64 148 115 30% -
-------------------------------------- ------- --------- ------- ------ ------ ------
Tax (40) (11) (22) (18) 24% 256%
Profit attributable to
non-controlling interests (1) (1) 0 (1) -36% 37%
Profit after tax and
before non-recurring items
(attributable to the owners
of the Company) 222 52 126 96 32% -
------- --------- ------- ------ ------
Advisory and other transformation
costs - organic (2) (5) (1) (1) 11% -57%
-------------------------------------- ------- --------- ------- ------ ------ ------
Profit after tax - organic
(attributable to the owners
of the Company) 220 47 125 95 32% -
-------------------------------------- ------- --------- ------- ------ ------ ------
Provisions/net profit/(loss)
relating to NPE sales - 0 - - - -
Restructuring and other
costs relating to NPE
sales - (1) - - - -100%
Restructuring costs -
Voluntary Staff Exit Plan
(VEP) - (3) - - - -100%
Profit after tax (attributable
to the owners of the Company) 220 43 125 95 33% -
------- --------- ------- ------ ------
1. On 1 January 2023, the Group adopted IFRS 17 'Insurance contracts which
replaced IFRS 4 'Insurance contracts'. 2022 comparative information presented
throughout are on a restated basis unless otherwise stated. For further
details, please refer to Note 3.3.1 of the Consolidated Condensed Interim
Financial Statements in the Interim Financial Report 2023 . p.p. = percentage
points, bps = basis points, 100 basis points (bps) = 1 percentage point
The tax charge for 2Q2023 is EUR22 mn compared to EUR18 mn for
1Q2023, and totalled to EUR40 mn for 1H2023, compared to
EUR11 mn for 1H2022.
Profit after tax and before non-recurring items (attributable to
the owners of the Company) for 1H2023 is EUR222 mn, compared to
EUR52 mn for 1H2022. Profit after tax and before non-recurring
items (attributable to the owners of the Company) for 2Q2023 is
EUR126 mn, compared to EUR96 mn for 1Q2023.
Advisory and other transformation costs - organic for 1H2023 are
EUR2 mn, compared to EUR5 mn for 1H2022, down 57% yoy. Advisory and
other transformation costs - organic for 2Q2023 are EUR1 mn,
broadly flat qoq.
Profit after tax arising from the organic operations
(attributable to the owners of the Company) for 1H2023 amounted to
EUR220 mn, compared to EUR47 mn for 1H2022. Profit after tax
arising from the organic operations (attributable to the owners of
the Company) amounted to EUR125 mn for 2Q2023, compared to EUR95 mn
for 1Q2023 (up 32% qoq).
Following completion of Helix 3 project, there are no amounts
recognised for provisions/net profit/(loss) relating to NPE sales
for 1H2023.
Restructuring and other costs relating to NPE sales for 1H2023
was nil compared to EUR1 mn for 1H2022 ( relating to the agreements
for the sale of portfolios of NPEs). Restructuring and other costs
relating to NPE sales for 2Q2023 was nil, flat qoq.
Restructuring costs relating to the Voluntary Staff Exit Plan
(VEP) of EUR3 mn in 1H2022 related to a Voluntary Staff Exit Plan
(VEP), through one of the Group's subsidiaries of which a small
number of its employees were approved to leave .
Profit after tax attributable to the owners of the Company for
1H2023 amounts to EUR220 mn, corresponding to a ROTE of 24.0%,
compared to EUR43 mn for 1H2022, corresponding to a ROTE of 4.9%.
Profit after tax attributable to the owners of the Company for
2Q2023 amounts to EUR125 mn, compared to EUR95 mn for 1Q2023 (up
33% qoq). ROTE stands at 26.6% for 2Q2023, compared to 21.3% for
1Q2023.
C. Operating Environment
The Cyprus economy recovered strongly from the Covid-induced
recession of 2020 and succeeded in improving its credit and
macroeconomic profile significantly in the period that followed.
The general government budget returned to a surplus position and
the public debt dropped sharply relative to GDP in 2021-2022. In
the banking sector banks restructured their balance sheets and
reduced their non-performing exposures significantly, while at the
same time increasing their capital buffers and raising their
profitability. The growth outlook remains positive over the medium
term supported by Next Generation EU funds.
First quarter growth for 2023, was 3.4% according to the Cyprus
Statistical Service, which was largely as expected. For the year
the growth forecast is around 2.8% according to the Ministry of
Finance, and the economy is thus expected to weaken somewhat in the
second half of the year. This follows strong growth of 6.6% and
5.6% respectively in 2021-2022 driven by a strong recovery in
tourism toward pre pandemic levels, and also strong growth in other
services sectors.
Employment growth remained strong in 2021-2022 averaging 1.2%
and 2.8% respectively following a 1% drop in 2020. Productivity
growth was particularly strong in the period immediately after the
Covid recession and started to slow in more recent quarters. In the
first quarter 2023, the volume of employment increased by 2.1% and
the unemployment rate dropped to 6.7% seasonally adjusted, from
7.1% in the fourth quarter 2022.
Inflation measured by the Harmonised Index of Consumer Prices,
was 8.1% in 2022 compared with 8.4% in the Euro area. Inflation
peaked in July 2022 at 10.6% and has been decelerating since,
reaching 3.6% in May 2023, 2.8% in June 2023 and 2.4% in July 2023
(estimate). This was driven by the non-core components of energy
and food, while core inflation, defined as total index less energy
and food, was stickier and was 4% in June 2023. In the first half
of 2023, total harmonised inflation was 4.9% and consisted of 4.6
percentage points of core inflation.
