TIDMBOCH
RNS Number : 7754I
Bank of Cyprus Holdings PLC
09 August 2023
17. Fair value measurement
The following table presents the carrying value and fair value
of the Group's financial assets and liabilities.
30 June 2023 31 December 2022
(restated)
Carrying Fair value Carrying Fair value
value value
------------- -------------- --------------
Financial assets EUR000 EUR000 EUR000 EUR000
------------- ------------- -------------- --------------
Cash and balances with central
banks 9,127,429 9,127,429 9,567,258 9,567,258
------------- ------------- -------------- --------------
Loans and advances to banks 431,812 419,210 204,811 193,349
------------- ------------- -------------- --------------
Investments at FVPL 138,661 138,661 190,209 190,209
------------- ------------- -------------- --------------
Investments at FVOCI 487,806 487,806 467,375 467,375
------------- ------------- -------------- --------------
Investments at amortised cost 2,703,240 2,619,189 2,046,119 1,953,336
------------- ------------- -------------- --------------
Derivative financial assets 49,302 49,302 48,153 48,153
------------- ------------- -------------- --------------
Loans and advances to customers 10,007,819 10,038,152 9,953,252 10,011,741
------------- ------------- -------------- --------------
Life insurance business assets
attributable to policyholders 576,272 576,272 531,061 531,061
------------- ------------- -------------- --------------
Other financial assets 423,334 462,915 402,462 456,402
------------- ------------- -------------- --------------
23,945,675 23,918,936 23,410,700 23,418,884
------------- ------------- -------------- --------------
Financial liabilities
------------- ------------- -------------- --------------
Funding from central banks
and deposits by banks 2,453,193 2,401,740 2,484,332 2,399,266
------------- ------------- -------------- --------------
Derivative financial liabilities 18,391 18,391 16,169 16,169
------------- ------------- -------------- --------------
Customer deposits 19,166,155 19,124,073 18,998,319 18,963,934
------------- ------------- -------------- --------------
Debt securities in issue 291,976 264,738 297,636 254,179
------------- ------------- -------------- --------------
Subordinated liabilities 309,348 295,475 302,104 265,472
------------- ------------- -------------- --------------
Other financial liabilities
and lease liabilities 254,690 254,690 250,352 250,352
------------- ------------- -------------- --------------
22,493,753 22,359,107 22,348,912 22,149,372
------------- ------------- -------------- --------------
The fair value of financial assets and liabilities in the above table
is as at the reporting date and does not represent any expectations
about their future value.
The Group uses the following hierarchy for determining and disclosing
fair value:
Level 1: investments valued using quoted prices in active markets.
Level 2: investments valued using models for which all inputs that
have a significant impact on fair value are market observable.
Level 3: investments valued using models for which inputs that have
a significant impact on fair value are not based on market observable
data.
For assets and liabilities that are recognised in the Consolidated
Financial Statements at fair value, the Group determines whether
transfers have occurred between levels in the hierarchy by re--assessing
categorisation at the end of each reporting period.
The following is a description of the determination of fair value
for financial instruments which are recorded at fair value on a recurring
and on a non--recurring basis and for financial instruments which
are not measured at fair value but for which fair value is disclosed,
using valuation techniques. These incorporate the Group's estimate
of assumptions that a market participant would make when valuing
the instruments.
Derivative financial instruments
Derivative financial instruments valued using a valuation technique
with market observable inputs are mainly interest rate swaps, currency
swaps, currency rate options, forward foreign exchange rate contracts
and interest rate collars. The most frequently applied valuation
techniques include forward pricing and swap models, using present
value calculations. The models incorporate various inputs including
the credit quality of counterparties, foreign exchange spot and forward
rates and interest rate curves.
Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments
(DVA)
The CVA and DVA are incorporated into derivative valuations to reflect
the impact on fair value of counterparty risk and BOC PCL's own credit
quality respectively.
The Group calculates the CVA by applying the PD of the counterparty,
conditional on the non--default of the Group, to the Group's expected
positive exposure to the counterparty and multiplying the result
by the loss expected in the event of default. Conversely, the Group
calculates the DVA by applying BOC PCL's PD, conditional on the non--default
of the counterparty, to the expected positive exposure of the counterparty
to the Group and multiplying the result by the loss expected in the
event of default.
The expected exposure of derivatives is calculated as per the CRR
and takes into account the netting agreements where they exist. A
standard Loss Given Default (LGD) assumption in line with industry
norms is adopted. Alternative LGD assumptions may be adopted when
both the nature of the exposure and the available data support this.
The Group does not hold any significant derivative instruments which
are valued using a valuation technique with significant non--market
observable inputs.
Investments at FVPL, investments at FVOCI and investments at
amortised cost
Investments which are valued using a valuation technique or pricing
models, primarily consist of unquoted equity securities and debt
securities. These assets are valued using valuation models which
sometimes only incorporate market observable data and at other times
use both observable and non--observable data. The rest of the investments
are valued using quoted prices in active markets.
Loans and advances to customers
The fair value of loans and advances to customers is based on the
present value of expected future cash flows. Future cash flows have
been based on the future expected loss rate per loan portfolio, taking
into account expectations for the credit quality of the borrowers.
The discount rate includes components that capture the risk--free
rate per currency, funding cost, servicing cost and the cost of capital,
considering the risk weight of each loan. The discount rate used
in the determination of the fair value of the loans and advances
to customers measured at FVPL during the six months ended 30 June
2023 ranges from 6.35% to 6.82% (31 December 2022: 2.66%--4.86%).
Customer deposits
The fair value of customer deposits is determined by calculating
the present value of future cash flows. The discount rate takes into
account current market rates and the credit profile of BOC PCL. The
fair value of deposits repayable on demand and deposits protected
by the Deposit Protection Guarantee Scheme are approximated by their
carrying values.
Loans and advances to banks
Loans and advances to banks with maturity over one year are discounted
using an appropriate risk--free rate plus the appropriate credit
spread. For short--term lending, the fair value is approximated by
the carrying value.
Deposits by banks and funding from central banks
Deposits by banks and funding from central banks with maturity over
one year are discounted using an appropriate risk--free rate plus
the appropriate credit spread. For short--term funding, the fair
value is approximated by the carrying value.
Debt securities in issue and Subordinated liabilities
Debt securities and subordinated liabilities issuances are traded
in an active market with quoted prices.
Model inputs for valuation
Observable inputs to the models for the valuation of unquoted equity
and debt securities include, where applicable, current and expected
market interest rates, market expected default rates, market implied
country and counterparty credit risk and market liquidity discounts.
The following table presents the fair value measurement
hierarchy of the Group's financial assets and financial liabilities
recorded at fair value and financial assets and financial
liabilities for which fair value is disclosed, by level of the fair
value hierarchy:
Level 1 Level 2 Level 3 Total
30 June 2023 EUR000 EUR000 EUR000 EUR000
------------------- -------------------- ------------------- --------------------
Financial assets measured at
fair value
------------------- -------------------- ------------------- --------------------
Loans and advances to customers
measured at FVPL - - 210,385 210,385
------------------- -------------------- ------------------- --------------------
Trading derivatives
------------------- -------------------- ------------------- --------------------
Forward exchange rate contracts - 204 - 204
------------------- -------------------- ------------------- --------------------
Currency swaps - 4,890 - 4,890
------------------- -------------------- ------------------- --------------------
Interest rate swaps - 360 - 360
------------------- -------------------- ------------------- --------------------
Currency options - 123 - 123
------------------- -------------------- ------------------- --------------------
Interest rate caps/floors - 3,699 - 3,699
------------------- -------------------- ------------------- --------------------
- 9,276 - 9,276
------------------- -------------------- ------------------- --------------------
Derivatives qualifying for hedge
accounting
------------------- -------------------- ------------------- --------------------
Fair value hedges--interest
rate swaps - 40,024 - 40,024
------------------- -------------------- ------------------- --------------------
Net investments--forward
exchange
rate contracts and currency
swaps - 2 - 2
------------------- -------------------- ------------------- --------------------
- 40,026 - 40,026
------------------- -------------------- ------------------- --------------------
Investments at FVPL 42,828 92,469 3,364 138,661
------------------- -------------------- ------------------- --------------------
Investments at FVOCI 476,228 - 11,578 487,806
------------------- -------------------- ------------------- --------------------
519,056 141,771 225,327 886,154
------------------- -------------------- ------------------- --------------------
Other financial assets not
measured
at fair value
------------------- -------------------- ------------------- --------------------
Loans and advances to banks - 419,210 - 419,210
------------------- -------------------- ------------------- --------------------
Investments at amortised cost 2,434,498 175,535 9,156 2,619,189
------------------- -------------------- ------------------- --------------------
Loans and advances to customers - - 9,827,767 9,827,767
------------------- -------------------- ------------------- --------------------
2,434,498 594,745 9,836,923 12,866,166
------------------- -------------------- ------------------- --------------------
For loans and advances to customers measured at FVPL categorised
as Level 3, an increase in the discount factor by 10% would result
in a decrease of EUR3,637 thousand in their fair value and a decrease
in the discount factor by 10% would result in an increase of EUR1,888
thousand in their fair value.
For one investment included in other non--equity securities mandatorily
measured at FVPL as a result of the SPPI assessment and categorised
as Level 3 with a carrying amount of EUR3,364 thousand as at 30 June
2023, a change in the conversion factor by 10% would result in a
change in the value of the other non--equity securities by EUR336
thousand.
Level 1 Level 2 Level 3 Total
30 June 2023 EUR000 EUR000 EUR000 EUR000
------------------- -------------------- ------------------- --------------------
Financial liabilities measured
at fair value
------------------- -------------------- ------------------- --------------------
Trading derivatives
------------------- -------------------- ------------------- --------------------
Forward exchange rate contracts - 124 - 124
------------------- -------------------- ------------------- --------------------
Currency swaps - 3,615 - 3,615
------------------- -------------------- ------------------- --------------------
Interest rate swaps - 347 - 347
------------------- -------------------- ------------------- --------------------
Currency options - 2 - 2
------------------- -------------------- ------------------- --------------------
Interest rate caps/floors - 3,699 - 3,699
------------------- -------------------- ------------------- --------------------
- 7,787 - 7,787
------------------- -------------------- ------------------- --------------------
Derivatives qualifying for hedge
accounting
------------------- -------------------- ------------------- --------------------
Fair value hedges--interest
rate swaps - 10,604 - 10,604
------------------- -------------------- ------------------- --------------------
- 10,604 - 10,604
------------------- -------------------- ------------------- --------------------
- 18,391 - 18,391
------------------- -------------------- ------------------- --------------------
Other financial liabilities
not measured at fair value
------------------- -------------------- ------------------- --------------------
Funding from central banks - 1,996,982 - 1,996,982
------------------- -------------------- ------------------- --------------------
Deposits by banks - 404,758 - 404,758
------------------- -------------------- ------------------- --------------------
Customer deposits - - 19,124,073 19,124,073
------------------- -------------------- ------------------- --------------------
Debt securities in issue 264,738 - - 264,738
------------------- -------------------- ------------------- --------------------
Subordinated liabilities 295,475 - - 295,475
------------------- -------------------- ------------------- --------------------
560,213 2,401,740 19,124,073 22,086,026
------------------- -------------------- ------------------- --------------------
Level 1 Level 2 Level 3 Total
31 December 2022 EUR000 EUR000 EUR000 EUR000
------------------- ------------------- ------------------- -------------------
Financial assets measured at
fair value
------------------- ------------------- ------------------- -------------------
Loans and advances to customers
measured at FVPL - - 214,359 214,359
------------------- ------------------- ------------------- -------------------
Trading derivatives
------------------- ------------------- ------------------- -------------------
Forward exchange rate contracts - 103 - 103
------------------- ------------------- ------------------- -------------------
Currency swaps - 283 - 283
------------------- ------------------- ------------------- -------------------
Interest rate swaps - 437 - 437
------------------- ------------------- ------------------- -------------------
Currency options - 287 - 287
------------------- ------------------- ------------------- -------------------
Interest rate caps/floors - 3,094 - 3,094
------------------- ------------------- ------------------- -------------------
- 4,204 - 4,204
------------------- ------------------- ------------------- -------------------
Derivatives qualifying for hedge
accounting
------------------- ------------------- ------------------- -------------------
Fair value hedges--interest
rate swaps - 43,939 - 43,939
------------------- ------------------- ------------------- -------------------
Net investments--forward exchange
rate contacts and currency swaps - 10 - 10
------------------- ------------------- ------------------- -------------------
- 43,949 - 43,949
------------------- ------------------- ------------------- -------------------
Investments at FVPL 84,743 96,498 8,968 190,209
------------------- ------------------- ------------------- -------------------
Investments at FVOCI 455,110 - 12,265 467,375
------------------- ------------------- ------------------- -------------------
539,853 144,651 235,592 920,096
------------------- ------------------- ------------------- -------------------
Other financial assets not
measured
at fair value
------------------- ------------------- ------------------- -------------------
Loans and advances to banks - 193,349 - 193,349
------------------- ------------------- ------------------- -------------------
Investments at amortised cost 1,871,757 69,300 12,279 1,953,336
------------------- ------------------- ------------------- -------------------
Loans and advances to customers - - 9,797,382 9,797,382
------------------- ------------------- ------------------- -------------------
1,871,757 262,649 9,809,661 11,944,067
------------------- ------------------- ------------------- -------------------
For loans and advances to customers measured at FVPL categorised as
Level 3, an increase in the discount factor by 10% would result in
a decrease of EUR4,538 thousand in their fair value and a decrease
in the discount factor by 10% would result in an increase of EUR1,145
thousand in their fair value.
For one investment included in other non--equity securities mandatorily
measured at FVPL as a result of the SPPI assessment and categorised
as Level 3 with a carrying amount of EUR8,968 thousand as at 31 December
2022, a change in the conversion factor by 10% would result in a change
in the value of the other non--equity securities by EUR897 thousand.
Level 1 Level 2 Level 3 Total
31 December 2022 EUR000 EUR000 EUR000 EUR000
------------------- ------------------- ------------------- -------------------
Financial liabilities measured
at fair value
------------------- ------------------- ------------------- -------------------
Trading derivatives
------------------- ------------------- ------------------- -------------------
Forward exchange rate contracts - 123 - 123
------------------- ------------------- ------------------- -------------------
Currency swaps - 10,316 - 10,316
------------------- ------------------- ------------------- -------------------
Interest rate swaps - 420 - 420
------------------- ------------------- ------------------- -------------------
Currency options - 65 - 65
------------------- ------------------- ------------------- -------------------
Interest rate caps/floors - 3,094 - 3,094
------------------- ------------------- ------------------- -------------------
- 14,018 - 14,018
------------------- ------------------- ------------------- -------------------
Derivatives qualifying for hedge
accounting
------------------- ------------------- ------------------- -------------------
Fair value hedges--interest
rate swaps - 2,151 - 2,151
------------------- ------------------- ------------------- -------------------
- 2,151 - 2,151
------------------- ------------------- ------------------- -------------------
- 16,169 - 16,169
------------------- ------------------- ------------------- -------------------
Other financial liabilities
not measured at fair value
------------------- ------------------- ------------------- -------------------
Funding from central banks - 1,944,145 - 1,944,145
------------------- ------------------- ------------------- -------------------
Deposits by banks - 455,121 - 455,121
------------------- ------------------- ------------------- -------------------
Customer deposits - - 18,963,934 18,963,934
------------------- ------------------- ------------------- -------------------
Debt securities in issue 254,179 - - 254,179
------------------- ------------------- ------------------- -------------------
Subordinated liabilities 265,472 - - 265,472
------------------- ------------------- ------------------- -------------------
519,651 2,399,266 18,963,934 21,882,851
------------------- ------------------- ------------------- -------------------
The cash and balances with central banks are financial instruments
whose carrying value is a reasonable approximation of fair value because
they are mostly short--term in nature or are repriced to current market
rates frequently. The carrying value of other financial assets, other
than the deferred purchase payment consideration (Note 20), and other
financial liabilities is a close approximation of their fair value
and they are categorised as Level 3.
During the six months ended 30 June 2023 and the year ended 31 December
2022 there were no significant transfers between Level 1 and Level
2.
Movements in Level 3 assets measured at fair value
Transfers from Level 3 to Level 2 occur when the market for some securities
becomes more liquid, which eliminates the need for the previously
required significant unobservable valuation inputs. Following a transfer
to Level 2 the instruments are valued using valuation models incorporating
observable market inputs. Transfers into Level 3 reflect changes in
market conditions as a result of which instruments become less liquid.
Therefore, the Group requires significant unobservable inputs to calculate
their fair value.
The movement in Level 3 financial assets which are measured at
fair value is presented below:
30 June 2023 31 December 2022
Loans and Financial Total Loans and Financial Total
advances instruments advances instruments
to customers to customers
--------------- --------------- ---------------- ----------------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
--------------- --------------- --------------- --------------- ---------------- ----------------
1 January 214,359 21,233 235,592 281,868 19,897 301,765
--------------- --------------- --------------- --------------- ---------------- ----------------
Additions - - - - 10,054 10,054
--------------- --------------- --------------- --------------- ---------------- ----------------
Disposals - - - - (500) (500)
--------------- --------------- --------------- --------------- ---------------- ----------------
Conversion of
instruments
into common shares - (6,521) (6,521) - (4,102) (4,102)
--------------- --------------- --------------- --------------- ---------------- ----------------
Fair value
gains/(losses) - 293 293 - (4,133) (4,133)
--------------- --------------- --------------- --------------- ---------------- ----------------
Net (losses)/gains on
loans and advances to
customers measured at
FVPL (Note 10) (9) - (9) 4,050 - 4,050
--------------- --------------- --------------- --------------- ---------------- ----------------
Derecognition/repayment
of loans (10,228) - (10,228) (82,522) - (82,522)
--------------- --------------- --------------- --------------- ---------------- ----------------
Interest on loans (Note
8) 6,263 - 6,263 10,963 - 10,963
--------------- --------------- --------------- --------------- ---------------- ----------------
Foreign exchange
adjustments - (63) (63) - 17 17
--------------- --------------- --------------- --------------- ---------------- ----------------
30 June/31 December 210,385 14,942 225,327 214,359 21,233 235,592
--------------- --------------- --------------- --------------- ---------------- ----------------
18. Loans and advances to customers
30 June 31 December
2023 2022
EUR000 EUR000
---------------- -----------------
Gross loans and advances to customers at amortised
cost 9,995,335 9,917,335
---------------- -----------------
Allowance for ECL for impairment of loans and
advances to customers (Note 30.4) (197,901) (178,442)
---------------- -----------------
9,797,434 9,738,893
---------------- -----------------
Loans and advances to customers measured at FVPL 210,385 214,359
---------------- -----------------
10,007,819 9,953,252
---------------- -----------------
The following tables present the Group's gross loans and advances
to customers at amortised cost by staging and by geographical analysis
(based on the country in which the loans are managed).
Stage 1 Stage 2 Stage 3 POCI Total
30 June
2023 EUR000 EUR000 EUR000 EUR000 EUR000
-------------------- -------------------- -------------------- -------------------- -------------------
Gross loans
at
amortised
cost before
residual
fair value
adjustment
on initial
recognition 8,261,687 1,365,799 335,225 107,622 10,070,333
-------------------- -------------------- -------------------- -------------------- -------------------
Residual
fair value
adjustment
on initial
recognition (63,508) (8,678) (1,433) (1,379) (74,998)
-------------------- -------------------- -------------------- -------------------- -------------------
Gross loans
at
amortised
cost 8,198,179 1,357,121 333,792 106,243 9,995,335
-------------------- -------------------- -------------------- -------------------- -------------------
Cyprus 8,197,984 1,357,121 333,263 106,243 9,994,611
-------------------- -------------------- -------------------- -------------------- -------------------
Other
Countries 195 - 529 - 724
-------------------- -------------------- -------------------- -------------------- -------------------
8,198,179 1,357,121 333,792 106,243 9,995,335
-------------------- -------------------- -------------------- -------------------- -------------------
31 December
2022
-------------------- -------------------- ------------------- -------------------- ------------------
Gross loans
at
amortised
cost before
residual
fair value
adjustment
on initial
recognition 7,931,511 1,586,488 372,821 115,544 10,006,364
-------------------- -------------------- ------------------- -------------------- ------------------
Residual
fair value
adjustment
on initial
recognition (64,255) (20,885) (1,803) (2,086) (89,029)
-------------------- -------------------- ------------------- -------------------- ------------------
Gross loans
at
amortised
cost 7,867,256 1,565,603 371,018 113,458 9,917,335
-------------------- -------------------- ------------------- -------------------- ------------------
Cyprus 7,867,037 1,565,603 368,922 113,458 9,915,020
-------------------- -------------------- ------------------- -------------------- ------------------
Other
countries 219 - 2,096 - 2,315
-------------------- -------------------- ------------------- -------------------- ------------------
7,867,256 1,565,603 371,018 113,458 9,917,335
-------------------- -------------------- ------------------- -------------------- ------------------
Residual fair value adjustment
The residual fair value adjustment on initial recognition mainly
relates to the loans and advances to customers acquired as part of
the acquisition of certain operations of Laiki Bank in 2013. In accordance
with the provisions of IFRS 3, this adjustment decreased the gross
balance of loans and advances to customers. The residual fair value
adjustment is included within the gross balances of loans and advances
to customers as at each balance sheet date. However, for credit risk
monitoring, the residual fair value adjustment as at each balance
sheet date is presented separately from the gross balances of loans
and advances, as shown in the tables above.
