TIDMBOCH
RNS Number : 7750I
Bank of Cyprus Holdings PLC
09 August 2023
Consolidated Condensed Interim Financial Statements for the six
months ended 30 June 2023
Interim Consolidated Income Statement
Six months ended
30 June
2023 2022
(restated)
----- ------------------------ --------------------------
Notes EUR000 EUR000
----- ------------------------ --------------------------
Turnover 7 646,203 414,996
----- ------------------------ --------------------------
Interest income 8 403,852 181,470
----- ------------------------ --------------------------
Income similar to interest income 8 22,172 9,518
----- ------------------------ --------------------------
Interest expense 9 (56,083) (37,514)
----- ------------------------ --------------------------
Expense similar to interest expense 9 (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 10 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 11 (93,043) (98,303)
----- ------------------------ --------------------------
Special levy on deposits and other levies/contributions 11 (18,236) (16,507)
----- ------------------------ --------------------------
Provisions for pending litigations, claims,
regulatory and other matters (net of reversals) 27 (14,148) (594)
----- ------------------------ --------------------------
Other operating expenses 11 (70,456) (75,824)
----- ------------------------ --------------------------
Operating profit before credit losses and
impairment 320,898 91,017
----- ------------------------ --------------------------
Credit losses on financial assets 12 (36,772) (24,826)
----- ------------------------ --------------------------
Impairment net of reversals on non--financial
assets 12 (23,206) (12,157)
----- ------------------------ --------------------------
Profit before tax 260,920 54,034
----- ------------------------ --------------------------
Income tax 13 (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) 14 49.4 9.5
----- ------------------------ --------------------------
Diluted profit per share attributable to the
owners of the Company
(EUR cent) 14 49.3 9.5
----- ------------------------ --------------------------
Interim Consolidated Statement of Comprehensive Income
Six months ended
30 June
2023 2022
(restated)
----- ------------------- --------------------
Notes EUR000 EUR000
----- ------------------- --------------------
Profit for the period 221,152 42,876
----- ------------------- --------------------
Other comprehensive income (OCI)
----- ------------------- --------------------
OCI that may be reclassified in the consolidated
income statement in subsequent periods 3,299 (20,412)
----- ------------------- --------------------
Fair value reserve (debt instruments) 3,373 (17,909)
----- ------------------- --------------------
Net gains/(losses) on investments in debt
instruments measured at fair value through
OCI (FVOCI) 3,705 (17,421)
----- ------------------- --------------------
Transfer to the consolidated income statement
on disposal (332) (488)
----- ------------------- --------------------
Foreign currency translation reserve (74) (2,503)
----- ------------------- --------------------
(Losses)/profit on translation of net investments
in foreign branches and subsidiaries (71) 1,576
----- ------------------- --------------------
Losses on hedging of net investments in foreign
branches and subsidiaries 16 (3) (4,079)
----- ------------------- --------------------
OCI not to be reclassified in the consolidated
income statement in subsequent periods 486 (211)
----- ------------------- --------------------
Fair value reserve (equity instruments) (681) (2,051)
----- ------------------- --------------------
Net losses on investments in equity instruments
designated at FVOCI (681) (2,051)
----- ------------------- --------------------
Property revaluation reserve 824 -
----- ------------------- --------------------
Fair value gains before tax 798 -
----- ------------------- --------------------
Deferred tax 13 26 -
----- ------------------- --------------------
Actuarial gains on the defined benefit plans 343 1,840
----- ------------------- --------------------
Remeasurement gains on defined benefit plans 343 1,840
----- ------------------- --------------------
Other comprehensive income/(loss) for the
period net of taxation 3,785 (20,623)
----- ------------------- --------------------
Total comprehensive income for the period 224,937 22,253
----- ------------------- --------------------
Attributable to:
----- ------------------- --------------------
Owners of the Company 224,026 21,591
----- ------------------- --------------------
Non--controlling interests 911 662
----- ------------------- --------------------
Total comprehensive income for the period 224,937 22,253
----- ------------------- --------------------
Interim Consolidated Balance Sheet
30 June 31 December 1 January
2023 2022 2022
(restated) (restated)
Assets Notes EUR000 EUR000 EUR000
-------- ------------------------- ------------------------- ------------------------
Cash and balances with
central banks 28 9,127,429 9,567,258 9,230,883
-------- ------------------------- ------------------------- ------------------------
Loans and advances to
banks 28 431,812 204,811 291,632
-------- ------------------------- ------------------------- ------------------------
Derivative financial
assets 16 49,302 48,153 6,653
-------- ------------------------- ------------------------- ------------------------
Investments at FVPL 15 138,661 190,209 199,194
-------- ------------------------- ------------------------- ------------------------
Investments at FVOCI 15 487,806 467,375 748,695
-------- ------------------------- ------------------------- ------------------------
Investments at amortised
cost 15 2,703,240 2,046,119 1,191,274
-------- ------------------------- ------------------------- ------------------------
Loans and advances to
customers 18 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 20 609,607 609,054 583,777
-------- ------------------------- ------------------------- ------------------------
Stock of property 19 945,831 1,041,032 1,111,604
-------- ------------------------- ------------------------- ------------------------
Investment properties 74,339 85,099 117,745
-------- ------------------------- ------------------------- ------------------------
Deferred tax assets 13 227,953 227,934 265,942
-------- ------------------------- ------------------------- ------------------------
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 21 2,004,480 1,976,674 2,969,600
-------- ------------------------- ------------------------- ------------------------
Derivative financial
liabilities 16 18,391 16,169 32,452
-------- ------------------------- ------------------------- ------------------------
Customer deposits 22 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 24 429,585 379,182 356,697
-------- ------------------------- ------------------------- ------------------------
Provisions for pending
litigation,
claims, regulatory and
other matters 27 128,267 127,607 104,108
-------- ------------------------- ------------------------- ------------------------
Debt securities in issue 23 291,976 297,636 302,555
-------- ------------------------- ------------------------- ------------------------
Subordinated liabilities 23 309,348 302,104 340,220
-------- ------------------------- ------------------------- ------------------------
Deferred tax liabilities 13 34,618 34,634 39,817
-------- ------------------------- ------------------------- ------------------------
Total liabilities 23,463,450 23,239,975 22,757,162
-------- ------------------------- ------------------------- ------------------------
Equity
-------- ------------------------- ------------------------- ------------------------
Share capital 25 44,620 44,620 44,620
-------- ------------------------- ------------------------- ------------------------
Share premium 25 594,358 594,358 594,358
-------- ------------------------- ------------------------- ------------------------
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 25 235,517 220,000 220,000
-------- ------------------------- ------------------------- ------------------------
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
-------- ------------------------- ------------------------- ------------------------
Chief Executive
Mr. E.G. Arapoglou Chairman Mr. P. Nicolaou Officer
Mr. N. Sofianos Director Mrs. E. Livadiotou Executive Director
Finance
Interim Consolidated Statement of Changes in Equity
Attributable to the owners of the Company
Share Share Treasury Other Retained Property Financial Life insurance Foreign Total Other Non-- Total
capital premium shares capital earnings revaluation instruments in--force currency equity controlling equity
(Note (Note (Note reserves reserve fair business translation instruments interests
25) 25) 25) (Note value reserve reserve (Note
11) reserve 25)
------------ ------------ ------------ ------------- ------------- ---------------- ------------ --------------- ---------------- ------------ ------------ -------------- ---------------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------ ------------ ------------ ------------- ------------- ---------------- ------------ --------------- ---------------- ------------ ------------ -------------- ---------------
31 December
2022 44,620 594,358 (21,463) 322 1,041,152 74,170 7,142 101,301 16,768 1,858,370 220,000 22,300 2,100,670
------------ ------------ ------------ ------------- ------------- ---------------- ------------ --------------- ---------------- ------------ ------------ -------------- ---------------
Impact of
retrospective
application
of IFRS
17 adoption - - - - 49,197 - - (101,301) - (52,104) - - (52,104)
------------ ------------ ------------ ------------- ------------- ---------------- ------------ --------------- ---------------- ------------ ------------ -------------- ---------------
31 December
2022
(restated)/1
January 2023 44,620 594,358 (21,463) 322 1,090,349 74,170 7,142 - 16,768 1,806,266 220,000 22,300 2,048,566
------------ ------------ ------------ ------------- ------------- ---------------- ------------ --------------- ---------------- ------------ ------------ -------------- ---------------
Profit for the
period - - - - 220,247 - - - - 220,247 - 905 221,152
------------ ------------ ------------ ------------- ------------- ---------------- ------------ --------------- ---------------- ------------ ------------ -------------- ---------------
Other
comprehensive
income/(loss)
after
tax for the
period - - - - 343 818 2,692 - (74) 3,779 - 6 3,785
------------ ------------ ------------ ------------- ------------- ---------------- ------------ --------------- ---------------- ------------ ------------ -------------- ---------------
Total
comprehensive
income/(loss)
after
tax for the
period - - - - 220,590 818 2,692 - (74) 224,026 - 911 224,937
------------ ------------ ------------ ------------- ------------- ---------------- ------------ --------------- ---------------- ------------ ------------ -------------- ---------------
Dividends
(Note 26) - - - - (22,310) - - - - (22,310) - - (22,310)
------------ ------------ ------------ ------------- ------------- ---------------- ------------ --------------- ---------------- ------------ ------------ -------------- ---------------
Share--based
benefits
-- cost (Note
11) - - - 311 - - - - - 311 - - 311
------------ ------------ ------------ ------------- ------------- ---------------- ------------ --------------- ---------------- ------------ ------------ -------------- ---------------
Payment of
coupon to
AT1 holders
(Note 25) - - - - (13,750) - - - - (13,750) - - (13,750)
------------ ------------ ------------ ------------- ------------- ---------------- ------------ --------------- ---------------- ------------ ------------ -------------- ---------------
Issue of other
equity
instruments
(Note 25) - - - - (3,530) - - - - (3,530) 220,000 - 216,470
------------ ------------ ------------ ------------- ------------- ---------------- ------------ --------------- ---------------- ------------ ------------ -------------- ---------------
Repurchase of
other
equity
instruments
(Note
25) - - - - (6,554) - - - - (6,554) (204,483) - (211,037)
------------ ------------ ------------ ------------- ------------- ---------------- ------------ --------------- ---------------- ------------ ------------ -------------- ---------------
30 June 2023 44,620 594,358 (21,463) 633 1,264,795 74,988 9,834 - 16,694 1,984,459 235,517 23,211 2,243,187
------------ ------------ ------------ ------------- ------------- ---------------- ------------ --------------- ---------------- ------------ ------------ -------------- ---------------
Attributable to the owners of the Company
Share Share Treasury Retained Property Financial Life insurance Foreign Total Other Non-- Total
capital premium shares earnings revaluation instruments in--force currency equity controlling equity
(Note (Note (Note reserve fair business translation instruments interests
25) 25) 25) value reserve reserve (Note
reserve 25)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ------------- ------------ ------------- -------------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ------------- ------------ ------------- -------------
1 January 2022 44,620 594,358 (21,463) 986,623 80,060 23,285 113,651 17,659 1,838,793 220,000 22,434 2,081,227
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ------------- ------------ ------------- -------------
Impact of
retrospective
application
of IFRS
17 adoption - - - 76,088 - - (113,651) - (37,563) - - (37,563)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ------------- ------------ ------------- -------------
Restated
balance at
1 January
2022 44,620 594,358 (21,463) 1,062,711 80,060 23,285 - 17,659 1,801,230 220,000 22,434 2,043,664
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ------------- ------------ ------------- -------------
Profit for the
period - - - 42,214 - - - - 42,214 - 662 42,876
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ------------- ------------ ------------- -------------
Other
comprehensive
income/(loss)
after
tax for the
period - - - 1,840 - (19,960) - (2,503) (20,623) - - (20,623)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ------------- ------------ ------------- -------------
Total
comprehensive
income/(loss)
after
tax for the
period - - - 44,054 - (19,960) - (2,503) 21,591 - 662 22,253
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ------------- ------------ ------------- -------------
Defence
contribution - - - (4,983) - - - - (4,983) - - (4,983)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ------------- ------------ ------------- -------------
Payment of
coupon to
AT1 holders
(Note 25) - - - (13,750) - - - - (13,750) - - (13,750)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ------------- ------------ ------------- -------------
30 June 2022 44,620 594,358 (21,463) 1,088,032 80,060 3,325 - 15,156 1,804,088 220,000 23,096 2,047,184
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ------------- ------------ ------------- -------------
Interim Consolidated Statement of Cash Flows
Six months ended
30 June
2023 2022
(restated)
---- ------------------ --------------------------
Note EUR000 EUR000
---- ------------------ --------------------------
Profit before tax 260,920 54,034
---- ------------------ --------------------------
Adjustments for:
---- ------------------ --------------------------
Depreciation of property and equipment and amortisation
of intangible assets 16,901 16,908
---- ------------------ --------------------------
Impairment net of reversals on non--financial
assets 23,206 12,157
---- ------------------ --------------------------
Credit losses on financial assets 36,772 24,826
---- ------------------ --------------------------
Net gains on derecognition of financial assets
measured at amortised cost (5,861) (1,648)
---- ------------------ --------------------------
Amortisation of discounts/premiums and interest
on debt securities (24,735) (8,767)
---- ------------------ --------------------------
Dividend income (439) (368)
---- ------------------ --------------------------
Net loss on disposal of investment in debt securities
measured at FVOCI 433 2,826
---- ------------------ --------------------------
(Gain)/loss from revaluation of financial instruments
designated as fair value hedges (9,473) 38,007
---- ------------------ --------------------------
Interest on subordinated liabilities and debt
securities in issue 13,956 14,258
---- ------------------ --------------------------
Negative interest on loans and advances to banks
and balances with central banks - 20,104
---- ------------------ --------------------------
Interest/(negative) interest on funding from central
banks 27,806 (14,792)
---- ------------------ --------------------------
Loss on disposal/dissolution of subsidiaries and
associates - (179)
---- ------------------ --------------------------
Share--based benefits cost 11 311 -
---- ------------------ --------------------------
Net gains on disposal of stock of property and
investment properties (4,868) (8,358)
---- ------------------ --------------------------
Profit on sale and write offs of property and
equipment and intangible assets (12) (51)
---- ------------------ --------------------------
Interest expense on lease liability 1,433 -
---- ------------------ --------------------------
Premium tax included in net insurance service
result as directly attributable expense 1,070 955
---- ------------------ --------------------------
Net losses from revaluation of investment properties 174 1,488
---- ------------------ --------------------------
Net exchange differences 2,290 (23,236)
---- ------------------ --------------------------
339,884 128,164
---- ------------------ --------------------------
Change in:
---- ------------------ --------------------------
Loans and advances to banks 3,696 36,345
---- ------------------ --------------------------
Deposits by banks (58,945) 34,983
---- ------------------ --------------------------
Obligatory balances with central banks (23,925) (7,883)
---- ------------------ --------------------------
Customer deposits 167,836 919,333
---- ------------------ --------------------------
Life insurance business assets attributable to
policyholders and Insurance liabilities (13,636) (19,715)
---- ------------------ --------------------------
Loans and advances to customers (82,889) (356,885)
---- ------------------ --------------------------
Prepayments, accrued income and other assets (4,941) (3,760)
---- ------------------ --------------------------
Provisions for pending litigation, claims, regulatory
and other matters (110) 685
---- ------------------ --------------------------
Accruals, deferred income, other liabilities and
other provisions 12,287 29,534
---- ------------------ --------------------------
Derivative financial instruments 1,073 (54,464)
---- ------------------ --------------------------
Investments measured at FVPL 51,548 17,876
---- ------------------ --------------------------
Stock of property 61,778 86,519
---- ------------------ --------------------------
453,656 810,732
---- ------------------ --------------------------
Tax paid (764) (441)
---- ------------------ --------------------------
Net cash from operating activities 452,892 810,291
---- ------------------ --------------------------
Cash flows from investing activities
---- ------------------ --------------------------
Purchases of debt, treasury bills and equity securities (828,338) (329,751)
---- ------------------ --------------------------
Proceeds on disposal/redemption of investments
in debt and equity securities 166,577 295,856
---- ------------------ --------------------------
Interest received from debt securities 18,299 17,230
---- ------------------ --------------------------
Dividend income from equity securities 439 368
---- ------------------ --------------------------
Payment for purchase of Velocity 2 (3,604) -
---- ------------------ --------------------------
Deposits on held for sale portfolios - 900
---- ------------------ --------------------------
Purchases of property and equipment (2,246) (817)
---- ------------------ --------------------------
Purchases of intangible assets (4,484) (6,046)
---- ------------------ --------------------------
Proceeds on disposals of property and equipment
and intangible assets 167 109
---- ------------------ --------------------------
Proceeds on disposals of investment properties 2,921 23,384
---- ------------------ --------------------------
Net cash (used in)/from investing activities (650,269) 1,233
---- ------------------ --------------------------
Six months ended
30 June
---- ---------------------------------------------
2023 2022
(restated)
---- ------------------ -------------------------
Note EUR000 EUR000
---- ------------------ -------------------------
Cash flow from financing activities
---- ------------------ -------------------------
Payment of AT1 coupon 25 (13,750) (13,750)
---- ------------------ -------------------------
Issue of other equity instruments (net of transaction
costs) 25 216,470 -
---- ------------------ -------------------------
Repurchase of other equity instruments 25 (211,037) -
---- ------------------ -------------------------
Payment of defence contribution - (4,983)
---- ------------------ -------------------------
Repayments of subordinated liabilities - (35,605)
---- ------------------ -------------------------
Dividend paid (16,614) -
---- ------------------ -------------------------
Interest on subordinated liabilities - (3,293)
---- ------------------ -------------------------
Interest on debt securities in issue (7,500) (7,500)
---- ------------------ -------------------------
Negative interest on loans and advances to banks
and balances with central banks - (20,104)
---- ------------------ -------------------------
Principal elements of lease payments (3,430) (3,507)
---- ------------------ -------------------------
Net cash used in financing activities (35,861) (88,742)
---- ------------------ -------------------------
Net (decrease)/increase in cash and cash equivalents (233,238) 722,782
---- ------------------ -------------------------
Cash and cash equivalents 1 January 9,586,153 9,255,210
---- ------------------ -------------------------
30 June 28 9,352,915 9,977,992
---- ------------------ -------------------------
Non--cash transactions
Repossession of collaterals
During the six months ended 30 June 2023, the Group acquired properties
by taking possession of collaterals held as securities for loans
and advances to customers of EUR5,815 thousand (30 June 2022: EUR23,058
thousand).
Recognition of RoU asset and lease liabilities
During the six months ended 30 June 2023, the Group recognised RoU
assets and corresponding lease liabilities of EUR2,234 thousand (30
June 2022: EUR136 thousand).
Notes to the Consolidated Condensed Interim Financial
Statements
1. Corporate information
Bank of Cyprus Holdings Public Limited Company (the 'Company') was
incorporated in Ireland on 11 July 2016, as a public limited company
under company number 585903 in accordance with the provisions of
the Companies Act 2014 of Ireland (Companies Act 2014). Its registered
office is 10 Earlsfort Terrace, Dublin 2, D02 T380, Ireland. The
Company is domiciled in Ireland and is tax resident in Cyprus.
Bank of Cyprus Holdings Public Limited Company is the holding company
of Bank of Cyprus Public Company Limited ('BOC PCL' or the 'Bank')
with principal place of business in Cyprus. The Bank of Cyprus Holdings
Group (the 'Group') comprises the Company, its subsidiary, BOC PCL,
and the subsidiaries of BOC PCL. Bank of Cyprus Holdings Public Limited
Company is the ultimate parent company of the Group.
