TIDMBOCH
RNS Number : 9067N
Bank of Cyprus Holdings PLC
26 May 2020
Announcement
Group Financial Results for the quarter ended 31 March 2020
Nicosia, 26 May 2020
Key Highlights for the quarter ended 31 March 2020
COVID-19
-- Safeguarding health of staff and customers, while ensuring
operational resilience of the Bank
-- Supporting both customers affected by COVID-19 and wider Cypriot economy
-- Gradual relaxation of restrictive measures; currently in second phase
-- Additional 88 bps of cost of risk (EUR28 mn) for 1Q2020
reflecting deterioration of macroeconomic outlook
-- NPE portfolio sale delayed due to prevailing market and operational conditions
-- Current focus on proactively assessing the impact of COVID-19 on loan portfolio
Good Capital and Liquidity Position
-- Total Capital ratio of 17.7% and CET1 ratio of 14.3% (IFRS 9 transitional)
-- Significant surplus liquidity of EUR3.0 bn
Continued Balance Sheet Repair in 1Q2020
-- Organic NPE reduction of EUR142 mn for 1Q2020, despite COVID-19 lockdown in March 2020
-- NPEs reduced to EUR3.7 bn (EUR1.6 bn net)
-- Gross NPE ratio reduced to 29% (net NPE ratio at 15%)
-- Coverage increased to 56%; total coverage at 124% when including collateral
-- Sale of EUR133 mn NPEs (Velocity 2) completed in May 2020; capital neutral
Operational efficiency
-- Cost to income ratio (excluding special levy and
contributions to SRF and DGF) reduced to 58%, following the
successful completion of Voluntary Staff Exit Plan in 4Q2019
-- Total operating expenses reduced to EUR84 mn for 1Q2020, down by 14% qoq
-- 70% of customers currently digitally engaged
Performance in 1Q2020
-- New lending of EUR451 mn for 1Q2020 (up 2% qoq)
-- Total Income of EUR145 mn, Operating profit of EUR52 mn for 1Q2020
-- Loan credit losses of EUR64 mn in 1Q2020 (cost of risk at 200
bps), including COVID-related charge of EUR28 mn
-- Underlying result of a loss after tax from organic operations of EUR23 mn for 1Q2020
-- Loss after tax of EUR26 mn for 1Q2020
Group Chief Executive Statement
"We are closely monitoring the effects of COVID-19 on both the
global and Cypriot economy. 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 and today the
health situation is stable. As we announce our first quarter
results, less than a month after the release of the 2019 results,
Cyprus has already entered a phased approach to exiting from
lockdown with the gradual relaxation of containment measures, and
we have already seen a parallel movement in economic activity.
Whilst uncertainty for the outlook remains, our priorities
remain clear; to support our customers impacted by COVID-19, as
well as the wider Cypriot economy, whilst safeguarding the health
of our colleagues and customers. From the beginning of the crisis,
we have stepped up our engagement with our customers to understand
their new financial position and needs, in order to find effective
ways to support them.
Our results this quarter reflect the continued progress against
our core objective of balance sheet repair. We further reduced our
NPEs organically by EUR142 mn, despite the COVID-19 lockdown in
March 2020. Since the peak in 2014, we have now reduced the stock
of NPEs by 75% to EUR3.7 bn, representing 29% of gross loans (15%
on a net NPE basis). NPE coverage has now increased to 56% and
total coverage including collateral is at 124%. Additionally, in
May 2020, amidst the COVID-19 crisis, we completed Project Velocity
2, relating to the sale of EUR133 mn NPEs.
The Bank's capital position remains good and in excess of our
regulatory requirements. As at 31 March 2020, our capital ratios
(IFRS 9 transitional) were Total Capital ratio of 17.7% and CET1 of
14.3%, against an amended CET1 requirement of 9.7% following the
regulator's capital easing measures for COVID-19.
We continue to operate with significant liquidity surplus of
EUR3.0 bn. New lending in the first quarter reached EUR451 mn, 2%
higher compared to the previous quarter, helping to support the
local economy.
Our cost to income ratio improved by five percentage points this
quarter to 58%, following the successful completion of the
Voluntary Staff Exit Plan last October. Overall, total operating
expenses reduced by 14% compared to the previous quarter, enabled
by our enhanced digital transformation. Currently, 70% of our
customers are digitally engaged.
In the first quarter of the year, we generated total income of
EUR145 mn and a positive operating result of EUR52 mn. The
underlying result for the quarter however, was a loss of EUR23 mn
and the overall result a loss of EUR26 mn, impacted by the higher
loan credit losses of EUR64 mn to reflect deterioration of the
macroeconomic outlook (COVID-related loan credit losses of EUR28 mn
- additional cost of risk of 88 bps).
The economic outlook has deteriorated with the impact of
COVID-19, and we are seeing this in reduced levels of activity in
transactions and lower demand for new loans. The economic effects
are expected to have a negative impact on the Group's 2020
financial performance. The full impact remains uncertain and will
be driven by the duration of COVID-19 restrictions, the successful
reopening of the economy and the timing and shape of the economic
recovery.
Our strategy remains clear. We continue our efforts to
strengthen the balance sheet, improve our asset quality and enhance
the efficiency of our operations through cost reduction enabled by
digital transformation. The Group is well positioned, with a good
capital base and strong liquidity position, and stands ready to
support this recovery and 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 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
has updated its macroeconomic assumptions underlying the IFRS 9
calculation of loan credit losses for 1Q2020 in line with the
relevant regulatory guidance, resulting in increased organic loan
credit losses for 1Q2020 of EUR28 mn.
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 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 operated on a rotational basis, as a
precautionary measure until 4 May 2020, when first phase of
relaxation measured commenced
-- 28% of staff (excluding branches) currently working remotely,
compared to 44% during the lockdown period
-- 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 24,000 applications received to date (c.EUR5.8 bn,
representing 63% of gross loans excluding legacy)
-- Provision of liquidity to affected businesses and households
to alleviate short term cash flow burden through :
-- New set of measures expected to be announced, to replace
Government guaranteed facilities proposal now withdrawn
-- Short term funding based on Central Bank of Cyprus (CBC) directive
-- Other lending products
For further information please refer to the sections B
'Operating Environment' and C 'Business Overview' on pages
23-27.
A. Group Financial Results - Underlying Basis
Unaudited Interim Condensed Consolidated Income Statement
--------------------------------------------------------------------------------------------------------------------
qoq
EUR mn 1Q2020 1Q2019(1) 4Q2019(1) + % yoy + %
----------------------------------------------------------------------- ------ --------- --------- ---- -------
Net interest income 85 85 84 2% 0%
Net fee and commission income 38 37 39 -1% 4%
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution
of subsidiaries and associates 6 10 4 37% -45%
Insurance income net of claims and commissions 11 12 16 -28% -8%
Net gains from revaluation and disposal of investment properties and on
disposal of stock
of properties 1 4 6 -87% -79%
Other income 4 8 7 -39% -45%
----------------------------------------------------------------------- ------ --------- --------- ---- -------
Total income 145 156 156 -7% -7%
----------------------------------------------------------------------- ------ --------- --------- ---- -------
Staff costs (49) (56) (53) -9% -12%
Other operating expenses (35) (41) (43) -20% -17%
Special levy and contributions to Single Resolution Fund (SRF) and
Deposit Guarantee Fund
(DGF) (9) (6) (7) 50% 45%
Total expenses (93) (103) (103) -10% -10%
------ --------- --------- ----
Operating profit 52 53 53 0% 0%
----------------------------------------------------------------------- ------ --------- --------- ---- -------
Loan credit losses (64) (47) (29) 120% 36%
Impairments of other financial and non-financial assets (4) (1) (13) -65% -
Provisions for litigation, claims, regulatory and other matters (2) (0) (7) -72% -
----------------------------------------------------------------------- ------ --------- --------- ---- -------
Total loan credit losses, impairments and provisions (70) (48) (49) 43% 49%
----------------------------------------------------------------------- ------ --------- --------- ---- -------
(Loss)/profit before tax and non-recurring items (18) 5 4 - -
----------------------------------------------------------------------- ------ --------- --------- ---- -------
Tax (2) (2) (2) 3% -40%
Profit attributable to non-controlling interests (0) (0) (0) - -
----------------------------------------------------------------------- ------ --------- --------- ---- -------
(Loss)/profit after tax and before non-recurring items (attributable to
the owners of the
Company) (20) 3 2 - -
----------------------------------------------------------------------- ------ --------- --------- ---- -------
Advisory and other restructuring costs - organic (3) (6) (8) -56% -48%
======================================================================= ====== ========= ========= ==== =======
Loss after tax - organic (attributable to the owners of the Company) (23) (3) (6) - -
======================================================================= ====== ========= ========= ==== =======
Restructuring costs - Voluntary Staff Exit Plan (VEP) - - (81) - -
Provisions/net loss relating to NPE sales, including restructuring
expenses(2) (3) (5) (86) -97% -31%
Share of profit from associates (CNP) - 2 - - -
Reversal of impairment of DTA and impairment of other tax receivables - 101 (13) - -
(Loss)/profit after tax (attributable to the owners of the Company) (26) 95 (186) -86% -
------ --------- --------- ----
Unaudited Interim Condensed Consolidated Income Statement - Key Performance Ratios
--------------------------------------------------------------------------------------------------------------------
qoq
Key Performance Ratios 1Q2020 1Q2019(1) 4Q2019(1) + % yoy + %
-------------------------------------------------------------------- ------ --------- --------- ------- -------
Net Interest Margin (annualised) 1.95% 1.88% 1.87% +8 bps +7 bps
-------------------------------------------------------------------- ------ --------- --------- ------- -------
Cost to income ratio 64% 66% 67% -3 p.p. -2 p.p.
-------------------------------------------------------------------- ------ --------- --------- ------- -------
Cost to income ratio excluding special levy and contributions to SRF
and DGF 58% 62% 63% -5 p.p. -4 p.p.
-------------------------------------------------------------------- ------ --------- --------- ------- -------
Operating profit return on average assets (annualised) 1.0% 1.0% 1.0% - -
-------------------------------------------------------------------- ------ --------- --------- ------- -------
Basic losses per share attributable to the owners of the Company -
organic (EUR cent) (5.14) (0.88) (1.26) (3.88) (4.26)
-------------------------------------------------------------------- ------ --------- --------- ------- -------
Basic (losses)/earnings per share attributable to the owners of the
Company (EUR cent) (5.81) 21.23 (41.67) 35.86 (27.04)
-------------------------------------------------------------------- ------ --------- --------- ------- -------
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 relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction. 2. 'Provisions/net loss relating to NPE
sales including restructuring expenses' refer to the net loss on transactions completed during
FY2019, net loan credit losses on transactions under consideration at 31 December 2019 and
31 March 2020, as well as the restructuring costs relating to these trades. For further details
please refer to Section A.2.4. 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 quarter ended 31
March 2020 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 F.1
'Reconciliation of Income Statement between statutory basis and
underlying basis' and in section G 'Definitions &
explanations', to allow for the comparability of the underlying
basis to statutory information.
In addition, the following change was made in the underlying
basis, when compared with previous disclosures.
Project Helix (from Unaudited Interim Condensed 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
relating to NPE sales, including restructuring expenses' under the
underlying basis. Specifically, net interest income of EUR17 mn,
fee and commission income of EUR3 mn, total expenses of EUR15 mn
(comprising staff costs of EUR1 mn, operating expenses of EUR12 mn
and restructuring costs of EUR2 mn), as well as loan credit losses
of EUR10 mn, relating to the quarter ended 31 March 2019, are
disclosed under non-recurring items within 'Provisions/net loss
relating to NPE sales, including restructuring expenses' under the
underlying basis.
Unaudited Interim Condensed Consolidated Balance Sheet
==================================================================================================================
EUR mn 31.03.2020 31.12.2019 + %
=============================================================== ===================== ============= ==========
Cash and balances with central
banks 4,399 5,060 -13%
Loans and advances to banks 455 321 42%
Debt securities, treasury bills
and equity investments 1,948 1,906 2%
Net loans and advances to customers 10,597 10,722 -1%
Stock of property 1,373 1,378 0%
Investment properties 134 136 -2%
Other assets 1,501 1,574 -5%
Non-current assets and disposal
groups held for sale 24 26 -9%
================================================================ ===================== ============= ==========
Total assets 20,431 21,123 -3%
================================================================ ===================== ============= ==========
Deposits by banks 395 533 -26%
Repurchase agreements 170 168 1%
Customer deposits 16,246 16,692 -3%
Subordinated loan stock 255 272 -6%
Other liabilities 1,130 1,169 -3%
================================================================ ===================== ============= ==========
Total liabilities 18,196 18,834 -3%
================================================================ ===================== ============= ==========
Shareholders' equity 1,986 2,040 -3%
================================================================ ===================== ============= ==========
Other equity instruments 220 220 -
================================================================ ===================== ============= ==========
Total equity excluding non-controlling
interests 2,206 2,260 -2%
================================================================ ===================== ============= ==========
Non-controlling interests 29 29 0%
================================================================ ===================== ============= ==========
Total equity 2,235 2,289 -2%
================================================================ ===================== ============= ==========
Total liabilities and equity 20,431 21,123 -3%
================================================================ ===================== ============= ==========
Key Balance Sheet figures and +
ratios 31.03.2020 31.12.2019
=============================================================== === ================= ============= ==========
Gross loans (EUR mn) 12,709 12,822 -1%
================================================================ ================= ============= ==========
Allowance for expected loan
credit losses (EUR mn) 2,109 2,096 1%
================================================================ ================= ============= ==========
Customer deposits (EUR mn) 16,246 16,692 -3%
================================================================ ================= ============= ==========
Loans to deposits ratio (net) 65% 64% +1 p.p.
================================================================ ================= ============= ==========
NPE ratio 29% 30% -1 p.p.
================================================================ ================= ============= ==========
NPE coverage ratio 56% 54% +2 p.p.
================================================================ ================= ============= ==========
Leverage ratio 10.1% 10.0% +0.1 p.p.
================================================================ ================= ============= ==========
Capital ratios and risk weighted +
assets 31.03.2020 31.12.2019
=============================================================== === ================= ============= ==========
Common Equity Tier 1 (CET1)
ratio (transitional for IFRS
9)(1) 14.3% 14.8% -50 bps
================================================================ ================= ============= ==========
Total capital ratio 17.7% 18.0% -30 bps
================================================================ ================= ============= ==========
Risk weighted assets (EUR mn) 12,599 12,890 -2 %
================================================================ ================= ============= ==========
1. The CET1 FL ratio as at 31 March 2020 (including the full impact
of IFRS 9) amounts to 12.9% (compared to 13.1% as at 31 December 2019).
p.p. = percentage points, bps = basis points, 100 basis points (bps)
= 1 p.p.
A.1. Balance Sheet Analysis
A.1.1 Capital Base
Total equity excluding non-controlling interests totalled
EUR2,206 mn at 31 March 2020, compared to EUR2,260 mn at 31
December 2019. Shareholders' equity totalled EUR1,986 mn at 31
March 2020, compared to EUR2,040 mn at 31 December 2019.
The Common Equity Tier 1 capital (CET1) ratio on an IFRS 9
transitional basis stood at 14.3% at 31 March 2020, compared to
14.8% at 31 December 2019. During 1Q2020 the CET1 ratio was
negatively affected mainly by the phasing-in of IFRS 9 transitional
arrangements, a decrease in revaluation reserves and increased loan
credit losses, and was positively affected by the pre-provision
income and the decrease in risk weighted assets (RWAs).
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.
The CET1 ratio on a fully loaded basis (including the full
impact of IFRS 9) amounted to 12.9% as at 31 March 2020, compared
to 13.1% as at 31 December 2019. 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 17.7% as at 31 March 2020,
compared to 18.0% as at 31 December 2019.
The Group's capital ratios are above the Supervisory Review and
Evaluation Process (SREP) requirements.
Following the annual SREP performed by the European Central Bank
(ECB) in 2019 and based on the final 2019 SREP decision received in
December 2019, the Group's minimum phased-in CET1 capital ratio was
set at 11.0% (comprising a 4.5% Pillar I requirement, a 3.0% Pillar
II requirement (in the form of CET1), 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%) and the overall
Total Capital requirement at 14.5%, 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 1.0%. The 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 SREP, which is
a point in time assessment, and are therefore subject to change
over time. The final 2019 SREP decision became effective on 1
January 2020.
Further to the effects of COVID-19 on both the global and
Cypriot economy, the ECB announced a package of positive measures
in March 2020 that should help to support the capital position of
banks. The ECB's capital easing measures for COVID-19 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. As a result, the
Group's minimum phased-in CET1 capital ratio is set at 9.7%. The
Bank received an amendment to the December 2019 SREP decision to
this respect effective as of 12 March 2020. The Total SREP capital
requirement remains unchanged at 14.5%.
Further analysis on the recent developments on the regulatory
capital ratios due to the COVID-19 outbreak are set out further
below.
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. In April 2020, the CBC
decided to delay the phasing-in (0.5%) of the O-SII buffer on 1
January 2021 and 1 January 2022 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.
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.
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 Capital Requirements Regulation
(EU) No. 575/2013 ( 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.
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 CRR , of the DTA amounting to c.EUR285 mn or a CET1 uplift of
c.190 bps in March 2019.
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 recorded an additional
amount of EUR13 mn in 4Q2019 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 any associated 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.
Following the ECB's capital easing measures for COVID-19
announcements, the Bank received a relevant decision amending the
2019 SREP decision in April 2020 and effective as of 12 March 2020
for 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,
which increased the Group's CET1 buffer by 131 bps. 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.