Harmonised inflation is expected to moderate further but only
gradually. Without energy prices spiking unexpectedly, headline
inflation is projected at 3.2% in 2023 in Cyprus and 2.5% in 2024
according to the Ministry of Finance (Strategic Framework for
Fiscal Policy 2024-2026).
Tourist activity continued to rebound in the first half of the
year after a strong performance in 2022. Arrivals increased by 32%
in January-June 2023, from a year earlier, and corresponded to 99%
of arrivals in the same period of 2019. Likewise, receipts
increased by 34% in January-May 2023, from the same period a year
earlier and exceeded receipts from the same period in 2019 by
12%.
Private consumption remains strong and retail sales picked up in
the first four months of 2023 up by 8% year on year excluding
vehicles. This was driven by all retail categories particularly
food and beverages, non-food products, textiles and clothing, and
computers and telecommunications equipment.
Public finances continued to improve following significant
advances in 2021-2022. The budget deficit narrowed to 2.0% of GDP
in 2021, from a deficit of 5.8% of GDP in 2020 and turned into a
surplus of 2.1% of GDP in 2022. Gross debt dropped from 101.2% of
GDP in 2021 to 86.5% in 2022. In the first quarter of 2023, gross
debt to GDP dropped further to 84.0%. In the first quarter of the
year the budget surplus increased to EUR329 million from EUR240
million in the first quarter of 2022. This was driven by
considerable increases in direct and indirect tax revenue and in
social contributions which were influenced by the inflation driven
increases in the respective tax bases.
Interest payments declined to 1.5% of GDP in 2022 or 3.6% of
general government revenue indicating that debt affordability
remains favourable. Debt affordability will remain favourable in
the medium term as the government still refinances maturing debt at
lower cost while the cash buffer allows the government a high
degree of flexibility with regards to funding.
In the banking sector, pure new business lending which excludes
renegotiated amounts, slowed in January-April 2023, compared to the
same period of last year but picked up in May. In total for the
period, January-May 2023, pure new loans were marginally higher
than pure new loans in the same period of last year, with a
difference in their composition. This year there were more new
loans extended to non-financial companies, in comparison, and less
mortgage lending, primarily due to higher interest rates.
Banks managed to weather the pandemic crisis well, with their
liquidity and capital buffers intact. Non-performing exposures
(NPEs) continued their declining trend following the sale of
packages by the two largest banks. Total NPEs at the end of April
2023, were EUR2.2 bn or 9% of gross loans. Respectively, the NPE
ratio in the non-financial companies' segment was 7.7% and that of
households was 11.6%. About 44.8% of total NPEs are restructured
facilities and the coverage ratio was 54.2%.
Private indebtedness measured by loans to residents on bank
balance sheets, excluding the government, dropped to EUR20.9 bn at
the end of June 2023, or about 77% of GDP. In comparison, private
indebtedness peaked at the end of December 2012, amounted to EUR53
bn or about three times GDP.
The federal reserve in the United States and the European
Central Bank, in their July 2023 meetings, raised their policy
rates by 25 bps. The federal reserve started hiking in March 2022
and the ECB followed in July 2022. The federal funds rate now
stands at 5.25-5.5% target range, and the ECB's Minimum Refinance
Operations rate stands at 4.25%.
C. Operating environment (continued)
Cyprus' current account deficit narrowed from 10.1% of GDP in
2020 to 6.8% in 2021 before deteriorating to 8.8% of GDP in 2022.
The current account deficit will narrow modestly according to the
IMF, in 2023-2024, to 7.8% and 7.7% of GDP respectively. 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.
The outlook remains positive. The government debt ratio will
continue to decline while debt affordability metrics will remain
strong. Growth in the recent period has been broadly based and
Cyprus' economic resilience has been stronger than expected
vis-à-vis the exogenous shocks of Russia's invasion of Ukraine and
also the pandemic. Solid medium-term GDP growth prospects are
supported by the European Union's Next Generation EU package of
grants and loans.
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.
Fitch Ratings has affirmed Cyprus' Long-Term Foreign-Currency
Issuer Default Rating at 'BBB' with a Stable Outlook, in June 2023,
following its upgrade last March. The affirmation reflects the
improvement in public finances and the government indebtedness as
well as strong growth in GDP, the resiliency of the Cypriot economy
to external shocks and the improvement in the Banking sector in
asset quality.
In March 2023, DBRS Morningstar confirmed the Republic of
Cyprus' 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 outlook.
In September 2022, S&P Global Ratings upgraded Cyprus'
investment grade rating of BBB 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. The
credit rating was later reviewed and affirmed in March 2023.
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 ratings
and positive outlook were affirmed again in credit opinion updates
published in April 2023 and June 2023. The key drivers reflecting
the affirmation are the strong reduction in Cyprus' public debt
ratio in 2022, stronger-than expected economic resilience to
Russia's invasion of Ukraine and the COVID-19 pandemic as well the
ongoing strengthening of the banking sector. In a credit assessment
that was published in December 2022, and updated in June 2023,
Moody's investors service affirmed a new Cyprus' credit
profile.
D. Strategy and Outlook
The vision of the Group is to create a lifelong partnership with
its customers, guiding and supporting them in an evolving
world.
The strategic pillars of the Group are:
-- Grow revenues in a more capital efficient way; by enhancing
revenue generation via growth in high quality new lending,
diversification to less capital intensive banking and other
financial services (such as insurance and the digital economy) as
well as prudent management of the Group's liquidity
-- Achieve a lean operating model; by ongoing focus on
efficiency through further automations facilitated by
digitisation
-- Maintain robust asset quality; by maintaining high quality
new lending via strict underwriting criteria, normalising cost of
risk and reducing other impairments
-- Enhance organisational resilience and ESG (Environmental,
Social and Governance) agenda; by leading the transition of Cyprus
to a sustainable future and building a forward-looking organisation
embracing ESG in all aspects.
