TIDMBOCH
RNS Number : 2826L
Bank of Cyprus Holdings PLC
29 April 2020
Announcement
Group Financial Results for the year ended 31 December 2019
Nicosia, 29 April 2020
Key Highlights for the year ended 31 December 2019
Good Capital Position
-- Total Capital ratio of 18.0% and CET1 ratio of 14.8% (IFRS 9 transitional)
Balance Sheet Repair Continues
-- Organic NPE reduction of EUR889 mn for FY2019, ahead of guidance
-- NPEs reduced to EUR3.9 bn (EUR1.8 bn net)
-- Gross NPE ratio reduced to 30%, coverage increased to 54%
-- NPE portfolio sale currently delayed due to prevailing market
and operational conditions resulting from
COVID-19 outbreak
Active Liquidity Management
-- Deposits at EUR16.7 bn
-- Loan to deposit ratio at 64%
-- Introduction of liquidity fees for specific customer groups in March 2020
Active Cost Management
-- Successful completion of Voluntary Staff Exit Plan, resulting
in gross annual savings of 13% (EUR28 mn); one-off cost of EUR81 mn
in 4Q2019
-- Full time employees reduced by 11%
-- Cost to income ratio (excluding special levy and contribution to SRF) at 59% in FY2019
-- 18% reduction in number of branches in 2019 supported by digital transformation
-- 70% of customers currently digitally engaged
Performance in 4Q2019
-- New lending of EUR443 mn for 4Q2019, totalling EUR2 bn for
FY2019, up 9% yoy, and highest since FY2015
-- Total Income of EUR156 mn, Operating profit of EUR53 mn for 4Q2019
-- Cost of risk at 0.9% for 4Q2019
-- Underlying result of a loss after tax from organic operations
of EUR6 mn for 4Q2019 and a profit of EUR36 mn for FY2019
-- Provisions/net loss relating to NPE sales of EUR86 mn,
including, as previously announced, loan credit losses within the
context of IFRS 9 of EUR75 mn, as a result of the anticipated
balance sheet de-risking through further NPE sales in the
future
-- Loss after tax of EUR186 mn for 4Q2019 and EUR70 mn for FY2019
Group Chief Executive Statement
"Cyprus and the world are coming to terms with a global pandemic
that is changing the way we run our businesses and our daily lives.
COVID-19 is first and foremost a health crisis, presenting an
unprecedented external economic shock. The Bank's priorities are
clear: protect the health of our colleagues and customers, support
them and the Cypriot economy, while also ensuring the operational
resilience of the Bank . We are determined to help all our
stakeholders confront this challenge.
The Government's swift and decisive reaction to the outbreak of
COVID-19 in Cyprus has successfully contained the spread of the
pandemic in the country. This presents very encouraging statistics,
allowing the Government to consider the gradual relaxation of
containment measures, currently expected to be phased out from
early May. During April the Cyprus Government has successfully
raised a total amount of EUR3.0 bn from the international and local
markets in order to support the measures undertaken to confront the
economic impact of the COVID-19 outbreak and to strengthen state
reserves.
The package of policy measures announced by the European Central
Bank and the European Commission, as well as the unprecedented
fiscal and other measures of the Cyprus Government, should help
mitigate the negative impact of the crisis and support the recovery
of the Cypriot economy.
As the leading bank in Cyprus, we have a good capital position
and a significant liquidity surplus of over EUR3 bn , as we head
into these uncertain times, enabling us to support our customers
and the economy. We have considerable experience in managing
challenging circumstances. We maintain our relentless focus on
asset quality, funding, capital and efficiency to ensure the Bank
maintains its financial strength, but we are equally flexible to
adjust our short-term priorities as needed to react to the emerging
conditions of these unprecedented times. Our investment in our
digital transformation programme has not only strengthened our
operational resilience, but more importantly, has enabled us to
quickly respond to the changing landscape and fully deploy our
digital service channels to the benefit of customers. The increased
digital engagement level of our customers during this period is
impressive at 70% as of the end of March 2020 and we expect further
increases.
Our results for year 2019 reflect the continued progress against
our core objective of balance sheet repair.
During the year, we completed the sale of c.EUR2.7 bn
non-performing loans in Project Helix, adding 140 bps of capital,
whilst organic NPE reduction surpassed our organic target of
c.EUR800 mn for 2019. Organic NPE reduction in the fourth quarter
amounted to EUR205 mn, bringing the total organic reduction in 2019
to EUR889 mn. Since the peak in 2014, we have now reduced the stock
of NPEs by 74% to EUR3.9 bn. This stock of NPEs is now covered by
54% loan credit losses. Overall, since 2014 we have managed a
reduction in NPEs of EUR11.1 bn, of which EUR8.4 bn has been
through organic actions.
Against the backdrop of market volatility arising out of the
COVID-19 pandemic, we continue to work with our advisers towards
the sale of a portfolio of NPEs. Due to the prevailing market and
operational conditions, this process is likely to take longer than
originally anticipated. In the context of IFRS 9, the Bank
recognised additional loan credit losses of EUR75 mn in 4Q2019,
with a negative capital impact of 46 bps. On completion, the
Group's capital ratios would benefit from the RWA reduction,
subject to regulatory approval.
Following the outbreak of COVID-19, we are now focused on
arresting any potential asset quality deterioration. Once economic
conditions normalise, we expect to resume our efforts to improve
our asset quality position by seeking solutions, both organic and
inorganic, to make the Bank a stronger and safer institution,
capable of continuing to support the local economy.
The Bank's capital position remains good and in excess of our
regulatory requirements. As at 31 December 2019, our capital ratios
(IFRS 9 transitional) were CET1 of 14.8% and Total Capital ratio of
18.0%.
Our deposits remained broadly flat during the year at EUR16.7 bn
and we reduced our cost of deposits by 25 bps in 2019 and 60 bps in
the last two years. New lending exceeded EUR2 bn in 2019, an
increase of 9% compared to the prior year and the highest level
since 2015, helping support the Cypriot economy. Our loan to
deposit ratio stood at 64% at the year end.
In response to the persistently low interest rate environment in
Europe, we have remained focused on actively managing our funding
costs and reducing our cost base. In the fourth quarter we reduced
the number of employees by 11% through a voluntary staff exit plan,
representing a gross annual saving in staff costs of 13%. During
the year, we also reduced the number of branches by 18%, as the
percentage of digitally engaged customers increased by 6 p.p. to
70% in the 15 months to 31 March 2020. In addition, in March 2020,
we introduced liquidity fees for specific customer groups.
In 2019, we generated total income of EUR651 mn and a positive
operating result of EUR241 mn. The underlying result for the year
was a profit of EUR36 mn. After the one-off cost relating to the
completion of the voluntary staff exit plan of EUR81 mn, the
provisions/net loss relating to the NPE sales of EUR92 mn
(including additional loan credit losses of EUR75 mn relating to
further NPE sales in the future), the net loss from the sale of our
investment in CNP of EUR21 mn and the net positive impact from the
reversal of the impairment of the deferred tax asset of EUR88 mn,
the overall result for the year 2019 was a loss of EUR70 mn.
Group Chief Executive Statement (continued)
The current economic uncertainty means that we cannot at this
stage have clear visibility of the future impact of COVID-19 on the
Group's operations and financial results. As a consequence of the
current challenging economic conditions resulting from the COVID-19
outbreak, we will update the macroeconomic assumptions underlying
the IFRS 9 calculation of loan credit losses for 1Q2020 in line
with the relevant regulatory guidance, and anticipate that this may
result in increased organic provisions in 1Q2020, although the
exact quantum of any such increase is as yet unknown. Whilst we are
currently seeing lower transactional income and lower demand for
loans, the on-going economic uncertainty means that we do not have
sufficient visibility about the likely future impact of COVID-19 on
the Group's operations or financial results, and are therefore
currently not in a position to provide guidance for the current
financial year. However, we are confident that the Bank's good
capital base and strong liquidity, position us to be able to
support our customers through this period of extreme volatility,
playing our part in limiting the impact of the pandemic in
Cyprus.
Our medium-term strategic priorities remain clear, with a
sustained focus on strengthening our balance sheet, and improving
asset quality and efficiency in order to continue to play a vital
role in supporting the Cypriot economy.
Panicos Nicolaou
Update on COVID-19
The Group is closely monitoring developments in, and the effects
of COVID-19 on both the global and Cypriot economy. On the basis of
currently available information, the Group is not in a position to
accurately assess the magnitude of the future impact of COVID-19 on
the Group's operations and financial results, as this will
principally depend on the rate and extent of the spread of the
virus, its direct and indirect impact on customers and the
effectiveness of the regulatory and fiscal measures taken to
support the economy and mitigate the impact of the virus.
In common with other European banks, the persistently low
interest rate environment continues to present a challenge to the
Group's profitability. As a consequence of the current challenging
economic conditions resulting from the COVID-19 outbreak, the Group
will update its macroeconomic assumptions underlying the IFRS 9
calculation of loan credit losses for 1Q2020 in line with the
relevant regulatory guidance, and anticipates that this may result
in increased organic provisions in 1Q2020, although the exact
quantum of any such increase is as yet unknown. Despite the lower
transactional income and lower demand for loans currently observed,
the on-going economic uncertainty means that the Group does not
have sufficient visibility about the likely future impact of
COVID-19 on its operations or financial results, and therefore, is
currently not in a position to provide guidance for the current
financial year. However, the Group's good capital base and strong
liquidity, position it to be able to support its customers through
this period of extreme volatility.
Pandemic Plan and Operational Impact due to COVID-19
COVID-19 is a health crisis, presenting an unprecedented
external economic shock. The Bank's priorities are clear.
Key priorities
-- Safeguarding the health of staff and customers, while
ensuring operational resilience of the Bank
-- Supporting customers affected by COVID-19 and wider Cypriot economy
-- Provision of liquidity to affected businesses and households
to alleviate short term cash flow burden
Measures taken to Safeguard Health and Safety
-- Establishment of a committee to monitor COVID-19 measures,
trace incidents and to provide regular updates to staff
-- Implementation of Health and Safety measures in line with the
guidelines and recommendations issued by Ministry of Health
-- Special purpose leave for employees that belong to vulnerable groups
-- Enhanced intensive clean-ups, a precautionary disinfection
procedure is in place throughout the Bank
-- Shipment of masks, gloves and sanitisers to branches
-- Participation in Government's COVID-19 testing schemes
Measures taken to Ensure Operational Resilience
-- Activation of the Pandemic Plan to ensure operational
resilience and no disruption of the day-to-day activities
-- Splitting the operations of critical units to separate
locations and provision of remote access availability
-- Branch network operates on a rotational basis, as a precautionary measure
-- 44% of staff (excluding branches) work remotely
-- Digital service channels provide alternative solutions for
customers for carrying out daily banking transactions online
-- 70% of customers are currently digitally engaged
Supporting customers affected by COVID-19 and wider Cypriot
economy through the provision of liquidity to alleviate short term
cash flow burden
-- Implementation of moratorium of loan instalments (both
capital and interest) for nine months, available to all customers
(both businesses and private individuals) with less than 30 days
past due as at 29 February 2020, as per the Government measures
-- Over 20,000 applications received to date (c.EUR5.2 bn)
-- Provision of liquidity to affected businesses and households
to alleviate short term cash flow burden through
-- Government guaranteed facilities (approved by the Council of
Ministers; pending approval by Parliament)
-- Short term funding based on Central Bank of Cyprus (CBC) directive
-- Other lending products
For further information please refer to the sections C
'Operating Environment' and D 'Business Overview' on pages
33-37.
A. Group Financial Results - Statutory Basis
Audited Consolidated Income Statement for the year ended 31
December 2019
2019 2018
(restated*)
EUR000 EUR000
---------- -------------
Continuing operations
---------- -------------
Turnover 910,576 1,012,947
========== =============
Interest income 454,997 557,065
---------- -------------
Income similar to interest income 53,180 52,054
---------- -------------
Interest expense (93,493) (144,024)
---------- -------------
Expense similar to interest expense (48,708) (46,042)
---------- -------------
Net interest income 365,976 419,053
---------- -------------
Fee and commission income 171,715 175,583
---------- -------------
Fee and commission expense (9,821) (20,312)
---------- -------------
Net foreign exchange gains 26,596 37,688
---------- -------------
Net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and
associates 18,675 46,670
---------- -------------
Insurance income net of claims and commissions 57,660 52,912
---------- -------------
Net gains/(losses) from revaluation and disposal
of investment properties 2,249 (11,845)
---------- -------------
Net gains on disposal of stock of property 25,952 30,437
---------- -------------
Other income 28,938 25,604
---------- -------------
687,940 755,790
---------- -------------
Staff costs (306,713) (216,740)
---------- -------------
Special levy on deposits on credit institutions
in Cyprus, contribution to Single Resolution
Fund and other levies (43,609) (25,095)
---------- -------------
Other operating expenses (242,622) (234,891)
---------- -------------
94,996 279,064
---------- -------------
Net gains on derecognition of financial assets
measured at amortised cost 8,187 27,825
---------- -------------
Credit losses to cover credit risk on loans and
advances to customers (232,451) (329,083)
========== =============
Credit losses of other financial instruments (4,790) (1,610)
========== =============
Impairment of non-financial assets (26,081) (18,651)
========== =============
Loss before share of profit from associates and
remeasurement (160,139) (42,455)
---------- -------------
Remeasurement of investment in associate upon
classification as held for sale (25,943) -
---------- -------------
Share of profit from associates 5,513 9,095
---------- -------------
Loss before tax from continuing operations (180,569) (33,360)
---------- -------------
Income tax 112,831 (75,916)
---------- -------------
Loss after tax from continuing operations (67,738) (109,276)
---------- -------------
Discontinued operations
---------- -------------
Profit after tax from discontinued operations - 7,243
---------- -------------
Loss for the year (67,738) (102,033)
========== =============
Attributable to:
========== =============
Owners of the Company - continuing operations
loss (70,275) (110,764)
========== =============
Owners of the Company - discontinued operations
profit - 7,243
---------- -------------
Total loss attributable to the owners of the
Company (70,275) (103,521)
---------- -------------
Non-controlling interests - continuing operations
profit 2,537 1,488
---------- -------------
Loss for the year (67,738) (102,033)
========== =============
Basic and diluted loss per share attributable
to the owners of the Company
(EUR cent) - continuing operations (15.8) (24.8)
========== =============
Basic and diluted loss per share attributable
to the owners of the Company
(EUR cent) (15.8) (23.2)
========== =============
*Please refer to the section on "Comparative Information on
Statutory Basis" on the next page.
A . Group Financial Results - Statutory Basis (continued)
Audited Consolidated Balance Sheet as at 31 December 2019
2019 2018 (restated) 2017 (restated)
Assets EUR000 EUR000 EUR000
----------- ---------------- -----------------
Cash and balances with central banks 5,060,042 4,610,491 3,393,934
----------- ---------------- -----------------
Loans and advances to banks 320,881 472,532 1,192,633
----------- ---------------- -----------------
Derivative financial assets 23,060 24,754 18,027
----------- ---------------- -----------------
Investments 1,682,869 777,104 830,483
----------- ---------------- -----------------
Investments pledged as collateral 222,961 737,587 290,129
----------- ---------------- -----------------
Loans and advances to customers 10,721,841 10,921,786 14,602,454
----------- ---------------- -----------------
Life insurance business assets attributable
to policyholders 458,852 402,565 429,890
----------- ---------------- -----------------
Prepayments, accrued income and other assets 243,930 256,002 226,105
----------- ---------------- -----------------
Stock of property 1,377,453 1,426,857 1,486,979
----------- ---------------- -----------------
Deferred tax assets 379,126 301,778 383,498
----------- ---------------- -----------------
Investment properties 136,197 128,006 174,089
----------- ---------------- -----------------
Property and equipment 288,054 260,723 279,814
----------- ---------------- -----------------
Intangible assets 178,946 170,411 165,952
----------- ---------------- -----------------
Investments in associates and joint venture 2,393 114,637 118,113
----------- ---------------- -----------------
Non-current assets and disposal groups held
for sale 26,217 1,470,038 6,500
----------- ---------------- -----------------
Total assets 21,122,822 22,075,271 23,598,600
=========== ================ =================
Liabilities
----------- ---------------- -----------------
Deposits by banks 533,404 431,942 495,308
----------- ---------------- -----------------
Funding from central banks - 830,000 930,000
----------- ---------------- -----------------
Repurchase agreements 168,129 248,945 257,322
----------- ---------------- -----------------
Derivative financial liabilities 50,593 38,983 50,892
----------- ---------------- -----------------
Customer deposits 16,691,531 16,843,558 17,849,919
----------- ---------------- -----------------
Insurance liabilities 640,013 591,057 605,448
----------- ---------------- -----------------
Accruals, deferred income, other liabilities
and other provisions 324,246 285,483 306,227
----------- ---------------- -----------------
Pending litigation, claims, regulatory and other
matters 108,094 116,951 138,375
----------- ---------------- -----------------
Subordinated loan stock 272,170 270,930 302,288
----------- ---------------- -----------------
Deferred tax liabilities 46,015 44,282 46,113
----------- ---------------- -----------------
Non--current liabilities and disposal group
held for sale - 5,812 -
----------- ---------------- -----------------
Total liabilities 18,834,195 19,707,943 20,981,892
----------- ---------------- -----------------
Equity
----------- ---------------- -----------------
Share capital 44,620 44,620 44,620
----------- ---------------- -----------------
Share premium 1,294,358 1,294,358 2,794,358
----------- ---------------- -----------------
Revaluation and other reserves 210,701 190,411 273,708
----------- ---------------- -----------------
Retained earnings/(accumulated losses) 490,286 591,941 (527,128)
----------- ---------------- -----------------
Equity attributable to the owners of the Company 2,039,965 2,121,330 2,585,558
----------- ---------------- -----------------
Other equity instruments 220,000 220,000 -
----------- ---------------- -----------------
Total equity excluding non--controlling interests 2,259,965 2,341,330 2,585,558
----------- ---------------- -----------------
Non--controlling interests 28,662 25,998 31,150
----------- ---------------- -----------------
Total equity 2,288,627 2,367,328 2,616,708
----------- ---------------- -----------------
Total liabilities and equity 21,122,822 22,075,271 23,598,600
=========== ================ =================
Comparative Information on Statutory Basis
Please refer to Note 2.38 of the Consolidated Financial
Statements for the year ended 31 December 2019 for details on the
restatements on comparative information. The changes did not have
an impact on the results for the year or the equity of the
Group.