The principal activities of BOC PCL and its subsidiary companies
(the 'BOC Group') involve the provision of banking services, financial
services, insurance services and the management and disposal of property
predominately acquired in exchange of debt.
BOC PCL is a significant credit institution for the purposes of the
SSM Regulation and has been designated by the CBC as an 'Other Systemically
Important Institution' (O--SII). The Group is subject to joint supervision
by the ECB and the CBC for the purposes of its prudential requirements.
The shares of the Company are listed and trading on the London Stock
Exchange (LSE) and the Cyprus Stock Exchange (CSE).
Consolidated Condensed Interim Financial Statements
The Consolidated Condensed Interim Financial Statements of the Company
for the six months ended 30 June 2023 (the Consolidated Financial
Statements) were authorised for issue by a resolution of the Board
of Directors on 08 August 2023.
The Consolidated Financial Statements are available on the Group's
website www.bankofcyprus.com (Group/Investor Relations/Financial
Results).
2. Unaudited financial statements
The Consolidated Financial Statements have not been audited by the
Group's external auditors.
The Group's external auditors have conducted a review in accordance
with the International Standard on Review Engagements 2410 'Review
of Interim Financial Information performed by the Independent Auditor
of the Entity'.
3. Summary of significant accounting policies
3.1 Basis of preparation
The Consolidated Financial Statements have been prepared on a historical
cost basis, except for properties held for own use and investment
properties, investments at fair value through other comprehensive
income (FVOCI), financial assets (including loans and advances to
customers and investments) at fair value through profit or loss (FVPL)
and derivative financial assets and derivative financial liabilities
that have been measured at fair value, non--current assets held for
sale measured at fair value less costs to sell and stock of property
measured at net realisable value where this is lower than cost. The
carrying values of recognised assets and liabilities that are hedged
items in fair value hedges, and otherwise carried at cost, are adjusted
to record changes in fair value attributable to the risks that are
being hedged.
Presentation of the Consolidated Financial Statements
The Consolidated Financial Statements are presented in Euro (EUR)
and all amounts are rounded to the nearest thousand, except where
otherwise indicated. A comma is used to separate thousands and a
dot is used to separate decimals.
The Group presents its balance sheet broadly in order of liquidity.
An analysis regarding expected recovery or settlement of assets and
liabilities within twelve months after the balance sheet date and
more than twelve months after the balance sheet date is presented
in Note 29.
Comparative information
Comparative information was restated following the adoption of IFRS
17 'Insurance Contracts' on 1 January 2023 as described further below
in Note 3.3.1.
Furthermore, comparative information was restated following certain
changes in the presentation of the primary statements first applied
in the 2022 annual consolidated financial statements. More specifically,
'Provisions for pending litigations, claims regulatory and other
matters (net of reversals)' previously presented within 'Other operating
expenses' is now presented separately on the Consolidated Income
Statement.
In addition, comparative information was restated in relation to
the presentation of segmental analysis as detailed in Note 7 following
an internal re--organisation in the fourth quarter of 2022. This
change led to a respective restatement of 'Analysis by Business line'
and 'Analysis of total revenue' in Note 7.
3.2 Statement of compliance
The Consolidated Financial Statements have been prepared in accordance
with the International Accounting Standard (IAS) applicable to interim
financial reporting as adopted by the European Union (EU) (IAS 34),
the Transparency (Directive 2004/109/EC) Regulations 2007, as amended,
Part 2 (Transparency Requirements) of the Central Bank (Investment
Market Conduct) Rules 2019 and the applicable requirements of the
Disclosure Guidance and Transparency Rules of the UK's Financial
Conduct Authority.
The Consolidated Financial Statements do not comprise statutory financial
statements for the purposes of the Companies Act 2014 of Ireland.
The Company's statutory financial statements for the purposes of
Chapter 4 of Part 6 of the Companies Act 2014 of Ireland for the
year ended 31 December 2022, upon which the auditors have expressed
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 from 30 September 2023.
The Consolidated Financial Statements do not include all the information
and disclosures required for the annual financial statements and
should be read in conjunction with the Annual Consolidated Financial
Statements of Bank of Cyprus Holdings Group for the year ended 31
December 2022, prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU and ESEF requirements,
which are available at the Group's website (www.bankofcyprus.com).
3.3 Changes in accounting policies, presentation and disclosures
The accounting policies adopted are consistent with those followed
for the preparation of the annual consolidated financial statements
for the year ended 31 December 2022, except for the adoption of new
and amended standards and interpretations as explained in Note 3.3.1.
3.3.1 New and amended standards and interpretations
The Group applied for the first time certain standards and amendments,
which are effective for annual periods beginning on or after 1 January
2023 and which are explained below. The Group has not early adopted
any other standard, interpretation or amendments that has been issued
but is not yet effective.
IFRS 17: Insurance Contracts
IFRS 17 'Insurance Contracts' (IFRS 17) became effective on 1 January
2023 and as required by the standard, the Group applied the requirements
retrospectively with comparative information restated from the transition
date, 1 January 2022 as further explained in the 'Transition application'
section below. IFRS 17 establishes the principles for the recognition,
measurement, presentation and disclosure of insurance contracts,
reinsurance contracts and investment contracts with discretionary
participation features.
IFRS 17 is a comprehensive new accounting standard for insurance
contracts which replaces IFRS 4 'Insurance Contracts'. In contrast
to the requirements in IFRS 4, IFRS 17 provides a comprehensive model
(the general measurement model or 'GMM') for insurance contracts,
supplemented by the variable fee approach ('VFA') for contracts with
direct participation features that are substantially investment--related
service contracts, and the premium allocation approach ('PAA') mainly
for short duration insurance contracts. The main features of the
new accounting standard for insurance contracts are the following:
i. The measurement of the present value of future cash flows, incorporating
an explicit risk adjustment, remeasured every reporting period (the
fulfilment cash flows).
ii. A Contractual Service Margin (CSM) that is equal and opposite
to any day one gain in the fulfilment cash flows of a group of contracts.
The CSM represents the unearned profitability of the insurance contracts
and is recognised in profit or loss over the service period (i.e.,
the coverage period).
i. Certain changes in the expected present value of future cash flows
are adjusted against the CSM and thereby recognised in profit or
loss over the remaining contractual service period.
ii. The recognition of insurance revenue and insurance service expenses
in the consolidated income statement is based on the concept of services
provided during the period.
iii. Insurance service result (earned revenue less incurred claims)
is presented separately from the insurance finance income or expense.
iv. Extensive disclosures to provide information on the recognised
amounts from insurance contracts and the nature and extent of the
risks arising from these contracts.
Transition application
The standard is applied retrospectively using a fully retrospective
approach ('FRA') as if it had always been applied, unless it is impracticable
to so, in which case either a modified retrospective approach ('MRA')
or a fair value approach ('FVA') can be selected. Impracticability
assessments were performed based on the requirements of IFRS 17 and
considered the availability of data and systems and the requirement
not to apply hindsight within the measurement. Following the completion
of impracticability assessments, the Group applied the following
approaches:
* The FRA for all non--life groups of insurance
contracts and non--individual life groups of
insurance contracts, irrespective of issue date.
* The MRA for groups of life insurance contracts issued
between 2016 and 2021.
* The FVA for groups of life insurance contracts issued
prior to 2016.
Modified retrospective approach ('MRA')
The Group is permitted to use the MRA only to the extent that is
does not have reasonable and supportable information to apply the
FRA. MRA is an approach to achieve the outcome closest to the FRA,
with the prescribed modifications to address some of the challenges
of retrospective application. Under MRA the below simplifications
are permitted:
* assessments at the date of initial recognition of
groups of insurance contracts;
* contractual service margin for insurance contracts
without direct participation features;
* contractual service margin for insurance contracts
with direct participation features; and
* insurance finance income or expenses.
In applying the MRA, the Group used reasonable and supportable information
from its existing reporting systems, with the objective to arrive
at the outcome closest to the FRA. The Group applied each of the
following modifications:
* Groups of contracts issued between 2016 and 2021
contain contracts issued more than one year apart.
For these groups, the discount rates on initial
recognition were determined at 1 January 2022 instead
of at the date of initial recognition.
* For groups of contracts issued between 2016 and 2021,
the future cash flows on initial recognition were
estimated by considering:
* the transactions that occurred in the period
2016--2021, plus
* the expected future cashflows estimated at 31
December 2021.
* For groups of contracts issued between 2016 and 2021,
the illiquidity premiums applied to the risk--free
yield curves on initial recognition were estimated by
determining an average spread between the risk--free
yield curves and the discount rates determined
retrospectively for the period between 1 January 2016
and 1 January 2022.
* For groups of contracts issued between 2016 and 2021,
the risk adjustment for non--financial risk at
initial recognition was determined by adjusting the
relevant amount at 1 January 2022.
* The amount of the CSM has been released in the profit
or loss before 1 January 2022 was determined by
comparing the coverage units provided before 1
January 2022 and the expected coverage units at 1
January 2022.
Determination on transition of the fair value of insurance contract
liabilities for which FVA was applied
Under the FVA approach required by IFRS 17, the valuation of insurance
liabilities on transition is based on the requirements of IFRS 13
'Fair Value Measurement'. This requires consideration of the price
that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement
date (an exit price). Under the FVA, the CSM of the liability for
remaining coverage at the transition date is determined as the difference
between the fair value of the groups of insurance contracts and the
fulfilment cash flows measured as at that date. There is judgement
involved in determining an appropriate fair value, as there is a
lack of observable data for actual transactions for closed book insurance
businesses and a range of possible modelling approaches. In determining
the fair value the Group considered the estimated profit margin that
a market participant would demand in return for assuming the insurance
liabilities, and the discount rate that would be applied within the
IFRS 13 calculation. The approach for setting these included the
following:
* The discount rate was derived with an allowance for
an illiquidity premium that takes into account the
level of 'matching' between the life Insurance assets
and related liabilities.
* Solvency II information (i.e. Best Estimate
Liabilities and Risk Margin) has been utilised.
The sections below provide a summary of the significant accounting
policies applied under IFRS 17, information on the quantitative impact
of transition to IFRS 17, the restated consolidated balance sheet
at 1 January 2022 and at 31 December 2022 and the restatement impact
on the consolidated income statement for the year ended 31 December
2022 and the six months ended 30 June 2022.
Summary of significant accounting policies
Identifying contracts in the scope of IFRS 17
IFRS 17 establishes the principles for the recognition, measurement,
presentation and disclosure of insurance contracts, reinsurance contracts
and investment contracts with discretionary participation features.
An insurance contract is a contract under which the Group accepts
significant insurance risk from another party by agreeing to compensate
that party if it is adversely affected by a specified uncertain future
event.
When identifying contracts in the scope of IFRS 17, there is a need
to assess whether contracts need to be treated as a single contract
and whether embedded derivatives, investment components and goods
and services components need to be separated and accounted for under
another standard. For the Group's insurance and reinsurance contracts
held, there were no significant changes arising from the application
of these requirements.
Level of aggregation
Individual insurance contracts that are managed together and are
subject to similar risks are identified as a group.
Contracts that are managed together usually belong to the same product
line and have similar characteristics such as being subject to a
similar pricing framework or similar product management and are issued
by the same legal entity. If a contract is exposed to more than one
risk, the dominant risk of the contract is used to assess whether
the contract features similar risks.
Each group of contracts is then divided into annual cohorts (i.e.
by year of issue) and each cohort into three groups, based on expected
profitability: (i) contracts that are onerous at initial recognition;
(ii) contracts that at initial recognition have no significant possibility
of becoming onerous subsequently; and (iii) the remaining contracts.
The groups of insurance contracts are established at initial recognition
without subsequent reassessment and form the unit of account at which
the contracts are measured.
Contract boundaries
The measurement of a group of insurance contracts includes all the
future cash flows within the boundary of each contract in the group.
Cash flows are within the boundary of an insurance contract if they
arise from substantive rights and obligations that exist during the
reporting period in which the Group can compel the policyholder to
pay the premiums, or in which the Group has a substantive obligation
to provide the policyholder with services. For multiyear (more than
one year) non--life contracts, the Group has assessed that they are
expected to equal their duration as the Group cannot reprice or terminate
the insurance contract during the coverage period.
Measurement
IFRS 17 introduces a standard measurement model, the General Measurement
Model (GMM) and allows also for a simplified approach, the Premium
Allocation Approach (PAA). IFRS 17 also provides for the Variable
Fee Approach (VFA), which is mandatory to apply for insurance contracts
with direct participation features upon meeting the eligibility criteria.
While the GMM is the default measurement model under IFRS 17, the
Group applies the VFA primarily to insurance contracts in the unit--linked
life portfolio. The PAA is an optional simplification applicable
for measuring the Liability for Remaining Coverage (LRC) for contracts
with coverage periods of one year or less, or when doing so approximates
the GMM; it is primarily applied by the Group to non--life insurance
contracts and to non--individual life insurance contracts as well
as to reinsurance contracts of the Group except for the individual
life reinsurance agreement, for which the GMM was applied. For the
rest of the insurance contracts (individual protection life contracts,
the acquired portfolio and health long--term portfolio) and the Liability
for Incurred Claims (LIC) of non--life Insurance contracts, the Group
applies the GMM approach.
Initial measurement
Groups of insurance contracts under the GMM or the VFA are initially
measured as the total of:
* Fulfilment cash flows, which comprise:
* an estimate of the present value of future cash flows
that are expected to arise as the Group fulfils its
service under the insurance contracts; and
* an explicit risk adjustment for non--financial risk
(i.e., the risk adjustment held on balance sheet)
* Contractual Service Margin (CSM) which represents the
unearned profit that the Group will recognise as it
provides insurance contract services.
The fulfilment cash flows comprise unbiased and probability--weighted
estimates of future cash flows, discounted to present value to reflect
both the time value of money and financial risks, plus a risk adjustment
for non--financial risk. The discount rate applied reflects the time
value of money, the characteristics of the cash flows, the liquidity
characteristics of the insurance contracts and, where appropriate,
is consistent with observable current market prices.
The risk adjustment for non--financial risk for a group of insurance
contracts is the compensation required for bearing the uncertainty
in relation to the amount and timing of the cash flows that arises
from non--financial risk. The risk adjustment is explicit and determined
separately from other fulfilment cash flows.
A CSM arises when, for a group of contracts, the sum of the discounted
cash flows and the risk adjustment is a net inflow. If the sum of
these is a net outflow, then the group of contracts is onerous and
a loss equal to the net outflow is recognised in the consolidated
income statement.
Under the PAA, the liability for remaining coverage is initially
recognised as the premiums received at initial recognition, minus
any insurance acquisition cash flows.
Subsequent measurement
GMM
At the end of each reporting period, IFRS 17 requires that insurance
contracts are measured as the sum of:
* Liability for remaining coverage (LRC), comprising
fulfilment cash flows related to future service and
the CSM at the reporting date; and
* Liability for incurred claims (LIC), comprising
fulfilment cash flows related to past service at the
reporting date (claims and expenses not yet paid,
including claims incurred but not yet reported).
The fulfilment cash flows of groups of insurance contracts are measured
at the reporting date using current estimates of future cash flows,
current discount rates and current estimates of the risk adjustment
for non--financial risk. Changes in fulfilment cash flows are recognised
as follows:
* Changes related to future service are adjusted
against the CSM unless the group of contracts is
onerous in which case such changes are recognised in
the net insurance service result in the consolidated
income statement
* Changes related to past or current service are
recognised in the net insurance service result in the
consolidated income statement
* The effects of the time value of money and financial
risk are recognised as net insurance finance income
or expense in the consolidated income statement
The amount of CSM recognised in income statement for services in
a period is determined by the allocation of the CSM remaining at
the end of the reporting period over the current and remaining expected
coverage period of the group of insurance contracts based on coverage
units. Services provided are estimated using coverage units, which
reflect the quantity of benefits and the coverage duration.
VFA
The VFA is applied for contracts with direct participation features
(contracts where returns are based on the performance of underlying
assets). For insurance contracts under the VFA, changes in the Group's
share of the underlying items, and economic experience and economic
assumption changes adjust the CSM, whereas these changes do not adjust
the CSM under the GMM but are recognised in profit or loss as they
arise.
PAA
Subsequently to initial measurement, the carrying amount of the LRC
is increased with premiums received in the period, minus insurance
acquisition cash flows, plus amortisation of acquisition cash flows,
minus the amount recognised as insurance revenue for coverage provided
in that period. The LRC is not discounted, since at initial recognition,
it is expected that the time between providing each part of the coverage
and the due date of the related premium is not more than a year.
Reinsurance contracts
The Group applies the same accounting policies to measure a group
of reinsurance contracts under PAA, with the following modifications
to reflect features that differ from those of insurance contracts.
The Group establishes a loss--recovery component on the carrying
amount of the asset for remaining coverage for a group of reinsurance
contracts, depicting the recovery of losses, where the Group recognises
a loss on initial recognition of an onerous group of underlying insurance
contracts or when further onerous underlying insurance contracts
are added to a group.
The Group calculates the loss--recovery component by multiplying
the loss recognised on the underlying insurance contracts and the
percentage of claims on the underlying insurance contracts the Group
expects to recover from the group of reinsurance contracts. The loss--recovery
component adjusts the carrying amount of the asset for remaining
coverage.
The subsequent measurement of reinsurance contracts follows the same
principles as those for insurance contracts issued and has been adapted
to reflect the specific features of reinsurance. Where the Group
has established a loss--recovery component, the Group subsequently
reduces the loss--recovery component to zero in line with reductions
in the onerous group of underlying insurance contracts in order to
reflect that the loss--recovery component shall not exceed the portion
of the carrying amount of the loss component of the onerous group
of underlying insurance contracts that the entity expects to recover
from the group of reinsurance contracts.
The measurement of reinsurance contracts under the individual life
reinsurance agreement follows the same principles as those for insurance
contracts measured under the GMM. The carrying amount of the reinsurance
contracts at each reporting date is the sum of the asset for remaining
coverage and the asset for incurred claims. The asset for remaining
coverage comprises (a) the fulfilment cash flows that relate to services
that will be received under the contracts in future periods and (b)
any remaining CSM at that date.
The risk adjustment for non--financial risk will represent the amount
of risk being transferred by the Group to the reinsurer.
The CSM of a group of reinsurance contracts represents a net cost
or net gain on purchasing reinsurance.
Contract derecognition
The Group derecognises an insurance contract issued when the obligation
specified in the contract expires, is discharged, or is cancelled,
or if its terms are modified significantly. When a contract is modified
significantly, a new contract based on the modified terms is recognised.
On derecognition of an insurance contract, the Group:
* Adjusts the fulfilment cash flows to eliminate the
present value of future cash flows and risk
adjustment for non--financial risk relating to the
rights and obligations that have been derecognised
from the group of contracts,
* Adjusts the CSM of the group of contracts for the
change in the fulfilment cash flows, except where
such changes are allocated to a loss component; and
* Adjusts the number of coverage units for the expected
remaining services, to reflect the number of coverage
units derecognised from the group of contracts.
Directly attributable expenses
In accordance with IFRS 17, expenses directly attributable to a group
of insurance contracts, which include both acquisition and maintenance
costs are incorporated in actual and estimated future cash flows
and recognised in the net insurance result. Insurance acquisition
cash flows are amortised. Expenses that are not directly attributable
are excluded from the measurement of insurance contract liabilities
and are recognised in profit and loss as incurred.