The Group's transformation into a strong, diversified,
well-capitalised and sustainably profitable banking and financial
services organisation lay the foundations to create the conditions
for higher returns. Capitalising on this transformation, the Group
has revised its financial targets during the Investor Update Event
in June 2023 and raised its Return on Tangible Equity (ROTE)
guidance for 2023 and 2024 to over 17% and over 14% respectively,
from over 13% per annum (as previously announced on 20 February
2023). The key driver of the upgrade is the revised expectation for
net interest income, primarily to reflect higher rates for
longer.
The structure of the Group's balance sheet is very liquid with
almost half of its assets held as cash balances with central banks
and fixed income portfolio, demonstrating that it is
well-positioned to benefit from rising interest rates. Factoring in
the expectations for the evolution of interest rates at the time
(with the ECB deposit facility rate averaging 3% for 2023 and 3.1%
for 2024), the net interest income guidance was upgraded and is
expected to exceed EUR650 mn for 2023 and to fall modestly to over
EUR625 mn for 2024. For 2025 net interest income is expected to be
lower than 2024 reflecting a lower projected ECB deposit facility
rate of 2.5%. These net interest income targets incorporate
assumptions of:
-- gradual increase in time and notice deposit pass-through to
c.50% by June 2024 (previously assumed by December 2023)
-- gradual change in deposit mix towards time and notice
deposits to c.50% by December 2024 (previously assumed by December
2023) and;
-- higher wholesale funding costs.
The Group is expected to continue to gradually deploy excess
liquidity to further expand the fixed income portfolio. Over the
recent quarters the Group has increased its fixed income portfolio
reflecting the improved market conditions, whilst maintaining a low
risk, diversified, highly rated portfolio. Going forward, it is
expected to prudently grow the fixed income portfolio to reach
c.15% of the Group's total assets (net of TLTRO III) in order to be
broadly in line with the average of EU peers ( excluding Greek
banks) .
Separately, the Group continues to focus on improving revenues
through multiple less capital-intensive initiatives, with a focus
on net fee and commission income, insurance and non-banking
activities, enhancing the Group's diversified business model
further. Non-interest income is an important contributor to the
Group's profitability and historically covered on average around
80% of its total operating expenses. In 2023 net fee and commission
income is negatively affected by the termination of liquidity fees
in December 2022 and an NPE sale-related servicing fee in
mid-February 2023. Adjusting for these items, net fee and
commission income is expected to rise by c.3% per annum for
2022-2024, broadly in line with projected economic growth, driven
by cross-selling and growth in capital-light sales.
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. In the life insurance
business, further growth is expected to be driven through the
pursuit of new market segments, cross-selling opportunities in the
occupational pensions market and other appealing products and
widening the customer base by leveraging on its bancassurance model
and strengthening further its agency force. In the general
insurance business, further growth is expected by growing the
bancassurance potential leveraging on the Bank's strong market
share, promoting and enhancing the digital sales through the Bank's
mobile application, exploiting synergies with the life insurance
agency force and pursuing profitable segments and products. In this
respect, regular income for the life insurance business is expected
to rise by c.6% per annum for 2022-2025 whilst premium income for
the non-life insurance business is expected to rise by over 8% per
annum for the same period.
D. Strategy and Outlook (continued)
Finally, there is additional revenue upside coming from the
Digital Economy Platform (Jinius) which aims to generate new
revenue sources over the medium term, leveraging on the Bank's
market position, knowledge and digital infrastructure.
The significant improvement in the Group's revenues (driven
primarily from the expansion of net interest income) will
effectively lead to an improvement in the Group's operating
efficiency. The cost to income ratio excluding special levy on
deposits or other levies/contributions is expected to remain below
40% for 2023 and then to increase modestly to c.40% for 2024,
despite inflationary pressures. There is some upward pressure on
costs from investments in transformation and digitisation as well
as inflationary pressure on staff costs arising from the renewal of
the collective agreement and variable remuneration to selected
employees driven by the delivery of the Group's strategy and
individual performance.
In terms of asset quality, the cost of risk target of 50-80 bps
for 2023 is reiterated to weather the ongoing macroeconomic and
geopolitical uncertainties, and then to normalise to c.40-50 bps
over the medium-term. Additionally, the NPE ratio is expected to
remain below 4% for 2023 and 2024 and to fall modestly to below 3%
for 2025. To achieve this, the Group aims to maintain high quality
of new lending with strict underwriting standards and to prevent
asset quality deterioration. Currently, there are no signs of asset
quality deterioration.
Since 2019, the Real Estate Management Unit (REMU) stock has
been consistently reducing, with properties sold exceeding the book
value of properties acquired, while inflows remain substantially
reduced following balance sheet de-risking. Going forward, REMU
sales are expected to continue at a similar pace, with expected
inflows to remain at low levels. Therefore, REMU portfolio is
expected to halve to EUR0.5 bn by 2025.
Overall, these returns are expected to increase the Group's
equity base, corresponding to strong organic capital generation of
between 200 and 250 bps per annum (pre distributions) for
2023-2025, facilitating strong capital ratios and healthy capital
buffers. In summary, the Group expects to deliver a ROTE of over
17% for 2023 and over 14% for 2024 (which corresponds to a ROTE of
over 17% based on 15% CET1 ratio). For 2025, the Group expects to
generate a ROTE of over 13% which is equivalent to over 16% based
on a 15% CET1 ratio, reflecting lower interest rate assumptions. By
31 December 2025, the Group expects its CET1 ratio to stand at
c.19%, after deducting projected dividends (which remain subject to
regulatory approval) per its dividend distribution policy.