B. Group Financial Results - Underlying Basis
Unaudited Consolidated Income Statement
----------------------------------------------------------------------------------------------------------------------
(4q vs (FY)
FY2018(1,) 3q) + Yoy +
EUR mn FY2019(1) (2) 4Q2019(1) 3Q2019(1) 2Q2019(1) 1Q2019(1) % %
--------------------------------- ----------- ---------- --------- --------- --------- --------- ------ ------
Net interest income 344 331 84 90 85 85 -7% 4%
Net fee and commission
income 150 162 39 36 38 37 5% -8%
Net foreign exchange
gains and net gains
on financial instrument
transactions and
disposal/dissolution
of subsidiaries and
associates 38 67 4 8 16 10 -50% -43%
Insurance income net
of claims and commissions 58 53 16 12 18 12 36% 9%
Net gains from revaluation
and disposal of investment
properties and on
disposal of stock
of properties 32 18 6 10 12 4 -30% 73%
Other income 29 26 7 6 8 8 22% 13%
--------------------------------- ----------- ---------- --------- --------- --------- --------- ------ ------
Total income 651 657 156 162 177 156 -4% -1%
--------------------------------- ----------- ---------- --------- --------- --------- --------- ------ ------
Staff costs (220) (212) (53) (55) (56) (56) 0% 4%
Other operating expenses (165) (156) (43) (38) (43) (41) 15% 6%
Special levy and contribution
to Single Resolution
Fund (25) (25) (7) (6) (6) (6) -2% -1%
Total expenses (410) (393) (103) (99) (105) (103) 5% 4%
----------- ---------- --------- --------- --------- --------- ------
Operating profit 241 264 53 63 72 53 -17% -9%
--------------------------------- ----------- ---------- --------- --------- --------- --------- ------ ------
Loan credit losses (146) (135) (29) (30) (40) (47) -3% 8%
(Impairments)/reversal
of impairments of
other financial and
non-financial assets (22) (20) (13) 1 (9) (1) - 12%
(Provisions)/reversal
of provisions for
litigation, claims,
regulatory and other
matters (10) (23) (7) (6) 3 (0) 19% -54%
--------------------------------- ----------- ---------- --------- --------- --------- --------- ------ ------
Total loan credit
losses, impairments
and provisions (178) (178) (49) (35) (46) (48) 41% 0%
--------------------------------- ----------- ---------- --------- --------- --------- --------- ------ ------
Profit before tax
and non-recurring
items 63 86 4 28 26 5 -88% -28%
--------------------------------- ----------- ---------- --------- --------- --------- --------- ------ ------
Tax (3) 3 (2) (1) 2 (2) 167% -
(Profit)/loss attributable
to non-controlling
interests (2) (1) 0 0 (2) (0) 5% 71%
Profit after tax and
before non-recurring
items (attributable
to the owners of the
Company) 58 88 2 27 26 3 -95% -35%
----------- ---------- --------- --------- --------- --------- ------
Advisory and other
restructuring costs
- organic (22) (42) (8) (4) (4) (6) 63% -49%
--------------------------------- ----------- ---------- --------- --------- --------- --------- ------ ------
Profit/(loss) after
tax - organic (attributable
to the owners of the
Company) 36 46 (6) 23 22 (3) - -22%
--------------------------------- ----------- ---------- --------- --------- --------- --------- ------ ------
Restructuring costs
- Voluntary Staff
Exit Plan (VEP) (81) - (81) - - - - -
Provisions/net (loss)/profit
relating to NPE sales(3) (92) (83) (86) (4) 3 (5) - 12%
(Loss)/profit on r
emeasurement of investment
in associate upon
classification as
held for sale (CNP)
net of share of profit
from associates (21) 9 0 0 (23) 2 - -
Reversal of impairment
of DTA and impairment
of other tax receivables 88 (79) (13) - - 101 - -
Profit from discontinued
operations (UK) - 3 - - - - - -
(Loss)/profit after
tax (attributable
to the owners of the
Company) (70) (104) (186) 19 2 95 - -32%
----------- ---------- --------- --------- --------- --------- ------
B. Group Financial Results - Underlying Basis (continued)
Unaudited Consolidated Income Statement - Key Performance Ratios
-------------------------------------------------------------------------------------------------------------------
(4q vs (FY)
FY2018(1,) 3q) + Yoy +
Key Performance Ratios(1,2) FY2019(1) (2) 4Q2019(1) 3Q2019(1) 2Q2019(1) 1Q2019(1) % %
---------------------------- ----------- ---------- --------- --------- --------- --------- ------- -------
Net Interest Margin
(annualised) 1.90% 1.82% 1.87% 1.99% 1.89% 1.88% -12 bps +8 bps
---------------------------- ----------- ---------- --------- --------- --------- --------- ------- -------
Cost to income ratio 63% 60% 67% 61% 59% 66% +6 p.p. +3 p.p.
---------------------------- ----------- ---------- --------- --------- --------- --------- ------- -------
Cost to income ratio
excluding special
levy and contribution
to SRF 59% 56% 63% 57% 56% 62% +6 p.p. +3 p.p.
---------------------------- ----------- ---------- --------- --------- --------- --------- ------- -------
Operating profit return
on average assets -0.2 -0.1
(annualised) 1.1% 1.2% 1.0% 1.2% 1.3% 1.0% p.p. p.p.
---------------------------- ----------- ---------- --------- --------- --------- --------- ------- -------
Basic earnings/(losses)
per share attributable
to the owners of the
Company - organic
(EUR cent) 7.97 10.19 (1.26) 5.22 4.89 (0.88) (6.48) (2.22)
---------------------------- ----------- ---------- --------- --------- --------- --------- ------- -------
Basic (losses)/earnings
per share attributable
to the owners of the
Company (EUR cent) (15.75) (23.21) (41.67) 4.08 0.61 21.23 (45.75) 7.46
---------------------------- ----------- ---------- --------- --------- --------- --------- ------- -------
1. The interest income, non-interest income, staff costs, other operating
expenses and loan credit losses related to Project Helix are disclosed under
'Provisions/net (loss)/profit relating to NPE sales' in the underlying basis,
in order to separate out the impact of this non-recurring transaction. 2.
Including the impact from IFRIC Presentation of unrecognised interest following
the curing of a credit-impaired financial asset (IFRS 9). This resulted
in a reclassification between net interest income and loan credit losses,
with no impact on the overall profitability. 3. 'Provisions/net (loss)/profit
relating to NPE sales' refer to the net loss on transactions completed during
FY2019, net loan credit losses on transactions under consideration at 31
December 2019, as well as the restructuring costs relating to these trades.
For further details please refer to Section B.3.4. p.p. = percentage points,
bps = basis points, 100 basis points (bps) = 1 percentage point
Commentary on Underlying Basis
The financial information presented in this Section provides an
overview of the Group financial results for the year ended 31
December 2019 on the 'underlying basis' which the management
believes it best fits the true measurement of the performance and
position of the Group. Reconciliations are included in section B.1
'Unaudited reconciliation of the Income Statement for the year
ended 31 December 2019 between statutory basis and underlying
basis' below and in 'Definitions and explanations on Alternative
Performance Measures Disclosures' of the Annual Financial Report
for the year ended 31 December 2019 to allow for the comparability
of the underlying basis to statutory information.
In addition, the following changes were made in the underlying
basis, when compared with previous disclosures.
Project Helix (from Unaudited Consolidated Income Statement,
footnote 1)
Reclassifications effected to comparative information were made
so that items relating to the NPE sale (Project Helix) are
disclosed under non-recurring items within 'Provisions/net
(loss)/profit relating to NPE sales' under the underlying basis.
Specifically, net interest income of EUR89 mn, fee and commission
income of EUR4 mn, total expenses of EUR26 mn (comprising staff
costs of EUR5 mn, operating expenses of EUR2 mn and restructuring
costs of EUR19 mn), as well as loan credit losses of EUR150 mn,
relating to the year ended 31 December 2018, are disclosed under
non-recurring items within 'Provisions/net (loss)/profit relating
to NPE sales' under the underlying basis.
Reclassifications to current year information for items relating
to the NPE sale (Project Helix) are disclosed under non-recurring
items within 'Provisions/net (loss)/profit relating to NPE sales'
under the underlying basis. These are disclosed in Section 'B.1.
Unaudited reconciliation of the Income Statement for the year ended
31 December 2019 between statutory basis and underlying basis'.
IFRIC (from Unaudited Consolidated Income Statement, footnote
2)
Reclassifications to comparative information were also made for
unrecognised interest on previously credit impaired loans which
cured during the year ended 31 December 2018, amounting to EUR33
mn. This was reclassified from 'Net interest income' to 'Credit
losses to cover credit risk on loans and advances to customers' in
line with an IFRIC discussion, which took place in November 2018
(Presentation of unrecognised interest following the curing of a
credit impaired financial asset (IFRS 9)).
B. Group Financial Results - Underlying Basis (continued)
Unaudited Consolidated Balance Sheet
=======================================================================================================
EUR mn 31.12.2019 31.12.2018 + %
(restated(5)
)
======================================== ============= =============== ================ ==========
Cash and balances with central
banks 5,060 4,610 10%
Loans and advances to banks 321 473 -32%
Debt securities, treasury
bills and equity investments 1,906 1,515 26%
Net loans and advances to
customers 10,722 10,922 -2%
Stock of property 1,378 1,427 -3%
Investment properties 136 127 6%
Other assets 1,574 1,531 3%
Non-current assets and disposal
groups held for sale 26 1,470 -98%
========================================= ============= =============== ================ ==========
Total assets 21,123 22,075 -4%
========================================= ============= =============== ================ ==========
Deposits by banks 533 432 23%
Funding from central banks - 830 -100%
Repurchase agreements 168 249 -32%
Customer deposits 16,692 16,844 -1%
Subordinated loan stock 272 271 0%
Other liabilities 1,169 1,082 8%
========================================= ============= =============== ================ ==========
Total liabilities 18,834 19,708 -4%
========================================= ============= =============== ================ ==========
Shareholders' equity 2,040 2,121 -4%
========================================= ============= =============== ================ ==========
Other equity instruments 220 220 -
========================================= ============= =============== ================ ==========
Total equity excluding non-controlling
interests 2,260 2,341 -3%
========================================= ============= =============== ================ ==========
Non-controlling interests 29 26 10%
========================================= ============= =============== ================ ==========
Total equity 2,289 2,367 -3%
========================================= ============= =============== ================ ==========
Total liabilities and equity 21,123 22,075 -4%
========================================= ============= =============== ================ ==========
Key Balance Sheet figures 31.12.2018(4) +
and ratios 31.12.2019 31.12.2018 2019 vs
Pro forma(3) 2018 Pro
forma
======================================== ============= =============== ================ ==========
Gross loans (EUR mn) 12,822 13,148 15,900 -2%
========================================= ============= =============== ================ ==========
Allowance for expected loan
credit losses (EUR mn) 2,096 2,254 3,852 -7%
========================================= ============= =============== ================ ==========
Customer deposits (EUR mn) 16,692 16,844 16,844 -1%
========================================= ============= =============== ================ ==========
Loans to deposits ratio (net) 64% 65% 72% -1 p.p.
========================================= ============= =============== ================ ==========
NPE ratio 30% 36% 47% -6 p.p.
========================================= ============= =============== ================ ==========
NPE coverage ratio 54% 47% 52% +7 p.p.
========================================= ============= =============== ================ ==========
Leverage ratio 10.0% 10.0% 10.0% -
========================================= ============= =============== ================ ==========
Capital ratios and risk weighted +
assets 31.12.2019 31.12.2018 31.12.2018(4) 2019 vs
Pro forma(3) 2018 Pro
forma
======================================== ============= =============== ================ ==========
Common Equity Tier 1 (CET1)
ratio (transitional for IFRS
9)(1) 14.8% 15.4% 11.9%(2) -60 bps
========================================= ============= =============== ================ ==========
Total capital ratio 18.0% 18.3% 14.9% -30 bps
========================================= ============= =============== ================ ==========
Risk weighted assets (EUR
mn) 12,890 14,016 15,373 -8%
========================================= ============= =============== ================ ==========
1. The CET1 FL ratio as at 31 December 2019 (including the full impact
of IFRS 9) amounts to 13.1% (compared to 13.6% and 13.3% pro forma
for CNP and VEP as at 30 September 2019, 13.3% and 13.5% pro forma
for CNP as at 30 June 2019, 11.9% and 13.3% pro forma for Helix as
at 31 March 2019, and 10.1% and 13.5% pro forma for DTC and Helix as
at 31 December 2018). 2. The CET1 ratio transitional also for DTA as
at 31 December 2018 stood at 12.1%. 3. Pro forma for DTA and Helix
(see footnote 4) as at 31 December 2018. 4. Ignoring the classification
of the following portfolios as non-current assets held for sale as
at 31 December 2018: Helix of EUR1,148 mn (NBV) and Velocity1 of EUR6
mn (NBV). 5. Comparative information was restated following the change
in the classification of stock of properties which are leased out under
operating leases as investment properties. Please refer to Note 2.38
of the Consolidated Financial Statements for the year ended 31 December
2019 for details on the restatements on comparative information. The
changes did not have an impact on the results for the year or the equity
of the Group. p.p. = percentage points, bps = basis points, 100 basis
points (bps) = 1 p.p.
B. Group Financial Results - Underlying Basis (continued)
B.1 Unaudited reconciliation of the Income Statement for the
year ended 31 December 2019 between statutory basis and
underlying basis
EUR mn Underlying Helix NPE sales Investment in Tax related Other Statutory
basis portfolio associate items basis
Net interest income 344 34 - - - (12) 366
=============== =========== ========== =============== =============== ====== ==========
Net fee and
commission income 150 12 - - - - 162
=============== =========== ========== =============== =============== ====== ==========
Net foreign exchange
gains and net gains
on financial
instrument
transactions and
disposal/dissolution
of subsidiaries and
associates 38 - - - - 7 45
=============== =========== ========== =============== =============== ====== ==========
Insurance income net
of claims and
commissions 58 - - - - - 58
=============== =========== ========== =============== =============== ====== ==========
Net gains from
revaluation and
disposal of
investment
properties and on
disposal of stock
of property 32 - - - - (4) 28
=============== =========== ========== =============== =============== ====== ==========
Other income 29 - - - - - 29
--------------- ----------- ---------- --------------- --------------- ------ ----------
Total income 651 46 - - - (9) 688
=============== =========== ========== =============== =============== ====== ==========
Total expenses (410) (36) (15) - (19) (113) (593)
--------------- ----------- ---------- --------------- --------------- ------ ----------
Operating profit 241 10 (15) - (19) (122) 95
=============== =========== ========== =============== =============== ====== ==========
Loan credit losses (146) (16) (71) - - 9 (224)
=============== =========== ========== =============== =============== ====== ==========
Impairments of other
financial and
non-financial assets (22) - - - (8) - (30)
=============== =========== ========== =============== =============== ====== ==========
Provisions for
litigation, claims,
regulatory and other
matters (10) - - - - 10 -
=============== =========== ========== =============== =============== ====== ==========
Remeasurement of
investment in
associate upon
classification as
held for sale - - - (26) - - (26)
=============== =========== ========== =============== =============== ====== ==========
Share of profit from
associates - - - 5 - - 5
--------------- ----------- ---------- --------------- --------------- ------ ----------
Profit/(loss) before
tax and
non-recurring items 63 (6) (86) (21) (27) (103) (180)
=============== =========== ========== =============== =============== ====== ==========
Tax (3) - - - 115 - 112
=============== =========== ========== =============== =============== ====== ==========
Profit attributable
to non-controlling
interests (2) - - - - - (2)
--------------- ----------- ---------- --------------- --------------- ------ ----------
Profit/(loss) after
tax and before
non-recurring items
(attributable to the
owners of the
Company) 58 (6) (86) (21) 88 (103) (70)
=============== =========== ========== =============== =============== ====== ==========
Advisory and other
restructuring costs
- organic (22) - - - - 22 -
--------------- ----------- ---------- --------------- --------------- ------ ----------
Profit/(loss) after
tax - organic*
(attributable to the
owners of the
Company) 36 (6) (86) (21) 88 (81) (70)
=============== =========== ========== =============== =============== ====== ==========
Restructuring costs -
Voluntary Staff Exit
Plan (VEP) (81) - - - - 81 -
=============== =========== ========== =============== =============== ====== ==========
Provisions/net loss
relating to NPE
sales (92) 6 86 - - - -
=============== =========== ========== =============== =============== ====== ==========
Loss on remeasurement
of investment in
associate upon
classification as
held for sale (CNP)
net of share of
profit from
associates (21) - - 21 - - -
=============== =========== ========== =============== =============== ====== ==========
Reversal of
impairment of DTA
and impairment of
other tax
receivables 88 - - - (88) - -
=============== =========== ========== =============== =============== ====== ==========
Loss after tax -
attributable to the
owners of the
Company (70) - - - - - (70)
=============== =========== ========== =============== =============== ====== ==========
*This is the profit/(loss) after tax (attributable to the owners
of the Company), before restructuring costs relating to the
voluntary staff exit plan (VEP), the provisions/net loss relating
to NPE sales (for further details please refer to Section B.3.4),
the net loss on remeasurement of investment in associate upon
classification as held for sale (CNP), and the reversal of
impairment of DTA and impairment of other tax receivables.