Significant judgments and estimates
The key assumptions concerning the future and other key sources of
estimation uncertainty at the reporting date, that have a significant
risk of causing a material adjustment to the carrying amounts of
insurance and reinsurance assets and liabilities within the next
financial year are discussed below. The Group based its assumptions
and estimates on parameters available by the reporting date. Existing
circumstances and assumptions about future developments, however,
may change due to market changes or circumstances arising that are
beyond the control of the Group. Such changes are reflected in the
assumptions when they occur.
Estimates of future cash flows
In estimating future cash flows, the Group incorporates, in an unbiased
way, all reasonable and supportable information that is available
without undue cost or effort at the reporting date. This information
includes both internal and external historical data about claims
and other experience, updated to reflect current expectations of
future events.
Cash flows within the boundary of a contract are those that relate
directly to the fulfilment of the contract, including those for which
the Group has discretion over the amount or timing. These include
payments to (or on behalf of) policyholders and other costs that
are incurred in fulfilling contracts. These comprise both an allocation
of fixed and variable overheads.
The estimates of future cash flows reflect the Group's view of current
conditions at the reporting date, as long as the estimates of any
relevant market variables are consistent with observable market prices.
The following assumptions were used when estimating future cash flows
in relation to life insurance contracts:
* Mortality and morbidity rates
* Expenses and inflation
* Lapse and surrender rates
The table below sets out the percentage assumed to apply to industry
mortality and morbidity tables in estimating fulfilment cash flows:
Mortality Rates Mortality rates*
30 June 2023 31 December 2022
----------------------------------- ---------------------
Males Smokers 68% A67/70 68% A67/70
------------------------------ --------------------------------------- ---------------------
Non--Smokers 48.25% A67/70 48.25% A67/70
------------------------------ --------------------------------------- ---------------------
Smokers 68% A67/70 rated down by 4 years 68% A67/70 rated
down by 4 years
------------------------------ --------------------------------------- ---------------------
Females Non--Smokers 48.25% A67/70 rated down by 4 years 48.25% A67/70 rated
down by 4 years
------------------------------ --------------------------------------- ---------------------
* The Group uses A67/70 UK standard mortality table in setting the
mortality assumption, since the Group's own claim experience is not
sufficient to allow the development of its own mortality table. To
reflect the Group's specific claims experience more accurately, a
percentage is applied on the A67/70 UK standard mortality table.
Discount rates
Discount rates are applied to adjust the estimates of future cash
flows to reflect the time value of money and the financial risks related
to those cash flows, to the extent that the financial risks are not
included in the estimates of cash flows.
IFRS 17 requires that discount rates should:
* Reflect the time value of money, characteristics of
the cash flows and liquidity characteristics of the
insurance contract
* Be consistent with observable current market prices
(if any) for financial instruments with cash flows
whose characteristics are consistent with those of
the insurance contracts (e.g., timing, currency and
liquidity)
* Exclude the effect of factors that influence such
observable market prices, but do not affect the
future cash flows of the insurance contracts
IFRS 17 does not require a particular estimation technique for determining
discount rates but provides two alternative approaches that may be
used to derive discount rates. The determination of discount rates
may be derived from a yield curve that reflects the current market
rates of return of an actual or reference portfolio of assets, adjusted
to eliminate any factors that are not relevant to the insurance contracts
(top--down approach), or discount rates may be derived based on a
liquid risk--free yield curve adjusted for an illiquidity premium
(bottom--up approach). The Group has elected to apply a bottom--up
approach whereby discount rates are derived based on a liquid risk
free yield curve adjusted for an illiquidity premium.
The discount rates applied for discounting future cash flows are listed
below:
Year 1 Year 3 Year 5 Year 10 Year 20
------------------
30 June 31 30 June 31 30 June 31 30 June 31 30 June 31
2023 December 2023 December 2023 December 2023 December 2023 December
2022 2022 2022 2022 2022
------- ------- --------- ------- --------- ------- --------- ------- ----------
Life insurance
contracts
(unit--linked) 3.8% 2.4% 3.2% 2.8% 3.0% 2.9% 2.9% 3.0% 2.8% 2.7%
------- --------- ------- --------- ------- --------- ------- --------- ------- ----------
Life insurance
contracts
(non--linked) 3.9% 2.4% 3.3% 2.8% 3.1% 2.9% 3.0% 3.0% 2.9% 2.7%
------- --------- ------- --------- ------- --------- ------- --------- ------- ----------
Non--life
insurance
contracts 3.9% 4.0% 3.3% 4.0% 3.1% 4.0% 3.0% 3.9% 2.9% 3.6%
------- --------- ------- --------- ------- --------- ------- --------- ------- ----------
Risk adjustments for non--financial risk
IFRS 17 provides limited prescriptive requirements as to the methodology
to be used to calculate the risk adjustment and allows an entity
to apply judgement in determining an appropriate estimation technique.
Life Insurance business
The Group has applied judgement in estimating the risk adjustment,
in the following areas:
* Risks included within the risk adjustment calculation
-- the Group has considered the same risks as under
the Solvency II risk margin, specifically for life
underwriting and health underwriting risks, as they
both use a definition of non--market risks, apart
from specific differences referred to in IFRS 17. The
excluded categories are counterparty and operational
risks.
* Method of calculation -- the Group calculates a
margin, above best estimate assumptions, for each
non--financial risk to which the Group is exposed
through issuing insurance contracts. The margins are
set so that (in combination) they would cover
potential losses from movements in non--financial
risks within a specified confidence level. The total
of these margins is the risk adjustment. The Group
has applied judgement in setting the confidence level
applied in the risk adjustment calculation, based on
the Group's appetite for accepting the risk inherent
in writing insurance contracts and the compensation
required for doing so.
The Group has estimated the risk adjustment using a hybrid of Cost
of Capital (CoC) and Value at Risk (VaR) techniques. The Group scales
up/down the Risk Adjustment calculated under the CoC technique using
the VaR technique to reflect the Group's risk appetite and overall
strategy.
To calculate the Risk Adjustment, the Group first uses the CoC technique
to derive a calibrated normal distribution with a mean that is equal
to Best Estimate Liabilities (BEL) at Best Estimate Assumptions and
percentile at 99,5% equal to BEL + Solvency Capital Requirements
(SCR) (t=0). A 6% CoC rate is applied to the additional capital requirement
in future reporting periods to calculate the return required by the
Group to compensate for the exposure to non--financial risk. The
CoC method results to a confidence level of 60%.
Using the VaR methodology, to allow for the Group's risk appetite
and overall strategy the confidence level is then scaled up to 90%
which is the desired confidence level of the Group. The Risk Adjustment
is then calculated using the normal distribution and a confidence
level of 90%.
Non--life Insurance business
For non--life insurance business the risk adjustment forms a key
component of the LIC.
The risk adjustment for LRC forms part of the loss component calculation
which is used to determine the groupings of contracts that are expected
to be onerous.
Risk adjustment for non--financial risk is determined to reflect
the compensation that the Group would require for bearing non--financial
risk and its degree of risk aversion. It is determined separately
for each non--life line of business and allocated to groups of contracts
based on the total premiums for each group. It reflects the effects
of the diversification benefits between the different lines of business,
which are determined using a correlation matrix technique available
from EIOPA.
The risk adjustment for non--financial risk is determined using a
confidence level technique which stems from a hybrid Cost of Capital
and Value at Risk approach. To determine the risk adjustment for
non--financial risk for non--life reinsurance contracts, the Group
applies this technique to the gross amounts and then by using gross
to net ratios it derives the amount of risk being transferred to
the reinsurer as the difference between the two results.
The Group estimates the probability distribution of the expected
present value of the future cash flows from the contracts at each
reporting date and calculates the risk adjustment for non--financial
risk at value at risk of the target confidence level. The Group uses
a target 75% percentile for the confidence level.
CSM
The CSM of a group of contracts is recognised in the income statement
to reflect services provided in each year, by identifying the coverage
units in the group, allocating the CSM remaining at the end of the
year equally to each coverage unit provided in the year and expected
to be provided in future years, and recognising in income statement
the amount of the CSM allocated to coverage units provided in the
year. The number of coverage units is the quantity of services provided
by the contracts in the group, determined by considering for each
contract the quantity of the benefits and its expected coverage period.
The coverage units are reviewed and updated at each reporting date.
Significant accounting policy choices
The significant accounting policy choices applicable to the Group
are in relation to:
* Disaggregation of insurance finance income or
expenses: The Group has elected to recognise total
insurance finance income or expenses in the
consolidated income statement in the period in which
they arise i.e no disaggregation is applied.
* Deferral of acquisition expenses: The Group has
elected to defer insurance acquisition cash flows, in
applying the premium allocation approach for which
IFRS 17 provides an election to be made.
* Disaggregation of change in risk adjustment for
non--financial risk: The Group has elected to
disaggregate the change in risk adjustment for
non--financial risk between the net insurance service
result and net insurance finance income/(expense).
Presentation
The amounts presented in the consolidated income statement under
IFRS 17 include:
i. Net insurance finance income/(expense) and net reinsurance finance
income/(expense), that comprises of:
* Net insurance finance income/(expense) which
represents the finance related change in the carrying
value of a group of insurance contracts comprising
interest effects of changes in interest rates and
other financial assumptions and the effect of changes
in the fair value of underlying items for direct
participating contracts
* Net finance income/(expense) from reinsurance
contracts held is the finance related change in the
carrying value of a group of reinsurance contracts
comprising interest accreted and effects of changes
in interest rates and other financial assumptions.
ii. Net insurance service result, that comprises of:
* Insurance revenue that reflects the consideration to
which the Group expects to be entitled in exchange
for the provision of coverage and other insurance
contract services (excluding any investment
components) and includes among others CSM released
during the period, revenue for insurance contracts
under the PAA and changes in risk adjustment related
to current service period and experience variance.
* Insurance service expenses that comprise the incurred
claims and other incurred insurance service expenses
(excluding any investment components), and losses on
onerous groups of contracts and reversals of such
losses.
iii. Net reinsurance service result, that comprises of amounts recovered
from reinsurers and reinsurance expenses.
Transition impact
On transition on 1 January 2022, consistent with the disclosures
in the 2022 Annual Financial Report, the Group's Total Equity and
Equity attributable to the owners of the Company were reduced by
EUR37,563 thousand, reflecting the aggregate impact of the present
value of in--force life insurance business (PVIF) elimination and
remeasurement of insurance assets and liabilities, both net of associated
tax impact. Similarly, adjusting for the impact of IFRS 17 on the
profit for the year ended 31 December 2022, the Group's Total Equity
and Equity attributable to the owners of the Company at 31 December
2022 as reported under IFRS 4 were reduced by EUR52,104 thousand,
as analysed below.
At 1 January At 31 December
2022 2022
EUR000 EUR000
-------------------- --------------------
IFRS 4 Total Equity 2,081,227 2,100,670
-------------------- --------------------
IFRS 4 Equity attributable to the owners of the
Company 1,838,793 1,858,370
-------------------- --------------------
Removal of PVIF asset (129,890) (115,776)
-------------------- --------------------
Contractual service margin (43,731) (41,863)
-------------------- --------------------
Removal of IFRS 4 assets and liabilities and
recording of IFRS 17 fulfilment cash flows and
risk adjustment 129,255 97,028
-------------------- --------------------
Tax effect (incl. PVIF tax effect) 7,079 9,601
-------------------- --------------------
Other (276) (1,094)
-------------------- --------------------
Total impact of IFRS 17 restatements (37,563) (52,104)
-------------------- --------------------
IFRS 17 Equity attributable to the owners of
the Company 1,801,230 1,806,266
-------------------- --------------------
IFRS 17 Total Equity 2,043,664 2,048,566
-------------------- --------------------
The reduction of the Group's equity by EUR52 million as at 31 December
2022 comprises the elimination of the in--force life insurance business
asset (PVIF) and the associated deferred tax liability, resulting
in a net decrease of EUR101 million and the remeasurement of insurance
assets and liabilities (including the impact of the contractual service
margin) resulting in a net increase in equity by EUR49 million.
On transition on 1 January 2022, the Group's Tangible Equity attributable
to the owners of the Company was increased by EUR92,327 thousand.
Adjusting for the impact of IFRS 17 on the profit for the year ended
31 December 2022, the Group's Tangible Equity attributable to the
owners of the Company as at 31 December 2022 as restated under IFRS
17 was increased by EUR63,672 thousand as analysed below.
At 1 January At 31 December
2022 2022
EUR000 EUR000
-------------------- --------------------
IFRS 4 Group's Tangible Equity attributable to
the owners of the Company 1,654,759 1,690,048
-------------------- --------------------
Contractual service margin (43,731) (41,863)
-------------------- --------------------
Removal of IFRS 4 assets and liabilities and
recording of IFRS 17
fulfilment cash flows and risk adjustment 129,255 97,028
-------------------- --------------------
Tax effect (incl. PVIF tax effect) 7,079 9,601
-------------------- --------------------
Other (276) (1,094)
-------------------- --------------------
Total impact of IFRS 17 restatements 92,327 63,672
-------------------- --------------------
IFRS 17 Group's Tangible Equity attributable
to the owners of the Company 1,747,086 1,753,720
-------------------- --------------------
Consolidated Income Statement for the year ended 31 December 2022,
as restated for IFRS 17 and as previously reported under IFRS 4 is
presented below.
Year ended
31 December 2022
IFRS 17 IFRS 4
(restated) (as previously
presented)
------------------------- -------------------------
EUR000 EUR000
------------------------- -------------------------
Interest income 428,849 428,849
------------------------- -------------------------
Income similar to interest income 22,119 22,119
------------------------- -------------------------
Interest expense (65,721) (65,821)
------------------------- -------------------------
Expense similar to interest expense (14,840) (14,840)
------------------------- -------------------------
Net interest income 370,407 370,307
------------------------- -------------------------
Fee and commission income 202,583 202,583
------------------------- -------------------------
Fee and commission expense (10,299) (10,299)
------------------------- -------------------------
Net foreign exchange gains 31,291 31,291
------------------------- -------------------------
Net gains/(losses) on financial instruments (614) 10,052
------------------------- -------------------------
Net gains/(losses) on derecognition of financial
assets measured at amortised cost 5,235 5,235
------------------------- -------------------------
Net insurance finance income/(expense) and net
reinsurance finance income/(expense) 4,075 -
------------------------- -------------------------
Net insurance service result 60,530 -
------------------------- -------------------------
Net reinsurance service result (20,039) -
------------------------- -------------------------
Income from assets under insurance and reinsurance
contracts - 114,681
------------------------- -------------------------
Expenses from liabilities under insurance and reinsurance
contracts - (43,542)
------------------------- -------------------------
Net losses from revaluation and disposal of investment
properties (999) (999)
------------------------- -------------------------
Net gains on disposal of stock of property 13,970 13,970
------------------------- -------------------------
Other income 16,681 16,681
------------------------- -------------------------
Total operating income 672,821 709,960
------------------------- -------------------------
Staff costs (285,154) (294,361)
------------------------- -------------------------
Special levy on deposits and other levies/contributions (38,492) (38,492)
------------------------- -------------------------
Provisions for pending litigations, regulatory
and other provisions (net of reversals) (11,880) (11,880)
------------------------- -------------------------
Other operating expenses (157,916) (166,365)
------------------------- -------------------------
Operating profit before credit losses and impairment 179,379 198,862
------------------------- -------------------------
Credit losses on financial assets (59,087) (59,529)
------------------------- -------------------------
Impairment net of reversals on non--financial assets (29,549) (29,549)
------------------------- -------------------------
Profit before tax 90,743 109,784
------------------------- -------------------------
Income tax (31,312) (35,812)
------------------------- -------------------------
Profit after tax for the year 59,431 73,972
------------------------- -------------------------
Attributable to:
------------------------- -------------------------
Owners of the Company 56,565 71,106
------------------------- -------------------------
Non--controlling interests 2,866 2,866
------------------------- -------------------------
Profit for the year 59,431 73,972
------------------------- -------------------------
Basic and diluted profit per share attributable
to the owners of the Company
(EUR cent) 12.7 15.9
------------------------- -------------------------
Consolidated Balance Sheet at transition date and at 31 December
2022 as restated under IFRS 17 and as previously reported under IFRS
4 is presented below.
IFRS 17 IFRS 4
(restated) (as previously presented)
31 December 1 January 31 December 1 January
2022 2022 2022 2022
------------------------- ------------------------- ------------------------
Assets EUR000 EUR000 EUR000 EUR000
------------------------- ------------------------ ------------------------- ------------------------
Cash and balances
with central
banks 9,567,258 9,230,883 9,567,258 9,230,883
------------------------- ------------------------ ------------------------- ------------------------
Loans and
advances to
banks 204,811 291,632 204,811 291,632
------------------------- ------------------------ ------------------------- ------------------------
Derivative
financial assets 48,153 6,653 48,153 6,653
------------------------- ------------------------ ------------------------- ------------------------
Investments at
FVPL 190,209 199,194 190,209 199,194
------------------------- ------------------------ ------------------------- ------------------------
Investments at
FVOCI 467,375 748,695 467,375 748,695
------------------------- ------------------------ ------------------------- ------------------------
Investments at
amortised cost 2,046,119 1,191,274 2,046,119 1,191,274
------------------------- ------------------------ ------------------------- ------------------------
Loans and
advances to
customers 9,953,252 9,836,405 9,953,252 9,836,405
------------------------- ------------------------ ------------------------- ------------------------
Life insurance
business assets
attributable to
policyholders 542,321 551,797 542,321 551,797
------------------------- ------------------------ ------------------------- ------------------------
Prepayments,
accrued income
and other assets 609,054 583,777 639,765 616,219
------------------------- ------------------------ ------------------------- ------------------------
Stock of property 1,041,032 1,111,604 1,041,032 1,111,604
------------------------- ------------------------ ------------------------- ------------------------
Investment
properties 85,099 117,745 85,099 117,745
------------------------- ------------------------ ------------------------- ------------------------
Deferred tax
assets 227,934 265,942 227,521 265,481
------------------------- ------------------------ ------------------------- ------------------------
Property and
equipment 253,378 252,130 253,378 252,130
------------------------- ------------------------ ------------------------- ------------------------
Intangible assets 52,546 54,144 168,322 184,034
------------------------- ------------------------ ------------------------- ------------------------
Non--current
assets and
disposal
groups held for
sale - 358,951 - 358,951
------------------------- ------------------------ ------------------------- ------------------------
Total assets 25,288,541 24,800,826 25,434,615 24,962,697
------------------------- ------------------------ ------------------------- ------------------------
Liabilities
------------------------- ------------------------ ------------------------- ------------------------
Deposits by banks 507,658 457,039 507,658 457,039
------------------------- ------------------------ ------------------------- ------------------------
Funding from
central banks 1,976,674 2,969,600 1,976,674 2,969,600
------------------------- ------------------------ ------------------------- ------------------------
Derivative
financial
liabilities 16,169 32,452 16,169 32,452
------------------------- ------------------------ ------------------------- ------------------------
Customer deposits 18,998,319 17,530,883 18,998,319 17,530,883
------------------------- ------------------------ ------------------------- ------------------------
Insurance
liabilities 599,992 623,791 679,952 736,201
------------------------- ------------------------ ------------------------- ------------------------
Accruals,
deferred income,
other
liabilities and
other provisions 379,182 356,697 384,004 361,977
------------------------- ------------------------ ------------------------- ------------------------
Provisions for
pending
litigation,
claims,
regulatory and
other
matters 127,607 104,108 127,607 104,108
------------------------- ------------------------ ------------------------- ------------------------
Debt securities
in issue 297,636 302,555 297,636 302,555
------------------------- ------------------------ ------------------------- ------------------------
Subordinated
liabilities 302,104 340,220 302,104 340,220
------------------------- ------------------------ ------------------------- ------------------------
Deferred tax
liabilities 34,634 39,817 43,822 46,435
------------------------- ------------------------ ------------------------- ------------------------
Total liabilities 23,239,975 22,757,162 23,333,945 22,881,470
------------------------- ------------------------ ------------------------- ------------------------
Equity
------------------------- ------------------------ ------------------------- ------------------------
Share capital 44,620 44,620 44,620 44,620
------------------------- ------------------------ ------------------------- ------------------------
Share premium 594,358 594,358 594,358 594,358
------------------------- ------------------------ ------------------------- ------------------------
Revaluation and
other reserves 76,939 99,541 178,240 213,192
------------------------- ------------------------ ------------------------- ------------------------
Retained earnings 1,090,349 1,062,711 1,041,152 986,623
------------------------- ------------------------ ------------------------- ------------------------
Equity
attributable to
the owners
of the Company 1,806,266 1,801,230 1,858,370 1,838,793
------------------------- ------------------------ ------------------------- ------------------------
Other equity
instruments 220,000 220,000 220,000 220,000
------------------------- ------------------------ ------------------------- ------------------------
Non--controlling
interests 22,300 22,434 22,300 22,434
------------------------- ------------------------ ------------------------- ------------------------
Total equity 2,048,566 2,043,664 2,100,670 2,081,227
------------------------- ------------------------ ------------------------- ------------------------
Total liabilities
and equity 25,288,541 24,800,826 25,434,615 24,962,697
------------------------- ------------------------ ------------------------- ------------------------
Transition impact on the Consolidated Balance Sheet at 1 January
2022
The adjustments to the Group's balance sheet at 1 January 2022 arising
on the adoption of IFRS 17 are presented below.