Since 31 March 2020 the mark-to market valuation resulting from
the fluctuation of the prices of the debt securities in the
portfolio held at FVOCI decreased by EUR5 mn by 20 May 2020,
following the COVID-19 outbreak and the resultant volatile market
and economic environment. This change is recognised directly in
equity i.e. through Other Comprehensive Income (OCI).
Furthermore, on 20 May 2020, the Group held Cyprus sovereign
debt securities of a nominal amount of EUR735 mn (compared to
EUR542 mn on 31 March 2020), of which EUR337 mn is held at FVOCI
portfolio and EUR398 mn is held at amortised cost portfolio. The
increase since the quarter end is mainly due to the Group's
participation on the issuance of 52-week treasury bills of the
Cyprus Government in April 2020.
A.1.2 Regulations and Directives
A.1.2.1 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).
A.1.2.2 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 CBC in its
capacity as National Resolution Authority, of the final decision by
the Single Resolution Board (SRB), 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.
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 March 2020, calculated
according to SRB's eligibility criteria currently in effect and
based on the Bank's internal estimate, stood at 18.09% of RWAs
.
A.1.3 Funding and Liquidity
Funding
Funding from Central Banks
At 31 March 2020 and 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 EUR16,246 mn at 31 March 2020,
compared to EUR16,692 mn at 31 December 2019, reduced by 3% in the
first quarter.
The Bank's deposit market share in Cyprus reached 34.8% as at 31
March 2020, compared to 35.1% as at 31 December 2019. Customer
deposits accounted for 80% of total assets and 89% of total
liabilities at 31 March 2020.
The net Loans to Deposit ratio (L/D) stood at 65% as at 31 March
2020, compared to 64% as at 31 December 2019. The L/D ratio had
reached a peak of 151% as at 31 March 2014.
Subordinated Loan Stock
At 31 March 2020 the Bank's subordinated loan stock (including
accrued interest) amounted to EUR255 mn (compared to EUR272 mn at
31 December 2019) and relates to unsecured subordinated Tier 2
Capital Notes of nominal value EUR250 mn, issued by the Bank in
January 2017.
Liquidity
At 31 March 2020 the Group Liquidity Coverage Ratio (LCR) stood
at 219% (compared to 208% at 31 December 2019), in compliance with
the minimum regulatory requirement of 100%.
The liquidity surplus at 31 March 2020 amounted to EUR3.0 bn,
compared to EUR3.2 bn at 31 December 2019. The decrease in 1Q2020
is mainly driven by the reduction in deposits.
The Net Stable Funding Ratio (NSFR) has not yet been introduced.
It will be enforced as a regulatory ratio under CRR II in 2021,
with the limit set at 100%. At 31 March 2020, the Group's NSFR, on
the basis of Basel standards, stood at 126% (compared to 127% at 31
December 2019).
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.
On 18 March 2020 the Governing Council of the ECB 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.
A.1.4 Loans
Group gross loans totalled EUR12,709 mn at 31 March 2020 ,
compared to EUR12,822 mn at 31 December 2019. Gross loans in Cyprus
totalled EUR12,634 mn at 31 March 2020 accounting for 99% of Group
gross loans, compared to EUR12,736 mn at 31 December 2019, also
accounting for 99% of Group gross loans.
New loans granted in Cyprus reached EUR451 mn for 1Q2020,
compared to EUR443 mn for 4Q2019 (up by 2% qoq) and to EUR563 mn
for 1Q2019 (down by 20% yoy).
At 31 March 2020, the Group net loans and advances to customers
totalled EUR10,597 mn (compared to EUR10,722 mn at 31 December
2019).
The Bank is the single largest credit provider in Cyprus with a
market share of 41.0% at 31 March 2020, compared to 41.1% at 31
December 2019.
A.1.5 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 EUR142 mn or 4% during
1Q2020 to EUR3,738 mn at 31 March 2020 (compared to EUR3,880 mn at
31 December 2019), despite the COVID-19 lockdown in March 2020. The
Group has recorded organic NPE reductions for twenty consecutive
quarters.
The NPEs account for 29% of gross loans as at 31 March 2020,
compared to 30% at 31 December 2019, an improvement of 1 p.p. qoq.
The NPE coverage ratio improved to 56% at 31 March 2020, compared
to 54% at 31 December 2019 , an improvement of 2 p.p. qoq. When
taking into account tangible collateral at fair value, NPEs are
fully covered.
31.03.2020 31.12.2019
% gross % gross
EUR loans EUR mn loans
mn
=============================== ======== ======== ========= ========
NPEs as per EBA definition 3,738 29.4% 3,880 30.3%
Of which, in pipeline
to exit: 365 2.9% 428 3.3%
-NPEs with forbearance
measures, no arrears(1)
=============================== ======== ======== ========= ========
1. The analysis is performed on a customer basis.
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. 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. Upon completion, the NPE ratio was reduced by
c.11 p.p. to 33% as at 30 June 2019, c.70% lower than its peak in
2014.
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 March 2020, 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.
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.
The Scheme is expected to resolve part of the ESTIA-eligible
portfolio (EUR42 mn as at 15 May 2020), to identify non-viable
customers for which alternative restructuring solutions are being
considered, including by the Government (EUR30 mn as at 15 May
2020), and to facilitate the resolution of the remaining customers
(EUR746 mn as at 15 May 2020), mainly by focusing on realising
collateral through consensual and non-consensual foreclosures.
Over 75% of the applications submitted by 31 December 2019 by
value 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
comprised c.10.000 borrowers, including c.8.400 private individuals
and c.1.600 small-to-medium-sized enterprises. As at 31 December
2019, this portfolio was classified as a disposal group held for
sale, with a gross book value of EUR139 mn. Following a change in
the perimeter, the revised portfolio had a gross book value of
EUR133 mn as at 31 March 2020 and was classified as a disposal
group held for sale at the quarter end. A reversal of impairment of
EUR1 mn for 1Q2020 was recorded under 'Provisions/net loss relating
to NPE sales, including restructuring expenses' in the underlying
basis income statement (compared to a reversal of impairment of
EUR6 mn for 4Q2019). The sale was completed in early May 2020 and
was capital neutral on completion.
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, 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 any associated RWA reduction,
subject to regulatory approval.
As at 31 March 2020, a portfolio of credit facilities related to
Helix with gross book value of EUR45 mn (compared to EUR46 mn as at
31 December 2020), 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.
A.1.6 Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) on-boarded EUR12 mn of
assets in 1Q2020 (down by 73% 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 EUR14 mn in 1Q2020 (compared
to EUR48 mn in 4Q2019), resulting in a profit on disposal of EUR1
mn for 1Q2020.
During the quarter ended 31 March 2020, the Group executed
sale-purchase agreements (SPAs) with contract value of EUR16 mn (89
properties), compared to EUR150 mn (125 properties) for 4Q2019. In
addition, the Group had signed SPAs for disposals of assets with
contract value of EUR49 mn as at 31 March 2020, compared to EUR36
mn as at 31 December 2019.
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 2019, the Group decided to classify certain leased properties
acquired in exchange of debt and leased out under operating leases
as 'Investment Properties' (measured at fair value under IAS 40)
instead of 'Stock of property' (measured at the lower of cost and
net realisable value under IAS 2). The change was applied
retrospectively, resulting in the restatement of comparatives (as
at 31 December 2018). This change 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 2019. The reclassified
properties continue to be managed by REMU.
Assets held by REMU
As at 31 March 2020, assets held by REMU had a carrying value of
EUR1,484 mn (comprising properties of EUR1,373 mn classified as
'Stock of property' and EUR111 mn as 'Investment Properties'),
compared to EUR1,490 mn as at 31 December 2019 (comprising
properties of EUR1,378 mn classified as 'Stock of property' and
EUR112 mn as 'Investment Properties').
In addition to assets held by REMU, properties classified as
'Investment properties' with carrying value of EUR23 mn as at 31
March 2020 (compared to EUR24 mn as at 31 December 2019), 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 1Q2020 1Q2019 4Q2019 + % yoy + %
------ ------ ------ ------
Opening balance 1,490 1,530 1,513 -2% -3%
------------------------------------------------------------------ ------ ------ ------ ------ -------
On-boarded assets (including construction cost) 12 45 37 -67% -73%
------------------------------------------------------------------ ------ ------ ------ ------ -------
Sales (14) (30) (48) -71% -54%
------------------------------------------------------------------ ------ ------ ------ ------ -------
Impairment loss (4) (2) (12) -6 8 % 100%
------------------------------------------------------------------ ------ ------ ------ ------ -------
Transfer to non-current assets and disposal groups held for sale - (1) - - -
------------------------------------------------------------------ ------ ------ ------ ------ -------
Closing balance 1,484 1,542 1,490 -0% -4%
------------------------------------------------------------------ ------ ------ ------ ------ -------
Analysis by type and country Cyprus Greece Romania Total
31 March 2020 (EUR mn)
------------------------------- ------- ------- -------- ------
Residential properties 183 26 0 209
Offices and other commercial
properties 197 29 6 232
Manufacturing and industrial
properties 72 32 0 104
Hotels 24 0 - 24
Land (fields and plots) 625 7 3 635
Golf courses and golf-related
property 280 - - 280
Total 1,381 94 9 1,484
------- ------- --------
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
------- ------- --------
A.1.7 Non-core overseas exposures
The remaining non-core overseas net exposures (including both
on-balance sheet and off-balance sheet exposures) at 31 March 2020
are as follows:
EUR mn 31 March 2020 31 December 2019
--------------
Greece 137 139
Romania 24 25
Russia 16 19
Total 177 183
--------------
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.
In addition to the above, as at 31 March 2020, there were
overseas exposures of EUR265 mn in Greece, relating to both loans
and properties (at similar levels to 31 December 2019), not
identified as non-core exposures, since they are considered by
management as exposures arising in the normal course of
business.
A.2. Income Statement Analysis
A.2.1 Total income
qoq
EUR mn 1Q2020 1Q2019(1) 4Q2019(1) + % yoy + %
------ --------- --------- ------
Net interest income 85 85 84 2% 0%
--------------------------------------------------------------------- ------ --------- --------- ------ -------
Net fee and commission income 38 37 39 -1% 4%
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution
of subsidiaries and associates 6 10 4 37% -45%
Insurance income net of claims and commissions 11 12 16 -28% -8%
Net gains from revaluation and disposal of investment properties and
on disposal of stock
of properties 1 4 6 -87% -79%
Other income 4 8 7 -39% -45%
--------------------------------------------------------------------- ------ --------- --------- ------ -------
Non-interest income 60 71 72 -16% -15%
--------------------------------------------------------------------- ------ --------- --------- ------ -------
Total income 145 156 156 -7% -7%
--------------------------------------------------------------------- ------ --------- --------- ------ -------
Net Interest Margin (annualised) 1.95% 1.88% 1.87% +8 bps +7 bps
--------------------------------------------------------------------- ------ --------- --------- ------ -------
Average interest earning assets
(EUR mn) 17,539 18,243 17,721 -1% -4%
--------------------------------------------------------------------- ------ --------- --------- ------ -------
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 relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction. p.p. = percentage points, bps = basis points,
100 basis points (bps) = 1 percentage point
Net interest income (NII) for 1Q2020 amounted to EUR85 mn
(broadly flat yoy and qoq) and includes increased interest cash
collections not previously recognised of c. EUR4 mn. Net interest
margin (NIM) for 1Q2020 stood at 1.95%, up by 7 bps yoy, positively
impacted by the reduction in volume and cost of deposits. An amount
of c.EUR12 mn relating to a one - off charge included in 'Net
interest income' under the statutory basis for 4Q2019, 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.
Quarterly average interest earning assets for 1Q2020 amounted to
EUR 17,539 mn, compared to EUR 17,721 mn for 4Q2019, (down by 1%
qoq) and to EUR 18,243 mn for 1Q2019 (down by 4% yoy). The qoq
decrease is mainly driven by the reduction of liquid assets
resulting from the reduced volume of deposits. The yoy decrease is
mainly driven by 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 1Q2020 amounted to EUR60 mn (down by 15%
yoy), comprising net fee and commission income of EUR38 mn, net
foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and
associates of EUR6 mn, net insurance income of EUR11 mn, net gains
from revaluation and disposal of investment properties and on
disposal of stock of properties of EUR1 mn and other income of EUR4
mn.
Net fee and commission income for 1Q2020 amounted to EUR38 mn,
compared to EUR37 mn for 1Q2019 and to EUR39 mn for 4Q2019. Net fee
and commission income comprises 44% of transactional income that is
negatively affected by the effects of the COVID-19 outbreak.
Net foreign exchange gains and net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and
associates of EUR6 mn for 1Q2020, comprising net foreign exchange
gains of EUR9 mn and net losses on financial instrument
transactions of EUR3 mn, decreased by 45% yoy and increased by 37%
qoq. The decrease yoy is mainly driven by net revaluation losses in
1Q2020 compared to net revaluation gains in 1Q2019. The increase
qoq is mainly driven by higher net foreign exchange gains.
Net insurance income of EUR11 mn for 1Q2020, at similar levels
as for 1Q2019, but decreased by 28% qoq, primarily due to negative
market performance following the outbreak of COVID-19 and higher
insurance claims.
Net gains from revaluation and disposal of investment properties
and on disposal of stock of properties for 1Q2020 amounted to EUR1
mn relating mainly to net gains on disposal of stock of properties
(REMU gains) impacted by the COVID-19 lockdown, compared to EUR6 mn
in the previous quarter and to EUR4 mn in 1Q2019. REMU profit
remains volatile.
Total income for 1Q2020 amounted to EUR145 mn, compared to
EUR156 mn for both 1Q2019 and 4Q2019 (down by 7% both yoy and
qoq).
A.2.2 Total expenses
qoq
EUR mn 1Q2020 1Q2019(1) 4Q2019(1) + % yoy + %
------ --------- --------- -------
Staff costs (49) (56) (53) -9% -12%
Other operating expenses (35) (41) (43) -20% -17%
Total operating expenses (84) (97) (96) -14% -14%
------ --------- --------- -------
Special levy and contributions to Single Resolution Fund (SRF) and
Deposit Guarantee Fund
(DGF) (9) (6) (7) 50% 45%
-------------------------------------------------------------------- ------ --------- --------- ------- -------
Total expenses (93) (103) (103) -10% -10%
-------------------------------------------------------------------- ------ --------- --------- ------- -------
Cost to income ratio 64% 66% 67% -3 p.p. -2 p.p.
-------------------------------------------------------------------- ------ --------- --------- ------- -------
Cost to income ratio excluding special levy and contributions to SRF
and DGF 58% 62% 63% -5 p.p. -4 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 relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point
Total expenses for 1Q2020 were EUR93 mn (compared to EUR103 mn
for 1Q2019 and 4Q2019, down by 10% both yoy and qoq), 53% of which
related to staff costs (EUR49 mn), 37% to other operating expenses
(EUR35 mn) and 10% (EUR9 mn) to special levy and contributions to
Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF). The
yoy and qoq decrease is driven by lower staff costs and other
operating expenses.
Total operating expenses for 1Q2020 were EUR84 mn, compared to
EUR97 mn for 1Q2019 and EUR96 mn for 4Q2019 (down by 14% both yoy
and qoq).
Staff costs of EUR49 mn for 1Q2020 decreased by 9% qoq (compared
to EUR53 mn in 4Q2019 ) and by 12% yoy (compared to EUR56 mn in
1Q2019), mainly driven by the completion of the voluntary staff
exit plan (VEP) in 4Q2019, 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 3,566 persons as at 31 March 2020 (compared
to 3,672 as at 31 December 2019, 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 relating to NPE
sales, including restructuring expenses' in the underlying
basis.
Other operating expenses for 1Q2020 were EUR35 mn, decreased by
20% qoq (EUR43 mn in 4Q2019) and by 17% yoy (EUR41 mn in 1Q2019),
mainly due to lower consultancy and property-related expenses in
1Q2020.
Special levy and contributions to Single Resolution Fund (SRF)
and Deposit Guarantee Fund (DGF) for 1Q2020 was EUR9 mn, compared
to EUR7 mn in 4Q2019 (increased by 50% qoq) and EUR6 mn in 1Q2019
(increased by 45% yoy). The increase is driven by the contribution
of the Bank to the Deposit Guarantee Fund (DGF) of EUR3 mn. This
contribution relates to the first half of 2020 and in line with
IFRSs, it is recorded in 1Q2020.
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 cost to income ratio excluding special levy and
contributions to Single Resolution Fund (SRF) and Deposit Guarantee
Fund (DGF) for 1Q2020 was 58%, compared to 63% in 4Q2019 and 62% in
1Q2019, principally reflecting a 14% reduction in total operating
expenses both yoy and qoq.
A.2.3 (Loss)/profit before tax and non-recurring items
qoq
EUR mn 1Q2020 1Q2019(1) 4Q2019(1) + % yoy + %
------ --------- --------- --------
Operating profit 52 53 53 0% 0%
----------------------------------------------------------------- ------ --------- --------- -------- -------
Loan credit losses (64) (47) (29) 120% 36%
Impairments of other financial and non-financial assets (4) (1) (13) -65% -
Provisions for litigation, claims, regulatory and other matters (2) (0) (7) -72% -
----------------------------------------------------------------- ------ --------- --------- -------- -------
Total loan credit losses, impairments and provisions (70) (48) (49) 43% 49%
----------------------------------------------------------------- ------ --------- --------- -------- -------
(Loss)/profit before tax and non-recurring items (18) 5 4 - -
----------------------------------------------------------------- ------ --------- --------- -------- -------
Cost of risk 2.00% 1.44% 0.89% +111 bps +56 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 relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction.
p.p. = percentage points, bps = basis points, 100 basis points (bps) = 1 percentage point
Operating profit for 1Q2020 was EUR52 mn, at similar levels to
the previous quarter and to 1Q2019.