Loans and advances to customers measured at FVPL are managed in Cyprus.
The following tables present the Group's gross loans and advances
to customers at amortised cost by staging and by business line concentration.
30 June 2023 Stage 1 Stage 2 Stage 3 POCI Total
By business
line EUR000 EUR000 EUR000 EUR000 EUR000
-------------------- -------------------- --------------------- -------------------- -----------------
Corporate and
Large
Corporate 2,735,590 659,540 50,445 34,094 3,479,669
-------------------- -------------------- --------------------- -------------------- -----------------
International
corporate 694,641 124 37 20 694,822
-------------------- -------------------- --------------------- -------------------- -----------------
SMEs 852,732 121,177 3,161 9,160 986,230
-------------------- -------------------- --------------------- -------------------- -----------------
Retail
-------------------- -------------------- --------------------- -------------------- -----------------
-- housing 2,970,005 363,472 24,131 11,075 3,368,683
-------------------- -------------------- --------------------- -------------------- -----------------
-- consumer,
credit
cards and
other 777,635 125,125 11,260 14,166 928,186
-------------------- -------------------- --------------------- -------------------- -----------------
Restructuring
-------------------- -------------------- --------------------- -------------------- -----------------
-- corporate 3,615 19,549 20,046 10,206 53,416
-------------------- -------------------- --------------------- -------------------- -----------------
-- SMEs 10,357 12,003 14,622 2,806 39,788
-------------------- -------------------- --------------------- -------------------- -----------------
-- retail
housing 5,466 20,629 41,537 2,258 69,890
-------------------- -------------------- --------------------- -------------------- -----------------
-- retail
other 2,062 4,666 16,117 954 23,799
-------------------- -------------------- --------------------- -------------------- -----------------
Recoveries
-------------------- -------------------- --------------------- -------------------- -----------------
-- corporate - - 17,483 1,154 18,637
-------------------- -------------------- --------------------- -------------------- -----------------
-- SMEs - - 29,414 1,664 31,078
-------------------- -------------------- --------------------- -------------------- -----------------
-- retail
housing - - 78,342 12,168 90,510
-------------------- -------------------- --------------------- -------------------- -----------------
-- retail
other 84 - 26,089 5,783 31,956
-------------------- -------------------- --------------------- -------------------- -----------------
International
business
unit 105,910 24,658 1,103 177 131,848
-------------------- -------------------- --------------------- -------------------- -----------------
Wealth
management 40,082 6,178 5 558 46,823
-------------------- -------------------- --------------------- -------------------- -----------------
8,198,179 1,357,121 333,792 106,243 9,995,335
-------------------- -------------------- --------------------- -------------------- -----------------
31 December Stage 1 Stage 2 Stage 3 POCI Total
2022
By business
line EUR000 EUR000 EUR000 EUR000 EUR000
-------------------- -------------------- --------------------- -------------------- -----------------
Corporate and
Large
Corporate 2,502,630 807,282 54,259 34,616 3,398,787
-------------------- -------------------- --------------------- -------------------- -----------------
International
corporate 685,099 150 35 24 685,308
-------------------- -------------------- --------------------- -------------------- -----------------
SMEs 825,123 189,825 3,299 10,364 1,028,611
-------------------- -------------------- --------------------- -------------------- -----------------
Retail
-------------------- -------------------- --------------------- -------------------- -----------------
-- housing 2,982,436 305,714 30,071 12,413 3,330,634
-------------------- -------------------- --------------------- -------------------- -----------------
-- consumer,
credit
cards and
other 704,959 152,815 14,376 15,746 887,896
-------------------- -------------------- --------------------- -------------------- -----------------
Restructuring
-------------------- -------------------- --------------------- -------------------- -----------------
-- corporate 2,842 34,246 20,689 10,175 67,952
-------------------- -------------------- --------------------- -------------------- -----------------
-- SMEs 12,643 10,603 23,374 2,381 49,001
-------------------- -------------------- --------------------- -------------------- -----------------
-- retail
housing 5,168 22,018 42,155 3,292 72,633
-------------------- -------------------- --------------------- -------------------- -----------------
-- retail
other 1,713 5,364 16,237 1,029 24,343
-------------------- -------------------- --------------------- -------------------- -----------------
Recoveries
-------------------- -------------------- --------------------- -------------------- -----------------
-- corporate - - 18,403 1,316 19,719
-------------------- -------------------- --------------------- -------------------- -----------------
-- SMEs - - 29,339 2,366 31,705
-------------------- -------------------- --------------------- -------------------- -----------------
-- retail
housing - - 88,956 14,039 102,995
-------------------- -------------------- --------------------- -------------------- -----------------
-- retail
other 108 - 28,569 4,953 33,630
-------------------- -------------------- --------------------- -------------------- -----------------
International
business
unit 104,539 31,934 1,254 147 137,874
-------------------- -------------------- --------------------- -------------------- -----------------
Wealth
management 39,996 5,652 2 597 46,247
-------------------- -------------------- --------------------- -------------------- -----------------
7,867,256 1,565,603 371,018 113,458 9,917,335
-------------------- -------------------- --------------------- -------------------- -----------------
Loans and advances to customers pledged as collateral are disclosed
in Note 32.
Additional analysis and information regarding credit risk and analysis
of the allowance for ECL of loans and advances to customers are set
out in Note 30.
19. Stock of property
The carrying amount of stock of property is determined as the lower
of cost and net realisable value. Impairment is recognised if the
net realisable value is below the cost of the stock of property.
During the six months ended 30 June 2023 an impairment loss of EUR23,206
thousand (30 June 2022: EUR7,364 thousand) was recognised in 'Impairment
net of reversals on non--financial assets' in the consolidated income
statement. At 30 June 2023, stock of property of EUR510,448 thousand
(31 December 2022: EUR529,316 thousand) is carried at net realisable
value. Additionally, at 30 June 2023 stock of property with a carrying
amount of EUR49,137 thousand (31 December 2022: EUR108,010 thousand)
is carried at approximately its fair value less costs to sell.
The stock of property includes residential properties, offices and
other commercial properties, manufacturing and industrial properties,
hotels and land (fields and plots). There is no stock of property
pledged as collateral for central bank funding facilities under Eurosystem
monetary policy operations.
The carrying amount of the stock of property is analysed in the
tables below:
30 June 31 December
2023 2022
EUR000 EUR000
------------------- --------------------
Net book value at 1 January 1,041,032 1,111,604
------------------- --------------------
Additions 4,440 76,851
------------------- --------------------
Disposals (57,872) (126,797)
------------------- --------------------
Net transfers (to)/from property and equipment (18,563) -
------------------- --------------------
Impairment (Note 12) (23,206) (20,628)
------------------- --------------------
Foreign exchange adjustments - 2
------------------- --------------------
Net book value at 30 June/31 December 945,831 1,041,032
------------------- --------------------
As at 30 June 2023 there are charges against stock of property of
the Group with a carrying value EUR19,500 thousand (31 December 2022:
EUR20,989 thousand).
Analysis by type and country Cyprus Greece Romania Total
30 June 2023 EUR000 EUR000 EUR000 EUR000
---------------- ------------------ ------------------- ---------------
Residential properties 52,628 16,354 31 69,013
---------------- ------------------ ------------------- ---------------
Offices and other commercial
properties 114,797 11,129 - 125,926
---------------- ------------------ ------------------- ---------------
Manufacturing and industrial
properties 27,398 9,617 - 37,015
---------------- ------------------ ------------------- ---------------
Hotels 22,570 417 - 22,987
---------------- ------------------ ------------------- ---------------
Land (fields and plots) 687,054 3,836 - 690,890
---------------- ------------------ ------------------- ---------------
Total 904,447 41,353 31 945,831
---------------- ------------------ ------------------- ---------------
31 December 2022
Residential properties 63,724 16,947 32 80,703
---------------- ------------------ ------------------- ---------------
Offices and other commercial
properties 142,475 11,263 - 153,738
---------------- ------------------ ------------------- ---------------
Manufacturing and industrial
properties 29,172 11,710 48 40,930
---------------- ------------------ ------------------- ---------------
Hotels 24,027 437 - 24,464
---------------- ------------------ ------------------- ---------------
Land (fields and plots) 736,913 4,284 - 741,197
---------------- ------------------ ------------------- ---------------
Total 996,311 44,641 80 1,041,032
---------------- ------------------ ------------------- ---------------
20. Prepayments, accrued income and other assets
30 June 31 December
2023 2022 (restated)
EUR000 EUR000
------------------ ------------------
Financial assets
------------------ ------------------
Debtors 32,363 29,220
------------------ ------------------
Receivable relating to tax 4,397 4,536
------------------ ------------------
Deferred purchase payment consideration 320,655 311,523
------------------ ------------------
Other assets 65,919 57,183
------------------ ------------------
423,334 402,462
------------------ ------------------
Non--financial assets
------------------ ------------------
Reinsurers' share of insurance contract liabilities 50,580 46,781
------------------ ------------------
Current tax receivable 93,681 124,328
------------------ ------------------
Prepaid expenses 1,426 682
------------------ ------------------
Retirement benefit plan assets 850 816
------------------ ------------------
Other assets 39,736 33,985
------------------ ------------------
186,273 206,592
------------------ ------------------
609,607 609,054
------------------ ------------------
There were no financial assets classified as Stage 2 as at 30 June
2023 and 31 December 2022. In addition, no financial assets were measured
at FVPL as at 30 June 2023 and 31 December 2022.
On the completion date of the sale of Project Helix 2 (the 'Transaction')
in June 2021, the Group recognised an amount of EUR381,567 thousand
in other financial assets, which represented the fair value of the
deferred consideration receivable from the Transaction (the 'DPP').
This amount outstanding is payable in four instalments up to December
2025 and each instalment carries interest up to each payment date.
An amount of EUR9,098 thousand, which represents the interest income
on DPP has been recognised in the Consolidated Income Statement for
the six months ended 30 June 2023 (30 June 2022: EUR4,314 thousand)
within 'Interest income--Financial assets at amortised cost--Other
financial assets' (Note 8). There are no other conditions attached.
The DPP is classified as Stage 1 as at 30 June 2023 and 31 December
2022.
During the six months ended 30 June 2023, credit losses of EUR6,110
thousand were recognised in relation to other financial assets. This
includes ECL losses of EUR246 thousand (of which EUR35 thousand relate
to a partial reversal for 12--months ECL of the DPP) and EUR5,864
thousand impairment losses. During the six months ended 30 June 2022,
credit losses of EUR705 thousand were recognised in relation to prepayments,
accrued income and other financial assets. This includes ECL losses
of EUR117 thousand (of which EUR188 thousand relate to 12--months
ECL of the DPP) and EUR588 thousand impairment losses.
21. Funding from central banks
Funding from central banks comprises funding from the ECB under Eurosystem
monetary policy operations as set out in the table below:
30 June 31 December
2023 2022
EUR000 EUR000
----------------- -------------------
Targeted Longer--Term Refinancing Operations
(TLTRO I I) 2,004,480 1,976,674
----------------- -------------------
As at 30 June 2023, ECB funding amounted to EUR2 billion (31 December
2022: EUR2 billion) borrowed from various TLTRO III operations.
In recognition of the challenging credit environment during the pandemic
period, the Governing Council of the ECB announced that for the counterparties
whose eligible net lending reached the lending performance thresholds,
the interest rate applied over the periods from 24 June 2020 to 23
June 2021 and 24 June 2021 to 23 June 2022 would be 50 basis points
below the average interest rate on the deposit facility prevailing
over the same period, and in any case not higher than minus 1%. BOC
PCL exceeded the eligible net lending threshold applicable in the
specified periods and was entitled to the beneficial rate of minus
1% for the period June 2020 to June 2022 and recognised interest at
the beneficial rate over the corresponding period. Subsequently, BOC
PCL updated the effective interest rate based on the contractual terms
and applicable changes in terms of the operations as a change in the
EIR applied prospectively.
ECB during its October 2022 meeting, announced that from 23 November
2022 onwards, the applicable interest rate would be indexed to the
average applicable key ECB interest rates from that date onward.
The maturity of TLTRO III is three years from the settlement of each
operation, but there is an option to early repay or reduce the amounts
borrowed before their respective final maturity.
BOC PCL early repaid EUR1 billion of TLTRO III funding in December
2022.
Details on encumbered assets related to the above funding facilities
are disclosed in Note 32.
22. Customer deposits
30 June 31 December
2023 2022
EUR000 EUR000
---------------------- ----------------------
By type of deposit
---------------------- ----------------------
Demand 10,359,755 10,561,724
---------------------- ----------------------
Savings 2,948,823 2,840,346
---------------------- ----------------------
Time or notice 5,857,577 5,596,249
---------------------- ----------------------
19,166,155 18,998,319
---------------------- ----------------------
By geographical area
---------------------- ----------------------
Cyprus 13,378,996 13,019,109
---------------------- ----------------------
Greece 1,845,882 1,933,771
---------------------- ----------------------
United Kingdom 686,916 706,233
---------------------- ----------------------
United States 149,455 178,962
---------------------- ----------------------
Germany 117,613 168,785
---------------------- ----------------------
Romania 60,772 69,514
---------------------- ----------------------
Russia 636,234 700,465
---------------------- ----------------------
Ukraine 301,407 290,050
---------------------- ----------------------
Belarus 81,223 83,299
---------------------- ----------------------
Other countries 1,907,657 1,848,131
---------------------- ----------------------
19,166,155 18,998,319
---------------------- ----------------------
Deposits by geographical area are based on the country of passport
of the Ultimate Beneficial Owner.
30 June 31 December
2023 2022
EUR000 EUR000
--------------------- ----------------------
By currency
--------------------- ----------------------
Euro 17,298,147 17,067,299
--------------------- ----------------------
US Dollar 1,475,065 1,529,548
--------------------- ----------------------
British Pound 325,625 333,458
--------------------- ----------------------
Russian Rouble 1,825 3,466
--------------------- ----------------------
Swiss Franc 11,150 11,796
--------------------- ----------------------
Other currencies 54,343 52,752
--------------------- ----------------------
19,166,155 18,998,319
--------------------- ----------------------
30 June 31 December
2023 2022
EUR000 EUR000
--------------------- ----------------------
By business line
--------------------- ----------------------
Corporate and Large corporate 1,964,893 1,915,300
--------------------- ----------------------
International corporate 131,044 139,898
--------------------- ----------------------
SMEs 962,581 1,007,555
--------------------- ----------------------
Retail 11,667,105 11,333,783
--------------------- ----------------------
Restructuring
--------------------- ----------------------
- Corporate 13,700 16,017
--------------------- ----------------------
- SMEs 6,992 6,375
--------------------- ----------------------
- Retail other 13,142 10,152
--------------------- ----------------------
Recoveries
--------------------- ----------------------
- Corporate 1,155 1,262
--------------------- ----------------------
International business unit 3,848,653 3,957,050
--------------------- ----------------------
Wealth management 556,890 610,927
--------------------- ----------------------
19,166,155 18,998,319
--------------------- ----------------------
23. Debt securities in issue and Subordinated liabilities
30 June 2023 31 December 2022
Nominal Carrying Nominal Carrying
value value value value
--------------------- -------- --------- ----------- -----------
Contractual interest
Subordinated liabilities rate Issuer EUR000 EUR000 EUR000 EUR000
--------------------- -------- --------- --------- ----------- -----------
Subordinated Tier
2 Capital Note 6.625% up to
-- April 2021 23 October 2026 BOCH 300,000 309,348 300,000 302,104
--------------------- -------- --------- --------- ----------- -----------
300,000 309,348 300,000 302,104
-------------------------------------------------------- --------- --------- ----------- -----------
Debt securities
in issue
--------------------- -------- --------- --------- ----------- -----------
Senior Preferred
Notes -- June 2.50% up to
2021 24 June 2026 BOC PCL 300,000 291,976 300,000 297,636
--------------------- -------- --------- --------- ----------- -----------
BOCH and BOC PCL maintain a Euro Medium Term Note ( ) Programme with
an aggregate nominal amount up to EUR4,000 million.
Subordinated Liabilities
Subordinated Tier 2 Capital Note -- April 2021
In April 2021, BOCH issued a EUR300 million unsecured and subordinated
Tier 2 Capital Note under the EMTN Programme. The note was priced
at par with a coupon of 6.625% per annum payable annually in arrears
and resettable on 23 October 2026 at the then prevailing 5--year
swap rate plus a margin of 6.902% per annum up to 23 October 2031,
payable annually. The note matures on 23 October 2031. BOCH has the
option to redeem the note early on any day during the six--month
period from 23 April 2026 to 23 October 2026, subject to applicable
regulatory consents. The note is listed on the Luxembourg Stock Exchange's
Euro MTF market.
The fair value of the subordinated liabilities as at 30 June 2023
and 31 December 2022 is disclosed in Note 17.
Debt securities in issue
Senior Preferred Notes -- June 2021
In June 2021, BOC PCL issued a EUR300 million senior preferred note
under the EMTN Programme. The note was priced at par with a fixed
coupon of 2.50% per annum, payable annually in arrears and resettable
on 24 June 2026. The note matures on 24 June 2027. BOC PCL has the
option to redeem the note early on 24 June 2026, subject to applicable
regulatory consents. The note is listed on the Luxembourg Stock Exchange's
Euro MTF market. The note complies with the criteria for the minimum
requirement for own funds and eligible liabilities (MREL) and contributes
towards BOC PCL's MREL requirements.
The fair value of the debt securities in issue as at 30 June 2023
and 31 December 2022 is disclosed in Note 17.
24. Accruals, deferred income, other liabilities and other provisions
30 June 31 December
2022
2023 (restated)
EUR000 EUR000
------------------ ------------------
Income tax payable and related provisions 75,477 41,420
------------------ ------------------
Special defence contribution payable 363 379
------------------ ------------------
Retirement benefit plans liabilities 1,959 3,694
------------------ ------------------
Provisions for financial guarantees and commitments 18,007 17,429
------------------ ------------------
Liabilities arising from non--participating investment
contracts 60,029 47,847
------------------ ------------------
Accrued expenses and other provisions 60,801 65,734
------------------ ------------------
Deferred income 19,060 18,061
------------------ ------------------
Items in the course of settlement 75,111 97,585
------------------ ------------------
Lease liabilities 28,627 30,190
------------------ ------------------
Other liabilities 90,151 56,843
------------------ ------------------
429,585 379,182
------------------ ------------------
Other liabilities include an amount of EUR10,385 thousand (31 December
2022: EUR10,385 thousand) relating to the guarantee fee for the conversion
of DTA into tax credits (Note 13) and an amount of EUR16,298 thousand
(31 December 2022: EUR9,874 thousand) relating to card processing
transactions.
25. Share capital
30 June 2023 31 December 2022
Number of Number of
shares (thousand) EUR000 shares (thousand) EUR000
------------------ ------------------ ----------------
Authorised
------------------ --------------- ------------------ ----------------
Ordinary shares of EUR0.10 each 10,000,000 1,000,000 10,000,000 1,000,000
------------------ --------------- ------------------ ----------------
Issued
------------------ --------------- ------------------ ----------------
1 January and 30 June/31 December 446,200 44,620 446,200 44,620
------------------ --------------- ------------------ ----------------
Authorised and issued share capital
All issued ordinary shares carry the same rights.
There were no changes to the authorised or issued share capital during
the six months ended 30 June 2023 and the year ended 31 December
2022.
Share premium reserve
There were no changes to the share premium reserve during the six
months ended 30 June 2023 and the year ended 31 December 2022.
Treasury shares of the Company
The consideration paid, including any directly attributable incremental
costs (net of income taxes), for shares of the Company held by entities
controlled by the Group is deducted from equity attributable to the
owners of the Company as treasury shares, until these shares are
cancelled or reissued. No gain or loss is recognised in the consolidated
income statement on the purchase, sale, issue or cancellation of
such shares.
The life insurance subsidiary of the Group, as at 30 June 2023, held
a total of 142 thousand ordinary shares of the Company of a nominal
value of EUR0.10 each (31 December 2022: 142 thousand ordinary shares
of a nominal value of EUR0.10 each), as part of its financial assets
which are invested for the benefit of insurance policyholders. The
cost of acquisition of these shares was EUR21,463 thousand (31 December
2022: EUR21,463 thousand).
Other equity instruments
30 June 31 December
2023 2022
EUR000 EUR000
--------------- -------------------
2018 Reset Perpetual Additional Tier 1 Capital
Securities (Existing Capital Securities) 15,517 220,000
--------------- -------------------
2023 Reset Perpetual Additional Tier 1 Capital
Securities (New Capital Securities) 220,000 -
--------------- -------------------
235,517 220,000
--------------- -------------------
In December 2018, the Company issued EUR220 million Fixed Rate Reset
Perpetual Additional Tier 1 Capital Securities (the 'Existing Capital
Securities'). The Existing Capital Securities constitute an unsecured
and subordinated obligation of the Company. The coupon is at 12.50%
and is payable semi--annually. During the six months ended 30 June
2023, a coupon payment was made to the holders of a total amount of
EUR13,750 thousand and has been recognised in retained earnings (30
June 2022: EUR13,750 thousand). The Existing Capital Securities are
listed on the Luxembourg Stock Exchange's Euro Multilateral Trading
Facility (MTF) market.