B. Group Financial Results - Underlying Basis (continued)
B.1 Unaudited reconciliation of the Income Statement for the
year ended 31 December 2019 between statutory basis and underlying
basis (continued)
The reclassification differences between the statutory basis and
underlying basis mainly relate to the impact from 'non-recurring
items' and are explained below:
Helix portfolio
* Net interest income of EUR34 mn and net fee and
commission income of EUR12 mn relating to the NPE
sale (Helix) is disclosed under non--recurring items
within 'Provisions/net loss relating to NPE sales'
under the underlying basis.
* Total expenses include staff costs of EUR6 mn,
restructuring costs of EUR10 mn and operating
expenses of EUR20 mn relating to the NPE sale ( elix)
, and are presented within 'Provisions/net loss
relating to NPE sales' under the underlying basis.
* Net loan credit losses of EUR16 mn are disclosed
under non-recurring items within 'Provisions/net loss
relating to NPE sales' under the underlying basis.
NPE sales
* Total expenses include restructuring costs of EUR15
mn, mainly relating to the sale of NPEs and are
presented within 'Provisions/net loss relating to NPE
sales' under the underlying basis.
* Net loan credit losses of EUR71 mn within the context
of IFRS 9 were recorded as a result of the
anticipated balance sheet de-risking through further
NPE sales in the future and are disclosed under
non-recurring items within 'Provisions/net loss
relating to NPE sales' under the underlying basis.
Investment in associate
* Loss on remeasurement of investment in associate upon
classification as held for sale (CNP) net of share of
profit from associates of EUR21 mn comprises the
share of profit from associate of EUR5 mn which is
reported in the 'Share of profit from associates'
under the statutory basis and the loss on
remeasurement of EUR26 mn which is classified as
'Remeasurement of investment in associate upon
classification as held for sale' under the statutory
basis.
Tax related items
* Reversal of impairment of the deferred tax asset
amounting to EUR115 mn included within 'Income Tax'
under the statutory basis is classified as a
non--recurring item and disclosed within 'Reversal of
impairment of DTA and impairment of other tax
receivables' under the underlying basis. Similarly,
levy in the form of a guarantee fee relating to the
revised income tax legislation of EUR19 mn, which has
been disclosed within 'Reversal of impairment of DTA
and impairment of other tax receivables' under the
underlying basis, is disclosed within 'Special levy
on deposits on credit institutions in Cyprus,
contribution to Single Resolution Fund and other
levies' under the statutory basis.
* Impairment of other financial assets of EUR8 mn,
which are included in 'Credit losses of other
financial instruments' under the statutory basis,
relate to the impairment of Greek tax receivables and
are classified as a non--recurring item and disclosed
within 'Reversal of impairment of DTA and impairment
of other tax receivables' under the underlying basis.
Other reclassifications
* Advisory and other restructuring costs of
approximately EUR22 mn included in 'Other operating
expenses' under the statutory basis are separately
presented under the underlying basis , since they
represent one-off items.
* Provisions for litigation, claims, regulatory and
other matters amounting to EUR10 mn included in
'Other operating expenses' under the statutory basis,
are separately presented under the underlying basis,
since they mainly relate to cases that arose outside
the normal activities of the Group.
* Restructuring costs relating to voluntary staff exit
plan amounting to EUR81 mn and included within 'Staff
costs' under the statutory basis, are separately
presented under the underlying basis, since they
represent one-off items.
* Net gains on loans and advances to customers at FVPL
of EUR3 mn included in 'Loan credit losses' under the
underlying basis are included in 'Net gains on
financial instrument transactions and
disposal/dissolution of subsidiaries and associates'
under the statutory basis. Their classification under
the underlying basis is consistent to the net losses
on loans and advances to customers at amortised cost.
* Profit from the disposal of subsidiaries of c.EUR4 mn
included in 'Net gains from revaluation and disposal
of investment properties and on disposal of stock of
properties' under the underlying basis, is included
in 'Net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and
associates' under the statutory basis, since it is
considered as a one-off item.
* An amount of c.EUR12 mn relating to a one - off
charge included in 'Net interest income' under the
statutory basis, is presented within 'Loan credit
losses' under the underlying basis, given that this
was a non-recurring item, which is related to a
change in the method of amortising arrangement fees.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis
B.2.1 Capital Base
Total equity excluding non-controlling interests totalled
EUR2,260 mn at 31 December 2019, compared to EUR2,454 mn at 30
September 2019 and EUR2,341 mn at 31 December 2018. Shareholders'
equity totalled EUR2,040 mn at 31 December 2019, compared to
EUR2,234 mn at 30 September 2019 and EUR2,121 mn at 31 December
2018.
The Common Equity Tier 1 capital (CET1) ratio on an IFRS 9
transitional basis stood at 14.8% at 31 December 2019, compared to
15.2% at 30 September 2019 (and 14.9% pro forma for the sale of
investment in CNP Cyprus Insurance Holdings Ltd (CNP) (referred to
as "pro forma for CNP") and for the voluntary staff exit plan
(VEP), collectively referred to as "pro forma for CNP and VEP"), to
14.9% at 30 June 2019 (and 15.2% pro forma for CNP) and to 11.9% at
31 December 2018 (adjusted to take into account the deferred tax
assets (DTAs) which were fully phased in as of 1 January 2019).
During 4Q2019 the CET1 ratio was positively affected mainly by the
decrease in risk weighted assets (RWAs) and the completion of the
sale of investment in CNP, and negatively affected mainly by the
one-off cost of EUR81 mn for the completion of the Voluntary Staff
Exit Plan and the additional loan credit losses (within the context
of IFRS 9) of EUR75 mn, as a result of the anticipated balance
sheet de-risking through further NPE sales in the future.
The Group has elected to apply the EU transitional arrangements
for regulatory capital purposes (EU Regulation 2017/2395) where the
impact on the impairment amount from the initial application of
IFRS 9 on the capital ratios is phased-in gradually. The amount
added each year decreases based on a weighting factor until the
impact of IFRS 9 is fully absorbed back to CET1 at the end of the
five years. The impact on the capital position for the year 2018
was 5% of the impact on the impairment amounts from the initial
application of IFRS 9, increasing to 15% (cumulative) for the year
2019 and to 30% (cumulative) for the year 2020. At 1 January 2020,
the CET1 ratio on an IFRS 9 transitional basis stood at 14.5%,
resulting mainly from the phasing-in of the transitional
arrangements for IFRS 9.
The CET1 ratio on a fully loaded basis (including the full
impact of IFRS 9) amounted to 13.1% as at 31 December 2019,
compared to 13.6% at 30 September 2019 (and 13.3% pro forma for CNP
and VEP), and to 10.1% at 31 December 2018 (and 13.5% pro forma for
DTC and Helix). On a transitional basis and on a fully phased-in
basis, after the five-year period of transition is complete, the
impact of IFRS 9 is expected to be manageable and within the
Group's capital plans.
The Total Capital ratio stood at 18.0% as at 31 December 2019 ,
compared to 18.2% as at 30 September 2019 (and 17.9% pro forma for
CNP and VEP) and to 14.9% at 31 December 2018 (and 18.3% pro forma
for DTC and Helix). At 1 January 2020, the Total Capital ratio
stood at 17.7%, resulting mainly from the phasing-in of the
transitional arrangements for IFRS 9.
The Group's capital ratios are above the minimum CET1 regulatory
capital requirement of 10.5% (comprising a 4.5% Pillar I
requirement, a 3.0% Pillar II requirement, the Capital Conservation
Buffer of 2.5% and the Other Systemically Important Institution
Buffer of 0.5%) and the overall Total Capital requirement of 14.0%,
comprising an 8.0% Pillar I requirement (of which up to 1.5% can be
in the form of Additional Tier 1 capital and up to 2.0% in the form
of Tier 2 capital), a 3.0% Pillar II requirement (in the form of
CET1), the Capital Conservation Buffer of 2.5% and the Other
Systemically Important Institution Buffer of 0.5%. The European
Central Bank (ECB) has also provided non-public guidance for an
additional Pillar II CET1 buffer. Pillar II add-on capital
requirements derive from the context of the Supervisory Review and
Evaluation Process (SREP), which is a point in time assessment, and
are therefore subject to change over time.
In accordance with the provisions of the Macroprudential
Oversight of Institutions Law of 2015, the CBC is the responsible
authority for the designation of banks that are Other Systemically
Important Institutions (O-SIIs) and for the setting of the O-SII
buffer requirement for these systemically important banks. The
Group has been designated as an O-SII and the O-SII buffer
currently set by the CBC for the Group is 2%. This buffer is being
phased-in gradually, having started from 1 January 2019 at 0.5% and
increasing by 0.5% every year thereafter, until being fully
implemented (2.0%) on 1 January 2022.
Following the annual SREP performed by the ECB in 2019 and based
on the final 2019 SREP decision received in December 2019, the
Group's minimum phased-in CET1 capital ratio and Total Capital
ratio remain unchanged, when ignoring the phasing-in of the Other
Systemically Important Institution Buffer. The Group's phased-in
CET1 capital ratio will be 11.0%, comprising a 4.5% Pillar I
requirement, a 3.0% Pillar II requirement, the Capital Conservation
Buffer of 2.5% (fully phased-in as of 1 January 2019) and the Other
Systemically Important Institution Buffer of 1.0%. The Group's
Total Capital requirement will be 14.5%, comprising an 8.0% Pillar
I requirement, a 3.0% Pillar II requirement, the Capital
Conservation Buffer of 2.5% and the Other Systemically Important
Institution Buffer of 1.0%. The final 2019 SREP decision is
effective from January 2020.
The recent developments on the regulatory capital ratios due to
the COVID-19 outbreak are set out further below.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
The European Banking Authority (EBA) final guidelines on SREP
and supervisory stress testing and the Single Supervisory
Mechanism's (SSM) 2018 SREP methodology provide that own funds held
for the purposes of Pillar II Guidance cannot be used to meet any
other capital requirements (Pillar I, Pillar II requirements or the
combined buffer requirement), and therefore cannot be used twice.
Following the annual SREP performed by the ECB in 2019 and based on
the final 2019 ECB decision received in December 2019, the new
provisions are effective from January 2020.
The Group capital ratios remain above the SREP requirements.
Based on the SREP decisions of prior years, the Company and the
Bank were under a regulatory prohibition for equity dividend
distribution and therefore no dividends were declared or paid
during years 2019 and 2018. Following the 2019 SREP decision, the
Company and the Bank are still under equity dividend distribution
prohibition. This prohibition does not apply if the distribution is
made via the issuance of new ordinary shares to the shareholders,
which are eligible as CET1 capital. No prohibition applies to the
payment of coupons on any AT1 capital instruments issued by the
Company or the Bank.
Share premium reduction
Bank
The Bank will proceed (subject to approvals mainly by the ECB
and the Court of Cyprus) with a capital reduction process which
will result in the reclassification of c.EUR619 mn of the Bank's
share premium balance as distributable reserves, which shall be
available for distribution to the shareholders of the Bank,
resulting in total net distributable reserves of c.EUR800 mn on a
pro forma basis (31 December 2019). The reduction of capital will
not have any impact on regulatory capital or the total equity
position of the Bank or the Group.
The distributable reserves provide the basis for the calculation
of distributable items under the CRR, which provides that coupons
on AT1 capital instruments may only be funded from distributable
items.
Company
The Company (Bank of Cyprus Holdings PLC) will proceed (subject
to approval by the shareholders, the ECB and the Irish High Court)
with a capital reduction process which will result in the
reclassification of EUR700 mn of the Company's share premium as
distributable reserves. This will increase the distributable
reserves of the Company to c.EUR1 bn on a pro forma basis (31
December 2019). The capital reduction has been proposed as a
special resolution for approval by shareholders at the Company's
Annual General Meeting scheduled on 26 May 2020. The capital
reduction will not have any impact on regulatory capital or the
total equity position of the Company, the Bank or the Group.
The distributable reserves provide the basis for the calculation
of distributable items under the CRR, which provides that coupons
on AT1 capital instruments may only be funded from distributable
items.
Additional Tier 1
In December 2018, the Company proceeded with the issuance of
EUR220 mn of Additional Tier 1 Capital Securities (AT1). AT1
constitutes an unsecured and subordinated obligation of the
Company. The coupon is at 12.50% and is payable on a discretionary
basis, semi-annually. The coupon payments to AT1 holders were made
in June and December 2019 and were recognised in retained
earnings.
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific
deferred tax assets (DTA) into deferred tax credits (DTC) were
adopted by the Cyprus Parliament on 1 March 2019 and published in
the Official Gazette of the Republic on 15 March 2019. The law
amendments cover the utilisation of income tax losses transferred
from Laiki Bank to the Bank in March 2013. The introduction of CRD
IV in January 2014 and its subsequent phasing-in led to a more
capital-intensive treatment of this DTA for the Bank. The law
amendments resulted in an improved regulatory capital treatment,
under Capital Requirements Regulation (EU) No. 575/2013 ("CRR") ,
of the DTA amounting to c.EUR285 mn or a CET1 uplift of c.190
bps.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
Legislative amendments for the conversion of DTA to DTC
(continued)
The Group understands that, in response to concerns raised by
the European Commission with regard to the provision of state aid
arising out of the treatment of such tax losses, the Cyprus
Government is considering the adoption of modifications to the Law,
potentially including requirements for an additional annual fee
over and above the 1.5% annual guarantee fee already acknowledged
to maintain the conversion of such DTAs into tax credits. In
anticipation of such modifications the Group has recorded an
additional amount of EUR13 mn by way of an estimated additional fee
(for the years 2018 and 2019), bringing the total guarantee fee
recognised for FY2019 to EUR19 mn .
Project Helix
In June 2019, Project Helix was completed resulting in a
positive impact of c.140 bps on both the Group's CET1 and Total
Capital ratios, mainly from the release of risk weighted assets.
Project Helix had an overall net positive impact on the Group
capital ratios of c.60 bps.
Sale of investment in CNP Cyprus Insurance Holdings Ltd
In October 2019, the sale of the Group's investment in its
associate CNP Cyprus Insurance Holdings Limited ("CNP") was
completed, resulting in a positive impact of c.30 bps on both the
Group's CET1 and Total Capital ratios, mainly from the release of
risk weighted assets. The shareholding had been acquired as part of
the acquisition of certain operations of Laiki Bank in 2013 and was
sold to CNP Assurances S.A. for a cash consideration of EUR97.5
mn.
Voluntary Staff Exit Plan
In October 2019, the Group completed a voluntary staff exit plan
(VEP) at a total cost of EUR81 mn, recorded in the consolidated
income statement in 4Q2019, resulting in a negative impact of c.60
bps on both the Group's CET1 and Total Capital ratios.
Further NPE sales in the future
Against the backdrop of market volatility arising out of the
COVID-19 pandemic, the Group continues to work with its adv isers
towards the sale of a portfolio of NPEs in the future. Due to
prevailing market and operational conditions, this process is
likely to take longer than originally anticipated. In the context
of IFRS 9, the Bank recognised additional loan credit losses of
EUR75 mn in 4Q2019, with a negative capital impact of 46 bps, as a
result of the anticipated balance sheet de-risking through further
NPE sales in the future. On completion of an NPE trade, the Group's
capital ratios would benefit from the RWA reduction, subject to
regulatory approval.
Implications on capital from the Outbreak of COVID-19
The Group is closely monitoring developments in, and the effects
of COVID-19 on both the global and Cypriot economy. The ECB has
announced a package of positive measures that should help to
support the capital position of the Bank, in order to secure
favourable conditions of financing for the economy with the aim to
mitigate the effects of the crisis. Specifically, the measures
increase the Group's capital base available to absorb potential
losses due to the crisis. In addition, the early adoption of CRD V
for the composition of the Pillar II Requirement provide
flexibility regarding the Group's compliance with the minimum
capital requirement of Pillar II.
The ECB's capital easing measures for COVID-19 will increase the
Group's CET1 buffer by 131 bps following the frontloading of the
new rules on the Pillar II Requirement composition, to allow banks
to use Additional Tier 1 (AT1) capital and Tier 2 (T2) capital to
meet Pillar II Requirements and not only by CET1, initially
scheduled to come into effect in January 2021. The Total SREP
capital requirement remains unchanged. In addition, the ECB allows
banks to operate temporarily below the level of Pillar II Guidance,
the capital conservation buffer (CCB) and the countercyclical
buffer. It is noted that the countercyclical buffer is 0% for
Cypriot banks.
In addition, in April 2020 the CBC decided to delay the
phasing-in of the 1 January 2021 O-SII buffer (0.5% for the Bank)
by 12 months. Consequently, the O-SII buffer will be fully
phased-in on 1 January 2023, instead of 1 January 2022 as
originally set.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.1 Capital Base (continued)
Implications on capital from the Outbreak of COVID-19 (
continued)
Following the COVID-19 outbreak and the resultant volatile
market and economic environment, the Fair Value Reserve of the Fair
Value through Other Comprehensive Income (FVOCI) debt security
portfolio of the Group held as at 31 December 2019 has decreased by
EUR39 mn on 24 April 2020. This change is recognised directly in
equity i.e. through Other Comprehensive Income (OCI). Furthermore,
on 24 April 2020, the Group held Cyprus sovereign debt securities
of a nominal amount of EUR772 mn (compared to EUR477 mn on 31
December 2019), of which EUR350 mn is held at FVOCI portfolio and
EUR422 mn is held at amortised cost portfolio. The increase since
the year end is mainly due to the Group's participation on the
issuance of 52-week treasury bills of the Cyprus Government in
April 2020.