The loan credit losses for 1Q2020 totalled EUR64 mn, compared to
EUR29 mn for 4Q2019 (up by 120% qoq) and compared to EUR47 mn for
1Q2019 (up by 36% yoy). The 1Q2020 charge of EUR64 mn, includes
EUR28 mn reflecting the initial impact of IFRS 9 Forward Looking
Information (FLI) driven by the deterioration of the macroeconomic
outlook, as a result of the economic effects of the COVID-19
outbreak. The change in the macroeconomic assumptions has led to
the migration of c.EUR435 mn loans from Stage 1 to Stage 2.
The 4Q2019 charge of EUR29 mn includes an amount of c.EUR12 mn
relating to a one - off charge for a change in the method of
amortising arrangement fees. This amount is included in 'Net
interest income' under the statutory basis and presented within
'Loan credit losses' under the underlying basis, given that this
was a non-recurring item.
The annualised loan credit losses charge (cost of risk) for
1Q2020 accounted for 2.00% of gross loans, of which 88 bps reflect
the deterioration of the macroeconomic outlook, compared to a loan
credit losses charge of 1.12% for FY2019.
At 31 March 2020, the allowance for expected loan credit losses,
including residual fair value adjustment on initial recognition and
credit losses on off-balance sheet exposures totalled EUR2,109 mn
(compared to EUR2,096 mn at 31 December 2019) and accounted for
16.6% of gross loans (compared to 16.3% at 31 December 2019). The
increase in the allowance for expected loan credit losses in 1Q2020
amounted of EUR13 mn, whilst the increase in the previous quarter
amounted to EUR10 mn.
Impairments of other financial and non-financial assets for
1Q2020 amounted to EUR4 mn, compared to EUR13 mn for 4Q2019 (down
by 65% qoq) and to EUR1 mn in 1Q2019. Impairments of other
financial and non-financial assets for 1Q2020 primarily related to
loss on revaluation of properties.
Provisions for litigation, claims, regulatory and other matters
for 1Q2020 totalled EUR2 mn, compared to EUR7 mn for 4Q2019 and Nil
in 1Q2019.
A.2. 4 (Loss)/profit after tax (attributable to the owners of
the Company)
qoq
EUR mn 1Q2020 1Q2019(1) 4Q2019(1) + % yoy + %
------ --------- --------- ----
(Loss)/profit before tax and non-recurring items (18) 5 4 - -
----------------------------------------------------------------------- ------ --------- --------- ---- -------
Tax (2) (2) (2) 3% -40%
Profit attributable to non-controlling interests (0) (0) (0) - -
----------------------------------------------------------------------- ------ --------- --------- ---- -------
(Loss)/profit after tax and before non-recurring items (attributable to
the owners of the
Company) (20) 3 2 - -
----------------------------------------------------------------------- ------ --------- --------- ---- -------
Advisory and other restructuring costs - organic (3) (6) (8) -56% -48%
======================================================================= ====== ========= ========= ==== =======
Loss after tax - organic (attributable to the owners of the Company) (23) (3) (6) - -
======================================================================= ====== ========= ========= ==== =======
Restructuring costs - Voluntary Staff Exit Plan (VEP) - - (81) - -
Provisions/net loss relating to NPE sales, including restructuring
expenses(2) (3) (5) (86) -97% -31%
Share of profit from associates (CNP) - 2 - - -
Reversal of impairment of DTA and impairment of other tax receivables - 101 (13) - -
(Loss)/profit after tax (attributable to the owners of the Company) (26) 95 (186) -86% -
------ --------- --------- ----
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 relating to
NPE sales, including restructuring expenses' in the underlying basis, in order to separate
out the impact of this non-recurring transaction. 2. 'Provisions/net loss relating to NPE
sales including restructuring expenses' refer to the net loss on transactions completed during
FY2019, net loan credit losses on transactions under consideration at 31 December 2019 and
31 March 2020, as well as the restructuring costs relating to these trades. For further details
please see analysis below.
The tax charge for 1Q2020 is EUR2 mn, at similar levels to
4Q2019 and 1Q2019.
Loss after tax and before non-recurring items (attributable to
the owners of the Company) for 1Q2020 was EUR20 mn, compared to a
profit of EUR2 mn for 4Q2019 and EUR3 mn for 1Q2019.
Advisory and other restructuring costs - organic for 1Q2020
amounted to EUR3 mn, compared to EUR8 mn for 4Q2019 and EUR6 mn for
1Q2019.
Loss after tax arising from the organic operations (attributable
to the owners of the Company) for 1Q2020 amounted to EUR23 mn,
compared to EUR6 mn for 4Q2019 and to EUR3 mn for 1Q2019.
Restructuring costs relating to the Voluntary Staff Exit Plan
(VEP) amounted to EUR81 mn for 4Q2019. For further details please
refer to Section A.2.2 'Total expenses'.
Provisions/net loss relating to NPE sales, including
restructuring expenses for 1Q2020 amounts to EUR3 mn (compared to
EUR86 mn for 4Q2019) and relates mainly to restructuring expenses
for NPE sales. The amount of EUR86 mn for 4Q2019 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 were also included.
Share of profit from associates totalled EUR2 mn for 1Q2019 and
related to the share of profit from CNP Cyprus Insurance Holdings
Limited (CNP). In October 2019, the Group completed the sale of its
entire shareholding of 49.9% in its associate CNP, that had been
acquire d 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 EUR101 mn for 1Q2019, comprising the net
positive impact of EUR109 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 March 2020 and 31 December 2019 was c.EUR5 mn. In
addition, levy in the form of a guarantee fee of EUR13 mn was
recorded in 4Q2019 in relation to the right to convert tax losses
into a tax credit. For further information, please refer to Section
A.1.1. Capital Base, 'Legislative amendments for the conversion of
DTA to DTC'.
Loss after tax attributable to the owners of the Company for
1Q2020 was EUR26 mn , compared to a loss of EUR186 mn for 4Q2019
and to a profit of EUR95 mn for 1Q2019.
B. Operating Environment
The COVID-19 outbreaks, both domestically and globally, have
up-ended the initial economic projections. The IMF now expects the
global economy to contract by 3% in 2020, which is worse than
during the 2008-2009 financial crisis. This contrasts with its
February update that was anticipating a 3% growth instead, in the
global economy. Likewise, the US is expected to contract by 5.9% in
2020 and the Euro Area by 7.5%. For Cyprus the IMF now expects the
economy to contract by 6.5% in the year, compared with earlier
projections for growth of 2.9%. Strong recoveries are expected in
2021 provided the pandemic fades away in the second half of 2020
and containment measures are gradually unwound. The IMF expects
growth of 5.8% in the global economy in 2021 under a baseline
scenario. Likewise, the Cyprus economy is expected to grow by 5.6%
in 2021.
The Cyprus economy has achieved considerable progress in the
programme years, and the recovery that started in 2015 continued
uninterruptedly into 2019. Real GDP increased by 3.2% in 2019
following an increase of 4.1% in 2018. The unemployment rate had
dropped to 7% in 2019 from over 16% in 2014. Up until the end of
2019 an improving labour market, bank recapitalisations, lower
borrowing costs and firmer external demand had bolstered purchasing
power and construction activity. The business environment overall
experienced uninterrupted improvement in this period.
In 2020 economic activity is expected to be held back as tourism
inflows are severely impacted. Based on flash estimates, real GDP
increased by 0.8% seasonally adjusted in the first quarter of the
year compared with an increase of 3.4% in the same period the year
before. From monthly figures the average unemployment rate was 6.1%
in the quarter with an uptick in March. Tourist arrivals declined
by 31% in the quarter and by 67% in March alone, with the travel
ban taking effect from about the middle of the month onwards.
Tourist receipts dropped by 38.9% in the same period and by 73.5%
in March. Car registrations, a gauge of consumer demand, dropped by
29% in January-April after dropping by 36% in March and by 82% in
April. Economic sentiment turned negative in March and April. The
economic sentiment indicator was down by 12.2% on average in
January-April 2020 dropping by 32.4% in April. In the banking
sector new lending to businesses and households remained at about
the same levels, and slightly higher in January-April, compared
with the same period the year before.
Fiscal policy
In 2020 the Government budget is expected to post a steep
deficit as a result of the measures the Government announced in
response to the COVID-19 pandemic and economic contraction.
According to the Stability Programme 2020-2023 as published in
early May, the fiscal impact of these measures in 2020 is estimated
at 4.4% of GDP.
Measures taken by the Cyprus Government are broadly in line with
those taken by other governments in Europe and around the world
with differences in terms of size. These measures include support
for short-time work, tax forbearance and household income support.
Liquidity support measures not included in the budget calculations
include the freeze on loan repayments until the end of the year. An
initial scheme for bank loan guarantees has been withdrawn after
disagreements in Parliament.
Total Government revenue is expected to drop as the economy
contracts in the year and tax revenues are lost. However, the
decline in revenues is expected to be mitigated by higher social
security contributions resulting from increased contributions in
the context of the National Health System. Given a drop in nominal
GDP, the ratio of revenues are expected to rise according to the
Stability Programme thus containing the potential deterioration of
the fiscal deficit. The final deficit will be determined by the
actual performance of the economy and any additional support
measures that may be introduced in the year that are now not
budgeted for.
According to the Ministry of Finance (Stability Programme
2020-2023, April 2020), the budget deficit is estimated at 4.2% of
GDP in 2020 with public debt rising to 116.8%. The steep rise in
the debt ratio also reflects the recent revision of the Annual
Financing Programme targeted for the pandemic crisis and the
decline in nominal GDP. The budget deficit can be expected to
narrow gradually over 2021-2022 as the economy strengthens and the
Government reduces spending as a share of GDP.
In 2008-2012, the underlying dynamics in public finances were
unstable. Public debt was rising driven by large unsustainable
budget deficits whilst economic activity was stagnating. Currently
the situation is vastly different. Public debt is higher in
absolute terms compared to 2012, but prior to the virus outbreak,
the combination of relatively high growth rates, large budget
surpluses and low debt service costs, were supporting a sustained
decline. This declining trend will be halted in 2020-2021 as a
result of the pandemic induced recession, but it is expected to
resume as growth returns.
European Union support
European institutions have stepped up efforts to tackle the
crisis. The European Commission has suspended the fiscal and state
aid rules paving the way for member states to incur deficits
without punitive repercussions. The ECB launched a new wave of net
asset purchases and introduced a EUR750 bn Pandemic Emergency
Purchase Programme. The Bank's supervisory authority eased capital
requirements providing relief to banks and relaxed the rules around
non-performing loans. The Pandemic Emergency Purchase Programme
with its flexible framework, paves the way for massive bond-buying
this year ensuring funding conditions remain favourable for
countries facing a rapid deterioration in their public
finances.
The Eurogroup of Eurozone finance ministers concluded a package
of fiscal stimulus in early April for a total of EUR540 bn. This
package includes credit lines from the ESM for EUR240 bn; loan
guarantees from the EIB for an additional EUR200 bn; and labour
market support for EUR100 bn in the so-called SURE programme
introduced by the European Commission.
In a more recent development French President Emmanuel Macros
and German Chancellor Angela Merkel published a joint statement on
how to fund Europe's recovery from the COVID-19 pandemic. The
proposal calls for a EUR500 bn borrowing by the European Commission
to be distributed as grants not loans, to the areas and industries
most affected by the pandemic. This is mutual debt and is subject
to the approval of all 27 countries of the European Union.
Banking sector and non-performing loans
In the banking sector, total loans to residents and
non-residents alike, were EUR33.6 bn at the end of March 2020. This
corresponds to 164.5% of 2020 estimated nominal GDP. Total loans
consisted of EUR7.1 bn to non-residents and EUR26.5 bn to residents
or EUR26.2 bn excluding the Government. The latter, which include
more than EUR9 bn in non-performing, were 128% of nominal GDP.
The stock of NPLs declined from EUR20.9 bn at the end of
December 2017 to EUR10.4 bn as at end-December 2018 after the sale
of loans by the Bank (Project Helix) and the resolution of the
Cyprus Cooperative Bank. This is a drop of EUR10.5 bn in the
period. This drop originated from SMEs for EUR4.3 bn and from
households for EUR5.8 bn an additional EUR0.3 bn came from other
sectors. The stock of NPLs dropped to EUR9.5 bn at the end of
November 2019. This consisted of EUR4.9 bn from households and
EUR3.7 bn from SMEs. Other non-financial companies and the
financial companies comprised the remaining EUR1 bn.
The ratio of NPLs to gross loans was 28.6% in November 2019 from
30.5% at end December-2018 reflecting a further drop in both
non-performing loan and loans outstanding. The share of
restructured facilities was 44.2% and the coverage ratio stood at
54.6% at the end of November.
Sovereign ratings
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, expected 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 global COVID-19
pandemic might have on the Cyprus economy and fiscal position. In
April 2020 Moody's Investors Service issued an Update on their
credit opinion for the Cyprus Sovereign and revised their forecasts
for the Cyprus economy in view of the coronavirus 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.
C. 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 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
has updated its macroeconomic assumptions underlying the IFRS 9
calculation of loan credit losses for 1Q2020 in line with the
relevant regulatory guidance, resulting in increased organic loan
credit losses for 1Q2020 of EUR28 mn. Under the base scenario, the
Bank is expecting the Cypriot economy to contract by 6.9% in 2020,
with gradual recovery from 2021 onwards, with GDP growth of 5.4%
for 2021. The Bank's projections are in line with those published
by the IMF, the Cyprus Ministry of Finance, the EBRD, the European
Commission and the Economics Research Centre of the University of
Cyprus.
Net fee and commission income for 1Q2020 amounts to EUR38 mn, of
which 44% is estimated to relate to transactional activity. 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 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
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 to 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.
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.
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 31 August 2020, in line with the
latest 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 quarter ended 31 March 2020, new
lending amounted to EUR451 mn (increased by 2% qoq). 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. Until recently, 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, however,
following the outbreak of COVID-19, new lending is focused on
supporting the Cypriot economy.
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 March 2020, 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 c.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 1Q2020 amounted
to EUR11 mn, down by 8% 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 65 bps to 11 bps
over the last 27 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 4 Q 2019, 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, to enhance self-service functionalities. Users can
now retrieve a forgotten user id, set a new passcode in case they
forgot their old one and activate their subscription without having
to contact the bank. Additionally, users can now purchase a
Digipass through the mobile app, a verification instrument that
allows them to perform a variety of transactions securely. Finally,
customers can now register for a subscription to the Bank's digital
channels without having to fill in a physical form or visit a
branch. Integration with modern payment solutions has been made
easier as users can now add their Visa cards to the BoC Wallet
(Android) through the mobile app directly.
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.
The adoption of digital products and services continued to grow
and gain momentum in 2019. As at the end of 2019, 78% 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,
compared to the previous year.
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
April 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 and on a fast track basis
until the end of May 2020, the provision of SMS Digipass devices
free of charge, and the ability for new customers to apply for
account opening via the Bank's website.
As part of the Bank's ambition to be one of the cornerstones of
the digital economy, customers have been enabled to authorise the
release of their identification details to the Government, using
the internet banking credentials thus enabling a digital
registration on the Government Gateway Portal (Ariadni) where they
can use electronic services that are made available by the
Government of Cyprus (up until now citizens needed to be physically
present to identify themselves).
In addition, the Bank has taken the necessary actions to enable
customers to purchase Qualified Digital Signature certificates,
which can be used to digitally sign Bank, Government as well as any
other document that requires a signature, eliminating the need of
physical presence and enhancing the customer experience. It should
be noted that the Bank is one of the first banks in Europe to offer
a fully digital application process to acquire a Qualified Digital
Signature certificate.
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.
D. 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 1Q2020 and 2019 PLAN OF ACTION
1. Arrest any
asset quality * Please refer to Sections A.1.5 'Loan Portfolio * Focus on realising collateral via consensual and non
deterioration Quality' and A.1.6 '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 A.2.4 '(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 A .2.2 'Total expenses' for further details alternative distribution channels and reducing
in relation to the voluntary staff exit plan that operating costs over time
took place in 4Q2019 and Section C 'Business
Overview'
* Management remains focused on further improvement in
efficiency
------------------------------------------------------------- ----------------------------------------------------------------
3. Maintain * Internally generating capital
an * Please refer to Section A.1.1 'Capital Base'
appropriate
capital
position
------------------------------------------------------------- ----------------------------------------------------------------
4. Further
optimise the * Please refer to Section A.1.3 '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 A.1.4 'Loans', A.2.1 'Total * Targeted lending in Cyprus into growing sectors to
market income' and C '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 7 for the Key Balance Sheet
figures and ratios, as well as the Capital ratios an
d
risk weighted assets
------------------------------------------------------------- ----------------------------------------------------------------
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 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
has updated its macroeconomic assumptions underlying the IFRS 9
calculation of loan credit losses for 1Q2020 in line with the
relevant regulatory guidance, resulting in increased organic loan
credit losses for 1Q2020 of EUR28 mn.
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 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.