The Company, in June 2023, invited the holders of its outstanding
EUR220 million Existing Capital Securities to tender their Existing
Capital Securities for cash purchase by the Company at a price equal
to 103% of the principal amount. The Company also paid accrued interest
on the Existing Capital Securities, from the last coupon date, 15
June 2023 until the settlement date.
The Company received valid tenders of approximately EUR204 million
in aggregate nominal amount, all of which were accepted by the Company.
As a result, a cost of EUR6,554 thousand was recorded directly in
equity in June 2023, forfeiting relevant future coupon payments.
In July 2023, the Company purchased in the open market approximately
EUR7 million, further reducing the outstanding nominal amount of the
Existing Capital Securities to approximately EUR8 million.
At the same time, the Company on 13 June 2023, successfully launched
and priced an issue of EUR220 million Fixed Rate Reset Perpetual Additional
Tier 1 Capital Securities (the 'New Capital Securities'). The New
Capital Securities constitute unsecured and subordinated obligations
of the Company, are perpetual and are issued at par. They carry an
initial coupon of 11.875% per annum, payable semi--annually, and resettable
on 21 December 2028 and every 5 years thereafter. The Company may
elect to cancel any interest payment for an unlimited period, on a
non--cumulative basis, whereas it mandatorily cancels interest payment
under certain conditions. The New Capital Securities are perpetual
and have no fixed date of redemption, but can be redeemed (in whole
but not in part) at the Company's option from, and including, 21 June
2028 to, and including, 21 December 2028 and on each interest payment
date thereafter, subject to applicable regulatory consents and the
relevant conditions to redemption. The New Capital Securities are
listed on the Luxembourg Stock Exchange's Euro Multilateral Trading
Facility (MTF) market.
Transaction costs of EUR3,530 thousand in relation to the transactions
were recorded directly in equity in June 2023.
26. Dividends
Based on the 2022 SREP decision, effective from 1 January 2023, any
equity dividend distribution is subject to regulatory approval, both
for the Company and BOC PCL. The requirement for approval does not
apply if the distributions are made via the issuance of new ordinary
shares to the shareholders which are eligible as Common Equity Tier
1 Capital nor to the payment of coupons on any AT1 capital instruments
issued by the Company or BOC PCL.
In April 2023, the Company obtained the approval of the European
Central Bank to pay a dividend. Following this approval, the Board
of Directors of the Company recommended to the shareholders for approval
at the Annual General Meeting ('AGM') on 26 May 2023, a final dividend
of EUR0.05 per ordinary share in respect of the earnings of the year
ended 31 December 2022 ('Dividend'). The AGM on 26 May 2023 declared
a final dividend of EUR0.05 per share. The Dividend amounts to EUR22,310
thousand in total and is equivalent to a payout ratio of 14% of the
financial year 2022 recurring profitability adjusted for the AT1
coupon or 31% based on the financial year 2022 profit after tax (as
reported in the 2022 Annual Financial Report).
27. Provisions for pending litigation, claims, regulatory and other matters
The Group, in the ordinary course of business, is involved in various
disputes and legal proceedings and is subject to enquiries and examinations,
requests for information, audits, investigations, legal and other
proceedings by regulators, governmental and other public bodies,
actual and threatened, relating to the suitability and adequacy of
advice given to clients or the absence of advice, lending and pricing
practices, selling and disclosure requirements, record keeping, filings
and a variety of other matters. In addition, as a result of the deterioration
of the Cypriot economy and banking sector in 2012 and the subsequent
restructuring of BOC PCL in 2013 as a result of the bail--in Decrees,
BOC PCL is subject to a large number of proceedings and investigations
that either precede or result from the events that occurred during
the period of the bail--in Decrees.
Apart from what is described below, the Group considers that none
of these matters are material, either individually or in aggregate.
Nevertheless, provisions have been made where: (a) there is a present
obligation (legal or constructive) arising from past events, (b)
the settlement of the obligation is expected to result in an outflow
of resources embodying economic benefits, and (c) a reliable estimate
of the amount of the obligation can be made. The Group has not disclosed
an estimate of the potential financial effect on its contingent liabilities
arising from these matters where it is not practicable to do so,
because it is too early or the outcome is too uncertain or, in cases
where it is practicable, where disclosure could prejudice conduct
of the matters. Provisions have been recognised for those cases where
the Group is able to estimate probable losses (Note 6.4). Where an
individual provision is material, the fact that a provision has been
made is stated except to the extent that doing so would be prejudicial.
Any provision recognised does not constitute an admission of wrongdoing
or legal liability. There are also situations where the Group may
enter into a settlement agreement. This may occur only if such settlement
is in BOC PCL's interest (such settlement does not constitute an
admission of wrongdoing) and only takes place after obtaining legal
advice and all approvals by the appropriate bodies of management.
While the outcome of these matters is inherently uncertain, management
believes that, based on the information available to it, appropriate
provisions have been made in respect of legal proceedings, regulatory
and other matters as at 30 June 2023 and hence it is not believed
that such matters, when concluded, will have a material impact upon
the financial position of the Group.
27.1 Pending litigation and claims
Investigations and litigation relating to securities issued by BOC
PCL
A number of institutional and retail customers have filed various
separate actions against BOC PCL alleging that BOC PCL is guilty
of misselling in relation to securities issued by BOC PCL between
2007 and 2011. Remedies sought include the return of the money investors
paid for these securities. Claims are currently pending before the
courts in Cyprus and in Greece, as well as the decisions and fines
imposed upon BOC PCL in related matters by Cyprus Securities and
Exchange Commission (CySEC) and/or Hellenic Capital Market Commission
(HCMC).
The bonds and capital securities in respect of which claims have
been brought are the following: 2007 Capital Securities, 2008 Convertible
Bonds, 2009 Convertible Capital Securities (CCS) and 2011 Convertible
Enhanced Capital Securities (CECS).
BOC PCL is defending these claims, particularly with respect to institutional
investors and retail purchasers who received investment advice from
independent investment advisors. In the case of retail investors,
if it can be demonstrated that the relevant BOC PCL's officers 'persuaded'
them to proceed with the purchase and/or purported to offer 'investment
advice', BOC PCL may face significant difficulties.
To date, a number of cases have been tried in Greece. BOC PCL has
appealed against any such cases which were not ruled in its favour.
The resolution of the claims brought in the courts of Greece is expected
to take a number of years.
So far four capital securities cases have been adjudicated in favour
of BOC PCL and four cases have been adjudicated against BOC PCL at
Areios Pagos (Supreme Court of Greece). The cases that BOC PCL has
won will be retried by the Court of Appeal as per the direction of
the Supreme Court. One of the said cases has already been retried
by the Court of Appeal and the ruling was in favour of BOC PCL. There
has been a new petition for annulment against this decision of the
Court of Appeal and the case will be retried before the Supreme Court
in 2023. The four cases that BOC PCL has lost will not be retried
and are therefore deemed as concluded.
In Cyprus nineteen judgments have been issued so far with regards
to BOC PCL capital securities. Thirteen of the said judgments have
been issued in favour of BOC PCL (dismissing the plaintiffs' claims)
and six of them against BOC PCL. BOC PCL has filed appeals with regards
to all of the cases where the judgment was issued against it. In
six of the thirteen cases that BOC PCL won, the plaintiffs have filed
an appeal. It is to be noted that the statutory limitation period
for filing claims with respect to this and other matters for which
the cause of action arose prior and up to 31 December 2015, expired
on 31 December 2021.
Provision has been made based on management's best estimate of probable
outflows for capital securities related litigation.
Bail--in related litigation
Depositors
A number of BOC PCL's depositors, who allege that they were adversely
affected by the bail--in, filed claims against BOC PCL and other
parties (such as the CBC and the Ministry of Finance of Cyprus) including
against BOC PCL as the alleged successor of Laiki Bank on the grounds
that, inter alia, the 'Resolution Law of 2013' and the Bail--in Decrees
were in conflict with the Constitution of the Republic of Cyprus
and the European Convention on Human Rights. They are seeking damages
for their alleged losses resulting from the bail--in of their deposits.
BOC PCL is defending these actions.
BOC PCL has won five cases with regards to bail--in related litigation
(on failure to follow instructions). The plaintiffs have filed appeals
with respect to two of the said judgments. BOC PCL lost one case
with regards to bail--in related litigation (on failure to follow
instructions) and has filed an appeal.
BOC PCL also won five bail--in decree related cases. In summary,
the court ruled that the measures that the government implemented
were necessary to prevent the collapse of the financial sector, which
would have detrimental consequences for the country's economy. Under
the circumstances the government could rely on the doctrine of necessity
when it imposed the bail--in. Up to the date of the Consolidated
Financial Statements only one appeal has been filed with respect
to the above mentioned judgments. BOC PCL lost one Laiki Bail--in
decree case but it is the opinion of legal advisors of BOC PCL that
this case is a one--off case which turned on its own particular facts.
An appeal by BOC PCL has been filed with respect to this case.
BOC PCL won two and lost three bail--in wrongful application related
cases. The appeals that have been filed by BOC PCL are still pending
with regards to this matter. With regards to the cases that BOC PCL
won, the plaintiffs have not filed an appeal.
Shareholders
A number of actions for damages have been filed with the District
Courts of Cyprus alleging either the unconstitutionality of the Resolution
Law and the Bail--in Decrees, or a misapplication of same by BOC
PCL (as regards the way and methodology whereby such Decrees have
been implemented), or that BOC PCL failed to follow instructions
promptly prior to the bail--in coming into force. As at the present
date, both the Resolution Law and the Bail--in Decrees have not been
annulled by a court of law and thus remain legally valid and in effect.
BOC PCL contests all of these claims.
Legal position of the Group
All of the above claims are being vigorously disputed by the Group,
in close consultation with the appropriate state and governmental
authorities. The position of the Group is that the Resolution Law
and the Decrees take precedence over all other laws. As matters now
stand, both the Resolution Law and the Decrees issued thereunder
are constitutional and lawful, in that they were properly enacted
and have not so far been annulled by any court.
Provident fund case
In December 2015, the Bank of Cyprus Employees Provident Fund (the
Provident Fund) filed an action against BOC PCL claiming EUR70 million
allegedly owed as part of BOC PCL's contribution by virtue of an
agreement with the Union dated 31 December 2011. Based on facts currently
known, it is not practicable at this time for BOC PCL to predict
the resolution of this matter, including the timing or any possible
impact on BOC PCL.
Employment litigation
Former employees of the Group have instituted a number of employment
claims including unfair dismissals and one claim for Provident Fund
entitlements against BOC PCL and the Trustees of the Provident Fund.
In July 2021 the claim for Provident Fund entitlements was settled.
The Group does not consider that the pending cases in relation to
employment will have a material impact on its financial position.
A judgment has been issued in one of the unfair dismissal cases and
BOC PCL lost. BOC PCL has filed an appeal with respect to this case
and similarly, the plaintiff has also filed an appeal. The facts
of this case are unique and it is not expected to affect the rest
of the cases where unfair dismissal is claimed.
Additionally, a number of former employees have filed claims against
BOC PCL contesting entitlements received relating to the various
voluntary exit plans. As at the reporting date, the Group does not
expect that these actions will have a material impact on its financial
position.
Swiss Francs loans litigation in Cyprus and the UK
number of actions have been instituted against BOC PCL by borrowers
who obtained loans in foreign currencies (mainly Swiss Francs). The
central allegation in these cases is that BOC PCL misled these borrowers
and/or misrepresented matters, in violation of applicable law. BOC
PCL is contesting the said proceedings. The Group does not expect
that these actions will have a material impact on its financial position.
UK property lending claims
BOC PCL is the defendant in certain proceedings alleging that BOC
PCL is legally responsible for allegedly, inter alia, advancing and
misselling loans for the purchase by UK nationals of property in
Cyprus. The proceedings in the UK are currently stayed in order for
the parties to have time to negotiate possible settlements. The Group
does not expect that these negotiations will lead to outflows for
the Group.
Banking business cases
There is a number of banking business cases where the amounts claimed
are significant. These cases primarily concern allegations as to
BOC PCL's standard policies and procedures allegedly resulting to
damages and other losses for the claimants. Further, there are several
other banking claims, where the amounts involved are not as significant.
Management has assessed either the probability of loss as remote
and/or does not expect any future outflows with respect to these
cases to have a material impact on the financial position of the
Group. Such matters arise as a result of the Group's activities and
management appropriately assesses the facts and the risks of each
case accordingly.
General criminal investigations and proceedings
The Attorney General and the Cypriot Police (the Police) are conducting
various investigations and inquiries following and relating to the
financial crisis which culminated in March 2013. BOC PCL is cooperating
fully with the Attorney General and the Police and is providing all
information requested of it. Based on the currently available information,
the Group is of the view that any further investigations or claims
resulting from these investigations will not have a material impact
on its financial position.
Others
An investigation is in process related to potentially overstated
and/or fictitious claims paid by the non--life insurance subsidiary
of the Group. The information usually required by IAS 37 'Provisions,
Contingent Liabilities and Contingent Assets' is not disclosed on
the grounds that it is expected to seriously prejudice the outcome
of the investigation and/or the possible taking of legal action.
Based on the information available at present, management considers
that it is unlikely for this matter to have a material adverse impact
on the financial position and capital adequacy of the non--life insurance
subsidiary and thereby the Group, also taking into account that it
is virtually certain that compensations will be received from a relevant
insurance coverage, upon the settlement of any obligation that may
arise.
27.2 Regulatory matters
The Hellenic Capital Market Commission (HCMC) Investigation
The HCMC is currently in the process of investigating matters concerning
the Group's investment in Greek Government Bonds from 2009 to 2011,
including, inter alia, related non--disclosure of material information
in BOC PCL's CCS, CECS and rights issue prospectuses (tracking the
investigation carried out by CySEC in 2013), Greek government bonds'
reclassification, ELA disclosures and allegations by some investors
regarding BOC PCL's non--compliance with Markets in Financial Instruments
Directive (MiFID) in respect of investors' direct investments in
Greek Government Bonds.
A specific estimate of the outcome of the investigations or of the
amount of possible fines cannot be given at this stage, though it
is not expected that any resulting liability or damages will have
a material impact on the financial position of the Group.
The Cyprus Securities and Exchange Commission (CySEC) Investigations
CySEC has concluded (in two stages) during 2013 and 2014 its investigation
with respect to BOC PCL exposure to Greek Government Bonds and the
non--disclosure of material information and other corporate governance
deficiencies relating to the said exposure. In this respect, CySEC
has issued two decisions, coming to the conclusion that BOC PCL was
in breach of certain laws regarding disclosure of information. At
all times, BOC PCL had filed recourses before the Administrative
Court regarding the decisions of CySEC and the fines imposed upon
it.
In October 2021 the Administrative Court ruled in favour of BOC PCL
in relation to the fine of EUR160 thousand on the ground of flawed
constitution of the CySEC Board. In May 2022, the Administrative
Court (under a different bench) ruled against BOC PCL in relation
to the fine of EUR950 thousand and found that the constitution of
the CySEC Board was not flawed. In May 2023 the Administrative Court
ruled in favour of BOC PCL in relation to the fine of EUR70 thousand
on the ground of flawed constitution of the CySEC Board. All cases
are now pending on appeal. Relevant provisions were made in prior
years for the said cases.
As at 30 June 2023 and 31 December 2022 there were no pending CySEC
investigations against BOC PCL.
Central Bank of Cyprus (CBC)
The CBC has carried out certain investigations to assess compliance
of BOC PCL under the anti--money laundering (AML) legislation which
was in place during years 2008--2015 and 2015--2018.
Following the investigations and the on--site audit findings, the
CBC concluded on 27 January 2021 that in the case of AML legislation
2008--2015 BOC PCL was in breach of certain articles of the said
legislation and prima facie, failed to act in accordance with certain
provisions of the AML/counter terrorism financing (CTF) Law and the
CBC AML/CTF Directive. In October 2021 a fine of EUR277 thousand
was imposed upon BOC PCL. BOC PCL paid a discounted fine and has
filed a recourse against this decision and fine.
Following the investigation and the on--site examination, the CBC
concluded with regards to the files and transactions related to years
2015--2018, that BOC PCL was in breach of certain articles of the
legislation. In December 2021, a fine of EUR790 thousand was imposed
upon BOC PCL. BOC PCL paid a discounted fine and has filed a recourse
against the decision and the fine.
The CBC had conducted an investigation in the past into BOC PCL's
issuance of capital securities and concluded that BOC PCL breached
certain regulatory requirements concerning the issuance of Convertible
Capital Securities (Perpetual) in 2009, but not in relation to the
CECS in 2011. The CBC had, in 2013, imposed a fine of EUR4 thousand
upon BOC PCL, who filed a recourse. The Administrative Court cancelled
both the CBC's decision and the fine that was imposed upon BOC PCL
in a respective judgment dated in 2020. CBC decided to re--examine
this matter and to re--open the investigation.
Commission for the Protection of Competition Investigation (CPC)
In April 2014, following an investigation which began in 2010, CPC
issued a statement of objections, alleging violations of Cypriot
and EU competition law relating to the activities and/or omissions
in respect of card payment transactions by, among others, BOC PCL
and JCC Payment Systems Ltd (JCC), a card processing business currently
75% owned by BOC PCL. BOC PCL is expecting the final conclusion of
this matter and has provided for it accordingly.
There was also an allegation concerning BOC PCL's arrangements with
American Express, namely that such exclusive arrangements violated
Cypriot and EU competition law. On both matters, the CPC has concluded
that BOC PCL (in common with other banks and JCC) has breached the
relevant provisions of the applicable law for the protection of competition.
In May 2017, the CPC imposed a fine of EUR18 million upon BOC PCL
and BOC PCL filed a recourse against the decision and the fine. The
payment of the fine had been stayed, pending the final outcome of
the recourse. In June 2018, the Administrative Court accepted BOC
PCL's position and cancelled the decision as well as the fine imposed
upon BOC PCL. During 2018, the Attorney General has filed an appeal
before the Supreme court with respect to such decision. Until a judgment
is issued by the Supreme Court, the decision of the CPC remains annulled
and there is no subsisting fine upon BOC PCL. The said appeal is
still pending as at 30 June 2023.
In 2019, the CPC initiated an ex officio investigation with respect
to unfair contract terms and into the contractual arrangements/facilities
offered by BOC PCL for the period from 2012 to 2016. To date no charges
have been put forward nor have any formal proceedings been instituted
against BOC PCL in this case. The Group is not aware of any further
developments in this case.
Association for the Protection of Bank Borrowers (CYPRODAT)
CYPRODAT filed a complaint with the Commission for the Protection
of Competition (CPC) in January 2022, claiming that BOC PCL and another
bank have concerted in practices regarding the recent revisions of
their commissions and charges. In April 2022, CPC informed BOC PCL
of the initiation of an investigation with respect to this matter
but for which no formulation of a Statement of Objections has been
received to date which would indicate the initiation of formal proceedings.
Consumer Protection Service (CPS)
In July 2017, CPS imposed a fine of EUR170 thousand upon BOC PCL
after concluding an ex officio investigation regarding some terms
in both BOC PCL's and Marfin Popular Bank's loan documentation, that
were found to constitute unfair commercial practices. Decisions of
the CPS (according to rulings of the Administrative Court) are not
binding but merely an expression of opinion. BOC PCL has filed a
recourse before the Administrative Court against this decision. The
Administrative Court has issued its judgment in 2022 in favour of
BOC PCL, and the CPS decision along with the fine have been cancelled.
An appeal has been submitted by CPS with regards to this judgment,
which is still pending as at 30 June 2023.
In March 2020, BOC PCL has been served with an application by the
director of CPS through the Attorney General seeking for an order
of the court, with immediate effect, the result of which will be
for BOC PCL to cease the use of a number of terms in the contracts
of BOC PCL which are deemed to be unfair under the said order. The
said terms relate to contracts that had been signed during 2006--2007.
Furthermore, the said application seeks for an order ordering BOC
PCL to undertake measures to remedy the situation. BOC PCL will take
all necessary steps for the protection of its interests. This matter
is still pending before the court as at 30 June 2023.
In April 2021, the Director of CPS filed an application for the issuance
of a court order against BOC PCL, prohibiting the use of a number
of contractual terms included in BOC PCL's consumer contracts and
requiring the amendment of any such contracts (present and future)
so as to remove such unfair terms. This matter is still pending before
the court as at 30 June 2023.
BOC PCL received a letter in July 2021 from CPS, initiating an ex
officio investigation under the Distance Marketing of Financial Services
to Consumers Law, with respect to the services and products of BOC
PCL for which the contract between BOC PCL and the consumer is entered
into online via BOC PCL's website.
BOC PCL received another letter in July 2021 from CPS, initiating
an investigation with respect to an alleged wrong commercial practice
of BOC PCL of promoting a product.
There have been no further developments on the aforementioned investigations
since.
Cyprus Consumers' Association (CCA)
In March 2021, BOC PCL was served with an application filed by the
CCA for the issuance of a court order prohibiting the use of a number
of contractual terms included in BOC PCL's consumer contracts and
requiring the amendment of any such contracts (present and future)
so as to remove such terms deemed as unfair. The said contractual
terms were determined as unfair pursuant to the decisions issued
by the Consumer Protection Service of the Ministry of Energy, Commerce,
Industry and Tourism against BOC PCL in 2016 and 2017. BOC PCL will
take all necessary steps for the protection of its interests. This
matter is still pending before the court as at 30 June 2023.