For further information please refer to Note 56 'Events after
the reporting date' of the Consolidated Financial Statements for
the year ended 31 December 2019.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.2 Regulations and Directives
B.2.2.1 Revised rules on capital and liquidity (CRR II and CRD
V)
On 27 June 2019, the revised rules on capital and liquidity (CRR
II and CRD V) came into force. As an amending regulation, the
existing provisions of CRR apply, unless they are amended by CRR
II. Member states are required to transpose the CRD V into national
law. Certain provisions took immediate effect (primarily relating
to Minimum Requirement for Own Funds and Eligible Liabilities,
MREL), but most changes will start to apply from mid-2021. Certain
aspects of CRR II are dependent on final technical standards to be
issued by the EBA and adopted by the European Commission. The key
changes introduced consist of, among others, changes to qualifying
criteria for CET1, AT1 and Tier 2 instruments, introduction of
requirements for MREL and a binding Leverage Ratio requirement and
a Net Stable Funding Ratio (NSFR).
B.2.2.2 Bank Recovery and Resolution Directive (BRRD)
Minimum Requirement for Own Funds and Eligible Liabilities
(MREL)
The Bank Recovery and Resolution Directive (BRRD) requires that
from January 2016 EU member states shall apply the BRRD's
provisions requiring EU credit institutions and certain investment
firms to maintain a minimum requirement for own funds and eligible
liabilities (MREL), subject to the provisions of the Commission
Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part of
the reform package for strengthening the resilience and
resolvability of European banks, the BRRD came into effect and must
be transposed into national law. In addition, certain provisions on
MREL have been introduced in CRR which also came into force on 27
June 2019 as part of the reform package and took immediate
effect.
The Bank has received formal notification from the Single
Resolution Board (SRB), of its draft decision for the binding
minimum requirement for own funds and eligible liabilities (MREL)
for the Bank, determined as the preferred resolution point of
entry. The MREL requirement has been set at 28.36% of risk weighted
assets as of 30 June 2019 and must be met by 31 December 2025. This
MREL requirement would be equivalent to 18.54% of total liabilities
and own funds (TLOF) as at 30 June 2019. The MREL requirement is in
line with the Bank's expectations, and largely in line with its
funding plans.
The MREL requirements remain subject to final confirmation by
the SRB. This decision is based on the current legislation, it is
expected to be updated annually and could be subject to subsequent
changes by the resolution authorities, especially considering the
developments of the BRRD and its transposition into the local
legislation.
The MREL ratio of the Bank as at 31 December 2019, calculated
according to SRB's eligibility criteria currently in effect and
based on the Bank's internal estimate, stood at 18.54% of RWAs
.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.3 Funding and Liquidity
Funding
Funding from Central Banks
At 31 December 2019, the Bank had no funding from central banks.
At 31 December 2018, the Bank's funding from central banks amounted
to EUR830 mn, which related to ECB funding, comprising solely of
funding through the Targeted Longer-Term Refinancing Operations
(TLTRO II). In 3Q2019, the Bank decided to early repay the ECB
funding of EUR830 mn, given its comfortable liquidity position.
Deposits
Customer deposits totalled EUR16,692 mn at 31 December 2019,
compared to EUR16,473 mn at 30 September 2019 and EUR16,844 mn at
31 December 2018, remaining broadly flat yoy.
The Bank's deposit market share in Cyprus reached 35.1% as at 31
December 2019, compared to 34.6% as at 30 September 2019. Customer
deposits accounted for 79% of total assets and 89% of total
liabilities at 31 December 2019.
The net Loans to Deposit ratio (L/D) stood at 64% as at 31
December 2019, compared to 66% as at 30 September 2019 and 65% at
31 December 2018 pro forma for Helix. The L/D ratio had reached a
peak of 151% as at 31 March 2014.
Subordinated Loan Stock
At 31 December 2019 the Bank's subordinated loan stock
(including accrued interest) amounted to EUR272 mn (compared to
EUR268 mn at 30 September 2019 and EUR271 mn as at 31 December
2018) and relates to unsecured subordinated Tier 2 Capital Notes of
nominal value EUR250 mn, issued by the Bank in January 2017.
Liquidity
At 31 December 2019 the Group Liquidity Coverage Ratio (LCR)
stood at 208% (compared to 218% at 30 September 2019 and 231% at 31
December 2018) and was in compliance with the minimum regulatory
requirement of 100%.
The liquidity surplus at 31 December 2019 amounted to EUR3.2 bn,
compared to EUR3.0 bn at 30 September 2019, EUR3.8 bn at 30 June
2019, EUR2.7 bn at 31 March 2019 and EUR3.1 bn at 31 December 2018.
The increase in 2Q2019 reflects a EUR1.2 bn increase in liquidity
on completion of Helix. The decrease in 3Q2019 reflects the
repayment of ECB funding (TLTRO) amounting to EUR830 mn.
The Net Stable Funding Ratio (NSFR) has not yet been introduced.
It will become a regulatory indicator when CRR II is enforced, with
the limit set at 100%. At 31 December 2019, the Group's NSFR, on
the basis of Basel standards, stood at 127% (compared to 122% at 30
September 2019 and 119% at 31 December 2018).
Implications on liquidity from the Outbreak of COVID-19
Resulting from the outbreak of COVID-19, the ECB has announced a
positive package of measures including that the ECB will allow
banks to temporarily operate below the LCR minimum requirement. In
addition, the ECB decided on additional longer-term refinancing
operations (LTROs) through a full-spread fixed-rate auction equal
to the average deposit facility interest rate. Similarly, the ECB
announced that for the TLTRO III operation in June 2020,
considerably more favourable terms will be applied during the
period from June 2020 to June 2021 to all TLTRO III operations
outstanding during that same time.
The Governing Council of the ECB on 18 March 2020 decided to
launch a new Pandemic Emergency Purchase Programme (PEPP) for an
amount of EUR750 bn and purchases will be conducted until the end
of 2020. Furthermore, it was decided to expand the range of
eligible assets under the Corporate Sector Purchase Programme
(CSPP) to non-financial commercial paper and to ease the collateral
standards by adjusting the main risk parameters of the collateral
framework.
For further information please refer to Note 56 'Events after
the reporting date' of the Consolidated Financial Statements for
the year ended 31 December 2019.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.4 Loans
Group gross loans totalled EUR12,822 mn at 31 December 2019 ,
compared to EUR 13,035 mn at 30 September 2019 and EUR15,900 mn at
31 December 2018 (when ignoring the classification of the Helix
loan portfolio as a disposal group held for sale). Pro forma for
Helix, gross loans totalled EUR13,148 mn at 31 December 2018. Gross
loans in Cyprus totalled EUR12,736 mn at 31 December 2019,
accounting for 99% of Group gross loans, compared to EUR15,702 mn
at 31 December 2018 (when ignoring the classification of the Helix
loan portfolio as a disposal group held for sale), accounting for
99% of Group gross loans.
The reduction in gross loans by 19% since 31 December 2018 is
attributed mainly to the completion of Project Helix (sale of
EUR2.8 bn of gross loans of which EUR2.7 bn related to
non-performing loans) and to a lesser extent to the completion of
Project Velocity (sale of EUR30 mn gross loans as at the date of
disposal, relating wholly to non-performing loans) in 2Q2019.
New loans granted in Cyprus reached EUR443 mn for 4Q2019,
compared to EUR491 mn for 3Q2019 (down 10% qoq). New loans granted
in Cyprus reached EUR2,045 mn for FY2019, compared to EUR1,870 mn
for FY2018 (up 9% yoy), and reached the highest level of new
lending in Cyprus since FY2015.
At 31 December 2019, the Group net loans and advances to
customers totalled EUR10,722 mn (compared to EUR10,971 mn at 30
September 2019 and EUR10,922 mn at 31 December 2018).
At 31 December 2018, net loans and advances to customers of
EUR1,154 mn were classified as a disposal group held
for sale in line with IFRS 5, related to Project Helix (EUR1,148 mn) and Velocity 1 (EUR6 mn).
The Bank is the single largest credit provider in Cyprus with a
market share of 41.1% at 31 December 2019, compared to 40.8% at 30
September 2019, 41.3% at 30 June 2019, 46.7% at 31 March 2019 and
45.4% at 31 December 2018, with the reduction in 2Q2019 reflecting
the derecognition of the Helix portfolio on completion.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality
Tackling the Group's loan portfolio quality remains the top
priority for management. The Group has continued to make steady
progress across all asset quality metrics and the loan
restructuring activity has continued. The Group has been successful
in engineering restructuring solutions across the spectrum of its
loan portfolio.
Non-performing exposures (NPEs) as defined by the European
Banking Authority (EBA) were reduced by EUR205 mn or 5% during
4Q2019 , bringing the total organic reduction in NPEs for FY2019 to
EUR889 mn, ahead of the target for organic NPE reduction of
c.EUR800 mn for 2019. The Group has recorded organic NPE reductions
for nineteen consecutive quarters.
The NPEs at 31 December 2019 amounted to EUR3,880 mn, compared
to EUR4,085 mn at 30 September 2019 and EUR7,419 mn at 31 December
2018, reflecting a reduction of 48% yoy, driven mainly by the
completion of Project Helix.
The NPEs account for 30% of gross loans as at 31 December 2019,
compared to 47% at 31 December 2018 (when ignoring the
classification of the Helix and Velocity 1 portfolios as disposal
groups held for sale), an improvement of 17 p.p. yoy. Pro forma for
Helix (and Velocity 1), the NPEs accounted for 36% of gross loans
at 31 December 2018.
The NPE coverage ratio improved to 54% at 31 December 2019 ,
compared to 52% at 31 December 2018 (when ignoring the
classification of the Helix and Velocity 1 portfolios as disposal
groups held for sale), an improvement of 2 p.p. yoy. Pro forma for
Helix (and Velocity 1), the NPE coverage ratio stood at 47% at 31
December 2018.
When taking into account tangible collateral at fair value, NPEs
are fully covered.
31.12.2019 30.09.2019
% gross % gross
EUR loans EUR mn loans
mn
=============================== ======== ======== ========= ========
NPEs as per EBA definition 3,880 30.3% 4,085 31.3%
Of which, in pipeline
to exit: 428 3.3% 530 4.1%
-NPEs with forbearance
measures, no arrears(1)
=============================== ======== ======== ========= ========
1. The analysis is performed on a customer basis.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
Project Helix
In June 2019, the Group announced the completion of Project
Helix, that refers to the sale of a portfolio of loans with a gross
book value of EUR2.8 bn (of which EUR2.7 bn related to
non-performing loans) secured by real estate collateral to certain
funds affiliated with Apollo Global Management LLC, the agreement
for which was announced on 28 August 2018.
Upon completion of Project Helix, the Group's gross NPEs were
c.70% lower than its peak in 2014. Project Helix reduced the NPE
ratio by c.11 p.p. to 33% as at 30 June 2019.
Cash consideration of c.EUR1.2 bn was received on completion,
reflecting adjustments resulting from, inter alia, loan repayments
received on the Helix portfolio since the reference date of 31
March 2018.
The participation of the Bank in the senior debt in relation to
financing the transaction was syndicated down from the initial
level of EUR450 mn to c.EUR45 mn, representing c.4% of the total
acquisition funding.
ESTIA
In July 2018 the Government announced a scheme aimed at
addressing NPEs backed by primary residence, known as ESTIA (the
'Scheme'). The ESTIA eligible portfolio of c.EUR0.8 bn of retail
core NPEs as at 31 December 2019, referred to the potentially
eligible portfolio following on-going detailed assessment based on
the Bank's available data on Open Market Value (OMV) and NPE
status. Eligibility criteria related primarily to the OMV of the
residence, total income and net wealth of the household. These act
as a clear definition of socially protected borrowers, acting as an
enabler against strategic defaulters. In accordance with the
Scheme, the eligible loans are to be restructured to the lower of
the contractual balance and the OMV. The Government subsidises one
third of the instalment of the restructured loan, subject to the
borrowers servicing their restructured loans.
In July 2019 the Memorandum of Understanding was signed by the
institutions and the Government for participation in the Scheme,
which was officially launched in September 2019. According to the
updated timeline provided by the Government in November 2019,
application submissions continued until the end of the year. The
participating institutions evaluate the applications and offer
restructuring solutions, whilst at the same time, the applications
are being reviewed and approved by the Government.
The Scheme is expected to resolve part of the ESTIA-eligible
portfolio (EUR41 mn as at 10 April 2020), to identify non-viable
customers for which alternative restructuring solutions are being
considered, including by the Government (EUR30 mn as at 10 April
2020), and to facilitate the resolution of the remaining customers
(EUR745 mn as at 10 April 2020), mainly by focusing on realising
collateral through consensual and non-consensual foreclosures.
Over 80% of the applications submitted by 31 December 2019
currently remain incomplete. Following the outbreak of COVID-19,
the deadline for borrowers to complete their application has been
extended by three months to June 2020.
Project Velocity 1
In June 2019, the Bank completed the sale of a non-performing
loan portfolio of primarily retail unsecured exposures, with a
contractual balance of EUR245 mn and a gross book value of EUR34 mn
as at the reference date of 30 September 2018 (known as Project
Velocity 1) to APS Delta s.r.o. This portfolio comprised 9,700
heavily delinquent borrowers, including 8,800 private individuals
and 900 small-to-medium-sized enterprises. The gross book value of
this portfolio as at the date of disposal was EUR30 mn. The sale
was broadly neutral to both the profit and loss and to capital.
Project Velocity 2
In January 2020, the Bank entered into an agreement with
B2Kapital Cyprus Ltd, to sell a non-performing loan portfolio of
primarily retail unsecured exposures, with a contractual balance of
EUR398 mn and gross book value of EUR144 mn as at the reference
date of 31 August 2019, known as Project Velocity 2. This portfolio
comprises of c.10.000 borrowers, including c.8.400 private
individuals and c.1.600 small-to-medium-sized enterprises. As at 31
December 2019, the portfolio is classified as a disposal group held
for sale as at 31 December 2019, with a gross book value of EUR139
mn. The transaction resulted in a reversal of impairment of EUR6 mn
recorded in 4Q2019, under 'Provisions/net loss relating to NPE
sales' in the underlying basis income statement and is expected to
be capital neutral on completion. The sale is subject to the
necessary approvals and is expected to be completed within
2Q2020.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.5 Loan portfolio quality (continued)
Additional strategies to accelerate de-risking
The Group continues to assess the potential to accelerate the
decrease in NPEs on its balance sheet through additional sales of
NPEs in the future. To that extent the Group continues to review
the feasibility of NPE reduction structures with the aim of
identifying the option that best meets the Group's strategic
objectives. The preparation phase involves defining the relevant
NPE portfolio, evaluation of real estate collaterals, data
remediation and enhancement of data tapes, borrower information
memorandums, legal due diligence and transaction structuring
options. For the purposes of completing the workstreams outlined
above and in order to conclude on the best possible structure, the
Group has engaged international advisors, and is continuing to
engage in discussions with various third parties, including
financial investors and investment banks, that may be interested in
pursuing a possible collaboration with the Group. A range of
potential outcomes is possible, including outright sales (including
the Bank retaining a portion of the related financing). The Group
is not committed to any outcome arising from these third party
discussions.
Against the backdrop of market volatility arising out of the
COVID-19 pandemic, the Group continues to work with its advisers
towards the sale of a portfolio of NPEs in the future. Due to
prevailing market and operational conditions, this process is
likely to take longer than originally anticipated. In the context
of IFRS 9, the Bank recognised additional loan credit losses of
EUR75 mn in 4Q2019, with a negative capital impact of 46 bps, as a
result of the anticipated balance sheet de-risking through further
NPE sales in the future. On completion of an NPE trade, the Group's
capital ratios would benefit from the RWA reduction, subject to
regulatory approval.
As at 31 December 2019, a portfolio of credit facilities related
to Helix with gross book value of EUR46 mn, of mainly secured
non-performing exposures (known as 'Helix Tail') was classified as
a disposal group held for sale.
Following the outbreak of COVID-19, the Group is now focused on
arresting any potential asset quality deterioration. Once economic
conditions normalise, the Group expects to resume its efforts to
improve its asset quality position by seeking solutions, both
organic and inorganic, to make the Bank a stronger and safer
institution, capable of continuing to support the local
economy.
For further information regarding the regulatory forbearance as
allowed by the Guidelines issued in April 2020 by the EBA, please
refer to Note 56 'Events after the reporting date' of the
Consolidated Financial Statements for the year ended 31 December
2019.
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.6 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) on-boarded EUR196 mn of
assets in FY2019 (down by 54% yoy), via the execution of debt for
asset swaps and repossessed properties. The focus for REMU is
increasingly shifting from on-boarding of assets resulting from
debt for asset swaps towards the disposal of these assets. The
Group completed organic disposals of EUR207 mn in FY2019 (compared
to EUR196 mn in FY2018), resulting in a profit on disposal of EUR32
mn for FY2019.
During the year ended 31 December 2019, the Group executed
sale-purchase agreements (SPAs) with contract value of EUR345 mn
(558 properties), in addition to the sale of the Cyreit (see
below). In addition, the Group had signed SPAs for disposals of
assets with contract value of EUR36 mn as at 31 December 2019,
compared to EUR106 mn as at 31 December 2018.
Completion of sale of Cyreit
I n November 2018, the Bank signed an agreement for the disposal
of its entire holding in the investment shares of the Cyreit
Variable Capital Investment Company PLC (Cyreit). During 2Q2019,
the Group completed the sale of the Cyreit (21 properties),
recognising a loss on disposal of c.EUR1 mn. The total proceeds
from the disposal of Cyreit were EUR160 mn.
Completion of Project Helix
With the completion of Project Helix in 2Q2019, properties with
a carrying value of EUR109 mn, which were included in the portfolio
for the NPE sale (Helix), were derecognised as of 30 June 2019. As
at 31 March 2019, properties with carrying value of EUR98 mn were
included in the portfolio for the NPE sale (Helix), compared to
EUR74 mn as at 31 December 2018, due to adjustments made to the
portfolio of assets.