E . Statutory Financial Results
Unaudited Interim Consolidated Income Statement
Three months ended
31 March
2020 2019
(restated)
--------- ------------
EUR000 EUR000
--------- ------------
Turnover 207,575 240,815
========= ============
Interest income 101,673 126,967
--------- ------------
Income similar to interest income 12,487 13,199
--------- ------------
Interest expense (17,217) (26,313)
--------- ------------
Expense similar to interest expense (12,017) (11,807)
--------- ------------
Net interest income 84,926 102,046
--------- ------------
Fee and commission income 40,107 42,239
--------- ------------
Fee and commission expense (2,063) (3,210)
--------- ------------
Net foreign exchange gains 8,662 6,869
--------- ------------
Net (losses)/gains on financial instrument transactions
and disposal/dissolution of subsidiaries (3,812) 3,953
--------- ------------
Insurance income net of claims and commissions 11,404 12,413
--------- ------------
Net losses from revaluation and disposal of investment
properties (284) (212)
--------- ------------
Net gains on disposal of stock of property 1,103 4,208
--------- ------------
Other income 4,465 8,075
--------- ------------
144,508 176,381
--------- ------------
Staff costs (49,051) (57,099)
--------- ------------
Special levy on deposits on credit institutions
in Cyprus, contribution to Single Resolution
Fund and other levies (9,195) (12,091)
--------- ------------
Other operating expenses (42,593) (60,831)
--------- ------------
43,669 46,360
--------- ------------
Net gains on derecognition of financial assets
measured at amortised cost 954 2,848
--------- ------------
Credit losses to cover credit risk on loans and
advances to customers (63,802) (59,822)
========= ============
Credit losses of other financial instruments (662) (7,441)
========= ============
Impairment of non-financial assets (3,803) (1,389)
========= ============
Loss before share of (loss)/profit from associates (23,644) (19,444)
--------- ------------
Share of (loss)/profit from associates (438) 2,228
--------- ------------
Loss before tax (24,082) (17,216)
--------- ------------
Income tax (1,726) 112,353
--------- ------------
(Loss)/profit after tax for the period (25,808) 95,137
========= ============
Attributable to:
Owners of the Company (25,912) 94,690
--------- -------
Non-controlling interests 104 447
--------- -------
(Loss)/profit for the period (25,808) 95,137
========= =======
Basic and diluted (loss)/profit per share attributable
to the owners of the Company (EUR cent) (5.8) 21.2
====== =====
Unaudited Interim Consolidated Statement of Comprehensive
Income
Three months ended
31 March
2020 2019
----------- --------
EUR000 EUR000
----------- --------
(Loss)/profit for the period (25,808) 95,137
----------- --------
Other comprehensive income (OCI)
----------- --------
OCI that may be reclassified in the consolidated
income statement in subsequent periods
----------- --------
Fair value reserve (debt instruments)
----------- --------
Net (losses)/gains on investments in debt instruments
measured at fair value through OCI (FVOCI) (25,643) 6,951
----------- --------
Transfer to the consolidated income statement
on disposal (1,971) 396
----------- --------
(27,614) 7,347
----------- --------
Foreign currency translation reserve
----------- --------
Profit/(loss) on translation of net investment
in foreign branches and subsidiaries 19,766 (6,809)
----------- --------
(Loss)/profit on hedging of net investments in
foreign branches and subsidiaries (19,087) 6,019
----------- --------
Transfer to the consolidated income statement 105 -
on dissolution of foreign subsidiary
----------- --------
784 (790)
----------- --------
Total OCI that may be reclassified in the consolidated
income statement in subsequent periods (26,830) 6,557
----------- --------
OCI not to be reclassified in the consolidated
income statement in subsequent periods
----------- --------
Fair value reserve (equity instruments)
----------- --------
Share of net gains from fair value changes of
associates - 2,156
----------- --------
Net gains on investments in equity instruments
designated at FVOCI 94 176
----------- --------
94 2,332
----------- --------
Property revaluation reserve
----------- --------
Deferred Tax (901) 29
----------- --------
Actuarial losses on the defined benefit plans
----------- --------
Remeasurement losses on defined benefit plans (126) (1,991)
----------- --------
Total OCI not to be reclassified in the consolidated
income statement in subsequent periods (933) 370
----------- --------
Other comprehensive (loss)/income for the period
net of taxation (27,763) 6,927
----------- --------
Total comprehensive (loss)/income for the period (53,571) 102,064
=========== ========
Attributable to:
----------- --------
Owners of the Company (53,429) 101,599
----------- --------
Non-controlling interests (142) 465
----------- --------
Total comprehensive (loss)/income for the period (53,571) 102,064
=========== ========
Unaudited Interim Consolidated Balance Sheet
31 March 31 December
2020 2019
Assets EUR000 EUR000
----------- ------------
Cash and balances with central banks 4,398,781 5,060,042
----------- ------------
Loans and advances to banks 455,284 320,881
----------- ------------
Derivative financial assets 20,065 23,060
----------- ------------
Investments 1,724,850 1,682,869
----------- ------------
Investments pledged as collateral 222,752 222,961
----------- ------------
Loans and advances to customers 10,596,536 10,721,841
----------- ------------
Life insurance business assets attributable
to policyholders 416,209 458,852
----------- ------------
Prepayments, accrued income and other assets 264,351 243,930
----------- ------------
Stock of property 1,372,858 1,377,453
----------- ------------
Deferred tax assets 341,333 379,126
----------- ------------
Investment properties 134,112 136,197
----------- ------------
Property and equipment 283,850 288,054
----------- ------------
Intangible assets 173,864 178,946
----------- ------------
Investments in associates and joint venture 1,959 2,393
----------- ------------
Non-current assets and disposal groups held
for sale 23,988 26,217
----------- ------------
Total assets 20,430,792 21,122,822
=========== ============
Liabilities
----------- ------------
Deposits by banks 395,609 533,404
----------- ------------
Repurchase agreements 169,673 168,129
----------- ------------
Derivative financial liabilities 70,174 50,593
----------- ------------
Customer deposits 16,245,575 16,691,531
----------- ------------
Insurance liabilities 594,364 640,013
----------- ------------
Accruals, deferred income, other liabilities
and other provisions 316,493 324,246
----------- ------------
Pending litigation, claims, regulatory and other
matters 102,225 108,094
----------- ------------
Subordinated loan stock 254,850 272,170
----------- ------------
Deferred tax liabilities 46,768 46,015
----------- ------------
Total liabilities 18,195,731 18,834,195
----------- ------------
Equity
----------- ------------
Share capital 44,620 44,620
----------- ------------
Share premium 1,294,358 1,294,358
----------- ------------
Revaluation and other reserves 181,160 210,701
----------- ------------
Retained earnings 466,403 490,286
----------- ------------
Equity attributable to the owners of the Company 1,986,541 2,039,965
----------- ------------
Other equity instruments 220,000 220,000
----------- ------------
Total equity excluding non--controlling interests 2,206,541 2,259,965
----------- ------------
Non--controlling interests 28,520 28,662
----------- ------------
Total equity 2,235,061 2,288,627
----------- ------------
Total liabilities and equity 20,430,792 21,122,822
=========== ============
Comparative information was restated as follows:
-- Following the change in 2019 in the classification of
long-term leased properties with rental yield at market level which
are leased out under operating leases as investment properties,
gain on disposal of these properties of EUR192 thousand was
reclassified from 'Net gains on disposal of stock of property' to
'Net losses from revaluation and disposal of investment properties'
during the three months ended 31 March 2019. The disclosures on the
change in the classification are presented in the Consolidated
Financial Statements for the year ended 31 December 2019 within the
Annual Financial Report.
-- ' Fee and commission income' and 'Fee and commission expense'
as restated, include elimination of intragroup amounts between 'Fee
and commission income' and 'Fee and commission expense' amounting
to EUR539 thousand.
-- Levy in the form of a guarantee fee relating to the revised
income tax legislation of EUR5,753 thousand has been reclassified
from 'Fee and commission expense' to 'Special levy on deposits on
credit institutions in Cyprus, contribution to Single Resolution
Fund and other levies'.
-- Comparative information for turnover was restated to include
'Net gains on disposal of stock of property' in the turnover, the
effect of the change in the classification of properties which are
leased out under operating leases and the effect of the change in
the fee and commission income as described above.
The above restatements are consistent with the presentation of
such amount s in the Consolidated Financial Statements for the year
ended 31 December 2019 within the 2019 Annual Financial Report and
these did not have an impact on the results for the period or the
equity of the Group.
Unaudited Interim Consolidated Statement of Changes in
Equity
Attributable to the shareholders of the Company Other Non- Total
equity controlling equity
instruments interests
Share Share Treasury Retained Property Financial Life Foreign Total
capital premium shares earnings revaluation instruments insurance currency
reserve fair value in-force translation
reserve business reserve
reserve
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ----------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
1 January 2020 44,620 1,294,358 (21,463) 490,286 79,286 33,900 102,051 16,927 2,039,965 220,000 28,662 2,288,627
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
(Loss)/profit
for
the period - - (25,912) - - - - (25,912) - 104 (25,808)
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Other
comprehensive
(loss)/income
after
tax for the
period - - (126) (676) (27,499) - 784 (27,517) - (246) (27,763)
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Total
comprehensive
(loss)/income
after
tax for the
period - - (26,038) (676) (27,499) - 784 (53,429) - (142) (53,571)
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Decrease in
value
of in-force
life
insurance
business - - - 2,457 - - (2,457) - - - - -
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Tax on
decrease
in value of
in-force
life
insurance
business - - - (307) - - 307 - - - - -
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Change in the
holding
of
Undertakings
for
Collective
Investments
in
Transferable
Securities
(UCITS)
Fund - - - 5 - - - - 5 - - 5
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
31 March 2020 44,620 1,294,358 (21,463) 466,403 78,610 6,401 99,901 17,711 1,986,541 220,000 28,520 2,235,061
======== ========== ========= ========= ============ ============ ========== ============ ========== ============ ============ ==========
Attributable to the shareholders of the Company Other Non- Total
equity controlling equity
instruments interests
Share Share Treasury Retained Property Financial Life Foreign Total
capital premium shares earnings revaluation instruments insurance currency
reserve fair value in-force translation
reserve business reserve
reserve
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ----------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
1 January 2019 44,620 1,294,358 (21,463) 591,941 79,433 15,289 101,001 16,151 2,121,330 220,000 25,998 2,367,328
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Profit for the
period - - - 94,690 - - - - 94,690 - 447 95,137
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Other
comprehensive
(loss)/income
after
tax for the
period - - - (1,991) 22 9,668 - (790) 6,909 - 18 6,927
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Total
comprehensive
income/(loss)
after
tax for the
period - - - 92,699 22 9,668 - (790) 101,599 - 465 102,064
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Increase in
value
of in-force
life
insurance
business - - - (800) - - 800 - - - - -
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
Tax on
increase
in value of
in-force
life
insurance
business - - - 100 - - (100) - - - - -
-------- ---------- --------- --------- ------------ ------------ ---------- ------------ ---------- ------------ ------------ ----------
31 March 2019 44,620 1,294,358 (21,463) 683,940 79,455 24,957 101,701 15,361 2,222,929 220,000 26,463 2,469,392
======== ========== ========= ========= ============ ============ ========== ============ ========== ============ ============ ==========
F. Notes
F.1 Reconciliation of income statement between statutory and underlying basis
EUR million Underlying NPE Other Statutory
basis Sales basis
Net interest income 85 - - 85
=========== ======= ====== ==========
Net fee and commission income 38 - - 38
=========== ======= ====== ==========
Net foreign exchange gains and net
gains on financial instrument transactions
and disposal/dissolution of subsidiaries 6 - (1) 5
=========== ======= ====== ==========
Insurance income net of claims and
commissions 11 - - 11
=========== ======= ====== ==========
Net gains from revaluation and disposal
of investment properties and on disposal
of stock of properties 1 - - 1
=========== ======= ====== ==========
Other income 4 - - 4
----------- ------- ------ ----------
Total income 145 - (1) 144
=========== ======= ====== ==========
Total expenses (93) (3) (5) (101)
----------- ------- ------ ----------
Operating profit 52 (3) (6) 43
=========== ======= ====== ==========
Loan credit losses (64) - 1 (63)
=========== ======= ====== ==========
Impairments of other financial and
non-financial assets (4) - - (4)
=========== ======= ====== ==========
Provisions for litigation, claims,
regulatory and other matters (2) - 2 -
=========== ======= ====== ==========
Loss before tax and non-recurring
items (18) (3) (3) (24)
=========== ======= ====== ==========
Tax (2) - - (2)
=========== ======= ====== ==========
Profit attributable to non-controlling
interests (0) - - (0)
----------- ------- ------ ----------
Loss after tax and before non-recurring
items (attributable to the owners
of the Company) (20) (3) (3) (26)
=========== ======= ====== ==========
Advisory and other restructuring
costs-organic (3) - 3 -
----------- ------- ------ ----------
Loss after tax - organic* (attributable
to the owners of the Company) (23) (3) - (26)
=========== ======= ====== ==========
Provisions/net loss relating to NPE
sales, including restructuring expenses (3) 3 - -
=========== ======= ====== ==========
Loss after tax (attributable to the
owners of the Company) (26) - - (26)
=========== ======= ====== ==========
*This is the loss after tax (attributable to the owners of the
Company), before the provisions/net loss relating to NPE sales,
including restructuring expenses.
The reclassification differences between the statutory basis and
underlying basis mainly relate to the impact from 'non-recurring
items' and are explained as follows:
NPE sales
* Total expenses include restructuring costs of EUR3
million mainly relating to the sale of portfolio of
NPEs and are presented within 'Provisions/net loss
relating to NPE sales, including restructuring
expenses' under the underlying basis.
Other reclassifications
* Advisory and other restructuring costs of
approximately EUR3 million 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 EUR2 million 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.
* Net losses on loans and advances to customers at FVPL
of EUR1 million included in 'Loan credit losses'
under the underlying basis are included in 'Net gains
on financial instrument transactions and
disposal/dissolution of subsidiaries' 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.
F.2 Customer deposits
The analysis of customer deposits is presented below:
31 March 31 December
2020 2019
By type of deposit EUR000 EUR000
----------- ------------
Demand 7,438,461 7,595,231
----------- ------------
Savings 1,648,093 1,567,344
----------- ------------
Time or notice 7,159,021 7,528,956
----------- ------------
16,245,575 16,691,531
=========== ============
By geographical area
----------- ------------
Cyprus 16,245,575 16,691,531
=========== ============
By currency
----------- ------------
Euro 14,584,183 15,009,828
----------- ------------
US Dollar 1,281,668 1,286,292
----------- ------------
British Pound 287,345 288,289
----------- ------------
Russian Rouble 22,343 30,113
----------- ------------
Swiss Franc 10,771 10,803
----------- ------------
Other currencies 59,265 66,206
----------- ------------
16,245,575 16,691,531
By customer sector
----------- ------------
Corporate 1,099,297 1,117,222
----------- ------------
Global corporate 714,437 691,550
----------- ------------
SMEs 746,483 770,655
----------- ------------
Retail 9,965,445 10,140,920
----------- ------------
Restructuring
----------- ------------
- Corporate 43,346 52,421
----------- ------------
- SMEs 21,427 28,222
----------- ------------
- Retail other 9,615 10,507
----------- ------------
Recoveries
----------- ------------
- Corporate 5,245 6,140
----------- ------------
International banking services 3,304,392 3,543,315
----------- ------------
Wealth management 335,888 330,579
----------- ------------
16,245,575 16,691,531
=========== ============
Deposits by geographical area are based on the originator
country of the deposit.