The new Law on Consumer Protection brings under one umbrella the
existing legislation on unfair contract terms and practices with
some enhanced powers vested in the Consumer Protection Service, i.e.
power to impose increased fines which are immediately payable. The
new Law on Consumer Protection has a retrospective effect in that
it also applies to all contracts/practices entered into and/or terminated
prior to this law coming into effect as opposed to contracts/practices
which are only entered into/adopted as from the date of publication
of the new Law on Consumer Protection.
There are many factors that may affect the range of outcomes, and
the resulting financial impact, of these matters, is unknown.
UK regulatory matters
As part of the agreement for the sale of Bank of Cyprus UK Ltd, a
liability with regards to UK regulatory matters remains an obligation
for settlement by the Group. The level of the provision represents
the best estimate of all probable outflows arising from customer
redress based on information available to management.
27.3 ther matters
Other matters include among others, provisions for various other
open examination requests by governmental and other public bodies,
legal matters and provisions for warranties and indemnities related
to the disposal process of certain operations of the Group.
The provisions for pending litigation, claims, regulatory and other
matters described above and provided in the tables below do not include
insurance claims arising in the ordinary course of business of the
Group's insurance subsidiaries as these are included in 'Insurance
liabilities'.
27.4 Provisions for pending litigation, claims, regulatory and other matters
Pending litigation Regulatory Other matters Total
and claims matters (Note 27.3)
(Note 27.1) (Note 27.2)
2023 EUR000 EUR000 EUR000 EUR000
------------------- ------------------- ------------------- -------------------
1 January 63,947 14,918 48,742 127,607
------------------- ------------------- ------------------- -------------------
Net increase in provisions
including
unwinding of discount 14,682 - 4,095 18,777
------------------- ------------------- ------------------- -------------------
Utilisation of provisions (14,289) - - (14,289)
------------------- ------------------- ------------------- -------------------
Release of provisions (4,629) - - (4,629)
------------------- ------------------- ------------------- -------------------
Transfer - - 767 767
------------------- ------------------- ------------------- -------------------
Foreign exchange adjustments - 34 - 34
------------------- ------------------- ------------------- -------------------
30 June 59,711 14,952 53,604 128,267
------------------- ------------------- ------------------- -------------------
Pending litigation Regulatory Other matters Total
and claims matters (Note 27.3)
(Note 27.1) (Note 27.2)
2022 EUR000 EUR000 EUR000 EUR000
------------------- ------------------- ------------------- -----------------
1 January 57,844 16,415 29,849 104,108
------------------- ------------------- ------------------- -----------------
Net increase in provisions
including
unwinding of discount 1,086 950 - 2,036
------------------- ------------------- ------------------- -----------------
Utilisation of provisions (78) (759) - (837)
------------------- ------------------- ------------------- -----------------
Release of provisions (392) - (100) (492)
------------------- ------------------- ------------------- -----------------
Foreign exchange adjustments - (22) - (22)
------------------- ------------------- ------------------- -----------------
30 June 58,460 16,584 29,749 104,793
------------------- ------------------- ------------------- -----------------
Provisions for pending litigation, claims, regulatory and other matters
recorded in the consolidated income statement during the six months
ended 30 June 2023 amount to EUR14,148 thousand (30 June 2022: EUR594
thousand). The increase in the six months ended 30 June 2023 is driven
by the revised approach on pending litigation fees and the progress
on legal cases, as well as higher one--off provisions for other matters
in relation to the run--down and disposal of the Group's legacy and
non--core operations.
Some information required by the IAS 37 'Provisions, Contingent Liabilities
and Contingent Assets' is not disclosed on the grounds that it can
be expected to prejudice seriously the outcome of the litigation or
the outcome of the negotiation in relation to provisions for warranties
and indemnities related to the disposal process of certain operations
of the Group.
An increase by 5% in the probability of loss rate for pending litigation
and claims (31 December 2022: 5%) with all other variables held constant,
would lead to an increase in the actual provision by EUR2,236 thousand
at 30 June 2023 (31 December 2022: increase by EUR2,821 thousand).
27.5 Contingent liabilities and commitments
The Group, as part of its disposal process of certain of its operations,
has provided various representations, warranties and indemnities
to the buyers. These relate to, among other things, the ownership
of the loans, the validity of the liens, tax exposures and other
matters agreed with the buyers. As a result, the Group may be obliged
to compensate the buyers in the event of a valid claim by the buyers
with respect to the above representations, warranties and indemnities.
A provision has been recognised, based on management's best estimate
of probable outflows, where it was assessed that such an outflow
is probable.
Capital commitments for the acquisition of property, equipment and
intangible assets as at 30 June 2023 amount to EUR22,159 thousand
(31 December 2022: EUR10,647 thousand).
28. Cash and cash equivalents
Cash and cash equivalents comprise:
30 June 31 December
2023 2022
EUR000 EUR000
-------------- ---------------
Cash and non--obligatory balances with central
banks 8,988,967 9,452,721
-------------- ---------------
Loans and advances to banks with original maturity
less than three months 363,948 133,432
-------------- ---------------
9,352,915 9,586,153
-------------- ---------------
Analysis of cash and balances with central banks and loans and
advances to banks
30 June 31 December
2023 2022
EUR000 EUR000
-------------- ---------------
Cash and non--obligatory balances with central
banks 8,988,967 9,452,721
-------------- ---------------
Obligatory balances with central banks 138,462 114,537
-------------- ---------------
Total cash and balances with central banks 9,127,429 9,567,258
-------------- ---------------
Loans and advances to banks with original maturity
less than three months 363,948 133,432
Restricted loans and advances to banks 67,864 71,379
--------------- ----------------
Total loans and advances to banks 431,812 204,811
--------------- ----------------
Restricted loans and advances to banks include collaterals under derivative
transactions of EUR1,750 thousand (31 December 2022: EUR7,380 thousand)
which are not immediately available for use by the Group, but are
released once the transactions are terminated.
29. Analysis of assets and liabilities by expected maturity
30 June 2023 31 December 2022 (restated)
Less than Over one Total Less than Over one Total
one year year one year year
---------------- ---------------- ---------------- -------------
Assets EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
---------------- ---------------- ------------ ---------------- ---------------- -------------
Cash and
balances
with central
banks 8,988,967 138,462 9,127,429 9,452,721 114,537 9,567,258
---------------- ---------------- ------------ ---------------- ---------------- -------------
Loans and
advances
to banks 363,948 67,864 431,812 133,432 71,379 204,811
---------------- ---------------- ------------ ---------------- ---------------- -------------
Derivative
financial
assets 7,189 42,113 49,302 904 47,249 48,153
---------------- ---------------- ------------ ---------------- ---------------- -------------
Investments 821,389 2,508,318 3,329,707 460,070 2,243,633 2,703,703
---------------- ---------------- ------------ ---------------- ---------------- -------------
Loans and
advances
to customers 1,116,605 8,891,214 10,007,819 880,158 9,073,094 9,953,252
---------------- ---------------- ------------ ---------------- ---------------- -------------
Life insurance
business
assets
attributable
to
policyholders 16,787 571,095 587,882 15,486 526,835 542,321
---------------- ---------------- ------------ ---------------- ---------------- -------------
Prepayments,
accrued
income and
other
assets 267,403 342,204 609,607 256,077 352,977 609,054
---------------- ---------------- ------------ ---------------- ---------------- -------------
Stock of
property 202,887 742,944 945,831 301,275 739,757 1,041,032
---------------- ---------------- ------------ ---------------- ---------------- -------------
Investment
properties 14,385 59,954 74,339 24,749 60,350 85,099
---------------- ---------------- ------------ ---------------- ---------------- -------------
Deferred tax
assets 37,909 190,044 227,953 37,909 190,025 227,934
---------------- ---------------- ------------ ---------------- ---------------- -------------
Property,
equipment
and intangible
assets - 314,956 314,956 - 305,924 305,924
---------------- ---------------- ------------ ---------------- ---------------- -------------
11,837,469 13,869,168 25,706,637 11,562,781 13,725,760 25,288,541
---------------- ---------------- ------------ ---------------- ---------------- -------------
Liabilities
---------------- ---------------- ------------ ---------------- ---------------- -------------
Deposits by
banks 155,885 292,828 448,713 191,635 316,023 507,658
---------------- ---------------- ------------ ---------------- ---------------- -------------
Funding from
central
banks 2,004,480 - 2,004,480 1,976,674 - 1,976,674
---------------- ---------------- ------------ ---------------- ---------------- -------------
Derivative
financial
liabilities 4,614 13,777 18,391 10,538 5,631 16,169
---------------- ---------------- ------------ ---------------- ---------------- -------------
Customer
deposits 5,945,245 13,220,910 19,166,155 5,893,802 13,104,517 18,998,319
---------------- ---------------- ------------ ---------------- ---------------- -------------
Insurance
liabilities 87,461 544,456 631,917 88,647 511,345 599,992
---------------- ---------------- ------------ ---------------- ---------------- -------------
Accruals,
deferred
income and
other
liabilities and
provisions for
pending
litigation,
claims,
regulatory and
other
matters 382,818 175,034 557,852 295,678 211,111 506,789
---------------- ---------------- ------------ ---------------- ---------------- -------------
Debt securities
in issue and
subordinated
liabilities - 601,324 601,324 - 599,740 599,740
---------------- ---------------- ------------ ---------------- ---------------- -------------
Deferred tax
liabilities 1,622 32,996 34,618 1,207 33,427 34,634
---------------- ---------------- ------------ ---------------- ---------------- -------------
8,582,125 14,881,325 23,463,450 8,458,181 14,781,794 23,239,975
---------------- ---------------- ------------ ---------------- ---------------- -------------
The main assumptions used in determining the expected maturity of
assets and liabilities are set out below.
Cash and balances with central banks are classified in the relevant
time band based on the contractual maturity, with the exception of
obligatory balances with central banks which are classified in the
'Over one year' time band.
The investments are classified in the relevant time band based on
expectations as to their realisation. In most cases this is the maturity
date, unless there is an indication that the maturity will be prolonged
or there is an intention to sell, roll or replace the security with
a similar one.
Performing loans and advances to customers in Cyprus are classified
based on the contractual repayment schedule. Overdraft accounts are
classified in the 'Over one year' time band. The Stage 3 Loans are
classified in the 'Over one year' time band except cash flows from
expected receipts which are included within time bands, according
to historic amounts of receipts in the recent months.
Stock of property is classified in the relevant time band based on
expectations as to its realisation.
A percentage of customer deposits maturing within one year is classified
in the 'Over one year' time band, based on the observed behavioural
analysis.
The expected maturity of all prepayments, accrued income and other
assets and accruals, deferred income and other liabilities is the
same as their contractual maturity. If they do not have a contractual
maturity, the expected maturity is based on the timing the asset
is expected to be realised and the liability is expected to be settled.
30. Risk management -- Credit risk
In the ordinary course of its business the Group is exposed to credit
risk which is monitored through various control mechanisms across
all Group entities in order to prevent undue risk concentrations
and to price credit facilities and products on a risk--adjusted basis.
Credit risk is the risk that arises from the possible failure of
one or more customers to discharge their credit obligations towards
the Group.
The Credit Risk Management department, in co--operation with the
Credit Risk Control and Monitoring department, set the Group's credit
risk policies and monitor compliance with credit risk policies applicable
to each business line and the quality of the Group's loans and advances
portfolio through the timely credit risk assessment of customers.
The credit exposures of related accounts are aggregated and monitored
on a consolidated basis.
The Credit Risk Management department, in co--operation with the
Credit Risk Control and Monitoring department, also safeguard the
effective management of credit risk at all stages of the credit cycle,
monitor the quality of decisions and processes and ensure that the
credit sanctioning function is being properly managed.
The credit policies are complemented by the methods used for the
assessment of the customers' creditworthiness (credit rating and
credit scoring systems).
The loan portfolio is analysed on the basis of the customers' creditworthiness,
their economic sector of activity and geographical concentration.
The credit risk exposure of the Group is diversified across the various
industry sectors of the economy. Credit Risk Management department
determines concentration limits for each industry sector, sets prohibited
sectors and defines sectors which may require prior approval before
credit applications are submitted.
The Market & Liquidity Risk department assesses the credit risk relating
to exposures to Credit Institutions and Governments and other debt
securities.
Models and limits are presented to and approved by the Board of Directors,
through the relevant authority based on the authorisation level limits.
The Group's significant judgements, estimates and assumptions regarding
the determination of the level of provisions for impairment are described
in Note 6 'Significant and other judgements, estimates and assumptions'
of these Consolidated Financial Statements.
30.1 Maximum exposure to credit risk and collateral and other credit enhancements
Loans and advances to customers
The Credit Risk Management department determines the level and type
of collateral and other credit enhancements required for the granting
of new loans to customers.
The main types of collateral obtained by the Group are mortgages
on real estate, cash collateral/blocked deposits, bank guarantees,
government guarantees, pledges of equity securities and debt instruments
of public companies, fixed and floating charges over corporate assets,
assignment of life insurance policies, assignment of rights on contracts
of sale and personal and corporate guarantees.
The Group regularly monitors the changes in the market value of the
collateral and, where necessary, requests the pledging of additional
collateral in accordance with the relevant agreement.
Off--balance sheet exposures
The Group offers guarantee facilities to its customers under which
the Group may be required to make payments on their behalf and enters
into commitments to extend credit lines to secure their liquidity
needs.
Letters of credit and guarantee facilities (including standby letters
of credit) commit the Group to make payments on behalf of customers
in the event of a specific act, generally related to the import or
export of goods. Such commitments expose the Group to risks similar
to those of loans and advances and are therefore monitored by the
same policies and control processes.
Other financial instruments
Collateral held as security for financial assets other than loans
and advances to customers is determined by the nature of the financial
instrument. Debt securities and other eligible bills are generally
unsecured with the exception of asset--backed securities and similar
instruments, which are secured by pools of financial assets. In addition,
some debt securities are government--guaranteed.
The Group has chosen the ISDA Master Agreement for documenting its
derivatives activity. It provides the contractual framework within
which dealing activity across a full range of over--the--counter
(OTC) products is conducted and contractually binds both parties
to apply close--out netting across all outstanding transactions covered
by an agreement, if either party defaults. In most cases the parties
execute a Credit Support Annex (CSA) in conjunction with the ISDA
Master Agreement. Under a CSA, the collateral is passed between the
parties in order to mitigate the market contingent counterparty risk
inherent in their open positions. As at 30 June 2023, the majority
of derivative exposures are covered by ISDA netting arrangements.
A detailed analysis of derivative asset and liability exposures is
available in Note 16. Information about the Group's collaterals under
derivative transactions is provided in Note 28.
Settlement risk arises in any situation where a payment in cash or
securities is made in the expectation of a corresponding receipt
in securities or cash. The Group sets daily settlement limits for
each counterparty. Settlement risk is mitigated when transactions
are effected via established payment systems or on a delivery upon
payment basis.
Maximum Exposure to credit risk
The table below presents the maximum exposure to credit risk before
taking into account the tangible and measurable collateral and credit
enhancements held.
30 June 31 December
2022
2023 (restated)
EUR000 EUR000
---------------- -----------------
Balances with central banks 9,039,067 9,475,541
---------------- -----------------
Loans and advances to banks (Note 28) 431,812 204,811
---------------- -----------------
Other non--equity securities at FVPL (Note 15) 3,364 8,968
---------------- -----------------
Debt securities classified at amortised cost and
FVOCI (Note 15) 3,178,127 2,499,894
---------------- -----------------
Derivative financial instruments (Note 16) 49,302 48,153
---------------- -----------------
Loans and advances to customers (Note 18) 10,007,819 9,953,252
---------------- -----------------
Debtors (Note 20) 32,363 29,220
---------------- -----------------
Reinsurers' share of insurance contract liabilities
(Note 20) 50,580 46,781
---------------- -----------------
Deferred purchase payment consideration (Note 20) 320,655 311,523
---------------- -----------------
Other assets (Note 20) 65,919 57,183
---------------- -----------------
On--balance sheet total 23,179,008 22,635,326
---------------- -----------------
Contingent liabilities
---------------- -----------------
Acceptances and endorsements 3,034 5,175
---------------- -----------------
Guarantees 696,362 651,219
---------------- -----------------
Commitments
---------------- -----------------
Documentary credits 3,399 17,624
---------------- -----------------
Undrawn formal stand--by facilities, credit lines
and other commitments to lend 1,957,084 1,909,487
---------------- -----------------
Off--balance sheet total 2,659,879 2,583,505
---------------- -----------------
25,838,887 25,218,831
---------------- -----------------
30.2 Credit risk concentration of loans and advances to customers
There are restrictions on loan concentrations which are imposed by
the Banking Law in Cyprus, the relevant CBC Directives and CRR. The
Group's Risk Appetite Statement may impose stricter concentration
limits which are monitored by the Group.
The credit risk concentration, which is based on industry (economic
activity) and business line, as well as the geographical concentration,
is presented below.
The geographical analysis, for credit risk concentration purposes,
is based on the Group's Country Risk Policy which is followed for
monitoring the Group's exposures. Market and Liquidity Risk department
is responsible for analysing the country risk of exposures. ALCO
reviews the country risk of exposures on a quarterly basis and the
Board, through its Risk Committee, reviews the country risk of exposures
and any breaches of country risk limits on a regular basis and at
least annually.
The table below presents the geographical concentration of loans
and advances to customers by country of risk based on the country
of residency for individuals and the country of registration for
companies.
30 June 2023 Cyprus Greece United Russia Other Gross loans
Kingdom countries at amortised
cost
By economic activity EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------- ------------- -------------- -------------- ------------- ----------------
Trade 915,396 337 38 - 38 915,809
------------- ------------- -------------- -------------- ------------- ----------------
Manufacturing 310,474 44,480 - - 27,251 382,205
------------- ------------- -------------- -------------- ------------- ----------------
Hotels and catering 962,779 27,120 37,020 - 39,863 1,066,782
------------- ------------- -------------- -------------- ------------- ----------------
Construction 526,060 8,677 18 1 373 535,129
------------- ------------- -------------- -------------- ------------- ----------------
Real estate 931,771 101,245 1,960 - 52,189 1,087,165
------------- ------------- -------------- -------------- ------------- ----------------
Private individuals 4,534,353 11,616 65,551 15,684 51,257 4,678,461
------------- ------------- -------------- -------------- ------------- ----------------
Professional and other
services 547,629 621 5,280 336 41,780 595,646
------------- ------------- -------------- -------------- ------------- ----------------
Shipping 22,858 24 - - 209,886 232,768
------------- ------------- -------------- -------------- ------------- ----------------
Other sectors 469,361 - 1 3 32,005 501,370
------------- ------------- -------------- -------------- ------------- ----------------
9,220,681 194,120 109,868 16,024 454,642 9,995,335
------------- ------------- -------------- -------------- ------------- ----------------
30 June 2023 Cyprus Greece United Russia Other Gross loans
Kingdom countries at amortised
cost
By business line EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------- ------------- ------------- ------------- ------------- -----------------
Corporate and Large
corporate 3,450,891 28,255 - 333 190 3,479,669
------------- ------------- ------------- ------------- ------------- -----------------
International corporate 100,541 157,853 43,818 - 392,610 694,822
------------- ------------- ------------- ------------- ------------- -----------------
SMEs 982,114 529 1,215 - 2,372 986,230
------------- ------------- ------------- ------------- ------------- -----------------
Retail
------------- ------------- ------------- ------------- ------------- -----------------
-- housing 3,315,768 2,486 32,680 91 17,658 3,368,683
------------- ------------- ------------- ------------- ------------- -----------------
-- consumer, credit
cards
and other 926,010 793 561 - 822 928,186
------------- ------------- ------------- ------------- ------------- -----------------
Restructuring
------------- ------------- ------------- ------------- ------------- -----------------
-- corporate 52,376 - 975 - 65 53,416
------------- ------------- ------------- ------------- ------------- -----------------
-- SMEs 39,320 - 397 71 - 39,788
------------- ------------- ------------- ------------- ------------- -----------------
-- retail housing 67,332 101 2,002 275 180 69,890
------------- ------------- ------------- ------------- ------------- -----------------
-- retail other 23,723 36 18 - 22 23,799
------------- ------------- ------------- ------------- ------------- -----------------
Recoveries
------------- ------------- ------------- ------------- ------------- -----------------
-- corporate 17,060 - 458 176 943 18,637
------------- ------------- ------------- ------------- ------------- -----------------
-- SMEs 25,994 - 1,039 2,147 1,898 31,078
------------- ------------- ------------- ------------- ------------- -----------------
-- retail housing 61,682 210 17,670 2,981 7,967 90,510
------------- ------------- ------------- ------------- ------------- -----------------
-- retail other 29,889 24 1,336 274 433 31,956
------------- ------------- ------------- ------------- ------------- -----------------
International business
unit 88,667 1,672 7,607 9,676 24,226 131,848
------------- ------------- ------------- ------------- ------------- -----------------
Wealth management 39,314 2,161 92 - 5,256 46,823
------------- ------------- ------------- ------------- ------------- -----------------
9,220,681 194,120 109,868 16,024 454,642 9,995,335
------------- ------------- ------------- ------------- ------------- -----------------
31 December 2022 Cyprus Greece United Russia Other Gross loans
Kingdom countries at amortised
cost
By economic activity EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------- -------------- ------------- -------------- ------------- ----------------
Trade 922,093 384 37 - 35 922,549
------------- -------------- ------------- -------------- ------------- ----------------
Manufacturing 323,074 44,978 - - 27,943 395,995
------------- -------------- ------------- -------------- ------------- ----------------
Hotels and catering 928,346 16,565 35,614 - 40,086 1,020,611
------------- -------------- ------------- -------------- ------------- ----------------
Construction 545,421 8,955 23 1 1,985 556,385
------------- -------------- ------------- -------------- ------------- ----------------
Real estate 978,708 94,823 1,866 - 51,617 1,127,014
------------- -------------- ------------- -------------- ------------- ----------------
Private individuals 4,496,081 11,146 73,120 19,103 54,985 4,654,435
------------- -------------- ------------- -------------- ------------- ----------------
Professional and other
services 551,269 980 5,311 313 37,830 595,703
------------- -------------- ------------- -------------- ------------- ----------------
Shipping 13,338 - - - 173,830 187,168
------------- -------------- ------------- -------------- ------------- ----------------
Other sectors 427,535 2 - 3 29,935 457,475
------------- -------------- ------------- -------------- ------------- ----------------
9,185,865 177,833 115,971 19,420 418,246 9,917,335
------------- -------------- ------------- -------------- ------------- ----------------
31 December 2022 Cyprus Greece United Russia Other Gross loans
Kingdom countries at amortised
cost
By business line EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------- ------------- ------------- -------------- ------------- -----------------
Corporate and Large
corporate 3,380,542 17,781 50 312 102 3,398,787
------------- ------------- ------------- -------------- ------------- -----------------
International corporate 139,813 152,143 42,327 - 351,025 685,308
------------- ------------- ------------- -------------- ------------- -----------------
SMEs 1,021,950 1,036 1,451 - 4,174 1,028,611
------------- ------------- ------------- -------------- ------------- -----------------
Retail
------------- ------------- ------------- -------------- ------------- -----------------
-- housing 3,272,253 2,450 36,839 186 18,906 3,330,634
------------- ------------- ------------- -------------- ------------- -----------------
-- consumer, credit
cards
and other 885,558 856 576 1 905 887,896
------------- ------------- ------------- -------------- ------------- -----------------
Restructuring
------------- ------------- ------------- -------------- ------------- -----------------
-- corporate 66,151 - 869 - 932 67,952
------------- ------------- ------------- -------------- ------------- -----------------
-- SMEs 48,027 - 432 158 384 49,001
------------- ------------- ------------- -------------- ------------- -----------------
-- retail housing 70,283 104 1,841 291 114 72,633
------------- ------------- ------------- -------------- ------------- -----------------
-- retail other 24,093 16 21 192 21 24,343
------------- ------------- ------------- -------------- ------------- -----------------
Recoveries
------------- ------------- ------------- -------------- ------------- -----------------
-- corporate 19,063 - 452 172 32 19,719
------------- ------------- ------------- -------------- ------------- -----------------
-- SMEs 26,150 - 1,117 2,664 1,774 31,705
------------- ------------- ------------- -------------- ------------- -----------------
-- retail housing 69,790 260 19,778 3,431 9,736 102,995
------------- ------------- ------------- -------------- ------------- -----------------
-- retail other 31,967 12 1,265 49 337 33,630
------------- ------------- ------------- -------------- ------------- -----------------
International business
unit 90,652 1,722 8,953 11,964 24,583 137,874
------------- ------------- ------------- -------------- ------------- -----------------
Wealth management 39,573 1,453 - - 5,221 46,247
------------- ------------- ------------- -------------- ------------- -----------------
9,185,865 177,833 115,971 19,420 418,246 9,917,335
------------- ------------- ------------- -------------- ------------- -----------------
The loans and advances to customers include lending exposures in Cyprus
with collaterals in Greece with a carrying value as at 30 June 2023
of EUR134,730 thousand (31 December 2022: EUR106,701 thousand).