The Group's aim to provide sustainable shareholder returns is
reiterated. Dividend payments are expected to build prudently and
progressively over time, towards a payout ratio in the range of
30-50% of the Group's adjusted recurring profitability.
E. Business Overview
Credit ratings
The Group's financial performance is highly correlated to the
economic and operating conditions in Cyprus. In May 2023 Moody's
Investors Service upgraded the Bank's long-term deposit rating to
Ba1 from Ba2, maintaining the positive outlook. The main drivers
for this upgrade are the continued strengthening of the Bank's
asset quality and its improving profitability prospects that
continue to reduce risks to its capital. In April 2023, S&P
Global Ratings affirmed the long-term issuer credit rating of the
Bank at BB- and revised the outlook to positive from stable. The
revised outlook reflects the likelihood of further progress in
Cyprus' operating environment, in particular materially easing
funding risks. 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 economy, even in light of growing economic
uncertainties.
Financial performance
The Group is a leading, financial and technology hub in Cyprus.
In 2022 the Group completed its transformation into a diversified
and well-capitalised organisation with sustainably profitable
banking and other financial services. This was marked by the
resumption of dividend payments after 12 years, a significant
milestone, as it represents a new chapter for the Group.
In April 2023, the Company obtained the approval of the European
Central Bank to pay a dividend out of FY2022 profitability.
Following this approval, the Board of Directors of the Company
recommended to the shareholders for approval at the AGM a final
Dividend of EUR0.05 per ordinary share in respect of earnings for
the year ended 31 December 2022. This proposed Dividend was
declared at the AGM on 26 May 2023, amounted to EUR22.3 mn in total
and was equivalent to a payout ratio of 14% of the FY2022 adjusted
recurring profitability or 31% based on FY2022 profit after tax (as
reported in 2022 Annual Financial Report). The dividend was paid in
cash on 16 June 2023.
Additionally, the Board of Directors approved the Group's
dividend policy. The Group aims to provide a sustainable return to
shareholders. Dividend payments are expected to build prudently and
progressively over time, towards a payout ratio in the range of
30-50% of the Group's profitability after tax, before non-recurring
items, adjusted for AT1 distributions (referred to as "adjusted
recurring profitability"). The dividend policy takes into
consideration market conditions as well as the outcome of capital
and liquidity planning.
During the quarter ended 30 June 2023, the Group's financial
performance was strong, with well-diversified revenues and
disciplined cost containment, despite inflationary pressures.
Overall, the Group generated a ROTE of 26.6% compared to 21.3% in
the previous quarter, underpinned mainly by the interest rate rises
and simultaneously a well-managed deposit pass-through.
On 8 June 2023, the Company presented and discussed an update of
the Group's outlook at the Investor Update event in London. During
the Investor Update event, the Company has presented its updated
2023 and 2024 financial targets and raised its ROTE guidance to
over 17% and over 14% respectively, from over 13% per annum (as
previously announced on 20 February 2023). The key driver of the
upgrade is the revised expectation for net interest income,
primarily to reflect higher rates for longer. In a normalised
interest rate environment, the Company expects to generate ROTE of
over 13% by 2025. These returns expect to increase the Group's
equity base, corresponding to a strong organic capital generation
of c.200-250 bps per annum (pre distributions) for 2023-2025. By 31
December 2025, the Group expects its CET1 ratio to stand at c.19%,
after deducting projected dividend distributions, per its dividend
distribution policy. Finally, the Group's dividend policy has been
reiterated. Therefore, dividend payments are expected to build
prudently and progressively over time, towards a payout ratio in
the range of 30-50% of the Group's adjusted recurring
profitability.
Favourable interest rate environment
The structure of the Group's balance sheet is geared towards
higher interest rates. As at 30 June 2023, cash balances with ECB
(excluding TLTRO III of c.EUR2.0 bn ) amounted to c.EUR7.1 bn,
reflecting immediate benefit from 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 as at 30 June 2023. The net interest income for
1H2023 stood at EUR358 mn, more than double compared to 1H2022.
This increase is underpinned by faster and steeper than expected
interest rate rises as well as a resilient low deposit
pass-through.
In July 2023, ECB set the remuneration of minimum reserves (MRR)
at 0%. The impact on foregone NII is c.EUR7 mn p.a. at an annual
depo rate of 3.75%.
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.
E. Business Overview (continued)
Growing revenues in a more capital efficient way (continued)
The Group has continued to provide high quality new lending in
1H2023 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 1H2023, new lending remained strong at EUR1,118 mn,
mainly driven by strong demand for business loans. Gross performing
loan book remained broadly flat yoy to EUR9.9 bn, as ongoing
repayments offset new lending. Performing loan book is expected to
remain broadly flat in 2023.
Fixed income portfolio amounts to EUR3,178 mn as at 30 June
2023, compared to EUR2,747 mn as at 31 March 2023 and to EUR2,500
mn as at 31 December 2022, increased by 16% on the prior quarter.
The quarterly increase reflects incremental new investments in
2Q2023 ahead of expected maturities in 2H2023. The portfolio
represents 13% of total assets (excluding TLTRO III) and comprises
EUR2,703 mn (85%) measured at amortised cost and EUR475 mn (15%) at
fair value through other comprehensive income ('FVOCI').
The fixed income portfolio measured at amortised cost is held to
maturity and therefore no fair value gains/losses are recognised in
the Group's income statement or equity. This fixed income portfolio
has high average rating at A1 or at Aa2 when Cyprus government
bonds are excluded. The fair value of the amortised cost fixed
income portfolio as at 30 June 2023 amounts to EUR2,619 mn,
reflecting an unrealised fair value loss of EUR 84 mn, equivalent
to c.80 bps of CET1 ratio .