F.3 Loans and advances to customers
31 March 31 December
2020 2019
EUR000 EUR000
------------ ------------
Gross loans and advances to customers at amortised
cost 12,001,884 12,008,146
------------ ------------
Allowance for ECL for impairment of loans
and advances to customers (1,692,457) (1,655,598)
------------ ------------
Loans and advances to customers at amortised
cost 10,309,427 10,352,548
------------ ------------
Loans and advances to customers measured at
FVPL 287,109 369,293
------------ ------------
10,596,536 10,721,841
============ ============
F.4 Credit risk concentration of gross loans and advances to customers
Industry and business lines concentrations and geographical
analysis of Group gross loans and advances to customers at
amortised cost are presented in the tables below:
31 March 2020 Cyprus Other Total Residual Gross loans
countries fair value at amortised
adjustment cost after
on initial residual
recognition fair value
adjustment
on initial
recognition
By economic activity EUR000 EUR000 EUR000 EUR000 EUR000
----------- ----------- ----------- ------------- --------------
Trade 1,345,760 11,760 1,357,520 (16,498) 1,341,022
----------- ----------- ----------- ------------- --------------
Manufacturing 454,746 2,803 457,549 (4,583) 452,966
----------- ----------- ----------- ------------- --------------
Hotels and catering 950,556 848 951,404 (17,343) 934,061
----------- ----------- ----------- ------------- --------------
Construction 818,215 3,019 821,234 (10,492) 810,742
----------- ----------- ----------- ------------- --------------
Real estate 1,135,606 23,997 1,159,603 (14,608) 1,144,995
----------- ----------- ----------- ------------- --------------
Private individuals 5,887,253 900 5,888,153 (108,600) 5,779,553
----------- ----------- ----------- ------------- --------------
Professional and other
services 779,479 31,039 810,518 (20,832) 789,686
----------- ----------- ----------- ------------- --------------
Other sectors 755,646 685 756,331 (7,472) 748,859
----------- ----------- ----------- ------------- --------------
12,127,261 75,051 12,202,312 (200,428) 12,001,884
=========== =========== =========== ============= ==============
By business line
----------- ----------- ----------- ------------- --------------
Corporate 1,977,108 21,199 1,998,307 (19,453) 1,978,854
----------- ----------- ----------- ------------- --------------
Global corporate 1,927,092 45,702 1,972,794 (16,006) 1,956,788
----------- ----------- ----------- ------------- --------------
SMEs 1,136,957 7,364 1,144,321 (16,240) 1,128,081
----------- ----------- ----------- ------------- --------------
Retail
----------- ----------- ----------- ------------- --------------
- housing 2,839,896 - 2,839,896 (40,462) 2,799,434
----------- ----------- ----------- ------------- --------------
- consumer, credit cards
and other 891,694 786 892,480 1,531 894,011
----------- ----------- ----------- ------------- --------------
Restructuring
----------- ----------- ----------- ------------- --------------
- corporate 269,540 - 269,540 (2,657) 266,883
----------- ----------- ----------- ------------- --------------
- SMEs 299,926 - 299,926 (4,266) 295,660
----------- ----------- ----------- ------------- --------------
- retail housing 335,250 - 335,250 (2,878) 332,372
----------- ----------- ----------- ------------- --------------
- retail other 176,366 - 176,366 (2,577) 173,789
----------- ----------- ----------- ------------- --------------
Recoveries
----------- ----------- ----------- ------------- --------------
- corporate 100,282 - 100,282 (2,671) 97,611
----------- ----------- ----------- ------------- --------------
- SMEs 445,762 - 445,762 (16,308) 429,454
----------- ----------- ----------- ------------- --------------
- retail housing 887,357 - 887,357 (37,353) 850,004
----------- ----------- ----------- ------------- --------------
- retail other 676,874 - 676,874 (37,173) 639,701
----------- ----------- ----------- ------------- --------------
International banking
services 130,224 - 130,224 (1,342) 128,882
----------- ----------- ----------- ------------- --------------
Wealth management 32,933 - 32,933 (2,573) 30,360
----------- ----------- ----------- ------------- --------------
12,127,261 75,051 12,202,312 (200,428) 12,001,884
=========== =========== =========== ============= ==============
31 December 2019 Cyprus Other Total Residual Gross loans
countries fair value at amortised
adjustment cost after
on initial residual
recognition fair value
adjustment
on initial
recognition
By economic activity EUR000 EUR000 EUR000 EUR000 EUR000
----------- ----------- ----------- ------------- --------------
Trade 1,334,506 11,092 1,345,598 (16,375) 1,329,223
----------- ----------- ----------- ------------- --------------
Manufacturing 456,129 3,222 459,351 (4,659) 454,692
----------- ----------- ----------- ------------- --------------
Hotels and catering 932,435 840 933,275 (17,436) 915,839
----------- ----------- ----------- ------------- --------------
Construction 838,388 3,272 841,660 (10,821) 830,839
----------- ----------- ----------- ------------- --------------
Real estate 1,131,179 23,777 1,154,956 (14,760) 1,140,196
----------- ----------- ----------- ------------- --------------
Private individuals 5,892,821 929 5,893,750 (110,332) 5,783,418
----------- ----------- ----------- ------------- --------------
Professional and other
services 797,044 41,970 839,014 (22,745) 816,269
----------- ----------- ----------- ------------- --------------
Other sectors 741,858 683 742,541 (4,871) 737,670
----------- ----------- ----------- ------------- --------------
12,124,360 85,785 12,210,145 (201,999) 12,008,146
=========== =========== =========== ============= ==============
By business line
----------- ----------- ----------- ------------- --------------
Corporate 1,970,656 22,371 1,993,027 (18,212) 1,974,815
----------- ----------- ----------- ------------- --------------
Global corporate 1,862,119 53,972 1,916,091 (16,342) 1,899,749
----------- ----------- ----------- ------------- --------------
SMEs 1,118,499 8,632 1,127,131 (16,827) 1,110,304
----------- ----------- ----------- ------------- --------------
Retail
----------- ----------- ----------- ------------- --------------
- housing 2,834,411 - 2,834,411 (41,724) 2,792,687
----------- ----------- ----------- ------------- --------------
- consumer, credit cards
and other 893,199 810 894,009 1,835 895,844
----------- ----------- ----------- ------------- --------------
Restructuring
----------- ----------- ----------- ------------- --------------
- corporate 323,670 - 323,670 (2,545) 321,125
----------- ----------- ----------- ------------- --------------
- SMEs 322,284 - 322,284 (5,007) 317,277
----------- ----------- ----------- ------------- --------------
- retail housing 353,593 - 353,593 (3,059) 350,534
----------- ----------- ----------- ------------- --------------
- retail other 181,768 - 181,768 (2,723) 179,045
----------- ----------- ----------- ------------- --------------
Recoveries
----------- ----------- ----------- ------------- --------------
- corporate 93,299 - 93,299 (2,692) 90,607
----------- ----------- ----------- ------------- --------------
- SMEs 449,559 - 449,559 (15,981) 433,578
----------- ----------- ----------- ------------- --------------
- retail housing 882,311 - 882,311 (37,654) 844,657
----------- ----------- ----------- ------------- --------------
- retail other 670,787 - 670,787 (37,256) 633,531
----------- ----------- ----------- ------------- --------------
International banking
services 134,940 - 134,940 (1,288) 133,652
----------- ----------- ----------- ------------- --------------
Wealth management 33,265 - 33,265 (2,524) 30,741
----------- ----------- ----------- ------------- --------------
12,124,360 85,785 12,210,145 (201,999) 12,008,146
=========== =========== =========== ============= ==============
The loans and advances to customers in Cyprus include lending
exposures to Greek entities granted by BOC PCL in Cyprus in its
normal course of business with a carrying value of EUR182,697
thousand (31 December 2019: EUR184,130 thousand) and lending
exposures in Cyprus with collaterals in Greece with a carrying
value of EUR82,732 thousand (31 December 2019: EUR80,324
thousand).
Loans and advances to customers classified as held for sale
Industry and business lines concentrations and geographical
analysis of Group loans and advances to customers at amortised cost
classified as held for sale are presented in the tables below:
31 March 2020 Cyprus Other Total Residual Gross loans
countries fair value at amortised
adjustment cost after
on initial residual
recognition fair value
adjustment
on initial
recognition
By economic activity EUR000 EUR000 EUR000 EUR000 EUR000
-------- ----------- -------- ------------- --------------
Trade 19,138 - 19,138 (1,215) 17,923
-------- ----------- -------- ------------- --------------
Manufacturing 6,599 - 6,599 (319) 6,280
-------- ----------- -------- ------------- --------------
Hotels and catering 5,628 - 5,628 (551) 5,077
-------- ----------- -------- ------------- --------------
Construction 11,273 - 11,273 (590) 10,683
-------- ----------- -------- ------------- --------------
Real estate 1,436 - 1,436 (153) 1,283
-------- ----------- -------- ------------- --------------
Private individuals 111,175 - 111,175 (6,239) 104,936
-------- ----------- -------- ------------- --------------
Professional and other
services 17,654 - 17,654 (1,410) 16,244
-------- ----------- -------- ------------- --------------
Other sectors 5,527 - 5,527 (264) 5,263
-------- ----------- -------- ------------- --------------
178,430 - 178,430 (10,741) 167,689
======== =========== ======== ============= ==============
By business line
-------- ----------- -------- ------------- --------------
Corporate 360 - 360 1 361
-------- ----------- -------- ------------- --------------
SMEs 3 - 3 - 3
-------- ----------- -------- ------------- --------------
Retail
-------- ----------- -------- ------------- --------------
- consumer, credit cards
and other 18 - 18 (1) 17
-------- ----------- -------- ------------- --------------
Restructuring
-------- ----------- -------- ------------- --------------
- corporate 6,313 - 6,313 (89) 6,224
-------- ----------- -------- ------------- --------------
- SMEs 1,169 - 1,169 (2) 1,167
-------- ----------- -------- ------------- --------------
- retail housing 23 - 23 (1) 22
-------- ----------- -------- ------------- --------------
- retail other 7,082 - 7,082 (210) 6,872
-------- ----------- -------- ------------- --------------
Recoveries
-------- ----------- -------- ------------- --------------
- corporate 18,217 - 18,217 (851) 17,366
-------- ----------- -------- ------------- --------------
- SMEs 23,107 - 23,107 (1,308) 21,799
-------- ----------- -------- ------------- --------------
- retail housing 5,859 - 5,859 (581) 5,278
-------- ----------- -------- ------------- --------------
- retail other 116,205 - 116,205 (7,693) 108,512
-------- ----------- -------- ------------- --------------
International banking
services 74 - 74 (6) 68
-------- ----------- -------- ------------- --------------
178,430 - 178,430 (10,741) 167,689
======== =========== ======== ============= ==============
Loans and advances to customers classified as held for sale
(continued)
31 December 2019 Cyprus Other Total Residual Gross loans
countries fair value at amortised
adjustment cost after
on initial residual
recognition fair value
adjustment
on initial
recognition
By economic activity EUR000 EUR000 EUR000 EUR000 EUR000
-------- ----------- -------- ------------- --------------
Trade 19,263 - 19,263 (1,224) 18,039
-------- ----------- -------- ------------- --------------
Manufacturing 6,649 - 6,649 (322) 6,327
-------- ----------- -------- ------------- --------------
Hotels and restaurants 5,725 - 5,725 (561) 5,164
-------- ----------- -------- ------------- --------------
Construction 11,187 - 11,187 (595) 10,592
-------- ----------- -------- ------------- --------------
Real estate 1,416 - 1,416 (153) 1,263
-------- ----------- -------- ------------- --------------
Private individuals 117,137 - 117,137 (6,474) 110,663
-------- ----------- -------- ------------- --------------
Professional and other
services 18,068 - 18,068 (1,490) 16,578
-------- ----------- -------- ------------- --------------
Other sectors 5,519 - 5,519 (264) 5,255
-------- ----------- -------- ------------- --------------
184,964 - 184,964 (11,083) 173,881
======== =========== ======== ============= ==============
By business line
-------- ----------- -------- ------------- --------------
Corporate 710 - 710 - 710
-------- ----------- -------- ------------- --------------
SMEs 5 - 5 - 5
-------- ----------- -------- ------------- --------------
Retail
-------- ----------- -------- ------------- --------------
- consumer, credit cards
and other 330 - 330 - 330
-------- ----------- -------- ------------- --------------
Restructuring
-------- ----------- -------- ------------- --------------
- corporate 7,706 - 7,706 (88) 7,618
-------- ----------- -------- ------------- --------------
- SMEs 1,157 - 1,157 (2) 1,155
-------- ----------- -------- ------------- --------------
- retail housing 1,142 - 1,142 (15) 1,127
-------- ----------- -------- ------------- --------------
- retail other 41,996 - 41,996 (1,884) 40,112
-------- ----------- -------- ------------- --------------
Recoveries
-------- ----------- -------- ------------- --------------
- corporate 18,493 - 18,493 (853) 17,640
-------- ----------- -------- ------------- --------------
- SMEs 21,997 - 21,997 (1,306) 20,691
-------- ----------- -------- ------------- --------------
- retail housing 5,316 - 5,316 (564) 4,752
-------- ----------- -------- ------------- --------------
- retail other 86,039 - 86,039 (6,365) 79,674
-------- ----------- -------- ------------- --------------
International banking
services 73 - 73 (6) 67
-------- ----------- -------- ------------- --------------
184,964 - 184,964 (11,083) 173,881
======== =========== ======== ============= ==============
F.5 Analysis of loans and advances to customers by staging
The following tables present the Group's loans and advances to
customers at amortised cost by staging and by business line
concentration:
31 March 2020 Stage Stage Stage POCI Total
1 2 3
EUR000 EUR000 EUR000 EUR000 EUR000
---------- ---------- ---------- --------- -----------
Gross loans at amortised cost
before residual fair value
adjustment on initial recognition 6,524,224 2,128,637 2,937,478 611,973 12,202,312
---------- ---------- ---------- --------- -----------
Residual fair value adjustment
on initial recognition (75,299) (20,594) (16,213) (88,322) (200,428)
---------- ---------- ---------- --------- -----------
Gross loans at amortised cost
after residual fair value
adjustment on initial recognition 6,448,925 2,108,043 2,921,265 523,651 12,001,884
========== ========== ========== ========= ===========
Gross loans at amortised cost Stage Stage Stage POCI Total
before residual fair value 1 2 3
adjustment on initial recognition
31 March 2020
By business line EUR000 EUR000 EUR000 EUR000 EUR000
---------- ---------- ---------- -------- -----------
40,68 1,998,30
Corporate 1,546,720 354,456 56,445 6 7
---------- ---------- ---------- -------- -----------
Global corporate 1,429,394 361,877 144,656 36,867 1,972,794
---------- ---------- ---------- -------- -----------
12,35 1,144,32
SMEs 766,782 330,902 34,283 4 1
---------- ---------- ---------- -------- -----------
Retail
---------- ---------- ---------- -------- -----------
- housing 2,081,153 643,996 102,685 12,062 2,839,896
---------- ---------- ---------- -------- -----------
- consumer, credit cards and
other 552,376 270,969 49,625 19,510 892,480
---------- ---------- ---------- -------- -----------
Restructuring
---------- ---------- ---------- -------- -----------
- corporate 31,038 46,485 172,013 20,004 269,540
---------- ---------- ---------- -------- -----------
- SMEs 28,003 48,419 204,986 18,518 299,926
---------- ---------- ---------- -------- -----------
- retail housing 594 7,601 318,205 8,850 335,250
---------- ---------- ---------- -------- -----------
- retail other 224 1,804 167,249 7,089 176,366
---------- ---------- ---------- -------- -----------
Recoveries
---------- ---------- ---------- -------- -----------
- corporate - - 82,246 18,036 100,282
---------- ---------- ---------- -------- -----------
- SMEs - - 370,734 75,028 445,762
---------- ---------- ---------- -------- -----------
- retail housing - - 712,866 174,491 887,357
---------- ---------- ---------- -------- -----------
- retail other 169 18 509,392 167,295 676,874
---------- ---------- ---------- -------- -----------
International banking services 71,182 48,661 10,172 209 130,224
---------- ---------- ---------- -------- -----------
Wealth management 16,589 13,449 1,921 974 32,933
---------- ---------- ---------- -------- -----------
6,524,224 2,128,637 2,937,478 611,973 12,202,312
========== ========== ========== ======== ===========
Residual fair value adjustment Stage Stage Stage POCI Total
on initial recognition 1 2 3
31 March 2020
By business line EUR000 EUR000 EUR000 EUR000 EUR000
--------- --------- --------- --------- ----------
Corporate (19,460) (926) 1,237 (304) (19,453)
--------- --------- --------- --------- ----------
Global corporate (10,771) (5,089) 401 (547) (16,006)
--------- --------- --------- --------- ----------
SMEs (11,447) (3,998) (108) (687) (16,240)
--------- --------- --------- --------- ----------
Retail
--------- --------- --------- --------- ----------
- housing (33,490) (6,397) (160) (415) (40,462)
--------- --------- --------- --------- ----------
- consumer, credit cards and
other 1,321 227 185 (202) 1,531
--------- --------- --------- --------- ----------
Restructuring
--------- --------- --------- --------- ----------
- corporate 16 (1,403) (1,142) (128) (2,657)
--------- --------- --------- --------- ----------
- SMEs (96) (578) (2,321) (1,271) (4,266)
--------- --------- --------- --------- ----------
- retail housing - (33) (2,002) (843) (2,878)
--------- --------- --------- --------- ----------
- retail other - 21 (1,172) (1,426) (2,577)
--------- --------- --------- --------- ----------
Recoveries
--------- --------- --------- --------- ----------
- corporate - - (277) (2,394) (2,671)
--------- --------- --------- --------- ----------
- SMEs - - (2,660) (13,648) (16,308)
--------- --------- --------- --------- ----------
- retail housing - - (3,606) (33,747) (37,353)
--------- --------- --------- --------- ----------
- retail other - - (4,463) (32,710) (37,173)
--------- --------- --------- --------- ----------
International banking services (315) (1,008) (19) - (1,342)
--------- --------- --------- --------- ----------
Wealth management (1,057) (1,410) (106) - (2,573)
--------- --------- --------- --------- ----------
(75,299) (20,594) (16,213) (88,322) (200,428)
========= ========= ========= ========= ==========
Gross loans at amortised cost Stage Stage Stage POCI Total
after residual fair value 1 2 3
adjustment on initial recognition
31 March 2020
By business line EUR000 EUR000 EUR000 EUR000 EUR000
---------- ---------- ---------- -------- ------------
40,38 1,978,85
Corporate 1,527,260 353,530 57,682 2 4
---------- ---------- ---------- -------- ------------
Global corporate 1,418,623 356,788 145,057 36,320 1 , 956,788
---------- ---------- ---------- -------- ------------
11,66 1,128,08
SMEs 755,335 326,904 34,175 7 1
---------- ---------- ---------- -------- ------------
Retail
---------- ---------- ---------- -------- ------------
- housing 2,047,663 637,599 102,525 11,647 2,799,434
---------- ---------- ---------- -------- ------------
- consumer, credit cards and
other 553,697 271,196 49,810 19,308 894,011
---------- ---------- ---------- -------- ------------
Restructuring
---------- ---------- ---------- -------- ------------
- corporate 31,054 45,082 170,871 19,876 266,883
---------- ---------- ---------- -------- ------------
- SMEs 27,907 47,841 202,665 17,247 295,660
---------- ---------- ---------- -------- ------------
- retail housing 594 7,568 316,203 8,007 332,372
---------- ---------- ---------- -------- ------------
- retail other 224 1,825 166,077 5,663 173,789
---------- ---------- ---------- -------- ------------
Recoveries
---------- ---------- ---------- -------- ------------
- corporate - - 81,969 15,642 97,611
---------- ---------- ---------- -------- ------------
- SMEs - - 368,074 61,380 429,454
---------- ---------- ---------- -------- ------------
- retail housing - - 709,260 140,744 850,004
---------- ---------- ---------- -------- ------------
- retail other 169 18 504,929 134,585 639,701
---------- ---------- ---------- -------- ------------
International banking services 70,867 47,653 10,153 209 128,882
---------- ---------- ---------- -------- ------------
Wealth management 15,532 12,039 1,815 974 30,360
---------- ---------- ---------- -------- ------------
6,448,925 2,108,043 2,921,265 523,651 12,001,884
========== ========== ========== ======== ============
31 December 2019 Stage Stage Stage POCI Total
1 2 3
EUR000 EUR000 EUR000 EUR000 EUR000
---------- ---------- ---------- --------- -----------
Gross loans at amortised cost
before residual fair value