The loans and advances to customers reported within 'Other countries'
as at 30 June 2023 include exposures of EUR2,2 million in Ukraine
(31 December 2022: EUR2,6 million).
30.3 Analysis of loans and advances to customers
The movement of the gross loans and advances to customers at amortised
cost by staging, (30 June 2022: including the loans and advances
to customers classified as held for sale), is presented in the tables
below:
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2023 EUR000 EUR000 EUR000 EUR000 EUR000
-------------------- -------------------- -------------------- -------------------- --------------------
1 January 7,867,256 1,565,603 371,018 113,458 9,917,335
-------------------- -------------------- -------------------- -------------------- --------------------
Transfers to
stage
1 599,556 (599,556) - - -
-------------------- -------------------- -------------------- -------------------- --------------------
Transfers to
stage
2 (415,621) 435,606 (19,985) - -
-------------------- -------------------- -------------------- -------------------- --------------------
Transfers to
stage
3 (8,755) (12,000) 20,755 - -
-------------------- -------------------- -------------------- -------------------- --------------------
Foreign
exchange and
other
adjustments (25) - 21 - (4)
-------------------- -------------------- -------------------- -------------------- --------------------
Write offs (188) (310) (17,728) (2,958) (21,184)
-------------------- -------------------- -------------------- -------------------- --------------------
Interest
accrued and
other
adjustments 158,717 26,902 22,496 3,339 211,454
-------------------- -------------------- -------------------- -------------------- --------------------
New loans
originated
or purchased
and drawdowns
of existing
facilities 969,848 24,136 558 364 994,906
-------------------- -------------------- -------------------- -------------------- --------------------
Loans
derecognised
or repaid
(excluding
write offs) (974,108) (84,076) (41,624) (11,439) (1,111,247)
-------------------- -------------------- -------------------- -------------------- --------------------
Changes to
contractual
cash flows
due to
modifications 1,499 816 (1,719) (170) 426
-------------------- -------------------- -------------------- -------------------- --------------------
Acquisition of
Velocity
2 portfolio - - - 3,649 3,649
-------------------- -------------------- -------------------- -------------------- --------------------
30 June 8,198,179 1,357,121 333,792 106,243 9,995,335
-------------------- -------------------- -------------------- -------------------- --------------------
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2022 EUR000 EUR000 EUR000 EUR000 EUR000
------------------- ------------------- ------------------- ------------------- -------------------
1 January 7,418,695 1,701,255 1,047,802 228,572 10,396,324
------------------- ------------------- ------------------- ------------------- -------------------
Transfers to
stage
1 292,741 (292,741) - - -
------------------- ------------------- ------------------- ------------------- -------------------
Transfers to
stage
2 (405,422) 429,065 (23,643) - -
------------------- ------------------- ------------------- ------------------- -------------------
Transfers to
stage
3 (4,782) (19,409) 24,191 - -
------------------- ------------------- ------------------- ------------------- -------------------
Foreign
exchange and
other
adjustments (24) - 905 - 881
------------------- ------------------- ------------------- ------------------- -------------------
Write offs (398) (295) (100,301) (17,522) (118,516)
------------------- ------------------- ------------------- ------------------- -------------------
Interest
accrued and
other
adjustments 94,167 38,719 37,154 13,327 183,367
------------------- ------------------- ------------------- ------------------- -------------------
New loans
originated
or purchased
and drawdowns
of existing
facilities 1,060,453 46,984 200 852 1,108,489
------------------- ------------------- ------------------- ------------------- -------------------
Loans
derecognised
or repaid
(excluding
write offs) (763,291) (103,101) (56,132) (25,008) (947,532)
------------------- ------------------- ------------------- ------------------- -------------------
Changes to
contractual
cash flows
due to
modifications (798) 1,150 (3,074) (119) (2,841)
------------------- ------------------- ------------------- ------------------- -------------------
30 June 7,691,341 1,801,627 927,102 200,102 10,620,172
------------------- ------------------- ------------------- ------------------- -------------------
For revolving facilities, overdrafts and credit cards the net positive
change in balance by stage excluding write--offs is reported in 'New
loans originated' and the net negative change is reported in 'Loans
derecognised or repaid'.
The analysis of gross loans and advances to customers at amortised
cost by staging and by business line concentration is included in
Note 18.
During the six months ended 30 June 2023, the Group purchased back
certain loans disposed in 2020 as part of Velocity 2. The loans, which
relate primarily to retail unsecured facilities, were classified as
POCI and have a net book value of EUR1,257 thousand as at 30 June
2023.
30.4 Credit losses of loans and advances to customers
The movement in ECL of loans and advances to customers (30 June 2022:
including the ECL for loans and advances to customers held for sale),
is as follows:
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2023 EUR000 EUR000 EUR000 EUR000 EUR000
-------------------- --------------------- -------------------- --------------------- --------------------
1 January 22,288 27,041 113,573 15,540 178,442
-------------------- --------------------- -------------------- --------------------- --------------------
Transfers to
stage
1 8,441 (8,441) - - -
-------------------- --------------------- -------------------- --------------------- --------------------
Transfers to
stage
2 (933) 4,583 (3,650) - -
-------------------- --------------------- -------------------- --------------------- --------------------
Transfers to
stage
3 (62) (455) 517 - -
-------------------- --------------------- -------------------- --------------------- --------------------
Impact on
transfer
between stages
during
the period* (4,696) 2,670 2,572 (2) 544
-------------------- --------------------- -------------------- --------------------- --------------------
Foreign
exchange and
other
adjustments - 2 10 - 12
-------------------- --------------------- -------------------- --------------------- --------------------
Write offs (188) (310) (17,728) (2,958) (21,184)
-------------------- --------------------- -------------------- --------------------- --------------------
Interest
(provided)
not recognised
in
the income
statement - - 1,653 464 2,117
-------------------- --------------------- -------------------- --------------------- --------------------
New loans
originated
or purchased* 1,124 - - 4 1,128
-------------------- --------------------- -------------------- --------------------- --------------------
Loans
derecognised
or repaid
(excluding
write offs)* (771) (159) (308) (241) (1,479)
-------------------- --------------------- -------------------- --------------------- --------------------
Write offs* 170 244 3,171 623 4,208
-------------------- --------------------- -------------------- --------------------- --------------------
Changes to
models
and inputs
(changes
in PDs, LGDs
and EADs)
used for ECL
calculations* (3,514) 8,466 24,083 5,005 34,040
-------------------- --------------------- -------------------- --------------------- --------------------
Changes to
contractual
cash flows due
to
modifications
not
resulting in
derecognition* (601) 498 352 (176) 73
-------------------- --------------------- -------------------- --------------------- --------------------
30 June 2023 21,258 34,139 124,245 18,259 197,901
-------------------- --------------------- -------------------- --------------------- --------------------
Individually
assessed 8,928 11,882 58,998 11,640 91,448
-------------------- --------------------- -------------------- --------------------- --------------------
Collectively
assessed 12,330 22,257 65,247 6,619 106,453
-------------------- --------------------- -------------------- --------------------- --------------------
21,258 34,139 124,245 18,259 197,901
-------------------- --------------------- -------------------- --------------------- --------------------
* Individual components of the 'Impairment net of reversals on loans
and advances to customers' (Note 12).
The impairment loss for the six months ended 30 June 2023 was driven
mainly from additional net credit losses of EUR11 million recorded
on NPEs as part of the Group's de--risking activities and additional
ECL charge of EUR9 million following the overlays applied during the
period, as explained in Note 6.2.
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2022 EUR000 EUR000 EUR000 EUR000 EUR000
-------------------- --------------------- -------------------- -------------------- --------------------
1 January 15,457 29,383 478,796 67,781 591,417
-------------------- --------------------- -------------------- -------------------- --------------------
Transfers to
stage
1 4,837 (4,837) - - -
-------------------- --------------------- -------------------- -------------------- --------------------
Transfers to
stage
2 (1,355) 5,604 (4,249) - -
-------------------- --------------------- -------------------- -------------------- --------------------
Transfers to
stage
3 (34) (591) 625 - -
-------------------- --------------------- -------------------- -------------------- --------------------
Impact on
transfer
between stages
during
the period* (4,177) 2 5,205 (41) 989
-------------------- --------------------- -------------------- -------------------- --------------------
Foreign
exchange and
other
adjustments - - 1,406 - 1,406
-------------------- --------------------- -------------------- -------------------- --------------------
Write offs (398) (295) (100,781) (17,522) (118,996)
-------------------- --------------------- -------------------- -------------------- --------------------
Interest
(provided)
not recognised
in
the income
statement - - 7,697 1,471 9,168
-------------------- --------------------- -------------------- -------------------- --------------------
New loans
originated
or purchased* 1,985 - - 27 2,012
-------------------- --------------------- -------------------- -------------------- --------------------
Loans
derecognised
or repaid
(excluding
write offs)* (254) (830) (7,779) (1,490) (10,353)
-------------------- --------------------- -------------------- -------------------- --------------------
Write offs* 380 196 6,565 734 7,875
-------------------- --------------------- -------------------- -------------------- --------------------
Changes to
models
and inputs
(changes
in PDs, LGDs
and EADs)
used for ECL
calculations* 625 (3,302) 28,536 4,162 30,021
-------------------- --------------------- -------------------- -------------------- --------------------
Changes to
contractual
cash flows due
to
modifications
not
resulting in
derecognition* (158) 1,685 (3,755) (261) (2,489)
-------------------- --------------------- -------------------- -------------------- --------------------
30 June 2022 16,908 27,015 412,266 54,861 511,050
-------------------- --------------------- -------------------- -------------------- --------------------
Individually
assessed 6,380 12,327 63,636 4,530 86,873
-------------------- --------------------- -------------------- -------------------- --------------------
Collectively
assessed 10,528 14,688 348,630 50,331 424,177
-------------------- --------------------- -------------------- -------------------- --------------------
16,908 27,015 412,266 54,861 511,050
-------------------- --------------------- -------------------- -------------------- --------------------
The analysis of credit losses of loans and advances to customers by
business line is presented in the table below:
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2023 EUR000 EUR000 EUR000 EUR000 EUR000
-------------------- --------------------- --------------------- --------------------- --------------------
Corporate and
Large
corporate 12,277 12,871 31,053 2,277 58,478
-------------------- --------------------- --------------------- --------------------- --------------------
International
corporate 827 1 37 5 870
-------------------- --------------------- --------------------- --------------------- --------------------
SMEs 2,299 2,741 575 285 5,900
-------------------- --------------------- --------------------- --------------------- --------------------
Retail
-------------------- --------------------- --------------------- --------------------- --------------------
-- housing 2,111 7,144 4,307 557 14,119
-------------------- --------------------- --------------------- --------------------- --------------------
-- consumer,
credit
cards and
other 3,231 7,791 5,294 1,224 17,540
-------------------- --------------------- --------------------- --------------------- --------------------
Restructuring
-------------------- --------------------- --------------------- --------------------- --------------------
-- corporate 13 476 9,157 9,764 19,410
-------------------- --------------------- --------------------- --------------------- --------------------
-- SMEs 229 1,115 6,042 732 8,118
-------------------- --------------------- --------------------- --------------------- --------------------
-- retail
housing 117 1,245 13,778 240 15,380
-------------------- --------------------- --------------------- --------------------- --------------------
-- retail
other 71 570 8,417 610 9,668
-------------------- --------------------- --------------------- --------------------- --------------------
Recoveries
-------------------- --------------------- --------------------- --------------------- --------------------
-- corporate - - 8,630 307 8,937
-------------------- --------------------- --------------------- --------------------- --------------------
-- SMEs - - 13,106 172 13,278
-------------------- --------------------- --------------------- --------------------- --------------------
-- retail
housing - - 15,984 1,241 17,225
-------------------- --------------------- --------------------- --------------------- --------------------
-- retail
other - - 7,673 834 8,507
-------------------- --------------------- --------------------- --------------------- --------------------
International
business
unit 69 165 191 6 431
-------------------- --------------------- --------------------- --------------------- --------------------
Wealth
management 14 20 1 5 40
-------------------- --------------------- --------------------- --------------------- --------------------
21,258 34,139 124,245 18,259 197,901
-------------------- --------------------- --------------------- --------------------- --------------------
Stage 1 Stage 2 Stage 3 POCI Total
31 December
2022 EUR000 EUR000 EUR000 EUR000 EUR000
-------------------- --------------------- --------------------- --------------------- --------------------
Corporate and
Large
corporate 13,997 12,096 28,951 1,498 56,542
-------------------- --------------------- --------------------- --------------------- --------------------
International
corporate 567 5 36 4 612
-------------------- --------------------- --------------------- --------------------- --------------------
SMEs 2,444 3,009 1,998 214 7,665
-------------------- --------------------- --------------------- --------------------- --------------------
Retail
-------------------- --------------------- --------------------- --------------------- --------------------
-- housing 2,378 2,738 5,146 398 10,660
-------------------- --------------------- --------------------- --------------------- --------------------
-- consumer,
credit
cards and
other 2,552 4,794 5,763 1,020 14,129
-------------------- --------------------- --------------------- --------------------- --------------------
Restructuring
-------------------- --------------------- --------------------- --------------------- --------------------
-- corporate 22 2,133 7,481 9,005 18,641
-------------------- --------------------- --------------------- --------------------- --------------------
-- SMEs 184 706 9,157 741 10,788
-------------------- --------------------- --------------------- --------------------- --------------------
-- retail
housing 19 682 9,222 347 10,270
-------------------- --------------------- --------------------- --------------------- --------------------
-- retail
other 29 536 7,309 513 8,387
-------------------- --------------------- --------------------- --------------------- --------------------
Recoveries
-------------------- --------------------- --------------------- --------------------- --------------------
-- corporate - - 7,917 387 8,304
-------------------- --------------------- --------------------- --------------------- --------------------
-- SMEs - - 11,096 288 11,384
-------------------- --------------------- --------------------- --------------------- --------------------
-- retail
housing - - 11,937 651 12,588
-------------------- --------------------- --------------------- --------------------- --------------------
-- retail
other - - 7,494 465 7,959
-------------------- --------------------- --------------------- --------------------- --------------------
International
business
unit 73 332 65 5 475
-------------------- --------------------- --------------------- --------------------- --------------------
Wealth
management 23 10 1 4 38
-------------------- --------------------- --------------------- --------------------- --------------------
22,288 27,041 113,573 15,540 178,442
-------------------- --------------------- --------------------- --------------------- --------------------
During the six months ended 30 June 2023 the total non--contractual
write--offs recorded by the Group amounted to EUR11,582 thousand (30
June 2022: EUR98,625 thousand). The contractual amount outstanding
on financial assets that were written off during the six months ended
30 June 2023 and that are still subject to enforcement activity is
EUR100,687 thousand (31 December 2022: EUR972,621 thousand).
For the calculation of expected credit losses three scenarios were
used; base, adverse and favourable with 50%, 30% and 20% probability
respectively.
For Stage 3 customers, 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 favourable and 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 one
year with reference to the baseline scenario. 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.
The above assumptions are also influenced by the ongoing regulatory
dialogue BOC PCL 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 difference 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.
Sensitivity analysis
The Group has performed sensitivity analysis relating to the loan
portfolio in Cyprus, which represents more than 99% of the total
loan portfolio of the Group with reference date 30 June 2023 and
31 December 2022.
The Group has applied sensitivity analysis to the below parameters
and the impact on the ECL, for both individually and collectively
assessed ECL calculations, is presented in the table below:
Increase/(decrease)
on ECL for loans and
advances to customers
at amortised cost
30 June 31 December
2023 2022
--------------------
EUR000 EUR000
-------------------- ---------------------
Increase the adverse weight by 5% and decrease
the favourable weight by 5% 1,899 1,999
-------------------- ---------------------
Decrease the adverse weight by 5% and increase
the favourable weight by 5% (1,874) (2,077)
-------------------- ---------------------
Increase the expected recovery period by 1 year 5,210 4,955
-------------------- ---------------------
Decrease the expected recovery period by 1 year (4,610) (4,344)
-------------------- ---------------------
Increase the collateral realisation haircut
by 5% 9,659 11,335
-------------------- ---------------------
Decrease the collateral realisation haircut
by 5% (8,399) (8,930)
-------------------- ---------------------
Increase in the PDs of stages 1 and 2 by 20%* 7,808 7,367
-------------------- ---------------------
Decrease in the PDs of stages 1 and 2 by 20%* (6,687) (6,964)
-------------------- ---------------------
The increase/(decrease) on ECL, for loans and advances to customers
at amortised cost, is further analysed, per stage, in the table below:
Stage 1 Stage 2 Stage 3 Total
30 June 2023 EUR000 EUR000 EUR000 EUR000
----------------- ----------------- ----------------- ----------------
Increase the adverse weight by
5% and decrease the favourable
weight by 5% 266 300 1,333 1,899
----------------- ----------------- ----------------- ----------------
Decrease the adverse weight by
5% and increase the favourable
weight by 5% (278) (263) (1,333) (1,874)
----------------- ----------------- ----------------- ----------------
Increase the expected recovery
period by 1 year 838 1,776 2,596 5,210
----------------- ----------------- ----------------- ----------------
Decrease the expected recovery
period by 1 year (784) (1,541) (2,285) (4,610)
----------------- ----------------- ----------------- ----------------
Increase the collateral realisation
haircut by 5% 1,231 2,464 5,964 9,659
----------------- ----------------- ----------------- ----------------
Decrease the collateral realisation
haircut by 5% (1,033) (1,966) (5,400) (8,399)
----------------- ----------------- ----------------- ----------------
Increase in the PDs of stages 1
and 2 by 20%* 2,105 5,703 - 7,808
----------------- ----------------- ----------------- ----------------
Decrease in the PDs of stages 1
and 2 by 20%* (1,857) (4,830) - (6,687)
----------------- ----------------- ----------------- ----------------
Stage 1 Stage 2 Stage 3 Total
31 December 2022 EUR000 EUR000 EUR000 EUR000
----------------- ----------------- ----------------- ----------------
Increase the adverse weight by
5% and decrease the favourable
weight by 5% 175 321 1,503 1,999
----------------- ----------------- ----------------- ----------------
Decrease the adverse weight by
5% and increase the favourable
weight by 5% (139) (435) (1,503) (2,077)
----------------- ----------------- ----------------- ----------------
Increase the expected recovery
period by 1 year 552 1,590 2,813 4,955
----------------- ----------------- ----------------- ----------------
Decrease the expected recovery
period by 1 year (495) (1,374) (2,475) (4,344)
----------------- ----------------- ----------------- ----------------
Increase the collateral realisation
haircut by 5% 1,036 2,747 7,552 11,335
----------------- ----------------- ----------------- ----------------
Decrease the collateral realisation
haircut by 5% (842) (2,021) (6,067) (8,930)
----------------- ----------------- ----------------- ----------------
Increase in the PDs of stages 1
and 2 by 20%* 406 6,961 - 7,367
----------------- ----------------- ----------------- ----------------
Decrease in the PDs of stages 1
and 2 by 20%* (2,217) (4,747) - (6,964)
----------------- ----------------- ----------------- ----------------
*The impact on the ECL also includes the transfer between stages of
the loans and advances to customers following the increase/decrease
in the PD.