Change in classification of properties which are leased out
under operating leases
In 2Q2019, the Group decided to classify certain leased
properties acquired in exchange of debt and leased out under
operating leases as 'Investment Properties' instead of 'Stock of
property'. This change was applied retrospectively, resulting in
the restatement of comparatives.
As a result of the above change in classification, properties
with carrying value of EUR103 mn as at 31 December 2018 were
reclassified from the stock of properties (measured at the lower of
cost and net realisable value under IAS 2) to investment properties
(measured at fair value under IAS 40). These properties continue to
be managed by REMU. The carrying value of such properties as at 30
June 2019 was EUR118 mn.
This change in classification had no material impact on the
Group's comparative retained earnings and a cumulative impact of
EUR1 mn gain was recognised in the Group's income statement under
'Net gains from revaluation and disposal of investment properties
and on disposal of stock of properties' in 2Q2019.
Assets held by REMU
As at 31 December 2019, assets held by REMU had a carrying value
of EUR1,490 mn (comprising properties of EUR1,378 mn classified as
'Stock of property' and EUR112 mn as 'Investment Properties'),
compared to EUR1,530 mn as at 31 December 2018 (comprising
properties of EUR1,427 mn classified as 'Stock of property' and
EUR103 mn as 'Investment Properties').
In addition to assets held by REMU, properties classified as
'Investment properties' with carrying value of EUR24 mn as at 31
December 2019 and as at 31 December 2018, relate to legacy
properties held by the Bank before
the set-up of REMU in January 2016.
Assets held by REMU (Group) qoq
EUR mn FY2019 FY2018 4Q2019 3Q2019 + % yoy + %
------ ------ ------ ------ ----
Opening balance 1,530 1,641 1,513 1,548 -2% -7%
----------------------------------------------------------------- ------ ------ ------ ------ ---- -------
On-boarded assets (including construction cost) 196 428 37 33 12% -54%
----------------------------------------------------------------- ------ ------ ------ ------ ---- -------
Sales (207) (196) (48) (67) -28% 5%
----------------------------------------------------------------- ------ ------ ------ ------ ---- -------
Transfer to investment properties (Cyreit) - (166) - - - -
----------------------------------------------------------------- ------ ------ ------ ------ ---- -------
Impairment loss (24) (17) (12) (2) - 41%
----------------------------------------------------------------- ------ ------ ------ ------ ---- -------
Transfer to non-current assets and disposal groups held for sale (5) (162) - 1 - -97%
----------------------------------------------------------------- ------ ------ ------ ------ ---- -------
Foreign exchange and other movements - 2 - - - -
----------------------------------------------------------------- ------ ------ ------ ------ ---- -------
Closing balance 1,490 1,530 1,490 1,513 -2% -3%
----------------------------------------------------------------- ------ ------ ------ ------ ---- -------
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.6 Real Estate Management Unit (REMU) (continued)
Analysis by type and country Cyprus Greece Romania Total
31 December 2019 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 182 26 0 208
Offices and other commercial
properties 200 29 6 235
Manufacturing and industrial
properties 73 32 0 105
Hotels 24 0 - 24
Land (fields and plots) 628 7 3 638
Golf courses and golf-related
property 280 - - 280
Total 1,387 94 9 1,490
------- ------- --------
Cyprus Greece Romania Total
31 December 2018 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 164 25 0 189
Offices and other commercial
properties 228 44 7 279
Manufacturing and industrial
properties 80 38 0 118
Hotels 35 0 - 35
Land (fields and plots) 616 8 4 628
Golf courses and golf-related
property 280 - - 280
Properties under construction 1 - - 1
------------------------------- ------- ------- -------- ------
Total 1,404 115 11 1,530
------------------------------- ------- ------- -------- ------
B. Group Financial Results - Underlying Basis (continued)
B.2. Balance Sheet Analysis (continued)
B.2.7 Non-core overseas exposures
The remaining non-core overseas net exposures (including both
on-balance sheet and off-balance sheet exposures) at 31 December
2019 are as follows:
EUR mn 31 December 2019 31 December 2018
-----------------
Greece 139 164
Romania 25 35
Serbia 0 7
Russia 19 23
UK 0 11
--------- ----------------- -----------------
Total 183 240
--------- ----------------- -----------------
The Group continues its efforts for further deleveraging and
disposal of non-essential assets and operations in Greece, Romania
and Russia.
In accordance with the Group's strategy to exit from overseas
non-core operations, the operations of the branch in Romania were
terminated in January 2019, following the completion of
deregistration formalities with respective authorities.
During 3Q2019 the disposal of the overseas exposure in Serbia,
comprising loans and properties, with a carrying value of EUR8 mn
was completed.
In addition to the above, as at 31 December 2019, there were
overseas exposures of EUR265 mn in Greece, relating to both loans
and properties (compared to EUR279 mn at 30 September 2019 and
EUR144 mn at 31 December 2018), not identified as non-core
exposures, since they are considered by management as exposures
arising in the normal course of business.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis
B.3.1 Total income
(4q vs (FY)
FY2018(1,) 3q) + Yoy +
EUR mn FY2019(1) (2) 4Q2019(1) 3Q2019(1) 2Q2019(1) 1Q2019(1) % %
----------- ---------- --------- --------- --------- --------- -------
Net interest income 344 331 84 90 85 85 -7% 4%
-------------------------------- ----------- ---------- --------- --------- --------- --------- ------- ------
Net fee and commission
income 150 162 39 36 38 37 5% -8%
Net foreign exchange
gains and net gains
on financial instrument
transactions and
disposal/dissolution
of subsidiaries and
associates 38 67 4 8 16 10 -50% -43%
Insurance income net
of claims and commissions 58 53 16 12 18 12 36% 9%
Net gains from revaluation
and disposal of investment
properties and on
disposal of stock
of properties 32 18 6 10 12 4 -30% 73%
Other income 29 26 7 6 8 8 22% 13%
-------------------------------- ----------- ---------- --------- --------- --------- --------- ------- ------
Non-interest income 307 326 72 72 92 71 1% -6%
-------------------------------- ----------- ---------- --------- --------- --------- --------- ------- ------
Total income 651 657 156 162 177 156 -4% -1%
-------------------------------- ----------- ---------- --------- --------- --------- --------- ------- ------
Net Interest Margin
(annualised)(1,2) 1.90% 1.82% 1.87% 1.99% 1.89% 1.88% -12 bps +8 bps
-------------------------------- ----------- ---------- --------- --------- --------- --------- ------- ------
Average interest earning
assets
(EUR mn)(1,2) 18,051 18,190 17,721 17,962 18,149 18,243 -1% -1%
-------------------------------- ----------- ---------- --------- --------- --------- --------- ------- ------
1. The interest income, non-interest income, staff costs, other operating
expenses and loan credit losses related to Project Helix are disclosed under
'Provisions/net (loss)/profit relating to NPE sales' in the underlying basis,
in order to separate out the impact of this non-recurring transaction. 2.
Including the impact from IFRIC Presentation of unrecognised interest following
the curing of a credit-impaired financial asset (IFRS 9). This resulted
in a reclassification between net interest income and loan credit losses,
with no impact on the overall profitability.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1
percentage point
Net interest income (NII) and net interest margin (NIM) for FY
2019 amounted to EUR344 mn (up 4% yoy) and 1.90% respectively (up
by 8 bps yoy). NII for 4Q2019 amounted to EUR84 mn (compared to
EUR90 mn for 3Q2019), reduced by 7% qoq, mainly due to increased
interest cash collections not previously recognised in 3Q2019. In
addition, in 4Q2019 the NII continued to be negatively affected by
the continued pressure on lending rates and positively affected by
the reduction of cost of deposits. The NIM for 4Q2019 stood at
1.87% decreased by 12 bps qoq, resulting mainly from the decrease
in net interest income.
An amount of c.EUR12 mn relating to a one - off charge included
in 'Net interest income' under the statutory basis, is presented
within 'Loan credit losses' under the underlying basis, which is
related to a change in the method of amortising arrangement fees
given that this was a non-recurring item.
Reclassifications to comparative information were made for
unrecognised interest on previously credit impaired loans which
cured during the year ended 31 December 2018, amounting to EUR33
mn. This was reclassified from 'Net interest income' to 'Credit
losses to cover credit risk on loans and advances to customers' in
line with an IFRIC discussion, which took place in November 2018
(Presentation of unrecognised interest following the curing of a
credit impaired financial asset (IFRS 9)).
Average interest earning assets for FY2019 amounted to EUR18,051
mn, compared to EUR18,190 mn for FY2018, down by 1% yoy. Quarterly
average interest earning assets for 4Q2019 amounted to EUR17,721 mn
compared to EUR17,962 mn for 3Q2019, down by 1% qoq, primarily due
to the reduction of liquid assets following repayment of ECB
funding (TLTRO) in September 2019, as well as to the reduction in
net loans.
Non-interest income for FY2019 amounted to EUR307 mn, down by 6%
yoy, comprising net fee and commission income of EUR150 mn, net
foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and
associates of EUR38 mn, net insurance income of EUR58 mn, net gains
from revaluation and disposal of investment properties and on
disposal of stock of properties of EUR32 mn and other income of
EUR29 mn. Non-interest income for 4Q2019 amounted to EUR72 mn,
broadly flat qoq.
Net fee and commission income for FY2019 amounted to EUR150 mn,
decreased by 8% yoy (EUR162 mn for FY2018), mainly due to the
decreased volume of business from the International Business Units
(IBUs) in 2019. Net fee and commission income for 4Q2019 amounted
to EUR39 mn, up by 5% qoq.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.1 Total income (continued)
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and
associates of EUR38 mn for FY2019, comprising net foreign exchange
gains of EUR27 mn and net gains on revaluation of financial
instruments of EUR11 mn, decreased by 43% yoy mainly due to one-off
gain on disposal of bonds during 1Q2018 amounting to EUR19 mn. Net
foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and
associates totalled EUR4 mn for 4Q2019, compared to EUR8 mn for
3Q2019, down by 50% qoq. The decrease qoq is mainly driven by lower
net foreign exchange gains and lower revaluation gains of financial
instruments.
Net insurance income amounted to EUR58 mn for FY2019 , compared
to EUR53 mn for FY2018, up by 9% yoy, reflecting increased income
and positive investment returns in FY2019. Net insurance income
amounted to EUR16 mn for 4Q2019, compared to EUR12 mn for 3Q2019,
up by 36% qoq, primarily due to the change in the valuation
rate
and the positive effect from lower insurance claims (c.EUR5 mn).
Net gains from revaluation and disposal of investment properties
and on disposal of stock of properties for FY2019 amounted to EUR32
mn ( compared to net gains of EUR18 mn for FY2018), comprising a
net profit from the disposal of stock of properties of EUR30 mn
(REMU gains) and profit from disposal of investment property of
EUR2 mn . Net gains from revaluation and disposal of investment
properties and on disposal of stock of properties for 4Q2019
amounted to EUR6 mn compared to EUR10 mn in the previous quarter.
REMU profit remains volatile.
Total income for FY2019 amounted to EUR651 mn, at similar levels
to the previous year. Total income for 4Q2019 amounted to EUR156
mn, compared to EUR162 mn in 3Q2019, down by 4% qoq.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.2 Total expenses
(4q vs (FY)
FY2018(1,) 3q) + Yoy +
EUR mn FY2019(1) (2) 4Q2019(1) 3Q2019(1) 2Q2019(1) 1Q2019(1) % %
----------- ---------- --------- --------- --------- --------- -------
Staff costs (220) (212) (53) (55) (56) (56) 0% 4%
Other operating expenses (165) (156) (43) (38) (43) (41) 15% 6%
------------------------------ ----------- ---------- --------- --------- --------- --------- ------- -------
Total operating expenses (385) (368) (96) (93) (99) (97) 6% 5%
------------------------------ ----------- ---------- --------- --------- --------- --------- ------- -------
Special levy and contribution
to Single Resolution
Fund (25) (25) (7) (6) (6) (6) -2% -1%
Total expenses (410) (393) (103) (99) (105) (103) 5% 4%
----------- ---------- --------- --------- --------- --------- -------
Cost to income ratio(1) 63% 60% 67% 61% 59% 66% +6 p.p. +3 p.p.
------------------------------ ----------- ---------- --------- --------- --------- --------- ------- -------
Cost to income ratio
excluding special
levy and contribution
to Single Resolution
Fund(1) 59% 56% 63% 57% 56% 62% +6 p.p. +3 p.p.
------------------------------ ----------- ---------- --------- --------- --------- --------- ------- -------
1. The interest income, non-interest income, staff costs, other operating
expenses and loan credit losses related to Project Helix are disclosed under
'Provisions/net (loss)/profit relating to NPE sales' in the underlying basis,
in order to separate out the impact of this non-recurring transaction. 2.
Including the impact from IFRIC Presentation of unrecognised interest following
the curing of a credit-impaired financial asset (IFRS 9). This resulted
in a reclassification between net interest income and loan credit losses,
with no impact on the overall profitability.
p.p. = percentage points, bps = basis points, 100 basis points (bps) =
1 percentage point
Total expenses for FY2019 were EUR410 mn (compared to EUR393 mn
for FY2018), 54% of which related to staff costs
(EUR220 mn), 40% to other operating expenses (EUR165 mn) and 6%
(EUR25 mn) to special levy and contribution to Single Resolution
Fund (SRF). Total expenses for 4Q2019 were EUR103 mn, compared to
EUR99 mn in 3Q2019 (up by 5% qoq).
Total operating expenses for FY2019 were EUR385 mn, increased by
5% yoy, compared to EUR368 mn for FY2018. Total operating expenses
for 4Q2019 were EUR96 mn, increased by 6% qoq, compared to EUR93 mn
in 3Q2019.
Staff costs of EUR220 mn for FY2019 increased by 4% yoy
(compared to EUR212 mn in FY2018) mainly driven by the increase in
employer's social insurance contributions from the beginning of the
year and the additional contributions to the new general healthcare
system which commenced in March 2019, as well as the effect of the
renewal of the annual collective agreement for 2019 with the
employees' union . Staff costs for 4Q2019 amounted to EUR53 mn, at
similar levels as the previous quarter.
In October 2019, the Group completed a voluntary staff exit plan
(VEP), through which c.11% of the Group's full-time employees were
approved to leave at a total cost of EUR81 mn, recorded in the
consolidated income statement in 4Q2019. Following the completion
of the VEP, the gross annual savings are estimated at c.EUR28 mn or
c.13% of staff costs (excluding the c.100 persons relating to the
Helix transaction). The annual savings net of the impact from the
renewal of the collective agreement for 2019 and 2020, are
estimated at EUR23 mn or 11% of staff costs.
The Group employed 3,672 persons as at 31 December 2019
(compared to 4,134 as at 30 September 2019 and 4,146 persons as at
31 December 2018), including c.100 persons relating to the Helix
transaction who were transferred to the buyer upon full migration
in January 2020. The staff costs related to these persons are
included under 'Provisions/net (loss)/profit relating to NPE sales'
in the underlying basis.
Other operating expenses for FY2019 were EUR165 mn, increased by
6% yoy, mainly due to higher property related costs and higher
depreciation / amortisation, resulting from increased capital
expenditure, following the Digital Transformation Programme. Other
operating expenses for 4Q2019 were EUR43 mn, compared to EUR38 mn
for 3Q2019 (up by 15% qoq), mainly due to seasonality and lower
marketing expenses in 3Q2019, and at similar levels to the previous
quarters.
Special levy and contribution to Single Resolution Fund (SRF)
for FY2019 were EUR25 mn (at the same level as the previous year)
and comprise the special levy on deposits of credit institutions in
Cyprus and the contribution made to the SRF. Special levy and
contribution to the SRF for 4Q2019 were EUR7 mn, compared to EUR6
mn for 3Q2019.
As from 1 January 2020 and until 3 July 2024 the Bank is subject
to contribution to the Deposit Guarantee Fund (DGF) on a
semi-annual basis. The contributions are calculated based on the
Risk Based Methodology (RBM) as approved by the management
committee of the Deposit Guarantee and Resolution of Credit and
Other Institutions Schemes (DGS) and is publicly available on the
CBC's website. In line with the RBM, the contributions are broadly
calculated on the covered deposits of all authorised institutions
and the target level is to reach at 0.8% of these deposits by 3
July 2024. The contribution of the Bank has been set at EUR2.9 mn
for the first half of 2020 and in line with IFRSs, it will be
charged in 1Q2020.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.2 Total expenses (continued)
The cost to income ratio excluding special levy and contribution
to Single Resolution Fund for 4Q2019 was 63%, compared to 57% for
3Q2019, principally reflecting the reduction in interest income and
increase in operating expenses in 4Q2019. The cost to income ratio
excluding special levy and contribution to Single Resolution Fund
for FY2019 was 59%, compared to 56% for FY2018, mainly due to the
increase in total operating expenses which increased by 5% yoy.
Cost management remains a key focus going forward.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.3 Profit before tax and non-recurring items
(4q vs (FY)
FY2018(1,) 3q) + Yoy +
EUR mn FY2019(1) (2) 4Q2019(1) 3Q2019(1) 2Q2019(1) 1Q2019(1) % %
----------- ---------- --------- --------- --------- --------- ------
Operating profit 241 264 53 63 72 53 -17% -9%
------------------------ ----------- ---------- --------- --------- --------- --------- ------ -------
Loan credit losses (146) (135) (29) (30) (40) (47) -3% 8%
(Impairments)/reversal
of impairments of
other financial and
non-financial assets (22) (20) (13) 1 (9) (1) - 12%
(Provisions)/reversal
of provisions for
litigation, claims,
regulatory and other
matters (10) (23) (7) (6) 3 (0) 19% -54%
------------------------ ----------- ---------- --------- --------- --------- --------- ------ -------
Total loan credit
losses, impairments
and provisions (178) (178) (49) (35) (46) (48) 41% 0%
------------------------ ----------- ---------- --------- --------- --------- --------- ------ -------
Profit before tax
and non-recurring
items 63 86 4 28 26 5 -88% -28%
------------------------ ----------- ---------- --------- --------- --------- --------- ------ -------
Cost of risk(1,2) 1.12% 0.99% 0.89% 0.90% 1.23% 1.44% -1 bps +13 bps
------------------------ ----------- ---------- --------- --------- --------- --------- ------ -------
1. The interest income, non-interest income, staff costs, other operating
expenses and loan credit losses related to Project Helix are disclosed under
'Provisions/net (loss)/profit relating to NPE sales' in the underlying basis,
in order to separate out the impact of this non-recurring transaction. 2.