adjustment on initial recognition 7,020,377 1,523,823 3,038,733 627,212 12,210,145
---------- ---------- ---------- --------- -----------
Residual fair value adjustment
on initial recognition (75,508) (20,455) (16,516) (89,520) (201,999)
---------- ---------- ---------- --------- -----------
Gross loans at amortised cost
after residual fair value
adjustment on initial recognition 6,944,869 1,503,368 3,022,217 537,692 12,008,146
========== ========== ========== ========= ===========
Gross loans at amortised cost Stage Stage Stage POCI Total
before residual fair value 1 2 3
adjustment on initial recognition
31 December 2019
By business line EUR000 EUR000 EUR000 EUR000 EUR000
---------- ---------- ---------- -------- -----------
Corporate 1,643,073 248,464 60,676 40,814 1,993,027
---------- ---------- ---------- -------- -----------
Global corporate 1,467,004 263,296 149,464 36,327 1,916,091
---------- ---------- ---------- -------- -----------
SMEs 849,347 226,351 40,463 10,970 1,127,131
---------- ---------- ---------- -------- -----------
Retail
---------- ---------- ---------- -------- -----------
- housing 2,237,619 435,853 149,257 11,682 2,834,411
---------- ---------- ---------- -------- -----------
- consumer, credit cards and
other 644,345 169,440 60,826 19,398 894,009
---------- ---------- ---------- -------- -----------
Restructuring
---------- ---------- ---------- -------- -----------
- corporate 32,992 61,896 198,152 30,630 323,670
---------- ---------- ---------- -------- -----------
- SMEs 49,279 55,902 195,681 21,422 322,284
---------- ---------- ---------- -------- -----------
- retail housing 2,613 3,881 336,931 10,168 353,593
---------- ---------- ---------- -------- -----------
- retail other 430 607 173,213 7,518 181,768
---------- ---------- ---------- -------- -----------
Recoveries
---------- ---------- ---------- -------- -----------
- corporate - - 74,899 18,400 93,299
---------- ---------- ---------- -------- -----------
- SMEs - - 374,671 74,888 449,559
---------- ---------- ---------- -------- -----------
- retail housing - - 706,060 176,251 882,311
---------- ---------- ---------- -------- -----------
- retail other 216 - 503,408 167,163 670,787
---------- ---------- ---------- -------- -----------
International banking services 76,253 45,300 12,805 582 134,940
---------- ---------- ---------- -------- -----------
Wealth management 17,206 12,833 2,227 999 33,265
---------- ---------- ---------- -------- -----------
7,020,377 1,523,823 3,038,733 627,212 12,210,145
========== ========== ========== ======== ===========
Residual fair value adjustment Stage Stage Stage POCI Total
on initial recognition 1 2 3
31 December 2019
By business line EUR000 EUR000 EUR000 EUR000 EUR000
--------- --------- --------- --------- ----------
Corporate (18,187) (963) 1,241 (303) (18,212)
--------- --------- --------- --------- ----------
Global corporate (10,924) (4,871) - (547) (16,342)
--------- --------- --------- --------- ----------
SMEs (11,522) (4,374) (244) (687) (16,827)
--------- --------- --------- --------- ----------
Retail
--------- --------- --------- --------- ----------
- housing (35,575) (5,653) (237) (259) (41,724)
--------- --------- --------- --------- ----------
- consumer, credit cards and
other 2,303 (377) 64 (155) 1,835
--------- --------- --------- --------- ----------
Restructuring
--------- --------- --------- --------- ----------
- corporate (113) (1,351) (833) (248) (2,545)
--------- --------- --------- --------- ----------
- SMEs (86) (557) (2,266) (2,098) (5,007)
--------- --------- --------- --------- ----------
- retail housing (9) (15) (2,039) (996) (3,059)
--------- --------- --------- --------- ----------
- retail other - - (1,134) (1,589) (2,723)
--------- --------- --------- --------- ----------
Recoveries
--------- --------- --------- --------- ----------
- corporate - - (262) (2,430) (2,692)
--------- --------- --------- --------- ----------
- SMEs - - (2,625) (13,356) (15,981)
--------- --------- --------- --------- ----------
- retail housing - - (3,668) (33,986) (37,654)
--------- --------- --------- --------- ----------
- retail other - - (4,390) (32,866) (37,256)
--------- --------- --------- --------- ----------
International banking services (288) (983) (17) - (1,288)
--------- --------- --------- --------- ----------
Wealth management (1,107) (1,311) (106) - (2,524)
--------- --------- --------- --------- ----------
(75,508) (20,455) (16,516) (89,520) (201,999)
========= ========= ========= ========= ==========
Gross loans at amortised cost Stage Stage Stage POCI Total
after residual fair value 1 2 3
adjustment on initial recognition
31 December 2019
By business line EUR000 EUR000 EUR000 EUR000 EUR000
---------- ---------- ---------- -------- -----------
Corporate 1,624,886 247,501 61,917 40,511 1,974,815
---------- ---------- ---------- -------- -----------
Global corporate 1,456,080 258,425 149,464 35,780 1,899,749
---------- ---------- ---------- -------- -----------
SMEs 837,825 221,977 40,219 10,283 1,110,304
---------- ---------- ---------- -------- -----------
Retail
---------- ---------- ---------- -------- -----------
- housing 2,202,044 430,200 149,020 11,423 2,792,687
---------- ---------- ---------- -------- -----------
- consumer, credit cards and
other 646,648 169,063 60,890 19,243 895,844
---------- ---------- ---------- -------- -----------
Restructuring
---------- ---------- ---------- -------- -----------
- corporate 32,879 60,545 197,319 30,382 321,125
---------- ---------- ---------- -------- -----------
- SMEs 49,193 55,345 193,415 19,324 317,277
---------- ---------- ---------- -------- -----------
- retail housing 2,604 3,866 334,892 9,172 350,534
---------- ---------- ---------- -------- -----------
- retail other 430 607 172,079 5,929 179,045
---------- ---------- ---------- -------- -----------
Recoveries
---------- ---------- ---------- -------- -----------
- corporate - - 74,637 15,970 90,607
---------- ---------- ---------- -------- -----------
- SMEs - - 372,046 61,532 433,578
---------- ---------- ---------- -------- -----------
- retail housing - - 702,392 142,265 844,657
---------- ---------- ---------- -------- -----------
- retail other 216 - 499,018 134,297 633,531
---------- ---------- ---------- -------- -----------
International banking services 75,965 44,317 12,788 582 133,652
---------- ---------- ---------- -------- -----------
Wealth management 16,099 11,522 2,121 999 30,741
---------- ---------- ---------- -------- -----------
6,944,869 1,503,368 3,022,217 537,692 12,008,146
========== ========== ========== ======== ===========
The following table presents the Group's loans and advances to
customers at amortised cost before residual fair value adjustment
on initial recognition by staging and geographical analysis.
31 March 2020 Stage Stage Stage POCI Total
1 2 3
EUR000 EUR000 EUR000 EUR000 EUR000
---------- ---------- ---------- -------- -----------
Cyprus 6,523,507 2,128,637 2,863,144 611,973 12,127,261
---------- ---------- ---------- -------- -----------
Other countries 717 - 74,334 - 75,051
---------- ---------- ---------- -------- -----------
6,524,224 2,128,637 2,937,478 611,973 12,202,312
========== ========== ========== ======== ===========
31 December 2019 Stage Stage Stage POCI Total
1 2 3
EUR000 EUR000 EUR000 EUR000 EUR000
---------- ---------- ---------- -------- -----------
Cyprus 7,019,591 1,523,823 2,953,734 627,212 12,124,360
---------- ---------- ---------- -------- -----------
Other countries 786 - 84,999 - 85,785
---------- ---------- ---------- -------- -----------
7,020,377 1,523,823 3,038,733 627,212 12,210,145
========== ========== ========== ======== ===========
Loans and advances to customers classified as held for sale
The following tables present the Group's loans and advances to
customers at amortised cost classified as held for sale by staging
and by business line concentration.
31 March 2020 Stage Stage Stage POCI Total
1 2 3
EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- -------- -------- ---------
Gross loans at amortised cost
before residual fair value
adjustment on initial recognition 25 929 147,580 29,896 178,430
------- ------- -------- -------- ---------
Residual fair value adjustment
on initial recognition - 12 (3,250) (7,503) (10,741)
------- ------- -------- -------- ---------
Gross loans at amortised cost
after residual fair value
adjustment on initial recognition 25 941 144,330 22,393 167,689
======= ======= ======== ======== =========
Gross loans at amortised cost Stage Stage Stage POCI Total
before residual fair value 1 2 3
adjustment on initial recognition
31 March 2020
By business line EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- -------- ------- --------
Corporate - 360 - - 360
------- ------- -------- ------- --------
SMEs - - - 3 3
------- ------- -------- ------- --------
Retail
------- ------- -------- ------- --------
- consumer, credit cards and
other - - 18 - 18
------- ------- -------- ------- --------
Restructuring
------- ------- -------- ------- --------
- corporate 20 569 4,742 982 6,313
------- ------- -------- ------- --------
- SMEs 5 - 960 204 1,169
------- ------- -------- ------- --------
- retail housing - - 23 - 23
------- ------- -------- ------- --------
- retail other - - 5,774 1,308 7,082
------- ------- -------- ------- --------
Recoveries
------- ------- -------- ------- --------
- corporate - - 14,437 3,780 18,217
------- ------- -------- ------- --------
- SMEs - - 16,771 6,336 23,107
------- ------- -------- ------- --------
- retail housing - - 4,677 1,182 5,859
------- ------- -------- ------- --------
- retail other - - 100,159 16,046 116,205
------- ------- -------- ------- --------
International banking services - - 19 55 74
------- ------- -------- ------- --------
25 929 147,580 29,896 178,430
======= ======= ======== ======= ========
Loans and advances to customers classified as held for sale
(continued)
Residual fair value adjustment Stage Stage Stage POCI Total
on initial recognition 1 2 3
31 March 2020
By business line EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- -------- -------- ---------
Corporate - - 1 - 1
------- ------- -------- -------- ---------
Retail
------- ------- -------- -------- ---------
- consumer, credit cards and
other - - (1) - (1)
------- ------- -------- -------- ---------
Restructuring
------- ------- -------- -------- ---------
- corporate - 12 (2) (99) (89)
------- ------- -------- -------- ---------
- SMEs - - - (2) (2)
------- ------- -------- -------- ---------
- retail housing - - (1) - (1)
------- ------- -------- -------- ---------
- retail other - - (31) (179) (210)
------- ------- -------- -------- ---------
Recoveries
------- ------- -------- -------- ---------
- corporate - - (213) (638) (851)
------- ------- -------- -------- ---------
- SMEs - - (357) (951) (1,308)
------- ------- -------- -------- ---------
- retail housing - - (211) (370) (581)
------- ------- -------- -------- ---------
- retail other - - (2,435) (5,258) (7,693)
------- ------- -------- -------- ---------
International banking services - - - (6) (6)
------- ------- -------- -------- ---------
- 12 (3,250) (7,503) (10,741)
======= ======= ======== ======== =========
Gross loans at amortised cost Stage Stage Stage POCI Total
after residual fair value 1 2 3
adjustment on initial recognition
31 March 2020
By business line EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- -------- ------- --------
Corporate - 360 1 - 361
------- ------- -------- ------- --------
SMEs - - - 3 3
------- ------- -------- ------- --------
Retail
------- ------- -------- ------- --------
- consumer, credit cards and
other - - 17 - 17
------- ------- -------- ------- --------
Restructuring
------- ------- -------- ------- --------
- corporate 20 581 4,740 883 6,224
------- ------- -------- ------- --------
- SMEs 5 - 960 202 1,167
------- ------- -------- ------- --------
- retail housing - - 22 - 22
------- ------- -------- ------- --------
- retail other - - 5,743 1,129 6,872
------- ------- -------- ------- --------
Recoveries
------- ------- -------- ------- --------
- corporate - - 14,224 3,142 17,366
------- ------- -------- ------- --------
- SMEs - - 16,414 5,385 21,799
------- ------- -------- ------- --------
- retail housing - - 4,466 812 5,278
------- ------- -------- ------- --------
- retail other - - 97,724 10,788 108,512
------- ------- -------- ------- --------
International banking services - - 19 49 68
------- ------- -------- ------- --------
25 941 144,330 22,393 167,689
======= ======= ======== ======= ========
Loans and advances to customers classified as held for sale
(continued)
31 December 2019 Stage Stage Stage POCI Total
1 2 3
EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- -------- -------- ---------
Gross loans at amortised cost
before residual fair value
adjustment on initial recognition 176 807 153,608 30,373 184,964
------- ------- -------- -------- ---------
Residual fair value adjustment
on initial recognition - 13 (3,402) (7,694) (11,083)
------- ------- -------- -------- ---------
Gross loans at amortised cost
after residual fair value
adjustment on initial recognition 176 820 150,206 22,679 173,881
======= ======= ======== ======== =========
Gross loans at amortised cost Stage Stage Stage POCI Total
before residual fair value 1 2 3
adjustment on initial recognition
31 December 2019
By business line EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- -------- ------- --------
Corporate - 360 350 - 710
------- ------- -------- ------- --------
SMEs - - 2 3 5
------- ------- -------- ------- --------
Retail
------- ------- -------- ------- --------
- consumer, credit cards and
other 139 47 144 - 330
------- ------- -------- ------- --------
Restructuring
------- ------- -------- ------- --------
- corporate 20 397 6,164 1,125 7,706
------- ------- -------- ------- --------
- SMEs 7 1 952 197 1,157
------- ------- -------- ------- --------
- retail housing 4 - 1,128 10 1,142
------- ------- -------- ------- --------
- retail other 6 2 37,281 4,707 41,996
------- ------- -------- ------- --------
Recoveries
------- ------- -------- ------- --------
- corporate - - 14,757 3,736 18,493
------- ------- -------- ------- --------
- SMEs - - 15,749 6,248 21,997
------- ------- -------- ------- --------
- retail housing - - 4,154 1,162 5,316
------- ------- -------- ------- --------
- retail other - - 72,908 13,131 86,039
------- ------- -------- ------- --------
International banking services - - 19 54 73
------- ------- -------- ------- --------
176 807 153,608 30,373 184,964
======= ======= ======== ======= ========
Residual fair value adjustment Stage Stage Stage POCI Total
on initial recognition 1 2 3
31 December 2019
By Business line EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- -------- -------- ---------
Restructuring
------- ------- -------- -------- ---------
- corporate - 13 (2) (99) (88)
------- ------- -------- -------- ---------
- SMEs - - - (2) (2)
------- ------- -------- -------- ---------
- retail housing - - (9) (6) (15)
------- ------- -------- -------- ---------
- retail other - - (732) (1,152) (1,884)
------- ------- -------- -------- ---------
Recoveries
------- ------- -------- -------- ---------
- corporate - - (214) (639) (853)
------- ------- -------- -------- ---------
- SMEs - - (357) (949) (1,306)
------- ------- -------- -------- ---------
- retail housing - - (200) (364) (564)
------- ------- -------- -------- ---------
- retail other - - (1,888) (4,477) (6,365)
------- ------- -------- -------- ---------
International banking services - - - (6) (6)
------- ------- -------- -------- ---------
- 13 (3,402) (7,694) (11,083)
======= ======= ======== ======== =========
Loans and advances to customers classified as held for sale
(continued)
Gross loans at amortised cost Stage Stage Stage POCI Total
after residual fair value 1 2 3
adjustment on initial recognition
31 December 2019
By Business line EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- -------- ------- --------
Corporate - 360 350 - 710
------- ------- -------- ------- --------
SMEs - - 2 3 5
------- ------- -------- ------- --------
Retail
------- ------- -------- ------- --------
- consumer, credit cards and
other 139 47 144 - 330
------- ------- -------- ------- --------
Restructuring
------- ------- -------- ------- --------
- corporate 20 410 6,162 1,026 7,618
------- ------- -------- ------- --------
- SMEs 7 1 952 195 1,155
------- ------- -------- ------- --------
- retail housing 4 - 1,119 4 1,127
------- ------- -------- ------- --------
- retail other 6 2 36,549 3,555 40,112
------- ------- -------- ------- --------
Recoveries
------- ------- -------- ------- --------
- corporate - - 14,543 3,097 17,640
------- ------- -------- ------- --------
- SMEs - - 15,392 5,299 20,691
------- ------- -------- ------- --------
- retail housing - - 3,954 798 4,752
------- ------- -------- ------- --------
- retail other - - 71,020 8,654 79,674
------- ------- -------- ------- --------
International banking services - - 19 48 67
------- ------- -------- ------- --------
176 820 150,206 22,679 173,881
======= ======= ======== ======= ========
The following table presents the staging of the Group's gross
loans and advances to customers at amortised cost before residual
fair value adjustment on initial recognition classified as held for
sale as at 31 March 2020 and 31 December 2019 by geographical
analysis:
31 March 2020 Stage Stage Stage POCI Total
1 2 3
EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- -------- ------- --------
Cyprus 25 929 147,580 29,896 178,430
------- ------- -------- ------- --------
25 929 147,580 29,896 178,430
======= ======= ======== ======= ========
31 December 2019 Stage Stage Stage POCI Total
1 2 3
EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- -------- ------- --------
Cyprus 176 807 153,608 30,373 184,964
------- ------- -------- ------- --------
176 807 153,608 30,373 184,964
======= ======= ======== ======= ========
F.6 Credit losses to cover credit risk on loans and advances to customers
Three months ended
31 March
2020 2019
---------- ---------
EUR000 EUR000
---------- ---------
Impairment loss net of reversals on loans and
advances to customers 65,569 69,798
---------- ---------
Recoveries of loans and advances to customers
previously written off (7,536) (8,302)
---------- ---------
Changes in expected cash flows 6,691 (179)
---------- ---------
Financial guarantees and commitments (922) (1,495)
---------- ---------
63,802 59,822
========== =========
The movement in ECL of loans and advances, including the loans
and advances to customers held for sale, and the closing balance
analysis by staging, is as follows:
31 March 2020 Cyprus Other countries Total
EUR000 EUR000 EUR000
---------- ---------------- ----------
1 January 1,742,103 61,447 1,803,550
---------- ---------------- ----------
Foreign exchange and other adjustments 1,913 (3,366) (1,453)
---------- ---------------- ----------
Write offs (42,589) (8,888) (51,477)
---------- ---------------- ----------
Interest provided not recognised in the
income statement 24,464 (4,207) 20,257
---------- ---------------- ----------
Charge for the period 56,914 8,655 65,569
---------- ---------------- ----------
31 March 1,782,805 53,641 1,836,446
========== ================ ==========
Stage 1 25,422 - 25,422
---------- ---------------- ----------
Stage 2 44,392 - 44,392
---------- ---------------- ----------
Stage 3 1,502,448 53,64 1 1,556,089
---------- ---------------- ----------
POCI 210,543 - 210,543
---------- ---------------- ----------
Total 1,782,805 53,641 1,836,446
========== ================ ==========
31 March 20 19 Cyprus Other countries Total
EUR000 EUR000 EUR000
---------- ---------------- -----------
1 January 3,315,259 146,746 3,462,005
---------- ---------------- -----------
Foreign exchange and other adjustments 1,719 3,489 5,208
---------- ---------------- -----------
Write offs (104,071) 2,123 (101,948)
---------- ---------------- -----------
Interest provided not recognised in the
income statement 41,058 2,243 43,301
---------- ---------------- -----------
Charge for the period 68,151 1,647 69,798
---------- ---------------- -----------
31 March 3,322,116 156,248 3, 478,364
========== ================ ===========
Stage 1 30,087 3 30,090
---------- ---------------- -----------
Stage 2 57,531 - 57,531
---------- ---------------- -----------
Stage 3 2,805,551 156,245 2,961,796
---------- ---------------- -----------
POCI 428,947 - 428,947
---------- ---------------- -----------
Total 3,322,116 156,248 3, 478,364
========== ================ ===========
The impairment loss net of reversals on loans and advances to
customers in Cyprus , including the loans and advances to customers
held for sale, by staging for the period is presented in the table
below:
Three months ended
31 March
2020 2019
--------- ----------
EUR000 EUR000
--------- ----------
Stage 1 11,812 (4,050)
--------- ----------
Stage 2 10,220 2,449
--------- ----------
Stage 3 34,882 69,752
--------- ----------
56,914 68,151
========= ==========
The impairment loss net of reversal on loans and advances to
customers in ' ther countries' for the periods ended 31 March 2020
and 31 March 2019 relates to Stage 3 loans and advances to
customers.