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. During the first
six months of 2023, non-interest income (excluding the
non-recurring insurance receivable of c.EUR5 mn) amounted to EUR148
mn, remaining an important contributor to the Group's
profitability, and contributing to c.90% of the Group's total
operating expenses. Going forward, non-interest income is expected
to continue covering c.80% of the Group's total operating
expenses.
In 2023, net fee and commission income is negatively affected by
the termination of liquidity fees in December 2022 and an NPE
sale-related servicing fee in mid-February 2023. As a result, net
fee and commission income was reduced by 4% yoy in the first half
2023 to EUR90 mn.
Net fee and commission income is 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 9% of total non-interest income and amounted to
EUR14 mn in 1H2023, up 11% yoy, backed by strong transaction
volume.
The Group's insurance companies, EuroLife and GI are
respectively leading players in the life and general insurance
business in Cyprus, and have been providing recurring and improving
income, further diversifying the Group's income streams. The net
insurance result for 1H2023 contributed 16% of non-interest income
and amounted to EUR25 mn, up 4% yoy; insurance companies remain
valuable and sustainable contributors to the Group's profitability
. On 1 January 2023, the Group adopted IFRS 17, retrospectively,
which impacts the profit recognition for insurance contracts by
phasing of profit over their lifetime compared to recognising
profit substantially up-front under IFRS 4. The new accounting
standard does not change the economics of the insurance business
and decreases the volatility of the Group's insurance companies
profitability. For further details please refer to Note 3.3.1 of
the Consolidated Condensed Interim Financial Statements in the
Interim Financial Report 2023.
Finally, the Group through the Digital Economy Platform (Jinius)
('the Platform') aims to support the national digital economy by
optimising processes in a cost-efficient way, allow the Bank to
strengthen its client relationships, create cross-selling
opportunities as well as to generate new revenue sources over the
medium term, leveraging on the Bank's market position, knowledge
and digital infrastructure. The first Business-to-Business services
are already in use by clients and include electronic invoicing,
remittance management, tenders management and ecosystem management.
The next key milestone is the launch of the first
Business-to-Consumer service, a product marketplace, driving
opportunities in lifestyle banking and beyond. Currently, over
1,600 companies are 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 VEP, the gross
annual savings were estimated at c. EUR 37 mn or 19% of staff costs
with a payback period of 2.7 years.
E. Business Overview (continued)
Lean operating model (continued)
Additionally, in January 2022, one of the Bank's subsidiaries
completed a small-scale targeted 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
reduced the number of branches by 20 to 60, a reduction of 25%. As
a result, the Group's total operating expenses for 1H2023 were
reduced by 2% on prior year, reflecting the benefits from the
efficiency actions in an inflationary environment. The cost to
income ratio excluding special levy on deposits and other
levies/contributions for 1H2023 was reduced further to 32%, 26 p.p.
down compared to 1H2022, driven mainly by the higher total income.
In 2H2023, some upward pressure on total operating expenses is
expected, reflecting the increased cost of living adjustment (COLA)
in staff costs and the launch of a reward programme through
'Antamivi Reward scheme' to the Group's performing borrowers, with
an expected impact of c.EUR 4 mn in other operating expenses .
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 the 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 (driven by both delivery of
the Group's strategy as well as individual performance) . 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.
In addition, staff costs for 1H2023 include c. EUR3.5 mn staff
cost rewards, namely the Short-term Incentive Plan. The Short-term
Incentive Plan involves variable remuneration to selected employees
and will be driven by both, delivery of the Group's strategy as
well as individual performance.
Transformation plan
The Group's focus continues on deepening 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 continues to focus on
developing digital services and products that improve the customer
experience, streamlining internal processes, and introducing new
ways for improving the workplace environment.
During 2Q2023, the Bank continued to enrich and improve its
digital portfolio with new innovative services to its customers.
QuickHub, the Bank's new, digital branch has been introduced at the
beginning of May 2023, offering all products and services that are
digitally available to customers at the tap of a button.
Additionally, customers are now able to manage their Fixed Deposit
accounts through digital channels by providing instructions for
maturity. These include options such as changing the duration of
their fixed deposit, increasing or decreasing capital and closing
the account. Moreover, the customer experience during digital
onboarding has been improved by providing the NFC technology during
the ID verification process through passport.
The adoption of digital products and services continued to grow
and gained momentum in the second quarter of 2023. As at the end of
June 2023, 95.0% of the number of transactions involving deposits,
cash withdrawals and internal/external transfers were performed
through digital channels (up by 11.2 p.p. from 83.8% in June 2020).
In addition, 83.2% of individual customers were digitally engaged
(up by 10.8 p.p. from 72.4% in June 2020), choosing digital
channels over branches to perform their transactions. As at the end
of June 2023, active mobile banking users and active QuickPay users
have grown by 15.0% and 25.1% respectively over the last 12 months.
The highest number of QuickPay users to date was recorded in June
2023 with 186 thousand active users. Likewise, the highest number
of QuickPay payments (in 2023) was recorded in June 2023 with 602
thousand transactions (up 32% yoy).
Digital offerings via digital channels continued to enhance
Group's sales further in the second quarter of 2023. During 2Q2023,
new lending via Quickloans reached EUR26 mn (compared to new
lending of EUR18 mn for 1Q2023) up by 45% qoq and totalled EUR44 mn
for 1H2023. Digital deposits have also shown an increase of 33%
yoy, reaching EUR221 mn at 30 June 2023. 1H2023 digital insurance
sales, with two new products in mobile app (Motor & Home
Insurance), have more than doubled compared to FY2022 sales
(EUR159k in 1H2023 compared to EUR68k in FY2022).