Including the impact from IFRIC Presentation of unrecognised interest following
the curing of a credit-impaired financial asset (IFRS 9). This resulted
in a reclassification between net interest income and loan credit losses,
with no impact on the overall profitability.
Operating profit for FY2019 was EUR241 mn, compared to EUR264 mn
for FY2018, down by 9% yoy, mainly due to the increase in total
operating expenses.
The loan credit losses for FY2019 totalled EUR146 mn (compared
to EUR135 mn for FY2018, up by 8% yoy), reflecting further balance
sheet de-risking. The loan credit losses for 4Q2019 amounted to
EUR29 mn, broadly flat qoq. An amount of c.EUR12 mn relating to a
one - off charge included in 'Net interest income' under the
statutory basis, is presented within 'Loan credit losses' under the
underlying basis, which is related to a change in the method of
amortising arrangement fees given that this was a non-recurring
item.
The loan credit losses charge (cost of risk) for FY2019
accounted for 1.12% of gross loans, compared to a loan credit
losses charge (cost of risk) of 0.99% for FY2018 on the same basis,
reflecting further de-risking and IFRS 9 model volatility. The
annualised loan credit losses charge (cost of risk) for 4Q2019
accounted for 0.89% of gross loans, compared to an annualised loan
credit losses charge for 3Q2019 of 0.90%, on the same basis.
At 31 December 2019, the allowance for expected loan credit
losses, including residual fair value adjustment on initial
recognition and credit losses on off-balance sheet exposures
totalled EUR2,096 mn (compared to EUR2,086 mn at 30 September 2019
and EUR 2,254 mn at 31 December 2018 pro forma for Helix) and
accounted for 16.3% of gross loans (compared to 16.0% at 30
September 2019 and 17.1% at 31 December 2018 pro forma for
Helix).
Impairments of other financial and non-financial assets for
FY2019 amounted to EUR22 mn, compared to EUR20 mn for FY2018 (up by
12%). Impairments of other financial and non-financial assets for
4Q2019 amounted to EUR13 mn, mainly relating to impairments of
legacy properties held in Cyprus, Greece and Romania, compared to a
reversal of impairments of other financial and non-financial assets
for 3Q2019 of EUR1 mn, mainly relating to a reversal of impairment
of financial instruments driven by reduction of certain
exposures.
Provisions for litigation, claims, regulatory and other matters
for FY2019 totalled EUR10 mn, compared to EUR23 mn for FY2018.
Provisions for litigation, claims, regulatory and other matters for
4Q2019 totalled EUR7 mn, compared to EUR6 mn for 3Q2019.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.4 (Loss)/profit after tax (attributable to the owners of the
Company)
(4q vs (FY)
FY2018(1,) 3q) + Yoy +
EUR mn FY2019(1) (2) 4Q2019(1) 3Q2019(1) 2Q2019(1) 1Q2019(1) % %
----------- ---------- --------- --------- --------- --------- ------
Profit before tax
and non-recurring
items 63 86 4 28 26 5 -88% -28%
----------------------------- ----------- ---------- --------- --------- --------- --------- ------ ------
Tax (3) 3 (2) (1) 2 (2) 167% -
(Profit)/loss attributable
to non-controlling
interests (2) (1) 0 0 (2) (0) 5% 71%
Profit after tax and
before non-recurring
items (attributable
to the owners of the
Company) 58 88 2 27 26 3 -95% -35%
----------- ---------- --------- --------- --------- --------- ------
Advisory and other
restructuring costs
- organic (22) (42) (8) (4) (4) (6) 63% -49%
----------------------------- ----------- ---------- --------- --------- --------- --------- ------ ------
Profit/(loss) after
tax - organic (attributable
to the owners of the
Company) 36 46 (6) 23 22 (3) - -22%
----------------------------- ----------- ---------- --------- --------- --------- --------- ------ ------
Restructuring costs
- Voluntary Staff
Exit Plan (VEP) (81) - (81) - - - - -
Provisions/net (loss)/profit
relating to NPE sales(3) (92) (83) (86) (4) 3 (5) - 12%
(Loss)/profit on r
emeasurement of investment
in associate upon
classification as
held for sale (CNP)
net of share of profit
from associates (21) 9 0 0 (23) 2 - -
Reversal of impairment
of DTA and impairment
of other tax receivables 88 (79) (13) - - 101 - -
Profit from discontinued
operations (UK) - 3 - - - - - -
(Loss)/profit after
tax (attributable
to the owners of the
Company) (70) (104) (186) 19 2 95 - -32%
----------- ---------- --------- --------- --------- --------- ------
1. The interest income, non-interest income, staff costs, other operating
expenses and loan credit losses related to Project Helix are disclosed under
'Provisions/net (loss)/profit relating to NPE sales' in the underlying basis,
in order to separate out the impact of this non-recurring transaction. 2.
Including the impact from IFRIC Presentation of unrecognised interest following
the curing of a credit-impaired financial asset (IFRS 9). This resulted
in a reclassification between net interest income and loan credit losses,
with no impact on the overall profitability. 3. 'Provisions/net (loss)/profit
relating to NPE sales' refer to the net loss on transactions completed during
FY2019, net loan credit losses on transactions under consideration at 31
December 2019, as well as the restructuring costs relating to these trades.
For further details please see analysis below.
The tax charge for FY2019 is EUR3 mn, compared to a tax credit
of EUR3 mn a year earlier (which comprised mainly of reversals of
provisions relating to prior years). The tax charge for 4Q2019
amounted to EUR2 mn compared to EUR1 mn in 3Q2019.
Profit after tax and before non-recurring items (attributable to
the owners of the Company) for FY2019 was EUR58 mn, compared to
EUR88 mn for FY2018, down by 35% yoy. Profit after tax and before
non-recurring items (attributable to the owners of the Company) for
4Q2019 was EUR2 mn, compared to EUR27 mn for 3Q2019.
Advisory and other restructuring costs - organic for FY2019
amounted to EUR22 mn, compared to EUR42 mn for FY2018, down by 49%
yoy, due to elevated costs in 2018 mainly due to an amount of EUR11
mn relating to fee and commission expense on the amounts deposited
in regards to the AT1 issue and also due to lower advisory costs in
FY2019. Advisory and other restructuring costs - organic for 4Q2019
amounted to EUR8 mn, compared to EUR4 mn for 3Q2019, up by 63%
qoq.
Profit after tax arising from the organic operations
(attributable to the owners of the Company) for FY2019 amounted to
EUR36 mn, compared to EUR46 mn for FY2018, down by 22% yoy. Loss
after tax arising from the organic operations (attributable to the
owners of the Company) for 4Q2019 amounted to EUR6 mn, compared to
a profit of EUR23 mn for 3Q2019.
Restructuring costs relating to the Voluntary Staff Exit Plan
(VEP) amounted to EUR81 mn for the 4Q2019 and the FY2019. For
further details please refer to Section B.3.2 'Total expenses'.
Provisions/net loss relating to NPE sales for 4Q2019 amounts to
EUR86 mn (compared to EUR4 mn for 3Q2019) and includes the net
result of the sale of the Helix portfolio (including the interest
income, non-interest income, staff costs, other operating expenses
and loan credit losses) of a loss of EUR6 mn, as well as a reversal
of impairment of EUR6 mn resulting from the sale of the Velocity 2
portfolio. Also, additional loan credit losses within the context
of IFRS 9 of EUR75 mn were recorded in 4Q2019 as a result of the
anticipated balance sheet de-risking through further NPE sales in
the future. Restructuring costs related to these projects totalling
EUR10 mn for 4Q2019 (compared to EUR6 mn for 3Q2019) are also
included.
B. Group Financial Results - Underlying Basis (continued)
B.3. Income Statement Analysis (continued)
B.3.4 (Loss)/profit after tax (attributable to the owners of the
Company) (continued)
Provisions/net loss relating to NPE sales for FY2019 amounts to
EUR92 mn (compared to EUR83 mn for FY2018) and includes the net
result of the sale of the Helix portfolio (including the interest
income, non-interest income, staff costs, other operating expenses
and loan credit losses) of a profit of EUR4 mn, as well as a
reversal of impairment of EUR6 mn resulting from the sale of the
Velocity 2 portfolio. Also, additional loan credit losses of EUR75
mn as a result of the anticipated balance sheet de-risking through
further NPE sales in the future were also recorded, as well as
restructuring costs related to these projects totalling EUR25 mn
for FY2019 (compared to EUR18 mn for FY2018).
Loss on remeasurement of investment in associate upon
classification as held for sale (CNP) net of share of profit from
associates totalled EUR21 mn for FY2019, comprising a loss on
remeasurement of investment in associate upon classification as
held for sale of EUR26 mn and a share of profit from associates of
EUR5 mn (compared to a share of profit from associates of EUR9 mn
in FY2018). In October 2019, the Group completed the sale of its
entire shareholding of 49.9% in its associate CNP Cyprus Insurance
Holdings Limited (CNP) that had been acquired as part of the
acquisition of certain operations of Laiki Bank in 2013 , for a
cash consideration of EUR97.5 mn .
The reversal of impairment of DTA and impairment of other tax
receivables totalled EUR88 mn for FY2019, comprising the net
positive impact of EUR96 mn following amendments to the Income Tax
legislation in Cyprus adopted in March 2019, and an impairment of
EUR8 mn relating to Greek tax receivables adversely impacted from
legislative changes. The carrying value of the remaining receivable
as at 31 December 2019 was c.EUR5 mn. The impairment of DTA for
FY2018 was EUR79 mn, resulting from the on-going review of the
recoverability of the deferred tax asset (DTA). This amount
together with related impairments recorded in prior periods
totalled EUR115 mn and were subsequently reversed in 1Q2019. In
addition, levy in the form of a guarantee fee of EUR19 mn was
recorded in FY2019 in relation to the right to convert tax losses
into a tax credit. For further information, please refer to Section
B.2.1. Capital Base, 'Legislative amendments for the conversion of
DTA to DTC'.
Profit from discontinued operations for FY2018 amounted to EUR3
mn and relate to the UK operations sold during 2018.
Loss after tax attributable to the owners of the Company for FY
2019 was EUR70 mn , compared to a loss of EUR104 mn for FY2018.
Loss after tax attributable to the owners of the Company for 4Q2019
was EUR186 mn, compared to a profit of EUR19 mn for 3Q2019.
C. Operating Environment
Impact of COVID-19
While Cyprus has had a five-year track record of strong economic
recovery in 2015-2019, the COVID-19 pandemic is expected to lead to
a deep recession in 2020 before recovery can take shape in 2021.
The pandemic has also altered the global economic outlook where
earlier favourable forecasts are now being replaced by the prospect
of a global recession which may be relatively deep for some
countries. The recovery will depend on the speed and effectiveness
of policy responses by the fiscal and monetary authorities at both
the national and international levels, and on success in containing
the virus.
What started as a massive supply shock in China is now morphing
into a global demand shock after governments around the world have
imposed quarantines and social distancing to contain the spread of
the virus. Governments and central banks are acting proactively and
decisively to support consumers and businesses and to limit
financial disruptions. The pandemic is having, and will continue to
have, an impact on consumer spending, which is the primary driver
of economic growth in most parts of the world. The pandemic is also
expected to affect corporate profits causing businesses to cut back
further on investment and ultimately to affect the ability of
companies to repay their debts. Primary credit markets are
essentially frozen, which means that some companies will not be
able to roll-over liabilities without increasing their refinancing
costs.
The Cypriot economy is also expected to be affected by a
protracted lockdown. The economy is heavily export-oriented and
thus highly exposed to developments in the European and global
economies. Tourism, trade, transport and construction that are most
severely being affected by the lockdowns account for about one
third of GDP. The prevalence of small and medium-sized enterprises
makes the Cypriot economy even more vulnerable to supply
disruptions and demand shocks.
Central banks around the world, including the US Federal Reserve
and the ECB, are focusing their efforts on providing liquidity and
reducing pressures on corporate balance sheets amid declining
profitability. Also, changes to national fiscal policies are even
more critical in the short term at least, to offset falling demand
and losses of income. Countries are also offering lending and
credit guarantees for businesses along with temporary tax relief
and payments to consumers to prevent or mitigate layoffs.
In the US the Federal Reserve has already cut its interest rate
to zero and announced it was providing an additional $700 bn in
asset purchases, expanding repurchase operations and extending US
dollar swap lines with foreign banks. The US Senate has agreed to
an emergency fiscal package of $2 trillion or just under 10% of GDP
to support companies, consumers and state and local
governments.
In the European Union, the European Commission announced a
suspension of fiscal and state aid rules paving the way for member
states to incur deficits without repercussions. The ECB has
launched a new wave of net asset purchases with an initial envelope
of EUR120 bn, followed by a EUR750 bn Pandemic Emergency Purchase
Programme (PEPP). It also provided more favourable terms under its
refinancing operations and relaxed collateral standards for
accessing central bank liquidity. The ECB's supervisory authority
eased capital requirements, providing relief to banks and relaxed
its rules around non-performing loans. The PEPP is, in addition to
the EUR20 bn-per month-programme launched in November 2019 , as
well as the EUR120 bn-package, bringing the total to more than EUR1
trillion for at least the rest of 2020. This means that monthly
purchases will exceed the EUR80 bn spent at the height of the
eurozone debt crisis. The PEPP, with its flexible framework, paves
the way for extensive bond-buying this year ensuring funding
conditions will remain very favourable for countries facing a
deterioration in their public finances.
At their meeting on 9 April 2020, the Eurogroup emerged with a
deal on a EUR540 bn rescue package. This included the use of the
European Stability Mechanism (ESM) for EUR240 bn, which is c.2% of
Eurozone GDP. The only conditionality is that this is required to
fund the direct and indirect health care, cure and prevention costs
of the COVID-19 crisis. The Eurogroup endorsed the European
Commission's EUR100 bn SURE initiative to support national
short-term work schemes. Support will also be provided through the
European Investment Bank (EIB) for EUR200 bn of loan guarantees
with a focus on small and medium-sized enterprises. This fiscal
stimulus adds to the enormous amount of stimulus in place to fight
the COVID-19 outbreak and its consequences.
In response to the outbreak of COVID-19, the Cyprus Government
swiftly implemented restrictions, partially or fully freezing the
operations of entire business sectors to contain the spread of the
virus. To mitigate the disruption and the costs of the outbreak of
COVID-19 and of the measures to contain it, the Government has
introduced several measures and policies. The measures are intended
to provide liquidity to companies and households and prevent a
sharp rise in unemployment. The Government is promoting a
government guarantee programme of EUR2 bn for the provision of
low-priced loans to companies and the self-employed. Parliament
voted for the suspension of loan repayments for interest and
principal for the nine months remaining to the end of the year, for
all eligible borrowers with no arrears for more than 30 days as at
the end of February 2020. Based on a decision of the Association of
Cyprus Banks, whilst interest will continue to accrue for this
nine-month period, it will not be compounded. Banks suspended
foreclosure procedures for a period of three months until 18 June
2020. The Government also introduced income support schemes for
companies to avoid employee layoffs. The Government introduced
other liquidity supporting measures such as the temporary
suspension of VAT and delayed additional increases of contributions
for the national health system.
C. Operating Environment (continued)
Impact of COVID-19 (continued)
In an effort to strengthen the liquidity of its finances at a
time of uncertainty surrounding the pandemic crisis, and help fund
a large expected budget deficit in 2020, the Government proceeded
and successfully completed in April 2020, a double issuance of a
7-year bond for EUR1.25 bn and a 30-year bond for EUR0.5 bn. The
issuance was oversubscribed, and the final yields were 1.55% and
2.34% respectively. Furthermore, the Government proceeded and
successfully completed in April 2020 the issuance of 52-week
treasury bills for EUR1.25 bn, bringing the total amount of finance
raised from the international and local markets to EUR3.0 bn.
2019 macroeconomic performance
In 2019 real GDP increased by 3.2%, following an increase of
4.1% in 2018. From the supply side all sectors made positive
contributions in overall growth in the year except for financial
services. Construction, manufacturing, trade and tourism from the
traditional economy made significant contributions. Information and
communications, together with the professional services from the
higher value-added growth sectors, also added significantly to
total growth. At the same time, there were positive contributions
from public services, education, health and real estate.
Total employment increased by 3.9% on average in 2019 compared
with an increase of 5.9% in 2018. The unemployment rate dropped to
7.1% from a yearly average of 8.4% the year before. Consumer price
inflation moderated in 2019 to 0.3% following an increase of 1.4%
in 2018 (Labour Force survey, Cyprus Statistical Service). This was
driven by weaker global energy prices, continued economic slack in
the domestic economy and a one-off adjustment to fuel retail prices
after a cut in taxes. The current account deficit deteriorated
sharply in 2019 rising to 6.6% of GDP from 3.4% of GDP in 2018
excluding special purpose entities (Central Bank of Cyprus). This
was due to strong domestic demand driving imports higher, and
weaker export growth.