Balance Removal IFRS 17 IFRS Tax Other Balance Total
IFRS of fulfilment 17 effect IFRS movements
4 PVIF cash CSM 17
and flows
IFRS incl.
4 Risk
assets adjustment*
and
liabilities
Assets EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------- ------------- ---------------- ------------- -------------- --------------- ------------- --------------
Prepayments,
accrued
income and
other assets 616,219 (70,121) 37,676 - - 3 583,777 (32,442)
------------- ------------- ---------------- ------------- -------------- --------------- ------------- --------------
Deferred tax
assets 265,481 - - - 461 - 265,942 461
------------- ------------- ---------------- ------------- -------------- --------------- ------------- --------------
Intangible
assets 184,034 (129,890) - - - - 54,144 (129,890)
------------- ------------- ---------------- ------------- -------------- --------------- ------------- --------------
All other
assets 23,896,963 - - - - - 23,896,963 -
------------- ------------- ---------------- ------------- -------------- --------------- ------------- --------------
Total assets 24,962,697 (200,011) 37,676 - 461 3 24,800,826 (161,871)
------------- ------------- ---------------- ------------- -------------- --------------- ------------- --------------
Liabilities
------------- ------------- ---------------- ------------- -------------- --------------- ------------- --------------
Insurance
liabilities 736,201 (735,143) 579,002 43,731 - - 623,791 (112,410)
------------- ------------- ---------------- ------------- -------------- --------------- ------------- --------------
Accruals,
deferred
income,
other
liabilities
and other
provisions 361,977 (5,559) - - - 279 356,697 (5,280)
------------- ------------- ---------------- ------------- -------------- --------------- ------------- --------------
Deferred tax
liabilities 46,435 - - - (6,618) - 39,817 (6,618)
------------- ------------- ---------------- ------------- -------------- --------------- ------------- --------------
All other
liabilities 21,736,857 - - - - - 21,736,857 -
------------- ------------- ---------------- ------------- -------------- --------------- ------------- --------------
Total
liabilities 22,881,470 (740,702) 579,002 43,731 (6,618) 279 22,757,162 (124,308)
------------- ------------- ---------------- ------------- -------------- --------------- ------------- --------------
* includes reinsurance assets and liabilities adjustments
Transition drivers
Removal of PVIF and IFRS 4 assets and liabilities
The present value of in--force business ('PVIF') which was previously
reported under IFRS 4 within 'Intangible assets' and that arose from
the upfront recognition of future profits associated with in--force
insurance contracts, is no longer recognized under IFRS 17. The estimated
future profits are included in the measurement of the insurance contract
liability as the contractual service margin ('CSM'), representing
the unearned profit, which will be gradually recognized over the duration
of a contract. Other IFRS 4 insurance assets and insurance contract
liabilities are removed on transition, to be replaced with IFRS 17
insurance assets and liabilities.
Recognition of the IFRS 17 fulfilment cash flows and risk adjustment
The measurement of insurance contract liabilities under IFRS 17 is
based on groups of insurance contracts and includes a liability for
fulfilling the contractual obligations associated with the insurance
contract, such as premiums, expenses, insurance benefits and claims.
These are recorded within the fulfilment cash flow component of the
insurance contract liability, together with the risk adjustment.
Recognition of the IFRS 17 CSM
In contrast to IFRS 4 accounting, where profits were recognised upfront,
under IFRS 17 they are deferred within the CSM which is systematically
recognized in revenue, as services are provided over the coverage
period of groups of insurance contracts.
Tax effect
The removal of deferred tax liability primarily results from the removal
of the associated PVIF intangible, and new deferred tax assets and
liabilities are reported, where appropriate, on temporary differences
between the new IFRS 17 accounting balances and their associated tax
bases.
Transition impact on the Consolidated Income Statement
A summary of the impact of implementing IFRS 17 on the Group's consolidated
income statement for the year ended 31 December 2022 is presented
below.
For the year ended 31 December 2022
IFRS Removal Net IFRS IFRS IFRS Net Attributable Tax IFRS
4 of 17 17 17 17
IFRS insurance CSM insurance insurance expense expenses effect (restated)
4 and
reclassifi--cations finance revenue-- expense from (reclassifi--cation
income/ other reinsurance to net
than
expense CSM insurance
service
result)
----------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Interest income 428,849 - - - - - - - - 428,849
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Income similar
to interest
income 22,119 - - - - - - - - 22,119
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Interest expense (65,821) - - - 100 - - - - (65,721)
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Expense similar
to interest
expense (14,840) - - - - - - - - (14,840)
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Net interest
income 370,307 - - - 100 - - - - 370,407
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Fee and commission
income 202,583 - - - - - - - - 202,583
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Fee and commission
expenses (10,299) - - - - - - - - (10,299)
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Net foreign
exchange gains 31,291 - - - - - - - - 31,291
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Net gains/(losses)
on financial
instruments 10,052 (10,666) - - - - - - - (614)
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Net gains/(losses)
on derecognition
of financial
assets measured
at amortised
cost 5,235 - - - - - - - - 5,235
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Net insurance
finance
income/(expense)
and net reinsurance
finance
income/(expense) - - 4,075 - - - - - - 4,075
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Net insurance
service result - - - 5,031 130,061 (74,562) - - - 60,530
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Net reinsurance
service result - - - - - - (20,039) - - (20,039)
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Income from
assets under
insurance and
reinsurance
contracts 114,681 (114,681) - - - - - - - n/a
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Expenses from
liabilities
under insurance
and reinsurance
contracts (43,542) 43,542 - - - - - - - n/a
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Net losses
from revaluation
and disposal
of investment
properties (999) - - - - - - - - (999)
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Net gains on
disposal of
stock of property 13,970 - - - - - - - - 13,970
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Other income 16,681 - - - - - - - - 16,681
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Total operating
income 709,960 (81,805) 4,075 5,031 130,161 (74,562) (20,039) - - 672,821
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Staff costs (294,361) - - - - - - 9,207 - (285,154)
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Special levy
on deposits
and other
levies/contributions (38,492) - - - - - - - - (38,492)
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Provisions
for pending
litigations,
regulatory
and other provisions
(net of reversals) (11,880) - - - - - - - - (11,880)
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Other operating
expenses (166,365) - - - - - - 8,449 - (157,916)
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Operating profit
before credit
losses and
impairment 198,862 (81,805) 4,075 5,031 130,161 (74,562) (20,039) 17,656 - 179,379
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Credit losses
on financial
assets (59,529) - - - 442 - - - - (59,087)
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Impairment
net of reversals
on non--financial
assets (29,549) - - - - - - - - (29,549)
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Profit before
tax 109,784 (81,805) 4,075 5,031 130,603 (74,562) (20,039) 17,656 - 90,743
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Income tax (35,812) - - - - - - 77 4,423 (31,312)
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
Profit after
tax for the
year 73,972 (81,805) 4,075 5,031 130,603 (74,562) (20,039) 17,733 4,423 59,431
---------- --------------------- ----------- ------------- -------------- ----------- ------------- --------------------- ---------- ------------
The Consolidated Income Statement for the six months ended 30 June
2022, as restated for IFRS 17 and as previously reported under IFRS
4 is presented below:
Six months ended 30 June 2022
IFRS 4 IFRS 17 IFRS 17
(as previously (adjustments) (restated)
presented)
------------------------- ------------------------- --------------------------
EUR000 EUR000 EUR000
------------------------- ------------------------- --------------------------
Turnover 414,996 - 414,996
------------------------- ------------------------- --------------------------
Interest income 181,470 - 181,470
------------------------- ------------------------- --------------------------
Income similar to interest income 9,518 - 9,518
------------------------- ------------------------- --------------------------
Interest expense (37,541) 27 (37,514)
------------------------- ------------------------- --------------------------
Expense similar to interest expense (7,752) - (7,752)
------------------------- ------------------------- --------------------------
Net interest income 145,695 27 145,722
------------------------- ------------------------- --------------------------
Fee and commission income 98,086 - 98,086
------------------------- ------------------------- --------------------------
Fee and commission expense (4,447) - (4,447)
------------------------- ------------------------- --------------------------
Net foreign exchange gains 11,898 - 11,898
------------------------- ------------------------- --------------------------
Net gains/(losses) on financial
instruments (2,060) (8,123) (10,183)
------------------------- ------------------------- --------------------------
Net gains/(losses) on derecognition
of
financial assets measured at
amortised
cost 1,648 - 1,648
------------------------- ------------------------- --------------------------
Net insurance finance
income/(expense)
and net reinsurance finance
income/(expense) - 2,653 2,653
------------------------- ------------------------- --------------------------
Net insurance service result - 31,268 31,268
------------------------- ------------------------- --------------------------
Net reinsurance service result - (10,197) (10,197)
------------------------- ------------------------- --------------------------
Income from assets under insurance
and
reinsurance contracts 29,859 (29,859) -
------------------------- ------------------------- --------------------------
Expenses from liabilities under
insurance
and reinsurance contracts 3,010 (3,010) -
------------------------- ------------------------- --------------------------
Net losses from revaluation and
disposal
of investment properties (1,372) - (1,372)
------------------------- ------------------------- --------------------------
Net gains on disposal of stock of
property 8,242 - 8,242
------------------------- ------------------------- --------------------------
Other income 8,927 - 8,927
------------------------- ------------------------- --------------------------
Total operating income 299,486 (17,241) 282,245
------------------------- ------------------------- --------------------------
Staff costs (103,135) 4,832 (98,303)
------------------------- ------------------------- --------------------------
Special levy on deposits and other
levies/contributions (16,507) - (16,507)
------------------------- ------------------------- --------------------------
Provisions for pending litigations,
regulatory
and other provisions (net of
reversals) (594) - (594)
------------------------- ------------------------- --------------------------
Other operating expenses (79,799) 3,975 (75,824)
------------------------- ------------------------- --------------------------
Operating profit before credit
losses
and impairment 99,451 (8,434) 91,017
------------------------- ------------------------- --------------------------
Credit losses on financial assets (24,965) 139 (24,826)
------------------------- ------------------------- --------------------------
Impairment net of reversals on
non--financial
assets (12,157) - (12,157)
------------------------- ------------------------- --------------------------
Profit before tax 62,329 (8,295) 54,034
------------------------- ------------------------- --------------------------
Income tax (11,579) 421 (11,158)
------------------------- ------------------------- --------------------------
Profit after tax for the period 50,750 (7,874) 42,876
------------------------- ------------------------- --------------------------
Attributable to:
------------------------- ------------------------- --------------------------
Owners of the Company 50,088 (7,874) 42,214
------------------------- ------------------------- --------------------------
Non--controlling interests 662 - 662
------------------------- ------------------------- --------------------------
Profit for the period 50,750 (7,874) 42,876
------------------------- ------------------------- --------------------------
Basic profit per share attributable
to
the owners of the Company (EUR
cent) 11.2 (1.7) 9.5
------------------------- ------------------------- --------------------------
Diluted profit per share
attributable
to the owners of the Company (EUR
cent) 11.2 (1.7) 9.5
------------------------- ------------------------- --------------------------
Analysis of new insurance line items included in the consolidated
income statement for the year ended 31 December 2022
Year ended
31 December
2022
EUR000
--------------------
Insurance finance income and expense and reinsurance finance
income and expense 41,429
--------------------
Return on assets backing insurance liabilities (37,354)
--------------------
Net insurance finance income/(expense) and net reinsurance
finance income/(expense) 4,075
--------------------
Insurance revenue 135,495
--------------------
Insurance service expenses (74,562)
--------------------
Other insurance related income/(expense) (403)
--------------------
Net insurance service result 60,530
--------------------
Allocation of reinsurance premiums (36,170)
--------------------
Amounts recoverable from reinsurers for incurred claims 16,131
--------------------
Net reinsurance service result (20,039)
--------------------
Net insurance result 44,566
--------------------
IAS 1 Presentation of Financial Statements and IFRS Practice Statement
2: Disclosure of Accounting policies (amendments)
The amendments to IAS 1 require companies to disclose their material
accounting policy information rather than their significant accounting
policies. The amendments to IFRS Practice Statement 2 provide guidance
on how to apply the concept of materiality to accounting policy disclosures.
These amendments did not have an impact on the Group's results and
financial position.
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors:
Definition of Accounting Estimates (amendments)
The amendments introduce the definition of accounting estimates and
include other amendments to IAS 8 to help entities distinguish changes
in accounting estimates from changes in accounting policies. These
amendments did not have an impact on the Group's financial results
and financial position.
IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities
arising from a Single Transaction (amendments)
The amendments require companies to recognise deferred tax on transactions
that, on initial recognition, give rise to equal amounts of taxable
and deductible temporary differences. The amendments typically apply
to transactions such as leases for the lessee and decommissioning
obligations. These amendments did not have an impact on the Group's
results and financial position.
IAS 12 Income Taxes: International Tax Reform - Pillar Two Model Rules
(amendments)
The amendments require an entity to disclose that it has applied the
exception to recognising and disclosing information about deferred
tax assets and liabilities related to Pillar Two income taxes. An
entity is required to separately disclose its current tax expense
(income) related to Pillar Two income taxes, in the periods when the
legislation is effective. The amendments require, for periods in which
Pillar Two legislation is (substantively) enacted but not yet effective,
disclosure of known or reasonably estimable information that helps
users of financial statements understand the entity's exposure arising
from Pillar Two income taxes. To comply with these requirements, an
entity is required to disclose qualitative and quantitative information
about its exposure to Pillar Two income taxes at the end of the reporting
period. The legislation has not been substantively enacted at the
balance sheet date and the Group will continue to monitor the evolving
national legislation including any disclosures required, or exemptions
available, under IAS 12 in the year ending 31 December 2023.
3.3.2 Standards and Interpretations that are issued but not yet adopted
The IASB has issued a number of minor amendments to IFRSs effective
1 January 2024 (including IAS 1 Presentation of Financial Statements,
IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures,
and IFRS 16 Leases). These amendments are not expected to have a
significant impact on the Group.
4. Going concern
The Directors have made an assessment of the ability of the Group,
the Company and BOC PCL to continue as a going concern for a period
of 12 months from the date of approval of these Consolidated Financial
Statements.
The Directors have concluded that there are no material uncertainties
which would cast a significant doubt over the ability of the Group,
the Company and BOC PCL to continue to operate as a going concern
for a period of 12 months from the date of approval of these Consolidated
Financial Statements.
In making this assessment, the Directors have considered a wide range
of information relating to present and future conditions, including
projections of profitability, cash flows, capital requirements and
capital resources, taking also into consideration, the Group's Financial
Plan approved by the Board in February 2023 (the 'Plan') and the
operating environment as well as any reforecast exercises performed.
The Group has sensitised its projection to cater for a downside scenario
and has used reasonable economic inputs to develop its medium--term
strategy. The Group is working towards materialising its Strategy.
Capital
The Directors and Management have considered the Group's forecasted
capital position, including the potential impact of a deterioration
in economic conditions. The Group has developed capital projections
under a base and an adverse scenario and the Directors believe that
the Group has sufficient capital to meet its regulatory capital requirements
throughout the period of assessment.
Funding and liquidity
The Directors and Management have considered the Group's funding
and liquidity position and are satisfied that the Group has sufficient
funding and liquidity throughout the period of assessment. The Group
continues to hold a significant liquidity buffer at 30 June 2023
that can be easily and readily monetised in a period of stress.
5. Economic and geopolitical environment
The economic environment in 2023 and over the medium term is now
subject to a high degree of uncertainty, with the continuation of
the war in Ukraine, rising tensions in US--China relations, more
persistent inflation and tighter monetary conditions threatening
a significant slowdown in the global economy, particularly in Europe.
A combination of supply shocks, including rising protectionism, the
green transition, persistently low productivity growth, slowing population
growth as well as more widespread labour shortages following the
pandemic, could potentially result in average inflation over the
next few years being higher than over the past years.
Headline inflation has decelerated significantly in the first half
of 2023, but core inflation, once the volatile energy and food items
are excluded, remains stubbornly sticky. As a result, central banks
in advanced countries remain focused on fighting inflation and are
likely to continue to raise their policy rates into the third quarter
of the year. Interest rates are thus likely to stay higher for longer,
subduing growth and extending debt pressures in emerging markets.
Government debt levels in relation to GDP in the advanced economies,
fell in 2021--2022 following steep increases in 2020, due to a stronger
recovery and higher inflation. However, governments' fiscal space
will narrow again in the medium term due to higher interest rates
and slower economic growth, limiting their ability to deal with future
economic emergencies and potentially increasing the risk of financial
instability, especially in more vulnerable countries.
The International Monetary Fund in its Spring World Economic Outlook
released in April 2023, predicts slower growth for the global economy
and increased financial and other vulnerabilities under tighter monetary
conditions.
Cyprus demonstrates relative strength and resilience in this environment
with a growth outlook that outweighs average growth in EU and with
inflation dropping at a faster pace in comparison. Economic momentum
is expected to continue in 2023 at a slower pace, driven mainly by
the expected deterioration of external demand, as well as slowing
domestic demand caused by still high consumer price inflation.
Cyprus' risk profile has improved significantly, but substantial
risks remain in the domestic environment and in the external environment
on which it depends. The most important factor weighing on Cyprus'
sovereign risk is the high level of public debt. Banks have weathered
the pandemic crisis well, with their liquidity and capital buffers
intact. Non--performing loans continued their downward trend, mainly
due to the sale packages of the two largest banks. However, in an
uncertain environment, asset quality remains a focus for bank management
and supervisors.
The Group believes it is reasonably well positioned to withstand
volatility that may arise from a deterioration in the geopolitical
and global economic environment.