E. Business Overview (continued)
Asset quality
Balance sheet de-risking was largely completed in 2022, marked
by the completion of Project Helix 3 in November 2022 which refers
to the sale of non-performing exposures with gross book value of
c.EUR 550 mn as at the date of completion. Project Helix 3
represented a further milestone in the delivery of one of the
Group's strategic priorities of improving asset quality through the
reduction of NPEs and delivering NPE ratio below 5%. As at 30 June
2023, the Group's NPE ratio stood at 3.6%.
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.
Capital market presence
In June 2023, the Company successfully launched and priced an
issue of EUR220 mn Fixed Rate Reset Perpetual Additional Tier 1
Capital Securities (the 'New Capital Securities').
The issue was met with exceptional demand, attracting interest
from c.240 institutional investors, with the final order book over
12 times over-subscribed and final pricing 62.5 bps tighter than
the initial pricing indication. This also reflects significant
improvement in the credit spread to c.910 bps compared to c.1,260
bps for the previous AT1 issue in 2018 ('Existing Capital
Securities').
In July 2023, the Bank has successfully launched and priced an
issuance of EUR350 mn of senior preferred notes (the "Notes"). The
Notes were priced at par with a fixed coupon of 7.375% per annum,
payable annually in arrear, until the Optional Redemption Date i.e.
25 July 2027. The issuance was met with strong demand, attracting
interest from more than 90 institutional investors, with a peak
orderbook of EUR950 mn and final pricing 37.5 bps than the initial
pricing indication.
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 Group 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 Group is maintaining its leading role in the Social and
Governance pillars and focus on increasing the Group's positive
impacts on the Environment by transforming not only its own
operations, but also the operations of its customers.
The Group has committed to the following primary ESG targets,
which reflect the pivotal role of ESG in the Group's 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 Group 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, the Executive
Committee and the Board of Directors at frequent intervals.
Environmental Pillar
The Group has estimated the Scope 1 and Scope 2 greenhouse gas
('GHG') emissions of 2021 relating to own operations in order to
set the baseline for carbon neutrality target. The Bank being the
main contributor of GHG emissions of the Group, designed in 2022
the strategy to meet the carbon neutrality target by 2030 and
progress towards Net Zero target of 2050. For the Group to become
carbon neutral by 2030, Scope 1 and Scope 2 emissions should be
reduced by 42% by 2030. The Bank plans to invest in energy
efficient installations and actions as well as replace fuel
intensive machineries and vehicles from 2023 to 2025, which would
lead to c.5-10% 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 achieved a reduction of 5% in
Scope 1 - Mobile Combustion GHG emissions and 16% in Scope 2 -
Purchased electricity GHG emissions in 1H2023 compared to 1H2022
due to new solar panels connected to energy network in 2022 and
early 2023 as well as buildings abandonment as part of the
digitalization journey. The Bank achieved an increase by 50% in
renewable energy production, from 79,424 Kwh to 119,499 Kwh, in
1H2023 compared to 1H2022.
E. Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental,
Social and Governance) agenda (continued)
The Bank is the first bank in Cyprus to join the Partnership for
Carbon Accounting Financials (PCAF) in October 2022 and is
following the recommended methodology for the estimation of the
Financed Scope 3 emissions. The Group has estimated Financed Scope
3 GHG emissions relating to the loan portfolio based on PCAF
standard and proxies. Following the estimation of Financed Scope 3
GHG emissions derived from its 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-concentrated areas so as to take the necessary actions to
minimise the environmental and climate impact associated with its
loan portfolio by offering targeted climate friendly products and
engaging with its customers. In 2023, following the identification
of carbon-concentrated sectors and asset classes, the Group is in
the process to set decarbonisation targets aligned with 1.5C
climate scenario (Science based targets) which will assist in the
formulation of the Group's strategy going forward.
The Bank in 2022 launched a low emission vehicle loan product
(either hybrid or electric) and is working to expand its range of
environmentally friendly products further in 2023. The gross amount
of environmentally friendly loans as at 30 June 2023 was EUR21.2 mn
compared to EUR20.9 mn as at 31 December 2022 .
Moreover, the Bank is making substantial progress in further
integrating climate risk considerations into its risk management
approach, as it tries to integrate climate related risk into its
risk culture. The Bank, within the context of underwriting
processes, is currently in the process of incorporating the
assessment of ESG and climate matters and amending its Policies and
Procedures in such a way that potential impact from ESG and climate
is reflected in the fundamental elements of the creditworthiness
assessment. The Bank designed ESG questionnaires for key selected
sectors which will then be leveraged for deriving an ESG
classification. In addition, the Bank is in the process to enhance
its risk quantification methodology to assess how the portfolio is
affected by Climate and Environmental (C&E) risks and will be
incorporating the above elements into the stress testing
infrastructure.
During 2023, in order to enhance the awareness and skillset
towards the ESG, the Group performed trainings to the Board of
Directors and Senior Management. 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 Group'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 was 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 as well as the ReInHerit program facilitating
innovation and research cooperation between European museums and
heritage continuing also into 2023, with 16,542 people
participating in events at the Cultural Foundation between January
to June 2023. The IDEA Innovation Centre, invested c.EUR4 mn in
start-up business creation since its incorporation, supported
creation of 89 new companies to date, and provided support to 210+
entrepreneurs through its Startup program since incorporation.
Staff have continued to engage in voluntary initiatives to support
charities, foundations, people in need and initiatives to protect
the environment.
The Group has continued to upgrade its staff's skillset by
providing training and development opportunities to all staff and
capitalising on modern delivery methods. In 2023, the Bank's
employees attended 31,012 hours of trainings. In addition, in 2023
the Group launched the BoC Academy to offer up-skilling short
courses for employees. Moreover, the Group continues its emphasis
on staff wellness into 2023 by offering webinars, team building
activities and family events with sole purpose to enhance mental,
physical, financial and social health.