In the banking sector, funding conditions remained favourable
and the stock of NPEs continued to decline in 2019, albeit
marginally, following the sharp declines of 2018 associated with
the resolution of the Cyprus Cooperative Bank and the sale of a
package of loans by the Bank (Project Helix). Total loans at the
end of 2019 were EUR33.7 bn or 153% of GDP compared to EUR39.2 bn
at the end of 2018. Loans to residents excluding the government
were EUR26.3 bn as at end 2019. The stock of NPEs declined from
EUR20.9 bn at the end of December 2017 to EUR10.4 bn at the end of
December 2018 and to EUR9.5 bn at the end of November 2019. The
ratio to gross loans was 28.6% and the coverage ratio was 54.6%
also at end November 2019.
In the public sector, the process of fiscal consolidation that
started under the economic adjustment programme reversed the large
budget deficits of the period 2009 - 2013 to sizeable surpluses.
The budget surplus was 1.7% of GDP in 2017 and 3.0% of GDP in 2018,
excluding the fiscal burden associated with the orderly resolution
of the Cyprus Cooperative Bank. Total public debt rose from 93.9%
of GDP at the end of 2017 to 100.6% of GDP at the end of 2018. This
increase was attributable to the fiscal burden from the resolution
of the Cyprus Cooperative Bank. In 2019 the budget surplus was 2.7%
of GDP and the total public debt was down to 95.5% of GDP (Cyprus
Statistical Service).
Cyprus macroeconomic outlook
Looking forward to 2020, the outlook is severely affected by the
COVID-19 outbreak. According to the IMF's April 2020 World Economic
Outlook, the Cypriot economy is expected to contract by 6.5% in the
year and to rebound by 5.6% in 2021. In comparison, the IMF
forecasts a 7.5% contraction in the Euro Area in 2020, to be
followed by a rebound of 4.7% in 2021. Fiscal support measures are
expected to limit the contraction of the Cypriot economy, but to
lead to a deterioration of the Government's fiscal position. The
fiscal balance is expected to turn from a surplus in to a sizeable
deficit in 2020 and public debt to rise significantly.
The sovereign risk ratings of the Cyprus Government improved
considerably in recent years reflecting expectations of a sustained
decline in public debt as a ratio to GDP, further declines in
non-performing exposures and a more stable price environment
following a protracted period of deflation and low inflation. In
November 2018 Fitch Ratings upgraded its Long-Term Issuer Default
ratings for Cyprus to investment grade (BBB-) with stable outlook.
In October 2019, Fitch affirmed its rating and upgraded its outlook
to positive. In July 2018 Moody's Investors Service upgraded
Cyprus' sovereign rating to Ba2 from Ba3 with a stable outlook. In
September 2019 Moody's affirmed its rating and upgraded its outlook
to positive. S&P Global Ratings maintains an investment grade
rating (BBB-) with a stable outlook since September 2018, which was
affirmed in March 2020.
In April 2020, Fitch affirmed its rating and revised its outlook
to stable, reflecting the significant impact the COVID-19 pandemic
might have on the Cypriot economy and fiscal position. Also, in
April 2020, Moody's issued an update on their credit opinion for
the Cyprus Sovereign and revised their forecasts for the Cypriot
economy in view of the COVID-19 outbreak. According to the update,
the outbreak will weigh on near term growth and fiscal prospects,
but the impact on the credit profile is expected to be
temporary.
D. Business Overview
As the Cypriot operations account for 99% of gross loans and
100% of customer deposits, the Group 's financial performance is
highly correlated to the economic and operating conditions in
Cyprus. In June 2019, Moody's Investors Service affirmed the Bank's
long-term deposit rating of B3 (positive outlook) and in July 2019,
Standard and Poor's affirmed their long-term issuer credit rating
on the Bank of 'B+' (stable outlook). In November 2019, Fitch
Ratings affirmed their long-term issuer default rating of B-
(positive outlook). In April 2020, Fitch Ratings revised their
outlook to negative, reflecting the significant impact the outbreak
of COVID-19 might have on the Cypriot economy and consequently the
Bank.
The Group is closely monitoring developments in, and the effects
of COVID-19 on both the global and Cypriot economy. On the basis of
currently available information, the Group is not in a position to
accurately assess the magnitude of the future impact of COVID-19 on
the Group's operations and financial results, as this will
principally depend on the rate and extent of the spread of the
virus, its direct and indirect impact on customers and the
effectiveness of the regulatory and fiscal measures taken to
support the economy and mitigate the impact of the virus.
In common with other European banks, the persistently low
interest rate environment continues to present a challenge to the
Group's profitability. As a consequence of the current challenging
economic conditions resulting from the COVID-19 outbreak, the Group
will update its macroeconomic assumptions underlying the IFRS 9
calculation of loan credit losses for 1Q2020 in line with the
relevant regulatory guidance, and anticipates that this may result
in increased organic provisions in 1Q2020, although the exact
quantum of any such increase is as yet unknown. Despite the lower
transactional income and lower demand for loans currently observed,
the on-going economic uncertainty means that the Group does not
have sufficient visibility about the likely future impact of
COVID-19 on its operations or financial results, and therefore, is
currently not in a position to provide guidance for the current
financial year. However, the Group's good capital base and strong
liquidity, position it to be able to support its customers through
this period of extreme volatility.
The Group's medium-term strategic priorities remain clear, with
a sustained focus on strengthening its balance sheet, and improving
asset quality and efficiency in order to continue to play a vital
role in supporting the Cypriot economy.
In light of the recent outbreak of COVID-19, the Group is taking
all appropriate measures, in line with guidelines and
recommendations issued by the Ministry of Health, to protect the
health of both staff and customers, while ensuring the operational
resilience of the Bank.
Upon the outbreak of COVID-19, the Pandemic Incident Management
Plan (PIMP) of the Group was invoked and a dedicated team is
monitoring the situation domestically and globally and provide
guidance on health and safety measures, travel advice and business
continuity for our Group. Local government guidelines are being
follow ed in response to the virus. Also, the potential economic
implications for the sectors where the Group is active in are being
assessed in order to identify possible mitigating actions.
In accordance with the Pandemic Plan, the Group has adopted a
set of measures to ensure minimum disruption to its operations. The
measures comprise rules for quarantine for employees who are
vulnerable due to health conditions and for those who have returned
from epicentres of the infection. The Group has replaced
face-to-face meetings with telecommunications, adjusting the
customary etiquette of personal contact, including those with
customers. Staff for critical functions has been split in to
separate locations . In addition, to ensure continuity of business,
many employees are working from home and the remote access
capability has been updated significantly. Additionally, the Group
follows strict rules of hygiene, increased intensity of cleaning
and disinfection of spaces, and other measures to protect the
health and safety of staff and customers .
As the leading financial institution in the country, the Group
has a good capital position and a significant liquidity surplus of
over EUR3 bn as it heads into uncertain times, to support its
customers and the economy to recover from this shock. The Bank has
considerable experience in managing challenging circumstances. The
Management maintains its relentless focus on asset quality,
funding, capital and efficiency to ensure the Bank maintains its
financial strength, but remains equally flexible to adjust its
short term priorities as needed to react the emerging conditions of
these unprecedented times. The Management's investment in the
digital transformation programme has strengthened the Group's
operational resilience and enabled the full deployment of digital
service channels to customers. For further information, please
refer to the section "Digital Transformation" below.
In addition, the package of policy measures announced by the ECB
and the European Commission, as well as the unprecedented fiscal
and other measures of the Cyprus Government, should help reduce the
negative impact and support the recovery of the Cypriot economy.
For further information please refer to Note 56 'Events after the
reporting date' of the Consolidated Financial Statements for the
year ended 31 December 2019.
Tackling the Bank's loan portfolio quality is of utmost
importance for the Group . The Group has been successful in
engineering restructuring solutions across the spectrum of its loan
portfolio. Following the outbreak of COVID-19 the Group is now
focused on arresting any potential asset quality deterioration.
Once economic conditions normalise, the Group expects to resume its
efforts to improve its asset quality position by seeking solutions,
both organic and inorganic, to make the Bank a stronger and safer
institution, capable of continuing to support the local
economy.
D. Business Overview (continued)
The July 2018 foreclosure law amendments have expedited the
process and limited options to frustrate execution. In July 2019,
the Cyprus Parliament voted through certain changes to the 2018 law
which, in the most part, seek to (a) provide additional checks and
balances where banks are seeking to foreclose small loans
(<EUR350 thousand) secured by a principal private residence, and
(b) extend the foreclosure timetable by extending various notice
periods. These amendments have not yet passed into law, as the
President of the Republic has referred these to the Supreme Court,
based on legal advice from the Attorney General that elements
thereof are unconstitutional. Discussions are on-going, including,
inter alia, with the Ministry of Finance, the CBC and the Financial
Ombudsman, aiming to introduce amendments to the foreclosure and
loan restructuring framework that are acceptable to all
stakeholders. Following the outbreak of COVID-19, the foreclosure
process has been suspended until 18 June 2020, in line with the
decision of the Association of Cyprus Banks .
The strategic focus of the Group on asset quality, funding,
capital and efficiency aims to ensure that it maintains its
financial strength. During the year ended 31 December 2019, new
lending exceeded EUR2.0 bn, the highest since FY2015. To date,
growth in new lending in Cyprus has been focused on selected
industries more in line with the Bank's target risk profile, such
as tourism, trade, real estate, professional services,
information/communication technologies, energy, education and green
projects. The Group has also been exploring ways to grow its new
lending, including careful, modest new lending in shipping,
syndicated loans, as well as other initiatives.
Following the outbreak of COVID-19, the sectors most adversely
affected initially are expected to be tourism, trade, transport and
construction. The Group has a well - diversified performing loan
portfolio. As at 31 December 2019, the Group's performing loan book
exposure to tourism was limited to EUR1.0 bn, out of a total
performing loan book of EUR9.2 bn. Respectively, the Group's
performing loan book exposure to trade was also EUR1.0 bn, whilst
to construction was limited to EUR0.5 bn. At the same time, the
Group had only a small performing loan book exposure to the oil and
gas industry of less than EUR45 mn.
Aiming at supporting investments by SMEs and mid-caps to boost
the Cypriot economy, and create new jobs for young people, the Bank
continues to provide joint financed schemes. To this end, the Bank
continues its partnership with the European Investment Bank (EIB),
the European Investment Fund (EIF) , the European Bank for
Reconstruction and Development (EBRD) and the Cyprus
Government.
Management is also placing emphasis on diversifying income
streams by optimising fee income from international transaction
services, wealth management and insurance. The Group's insurance
companies, EuroLife Ltd and General Insurance of Cyprus Ltd
operating in the sectors of life and general insurance
respectively, are leading players in the insurance business in
Cyprus, as such business have been providing a stable, recurring
fee income, further diversifying the Group's income streams . The
insurance income net of claims and commissions for FY2019 amounted
to EUR58 mn, up by 9% yoy, contributing to 19% of non-interest
income.
In order to further optimise its funding structure, the Bank
continues to focus on the shape and cost of deposit franchise,
taking advantage of the increased customer confidence towards the
Bank. The cost of deposits has been reduced by 60 bps to 16 bps
over the last 24 months. In addition, liquidity fees for specific
customer groups have been introduced in March 2020.
A key focus of the Group remains the active management of
funding costs and on-going running expenses. The Digital
Transformation Programme that started in 2017 has begun to deliver
an improved customer experience (see section below), whilst the
branch footprint rationalisation continued in the fourth quarter,
further improving the Bank's operating model. The number of
branches was reduced by 18% in 2019 and the branch network is now
less than half the size it was in 2013. The management remains
focused on further improvement in efficiency.
Digital Transformation
As part of its vision to be the leading financial hub in Cyprus,
the Bank continues its Digital Transformation Programme, which
focuses on three strategic pillars: developing digital services and
products that enhance the customer experience, streamlining
internal processes, and introducing new ways of working to improve
the workplace environment.
In recent months, various new features were introduced on the
new mobile app, such as managing standing orders and direct debits,
login through biometric authentication and viewing own accounts
with UK and Cypriot banks. Also, financial management tools have
been introduced that allow customers to use the 1Bank service to
better manage their finances. Moreover, Mastercard holders are now
able to make secure and fast payments through Apple Pay (iOS) and
soon they will also be able to do this through BoC Wallet
(Android).
Moreover, the launch of the new Cards and Payments systems has
been completed. This is expected to offer customised solutions and
improve the customer banking experience. For example, it is
expected to offer new features through mobile banking in 2020, such
as the ability for the customer to freeze their credit or debit
card in the event of a loss (freeze and unfreeze), and the ability
to determine a maximum limit for specific transactions.
D. Business Overview (continued)
Digital Transformation (continued)
The adoption of digital products and services continued to grow
and gain momentum in 2019. As at the end of 2019, 77% of the number
of transactions involving deposits, cash withdrawals and
internal/external transfers were performed through digital channels
(compared to 67% two years earlier). Regarding the use of mobile
banking, the number of active users increased by 20% in 2019. In
2020, as a result of the COVID-19 restrictive measures, a reduction
in cash withdrawals and deposits performed through the branch
network has been observed . An increase in the adoption of digital
products and services and in digital subscriber penetration has
also been observed as more customers have gained access to digital
channels and more cards have been issued. As at the end of March
2020, 70% of customers were digitally engaged (up by 10 p.p. from
60% since the digital transformation programme was initiated in
September 2017). A further increase is expected in 2Q2020 driven by
the increase in the number of subscribers and the number of cards
that have been issued. Within this context, the Bank has launched
various initiatives aiming to provide better, faster and safer
services. Such initiatives include amongst others the issuance of
debit cards free of charge until the end of May 2020, as well as
the provision of SMS Digipass devices free of charge. Additionally,
new customers can open an account via the Bank's website and
receive a debit card free of charge, and new customers can receive
free subscription to internet banking.
Furthermore, changes in the workplace, with the introduction of
new technologies and tools that will drastically change the
employee experience, improving collaboration and knowledge sharing
across the organisation, are expected to be seen in 2020.
The Bank has been awarded the 'Best Consumer Digital Bank in
Cyprus' award for 2019 by Global Finance.
E. Strategy and Outlook
The strategic objectives for the Group are to become a stronger,
safer and a more focused institution capable of supporting the
recovery of the Cypriot economy and delivering appropriate
shareholder returns in the medium term.
The key pillars of the Group's strategy are to:
-- Arrest any asset quality deterioration resulting from the
outbreak of COVID-19 and further reduce the level of delinquent
loans upon normalisation of market and operational conditions
-- Achieve a lean operating model
-- Maintain an appropriate capital position by internally generating capital
-- Further optimise the funding structure
-- Focus on the core Cyprus market
-- Deliver value to shareholders and other stakeholders
KEY PILLARS ACTION TAKEN IN 2019 PLAN OF ACTION
1. Arrest any
asset quality * Please refer to Sections B.2.5 'Loan Portfolio * Focus on realising collateral via consensual and non
deterioration Quality' and B.2.6 'Real Estate Management Unit' -consensual foreclosures
resulting
from the
outbreak of * Real estate management via REMU
COVID-19 and
further
reduce the * Continue to explore alternative measures for
level of accelerating NPE reduction, such as NPE sales,
delinquent securitisations etc
loans upon
normalisation
of market and
operational
conditions
------------------------------------------------------------- ----------------------------------------------------------------
2. Achieve a
lean * Please refer to Section B.3.4 '(Loss)/profit after * Implementation of Digital Transformation Programme
operating tax (attributable to the owners of the Company)' and underway, aimed at enhancing productivity through
model Section B.3.2 'Total expenses' for further details i alternative distribution channels and reducing
n operating costs over time
relation to the voluntary staff exit plan that took
place in 4Q2019 and Section D 'Business Overview'
* Management remains focused on further improvement in
efficiency
------------------------------------------------------------- ----------------------------------------------------------------
3. Maintain * Internally generating capital
an * Please refer to Section B.2.1 'Capital Base'
appropriate
capital
position
------------------------------------------------------------- ----------------------------------------------------------------
4. Further
optimise the * Please refer to Section B.2.3 'Funding and Liquidity * Focus on shape and cost of deposit franchise
funding '
structure
* Introduction of liquidity fees
------------------------------------------------------------- ----------------------------------------------------------------
5. Focus on
core Cyprus * Please refer to Sections B.2.4 'Loans', B.3.1 'Total * Targeted lending in Cyprus into growing sectors to
market income' and D 'Business Overview' fund recovery
* New loan origination, while maintaining lending
yields
* Revenue diversification via fee and commission income
from international banking, wealth and insurance
which provides stable, recurring income
------------------------------------------------------------- ----------------------------------------------------------------
6. Deliver * Deliver appropriate medium-term risk-adjusted returns
value * Please refer to page 10 for the Key Balance Sheet
figures and ratios, as well as the Capital ratios an
d
risk weighted assets
------------------------------------------------------------- ----------------------------------------------------------------
E. Strategy and Outlook (continued)
The Group is closely monitoring developments in, and the effects
of COVID-19 on both the global and Cypriot economy. On the basis of
currently available information, the Group is not in a position to
accurately assess the magnitude of the future impact of COVID-19 on
the Group's operations and financial results, as this will
principally depend on the rate and extent of the spread of the
virus, its direct and indirect impact on customers and the
effectiveness of the regulatory and fiscal measures taken to
support the economy and mitigate the impact of the virus.
In common with other European banks, the persistently low
interest rate environment continues to present a challenge to the
Group's profitability. As a consequence of the current challenging
economic conditions resulting from the COVID-19 outbreak, the Group
will update its macroeconomic assumptions underlying the IFRS 9
calculation of loan credit losses for 1Q2020 in line with the
relevant regulatory guidance, and anticipates that this may result
in increased organic provisions in 1Q2020, although the exact
quantum of any such increase is as yet unknown. Despite the lower
transactional income and lower demand for loans currently observed,
the on-going economic uncertainty means that the Group does not
have sufficient visibility about the likely future impact of
COVID-19 on its operations or financial results, and therefore, is
currently not in a position to provide guidance for the current
financial year. However, the Group's good capital base and strong
liquidity, position it to be able to support its customers through
this period of extreme volatility.