Group's Direct exposure to Russia
Russia's invasion of Ukraine has triggered disruptions and uncertainties
in the markets and in the global economy. The coordinated implementation
of sanctions by the EU, the UK and the U.S., joined by several other
countries, imposed against Russia, Belarus and certain regions of
Ukraine and certain Russian entities and nationals. The Group's policy
is to comply with all applicable laws, including sanctions and export
controls.
Overall, the Group's direct exposure to Russia and Belarus remains
limited. In summary, the Group has direct lending exposure to Russia
and Belarus of a gross book value of approximately EUR82 million
(31 December 2022: approximately EUR86 million) across its business
divisions as at 30 June 2023, of which EUR74 million (31 December
2022: EUR76 million) were classified as performing and secured mainly
with residential collateral located in Cyprus. The basis of the exposure
is expanded compared to the country risk exposure as included in
Note 30.2 of the Consolidated Financial Statements which is disclosed
by reference to the country of residency/country of registration,
to also include exposures for loans and advances to customers with
passport of origin in these countries and/or business activities
within these countries and/or where the UBO has passport of origin
or residency in these countries.
Customer deposit balances with customers with UBO primary passport
of origin in these countries amounts to approximately 3.74% of total
deposits as at 30 June 2023 as disclosed in Note 22 of the Consolidated
Financial Statements.
With respect to the Group's Russian subsidiary, the net exposure
is being run down and as a result the net assets included on the
Group's balance sheet as at 30 June 2023 are less than EUR1 million
(31 December 2022: less than EUR1 million).
6. Significant and other judgements, estimates and assumptions
The preparation of the Consolidated Financial Statements requires
the Company's Board of Directors and management to make judgements,
estimates and assumptions that can have a material impact on the
amounts recognised in the Consolidated Financial Statements and the
accompanying disclosures, as well as the disclosures of contingent
liabilities. Uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the carrying
amount of assets or liabilities affecting future periods.
The key assumptions concerning the future and other key sources of
estimation uncertainty at the reporting date that have a significant
risk of causing a material adjustment to the carrying amounts of
assets and liabilities are described below. The Group based its assumptions
and estimates on parameters available when the Consolidated Financial
Statements were prepared. Existing circumstances and assumptions
about future developments may, however, change due to market changes
or circumstances beyond the control of the Group. Such changes are
reflected in the assumptions when they occur.
The most significant judgements, estimates and assumptions relate
to the calculation of expected credit losses (ECL), the estimation
of the net realisable value of stock of property and the provisions
for pending litigation, claims, regulatory and other matters, which
are presented in Notes 6.1 to 6.4 below. Other judgements, estimates
and assumptions are disclosed in Notes 5.5 to 5.13 of the annual
consolidated financial statements for the year ended 31 December
2022.
6.1 Classification of financial assets
The Group exercises judgement upon determining the classification
of its financial assets, in relation to business models and future
cash flows.
Judgement is also required to determine the appropriate level at
which the assessment of business models needs to be performed. In
general, the assessment for the classification of financial assets
into the business models is performed at the level of each business
line. Further, the Group exercises judgement in determining the effect
of sales of financial instruments on its business model assessment.
The Group also applies judgement upon considering whether contractual
features including interest rate could significantly affect future
cash flows. Furthermore, judgement is required when assessing whether
compensation paid or received on early termination of lending arrangements
results in cash flows that are not SPPI.
6.2 Calculation of expected credit losses
The calculation of ECL requires management to apply significant judgement
and make estimates and assumptions, involving significant uncertainty
at the time these are made. Changes to these estimates and assumptions
can result in significant changes to the timing and amount of ECL
to be recognised. The Group's calculations are outputs of models,
of underlying assumptions on the choice of variable inputs and their
interdependencies.
It has been the Group's policy to regularly review its models in
the context of actual loss experience and adjust when necessary.
Elements of ECL models that are considered accounting judgements
and estimates include:
Assessment of significant increase in credit risk (SICR)
IFRS 9 does not include a definition of significant increase in credit
risk. The Group assesses whether significant increase in credit risk
has occurred since initial recognition using predominantly quantitative
and in certain cases qualitative information. The determination of
the relevant thresholds to determine whether a significant increase
in credit risk has occurred, is based on statistical metrics and
could be subject to management judgement. The relevant thresholds
are set, monitored and updated on a yearly basis by the Risk Management
Division and endorsed by the Group Provisions Committee.
Determining the probability of default (PD) at initial recognition
requires management estimates in particular cases. Specifically,
in the case of exposures existing prior to the adoption of IFRS 9,
a retrospective calculation of the PD is made in order to quantify
the risk of each exposure at the time of the initial recognition.
In certain cases, estimates about the date of initial recognition
might be required.
For the retail portfolio, the Group uses a PD at origination incorporating
behavioural information (score cards) whereas, for the corporate
portfolio, the Group uses the internal credit rating information.
For revolving facilities, management estimates are required with
respect to the lifetime and hence a behavioural maturity model is
utilised, assigning an expected maturity based on product and customer
behaviour.
Scenarios and macroeconomic factors
The Group determines the ECL, which is a probability weighted amount,
by evaluating a range of possible outcomes. Management uses forward
looking scenarios and assesses the suitability of weights used. These
are based on management's assumptions taking into account macroeconomic,
market and other factors. Changes in these assumptions and in other
external factors could significantly impact ECL. Macroeconomic inputs
and weights per scenario are monitored by the Economic Research Department
and are based on internal model analysis after considering external
market data supplemented by expert judgement.
In a challenging international environment, the Cypriot economy has
shown considerable resilience. Growth remained strong in 2022 averaging
5.6% which is well above the euro area average, driven almost entirely
by services on the supply side. Tourist activity recovered strongly
during the year 2022 with arrivals reaching 80% and receipts 90%
of their levels in 2019. On the demand side, growth was driven by
private consumption and investment, especially inventory accumulation,
while the external sector made a negative contribution due to faster
growth in imports.
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. This follows
strong growth of 6.9% and 5.6% respectively in 2021--22 driven by
a strong recovery in tourism toward pre--pandemic levels, and also
strong growth in other services sectors. GDP growth will be materially
supported in 2023 by EU funding in the form of grants and loans from
the Recovery and Resilience Facility (RRF). Cyprus has already received
EUR157 million as pre--financing in September 2021 and the first
payment of EUR85 million in December 2022 after achieving the 14
milestones being linked to the first instalment. Cyprus is broadly
on track in the implementation of its National Recovery and Resilience
Plan.
Harmonised inflation in Cyprus was on average 8.1% in 2022, compared
to 8.4% in the Euro area. Inflation peaked in July 2022 at 10.6%
and has been decelerating since, reaching 2.8% in June 2023. In the
first half of 2023, total harmonised inflation was 4.9% and is expected
to moderate further but only gradually. For Cyprus, the European
Commission forecasts harmonised inflation of 3.8% in 2023 and 2.5%
in 2024.
Developments in 2022 were favourable for public finances. The IMF
forecasts fiscal surpluses of 1.9% and 1.7% of GDP and gross debt
to GDP of 79.5% and 71.9% for 2023 and 2024 respectively in each
case.
The sovereign risk ratings of the Cypriot government have improved
significantly in recent years, reflecting reduced banking sector
risks, improved economic resilience and consistent fiscal outperformance.
Cyprus has demonstrated policy commitment to correcting fiscal imbalances
through reform and restructuring of its banking system.
Banks managed to weather the pandemic crisis well, with their liquidity
and capital buffers intact. Non--performing exposures continued their
declining trend, mostly to sales packages by the two largest banks.
Total NPEs at the end of April 2023 were EUR2.2 billion or 9% of
gross loans. About 44.8% of total non--performing exposures are restructured
facilities and the coverage ratio was 54.2%. Private debt, as measured
by loans to residents on bank balance sheets, excluding the government,
dropped to EUR20.8 billion at the end of May 2023, or about 77% of
GDP.
However, substantial risks remain in terms of the domestic operating
environment, as well as the external environment on which it depends.
The large stock of public debt weighs heavily on Cyprus' sovereign
credit risk. In the banking sector non--performing exposures need
to drop further. While the current account deficit will be narrowing
as exports services recover in the medium term, it will remain sizable.
The monetary policy of the European Central Bank can remain tight
for longer if inflation pressures persist. The extent of the crisis
in Ukraine can lead to elevated tensions for a considerable period
of time.
For the ECL, the Group updated its forward looking scenarios, factoring
in updated macroeconomic assumptions and other monetary and fiscal
developments at the national and the EU level based on developments
and events as at the reporting date 30 June 2023.
The tables below indicate the most significant macroeconomic variables
as well as the scenarios used by the Group as at 30 June 2023 and
31 December 2022 respectively. The Group uses three different economic
scenarios in the calculation of default probabilities and provisions.
The Group has used the 30--50--20 probability structure for the adverse,
base and favourable scenarios respectively compared to the 25--50--25
structure derived using the method described in Note 2.19.5 of the
annual consolidated financial statements for the year ended 31 December
2022. This reflects management's view of specific characteristics
of the Cyprus economy that render it more vulnerable to external
and internal shocks. Given the added uncertainties of the outlook
for 2023 and downside risks, a global slowdown and the continuing
war in Ukraine with the risk of escalation rising, as well as the
tighter monetary environment in the fight against inflation, management
decided to maintain an elevated weight on the adverse scenario.
30 June 2023
Year Scenario Weight % Real GDP Unemployment Consumer RICS House
(% change) rate (% of Price Index Price Index
labour force) (average (average
% %
change) change)
2023 Adverse 30.0 --0.7 7.7 2.8 --1.8
------------ ------------------ ----------- -------------- ------------------ ---------------
Baseline 50.0 2.9 7.0 3.5 3.0
------------------------- ------------------ ----------- -------------- ------------------ ---------------
Favourable 20.0 3.7 6.9 3.9 3.4
------------------------- ------------------ ----------- -------------- ------------------ ---------------
2024 Adverse 30.0 --1.2 8.4 2.4 0.2
------------ ------------------ ----------- -------------- ------------------ ---------------
Baseline 50.0 2.6 6.9 2.7 3.1
------------------------- ------------------ ----------- -------------- ------------------ ---------------
Favourable 20.0 3.3 6.7 2.9 3.5
------------------------- ------------------ ----------- -------------- ------------------ ---------------
2025 Adverse 30.0 1.3 8.2 2.6 1.1
------------ ------------------ ----------- -------------- ------------------ ---------------
Baseline 50.0 2.8 6.4 2.5 2.9
------------------------- ------------------ ----------- -------------- ------------------ ---------------
Favourable 20.0 2.8 6.2 2.6 3.1
------------------------- ------------------ ----------- -------------- ------------------ ---------------
2026 Adverse 30.0 3.0 8.2 2.4 2.5
------------ ------------------ ----------- -------------- ------------------ ---------------
Baseline 50.0 3.0 6.2 2.5 2.9
------------------------- ------------------ ----------- -------------- ------------------ ---------------
Favourable 20.0 2.9 5.9 2.4 3.0
------------------------- ------------------ ----------- -------------- ------------------ ---------------
2027 Adverse 30.0 3.8 7.7 2.5 3.5
------------ ------------------ ----------- -------------- ------------------ ---------------
Baseline 50.0 2.9 5.8 2.5 2.9
------------------------- ------------------ ----------- -------------- ------------------ ---------------
Favourable 20.0 2.9 5.3 2.4 3.0
------------------------- ------------------ ----------- -------------- ------------------ ---------------
31 December 2022
Year Scenario Weight % Real GDP Unemployment Consumer RICS House
(% change) rate (% of Price Index Price Index
labour force) (average (average
% %
change) change)
2023 Adverse 30.0 --2.0 7.0 3.7 --2.2
------------ ------------------ ----------- -------------- ------------------ ---------------
Baseline 50.0 2.8 6.3 4.7 2.8
------------------------- ------------------ ----------- -------------- ------------------ ---------------
Favourable 20.0 3.6 5.9 5.1 3.3
------------------------- ------------------ ----------- -------------- ------------------ ---------------
2024 Adverse 30.0 --0.7 6.8 3.0 --0.8
------------ ------------------ ----------- -------------- ------------------ ---------------
Baseline 50.0 2.4 6.0 3.2 2.5
------------------------- ------------------ ----------- -------------- ------------------ ---------------
Favourable 20.0 2.8 5.8 3.3 2.8
------------------------- ------------------ ----------- -------------- ------------------ ---------------
2025 Adverse 30.0 1.4 6.7 2.4 1.1
------------ ------------------ ----------- -------------- ------------------ ---------------
Baseline 50.0 2.5 5.7 2.3 2.5
------------------------- ------------------ ----------- -------------- ------------------ ---------------
Favourable 20.0 2.6 5.6 2.4 2.6
------------------------- ------------------ ----------- -------------- ------------------ ---------------
2026 Adverse 30.0 2.8 6.7 2.4 2.7
------------ ------------------ ----------- -------------- ------------------ ---------------
Baseline 50.0 2.8 5.5 2.4 2.5
------------------------- ------------------ ----------- -------------- ------------------ ---------------
Favourable 20.0 3.1 5.3 2.4 2.6
------------------------- ------------------ ----------- -------------- ------------------ ---------------
2027 Adverse 30.0 3.5 6.5 2.5 3.5
------------ ------------------ ----------- -------------- ------------------ ---------------
Baseline 50.0 2.6 5.2 2.5 2.5
------------------------- ------------------ ----------- -------------- ------------------ ---------------
Favourable 20.0 2.6 4.9 2.4 2.6
------------------------- ------------------ ----------- -------------- ------------------ ---------------
The adverse scenarios may outpace the base and favourable scenarios
after the initial shock has been adjusted to and the economy starts
to expand from a lower base. Thus, in the adverse scenario GDP will
follow a growth trajectory that will ultimately equal and surpass
the baseline before converging. Property prices are determined by
multiple factors with GDP growth featuring prominently. However,
the relationship between GDP growth and property prices entails a
lag.
The baseline scenario was updated for the 30 June 2023 reporting,
considering available information and relevant developments until
then, and is described next. Economic activity continued to recover
strongly in 2022 driven by a steep recovery in the tourism sector
after the steep contraction of 2020, and a strong growth in private
consumption, despite an aggressive monetary contraction and steep
increases in interest rates. Economic momentum is expected to continue
in 2023 at a slower pace. Real GDP increased by 5.6% in 2022 and
is projected to rise by 2.8% in 2023 according to the Ministry of
Finance. Consumer price inflation averaged 8.1% in 2022 and is expected
to decelerate to 3.8% in 2023 according to the European Commission's
Spring forecasts. The unemployment rate will continue to drop steadily
in the medium term. Property prices will continue to rise modestly
in 2023 as domestic residential demand remains relatively strong.
The adverse scenario is consistent with assumptions for a global
economic slowdown driven by the war in Ukraine, elevated inflation
and continued tight monetary policies. The Cypriot economy relies
on services, particularly on tourism, international business, and
information services with an outward orientation. This makes the
Cypriot economy more exposed than other economies to the international
environment and terms of trade shocks. Weaker external demand and
more restricted domestic demand as a result of higher interest rates
will lead to a slow--down of economic activity. The adverse scenario
assumes a deeper impact of these conditions on the real economy than
under the baseline scenario. Real GDP is expected to contract modestly
by 0.7% in 2023 with the recovery remaining weak in the medium term.
In the labour market the unemployment rate will rise only modestly
and inflation while elevated, will be lower than under the baseline
scenario. House prices will also contract in line with the contraction
in real GDP.
Since 1 January 2018, the Group has reassessed the key economic variables
used in the ECL models consistent with the implementation of IFRS
9. The Group uses actual values for the input variables. These values
are sourced from the Cyprus Statistical Service, the Eurostat, the
Central Bank of Cyprus for the residential property price index,
and the European Central Bank for interest rates. Interest rates
are also sourced from Bloomberg. In the case of property prices,
the Group additionally uses data from the Royal Institute of Chartered
Surveyors. For the forward reference period, the Group uses the forecast
values for the same variables, as prepared by the BOC PCL's Economic
Research Department. The results of the internal forecast exercises
are consistent with publicly available forecasts from official sources
including the European Commission, the International Monetary Fund,
the European Central Bank and the Ministry of Finance of the Republic
of Cyprus.
Qualitative adjustments or overlays are occasionally made when inputs
calculated do not capture all the characteristics of the market.
These are reviewed and adjusted, if considered necessary, by the
Risk Management Division, endorsed by the Group Provisions Committee
and approved by the joint Risk and Audit Committee. Qualitative adjustments
or overlays are described in the below sections as applicable.
For Stage 3 customers, the calculation of individually assessed provisions
is the weighted average of three scenarios: base, adverse and favourable.
The base scenario focuses on the following variables, which are based
on the specific facts and circumstances of each customer: the operational
cash flows, the timing of recovery of collaterals and the haircuts
from the realisation of collateral. The base scenario is used to
derive additional either more favourable or more adverse scenarios.
Under the adverse scenario, operational cash flows are decreased
by 50%, applied haircuts on real estate collateral are increased
by 50% and the timing of recovery of collaterals is increased by
1 year with reference to the baseline scenario, whereas under the
favourable scenario applied haircuts are decreased by 5%, with no
change in the recovery period with reference to the baseline scenario.
Assumptions used in estimating expected future cash flows (including
cash flows that may result from the realisation of collateral) reflect
current and expected future economic conditions and are generally
consistent with those used in the Stage 3 collectively assessed exposures.
For collectively assessed customers the calculation is also the weighted
average of three scenarios: base, adverse and favourable.
Assessment of loss given default (LGD)
A factor for the estimation of loss given default (LGD) is the timing
and net recoverable amount from repossession or realisation of collaterals
which mainly comprise real estate assets.
Assumptions have been made about the future changes in property values,
as well as the timing for the realisation of collateral, taxes and
expenses on the repossession and subsequent sale of the collateral
as well as any other applicable haircuts. Indexation has been used
as the basis to estimate updated market values of properties, supplemented
by management judgement where necessary, given the difficulty in
differentiating between short--term impacts and long--term structural
changes and the shortage of market evidence for comparison purposes.
Assumptions were made on the basis of a macroeconomic scenario for
future changes in property prices and qualitative adjustments or
overlays were applied to the projected future property value increases
to restrict the level of future property price growth to 0% for all
scenarios for loans and advances to customers which are secured by
property collaterals.
At 30 June 2023, the weighted average haircut (including liquidity
haircut and selling expenses) used in the collectively assessed provisions
calculation for loans and advances to customers is approximately
32% under the baseline scenario (31 December 2022: approximately
32%).
The timing of recovery from real estate collaterals used in the collectively
assessed provisions calculation for loans and advances to customers
has been estimated to be on average seven years under the baseline
scenario (31 December 2022: average of seven years).
For the calculation of individually assessed provisions, the timing
of recovery of collaterals as well as the haircuts used are based
on the specific facts and circumstances of each case. For specific
cases judgement may also be exercised over staging during the individual
assessment.
The above assumptions are also influenced by the ongoing regulatory
dialogue the Group maintains with its lead regulator, the ECB, and
other regulatory guidance and interpretations issued by various regulatory
and industry bodies such as the ECB and the EBA, which provide guidance
and expectations as to relevant definitions and the treatment/classification
of certain parameters/assumptions used in the estimation of provisions.
Any changes in these assumptions or differences between assumptions
made and actual results could result in significant changes in the
estimated amount of expected credit losses of loans and advances
to customers.
Expected lifetime of revolving facilities
The expected lifetime of revolving facilities is based on a behavioural
maturity model for revolving facilities based on BOC PCL's available
historical data, where an expected maturity for each revolving facility
based on the customer's profile is assigned. The behavioural model
was updated in the second quarter of 2022 to reflect updates in customers
profile whilst maintaining the same model components.