Governance Pillar
The Group 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 Group 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 Group 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 continues to evolve, so as to better address
the Group's evolving ESG needs. The Group's regulatory compliance
continues to be an undisputed priority.
E. Business Overview (continued)
Enhancing organisational resilience and ESG (Environmental,
Social and Governance) agenda (continued)
The Board composition of the Company and the Bank is diverse,
with 44% of the Board members being female as at 30 June 2023. The
Board displays a strong skillset stemming from broad international
experience. Moreover, the Group aspires to achieve a representation
of at least 30% women in Group's management bodies (Defined as the
EXCO and the Extended EXCO) by 2030. As at 30 June 2023, there is a
27% representation of women in Group's management bodies and a 40%
representation of women at key positions below the Extended EXCO
level (defined as positions between Assistant Manager and
Manager).
E. 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 soaring energy prices and disruptions
in supply chains. This high inflation weighs on business confidence
and consumers' behaviour. 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 30 June 2023 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
Russia and Belarus, representing 0.3% of total assets or <1% of
net loans as at 30 June 2023. The net book value of these loans
stood at EUR81 mn as at 30 June 2023, of which EUR74 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 Russian and Belarusian customers
account for only 4% of total customer deposits as at 30 June 2023.
This exposure is not material, given the Group's strong liquidity
position. The Group operates with a significant surplus liquidity
of EUR7.7 bn (LCR ratio of 316%) as at 30 June 2023.
Since 2014 the Bank, has engaged in a very demanding and
rigorous anti-financial crime remediation programme. It fully
adheres to all relevant UN, EU, USA and UK sanction frameworks and
has implemented additional measures to monitor a complicated
sanctions environment including systemic enhancements, specialised
training and revision of risk appetite. As a result, the Bank has
effectively terminated the relationship with professional
intermediaries introducing customers to the Bank. Additionally,
c.25,900 customer relationships were terminated and c.12,000
potential new customer relationships were suspended solely on
compliance reasons (eg: KYC, or AML) in the years 2015-2022.
Indirect impact
Although the Group's direct exposure to 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 the first six months of
2023 the performance of the tourism sector was strong and
represented 99% of 2019 respective levels, despite the sizeable
loss of tourist arrivals from Russia and Ukraine. To date, tourist
activity is recovering to pre-pandemic levels. The Group continues
to monitor 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, and a steady increase in
contribution from renewables is noted.
Overall, the Group has 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.
F. Definitions and Explanations
Adjusted recurring The Group's profit after tax before non-recurring
profitability items (attributable to the owners of the Company)
taking into account distributions under other equity
instruments such as the annual AT1 coupon.
Advisory and Comprise mainly of fees of external advisors in relation
other transformation to: (i) the transformation program and other strategic
costs projects of the Group and (ii) customer loan restructuring
activities, 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 where applicable),
'Accumulated (ii) the residual fair value adjustment on initial
provisions') recognition of loans and advances to customers (including
residual fair value adjustment on initial recognition
on loans and advances to customers classified as
held for sale where applicable), (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 per share (attributable
after tax per to the owners of the Company) is the Profit/(loss)
share (attributable after tax (attributable to the owners of the Company)
to the owners divided by the weighted average number of shares
of the Company) in issue during the period, excluding treasury shares.
Carbon neutral The reduction and balancing (through a combination
of offsetting investments or emission credits) of
greenhouse gas emissions from own operations.
CET1 capital 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) 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 01 August 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.
Diluted earnings Diluted earnings per share is the Profit/(loss) after
per share tax (attributable to the owners of the Company) divided
by the weighted average number of ordinary shares
in issue adjusted for the ordinary shares that may
arise in respect of share awards granted to executive
directors and senior management of the Group under
the Long-Term Incentive Plan (2022 LTIP).
ECB European Central Bank
F. Definitions and Explanations (continued)
Green Asset The proportion of the share of a 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 a 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 where applicable)
and (ii) loans and advances to customers classified
and measured at FVPL adjusted for the aggregate fair
value adjustment.
Gross loans are reported before the residual fair
value adjustment on initial recognition relating
mainly to loans acquired from Laiki Bank (calculated
as the difference between the outstanding contractual
amount and the fair value of loans acquired) amounting
to EUR 72 mn as at 30 June 2023 (compared to EUR
78 mn as at 31 March 2023 and to EUR86 mn as at 31
December 2022).
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 EUR207 mn as at 30 June
2023 (compared to EUR208 mn as at 31 March 2023 and
to EUR 211 mn as at 31 December 2022).
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 to total assets as presented on the balance
sheet. Tangible total equity comprises of equity
attributable to the owners of the Company and Other
equity instruments 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 relating to loans and
advances to customers 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 of
of risk) Gross loans (as defined), for the reporting period/year.
Market Shares Both deposit and loan market shares are based on
data from the CBC. The Bank is the single largest
credit provider in Cyprus with a market share of
42.4% as at 30 June 2023 compared to 42.4% as at
31 March 2023 and to 40.9% as at 31 December 2022.
The Bank's deposit market share in Cyprus reached
37.4% in 30 June 2023 compared to 37.3% as at 31
March 2023 and to 37.2% as at 31 December 2022.
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 Interest Net interest margin is calculated as the net interest
Margin income (annualised) divided by the 'quarterly average
interest earning assets' (as defined).
F. Definitions and Explanations (continued)
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 net
loans included in 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),
Net insurance result, 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 and Explanations (continued)
Material arrears/excesses are defined as follows:
(a) Retail exposures: Total arrears/excess amount
greater than EUR100, (b) Exposures other than retail:
Total arrears/excess amount greater than EUR500 and
the amount in arrears/excess in relation to the customer's
total exposure is at least 1%.