The sensitivity analysis performed on the collateral realisation
haircut and its impact on the ECL by business line is presented in
the table below:
Increase Decrease Increase Decrease
the collateral the collateral the collateral the collateral
realisation realisation realisation realisation
haircut haircut haircut by haircut by
by 5% by 5% 5% 5%
30 June 30 June 31 December 31 December
2023 2023 2022 2022
------------------- ------------------ --------------------- --------------------
EUR000 EUR000 EUR000 EUR000
------------------- ------------------ --------------------- --------------------
Corporate and Large corporate 2,415 (2,080) 2,322 (1,478)
------------------- ------------------ --------------------- --------------------
International corporate 109 (91) 68 (30)
------------------- ------------------ --------------------- --------------------
SMEs 401 (331) 487 (409)
------------------- ------------------ --------------------- --------------------
Retail
------------------- ------------------ --------------------- --------------------
-- housing 1,163 (986) 1,260 (1,085)
------------------- ------------------ --------------------- --------------------
-- consumer, credit cards and
other 421 (379) 527 (457)
------------------- ------------------ --------------------- --------------------
Restructuring
------------------- ------------------ --------------------- --------------------
-- corporate 742 (882) 1,253 (1,333)
------------------- ------------------ --------------------- --------------------
-- SMEs 401 (387) 628 (633)
------------------- ------------------ --------------------- --------------------
-- retail housing 832 (728) 824 (738)
------------------- ------------------ --------------------- --------------------
-- retail other 270 (238) 324 (287)
------------------- ------------------ --------------------- --------------------
Recoveries
------------------- ------------------ --------------------- --------------------
-- corporate 511 (547) 720 (665)
------------------- ------------------ --------------------- --------------------
-- SMEs 904 (785) 948 (819)
------------------- ------------------ --------------------- --------------------
-- retail housing 1,027 (706) 1,378 (690)
------------------- ------------------ --------------------- --------------------
-- retail other 441 (243) 540 (255)
------------------- ------------------ --------------------- --------------------
International business unit 21 (16) 53 (49)
------------------- ------------------ --------------------- --------------------
Wealth management 1 - 3 (2)
------------------- ------------------ --------------------- --------------------
9,659 (8,399) 11,335 (8,930)
------------------- ------------------ --------------------- --------------------
30.5 Currency concentration of loans and advances to customers
The following table presents the currency concentration of the Group's
loans and advances at amortised cost.
30 June 31 December
2023 2022
Gross loans at amortised cost EUR000 EUR000
------------------ ------------------
Euro 9,502,915 9,456,220
------------------ ------------------
US Dollar 369,495 334,663
------------------ ------------------
British Pound 90,278 89,244
------------------ ------------------
Russian Rouble 333 312
------------------ ------------------
Swiss Franc 31,385 35,430
------------------ ------------------
Other currencies 929 1,466
------------------ ------------------
9,995,335 9,917,335
------------------ ------------------
30.6 Forbearance/Restructuring
Forborne/restructured loans are those loans that have been modified
because the borrower is considered unable to meet the terms and conditions
of the contract due to financial difficulties. Taking into consideration
these difficulties, the Group decides to modify the terms and conditions
of the contract to provide the borrower with the ability to service
the debt or refinance the contract, either partially or fully.
The practice of extending forbearance/restructuring measures constitutes
a grant of a concession whether temporarily or permanently to that
borrower. A concession may involve restructuring the contractual
terms of a debt or payment in some form other than cash, such as
an arrangement whereby the borrower transfers collateral pledged
to the Group.
Forborne/restructured loans and advances are those facilities for
which the Group has modified the repayment programme (e.g. provision
of a grace period, suspension of the obligation to repay one or more
instalments, reduction in the instalment amount and/or elimination
of overdue instalments relating to capital or interest).
For an account to qualify for forbearance/restructuring it must meet
certain criteria including the viability of the customer. The extent
to which the Group reschedules accounts that are eligible under its
existing policies may vary depending on its view of the prevailing
economic conditions and other factors which may change from year
to year. In addition, exceptions to policies and practices may be
allowed in specific situations in response to legal or regulatory
requirements.
Forbearance/restructuring activities may include measures that restructure
the borrower's business (operational restructuring) and/or measures
that restructure the borrower's financing (financial restructuring).
Forbearance/restructuring options may be of a short or long--term
nature or a combination thereof. The Group has developed and deployed
sustainable restructuring solutions, which are suitable for the borrower
and acceptable for the Group.
Short--term restructuring solutions are defined as restructured repayment
solutions of duration of less than two years. In the case of loans
for the construction of commercial property and project finance,
a short--term solution may not exceed one year.
Short--term restructuring solutions can include the following:
i. Suspension of capital or capital and interest: granting to the
borrower a grace period in the payment of capital (i.e. during this
period only interest is paid) or capital and interest, for a specific
period of time.
ii. Reduced payments: decrease of the amount of repayment instalments
over a defined short--term period in order to accommodate the borrower's
new cash flow position.
iii. Arrears and/or interest capitalisation: capitalisation of the
arrears and of any unpaid interest to the outstanding principal balance
for repayment under a rescheduled program.
Long--term restructuring solutions can include the following:
i. Interest rate reduction: permanent or temporary reduction of interest
rate (fixed or variable) into a fair and sustainable rate.
ii. Extension of maturity: extension of the maturity of the loan
which allows a reduction in instalment amounts by spreading the repayments
over a longer period.
iii. Sale of Assets: Part of the restructuring can be the agreement
with the borrower for immediate or over time sale of assets (mainly
real estate) to reduce borrowing.
iv. Modification of existing terms of previous decisions: In the
context of the new sustainable settlement/restructuring solution,
review any terms of previous decisions that may not be met.
v. Consolidation/refinancing of existing facilities: In cases where
the borrower maintains several separate loans with different collaterals,
these can be consolidated and a new repayment schedule can be set
and the new loan can be secured with all existing collaterals.
vi. Hard Core Current Account Limit: In such cases a loan with a
longer repayment may be offered to replace / reduce the current account
limit.
vii. Split and freeze: the customer's debt is split into sustainable
and unsustainable parts. The sustainable part is restructured to
a sustainable repayment program. The unsustainable part is 'frozen'
for the restructured duration of the sustainable part. At the maturity
of the restructuring, the frozen part is either forgiven pro rata
(based on the actual repayment of the sustainable part) or restructured.
viii. Rescheduling of payments: the existing contractual repayment
schedule is adjusted to a new sustainable repayment program based
on a realistic, current and forecasted, assessment of the cash flow
generation of the borrower.
ix. Liquidation Collateral: An agreement between BOC PCL and a borrower
for the voluntary sale of mortgaged assets, for partial or full repayment
of the debt.
x. Currency Conversion: This solution is provided to match the credit
facility currency and the borrower's income currency.
i. Additional Financing: This solution can be granted, simultaneously
with the restructuring of the existing credit facilities of the borrower,
to cover any financing gap.
ii. Partial or total write off: This solution corresponds to the
Group forfeiting the right to legally recover part or the whole of
the amount of debt outstanding by the borrower.
iii. Debt/equity swaps: debt restructuring that allows partial or
full repayment of the debt in exchange of obtaining an equivalent
amount of equity by the Group, with the remaining debt right sized
to the cash flows of the borrower to allow repayment. This solution
is used only in exceptional cases and only where all other efforts
for restructuring are exhausted and after ensuring compliance with
the banking law.
iv. Debt/asset swaps: agreement between the Group and the borrower
to voluntarily transfer the mortgaged asset or other immovable property
to the Group, to partially or fully repay the debt. Any residual
debt may be restructured within an appropriate repayment schedule
in line with the borrower's reassessed repayment ability.
The loans forborne continue to be classified as Stage 3 in the case
they are performing forborne exposures under probation for which
additional forbearance measures are extended, or performing forborne
exposures, previously classified as NPEs that present more than 30
days past due within the probation period.
Forbearance modifications of loans and advances that do not affect
payment arrangements, such as restructuring of collateral or security
arrangements, are not regarded as sufficient to categorise the facility
as credit impaired, as by themselves they do not necessarily indicate
credit distress affecting payment ability such that would require
the facility to be classified as NPE.
The forbearance characteristic contributes in two specific ways for
the calculation of lifetime ECL for each individual facility. Specifically,
it is taken into consideration in the scorecard development, where,
if this characteristic is identified as statistically significant,
it affects negatively the rating of each facility. It also contributes
in the construction through the cycle probability of default and
cure curves, where, when feasible, a specific curve for the forborne
products is calculated and assigned accordingly.
The below table presents the movement of the Group's forborne loans
and advances to customers measured at amortised cost.
30 June 31 December
2023 2022
EUR000 EUR000
------------------- -----------------
1 January 1,106,298 1,469,182
------------------- -----------------
New loans and advances forborne in the period/year 18,467 130,547
------------------- -----------------
Loans no longer classified as forborne and repayments (418,125) (241,739)
------------------- -----------------
Write off of forborne loans and advances (3,698) (77,357)
------------------- -----------------
Interest accrued on forborne loans and advances 28,095 57,795
------------------- -----------------
Foreign exchange adjustments (47) 3,115
------------------- -----------------
Derecognition of Helix 3 and Sinope portfolios - (235,245)
------------------- -----------------
30 June/31 December 730,990 1,106,298
------------------- -----------------
The forborne loans classification is discontinued when all EBA criteria
for the discontinuation of the classification as forborne exposure
are met. The criteria are set out in the EBA Final draft Implementing
Technical Standards (ITS) on supervisory reporting and non--performing
exposures.
The below tables present the Group's forborne loans and advances to
customers by staging, economic activity and business line classification,
as well as the ECL allowance and tangible collateral held for such
forborne loans.
30 June 31 December
2023 2022
EUR000 EUR000
------------------- -------------------
Stage 1 - -
------------------- -------------------
Stage 2 517,449 857,356
------------------- -------------------
Stage 3 187,020 215,730
------------------- -------------------
POCI 26,521 33,212
------------------- -------------------
730,990 1,106,298
------------------- -------------------
Fair value of collateral
30 June 31 December
2023 2022
EUR000 EUR000
--------------------------- --------------------------
Stage 1 - -
--------------------------- --------------------------
Stage 2 493,444 818,138
--------------------------- --------------------------
Stage 3 147,787 172,501
--------------------------- --------------------------
POCI 24,600 30,188
--------------------------- --------------------------
665,831 1,020,827
--------------------------- --------------------------
The fair value of collateral presented above has been computed to
the extent that the collateral mitigates credit risk.
Credit risk concentration
30 June 31 December
2023 2022
By economic activity EUR000 EUR000
------------------- -------------------
Trade 30,420 41,038
------------------- -------------------
Manufacturing 13,612 17,080
------------------- -------------------
Hotels and catering 132,823 282,460
------------------- -------------------
Construction 143,637 245,695
------------------- -------------------
Real estate 97,245 145,840
------------------- -------------------
Private individuals 224,242 279,934
------------------- -------------------
Professional and other services 62,616 76,135
------------------- -------------------
Shipping - -
------------------- -------------------
Other sectors 26,395 18,116
------------------- -------------------
730,990 1,106,298
------------------- -------------------
30 June 2023 Stage 1 Stage 2 Stage 3 POCI Total
By business
line EUR000 EUR000 EUR000 EUR000 EUR000
------------------- ------------------- ------------------- -------------------- -----------------
Corporate and
Large
corporate - 367,669 48,720 2,915 419,304
------------------- ------------------- ------------------- -------------------- -----------------
SMEs - 29,320 1,333 631 31,284
------------------- ------------------- ------------------- -------------------- -----------------
Retail
------------------- ------------------- ------------------- -------------------- -----------------
-- housing - 54,408 14,021 1,721 70,150
------------------- ------------------- ------------------- -------------------- -----------------
-- consumer,
credit
cards and
other - 14,378 5,676 166 20,220
------------------- ------------------- ------------------- -------------------- -----------------
Restructuring
------------------- ------------------- ------------------- -------------------- -----------------
-- corporate - 18,975 6,422 10,169 35,566
------------------- ------------------- ------------------- -------------------- -----------------
-- SMEs - 6,081 8,600 2,042 16,723
------------------- ------------------- ------------------- -------------------- -----------------
-- retail
housing - 18,453 27,422 1,935 47,810
------------------- ------------------- ------------------- -------------------- -----------------
-- retail
other - 4,385 7,369 387 12,141
------------------- ------------------- ------------------- -------------------- -----------------
Recoveries
------------------- ------------------- ------------------- -------------------- -----------------
-- corporate - - 5,132 383 5,515
------------------- ------------------- ------------------- -------------------- -----------------
-- SMEs - - 12,266 496 12,762
------------------- ------------------- ------------------- -------------------- -----------------
-- retail
housing - - 38,193 4,680 42,873
------------------- ------------------- ------------------- -------------------- -----------------
-- retail
other - - 10,830 995 11,825
------------------- ------------------- ------------------- -------------------- -----------------
International
business
unit - 3,152 1,036 1 4,189
------------------- ------------------- ------------------- -------------------- -----------------
Wealth
management - 628 - - 628
------------------- ------------------- ------------------- -------------------- -----------------
- 517,449 187,020 26,521 730,990
------------------- ------------------- ------------------- -------------------- -----------------
31 December Stage 1 Stage 2 Stage 3 POCI Total
2022
By business line EUR000 EUR000 EUR000 EUR000 EUR000
------------------- ------------------- ------------------ -------------------- ----------------
Corporate and
Large
corporate - 628,104 50,688 5,590 684,382
------------------- ------------------- ------------------ -------------------- ----------------
SMEs - 72,727 869 878 74,474
------------------- ------------------- ------------------ -------------------- ----------------
Retail
------------------- ------------------- ------------------ -------------------- ----------------
-- housing - 62,312 20,502 2,505 85,319
------------------- ------------------- ------------------ -------------------- ----------------
-- consumer,
credit
cards and
other - 20,207 7,653 1,084 28,944
------------------- ------------------- ------------------ -------------------- ----------------
Restructuring
------------------- ------------------- ------------------ -------------------- ----------------
-- corporate - 31,637 6,060 10,143 47,840
------------------- ------------------- ------------------ -------------------- ----------------
-- SMEs - 7,240 11,918 1,844 21,002
------------------- ------------------- ------------------ -------------------- ----------------
-- retail
housing - 19,912 30,649 2,755 53,316
------------------- ------------------- ------------------ -------------------- ----------------
-- retail other - 4,924 9,021 457 14,402
------------------- ------------------- ------------------ -------------------- ----------------
Recoveries
------------------- ------------------- ------------------ -------------------- ----------------
-- corporate - - 5,837 442 6,279
------------------- ------------------- ------------------ -------------------- ----------------
-- SMEs - - 14,449 1,186 15,635
------------------- ------------------- ------------------ -------------------- ----------------
-- retail
housing - - 44,191 5,049 49,240
------------------- ------------------- ------------------ -------------------- ----------------
-- retail other - - 12,705 1,278 13,983
------------------- ------------------- ------------------ -------------------- ----------------
International
business
unit - 10,293 1,188 1 11,482
------------------- ------------------- ------------------ -------------------- ----------------
- 857,356 215,730 33,212 1,106,298
------------------- ------------------- ------------------ -------------------- ----------------
ECL allowance
30 June 31 December
2023 2022
EUR000 EUR000
------------------- -------------------
Stage 1 - -
------------------- -------------------
Stage 2 13,102 13,939
------------------- -------------------
Stage 3 73,271 68,557
------------------- -------------------
POCI 11,641 11,259
------------------- -------------------
98,014 93,755
------------------- -------------------
31. Risk management -- Market risk
Market risk is the risk of loss from adverse changes in market prices
namely from changes in interest rates, foreign currency exchange
rates, property and security prices. The Market and Liquidity Risk
department is responsible for monitoring the risk on financial instruments
resulting from such changes with the objective to minimise the impact
on earnings and capital. The department also monitors liquidity risk
and credit risk from counterparties and countries. It is also responsible
for monitoring compliance with the various market risk policies and
procedures.
Interest rate risk
Interest rate risk refers to the current or prospective risk to Group's
capital and earnings arising from adverse movements in interest rates
that affect the Group's banking book positions.
Interest rate risk is measured mainly using the impact on net interest
income and impact on economic value. In addition to the above measures,
interest rate risk is also measured using interest rate risk gap
analysis, where the assets, liabilities and off--balance sheet items
are classified according to their remaining repricing period. Items
that are not sensitive to rate changes are recognised as non--rate
sensitive (NRS) items. The present value of one basis point (PV01)
is also calculated. Interest rate risk is managed through a 1--Year
Interest Rate Effect (IRE) limit on the maximum reduction of net
interest income under the various interest rate shock scenarios.
Limits are set as a percentage of the Group regulatory capital and
as a percentage of the net interest income. There are overall limits
as well as different limits for the Euro and the US Dollar.
Sensitivity analysis
The table below sets out the impact on the Group's net interest income,
over a one--year period, from reasonably possible changes in the
interest rates of the Euro and the US Dollar, being the main currencies,
using the assumption of the prevailing market risk policy for the
current and the comparative period:
Impact on Net Interest
Income in EUR000
Currency Interest Rate Scenario 30 June 31 December
2023 2022
(60 bps (60 bps
for Euro for Euro
and 75 bps and 75 bps
for US Dollar) for US Dollar)
----------------------- ----------------
All Parallel up 67,248 73,126
----------------------- ---------------- ----------------
All Parallel down (73,993) (77,043)
----------------------- ---------------- ----------------
All Steepening (52,944) (56,569)
----------------------- ---------------- ----------------
All Flattening 55,446 59,657
----------------------- ---------------- ----------------
All Short up 65,839 70,381
----------------------- ---------------- ----------------
All Short down (69,914) (73,896)
----------------------- ---------------- ----------------
Euro Parallel up 66,600 71,829
Euro Parallel down (72,536) (75,343)
--------------- ---------------- ----------------
Euro Steepening (52,115) (55,812)
--------------- ---------------- ----------------
Euro Flattening 55,162 59,132
--------------- ---------------- ----------------
Euro Short up 65,230 69,180
--------------- ---------------- ----------------
Euro Short down (68,587) (72,216)
--------------- ---------------- ----------------
US Dollar Parallel up 648 1,298
US Dollar Parallel down (1,457) (1,700)
--------------- ------------------ ------------------
US Dollar Steepening (829) (757)
--------------- ------------------ ------------------
US Dollar Flattening 284 525
--------------- ------------------ ------------------
US Dollar Short up 609 1,202
--------------- ------------------ ------------------
US Dollar Short down (1,327) (1,680)
--------------- ------------------ ------------------
The above sensitivities incorporate assumptions on the pass--through
change of time deposits.
The table below sets out the impact on the Group's equity, from reasonably
possible changes in the interest rates under various interest rate
scenarios for the Euro and the US Dollar in line with the EBA guidelines.
Impact on
Equity in
EUR000
Currency Interest Rate Scenario 30 June 31 December
2023 2022
(60 bps (60 bps
for Euro for Euro
and 75 bps and 75 bps
for US Dollar) for US Dollar)
----------------------- ------------------
All Parallel up 16,609 31,739
----------------------- ------------------ -------------------
All Parallel down (7,861) (68,581)
----------------------- ------------------ -------------------
All Steepening (6,201) 11,884
----------------------- ------------------ -------------------
All Flattening 1,122 369
----------------------- ------------------ -------------------
All Short up 5,947 27,212
----------------------- ------------------ -------------------
All Short down (17,438) (35,032)
----------------------- ------------------ -------------------
Euro Parallel up 27,669 54,878
Euro Parallel down (1,962) (59,502)
--------------- ------------------ -------------------
Euro Steepening (6,671) 23,018
--------------- ------------------ -------------------
Euro Flattening 2,960 526
--------------- ------------------ -------------------
Euro Short up 7,726 47,696
--------------- ------------------ -------------------
Euro Short down (13,089) (28,040)
--------------- ------------------ -------------------
US Dollar Parallel up 5,549 8,599
US Dollar Parallel down (5,899) (9,079)
------------------ ---------------------- ----------------------
US Dollar Steepening 940 750
------------------ ---------------------- ----------------------
US Dollar Flattening (358) 212
------------------ ---------------------- ----------------------
US Dollar Short up 4,167 6,727
------------------ ---------------------- ----------------------
US Dollar Short down (4,349) (6,992)
------------------ ---------------------- ----------------------
The aggregation of the impact on equity was performed as per the EBA
guidelines by adding the negative and 50% of the positive impact of
each scenario.