The credit losses of loans and advances to customers include
credit losses relating to loans and advances to customers
classified as held for sale. Their balance by staging and
geographical analysis is presented in the table below:
31 March 20 20 Stage Stage Stage 3 POCI Total
1 2
EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- -------- ------- --------
Cyprus 4 139 126,442 17,404 143,989
------- ------- -------- ------- --------
4 139 126,442 17,404 143,989
======= ======= ======== ======= ========
Collectively assessed 4 139 126,442 17,404 143,989
======= ======= ======== ======= ========
31 March 2019 Stage Stage Stage POCI Total
1 2 3
EUR000 EUR000 EUR000 EUR000 EUR000
------- ------- ---------- -------- ----------
Cyprus 8,167 26,381 1,306,685 192,034 1,533,267
------- ------- ---------- -------- ----------
Other countries - - 52,531 - 52,531
------- ------- ---------- -------- ----------
8,167 26,381 1,359,216 192,034 1,585,798
======= ======= ========== ======== ==========
Collectively assessed 8,167 26,381 1,359,216 192,034 1,585,798
======= ======= ========== ======== ==========
The above tables do not include the residual fair value
adjustments on initial recognition of loans acquired from Laiki
Bank as this forms part of the gross carrying amount and ECL on
financial guarantees which are part of other liabilities on the
balance sheet.
During the three months ended 31 March 2020 the total
non--contractual write--offs recorded by the Group amounted to
EUR52,124 thousand (three months ended 31 March 2019: EUR56,244
thousand).
Assumptions have been made about the future changes in property
values, as well as the timing for the realisation of the
collateral, taxes and expenses on the repossession and subsequent
sale of the collateral as well as any other applicable haircuts.
Indexation has been used to estimate updated market values of
properties, while assumptions were made on the basis of a
macroeconomic scenario for future changes in property values.
At 31 March 2020 the weighted average haircut (including
liquidity haircut and selling expenses) used in the collectively
assessed provision calculation for loans and advances to customers
excluding those classified as held for sale is c.32% under the
baseline scenario (31 December 2019: c.32%, excluding those
classified as held for sale).
The timing of recovery from real estate collaterals used in the
collectively assessed provision calculation for loans and advances
to customers has been estimated to be on average seven years under
the baseline scenario (31 December 2019: average seven years),
excluding those classified as held for sale.
For the calculation of individually assessed allowances for ECL,
the timing of recovery of collaterals as well as the haircuts used
are based on the specific facts and circumstances of each case.
For Stage 3 customers, the calculation of individually assessed
allowances for ECL is the weighted average of three scenarios;
base, adverse and favourable. The base scenario focuses on the
following variables, which are based on the specific facts and
circumstances of each customer: the operational cash flows, the
timing of recovery of collaterals and the haircuts from the
realisation of collateral. The base scenario is used to derive
additional scenarios for either better or worse cases. Under the
adverse scenario operational cash flows are decreased by 50%,
applied haircuts on real estate collateral are increased by 50% and
the timing of recovery of collaterals is increased by one year with
reference to the baseline scenario. Under the favourable scenario,
applied haircuts are decreased by 5%, with no change in the
recovery period with reference to the baseline scenario.
Assumptions used in estimating expected future cash flows
(including cash flows that may result from the realisation of
collateral) reflect current and expected future economic conditions
and are generally consistent with those used in the Stage 3
collectively assessed exposures. In the case of loans and advances
to customers held for sale at 31 March 2020, the Group has taken
into consideration the timing of expected sale and the estimated
sale proceeds in determining the ECL. Amounts previously written
off which are expected to be recovered through sale, are presented
in 'Recoveries of loans and advances to customers previously
written off'.
For the calculation of expected credit losses three scenarios
were used; base, adverse and favourable with 50%, 30% and 20%
probability respectively.
Any positive cumulative average future change in forecasted
property values was capped to zero for the three months ended 31
March 2020 and the year 2019. This applies to all scenarios.
The above assumptions are also influenced by the ongoing
regulatory dialogue BOC PCL maintains with its lead regulator, the
ECB, and other regulatory guidance and interpretations issued by
various regulatory and industry bodies such as the ECB and the EBA,
which provide guidance and expectations as to relevant definitions
and the treatment/classification of certain parameters/assumptions
used in the estimation of allowance for ECL.
Any changes in these assumptions or differences between
assumptions made and actual results could result in significant
changes in the estimated amount of ECL of loans and advances to
customers.
F.7 Rescheduled loans and advances to customers
Cyprus Other Total
countries
31 March 2020 EUR000 EUR000 EUR000
---------- ----------- ----------
Stage 1 266,118 110 266,228
---------- ----------- ----------
Stage 2 384,756 - 384,756
---------- ----------- ----------
Stage 3 1,511,402 31,630 1,543,032
---------- ----------- ----------
POCI 199,514 - 199,514
---------- ----------- ----------
2,361,790 31,740 2,393,530
========== =========== ==========
31 December 2019
---------- ------- ----------
Stage 1 357,658 114 357,772
---------- ------- ----------
Stage 2 299,448 - 299,448
---------- ------- ----------
Stage 3 1,567,155 33,253 1,600,408
---------- ------- ----------
POCI 202,502 - 202,502
---------- ------- ----------
2,426,763 33,367 2,460,130
========== ======= ==========
F.8 Credit risk disclosures
According to the European Banking Authority's ( EBA) standards
and European Central Bank's (ECB) Guidance to Banks on
Non-Performing loans (which was published in March 2017),
Non-Performing Exposures (NPEs) are defined as those exposures that
satisfy one of the following conditions:
(i) The borrower is assessed as unlikely to pay its credit
obligations in full without the realisation of the collateral,
regardless of the existence of any past due amount or of the number
of days past due.
(ii) Defaulted or impaired exposures as per the approach
provided in the Capital Requirement Regulation (CRR), which would
also trigger a default under specific credit adjustment, distress
restructuring and obligor bankruptcy.
(iii) Material exposures as set by the Central Bank of Cyprus
(CBC), which are more than 90 days past due.
(iv) Performing forborne exposures under probation for which
additional forbearance measures are extended.
(v) Performing forborne exposures under probation that present
more than 30 days past due within the probation period.
Exposures include all on and off balance sheet exposures, except
those held for trading, and are categorised as such for their
entire amount without taking into account the existence of
collateral.
The following materiality criteria are applied:
-- When the problematic exposures of a customer that fulfil the
NPE criteria set out above are 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 problematic part of the exposure is classified
as non-performing.
-- Material arrears/excesses are defined as follows:
- Retail exposures: Total arrears/excesses amount greater than EUR100
- Exposures other than retail: Total arrears/excesses are greater than EUR500
and the amount in arrears/excess in relation to the customer's
total exposure is at least 1%.
NPEs may cease to be considered as non-performing only when all
of the following conditions are met:
(i) The extension of forbearance measures does not lead to the
recognition of impairment or default.
(ii) One year has passed since the forbearance measures were extended.
(iii) Following the forbearance measures and according to the
post-forbearance conditions, there is no past due amount or
concerns regarding the full repayment of the exposure.
(iv) No unlikely-to-pay criteria exist for the debtor.
(v) The debtor has made post-forbearance payments of a
non-insignificant amount of capital (different capital thresholds
exist according to the facility type).
The tables below present the analysis of loans and advances to
customers in accordance with the EBA standards.
31 March 2020 Gross loans and advances to customers Accumulated impairment, accumulated negative
changes in fair value due to credit risk
and provisions
Group Of which Of which exposures Accumulated Of which Of which exposures
gross NPEs with forbearance impairment, NPEs with
customer measures accumulated forbearance measures
loans negative
and changes
advances in fair
value
due to
credit
risk and
provisions
----------- ---------- ------------------------ ------------ ---------- -----------------------
Total Of which Total Of which
exposures NPEs exposures on NPEs
with with
forbearance forbearance
measures measures
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Loans and
advances to
customers
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
General
governments 59,836 - - - 3,382 - - -
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Other financial
corporations 128,053 23,376 18,561 2,347 16,215 10,059 1,761 498
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Non-financial
corporations 6,165,853 1,308,949 1,071,435 683,985 739,727 659,039 317,666 305,545
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which: Small
and
Medium sized
Enterprises(2)
(SMEs) 4,657,343 1,034,985 761,451 547,721 639,762 569,496 271,341 260,919
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which:
Commercial
real estate 4,232,700 809,082 733,482 444,405 453,140 389,145 204,944 195,944
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Non-financial
corporations
by sector
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Construction 803,219 246,618 146,545
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Wholesale and
retail
trade 1,305,630 368,880 189,470
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Accommodation
and food
service
activities 1,071,733 49,422 49,770
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Real estate
activities 1,254,196 271,669 137,152
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Manufacturing 443,596 107,195 64,716
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Other sectors 1,287,479 265,165 152,074
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Households 6,182,219 2,228,126 1,534,772 1,200,332 1,180,101 1,101,155 539,706 522,940
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which:
Residential
mortgage
loans(2) 4,801,399 1,753,585 1,255,187 977,790 863,266 796,618 411,335 397,954
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which:
Credit for
consumption(2) 767,775 278,185 174,632 147,680 164,223 160,013 74,046 71,833
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
12,535,961 3,560,451 2,624,768 1,886,664 1,939,425 1,770,253 859,133 828,983
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Loans and
advances to
customers as
held for
sale 178,430 177,467 42,889 42,869 154,730 154,596 37,041 37,038
----------- ---------- ------------ ---------- ------------ ---------- ------------ ---------
Total
on-balance
sheet 12,714,391 3,737,918 2,667,657 1,929,533 2,094,155 1,924,849 896,174 866,021
=========== ========== ============ ========== ============ ========== ============ =========
Gross loans and advances to customers Accumulated impairment, accumulated negative
changes in fair value due to credit risk
and provisions
Group gross Of which Of which exposures Accumulated Of which Of which exposures
customer NPEs with forbearance impairment, NPEs with forbearance
loans measures accumulated measures
and negative
advances changes
in fair
value
due to
credit
risk and
provisions
------------ ---------- ------------------------ ------------ ---------- -----------------------
Total Of which Total Of which
exposures NPEs exposures on NPEs
with with
31 December forbearance forbearance
2019 measures measures
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Loans and
advances to
customers
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
General
governments 56,921 1 - - 3,389 - - -
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Other
financial
corporations 124,343 27,459 18,489 2,366 17,542 14,843 1,466 462
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Non-financial
corporations 6,271,155 1,382,074 1,216,902 737,602 753,848 686,025 348,577 337,290
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which:
Small and
Medium sized
Enterprises
(4) 4,662,994 1,073,846 786,069 556,483 636,820 576,635 271,110 261,229
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which:
Commercial
real estate 4,270,225 858,998 767,008 480,382 457,622 402,751 219,952 211,902
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Non-financial
corporations
by sector
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Construction 823,276 265,879 144,336
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Wholesale and
retail
trade 1,294,815 371,613 185,720
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Accommodation
and food
service
activities 1,055,448 50,116 44,823
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Real estate
activities 1,266,772 296,406 153,802
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Professional,
scientific
and technical
activities 425,134 90,832 53,916
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Other sectors 1,405,710 307,228 171,251
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Households 6,192,505 2,285,998 1,577,249 1,245,937 1,148,304 1,080,696 526,423 513,772
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which:
Residential
mortgage
loans (4) 4,808,202 1,811,698 1,291,083 1,021,084 842,389 783,146 401,561 392,046
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Of which:
Credit for
consumption
(4) 770,552 280,584 177,047 151,313 158,044 156,642 71,357 70,065
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
12,644,924 3,695,532 2,812,640 1,985,905 1,923,083 1,781,564 876,466 851,524
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Loans and
advances to
customers
classified
as held for
sale 184,964 183,974 45,191 45,028 159,035 158,998 37,438 37,429
------------ ---------- ------------ ---------- ------------ ---------- ------------ ---------
Total
on-balance
sheet 12,829,888 3,879,506 2,857,831 2,030,933 2,082,118 1,940,562 913,904 888,953
============ ========== ============ ========== ============ ========== ============ =========
F.9 Pending litigation, claims, regulatory and other matters
The Group in the ordinary course of business , is subject to
enquiries and examinations, requests for information, audits,
investigations and legal and other proceedings by regulators,
governmental and other public bodies, actual and threatened,
relating to the suitability and adequacy of advice given to clients
or the absence of advice, lending and pricing practices, selling
and disclosure requirements, record keeping, filings and a variety
of other matters. Further as part of its disposal process of
certain of its operations, has provided various representations,
warranties and indemnities to the buyers. These relate to, among
other things, the ownership of the loans, the validity of the
liens, tax exposures and other matters agreed with the buyers. In
addition, as a result of the deterioration of the Cypriot economy
and banking sector in 2012 and the subsequent Restructuring of BOC
PCL in 2013 as a result of the bail-in Decrees, BOC PCL is subject
to a large number of proceedings and investigations that either
precede, or result from the events that occurred during the period
of the bail-in Decrees. Most ongoing investigations and proceedings
of significance relate to matters arising during the period prior
to the issue of the bail-in Decrees. Provisions have been
recognised for those cases where the Group is able to estimate
probable losses. Any provision recognised does not constitute an
admission of wrongdoing or legal liability. While the outcome of
these matters is inherently uncertain, management believes that,
based on the information available to it, appropriate provisions
have been made in respect of legal proceedings and regulatory and
other matters.