Modelling adjustments
Forward looking models have been developed for ECL parameters PD,
EAD, LGD for all portfolios and segments sharing similar characteristics.
Model validation (initial and periodic) is performed by the independent
validation unit within the Risk Management Division and involves
assessment of a model under both quantitative (i.e. stability and
performance) and qualitative terms. The frequency and level of rigour
of model validation is commensurate to the overall use, complexity
and materiality of the models, (i.e. risk tiering). In certain cases,
judgement is exercised in the form of management overlay by applying
adjustments on the modelled parameters. Governance of these models
lies with the Risk Management Division, where a strong governance
process is in place around the determination of the impairment measurement
methodology including inputs, assumptions and overlays. Any management
overlays are prepared by the Risk Management Division, endorsed by
the Group Provisions Committee and approved by the joint Risk and
Audit Committee.
ECL allowances also include allowances on off--balance sheet credit
exposures represented by guarantees given and by irrevocable commitments
to disburse funds. Off--balance sheet credit exposures of the individually
assessed assets require assumptions on the probability, timing and
amount of cash outflows. For the collectively assessed off--balance
sheet credit exposures, the allowance for provisions is calculated
using the Credit Conversion Factor (CCF) model.
Overlays in the context of current economic conditions
The two overlays introduced in 2022 in response to uncertainties
from the consequences of the Ukrainian crisis, in the collectively
assessed population for exposures that were considered to be the
most vulnerable to the implications of the crisis, continued to be
in effect during the six months ended 30 June 2023. These were introduced
to address the increased uncertainties from the geopolitical instability,
trade restrictions, disruptions in the global supply chains, increases
in the energy prices and their potential negative impact on the domestic
cost of living. The impact on the ECL from the application of these
overlays was approximately EUR3.7 million ECL release for the six
months ended 30 June 2023 (following an update of the assessment
of the sectors classified as High Risk and/or Early Warning) and
a net transfer of EUR22 million loans from Stage 1 to Stage 2 as
at 30 June 2023.
Specifically, the first overlay relates to private individuals that
are expected to be affected by the increased cost of living in order
to reflect the future vulnerabilities to inflation, where a scenario
with higher percentage increase is applied for the cost of living.
A one--notch downgrade is applied to the identified portfolio, reflecting
the expected impact of inflation to their credit quality. The second
overlay relates to sectors that have been classified as High Risk
or Early Warning to reflect the expected Gross Value Added (GVA)
outlook of these sectors, where this has deteriorated. Specifically,
the sector risk classification is carried out by comparing the projected
GVA outlook of each sector with its past performance (intrinsic)
and its performance vis--a--vis other sectors (systemic). In cases
where both systemic and intrinsic indicators are found to have deteriorated,
the relevant sector is classified as High Risk, whereas if only one
of the two has deteriorated, then the sector is classified as Early
Warning. A one--notch downgrade is applied to Early Warning sectors
whereas for High Risk sectors a more severe downgrade is applied
accordingly.
In addition, the overlay on the probability of default (PD), introduced
in the fourth quarter of 2022 to address specifically the high inflation
environment affecting the economy, continued to be in effect during
the six months ended 30 June 2023. With this overlay the PDs were
floored to the maximum of 2018/2019 level, on the basis that these
years are considered as closer to a business--as--usual environment
in terms of default rates. The impact on the ECL from the application
of this overlay was EUR3.9 million charge for the six months ended
30 June 2023, as a result of multiple components including updated
ratings, PD and thresholds calibrations and stage migrations.
In addition, in the six months ended 30 June 2023, for the LGD parameter,
the overlay has been integrated through reduced curability period
for Stage 2 and Stage 3 exposures (i.e., the maximum period that
a customer is considered to cure has been reduced). The impact on
the ECL was EUR8.4 million charge for the six months ended 30 June
2023.
The Group has exercised critical judgement on a best effort basis,
to consider all reasonable and supportable information available
at the time of the assessment of the ECL allowance as at 30 June
2023. The Group will continue to evaluate the ECL allowance and the
related economic outlook each quarter, so that any changes arising
from the uncertainty on the macroeconomic outlook and geopolitical
developments, impacted by the implications of the Russian invasion
of Ukraine, are timely captured.
Portfolio segmentation
The individual assessment is performed not only for individually
significant assets but also for other exposures meeting specific
criteria determined by management. The selection criteria for the
individually assessed exposures are based on management judgement
and are reviewed on a quarterly basis by the Risk Management Division
and are adjusted or enhanced, if deemed necessary. The selection
criteria were further enhanced in 2022 to include significant exposures
to customers with passport of origin or residency in Russia, Ukraine
or Belarus and/or business activity within these countries.
Further details on impairment allowances and related credit information
are set out in Note 30.
6.3 Stock of property -- estimation of net realisable value
Stock of property is measured at the lower of cost and net realisable
value. The net realisable value is determined through valuation techniques,
requiring significant judgement, taking into account all available
reference points, such as expert valuation reports, current market
conditions, the holding period of the asset, applying an appropriate
illiquidity discount where considered necessary, and any other relevant
parameters. Selling expenses are deducted from the realisable value.
Depending on the value of the underlying asset and available market
information, the determination of costs to sell may require professional
judgement which involves a high degree of uncertainty due to the
relatively low level of market activity.
More details on the stock of property are presented in Note 19.
6.4 Provisions for pending litigation, claims, regulatory and other matters
The accounting policy for provisions for pending litigation, claims,
regulatory and other matters is described in Note 2.37 of the annual
consolidated financial statements for the year ended 31 December
2022. Judgement is required in determining whether a present obligation
exists and in estimating the probability, timing and amount of any
outflows. Provisions for pending litigation, claims, regulatory and
other matters usually require a higher degree of judgement than other
types of provisions. It is expected that the Group will continue
to have a material exposure to litigation and regulatory proceedings
and investigations relating to legacy issues in the medium term.
The matters for which the Group determines that the probability of
a future loss is more than remote will change from time to time,
as will the matters as to which a reliable estimate can be made and
the possible loss for such matters can be estimated. Actual results
may prove to be significantly higher or lower than the estimated
possible loss in those matters, where an estimate was made. In addition,
loss may be incurred in matters with respect to which the Group believed
the probability of loss was remote.
For a detailed description of the nature of uncertainties and assumptions
and the effect on the amount and timing of pending litigation, claims,
regulatory and other matters refer to Note 27.
7. Segmental analysis
The Group's activities are mainly concentrated in Cyprus. Cyprus
operations are organised into operating segments based on the line
of business. The results of the overseas activities of the Group,
namely Greece, Romania and Russia, are presented within segment 'Other',
given the size of these operations which are in a run--down mode
and relate to legacy operations of the Group. Further, the results
of certain small subsidiaries of the Group are allocated to the segments
based on their key activities.
As from the fourth quarter of 2022, following an internal re--organisation,
the Large Corporate and the International Corporate business lines,
which were previously reported together as one business line namely
Global Corporate, have been separated, and Large Corporate is presented
and monitored together with Corporate, while International Corporate
Banking, Project Finance & Loan Syndication and Shipping Center are
presented and monitored under International Corporate. Comparative
information in 'Analysis by business line' and 'Analysis of total
revenue' were restated to account for this change, which was reflected
in the annual consolidated financial statements for the year ended
31 December 2022. Comparative information in 'Analysis by business
line' and 'Analysis of total revenue' was also restated to account
for the retrospective application of IFRS 17 as described in Note
3.3.1.
The operating segments are analysed below:
i. The Corporate and Large Corporate, Small and Medium--sized Enterprises
(SME) and Retail business lines are managing loans and advances to
customers. Categorisation of loans per customer group is detailed
below.
ii. International Corporate comprises of International Corporate
Banking, Project Finance & Loan Syndication and Shipping Center.
International Corporate Banking provides financing from Cyprus in
respect of projects based overseas with main focus being Greece and
the United Kingdom. Project Finance & Loan Syndication act as arranger
or participant in large international loan syndication transactions.
Shipping Center provides shipping financing primarily for ocean--going
cargo vessels.
iii. Restructuring and Recoveries is the specialised unit which was
set up to tackle the Group's loan portfolio quality and manages exposures
to borrowers in distress situation through innovative solutions.
iv. International Business Unit (IBU) specialises in the offering
of banking services to the international corporate customers based
in Cyprus, particularly international business companies whose ownership
and business activities lie outside Cyprus, and non--resident individual
customers of BOC PCL.
v. Wealth Management oversees the provision of private banking and
wealth management, market execution and custody along with asset
management and investment banking. This business line also includes
subsidiary companies of the Group, whose activities relate to investment
banking and brokerage, investment holding and management, administration
and safekeeping of UCITS units.
vi. The Real Estate Management Unit (REMU) manages properties acquired
through debt--for--property swaps and properties acquired through
the acquisition of certain operations of Laiki Bank in 2013, and
executes exit strategies in order to monetise these assets. REMU
also includes other subsidiary property companies of the Group.
vii. Treasury is responsible for liquidity management and for overseeing
operations to ensure compliance with internal and regulatory liquidity
policies and provide direction as to the actions to be taken regarding
liquidity availability.
viii. The Insurance business line is involved in both life and non--life
insurance business.
i. The business line 'Other' includes central functions of BOC PCL
such as finance, risk management, compliance, legal, Information
Technology services, corporate affairs and human resources. These
functions provide services to the operating segments. 'Other' includes
also other subsidiary companies in Cyprus (excluding the insurance
subsidiaries, property companies under REMU and subsidiary companies
under Wealth), as well as the overseas activities of the Group.
BOC PCL broadly categorises its loans per customer group, using the
following customer sectors:
i. Retail - all physical person customers, regardless of the facility
amount, and legal entities with facilities from BOC PCL of up to
EUR500 thousand, excluding business property loans and/or annual
credit turnover up to EUR1 million.
ii. SME - any company or group of companies (including personal and
housing loans to the directors or shareholders of a company) with
facilities from BOC PCL in the range of EUR500 thousand to EUR4 million
and/or annual credit turnover of EUR1 million up to EUR10 million.
iii. Corporate - any company or group of companies (including personal
and housing loans to the directors or shareholders of a company)
with available credit lines with BOC PCL of over EUR4 million and/or
having a minimum annual credit turnover of over EUR10 million. These
companies are either local larger corporations or international companies
or companies in the shipping sector. Lending includes direct lending
or through syndications.
Management monitors the operating results of each business segment
separately for the purposes of performance assessment and resource
allocation. Segment performance is evaluated based on profit after
tax and non--controlling interests. Inter--segment transactions and
balances are eliminated on consolidation and are made on an arm's
length basis.
Operating segment disclosures are provided as presented to the Group
Executive Committee.
Income and expenses associated with each business line are included
for determining its performance. Transfer pricing methodologies are
applied between the business lines to present their results on an
arm's length basis. Income and expenses incurred directly by the
business lines are allocated to the business lines as incurred. Indirect
income and expenses are re--allocated from the central functions
to the business lines. For the purposes of the Cyprus analysis by
business line, notional tax at the 12.5% Cyprus tax rate is charged/credited
to profit or loss before tax of each business line.
The loans and advances to customers, the customer deposits and the
related income and expense are generally included in the segment
where the business is managed, instead of the segment where the transaction
is recorded.
Analysis by business line
Corporate International Small Retail Restructuring International Wealth REMU Insurance Treasury Other Total
and Large corporate and and recoveries business management
corporate medium--sized unit
enterprises
Six months ended 30
June 2023 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Net interest
income/(expense) 77,412 14,093 25,803 167,683 9,360 57,091 8,180 (19,315) - 19,334 (1,299) 358,342
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Net fee and
commission
income/(expense) 10,342 586 5,325 30,617 1,369 26,537 2,566 (75) (4,332) 844 15,825 89,604
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Net foreign exchange
gains/(losses) 475 (5) 291 1,206 20 2,692 79 - - 11,211 (130) 15,839
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Net (losses)/gains on
financial
instruments (9) - - - - - 34 - 1,746 2,651 1,258 5,680
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Net gains/(losses) on
derecognition
of financial assets
measured at
amortised cost 3,839 108 (924) (314) 3,195 (65) 81 - - (41) (18) 5,861
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Net insurance result - - - - - - - - 24,509 - 52 24,561
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Net gains/(losses)
from revaluation
and disposal of
investment
properties - - - - - - - 889 - - (101) 788
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Net gains on disposal
of stock of
property - - - - - - - 3,704 - - 202 3,906
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Other income 10 - 8 84 64 2 83 3,937 5,121 12 2,879 12,200
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Total operating
income 92,069 14,782 30,503 199,276 14,008 86,257 11,023 (10,860) 27,044 34,011 18,668 516,781
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Staff costs (3,707) (814) (2,578) (25,104) (4,596) (5,767) (2,650) (2,120) (1,370) (1,061) (43,276) (93,043)
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Special levy on
deposits and other
levies/contributions (1,756) (132) (908) (11,064) (32) (3,762) (582) - - - - (18,236)
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Provisions for
pending litigations,
regulatory and other
provisions
(net of reversals) - - - - - - - - - - (14,148) (14,148)
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Other operating
(expenses)/income
(excluding advisory
and other
transformation
costs) (18,422) (3,275) (6,852) (40,233) (5,364) (5,795) (861) (7,241) (1,528) (3,868) 25,240 (68,199)
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Other operating
expenses -- advisory
and other
transformation costs (467) (96) (214) (778) (203) (212) (32) (182) - (73) - (2,257)
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Operating profit
before credit losses
and impairment 67,717 10,465 19,951 122,097 3,813 70,721 6,898 (20,403) 24,146 29,009 (13,516) 320,898
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Credit losses on
financial assets (3,795) (284) 547 (8,473) (18,185) (35) 4 (6,131) (112) (375) 67 (36,772)
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Impairment net of
reversals on
non--financial
assets - - - - - - - (22,836) - - (370) (23,206)
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Profit/(loss) before
tax 63,922 10,181 20,498 113,624 (14,372) 70,686 6,902 (49,370) 24,034 28,634 (13,819) 260,920
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Income tax (7,990) (1,273) (2,562) (14,203) 1,797 (8,836) (886) 5,186 (1,962) (3,579) (5,460) (39,768)
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Profit/(loss) after
tax 55,932 8,908 17,936 99,421 (12,575) 61,850 6,016 (44,184) 22,072 25,055 (19,279) 221,152
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Non--controlling
interests--profit - - - - - - - - - - (905) (905)
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Profit/(loss) after
tax attributable
to the owners of the
Company 55,932 8,908 17,936 99,421 (12,575) 61,850 6,016 (44,184) 22,072 25,055 (20,184) 220,247
------------- ------------- --------------- ----------------- ----------------- --------------- --------------- ---------- ------------- ----------- ----------- -------------
Corporate International Small Retail Restructuring International Wealth REMU Insurance Treasury Other Total
and Large corporate and and recoveries business management
corporate medium--sized unit
enterprises
Six months ended 30
June 2022 (restated) EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Net interest
income/(expense) 49,572 9,629 14,495 43,703 16,294 10,234 578 (12,354) - 13,573 (2) 145,722
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Net fee and
commission
income/(expense) 11,157 771 5,587 29,562 4,252 27,928 2,569 (90) (3,889) 1,003 14,789 93,639
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Net foreign exchange
gains 450 34 279 1,137 52 2,947 86 - - 5,809 1,104 11,898
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Net gains/(losses) on
financial
instruments 171 - - - (2,230) - (102) - (9,737) 1,899 (184) (10,183)
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Net gains/(losses) on
derecognition
of financial assets
measured at
amortised cost 1,036 108 (20) 116 1,523 13 (269) - - (867) 8 1,648
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Net insurance result - - - - - - - - 23,724 - - 23,724
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Net losses from
revaluation and
disposal of
investment
properties - - - - - - - (415) (307) - (650) (1,372)
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Net gains on disposal
of stock of
property - - - - - - - 7,894 - - 348 8,242
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Other income 8 - 10 43 186 (3) 155 4,867 37 1 3,623 8,927
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Total operating
income 62,394 10,542 20,351 74,561 20,077 41,119 3,017 (98) 9,828 21,418 19,036 282,245
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Staff costs (3,413) (661) (2,902) (30,007) (5,677) (6,240) (1,825) (2,055) (1,337) (1,108) (43,078) (98,303)
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Special levy on
deposits and other
levies/contributions (1,506) (134) (806) (10,448) (45) (3,272) (295) - - (1) - (16,507)
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Provisions for
pending litigations,
regulatory and other
provisions
(net of reversals) - - - - - - - - - - (594) (594)
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Other operating
(expenses)/income
(excluding advisory
and other
transformation
costs) (16,951) (3,081) (7,652) (39,183) (11,197) (5,055) (1,170) (8,215) (1,588) (5,142) 30,085 (69,149)
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Other operating
expenses -- advisory
and other
transformation costs - - - - (1,053) - - (351) - - (5,271) (6,675)
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Operating profit
before credit losses
and impairment 40,524 6,666 8,991 (5,077) 2,105 26,552 (273) (10,719) 6,903 15,167 178 91,017
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Credit losses on
financial assets (6,206) 219 569 293 (16,577) 285 (226) (323) 38 (167) (2,731) (24,826)
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Impairment net of
reversals on
non--financial
assets - - - - - - - (7,203) - - (4,954) (12,157)
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Profit/(loss) before
tax 34,318 6,885 9,560 (4,784) (14,472) 26,837 (499) (18,245) 6,941 15,000 (7,507) 54,034
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Income tax (4,290) (860) (1,195) 598 1,809 (3,355) 3 2,429 (888) (1,875) (3,534) (11,158)
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Profit/(loss) after
tax 30,028 6,025 8,365 (4,186) (12,663) 23,482 (496) (15,816) 6,053 13,125 (11,041) 42,876
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Non--controlling
interests--profit - - - - - - - - - - (662) (662)
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Profit/(loss) after
tax attributable
to the owners of the
Company 30,028 6,025 8,365 (4,186) (12,663) 23,482 (496) (15,816) 6,053 13,125 (11,703) 42,214
-------------- ------------- --------------- ----------------- ----------------- -------------- --------------- ---------- -------------- ------------ ------------ ------------
Analysis of total revenue
Total revenue includes net interest income, net fee and commission income, net foreign exchange
gains, net gains/(losses) on financial instruments, net gains/(losses) on derecognition of financial
assets measured at amortised cost, net insurance result, net gains/(losses) from revaluation and
disposal of investment properties, net gains/(losses) on disposal of stock of property and other
income. There was no revenue deriving from transactions with a single external customer that amounted
to 10% or more of Group revenue.