The Group's medium-term strategic priorities remain clear, with
a sustained focus on strengthening its balance sheet, and improving
asset quality and efficiency in order to continue to play a vital
role in supporting the Cypriot economy.
F. Definitions & Explanations
Accelerated Following the Regulation (EU) 2016/445 of the ECB
phase-in period of 14 March 2016 on the exercise of options and discretions,
the DTA was phasing-in by 60% for 2017, 80% for 2018
and 100% for 2019 (fully phased-in).
Allowance for Comprises (i) allowance for expected credit losses
expected loan (ECL) on loans and advances to customers (including
credit losses allowance for expected credit losses on loans and
(previously advances to customers held for sale), (ii) the residual
'Accumulated fair value adjustment on initial recognition of loans
provisions') and advances to customers, (iii) allowance for expected
credit losses for off-balance sheet exposures (financial
guarantees and commitments) disclosed on the balance
sheet within other liabilities, and (iv) the aggregate
fair value adjustment on loans and advances to customers
classified and measured at FVPL.
Advisory and Comprise mainly: fees of external advisors in relation
other restructuring to: (i) disposal of operations and non-core assets,
costs and (ii) customer loan restructuring activities.
AT1 AT1 (Additional Tier 1) is defined in accordance
with Articles 51 and 52 of the Capital Requirements
Regulation (EU) No 575/2013, as amended by CRR II
applicable as at the reporting date.
CET1 capital CET1 capital ratio (transitional basis) is defined
ratio (transitional in accordance with the Capital Requirements Regulation
basis) (EU) No 575/2013, as amended by CRR II applicable
as at the reporting date.
CET1 fully loaded The CET1 fully loaded (FL) ratio is defined in accordance
(FL) with the Capital Requirements Regulation (EU) No
575/2013, as amended by CRR II applicable as at the
reporting date.
Contribution Relates to the contribution made to the Single Resolution
to SRF Fund.
Cost to Income Cost-to-income ratio comprises total expenses (as
ratio defined) divided by total income (as defined).
Data from the The latest data from the Statistical Service of the
Statistical Republic of Cyprus, Cyprus Statistical Service, was
Service published on 31 March 2020.
Digital transactions This is the ratio of the number of digital transactions
ratio performed by individuals and legal entity customers
to the total number of transactions. Transactions
include deposits, withdrawals, internal and external
transfers. Digital channels include mobile, browser
and ATMs.
Digitally engaged This is the ratio of digitally engaged individual
customers ratio customers to the total number of individual customers.
Digital channels include mobile, browser and ATMs.
It also captures access to a card as well as online
card purchases.
ECB European Central Bank
Gross loans Gross loans are reported before the residual fair
value adjustment on initial recognition relating
to loans acquired from Laiki Bank (calculated as
the difference between the outstanding contractual
amount and the fair value of loans acquired) amounting
to EUR271 mn at 31 December 2019 (compared to EUR278
mn at 30 September 2019 and EUR462 mn at 31 December
2018).
Additionally, gross loans (i) include loans and advances
to customers classified and measured at fair value
through profit and loss adjusted for the aggregate
fair value adjustment of EUR427 mn at 31 December
2019 (compared to EUR430 mn at 30 September 2019
and EUR456 mn as at 31 December 2018), and (ii) are
reported after the reclassification between gross
loans and allowance for expected credit losses on
loans and advances to customers classified as held
for sale of Nil as at 31 December 2019 (compared
to Nil as at 30 September 2019 and EUR99 mn at 31
December 2018).
Group The Group consists f Bank of Cyprus Holdings Public
Limited Company, "BOC Holdings" or the "Company",
its subsidiary Bank of Cyprus Public Company Limited,
the "Bank" and the Bank's subsidiaries.
Leverage ratio The leverage ratio is the ratio of tangible total
equity (including Other equity instruments) to total
assets as presented on the balance sheet.
Loan credit Loan credit losses comprise: (i) credit losses to
losses (PL) cover credit risk on loans and advances to customers,
(previously (ii) net gains on derecognition of financial assets
'Provision charge') measured at amortised cost and (iii) net gains on
loans and advances to customers at FVPL.
F. Definitions & Explanations (continued)
Loan credit Loan credit losses charge (cost of risk) (year to
losses charge date) is calculated as the annualised 'loan credit
(previously losses' (as defined) divided by average gross loans
'Provisioning (the average balance is calculated as the average
charge') (cost of the opening balance and the closing balance).
of risk)
Market Shares Both deposit and loan market shares are based on
data from the Central Bank of Cyprus.
The Bank is the single largest credit provider in
Cyprus with a market share of 41.1% at 31 December
2019, compared to 40.8% at 30 September 2019, 41.3%
at 30 June 2019, 46.7% at 31 March 2019, 45.4% at
31 December 2018 and as at 30 September 2018, 38.6%
at 30 June 2018 and 37.4% at 31 March 2018.
The market share on loans was affected as at 30 June
2019 following the derecognition of the Helix portfolio
upon the completion of Project Helix announced on
28 June 2019.
The market share on loans was affected during the
quarter ended 31 March 2019 following a decrease
in total loans in the banking sector of EUR1 bn,
mainly attributed to reclassification, revaluation,
exchange rate and other adjustments (CBC).
The market share on loans was affected as at 30 September
2018 following a decrease in total loans in the banking
sector, mainly attributed to EUR6 bn non-performing
loans of Cyprus Cooperative Bank (CyCB) which remained
to SEDIPES as a result of the agreement between CyCB
and Hellenic Bank.
The market share on loans was affected as at 30 June
2018 following a decrease in total loans in the banking
sector of EUR2.1 bn, due to loan reclassifications,
revaluations, exchange rate or other adjustments
(CBC).
Net fee and Fee and commission income less fee and commission
commission income expense divided by total income (as defined).
over total income
Net Interest Net interest margin is calculated as the net interest
Margin income (annualised) divided by the quarterly average
interest earning assets. Average interest earning
assets exclude interest earning assets of any discontinued
operations at each quarter end, if applicable. Interest
earning assets include: cash and balances with central
banks, plus loans and advances to banks, plus net
loans and advances to customers (including loans
and advances to customers classified as non-current
assets held for sale), plus investments (excluding
equities and mutual funds).
Net loans and Comprise gross loans (as defined) net of allowance
advances to for expected loan credit losses (as defined, but
customers excluding credit losses on off-balance sheet exposures).
Net loan to Net loan to deposit ratio is calculated as gross
deposit ratio loans (as defined) net of allowance for expected
loan credit losses (as defined) divided by customer
deposits.
Net Stable Funding The NSFR is calculated as the amount of "available
Ratio (NSFR) stable funding" (ASF) relative to the amount of "required
stable funding" (RSF), on the basis of Basel III
standards. Its calculation is a SREP requirement.
The EBA is working on finalising the NSFR and enforcing
it as a regulatory ratio under CRR II.
New lending New lending includes the average YTD change (if positive)
for overdraft facilities.
Non-interest Non-interest income comprises Net fee and commission
income income, Net foreign exchange gains and net gains
on financial instrument transactions and disposal/dissolution
of subsidiaries and associates (excluding net gains
on loans and advances to customers at FVPL), Insurance
income net of claims and commissions, Net gains/(losses)
from revaluation and disposal of investment properties
and on disposal of stock of properties, and Other
income.
F. Definitions & Explanations (continued)
Non-performing According to the EBA standards and ECB's Guidance
exposures (NPEs) to Banks on Non-Performing Loans (published in March
2017), NPEs are defined as those exposures that satisfy
one of the following conditions: (i) the borrower
is assessed as unlikely to pay its credit obligations
in full without the realisation of the collateral,
regardless of the existence of any past due amount
or of the number of days past due, (ii) defaulted
or impaired exposures as per the approach provided
in the Capital Requirement Regulation (CRR), which
would also trigger a default under specific credit
adjustment, distress restructuring and obligor bankruptcy,
(iii) material exposures as set by the CBC , which
are more than 90 days past due, (iv) performing forborne
exposures under probation for which additional forbearance
measures are extended, and (v) performing forborne
exposures under probation that present more than
30 days past due within the probation period. When
a specific part of the exposures of a customer that
fulfils the NPE criteria set out above is greater
than 20% of the gross carrying amount of all on balance
sheet exposures of that customer, then the total
customer exposure is classified as non-performing;
otherwise only the specific part of the exposure
is classified as non-performing. The NPEs are reported
before the deduction of allowance for expected loan
credit losses (as defined).
Non-recurring Non-recurring items as presented in the 'Unaudited
items Consolidated Income Statement - Underlying basis'
relate to: (i) advisory and other restructuring costs
- organic, (ii) restructuring costs - Voluntary Staff
Exit Plan (VEP), (iii) Provisions/net (loss)/profit
relating to NPE sales, (iv) (Loss)/profit on remeasurement
of investment in associate upon classification as
held for sale (CNP) net of share of profit from associates,
(v) Reversal of impairment of DTA and impairment
of other tax receivables, and (vi) Profit from discontinued
operations (UK).
NPE coverage The NPE coverage ratio is calculated as the allowance
ratio (previously for expected loan credit losses (as defined) over
'NPE Provisioning NPEs (as defined).
coverage ratio')
NPE ratio NPEs ratio is calculated as the NPEs as per EBA (as
defined) divided by gross loans (as defined).
NPE sales NPE sales refer to NPE sale transactions completed
in the year, as well as sale transactions being contemplated
as at year-end, irrespective of whether they met
the held for sale classification criteria as at 31
December 2019.
Operating profit Comprises profit before Total loan credit losses,
impairments and provisions (as defined), tax, (profit)/loss
attributable to non-controlling interests and non-recurring
items (as defined).
Operating profit Operating profit return on average assets is calculated
return on average as the annualised operating profit (as defined) divided
assets by the quarterly average of total assets for the
relevant period. Average total assets exclude total
assets of discontinued operations at each quarter
end, if applicable.
Phased-in Capital In accordance with the legislation in Cyprus which
Conservation has been set for all credit institutions, the applicable
Buffer (CCB) rate of the CCB is 1.25% for 2017, 1.875% for 2018
and 2.5% for 2019 (fully phased-in).
Pro forma for Includes the impact from the completion of the sale
CNP of the investment in CNP.
Pro forma for Includes the impact from the completion of the sale
CNP and VEP of the investment in CNP and the Voluntary Staff
Exit Plan (VEP).
Pro forma for Includes the impact from the completion of Project
Helix Helix, as well as the impact from the agreement for
the sale of a portfolio of retail unsecured NPEs,
with gross book value EUR33 mn as at 31 March 2019,
known as Project Velocity 1 .
Profit/(loss) Excludes non-recurring items (as defined).
after tax and
before non-recurring
items (attributable
to the owners
of the Company)
Profit/(loss) Profit/(loss) after tax and before 'non-recurring
after tax - items' as defined (attributable to the owners of
organic (attributable the Company), except for the ' advisory and other
to the owners restructuring costs - organic' .
of the Company)
F. Definitions & Explanations (continued)
Quarterly average Average of interest earning assets as at the beginning
interest earning and end of the relevant quarter. Interest earning
assets assets include: cash and balances with central banks,
plus loans and advances to banks, plus net loans
and advances to customers (including loans and advances
to customers classified as non-current assets held
for sale), plus investments (excluding equities and
mutual funds).
Qoq Quarter on quarter change
Special levy Relates to the special levy on deposits of credit
institutions in Cyprus.
Total Capital Total capital ratio is defined in accordance with
ratio the Capital Requirements Regulation (EU) No 575/2013
, as amended by CRR II applicable as at the reporting
date.
Total expenses Total expenses comprise staff costs, other operating
expenses and the special levy and contribution to
the Single Resolution Fund. It does not include 'advisory
and other restructuring costs-organic', or any restructuring
costs relating to the Voluntary Staff Exit Plan,
or any restructuring costs relating to NPE sales.
'Advisory and other restructuring costs-organic'
amounted to EUR22 mn for FY2019 (compared to EUR42
mn for FY2018) and to EUR8 mn for 4Q2019 (compared
to EUR4 mn for 3Q2019). Restructuring costs relating
to the Voluntary Staff Exit Plan amount to EUR81
mn for both 4Q2019 and FY2019. Restructuring costs
relating to NPE sales amounted to EUR25 mn for FY2019
(compared to EUR18 mn for FY2018) and to EUR10 mn
for 4Q2019 (compared to EUR6 mn for 3Q2019).
Total income Total income comprises net interest income and non-interest
income (as defined).
Total loan credit Total loan credit losses, impairments and provisions
losses, impairments comprises loan credit losses (as defined), plus (provisions)/reversal
and provisions of provisions for litigation, claims, regulatory
and other matters plus (impairments)/reversal of
impairments of other financial and non-financial
assets.
Underlying basis This refers to the statutory basis after being adjusted
for certain items as explained in the Basis of Presentation.
Write offs Loans together with the associated loan credit losses
are written off when there is no realistic prospect
of future recovery. Partial write-offs, including
non-contractual write-offs, may occur when it is
considered that there is no realistic prospect for
the recovery of the contractual cash flows. In addition,
write-offs may reflect restructuring activity with
customers and are part of the terms of the agreement
and subject to satisfactory performance.
Yoy Year on year change
Basis of Presentation
This announcement covers the results of Bank of Cyprus Holdings
Public Limited Company, "BOC Holdings" or "the Company", its
subsidiary Bank of Cyprus Public Company Limited, the "Bank" or
"BOC PCL", and together with the Bank's subsidiaries, the "Group",
for the year ended 31 December 2019.
At 31 December 2016, the Bank was listed on the Cyprus Stock
Exchange (CSE) and the Athens Exchange. On 18 January 2017, BOC
Holdings, incorporated in Ireland, was introduced in the Group
structure as the new holding company of the Bank. On 19 January
2017, the total issued share capital of BOC Holdings was admitted
to listing and trading on the LSE and the CSE.
Financial information presented in this announcement is being
published for the purposes of providing an overview of the Group
financial results for the year ended 31 December 2019. The
financial information in this announcement does not constitute
statutory financial statements of BOC Holdings within the meaning
of section 340 of the Companies Act 2014. The Group statutory
financial statements for the year ended 31 December 2019, upon
which the auditors have given an unqualified report, are expected
to be published today and delivered to the Registrar of Companies
of Ireland within 28 days of 30 September 2020. The Board of
Directors approved the Group statutory financial statements for the
year ended 31 December 2019 on 28 April 2020. BOC Holdings'
statutory financial statements for the purposes of Chapter 4 of
Part 6 of the Companies Act 2014 of Ireland for the year ended 31
December 2018, upon which the auditors gave an unqualified report,
were published on 28 March 2019 and were annexed to the annual
return and delivered to the Registrar of Companies of Ireland.
Statutory basis: Audited s tatutory information is set out on
pages 6-7. However, a number of factors have had a significant
effect on the comparability of the Group's financial position and
results. Accordingly, the results are also presented on an
underlying basis.
Underlying basis: The statutory results are adjusted for certain
items (as described on pages 11-12) to allow a comparison of the
Group's underlying performance, as set out on pages 8-10.
This announcement and the presentation for the Group Financial
Results for the year ended 31 December 2019 have been posted on the
Group's website www.bankofcyprus.com (Investor Relations/Financial
Results).
Definitions: The Group uses definitions in the discussion of its
business performance and financial position which are set out in
section F.
The Group Financial Results for the year ended 31 December 2019
are presented in Euro (EUR) and all amounts are rounded as
indicated. A comma is used to separate thousands and a dot is used
to separate decimals.
Forward Looking Statements
This document contains certain forward-looking statements which
can usually be identified by terms used such as "expect", "should
be", "will be" and similar expressions or variations thereof or
their negative variations, but their absence does not mean that a
statement is not forward-looking. Examples of forward-looking
statements include, but are not limited to, statements relating to
the Group's near term and longer term future capital requirements
and ratios, intentions, beliefs or current expectations and
projections about the Group's future results of operations,
financial condition, expected impairment charges, the level of the
Group's assets, liquidity, performance, prospects, anticipated
growth, provisions, impairments, business strategies and
opportunities. By their nature, forward-looking statements involve
risk and uncertainty because they relate to events, and depend upon
circumstances, that will or may occur in the future. Factors that
could cause actual business, strategy and/or results to differ
materially from the plans, objectives, expectations, estimates and
intentions expressed in such forward-looking statements made by the
Group include, but are not limited to: general economic and
political conditions in Cyprus and other European Union (EU) Member
States, interest rate and foreign exchange fluctuations,
legislative, fiscal and regulatory developments and information
technology, litigation and other operational risks. Should any one
or more of these or other factors materialise, or should any
underlying assumptions prove to be incorrect, the actual results or
events could differ materially from those currently being
anticipated as reflected in such forward looking statements. The
forward-looking statements made in this document are only
applicable as from the date of publication of this document. Except
as required by any applicable law or regulation, the Group
expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward looking statement
contained in this document to reflect any change in the Group's
expectations or any change in events, conditions or circumstances
on which any statement is based.
Contacts
For further information please contact:
Investor Relations
+ 357 22 122239
investors@bankofcyprus.com
The Bank of Cyprus Group is the leading banking and financial
services group in Cyprus, providing a wide range of financial
products and services which include retail and commercial banking,
finance, factoring, investment banking, brokerage, fund management,
private banking, life and general insurance. The Bank of Cyprus
Group operates through a total of 99 branches in Cyprus, of which
13 operate as cash offices. Bank of Cyprus also has representative
offices in Russia, Ukraine and China. The Bank of Cyprus Group
employs 3,672 staff worldwide. At 31 December 2019, the Group's
Total Assets amounted to EUR21.1 bn and Total Equity was EUR2.3 bn.
The Bank of Cyprus Group comprises Bank of Cyprus Holdings Public
Limited Company, its subsidiary Bank of Cyprus Public Company
Limited and its subsidiaries.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UKOVRRUUSURR
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