In addition to the above fluctuations in net interest income, interest
rate changes can result in fluctuations in the fair value of investments
at FVPL (including investments held for trading) and in the fair value
of derivative financial instruments impacting the profit and loss
of the Group.
The equity of the Group is also affected by changes in market interest
rates. The impact on the Group's equity arises from changes in the
fair value of fixed rate debt securities classified at FVOCI.
The sensitivity analysis is based on the assumption of a parallel
shift of the yield curve. The table below sets out the impact on the
Group's profit/loss before tax and equity as a result of reasonably
possible changes in the interest rates of the major currencies.
Parallel change in interest rates Impact on profit/loss Impact on equity
((increase)/decrease in net before tax
interest income)
30 June
2023 EUR000 EUR000
-------------------------------- --------------------------------
+0.75% for US Dollar
+0.6% for Euro
+0.4% for British Pound (651) (402)
-------------------------------- --------------------------------
--0.75% for US Dollar
--0.6% for Euro
--0.4% for British Pound 651 402
-------------------------------- --------------------------------
Impact on profit/loss Impact on equity
before tax
Parallel change in interest rates
((increase)/decrease in net
interest income) EUR000 EUR000
-------------------------------- --------------------------------
31 December
2022
-------------------------------- --------------------------------
+0.75% for US Dollar
+0.6% for Euro
+0.4% for British Pound (466) (394)
-------------------------------- --------------------------------
--0.75% for US Dollar
--0.6% for Euro
--0.4% for British Pound 466 386
-------------------------------- --------------------------------
Interest rate benchmark reform
The LIBOR and the EURIBOR (collectively referred to as IBORs) have
been the subject of international, national and other regulatory guidance
and proposals for reform. Some of these reforms are already effective
while others are still to be implemented. These reforms may cause
such benchmarks to perform differently from the past or cease to exist
entirely or have other consequences that cannot be predicted.
Regarding LIBOR reform, regulators and industry working groups have
identified alternative rates to transition to. In March 2021 the Financial
Conduct Authority (FCA) confirmed that all LIBOR settings will either
cease to be provided by any administrator or no longer be representative
of the underlying market they intended to measure:
i. immediately after 31 December 2021, in the case of all sterling,
euro, Swiss franc and Japanese yen settings, and the 1 week and 2
month US dollar settings; and
ii. immediately after 30 June 2023, in the case of the remaining US
dollar settings.
In September 2022, the FCA confirmed that the publication of 1--month
and 6--month synthetic GBP LIBOR will be required until the end of
March 2023, after which date these settings permanently ceased. On
3 April 2023, the FCA confirmed that the 3--month synthetic GBP LIBOR
setting is expected to cease to be published at the end of March 2024.
Also, under their new use restriction power they would prohibit new
use of USD LIBOR from the end of 2021, except in specific circumstances.
On 3 April 2023, the FCA announced its decision to require IBA to
continue to publish the 1--month, 3--month and 6--month USD LIBOR
settings using an unrepresentative synthetic basis and it is expected
to cease to be published at the end of September 2024. They have decided
to permit the use of these settings in all legacy contracts except
cleared derivatives.
How the Group is managing the transition to alternative benchmark
rates
BOC PCL established a project to manage the transition to alternative
interest rate benchmarks with the Director of Treasury as the project
owner and with oversight from a dedicated Benchmark Steering Committee.
The main divisions involved in the project at the highest level are
the Legal Department, Treasury, Risk Management, Finance, Information
Technology (IT), Operations and the business lines. The Assets and
Liabilities Committee (ALCO) monitors the project.
The Group's transition project also involved the drawing up of appropriate
fallback provisions for LIBOR linked contracts and transition mechanisms
in its floating rate assets and liabilities with maturities after
2021.
For the legacy non--cleared derivatives exposures, the Group has
adhered to the International Swaps and Derivatives Association (ISDA)
protocol which came into effect in January 2021, while for cleared
derivatives, BOC PCL adopted the market wide standardised approach
to be followed by the relevant clearing house.
The Group proactively engaged with its customer base and market counterparties
for the amendment of substantially all impacted LIBOR contracts for
transitioning to alternative rates. Those legacy credit facilities
in CHF for which the contract was not amended by the first interest
period commencing in 2022 ('tough legacy'), have been transitioned
to the statutory rate provided by EU legislation. The Group has also
transitioned its tough legacy JPY and GBP credit facilities to alternative
rates by notifying its customer base accordingly and reserving the
right to use a statutory rate provided by EU legislation in case
such a rate is nominated in the future.
The Group has also made the necessary arrangements to transition
its tough legacy USD credit facilities to alternative rates and notified
its customer base accordingly and reserving the right to use a statutory
rate provided by EU legislation in case such a rate is nominated
in the future.
The Group has also engaged in client communication to inform customers
and ensure a smooth transition of credit facilities to RFRs. New
RFR lending products have also been introduced and adopted across
the Group's key currencies.
BOC PCL has dedicated teams in place to support the transition and
continuously assess, monitor and dynamically manage risks arising
from the transition when required.
The Group has also been actively monitoring any market and regulatory
developments published by regulatory bodies, as well as by relevant
Working Groups across various jurisdictions.
The Group will continue to assess, monitor and dynamically manage
risks, and implement specific mitigating controls when required,
progressing towards an orderly transition to alternative benchmarks.
The following table summarises the significant non--derivative exposures
impacted by interest rate benchmark reform which have yet to transition
as at 30 June 2023 and as at 31 December 2022 to the replacement
benchmark rate at the respective date:
30 June 2023 USD
LIBOR Other LIBOR Total
Non--derivative financial assets EUR000 EUR000 EUR000
-------------- -------------- -------------
Loans and advances to customers 210,761 145 210,906
-------------- -------------- -------------
Loans and advances to banks - 3,276 3,276
-------------- -------------- -------------
Total 210,761 3,421 214,182
-------------- -------------- -------------
Non--derivative financial liabilities
-------------- -------------- -------------
Deposits by banks - 281 281
-------------- -------------- -------------
Total - 281 281
-------------- -------------- -------------
31 December 2022 USD
LIBOR Other LIBOR Total
Non--derivative financial assets EUR000 EUR000 EUR000
------------- -------------- ------------
Loans and advances to customers 283,509 316 283,825
------------- -------------- ------------
Loans and advances to banks 26,607 4,297 30,904
------------- -------------- ------------
Total 310,116 4,613 314,729
------------- -------------- ------------
Non--derivative financial liabilities
------------- -------------- ------------
Deposits by banks 7,416 248 7,664
------------- -------------- ------------
Total 7,416 248 7,664
------------- -------------- ------------
EURIBOR is in compliance with the EU Benchmarks Regulation and can
continue to be used as a benchmark interest rate for existing and
new contracts. The Group therefore, does not consider that Group's
exposure to EURIBOR is affected by the BMR reform.
For derivatives in hedging relationships subject to IBOR reform refer
to Note 16.
Currency risk
Currency risk is the risk that the fair value of future cash flows
of a financial instrument will fluctuate because of changes in foreign
currency exchange rates.
The impact on equity arises mainly from the impact of hedging instruments
used to hedge part of the net assets of the subsidiaries. At Group
level, there is an approximately equal and opposite impact on equity
from the revaluation of the net assets of the foreign operations
of the Group.
Price risk
Equity securities price risk
The risk of loss from changes in the price of equity securities arises
when there is an unfavourable change in the prices of equity securities
held by the Group as investments.
Debt securities price risk
Debt securities price risk is the risk of loss as a result of adverse
changes in the prices of debt securities held by the Group. Debt
security prices change as the credit risk of the issuer changes and/or
as the interest rate changes mainly for fixed rate securities. The
Group invests a significant part of its liquid assets in highly rated
securities. The average Moody's Investors Service rating of the debt
securities portfolio of the Group as at 30 June 2023 was A2 (31 December
2022: A2). The average rating excluding the Cyprus Government bonds
and non--rated transactions as at 30 June 2023 was Aa2 (31 December
2022: Aa2).
Property price risk
A significant part of the Group's loan portfolio is secured by real
estate, the majority of which is located in Cyprus. Furthermore,
the Group holds a substantial number of properties mainly arising
from loan restructuring activities; the enforcement of loan collateral
and debt for asset swaps. These properties are held by the Group
primarily as stock of properties and some are held as investment
properties.
Property risk is the risk that the Group's business and financial
position will be affected by adverse changes in the demand for, and
prices of, real estate, or by regulatory capital requirements relating
to increased charges with respect to the stock of properties held.
32. Risk management -- Liquidity and funding risk
Liquidity Risk
Liquidity risk is the risk that the Group is unable to fully or promptly
meet current and future payment obligations as and when they fall
due. This risk includes the possibility that the Group may have to
raise funding at high cost or sell assets at a discount to fully
and promptly satisfy its obligations.
It reflects the potential mismatch between incoming and outgoing
payments, taking into account unexpected delays in repayment and
unexpectedly high payment outflows. Liquidity risk involves both
the risk of unexpected increases in the cost of funding of the portfolio
of assets and the risk of being unable to liquidate a position in
a timely manner on reasonable terms.
In order to limit this risk, management has adopted the Liquidity
Policy of managing assets, taking liquidity into consideration and
monitoring cash flows and liquidity on a regular basis. The Group
has developed internal control processes and contingency plans for
managing liquidity risk.
Management and structure
The Board of Directors sets the Group's Liquidity Risk Appetite which
defines the level of risk at which the Group should operate.
The Board of Directors, through its Risk Committee, approves the
Liquidity Policy Statement and reviews at frequent intervals the
liquidity position of the Group.
The ALCO is responsible for setting the policies for the effective
management and monitoring of liquidity risk across the Group.
The Treasury Division is responsible for liquidity management at
Group level, ensuring compliance with internal policies and regulatory
liquidity requirements and providing direction as to the actions
to be taken regarding liquidity needs. Treasury Division assesses
on a continuous basis the adequacy of the liquid assets and takes
the necessary actions to ensure a comfortable liquidity position.
Liquidity is also monitored by Market and Liquidity Risk department,
to ensure compliance with both internal policies and limits, and
with the limits set by the regulatory authorities. Market and Liquidity
Risk department reports the liquidity position to ALCO at least monthly.
It also provides the results of various stress tests to ALCO at least
quarterly.
Liquidity is monitored and managed on an ongoing basis through:
(i) Risk appetite: establishes the Group's Risk Appetite Statement
together with the appropriate limits for the management of all risks
including liquidity risk.
(ii) Liquidity Policy: sets the responsibilities for managing liquidity
risk as well as the framework, limits and reporting on liquidity
and funding.
(iii) Liquidity limits: a number of internal and regulatory limits
are monitored on a regular basis. Where applicable, a traffic light
system (RAG) has been introduced for the ratios, in order to raise
flags and take action when the ratios deteriorate.
(iv) Early warning indicators: monitoring of a range of indicators
for early signs of liquidity risk in the market or specific to the
Group. These are designed to immediately identify the emergence of
increased liquidity risk so as to maximise the time available to
execute appropriate mitigating actions.
(v) Liquidity Contingency Plan: maintenance of a Liquidity Contingency
Plan (LCP) which is designed to provide a framework where a liquidity
stress could be effectively identified and managed. The LCP provides
a communication plan and includes management actions to respond to
liquidity stresses.
(vi) Recovery Plan: the Group has developed a Recovery Plan (RP),
the key objectives of which are, among others, to set key Recovery
and Early Warning Indicators and to set in advance a range of recovery
options to enable the Group to be adequately prepared to respond
to stressed conditions and restore the Group's liquidity position.
Monitoring process
Daily
The daily monitoring of the stock of highly liquid assets is important
to safeguard and ensure the uninterrupted operations of the Group's
activities. Market and Liquidity Risk department prepares a daily
report analysing the internal liquidity buffer and comparing it to
the previous day's buffer. Results are made available to members
of the Risk and Treasury Divisions. In addition, Treasury monitors
daily and intraday the customer inflows and outflows in the main
currencies used by the Group.
The liquidity buffer is made up of: Banknotes, CBC balances (excluding
the Minimum Reserve Requirements (MRR)), unpledged cash and nostro
current accounts, as well as money market placements up to the stress
horizon, available ECB credit line and market value net of haircut
of unencumbered/available liquid bonds.
Market and Liquidity Risk department also prepares daily stress testing
for bank specific, market wide and combined scenarios. The requirement
is to have sufficient liquidity buffer to enable BOC PCL to survive
a twelve--month stress period, including capacity to raise funding
under all scenarios.
Moreover, an intraday liquidity stress test takes place to ensure
that the Group maintains sufficient liquidity buffer in immediately
accessible form, to enable it to meet the stressed intraday payments.
The designing of the stress tests follows guidance and is based on
the liquidity risk drivers which are recognised internationally by
both the Prudential Regulation Authority (PRA) and EBA. In addition,
it takes into account SREP recommendations, as well as the Annual
Risk Identification Process of the Group. The stress test assumptions
are reviewed on an annual basis and approved by the Board through
its Risk Committee. Whenever it is considered appropriate to amend
the assumptions during the year, approval is requested from ALCO
and the Risk Committee. The main items shocked in the different scenarios
are: deposit outflows, wholesale funding, loan repayments, off balance
sheet commitments, marketable securities, own issue covered bond,
additional credit claims, interbank takings and cash collateral for
derivatives and repos.
Weekly
Market and Liquidity Risk department prepares a report indicating
the level of Liquid Assets including Credit Institutions Money Market
Placements as per LCR definitions.
Monthly
Market and Liquidity Risk department prepares reports monitoring
compliance with internal and regulatory liquidity ratios requirements
and submits them to the ALCO, the Executive Committee and the Risk
Committee. It also calculates the expected flows under a stress scenario
and compares them with the available liquidity buffer in order to
calculate the survival days. The fixed deposit renewal rates, the
percentage of International business unit deposits over total deposits
and the percentage of instant access deposits are also presented.
The liquidity mismatch in the form of the Maturity Ladder report
(for both contractual and behavioural flows) is presented to ALCO
and the resulting mismatch between assets and liabilities is compared
to previous month's mismatch.
Market and Liquidity Risk department also reports the Liquidity Coverage
Ratio (LCR) and Additional Liquidity Monitoring Metrics (ALMM) to
the CBC/ECB on a monthly basis.
Quarterly
The results of the stress testing scenarios are reported to ALCO
and Risk Committee quarterly as part of the quarterly Internal Liquidity
Adequacy Assessment Process (ILAAP) review. Market and Liquidity
Risk department reports the Net Stable Funding Ratio (NSFR) to the
CBC/ECB quarterly.
Annually
The Group prepares on an annual basis its ILAAP package. The ILAAP
package provides a holistic view of the Group's liquidity adequacy
under normal and stress conditions. Within ILAAP, the Group evaluates
its liquidity risk in the context of established policies and processes
for the identification, measurement, management and monitoring of
liquidity risk as implemented by the institution.
Market and Liquidity Risk department also prepares an annual liquidity
report, run and submitted for five consecutive days to the ECB. The
report includes information on deposits breakdown, cash flow information,
survival period, LCR ratio, rollover of funding, funding gap (through
the Maturity Ladder analysis), concentration of funding and collateral
details. It concludes on the overall liquidity position of BOC PCL
and describes the measures implemented and to be implemented in the
short--term to improve liquidity position if needed.
As part of the Group's procedures for monitoring and managing liquidity
risk, there is a Group Liquidity Contingency Plan (LCP) for handling
liquidity difficulties. The LCP details the steps to be taken in
the event that liquidity problems arise, which escalate to a special
meeting of the Crisis Management Committee for LCP (CMC--LCP). The
LCP sets out the members of this committee and a series of the possible
actions that can be taken. The LCP is reviewed and tested at least
annually.
Liquidity ratios
The Group LCR is calculated based on the Delegated Regulation (EU)
2015/61. It is designed to establish a minimum level of high quality
liquid assets sufficient to meet an acute stress lasting for 30 calendar
days. he minimum requirement is 100%. The Group also calculates its
NSFR as per Capital Requirements Regulation II (CRR II), with the
limit set at 100%. The NSFR is the ratio of available stable funding
to required stable funding. NSFR has been developed to promote a
sustainable maturity structure of assets and liabilities.
Funding risk
Funding risk is the risk that the Group does not have sufficiently
stable sources of funding or access to sources of funding may not
always be available at a reasonable cost and thus the Group may fail
to meet its obligations, including regulatory ones (e.g. MREL).
Main sources of funding
As at 30 June 2023, the Group's main sources of funding were its
deposit base and central bank funding, through the Eurosystem monetary
policy operations. Wholesale funding is also becoming an important
source of funding, following the refinancing of the Tier 2 for EUR300
million in April 2021, the issuance of senior preferred debt of EUR300
million in June 2021, the refinancing of AT1 for EUR220 million in
June 2023 and the issuance of senior preferred debt of EUR350 million
in July 2023 (Note 37).
With respect to TLTRO III operations, the carrying value of the ECB
funding as at 30 June 2023 (after the early repayment of EUR1 billion
within December 2022), was EUR2,004 million (31 December 2022: EUR1,977
million).
As at 30 June 2023, the wholesale funding nominal amount was EUR836
million (31 December 2022: EUR820 million). This includes funding
raised from the wholesale debt capital markets of EUR236 million
AT1 as described in Note 25, EUR300 million Tier 2 issued in April
2021 and EUR300 million senior preferred debt issued in June 2021.
Funding to subsidiaries
The funding provided by BOC PCL to its subsidiaries for liquidity
purposes is repayable as per the terms of the respective agreements.
The subsidiaries may proceed with dividend distributions in the form
of cash to BOC PCL, provided that they are not in breach of their
regulatory capital and liquidity requirements, where applicable.
Collateral requirements and other disclosures
Collateral requirements
The carrying values of the Group's encumbered assets as at 30
June 2023 and 31 December 2022 are summarised below:
30 June 31 December
2023 2022
EUR000 EUR000
------------------- -------------------
Cash and other liquid assets 69,345 73,557
------------------- -------------------
Investments 257,147 284,343
------------------- -------------------
Loans and advances 3,334,668 3,273,369
------------------- -------------------
3,661,160 3,631,269
------------------- -------------------
Cash is mainly used to cover collateral required for derivatives,
trade finance transactions and guarantees issued. It may also be used
as part of the supplementary assets for the covered bond.
As at 30 June 2023 and 31 December 2022 investments are mainly used
as collateral for ECB funding or as supplementary assets for the covered
bond.
Loans and advances indicated as encumbered as at 30 June 2023 and
31 December 2022 are mainly used as collateral for funding from the
ECB and the covered bond.
Loans and advances to customers include mortgage loans of a nominal
amount of EUR1,015 million as at 30 June 2023 (31 December 2022: EUR1,007
million) in Cyprus, pledged as collateral for the covered bond issued
by BOC PCL in 2011 under its Covered Bond Programme. Furthermore,
as at 30 June 2023 housing loans of a nominal amount of EUR2,310 million
(31 December 2022: EUR2,287 million) in Cyprus, are pledged as collateral
for funding from the ECB (Note 21).
BOC PCL maintains a Covered Bond Programme set up under the Cyprus
Covered Bonds legislation and the Covered Bonds Directive of the CBC.
Under the Covered Bond Programme, BOC PCL has in issue covered bonds
of EUR650 million secured by residential mortgages originated in Cyprus.
The Covered Bonds have a maturity date of 12 December 2026 and pay
an interest rate of 3--months Euribor plus 1.25% on a quarterly basis.
On 9 August 2022, BOC PCL proceeded with an amendment to the terms
and conditions of the covered bonds following the implementation of
Directive (EU) 2019/2162 in Cyprus. The covered bonds are listed on
the Luxemburg Bourse. The covered bonds have a conditional Pass--Through
structure. All the bonds are held by BOC PCL. The covered bonds are
eligible collateral for the Eurosystem credit operations and are placed
as collateral for accessing funding from the ECB.
Other disclosures
Deposits by banks include balances of EUR25,003 thousand as at 30
June 2023 (31 December 2022: EUR29,100 thousand) relating to borrowings
from international financial and similar institutions for funding,
aiming to facilitate access to finance and improve funding conditions
for small or medium sized enterprises, active in Cyprus. The carrying
value of the respective loans and advances granted to such enterprises
serving this agreement amounts to EUR47,783 thousand as at 30 June
2023 (31 December 2022: EUR55,152 thousand).
33. Capital management
The primary objective of the Group's capital management is to ensure
compliance with the relevant regulatory capital requirements and
to maintain healthy capital adequacy ratios to cover the risks of
its business and support its strategy and maximise shareholders'
value.