The NPEs are reported before the deduction of allowance
for expected loan credit losses (as defined).
Non-recurring Non-recurring items as presented in the 'Unaudited
items Interim Condensed Consolidated Income Statement -
Underlying basis' relate to 'Advisory and other transformation
costs - organic'. 2022 Non-recurring items relate
to: (i) Advisory and Other transformation costs -
ongoing (ii) Provisions/net loss relating to NPE
sales, (iii) Restructuring and other costs relating
to NPE sales, and (iv) Restructuring costs - Voluntary
Staff Exit Plan (VEP).
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).
Operating profit Operating profit comprises profit before loan credit
losses (as defined), impairments of other financial
and non-financial assets, provisions for pending
litigations, regulatory and other matters (net of
reversals), tax, profit 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 transformation costs - organic') .
of the Company)
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.
F. Definitions and 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) 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.
Shareholders' Shareholders' equity comprise total equity adjusted
equity for non-controlling interest and other equity instruments.
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.
Time deposit Calculated as a percentage of the cost (interest
pass-through expense) of Time and Notice deposits over the average
6-month Euribor rate of the period.
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 transformation costs-organic', (ii) restructuring
and other costs relating to NPE sales, or (iii) restructuring
costs relating to the Voluntary Staff Exit Plan,
where applicable. (i) 'Advisory and other transformation
costs-organic' amounted to EUR1 mn for 2Q2023 (compared
to EUR1 mn for 1Q2023 and to EUR1 mn for 4Q2022),
(ii) Restructuring costs relating to NPE sales for
2Q2023 amounted to a gain of EUR0.2 mn (compared
to a loss of EUR0.2 mn for 1Q2023 and to a loss of
EUR0.3 mn for 4Q2022), and (iii) Restructuring costs
relating to the Voluntary Staff Exit Plan (VEP) for
2Q2023 was nil (compared to nil for 1Q2023 and 4Q2022).
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 comprise loan credit losses (as defined), plus impairments
and provisions of other financial and non-financial assets, plus
provisions for pending litigations, regulatory and
other matters (net of reversals).
Underlying basis This refers to the statutory basis after being adjusted
for reclassification of 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 recovery. Partial write-offs, including non-contractual
write-offs, may occur when it is considered that
there is no realistic prospect for the recovery of
the contractual cash flows. In addition, write-offs
may reflect restructuring activity with customers
and are part of the terms of the agreement and subject
to satisfactory performance.
Yoy Year on year change
Basis of Presentation
This announcement covers the results of Bank of Cyprus Holdings
Public Limited Company, "BOC Holdings" or "the Company", its
subsidiary Bank of Cyprus Public Company Limited, the "Bank" or
"BOC PCL", and together with the Bank's subsidiaries, the "Group",
for the six months ended 30 June 2023.
At 31 December 2016, the Bank was listed on the Cyprus Stock
Exchange (CSE) and the Athens Exchange. On 18 January 2017, BOC
Holdings, incorporated in Ireland, was introduced in the Group
structure as the new holding company of the Bank. On 19 January
2017, the total issued share capital of BOC Holdings was admitted
to listing and trading on the LSE and the CSE.
Financial information presented in this announcement is being
published for the purposes of providing an overview of the Group
financial results for the six months ended 30 June 2023.
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, upon which the auditors have given an unqualified
opinion, were published on 31 March 2023 and are expected to be
delivered to the Registrar of Companies of Ireland within 56 days
of 30 September 2023. The Board of Directors approved the Group
statutory financial statements for the six months ended 30 June
2023 on 8 August 2023.
Statutory basis: Statutory information is set out on pages 4-5.
However, a number of factors have had a significant effect on the
comparability of the Group's financial position and performance.
Accordingly, the results are also presented on an underlying
basis.
Underlying basis: The financial information presented under the
underlying basis provides an overview of the Group financial
results for the six months ended 30 June 2023, 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 pages 7-8. The
statutory results are adjusted for certain items (as described on
pages 10-11) to allow a comparison of the Group's underlying
financial position and performance, as set out on pages 6 and
9.
The financial information included in this announcement is
neither reviewed nor audited by the Group's external auditors.
The Consolidated Condensed Interim Financial Statements for the
six months ended 30 June 2023 have not been audited by the Group's
external auditors. The Group's external auditors have conducted a
review of the Consolidated Condensed Interim Financial Statements
in accordance with the International Standard on Review Engagements
2410 'Review of Interim Financial Information performed by the
Independent Auditor of the Entity (UK & Ireland)'.
The Interim Financial Report 2023 is available at the Bank of
Cyprus Holdings Public Limited Company Office (51, Stassinos
Street, Ayia Paraskevi, P.O. Box 24884, 1398, Nicosia, Cyprus) and
on the Group's website www.bankofcyprus.com Group/Investor
Relations/Financial Results).
This announcement and the presentation for the Group Financial
Results for the six months ended 30 June 2023 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 quarter ended 30 June 2023
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.
The 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 caused significant population displacement,
and as the conflict continues, the disruption will likely increase.
The scale of the conflict and the 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.
Changes in our reporting frameworks and accounting standards,
including the recently announced reporting changes and the
implementation of IFRS 17 'Insurance Contracts', which may have a
material impact on the way we prepare our financial statements and
(with respect to IFRS 17) may negatively affect the profitability
of Group's insurance business
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial
services group in Cyprus, providing a wide range of financial
products and services which include retail and commercial banking,
finance, factoring, investment banking, brokerage, fund management,
private banking, life and general insurance. At 30 June 2023, 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 2,902 staff worldwide. At 30 June 2023, the Group's
Total Assets amounted to EUR25.7 bn and Total Equity was EUR2.2 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
IR PLMATMTTMMRJ
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