Corporate International Small Retail Restructuring International Wealth REMU Insurance Treasury Other Total
and Large corporate and and recoveries business management
corporate medium--sized unit
enterprises
Six months ended
30 June
2023 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------ ------------- ---------------- ------------ ---------------- --------------- ---------------- ------------- ------------ ------------ ------------- ----------------
Revenue from third
parties 107,136 21,286 27,362 113,280 14,341 39,745 3,787 8,271 31,099 131,374 19,100 516,781
------------ ------------- ---------------- ------------ ---------------- --------------- ---------------- ------------- ------------ ------------ ------------- ----------------
Inter--segment
(expense)/revenue (15,067) (6,504) 3,141 85,996 (333) 46,512 7,236 (19,131) (4,055) (97,363) (432) -
------------ ------------- ---------------- ------------ ---------------- --------------- ---------------- ------------- ------------ ------------ ------------- ----------------
Total revenue 92,069 14,782 30,503 199,276 14,008 86,257 11,023 (10,860) 27,044 34,011 18,668 516,781
------------ ------------- ---------------- ------------ ---------------- --------------- ---------------- ------------- ------------ ------------ ------------- ----------------
Six months ended
30 June
2022 (restated)
Revenue from third
parties 70,241 12,505 21,749 77,546 21,454 37,163 3,275 12,102 14,463 (6,315) 18,062 282,245
------------ ------------ --------------- ------------ --------------- ---------------- ---------------- ------------- ------------ ------------ -------------- ----------------
Inter--segment
(expense)/revenue (7,847) (1,963) (1,398) (2,985) (1,377) 3,956 (258) (12,200) (4,635) 27,733 974 -
------------ ------------ --------------- ------------ --------------- ---------------- ---------------- ------------- ------------ ------------ -------------- ----------------
Total revenue 62,394 10,542 20,351 74,561 20,077 41,119 3,017 (98) 9,828 21,418 19,036 282,245
------------ ------------ --------------- ------------ --------------- ---------------- ---------------- ------------- ------------ ------------ -------------- ----------------
Analysis of assets and liabilities
Corporate International Small Retail Restructuring International Wealth REMU Insurance Treasury Other Total
and Large corporate and medium--sized and recoveries business management
corporate enterprises unit
30 June 2023 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------- ------------- ------------------ ------------- ---------------- ---------------- --------------- ------------ ------------ ------------- ------------ ------------
Assets
------------- ------------- ------------------ ------------- ---------------- ---------------- --------------- ------------ ------------ ------------- ------------ ------------
Assets 3,631,474 693,952 980,135 4,265,210 258,551 131,417 74,992 1,015,859 864,065 12,749,946 1,412,229 26,077,830
------------- ------------- ------------------ ------------- ---------------- ---------------- --------------- ------------ ------------ ------------- ------------ ------------
Inter--segment
assets - - - - - - (9,155) (38,017) (21,995) - (36,506) (105,673)
------------- ------------- ------------------ ------------- ---------------- ---------------- --------------- ------------ ------------ ------------- ------------ ------------
3,631,474 693,952 980,135 4,265,210 258,551 131,417 65,837 977,842 842,070 12,749,946 1,375,723 25,972,157
------------- ------------- ------------------ ------------- ---------------- ---------------- --------------- ------------ ------------ ------------- ------------ ------------
Assets between
Cyprus and
overseas
operations (265,520)
------------- ------------- ------------------ ------------- ---------------- ---------------- --------------- ------------ ------------ ------------- ------------ ------------
Total assets 25,706,637
------------- ------------- ------------------ ------------- ---------------- ---------------- --------------- ------------ ------------ ------------- ------------ ------------
Corporate International Small Retail Restructuring International Wealth REMU Insurance Treasury Other Total
and Large corporate and medium--sized and recoveries business management
corporate enterprises unit
31 December
2022
(restated) EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------- ------------- ------------------ ------------- ---------------- ---------------- --------------- ------------ ------------ ------------- ------------ -------------
Assets
------------- ------------- ------------------ ------------- ---------------- ---------------- --------------- ------------ ------------ ------------- ------------ -------------
Assets 3,556,475 684,696 1,020,727 4,193,741 313,657 137,399 72,438 1,115,788 852,892 12,291,132 1,408,357 25,647,302
------------- ------------- ------------------ ------------- ---------------- ---------------- --------------- ------------ ------------ ------------- ------------ -------------
Inter--segment
assets - - - - - - (9,313) (35,214) (18,807) - (25,938) (89,272)
------------- ------------- ------------------ ------------- ---------------- ---------------- --------------- ------------ ------------ ------------- ------------ -------------
3,556,475 684,696 1,020,727 4,193,741 313,657 137,399 63,125 1,080,574 834,085 12,291,132 1,382,419 25,558,030
------------- ------------- ------------------ ------------- ---------------- ---------------- --------------- ------------ ------------ ------------- ------------ -------------
Assets between
Cyprus and
overseas
operations (269,489)
------------- ------------- ------------------ ------------- ---------------- ---------------- --------------- ------------ ------------ ------------- ------------ -------------
Total assets 25,288,541
------------- ------------- ------------------ ------------- ---------------- ---------------- --------------- ------------ ------------ ------------- ------------ -------------
Corporate International Small Retail Restructuring International Wealth REMU Insurance Treasury Other Total
and Large corporate and medium--sized and recoveries business management
corporate enterprises unit
30 June 2023 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------- ------------- ------------------ ------------- ---------------- ---------------- ---------------- ------------- ------------- ----------- ------------- ------------
Liabilities
------------- ------------- ------------------ ------------- ---------------- ---------------- ---------------- ------------- ------------- ----------- ------------- ------------
Liabilities 1,964,893 131,044 962,581 11,667,105 34,989 3,848,653 575,888 16,335 735,553 3,178,231 720,496 23,835,768
------------- ------------- ------------------ ------------- ---------------- ---------------- ---------------- ------------- ------------- ----------- ------------- ------------
Inter--segment
liabilities - - - - - - - - - (105,673) - (105,673)
------------- ------------- ------------------ ------------- ---------------- ---------------- ---------------- ------------- ------------- ----------- ------------- ------------
1,964,893 131,044 962,581 11,667,105 34,989 3,848,653 575,888 16,335 735,553 3,072,558 720,496 23,730,095
------------- ------------- ------------------ ------------- ---------------- ---------------- ---------------- ------------- ------------- ----------- ------------- ------------
Liabilities
between Cyprus
and overseas
operations (266,645)
------------- ------------- ------------------ ------------- ---------------- ---------------- ---------------- ------------- ------------- ----------- ------------- ------------
Total
liabilities 23,463,450
------------- ------------- ------------------ ------------- ---------------- ---------------- ---------------- ------------- ------------- ----------- ------------- ------------
31 December
2022
(restated)
Liabilities
------------- ------------- ---------------- ------------- ---------------- ---------------- ---------------- ------------- ------------- ------------ ------------- -------------
Liabilities 1,915,300 139,898 1,007,555 11,333,783 33,806 3,957,050 628,578 10,049 690,757 3,183,550 699,535 23,599,861
------------- ------------- ---------------- ------------- ---------------- ---------------- ---------------- ------------- ------------- ------------ ------------- -------------
Inter--segment
liabilities - - - - - - - - - (89,272) - (89,272)
------------- ------------- ---------------- ------------- ---------------- ---------------- ---------------- ------------- ------------- ------------ ------------- -------------
1,915,300 139,898 1,007,555 11,333,783 33,806 3,957,050 628,578 10,049 690,757 3,094,278 699,535 23,510,589
------------- ------------- ---------------- ------------- ---------------- ---------------- ---------------- ------------- ------------- ------------ ------------- -------------
Liabilities
between Cyprus
and overseas
operations (270,614)
------------- ------------- ---------------- ------------- ---------------- ---------------- ---------------- ------------- ------------- ------------ ------------- -------------
Liabilities 23,239,975
------------- ------------- ---------------- ------------- ---------------- ---------------- ---------------- ------------- ------------- ------------ ------------- -------------
Segmental analysis of customer deposits and loans and advances to customers is presented in Note
22 and Notes 30.2 and 30.4 respectively.
Analysis of turnover
Six months ended
30 June
2023 2022
--------------- ------------------
EUR000 EUR000
--------------- ------------------
Interest income and income similar to interest
income 426,024 190,988
--------------- ------------------
Fees and commission income 93,879 98,086
--------------- ------------------
Net foreign exchange gains 15,839 11,898
--------------- ------------------
Gross insurance premiums 116,773 105,591
--------------- ------------------
Losses of investment properties and stock of properties (18,512) (494)
--------------- ------------------
Other income 12,200 8,927
--------------- ------------------
646,203 414,996
--------------- ------------------
The analysis of 'Losses of investment properties and stock of
properties' is provided in the table below:
Six months ended
30 June
2023 2022
------------------ ------------------
EUR000 EUR000
------------------ ------------------
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
------------------ ------------------
Impairment of stock of property (Note 12) (23,206) (7,364)
------------------ ------------------
(18,512) (494)
------------------ ------------------
8. Interest income and income similar to interest income
Interest income
Six months ended
30 June
2023 2022
-------------------
EUR000 EUR000
------------------- -----------------
Financial assets at amortised cost:
------------------- -----------------
-- Loans and advances to customers 237,519 152,151
------------------- -----------------
-- Loans and advances to banks and central banks 132,500 1,446
------------------- -----------------
-- Debt securities 20,742 3,781
------------------- -----------------
-- Other financial assets (Note 20) 9,098 4,314
------------------- -----------------
Debt securities at FVOCI 3,993 4,986
------------------- -----------------
Negative interest on funding from central banks - 14,792
------------------- -----------------
403,852 181,470
------------------- -----------------
Income similar to interest income
Six months ended
30 June
2023 2022
----------------
EUR000 EUR000
---------------- -----------------
Loans and advances to customers measured at FVPL 6,263 5,999
---------------- -----------------
Derivative financial instruments 15,909 3,519
---------------- -----------------
22,172 9,518
---------------- -----------------
9. Interest expense and expense similar to interest expense
Interest expense
Six months ended
30 June
2023 2022
(restated)
------------------- --------------------
Financial liabilities at amortised cost: EUR000 EUR000
------------------- --------------------
-- Customer deposits 10,671 2,363
------------------- --------------------
-- Funding from central banks and deposits by banks 31,301 783
------------------- --------------------
-- Debt securities in issue 3,878 3,843
------------------- --------------------
-- Subordinated liabilities 10,078 10,415
------------------- --------------------
Negative interest on loans and advances to banks
and balances with central banks - 20,104
------------------- --------------------
Interest expense on lease liabilities 155 6
------------------- --------------------
56,083 37,514
------------------- --------------------
Expense similar to interest expense
Six months ended
30 June
2023 2022
---------------
EUR000 EUR000
--------------- -----------------
Derivative financial instruments 11,599 7,752
--------------- -----------------
10. Net gains/(losses) on financial instruments
Six months ended
30 June
2023 2022 (restated)
------------------- -------------------
EUR000 EUR000
------------------- -------------------
Trading portfolio:
------------------- -------------------
-- derivative financial instruments 16 37
------------------- -------------------
Other investments at FVPL:
------------------- -------------------
-- debt securities 980 (367)
------------------- -------------------
-- mutual funds 1,780 (9,839)
------------------- -------------------
-- equity securities 1,962 (166)
------------------- -------------------
Net losses on disposal of FVOCI debt securities (433) (1,959)
------------------- -------------------
Net losses on loans and advances to customers at
FVPL (9) (2,059)
------------------- -------------------
Revaluation of financial instruments designated
as fair value hedges:
------------------- -------------------
-- hedging instruments (8,843) 49,687
------------------- -------------------
-- hedged items 10,227 (45,517)
------------------- -------------------
5,680 (10,183)
------------------- -------------------
11. Staff costs and other operating expenses
Staff costs
Six months ended
30 June
2023 2022 (restated)
------------------
EUR000 EUR000
------------------ -------------------
Salaries 69,571 77,324
------------------ -------------------
Employer's contributions to state social insurance 11,355 12,411
------------------ -------------------
Variable compensation 3,761
------------------ -------------------
of which: accrual for non--deferred cash award 3,450 -
------------------ -------------------
of which: share--based benefits expense 311 -
------------------ -------------------
Retirement benefit plan costs 5,556 5,438
------------------ -------------------
Exit cost and other termination benefits (2022:Voluntary
Exit Plan) 2,800 3,130
------------------ -------------------
93,043 98,303
------------------ -------------------
During the six months ended 30 June 2023, an amount of EUR851 thousand
(30 June 2022: EUR831 thousand) relating to staff costs has been capitalised
as internally developed computer software.
The number of persons employed by the Group as at 30 June 2023 was
2,902 (31 December 2022: 2,889 and 30 June 2022: 3,422). In July 2022,
the Group completed a VEP through which 559 of the Group's full--time
employees were approved to leave at a total cost of EUR101,195 thousand.
In January 2022, the Group's subsidiary company, JCC Payment Systems
Ltd, proceeded with a VEP for its employees, through which 15 employees
were approved to leave at a total cost of EUR3,130 thousand.
Share--based benefits expense represents the cost for the period in
relation to the Long--Term Incentive Plan established in 2022, under
which annual LTIP awards may be granted, and which provides for an
award in the form of ordinary shares of the Company based on certain
non--market performance (driven by both delivery of the Group's Strategy
as well as individual performance) and service vesting conditions.
The eligible participants are the members of the Extended Executive
Committee of the Group.
Non--deferred cash award refers to a Short--Term Incentive Plan established
by the Group in 2023. This involves variable remuneration in the form
of cash to selected employees, and will be driven by both delivery
of the Group's Strategy, as well as individual performance.
Other operating expenses
Six months ended
30 June
2023 2022 (restated)
------------------
EUR000 EUR000
------------------ ------------------
Repairs and maintenance expenses 16,263 17,420
------------------ ------------------
Other property--related costs 5,058 5,518
------------------ ------------------
Consultancy, legal and other professional services
fees 8,224 8,220
------------------ ------------------
Insurance 4,203 4,197
------------------ ------------------
Advertising and marketing 2,646 3,458
------------------ ------------------
Depreciation of property and equipment 6,660 6,930
------------------ ------------------
Amortisation of intangible assets 7,974 7,806
------------------ ------------------
Communication expenses 3,010 3,374
------------------ ------------------
Printing and stationery 794 869
------------------ ------------------
Cash transfer expenses 1,417 1,630
------------------ ------------------
Other operating expenses 11,950 9,727
------------------ ------------------
68,199 69,149
------------------ ------------------
Advisory and other transformation costs 2,257 6,675
------------------ ------------------
70,456 75,824
------------------ ------------------
Advisory and other transformation costs comprise mainly fees to external
advisors in relation to the transformation program and other strategic
projects of the Group.
During the six months ended 30 June 2023, the Group recognised EUR39
thousand relating to rent expense for short term leases, included
within 'Other property--related costs' (30 June 2022: EUR84 thousand)
and EUR2,752 thousand (30 June 2022: EUR2,823 thousand) relating to
the depreciation of right--of--use assets (RoU assets), included within
'Depreciation of property and equipment'. In addition, depreciation
of RoU assets of EUR492 thousand (30 June 2022: EUR600 thousand) and
depreciation of property and equipment and amortisation of intangible
assets of EUR1,775 thousand (30 June 2022: EUR1,572 thousand) are
included within 'Net insurance service result', as these relate to
directly attributable expenses of insurance services.
'Special levy on deposits and other levies/contributions' as presented
in the interim consolidated income statement are analysed as per below:
Six months ended
30 June
2023 2022
---------------- -----------------
EUR000 EUR000
---------------- -----------------
Special levy on deposits of credit institutions
in Cyprus 8,816 7,467
---------------- -----------------
Single Resolution Fund contribution 5,477 5,779
---------------- -----------------
Contribution to Deposit Guarantee Fund 3,943 3,261
---------------- -----------------
18,236 16,507
---------------- -----------------
The special levy on credit institutions in Cyprus (the Special Levy)
is imposed on the level of deposits as at the end of the previous
quarter, at the rate of 0.0375% per quarter. Following an amendment
of the Imposition of Special Credit Institution Tax Law in 2017, the
Single Resolution Fund contribution, which is charged annually by
the Single Resolution Board, reduces the payment of the Special Levy
up to the level of the total annual Special Levy charge.
As from 1 January 2020 and until 3 July 2024, BOC PCL is subject to
a contribution to the Deposit Guarantee Fund (DGF) on a semi--annual
basis. The contributions are calculated based on the Risk Based Methodology
(RBM) as approved by the management committee of the Deposit Guarantee
and Resolution of Credit and Other Institutions Schemes (DGS) and
is publicly available on the CBC's website. In line with the RBM,
the contributions are broadly calculated on the covered deposits of
all authorised institutions and the target level is to reach at 0.8%
of covered deposits by 3 July 2024.
12. Credit losses on financial assets and impairment net of
reversals of non--financial assets
Six months ended
30 June
2023 2022 (restated)
-------------------
Credit losses on financial instruments EUR000 EUR000
------------------- -------------------
Credit losses to cover credit risk on loans and
advances to customers
------------------- -------------------
Impairment net of reversals on loans and advances
to customers (Note 30.4) 38,514 28,055
------------------- -------------------
Recoveries of loans and advances to customers previously
written off (8,376) (6,509)
------------------- -------------------
Changes in expected cash flows (426) 2,840
------------------- -------------------
Financial guarantees and commitments 578 (427)
------------------- -------------------
30,290 23,959
------------------- -------------------
Credit losses of other financial instruments
------------------- -------------------
Amortised cost debt securities 120 21
------------------- -------------------
FVOCI debt securities 18 163
------------------- -------------------
Loans and advances to banks (181) (22)
------------------- -------------------
Balances with central banks 415 -
------------------- -------------------
Other financial assets (Note 20) 6,110 705
------------------- -------------------
6,482 867
------------------- -------------------
36,772 24,826
------------------- -------------------
Six months ended
30 June
2023 2022
-------------------
Impairment net of reversals of non--financial assets EUR000 EUR000
------------------- -----------------
Stock of property (Note 19) 23,206 7,364
------------------- -----------------
Other non--financial assets - 4,793
------------------- -----------------
23,206 12,157
------------------- -----------------
13. Income tax
Six months ended
30 June
2023 2022 (restated)
------------------- -------------------
EUR000 EUR000
------------------- -------------------
Current tax:
------------------- -------------------
-- Cyprus 39,473 11,084
------------------- -------------------
-- Overseas - 34
------------------- -------------------
Cyprus special defence contribution 30 37
------------------- -------------------
Deferred tax (credit)/charge (9) 41
------------------- -------------------
Prior years' tax adjustments (11) (16)
------------------- -------------------
Other tax charges 285 (22)
------------------- -------------------
39,768 11,158
------------------- -------------------
In addition to the amount of income tax presented in the respective
caption in the consolidated income statement, an amount of EUR1,070
thousand (30 June 2022: EUR955 thousand) relates to tax expense presented
within the net insurance service result as it is treated as directly
attributable expense of the insurance operations of the Group.
Income tax in Cyprus is calculated at the rate of 12.5% on taxable
income (2022: 12.5%). The Group's profits from overseas operations
are taxed at the rates prevailing in the respective countries, which
for 2023 were: Greece 22% (2022: 22%), Romania 16% (2022: 16%) and
Russia 20% (2022: 20%).
On 22 December 2022, the European Commission approved Directive 2022/2523
which provides for a minimum effective tax rate of 15% for the global
activities of large multinational groups. The Directive that follows
closely the OECD Inclusive Framework on Base Erosion and Profit Shifting
should be transposed by the Member States throughout 2023, entering
into force on 1 January 2024. The legislation has not been substantively
enacted at the balance sheet date and the Group will continue to
monitor the evolving national legislation including any disclosures
required, or exemptions available, under IAS 12 in the year ending
31 December 2023.
Deferred tax
The net deferred tax assets comprise:
30 June 31 December
2023 2022 (restated)
EUR000 EUR000
---------------- -----------------
Deferred tax assets 227,953 227,934
---------------- -----------------
Deferred tax liabilities (34,618) (34,634)
---------------- -----------------
Net deferred tax assets 193,335 193,300
---------------- -----------------
The deferred tax assets (DTA) relate to Cyprus operations.