The capital adequacy framework, as in force, was incorporated through
the Capital Requirements Regulation (CRR) and Capital Requirements
Directive (CRD) which came into effect on 1 January 2014 with certain
specified provisions implemented gradually. The CRR and CRD transposed
the new capital, liquidity and leverage standards of Basel III into
the European Union's legal framework. CRR establishes the prudential
requirements for capital, liquidity and leverage for credit institutions.
It is directly applicable in all EU member states. CRD governs access
to deposit taking activities and internal governance arrangements
including remuneration, board composition and transparency. Unlike
the CRR, member states were required to transpose the CRD into national
law and national regulators were allowed to impose additional capital
buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (Regulation
(EU) 2019/876 (CRR II) and Directive (EU) 2019/878 (CRD V)) came
into force. As an amending regulation, the existing provisions of
CRR apply unless they are amended by CRR II. Certain provisions took
immediate effect (primarily relating to Minimum Requirement for Own
Funds and Eligible Liabilities (MREL)), but most changes became effective
as of June 2021. The key changes introduced consist of, among others,
changes to qualifying criteria for Common Equity Tier 1 (CET1), Additional
Tier 1 (AT1) and Tier 2 (T2) instruments, introduction of requirements
for MREL and a binding Leverage Ratio requirement (as defined in
the CRR) and a Net Stable Funding Ratio (NSFR).
The amendments that came into effect on 28 June 2021 are in addition
to those introduced in June 2020 through Regulation (EU) 2020/873,
which among other, brought forward certain CRR II changes in light
of the COVID--19 pandemic. The main adjustments of Regulation (EU)
2020/873 that had an impact on the Group's capital ratio relate to
the acceleration of the implementation of the new SME discount factor
(lower RWAs), extending the IFRS 9 transitional arrangements and
introducing further relief measures to CET1 allowing to fully add
back to CET1 any increase in ECL recognised in 2020 and 2021 for
non--credit impaired financial assets and phasing--in this starting
from 2022 (phasing--in at 25% in 2022 and 50% in 2023) and advancing
the application of prudential treatment of software assets as amended
by CRR II (which came into force in December 2020). In addition,
Regulation (EU) 2020/873 introduced a temporary treatment of unrealized
gains and losses on exposures to central governments, to regional
governments or to local authorities measured at fair value through
other comprehensive income which the Group elected to apply and implemented
from the third quarter of 2020. This temporary treatment was in effect
until 31 December 2022.
The Group and BOC PCL have complied with the minimum capital requirements
(Pillar I and Pillar II).
In October 2021, the European Commission adopted legislative proposals
for further amendments to the CRR, CRD and the BRRD (the '2021 Banking
Package'). Amongst other things, the 2021 Banking Package would implement
certain elements of Basel III that have not yet been transposed into
EU law. The 2021 Banking Package is subject to amendment in the course
of the EU's legislative process; and its scope and terms may change
prior to its implementation. In addition, in the case of the proposed
amendments to CRD and the BRRD, their terms and effect will depend,
in part, on how they are transposed in each member state. The European
Council's proposal on CRR and CRD was published on 8 November 2022.
During February 2023, the European Parliament's ECON Committee voted
to adopt Parliament's proposed amendments to the Commission's proposal,
and the 2021 Banking Package is currently in the final stage of the
EU legislative process. It is expected that the 2021 Banking Package
will come in force on 1 January 2025; and certain measures are expected
to be subject to transitional arrangements or to be phased in over
time.
The insurance subsidiaries of the Group, the General Insurance of
Cyprus Ltd and EuroLife Ltd, comply with the requirements of the
Superintendent of Insurance including the minimum solvency ratio.
The regulated investment firm (CIF) of the Group, The Cyprus Investment
and Securities Corporation Ltd (CISCO) complies with the minimum
capital adequacy ratio requirements. In February 2023, the activities
of the regulated UCITS management company of the Group, BOC Asset
Management Ltd, were absorbed by CISCO and BOC Asset Management Ltd
was dissolved without liquidation. The payment services subsidiary
of the Group, JCC Payment Services Ltd, complies with the regulatory
capital requirements.
Additional information on regulatory capital is disclosed in 'Risk
and Capital Management Report', which is included in the Interim
Financial Report 2023.
34. Related party transactions
Related parties of the Group include associates and joint ventures,
key management personnel, members of the Board of Directors and their
connected persons. Connected persons for the purpose of this disclosure
include spouses, minor/dependent children and companies in which
the directors/key management personnel, hold directly or indirectly,
at least 20% of the voting shares in a general meeting, or act as
executive director or exercise control of the entities in any way.
Fees and emoluments of members of the Board of Directors and key
management personnel
Six months ended
30 June
2023 2022
-------------------
Directors' emoluments EUR000 EUR000
------------------- -------------------
Executives
------------------- -------------------
Salaries and other short--term benefits 530 523
------------------- -------------------
Employer's contributions 36 35
------------------- -------------------
Retirement benefit plan costs 47 44
------------------- -------------------
Share--based benefits 114 -
------------------- -------------------
727 602
------------------- -------------------
Non--executives
------------------- -------------------
Fees 568 663
------------------- -------------------
Total directors' emoluments 1,295 1,265
------------------- -------------------
Key management personnel emoluments
------------------- -------------------
Salaries and other short--term benefits 1,530 1,397
------------------- -------------------
Employer's contributions 176 163
------------------- -------------------
Retirement benefit plan costs 133 105
------------------- -------------------
Share--based benefits 197 -
------------------- -------------------
Total key management personnel emoluments 2,036 1,665
------------------- -------------------
Total 3,331 2,930
------------------- -------------------
The fees of the non--executive Directors include fees as members of
the Board of Directors of the Company and its subsidiaries, as well
as fees as members of committees of the Board of Directors.
Key management personnel
The emoluments of key management personnel include the remuneration
of the members of the Executive Committee since the date of their
appointment to the Committee and the emoluments of other members
of the Senior Management team (Extended EXCO) (prior to the change
in the Group organisational structure, in 2022 the key management
personnel included those members of the management team who reported
directly to the Chief Executive Officer or to the Deputy Chief Executive
Officer & Chief of Business).
Aggregate amounts outstanding and additional transactions
The tables below show the deposits, loans and advances and other
credit balances held by the members of the Board of Directors and
key management personnel and their connected persons, as at the balance
sheet date.
30 June 31 December
2023 2022
Loans and advances EUR000 EUR000
----------------- ------------------
-- members of the Board of Directors and key management
personnel 2,149 2,296
----------------- ------------------
-- connected persons 653 681
----------------- ------------------
2,802 2,977
----------------- ------------------
Deposits
----------------- ------------------
-- members of the Board of Directors and key management
personnel 4,428 5,534
----------------- ------------------
-- connected persons 3,179 3,178
----------------- ------------------
7,607 8,712
----------------- ------------------
The above table does not include period/year--end balances of members
of the Board of Directors and key management personnel and their
connected persons who resigned during the period/year, nor balances
of customers that do not meet the definition of connected persons
as at the reporting periods.
The aggregate expected credit loss allowance on the above loans and
credit facilities is below EUR16 thousand as at 30 June 2023 (31
December 2022: below EUR6 thousand). All principal and interest that
has fallen due on these loans or credit facilities has been paid.
All transactions with members of the Board of Directors and their
connected persons are made on normal business terms as for comparable
transactions, including interest rates, with customers of a similar
credit standing. A number of loans and advances have been extended
to key management personnel on the same terms as those applicable
to the rest of the Group's employees and to their connected persons
on the same terms as those of customers.
The table below discloses interest, commission and insurance premium
income, as well as other transactions and expenses with the members
of the Board of Directors, key management personnel and their connected
persons for the reference period.
Six months ended
30 June
2023 2022
-------------------- --------------------
EUR000 EUR000
-------------------- --------------------
Interest income for the period 49 29
-------------------- --------------------
Interest expense for the period 2 -
-------------------- --------------------
Commission income for the period 1 3
-------------------- --------------------
Insurance premium income for the period 236 206
-------------------- --------------------
Subscriptions and insurance expenses for the period 381 488
-------------------- --------------------
Interest income and expense are disclosed for the period during which
they were members of the Board of Directors or served as key management
personnel.
During the six months ended 30 June 2022 connected persons of key
management personnel transacted with REMU for the purchase of a property
amounting to EUR58 thousand. The transaction was made on normal business
terms as for comparable transactions with third parties.
In addition to loans and advances, there were contingent liabilities
and commitments in respect of members of the Board of Directors and
their connected persons, mainly in the form of documentary credits,
guarantees and commitments to lend, amounting to EUR141 thousand
as at 30 June 2023 (31 December 2022: EUR120 thousand).
There were also contingent liabilities and commitments to key management
personnel and their connected persons amounting to EUR1,429 thousand
as at 30 June 2023 (31 December 2022: EUR1,227 thousand).
The total unsecured amount of the loans and advances and contingent
liabilities and commitments to members of the Board of Directors,
key management personnel and their connected persons (using forced--sale
values for tangible collaterals and assigning no value to other types
of collaterals) at 30 June 2023 amounted to EUR1,744 thousand (31
December 2022: EUR1,212 thousand).
During the six months ended 30 June 2023 premiums of EUR89 thousand
(30 June 2022: EUR94 thousand) and nil claims (30 June 2022: EUR20
thousand) were paid by/to the members of the Board of Directors of
the Company and their connected persons to/from the insurance subsidiaries
of the Group.
There were no other transactions during the six months ended 30 June
2023 and the six months ended 30 June 2022 with connected persons
of the current members of the Board of Directors or with any members
who resigned during the period/year.
35. Group companies
The main subsidiary companies and branches included in the Consolidated
Financial Statements of the Group, their country of incorporation,
their activities and the percentage held by the Company (directly
or indirectly) as at 30 June 2023 are:
Company Country Activities Percentage
holding (%)
Bank of Cyprus Holdings Public Ireland Holding company n/a
Limited Company
-------- ---------------------------- ------------
Bank of Cyprus Public Company
Ltd Cyprus Commercial bank 100
-------- ---------------------------- ------------
EuroLife Ltd Cyprus Life insurance 100
-------- ---------------------------- ------------
General Insurance of Cyprus
Ltd Cyprus Non--life insurance 100
-------- ---------------------------- ------------
Card processing transaction
JCC Payment Systems Ltd Cyprus services 75
-------- ---------------------------- ------------
Investment banking
and brokerage and
The Cyprus Investment and management administration
Securities Corporation Ltd and safekeeping of
(CISCO) Cyprus UCITS Units 100
-------- ---------------------------- ------------
Jinius Ltd Cyprus Digital Economy Platform 100
-------- ---------------------------- ------------
Investments in securities
and participations
in companies and
schemes that are
active in various
LCP Holdings and Investments business sectors
Public Ltd Cyprus and projects 67
-------- ---------------------------- ------------
Property trading
Kermia Ltd Cyprus and development 100
-------- ---------------------------- ------------
Kermia Properties & Investments Property trading
Ltd Cyprus and development 100
-------- ---------------------------- ------------
Land development
and operation of
S.Z. Eliades Leisure Ltd Cyprus a golf resort 70
-------- ---------------------------- ------------
Auction Yard Ltd Cyprus Auction company 100
-------- ---------------------------- ------------
BOC Secretarial Company Ltd Cyprus Secretarial services 100
-------- ---------------------------- ------------
Bank of Cyprus Public Company Greece Administration of n/a
Ltd (branch of BOC PCL) guarantees and holding
of real estate properties
-------- ---------------------------- ------------
Collection of the
existing portfolio
BOC Asset Management Romania of receivables, including
S.A. Romania third party collections 100
-------- ---------------------------- ------------
MC Investment Assets Management Problem asset management
LLC Russia company 100
-------- ---------------------------- ------------
Problem asset management
Fortuna Astrum Ltd Serbia company 100
-------- ---------------------------- ------------
In December 2022 the Company incorporated Jinius Ltd, a 100% subsidiary,
which has been set up to provide and administrate a Digital Economy
Platform. As at 31 December 2022 this subsidiary was inactive and
in the six months ended 30 June 2023 the activities of BOC PCL in
relation to the Digital Economy Platform were transferred to Jinius
Ltd. Jinius Ltd is 100% subsidiary of BOC PCL as at 30 June 2023.
In February 2023, the Group proceeded with a restructuring of its
investment banking and brokerage activities through the absorption
by CISCO of BOC Asset Management Ltd's activities. BOC Asset Management
Ltd was subsequently dissolved.
In addition to the above companies, as at 30 June 2023 BOC PCL had
100% shareholding in the companies listed below, whose activity is
the ownership and management of immovable property:
Cyprus: Hamura Properties Ltd, Tolmeco Properties Ltd, Dilero Properties
Ltd, Pelika Properties Ltd, Cobhan Properties Ltd, Ramendi Properties
Ltd, Nalmosa Properties Ltd, Emovera Properties Ltd, Estaga Properties
Ltd, Skellom Properties Ltd, Blodar Properties Ltd, Cranmer Properties
Ltd, Les Coraux Estates Ltd, Natakon Company Ltd, Oceania Ltd, Dominion
Industries Ltd, Ledra Estate Ltd, EuroLife Properties Ltd, Laiki
Lefkothea Center Ltd, Labancor Ltd, Joberco Ltd, Zecomex Ltd, Domita
Estates Ltd, Memdes Estates Ltd, Edoric Properties Ltd, Kernland
Properties Ltd, Jobelis Properties Ltd, Melsolia Properties Ltd,
Koralmon Properties Ltd, Spacous Properties Ltd, Calinora Properties
Ltd, Marcozaco Properties Ltd, Soluto Properties Ltd, Solomaco Properties
Ltd, Linaland Properties Ltd, Unital Properties Ltd, Neraland Properties
Ltd, Wingstreet Properties Ltd, Nolory Properties Ltd, Lynoco Properties
Ltd, Fitrus Properties Ltd, Lisbo Properties Ltd, Mantinec Properties
Ltd, Colar Properties Ltd, Irisa Properties Ltd, Provezaco Properties
Ltd, Hillbay Properties Ltd, Ofraco Properties Ltd, Forenaco Properties
Ltd, Hovita Properties Ltd, Astromeria Properties Ltd, Regetona Properties
Ltd, Camela Properties Ltd, Fareland Properties Ltd, Barosca Properties
Ltd, Fogland Properties Ltd, Tebasco Properties Ltd, Valecross Properties
Ltd, Altco Properties Ltd, Olivero Properties Ltd, Jaselo Properties
Ltd, Elosa Properties Ltd, Flona Properties Ltd, Toreva Properties
Ltd, Resoma Properties Ltd, Mostero Properties Ltd, Helal Properties
Ltd, Pendalo Properties Ltd, Frontyard Properties Ltd, Bonsova Properties
Ltd, Thermano Properties Ltd, Venicous Properties Ltd, Lorman Properties
Ltd, Eracor Properties Ltd, Rulemon Properties Ltd, Maledico Properties
Ltd, Bascone Properties Ltd, Balasec Properties Ltd, Bendolio Properties
Ltd, Diafor Properties Ltd, Kartama Properties Ltd, Paramina Properties
Ltd, Nouralia Properties Ltd, Resocot Properties Ltd, Soblano Properties
Ltd, Talamon Properties Ltd, Weinar Properties Ltd, Zemialand Properties
Ltd, Asianco Properties Ltd, Coeval Properties Ltd, Finevo Properties
Ltd, Mazima Properties Ltd, Nigora Properties Ltd, Riveland Properties
Ltd, Rosalica Properties Ltd, Secretsky Properties Ltd, Senadaco
Properties Ltd, Tasabo Properties Ltd, Venetolio Properties Ltd,
Zandexo Properties Ltd, Odolo Properties Ltd, Calandomo Properties
Ltd, Molemo Properties Ltd, Samilo Properties Ltd, Sendilo Properties
Ltd, Baleland Properties Ltd, Alezia Properties Ltd, Zenoplus Properties
Ltd, Alepar Properties Ltd, Enelo Properties Ltd, Monata Properties
Ltd, Vertilia Properties Ltd, Amary Properties Ltd, Aparno Properties
Ltd, Lomenia Properties Ltd, Midelox Properties Ltd, Montira Properties
Ltd, Orilema Properties Ltd and Philiki Ltd.
Romania: Otherland Properties Dorobanti SRL, Green Hills Properties
SRL, Imoreth Properties SRL, Inroda Properties SRL, Zunimar Properties
SRL, Allioma Properties SRL and Nikaba Properties SRL.
Further, at 30 June 2023 BOC PCL had 100% shareholding in Obafemi
Holdings Ltd, Stamoland Properties Ltd, Unoplan Properties Ltd, Petrassimo
Properties Ltd and Gosman Properties Ltd.
The main activities of the above companies are the holding of shares
and other investments and the provision of services.
At 30 June 2023 BOC PCL had 100% shareholding in BOC Terra AIF V.C.I
Plc which is a real estate alternative investment fund, currently
inactive.
At 30 June 2023 BOC PCL had 100% shareholding in the companies listed
below which are reserved to accept property:
Cyprus: Holstone Properties Ltd, Cramonco Properties Ltd, Carilo
Properties Ltd, Gelimo Properties Ltd, Rifelo Properties Ltd, Avaleto
Properties Ltd, Larizemo Properties Ltd and Olisto Properties Ltd.
In addition, BOC PCL holds 100% of the following intermediate holding
companies:
Cyprus: Otherland Properties Ltd, Battersee Properties Ltd, Bonayia
Properties Ltd, Janoland Properties Ltd, Imoreth Properties Ltd,
Inroda Properties Ltd, Zunimar Properties Ltd, Nikaba Properties
Ltd, Allioma Properties Ltd, Landanafield Properties Ltd and Hydrobius
Ltd.
BOC PCL also holds 100% of the following companies which are inactive:
Cyprus: Laiki Bank (Nominees) Ltd, Paneuropean Ltd, Nelcon Transport
Co. Ltd, Iperi Properties Ltd, CYCMC IV Ltd, Prodino Properties Ltd,
Thryan Properties Ltd, Canosa Properties Ltd, Ensolo Properties Ltd,
H mirova Properties Ltd and Settle Cyprus Ltd.
Greece: Kyprou Zois (branch of EuroLife Ltd), Kyprou Asfalistiki
(branch of General Insurance of Cyprus Ltd), Kyprou Commercial SA
and Kyprou Properties SA.
All Group companies are accounted for as subsidiaries using the full
consolidation method. All companies listed above have share capital
consisting of ordinary shares.
Acquisitions of subsidiaries
During the six months ended 30 June 2023 and during the year ended
31 December 2022 there were no acquisitions of subsidiaries.
Dissolution and disposal of subsidiaries
There were no material disposals of subsidiaries during the six months
ended 30 June 2023. Salecom Ltd, Romaland Properties Ltd, Trecoda
Properties Ltd, Weinco Properties Ltd and Cyprialife Ltd were dissolved
during the six months ended 30 June 2023. Thelemic Properties Ltd,
Arlona Properties Ltd, Tebane Properties Ltd and Nivamo Properties
Ltd were disposed of during the six months ended 30 June 2023.
As at 30 June 2023, the following subsidiaries were in the process
of dissolution or in the process of being struck off: Fantasio Properties
Ltd, Demoro Properties Ltd, Bramwell Properties Ltd, Blindingqueen
Properties Ltd, Fairford Properties Ltd, Sylvesta Properties Ltd,
Battersee Real Estate SRL, Aktilo Properties Ltd, Stormino Properties
Ltd, Tavoni Properties Ltd, Ameleto Properties Ltd, Birkdale Properties
Ltd, Folimo Properties Ltd, Steparco Ltd, Thames Properties Ltd and
Finerose Properties Ltd.
36. Investments in associates and joint venture
Percentage
holding
Investments in associates (%)
----------------
Aris Capital Management LLC 30.0
----------------
Rosequeens Properties Limited 33.3
----------------
Fairways Automotive Holdings Ltd 45.0
----------------
The carrying values of the investments in associates are considered
to be fully impaired and their value has been restricted to zero.
Rosequeens Properties SRL
During the year ended 31 December 2022 the Group disposed of its 33.3%
holding in associate company Rosequeens Properties SRL.
Percentage
holding
Investment in joint venture (%)
-------------------
Tsiros (Agios Tychon) Ltd 50.0
-------------------
The carrying value of the investment in the joint venture is considered
to be fully impaired and its value has been restricted to zero.
37. Events after the reporting period
In July 2023, BOC PCL issued a EUR350 million senior preferred note
(the 'Notes') under the EMTN Programme. The Notes were priced at
par with a fixed coupon of 7.375% per annum, payable annually in
arrear, until the Optional Redemption Date (i.e., 25 July 2027).
The maturity date of the Notes is 25 July 2028; however, BOC PCL
may, at its discretion, redeem the Notes on the Optional Redemption
Date subject to meeting certain conditions (including applicable
regulatory consents) as specified in the terms and conditions of
the Notes. If the Notes are not redeemed by BOC PCL, the coupon payable
from the Optional Redemption Date until the Maturity Date will convert
from a fixed rate to a floating rate and will be equal to 3--month
Euribor plus 409.5 basis points, payable quarterly in arrears. The
Notes are listed on the Luxembourg Stock Exchange's Euro MTF market.
The Notes comply with the criteria for the minimum requirement for
own funds and eligible liabilities (MREL) and contribute towards
BOC PCL's MREL requirements.
No other significant non--adjusting events have taken place since
30 June 2023.
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END
IR FIFSETAIAIIV
(END) Dow Jones Newswires
August 09, 2023 02:03 ET (06:03 GMT)
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