The movement of the net deferred tax assets is set out below:
30 June 31 December
2023 2022 (restated)
EUR000 EUR000
-------------------- ------------------
1 January (restated) 193,300 226,125
-------------------- ------------------
Deferred tax recognised in the consolidated income
statement -- tax credit 9 4,840
-------------------- ------------------
Deferred tax recognised in the consolidated statement
of comprehensive income 26 244
-------------------- ------------------
Transfer to current tax receivables following conversion
into tax credit - (37,909)
-------------------- ------------------
30 June/31 December 193,335 193,300
-------------------- ------------------
The Group offsets income tax assets and liabilities only if it has
a legally enforceable right to set--off current income tax assets
and current income tax liabilities.
Income Tax Law Amendment 28 (I) of 2019
On 1 March 2019 the Cyprus Parliament adopted legislative amendments
to the Income Tax Law (the 'Law') which were published in the Official
Gazette of the Republic on 15 March 2019 ('the amendments').
BOC PCL has DTA that meets the requirements of the Income Tax Law
Amendment 28(I) of 2019 relating to income tax losses transferred
to BOC PCL as a result of the acquisition of certain operations of
Laiki Bank, on 29 March 2013, under 'The Resolution of Credit and
Other Institutions Law'. The DTA recognised upon the acquisition
of certain operations of Laiki in 2013 amounted to EUR417 million
(corresponding to EUR3.3 billion tax losses) for which BOC PCL paid
a consideration as part of the respective acquisition. The period
of utilisation of the tax losses which may be converted into tax
credits is eleven years following the amendment of the Law in 2019,
starting from 2018 i.e. by end of 2028.
As a result of the above Law, the Group has DTA amounting to EUR227,455
thousand as at 30 June 2023 (31 December 2022: EUR227,455 thousand)
that meet the requirements under this Law, the recovery of which
is guaranteed. On an annual basis an amount is converted to annual
tax credit and is reclassified from the DTA to current tax receivables.
The DTA subject to the Law is accounted for on the same basis as
described in Note 2.13 of the annual consolidated financial statements
for the year ended 31 December 2022.
Accumulated income tax losses
The accumulated income tax losses are presented in the table
below:
Total income Income tax Income tax
tax losses losses for losses for
which a deferred which no deferred
tax asset tax asset
was recognised was recognised
30 June 2023 EUR000 EUR000 EUR000
------------------- ---------------------- ---------------------
Expiring within 5 years 44,960 - 44,960
------------------- ---------------------- ---------------------
Utilisation in annual instalments up
to 2028 1,819,636 1,819,636 -
------------------- ---------------------- ---------------------
1,864,596 1,819,636 44,960
------------------- ---------------------- ---------------------
31 December 2022
------------------- ---------------------- ---------------------
Expiring within 5 years 44,960 - 44,960
------------------- ---------------------- ---------------------
Utilisation in annual instalments up
to 2028 1,819,636 1,819,636 -
------------------- ---------------------- ---------------------
1,864,596 1,819,636 44,960
------------------- ---------------------- ---------------------
14. Earnings per share
Basic earnings per share
Six months ended
30 June
Basic profit per share attributable to the owners 2023 2022 (restated)
of the Company
------------------ -------------------
EUR000 EUR000
------------------ -------------------
Profit for the period attributable to the owners
of the Company
(EUR thousand) (basic) 220,247 42,214
------------------ -------------------
Weighted average number of shares in issue during
the period, excluding treasury shares ( EUR thousand) 446,058 446,058
------------------ -------------------
Basic profit per share (EUR cent) 49.4 9.5
------------------ -------------------
Diluted earnings per share
Six months ended
30 June
Diluted profit per share attributable to the owners 2023 2022 (restated)
of the Company
------------------
EUR000 EUR000
------------------ -------------------
Profit for the period attributable to the owners
of the Company
(EUR thousand) 220,247 42,214
------------------ -------------------
Weighted average number of shares in issue during
the period, excluding treasury shares adjusted
for the dilutive effect of all rights on shares
(EUR thousand) 446,755 446,058
------------------ -------------------
Diluted profit per share (EUR cent) 49.3 9.5
------------------ -------------------
For diluted earnings per share the weighted average number of ordinary
shares in issue is adjusted for the dilutive effect of 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).
15. Investments
The analysis of the Group's investments is presented in the table
below:
30 June 31 December
2023 2022
EUR000 EUR000
--------------- ----------------
Investments at FVPL 138,661 190,209
--------------- ----------------
Investments at FVOCI 487,806 467,375
--------------- ----------------
Investments at amortised cost 2,703,240 2,046,119
--------------- ----------------
3,329,707 2,703,703
--------------- ----------------
Out of these, the amounts pledged as collateral are shown
below:
30 June 31 December
2023 2022
Investments pledged as collateral EUR000 EUR000
------------------ ------------------
Investments at FVOCI 24,585 60,974
------------------ ------------------
Investments at amortised cost 232,562 223,369
------------------ ------------------
257,147 284,343
------------------ ------------------
Investments pledged as collateral as at 30 June 2023 and 31 December
2022 related to debt securities collaterised mainly for the additional
amounts borrowed from the ECB Targeted Longer--Term Refinancing Operations
(TLTRO III) (Note 21). Encumbered assets are disclosed in Note 32.
The maximum exposure to credit risk for debt securities is disclosed
in Note 30.1.
The increase in the investment portfolio as at 30 June 2023 is consistent
with the strategy of the Group to prudently grow the fixed income
portfolio to reach approximately 15% of the Group's total assets.
Further, part of the increase as at 30 June 2023 reflects incremental
new investments during the second quarter of 2023, ahead of expected
maturities in the second half of 2023.
Investments at fair value through profit or loss
Investments mandatorily
measured at FVPL
30 June 31 December
2023 2022
----------------
EUR000 EUR000
---------------- -----------------
Other non--equity securities 3,364 8,968
---------------- -----------------
Equity securities 4,870 6,961
---------------- -----------------
Mutual funds 130,427 174,280
---------------- -----------------
138,661 190,209
---------------- -----------------
Investments at FVOCI
30 June 31 December
2023 2022
EUR000 EUR000
--------------- ----------------
Debt securities 474,887 453,775
--------------- ----------------
Equity securities (including preference shares) 12,919 13,600
--------------- ----------------
487,806 467,375
--------------- ----------------
Investments at amortised cost
30 June 31 December
2023 2022
EUR000 EUR000
--------------------- ----------------------
Debt securities 2,703,240 2,046,119
--------------------- ----------------------
Further analysis of the Group's investments is provided in the tables
below.
Equity securities
Equity securities FVPL FVOCI Total
30 June 2023 EUR000 EUR000 EUR000
------------------- ------------------- ----------------
Listed on the Cyprus Stock Exchange - 1,280 1,280
------------------- ------------------- ----------------
Listed on other stock exchanges 4,870 61 4,931
------------------- ------------------- ----------------
Unlisted - 11,578 11,578
------------------- ------------------- ----------------
4,870 12,919 17,789
------------------- ------------------- ----------------
FVPL FVOCI Total
31 December 2022 EUR000 EUR000 EUR000
------------------- ------------------- ----------------
Listed on the Cyprus Stock Exchange - 1,335 1,335
------------------- ------------------- ----------------
Listed on other stock exchanges 6,961 68 7,029
------------------- ------------------- ----------------
Unlisted - 12,197 12,197
------------------- ------------------- ----------------
6,961 13,600 20,561
------------------- ------------------- ----------------
The Group irrevocably made the election to classify its equity investments
as equity investments at FVOCI on the basis that these are not held
for trading. Their carrying value amounts to EUR12,919 thousand at
30 June 2023 and is equal to their fair value (31 December 2022: EUR13,600
thousand).
Equity investments at FVOCI comprise mainly investments in private
Cyprus registered companies, acquired through loan restructuring activity
and specifically through debt for equity swaps.
Dividend income amounting to EUR439 thousand has been received and
recognised during the six months ended 30 June 2023 in other income
(30 June 2022: EUR368 thousand).
During the six months ended 30 June 2023 and the year ended 31 December
2022 no material equity investments measured at FVOCI have been disposed
off.
Mutual funds
Mutual funds FVPL
30 June 2023 EUR000
----------------
Listed on other stock exchanges 37,958
----------------
Unlisted 92,469
----------------
130,427
----------------
FVPL
31 December 2022 EUR000
-----------------------
Listed on other stock exchanges 77,782
-----------------------
Unlisted 96,498
-----------------------
174,280
-----------------------
The majority of the unlisted mutual funds relate to investments whose
underlying assets are listed on stock exchanges and are therefore
presented in Level 2 hierarchy in Note 17.
Debt securities and other non--equity securities
Analysis by issuer type FVPL FVOCI Amortised Total
cost
30 June 2023 EUR000 EUR000 EUR000 EUR000
------------------- ------------------- ---------------- ---------------
Cyprus government - 343,459 615,978 959,437
------------------- ------------------- ---------------- ---------------
Other governments - 10,008 546,796 556,804
------------------- ------------------- ---------------- ---------------
Financial institutions - 97,754 1,013,598 1,111,352
------------------- ------------------- ---------------- ---------------
Other financial corporations 3,364 - 41,645 45,009
------------------- ------------------- ---------------- ---------------
Supranational organisations - 18,819 387,633 406,452
------------------- ------------------- ---------------- ---------------
Other non--financial corporations - 4,847 97,590 102,437
------------------- ------------------- ---------------- ---------------
3,364 474,887 2,703,240 3,181,491
------------------- ------------------- ---------------- ---------------
FVPL FVOCI Amortised Total
cost
31 December 2022 EUR000 EUR000 EUR000 EUR000
------------------- ------------------- ---------------- ----------------
Cyprus government - 310,791 521,322 832,113
------------------- ------------------- ---------------- ----------------
Other governments - 22,616 402,844 425,460
------------------- ------------------- ---------------- ----------------
Financial institutions - 115,497 722,522 838,019
------------------- ------------------- ---------------- ----------------
Other financial corporations 8,968 - 36,547 45,515
------------------- ------------------- ---------------- ----------------
Supranational organisations - - 293,834 293,834
------------------- ------------------- ---------------- ----------------
Other non--financial corporations - 4,871 69,050 73,921
------------------- ------------------- ---------------- ----------------
8,968 453,775 2,046,119 2,508,862
------------------- ------------------- ---------------- ----------------
Geographic dispersion by country FVPL FVOCI Amortised Total
of issuer cost
30 June 2023 EUR000 EUR000 EUR000 EUR000
------------------- ------------------- ---------------- ---------------
Cyprus - 343,459 626,805 970,264
------------------- ------------------- ---------------- ---------------
Greece - 18,422 41,649 60,071
------------------- ------------------- ---------------- ---------------
Germany - - 176,649 176,649
------------------- ------------------- ---------------- ---------------
France - 44,632 247,792 292,424
------------------- ------------------- ---------------- ---------------
Other European Union countries - 19,655 549,240 568,895
------------------- ------------------- ---------------- ---------------
United Kingdom - - 23,234 23,234
------------------- ------------------- ---------------- ---------------
USA and Canada 3,364 9,029 267,283 279,676
------------------- ------------------- ---------------- ---------------
Other countries - 20,871 382,955 403,826
------------------- ------------------- ---------------- ---------------
Supranational organisations - 18,819 387,633 406,452
------------------- ------------------- ---------------- ---------------
3,364 474,887 2,703,240 3,181,491
------------------- ------------------- ---------------- ---------------
FVPL FVOCI Amortised Total
cost
31 December 2022 EUR000 EUR000 EUR000 EUR000
------------------- ------------------- ---------------- ----------------
Cyprus - 310,791 531,611 842,402
------------------- ------------------- ---------------- ----------------
Greece - 14,987 43,276 58,263
------------------- ------------------- ---------------- ----------------
Germany - - 121,132 121,132
------------------- ------------------- ---------------- ----------------
France - 58,134 162,405 220,539
------------------- ------------------- ---------------- ----------------
Other European Union countries - 33,298 370,728 404,026
------------------- ------------------- ---------------- ----------------
United Kingdom - - 23,128 23,128
------------------- ------------------- ---------------- ----------------
USA and Canada 8,968 8,974 238,802 256,744
------------------- ------------------- ---------------- ----------------
Other countries - 27,591 261,203 288,794
------------------- ------------------- ---------------- ----------------
Supranational organisations - - 293,834 293,834
------------------- ------------------- ---------------- ----------------
8,968 453,775 2,046,119 2,508,862
------------------- ------------------- ---------------- ----------------
Listing analysis FVPL FVOCI Amortised Total
cost
30 June 2023 EUR000 EUR000 EUR000 EUR000
------------------- ------------------- ------------------- ----------------
Listed on the Cyprus Stock Exchange - - 25,984 25,984
------------------- ------------------- ------------------- ----------------
Listed on other stock exchanges - 474,887 2,677,256 3,152,143
------------------- ------------------- ------------------- ----------------
Unlisted 3,364 - - 3,364
------------------- ------------------- ------------------- ----------------
3,364 474,887 2,703,240 3,181,491
------------------- ------------------- ------------------- ----------------
FVPL FVOCI Amortised Total
cost
31 December 2022 EUR000 EUR000 EUR000 EUR000
------------------- ------------------- ------------------- ----------------
Listed on the Cyprus Stock Exchange - - 29,849 29,849
------------------- ------------------- ------------------- ----------------
Listed on other stock exchanges - 453,775 2,016,270 2,470,045
------------------- ------------------- ------------------- ----------------
Unlisted 8,968 - - 8,968
------------------- ------------------- ------------------- ----------------
8,968 453,775 2,046,119 2,508,862
------------------- ------------------- ------------------- ----------------
There were no reclassifications of investments during the six months
ended 30 June 2023 and the year ended 31 December 2022.
The fair value of the financial assets that have been reclassified
out of FVPL to FVOCI on transition to IFRS 9, amounts to EUR7,631
thousand at 30 June 2023 (31 December 2022: EUR8,694 thousand). The
fair value gain that would have been recognised in the consolidated
income statement during the six months ended 30 June 2023 if these
financial assets had not been reclassified as part of the transition
to IFRS 9, amounts to EUR100 thousand (30 June 2022: loss of EUR1,018
thousand). The effective interest rate of these instruments is 1.6%--5.0%
(2022: 1.6%--5.0%) per annum and the respective interest income during
the six months ended 30 June 2023 amounts to EUR105 thousand (30 June
2022: EUR128 thousand).
16. Derivative financial instruments
The contract amount and fair value of the derivative financial
instruments is set out below:
30 June 2023 31 December 2022
Fair value Fair value
----------------------------------
Contract Assets Liabilities Contract Assets Liabilities
amount amount
-------------- ---------------- ------------ ----------------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
-------------- ---------------- ------------------- ------------ ---------------- ----------------
Trading
derivatives
-------------- ---------------- ------------------- ------------ ---------------- ----------------
Forward
exchange
rate
contracts 22,489 204 124 13,239 103 123
-------------- ---------------- ------------------- ------------ ---------------- ----------------
Currency
swaps 1,067,461 4,890 3,615 1,248,522 283 10,316
-------------- ---------------- ------------------- ------------ ---------------- ----------------
Interest rate
swaps 14,244 360 347 14,806 437 420
-------------- ---------------- ------------------- ------------ ---------------- ----------------
Currency
options 125 123 2 352 287 65
-------------- ---------------- ------------------- ------------ ---------------- ----------------
Interest rate
caps/floors 169,248 3,699 3,699 171,864 3,094 3,094
-------------- ---------------- ------------------- ------------ ---------------- ----------------
1,273,567 9,276 7,787 1,448,783 4,204 14,018
-------------- ---------------- ------------------- ------------ ---------------- ----------------
Derivatives
qualifying
for hedge
accounting
-------------- ---------------- ------------------- ------------ ---------------- ----------------
Fair value
hedges --
interest
rate swaps 1,093,731 40,024 10,604 803,513 43,939 2,151
-------------- ---------------- ------------------- ------------ ---------------- ----------------
Net
investments
-- forward
exchange
rate
contracts
and currency
swaps 3,288 2 - 3,059 10 -
-------------- ---------------- ------------------- ------------ ---------------- ----------------
1,097,019 40,026 10,604 806,572 43,949 2,151
-------------- ---------------- ------------------- ------------ ---------------- ----------------
Total 2,370,586 49,302 18,391 2,255,355 48,153 16,169
-------------- ---------------- ------------------- ------------ ---------------- ----------------
Hedge accounting
The Group elected, as a policy choice permitted by IFRS 9, to continue
to apply hedge accounting in accordance with IAS 39.
The Group applies fair value hedge accounting using derivatives when
the required criteria for hedge accounting are met. The Group also
uses derivatives for economic hedging (hedging the changes in interest
rates, foreign currency exchange rates or other risks) which do not
meet the criteria for hedge accounting. As a result, these derivatives
are accounted for as trading derivatives and the gains or losses
arising from revaluation are recognised in the consolidated income
statement.
Fair value hedges
The Group uses interest rate swaps to hedge the interest rate risk
arising as a result of the possible adverse movement in the fair
value of fixed rate debt securities measured at FVOCI.
Changes in the fair value of derivatives designated as fair value
hedges and the fair value of the item in relation to the risk being
hedged are recognised in the consolidated income statement.
Hedges of net investments
The Group's consolidated balance sheet is impacted by foreign exchange
differences between the Euro and all non--Euro functional currencies
of overseas subsidiaries and other foreign operations. The Group
hedges its structural currency risk when it considers that the cost
of such hedging is within an acceptable range (in relation to the
underlying risk). This hedging is effected by financing with borrowings
in the same currency as the functional currency of the overseas subsidiaries
and other foreign operations and by forward exchange rate contracts.
As at 30 June 2023, forward exchange rate contracts amounting to
EUR3,288 thousand (30 June 2022: forward exchange rate contracts
amounting to EUR2,874 thousand) have been designated as hedging instruments
and have given rise to a loss of EUR3 thousand (30 June 2022: loss
of EUR4,079 thousand) which was recognised in the 'Foreign currency
translation reserve' in the consolidated statement of comprehensive
income, against the profit or loss from the retranslation of the
net assets of the overseas subsidiaries and other foreign operations.
Interest rate benchmark reform
As at 30 June 2023 the interest rate benchmarks to which BOC PCL's
hedge relationships are exposed to, are Euro Interbank Offered Rate
(Euribor) (31 December 2022: Euribor and USD London Interbank Offered
Rate (Libor)) in relation to the cash flows of the hedging instruments.
The Group has applied judgement in relation to market expectations
regarding hedging instruments.
The table below indicates the nominal amount of derivatives in hedging
relationships analysed by interest rate basis. The derivative hedging
instruments provide a close approximation to the extent of the risk
exposure BOC PCL manages through hedging relationships.
30 June 31 December
2023 2022
Interest Rate Swaps EUR000 EUR000
------------------------ --------------------
Euribor (3--month) 1,093,731 770,731
------------------------ --------------------
Libor USD (3--month) - 32,782
------------------------ --------------------
Total 1,093,731 803,513
------------------------ --------------------
Euribor is in compliance with EU Benchmarks Regulation (BMR) and the
Group does not consider that Euribor--based derivatives are affected
by the BMR Reform.
As at 30 June 2023, the Group's assessment regarding the on going
transition to the new risk free rates (RFRs) indicates that the impact
on the hedging relationships and in value terms is not significant.
Further details in relation to interest rate benchmark reform are
disclosed in Note 31.
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END
IR FIFSETVIAIIV
(END) Dow Jones Newswires
August 09, 2023 02:03 ET (06:03 GMT)
Bank Of Cyprus Holdings ... (LSE:BOCH)
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