F.10 Liquidity regulation
The Group has to comply with provisions on the Liquidity
Coverage Ratio (LCR) under CRD IV/CRR (as supplemented by relevant
Regulations). It also monitors its position against the Net Stable
Funding Ratio (NSFR) as proposed under Basel III and expected to
become a regulatory indicator when Capital Requirements Regulation
2 (CRR2) is enforced with the limit set at 100%.
The LCR is designed to promote short-term resilience of a
Group's liquidity risk profile by ensuring that it has sufficient
high quality liquid resources to survive an acute stress scenario
lasting for 30 days. The NSFR has been developed to promote a
sustainable maturity structure of assets and liabilities.
As at 31 March 2020 the Group was in compliance with all
regulatory liquidity requirements. As at 31 March 2020, the LCR
stood at 219% for the Group (compared to 208% at 31 December 2019)
and was in compliance with the minimum regulatory requirement of
100%. As at 31 March 2020 the Group's NSFR, on the basis of the
Basel standards, was 126% (compared to 127% at 31 December
2019).
F.11 Liquidity reserves
The below table sets out the Group's liquidity reserves:
Composition of 31 March 2020 31 December 2019
the liquidity
reserves
Internal Liquidity reserves Internal Liquidity reserves
Liquidity as per LCR Delegated Liquidity as per LCR Delegated
reserves Reg (EU) reserves Reg (EU)
2015/61 LCR eligible 2015/61 LCR eligible
----------- ------------------------ ----------- ------------------------
Level 1 Level Level Level
2A 1 2A
----------- ------------- --------- ----------- ------------- ---------
EUR000 EUR000 EUR000 EUR000 EUR000 EUR000
----------- ------------- --------- ----------- ------------- ---------
Cash and balances
with central banks 4,238,207 4,238,207 - 4,898,360 4,898,361 -
----------- ------------- --------- ----------- ------------- ---------
Nostro and placements
with banks 258,166 - - 147,086 - -
----------- ------------- --------- ----------- ------------- ---------
Liquid investments 1,253,308 1,122,653 141,769 1,214,197 1,115,196 124,763
----------- ------------- --------- ----------- ------------- ---------
Available ECB
Buffer 1,156,409 - - 1,116,249 - -
----------- ------------- --------- ----------- ------------- ---------
Total 6,906,090 5,360,860 141,769 7,375,892 6,013,557 124,763
=========== ============= ========= =========== ============= =========
Internal Liquidity Reserves present the total liquid assets as
defined in BOC PCL's Liquidity Policy. Liquidity reserves as per
LCR Delegated Regulation (EU) 2015/61 present the liquid assets as
per the definition of the aforementioned regulation i.e. High
Quality Liquid Assets (HQLA).
Under Liquidity reserves as per LCR, Nostro and placements with
banks are not included, as they are not considered HQLA (they are
part of the LCR Inflows).
Liquid investments under the Liquidity reserves as per LCR are
shown at market values reduced by standard weights as prescribed by
the LCR regulation. Liquid investments under Internal Liquidity
reserves include all LCR and/or ECB eligible investments and are
shown at market values net of haircut based on ECB haircuts and
methodology.
Finally, available ECB buffer is not part of the Liquidity
reserves as per LCR, since the assets in the ECB collateral pool
are not LCR eligible but only eligible as collateral for Eurosystem
credit operations.
The Liquidity Reserves are managed by Group Treasury.
Resulting from the outbreak of COVID-19, the ECB has adopted a
broad set of policy measures to mitigate the economic impact of the
crisis and to ensure that its directly supervised banks can
continue to fulfil their role in funding the real economy. A
high-level description of the main measures which have a direct or
indirect impact on the liquidity position of banks is described
below.
The ECB announced that it will allow banks to operate
temporarily below the defined level of 100% of the LCR.
In addition, the package included a set of collateral easing
measures, which resulted in increasing the banks' borrowing
capacity at the ECB operations and improving the liquidity buffers
due to the lower haircuts applied to the ECB eligible collaterals
the bank holds, that comprises of bonds and Additional Credit
Claims (ACC). The collateral easing packages are designed as
temporary measures (with the exception of part of the haircut
reduction on ACCs which is permanent) that will remain in place
until September 2021 with the flexibility to be extended or
modified. Furthermore, the ECB enlarged the scope of the ACC
framework, increasing the universe of eligible loans. As far as
existing collateral, the ECB announced changes in collateral rules,
temporarily accepting collaterals with a rating below investment
grade, up to a certain rating level.
Additionally, the package contained measures to provide
liquidity support to the euro area financial system, such as a
series of LTROs which will run from March to June 2020 so
participants could shift their outstanding LTRO amounts to TLTRO
III, as well as significant favourable amendments in the terms and
characteristics of TLTRO III. Furthermore, a new series of
additional longer-term refinancing operations, called Pandemic
Emergency longer-term refinancing operations (PELTROs), were
introduced with an interest rate of 25 basis points below the
average rate applied in the Eurosystem's main refinancing
operations (currently 0%) over the life of the respective PELTRO
that are maturing in the third quarter of 2021.
F.12 Capital management
The primary objective of the Group's capital management is to
ensure compliance with the relevant regulatory capital requirements
and to maintain strong credit ratings and healthy capital adequacy
ratios in order to support its business and maximise shareholders'
value.
The capital adequacy framework, as in force, was incorporated
through the CRR and Capital Requirements Directive IV (CRD IV) and
came into effect on 1 January 2014 with certain specified
provisions implemented gradually. The CRR and CRD IV transposed the
new capital, liquidity and leverage standards of Basel III into the
European Union's legal framework. CRR establishes the prudential
requirements for capital, liquidity and leverage for credit
institutions and investment firms. It is directly applicable in all
EU member states. CRD IV governs access to deposit-taking
activities and internal governance arrangements including
remuneration, board composition and transparency. Unlike the CRR,
member states were required to transpose the CRD IV into national
laws and it allowed national regulators to impose additional
capital buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (CRR
II and CRDV) 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 CRDV into national law.
Certain provisions took immediate effect (primarily relating to
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 European Banking Authority (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).
In addition, the Regulation (EU) 2016/445 of the ECB on the
exercise of options and discretions available in Union law
(ECB/2016/4) provides certain transitional arrangements which
supersede the national discretions unless they are stricter than
the EU Regulation 2016/445.
The CET1 ratio of the Group at 31 March 2020 stands at 14.3% and
the total capital ratio at 17.7% on a transitional basis.
The minimum Pillar I total capital requirement is 8.0% and may
be met, in addition to the 4.5% CET1 requirement, with up to 1.5%
by Additional Tier 1 capital and with up to 2.0% by Tier 2
capital.
The Group is also subject to additional capital requirements for
risks which are not covered by the Pillar I capital requirements
(Pillar II add-ons).
Following the annual Supervisory Review and Evaluation Process
(SREP) performed by the ECB in 2019 and based on the final 2019 ECB
decision received on 4 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 (O-SII buffer). The Group's phased-in CET1
capital ratio was set to 11.0%, comprising a 4.5% Pillar I
requirement, a 3.0% Pillar II requirement (P2R), the Capital
Conservation Buffer of 2.5% (fully phased-in as of 1 January 2019)
and the O-SII buffer of 1.0%. The Group's Total Capital requirement
is 14.5%, comprising an 8.0% Pillar I requirement (of which up to
1.50% could be in the form of Additional Tier 1 capital and up to
2.00% in the form of Tier 2 capital) , a 3.0% Pillar II
requirement, the Capital Conservation Buffer of 2.5% and the O-SII
buffer of 1.0%. The ECB has also provided non-public guidance for
an additional Pillar II CET1 buffer. The final 2019 SREP decision
is effective from 1 January 2020.
In April 2020, and following ECB and EBA announcements on 12
March 2020 in response to the COVID-19 outbreak, BOC PCL received
an amending decision from the ECB amending the composition of the
Pillar II additional own funds requirement, allowing to use
Additional Tier 1 (AT1) capital and Tier 2 (T2) capital to meet
Pillar II Requirements and not only by CET1 , compared to the 2019
final SREP decision received in December 2019 which required P2R to
be met in full with CET1. This decision is effective from 12 March
2020. As a result, the minimum phased-in CET1 requirement decreased
to 9.7%, comprising a 4.5% Pillar I requirement, a 1.7% Pillar II
requirement, the Capital Conservation Buffer (CCB) of 2.5% (fully
phased in as of 1 January 2019) and the O-SII buffer of 1.0%. There
is no change on the Total Capital requirement.
The 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.
The Group's minimum phased-in CET1 capital ratio for 2019 was
10.5%, comprising a 4.5% Pillar I requirement, a 3.0% Pillar II
requirement, the CCB of 2.5% and the O-SII buffer of 0.5%. The ECB
had also provided non-public guidance for an additional Pillar II
CET1 buffer.
The Group's minimum phased-in Total capital ratio requirement
for 2019 was 14.0%, comprising a 8.0% Pillar I requirement (of
which up to 1.50% could be in the form of Additional Tier 1 capital
and up to 2.00% in the form of Tier 2 capital), a 3.0% Pillar II
requirement, the CCB of 2.5% and O-SII buffer of 0.5%.
The above minimum ratios apply for both, BOC PCL and the
Group.
The capital position of the Group and BOC PCL at 31 March 2020
exceeds both their Pillar I and their Pillar II add-on capital
requirements. However, the Pillar II add-on capital requirements
are a point-in-time assessment and therefore are subject to change
over time.
The CBC, in accordance with the Macroprudential Oversight of
Institutions Law of 2015, sets, on a quarterly basis, the
Countercyclical Capital Buffer (CCyB) level in accordance with the
methodology described in this law. The CBC has set the level of the
CCyB for Cyprus at 0% for the six months up to 30 June 2020 and the
year 2019.
In accordance with the provisions of this law, the CBC is also
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. BOC PCL has been designated as an O-SII and the
CBC set the O-SII buffer for BOC PCL and the Group at 2.0%.
This buffer will be phased-in gradually, having started from 1
January 2019 at 0.5% and set to be increasing by 0.5% every year
thereafter, until being fully implemented (2.0%) on 1 January 2022.
In April 2020, in response to the COVID-19 outbreak, the CBC
decided to delay the phasing-in (0.5%) of the O-SII buffer on 1
January 2021 and 1 January 2022 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.
The insurance subsidiaries of the Group comply with the
requirements of the Superintendent of Insurance including the
minimum solvency ratio. The regulated UCITS management company of
the Group, BOC Asset Management Ltd complies with the regulatory
capital requirements of the Cyprus Securities and Exchange
Commission (CySEC) laws and regulations. The regulated investment
firm (CIF) of the Group, The Cyprus Investment and Securities
Corporation Ltd (CISCO) meets the minimum total capital ratio
hurdle of CySEC but lacks behind the minimum initial capital
requirement and the additional capital conservation buffer as at 31
March 2020 and as at 31 December 2019. As a result a business and
capital plan was submitted to CySEC in December 2019. CISCO also
submitted to CySEC its Internal Capital Adequacy Assessment Process
(ICAAP) Report in September 2019. It is expected that CySEC will
provide CISCO a reasonable timeframe, based on the capital/business
plan submitted, to comply, as per its Supervisory Review and
Evaluation Process (SREP).
F.12.1 Capital position
The capital position of the Group and BOC PCL as at the
reporting date (after applying the transitional arrangements) is
presented below:
Regulatory capital Group BOC PCL
31 March 31 December 31 March 31 December
2020 2019 2020 2019(5)
----------- ------------ ----------- ------------
EUR000 EUR000 EUR000 EUR000
----------- ------------ ----------- ------------
Transitional Common Equity
Tier 1 (CET1 ) 1,806,872 1,909,049 1,760,011 1,869,105
----------- ------------ ----------- ------------
Transitional Additional
Tier 1 capital (AT1) 220,000 220,000 220,000 220,000
----------- ------------ ----------- ------------
Tier 2 capital (T2) 200,572 189,955 250,000 250,000
----------- ------------ ----------- ------------
Transitional total regulatory
capital 2,227,444 2,319,004 2,230,011 2,339,105
=========== ============ =========== ============
Risk weighted assets -
credit risk 11,256,096 11,547,303 11,227,150 11,518,932
----------- ------------ ----------- ------------
Risk weighted assets -
operational risk 1,342,700 1,342,700 1,255,875 1,255,875
----------- ------------ ----------- ------------
Total risk weighted assets 12,598,796 12,890,003 12,483,025 12,774,807
=========== ============ =========== ============
% % % %
----------- ------------ ----------- ------------
Transitional Common Equity
Tier 1 ratio 14.3 14.8 14.1 14.6
----------- ------------ ----------- ------------
Transitional total capital
ratio 17.7 18.0 17.9 18.3
----------- ------------ ----------- ------------
Fully loaded Group BOC PCL
31 March 31 December 31 March 31 December
2020 2019 (8) 2020 (8) 2019 (8)
--------- ------------ ---------- ------------
% % % %
--------- ------------ ---------- ------------
Common Equity Tier 1 ratio 12.9 13.1 12.6 12.9
--------- ------------ ---------- ------------
Total capital ratio 16.4 16.5 16.4 16.6
--------- ------------ ---------- ------------
During the three months ended 31 March 2020 the CET1 was
negatively affected mainly by the phasing-in of IFRS 9 transitional
adjustments, the decrease in revaluation reserves and ECL charges.
Risk weighted assets movement and pre-provision income had a
positive effect on CET1 ratio.
As a result of the above, the CET1 ratio decreased by c. 50 bps
during the three months ended 31 March 2020.
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 over a
five-year period. The amount added back over the transitional
period decreases based on a weighting factor of 95% in 2018, 85% in
2019, 70% in 2020, 50% in 2021 and 25% in 2022. The impact of IFRS
9 is fully absorbed after the five-year transitional period.
Following the COVID-19 outbreak, on 12 March 2020, the ECB and
the EBA announced the following relaxation measures for the minimum
capital requirements for banks:
-- Banks are temporarily allowed to operate below the level of
capital defined by the Pillar II Guidance, the Capital Conservation
Buffer and the Countercyclical Buffer. The Countercyclical Buffer
is 0% for Cypriot Banks.
-- Banks are allowed to use Additional Tier 1 (AT1) capital and
Tier 2 (T2) capital to meet Pillar II Requirements and not only by
CET1; this brings forward a measure that was scheduled to come into
effect in January 2021 with CRD V. An amending SREP decision was
received in April 2020 to this respect.
The ECB's capital easing measures for COVID-19 increased the
Group's CET1 buffer by 131 bps, effective from 12 March 2020,
following the frontloading of the new rules on the Pillar II
Requirement composition, initially scheduled to come into effect in
January 2021. The Total SREP capital requirement remains
unchanged.
In addition, in April 2020 the CBC decided to delay the
phasing-in of the 1 January 2021 O-SII buffer (0.5% for BOC PCL) 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.
F.12.2 Overview of RWA
RWAs Minimum capital
requirements
31 March 31 December 31 March
2020 2019 2020
----- ------------------------------------- ----------- ---------------------------
EUR000 EUR000 EUR000
----------------------------------------- ----------- ------------ ---------------------------
Credit risk (excl uding counterparty
1 credit risk (CCR)) 11,116,102 11,411,497 889,288
----------------------------------------- ----------- ------------ ---------------------------
Of which the Standardised
2 A pproach 11,116,102 11,411,497 889,288
----------------------------------------- ----------- ------------ ---------------------------
6 CCR 16,810 12,618 1,345
----------------------------------------- ----------- ------------ ---------------------------
7 Of which mark to market 12,385 9,568 991
----------------------------------------- ----------- ------------ ---------------------------
Of which Credit Valuation
12 Adjustment (CVA) 4,425 3,050 354
----------------------------------------- ----------- ------------ ---------------------------
Securitisation exposures
in the banking book (after
14 the cap) 45,634 45,638 3,651
----------------------------------------- ----------- ------------ ---------------------------
18 Of which Standardised Approach 45,634 45,638 3,651
----------------------------------------- ----------- ------------ ---------------------------
23 Operational r isk 1,342,700 1,342,700 107,416
----------------------------------------- ----------- ------------ ---------------------------
25 Of which Standardised A pproach 1,342,700 1,342,700 107,416
----------------------------------------- ----------- ------------ ---------------------------
Amounts below the thresholds
for deduction (subject to
27 2 5 0% risk weight) 77,550 77,550 6,204
----------------------------------------- ----------- ------------ ---------------------------
29 Total 12,598,796 12,890,003 1,007,904
----------------------------------------- =========== ============ ===========================
The overall decrease in total RWA and capital requirements was
driven by 'Credit risk (excl uding counterparty credit risk (CCR))'
observed in line 1 of the table above. The decrease in the Credit
risk RWA was driven by customers advances from (a) a decrease in
balance sheet values especially in the higher risk exposure
classes, exposures in default and items associated with
particularly high risk, (b) the phasing in of the IFRS9
transitional arrangements which increases provisions recognised for
RWA purposes, (c) increased residential real estate collaterals and
(d) curing. All other risk categories remain fairly stable.
There were no large exposures for institutions that exceeded the
relevant limits.
F.12.3 Standardised approach - Credit risk exposure and Credit Risk Mitigation (CRM) effects
The table below illustrates the analysis of RWA and RWA density
of all exposure classes that comprise the RWA reported in lines 1
and 27 of table F.12.2.
31 March 2020 31 December 2019
RWAs and RWA density RWAs and RWA density
------------------------- -------------------------
Exposure classes RWAs RWA density RWAs RWA density
----------- ------------ ----------- ------------
EUR000 % EUR000 %
----------- ------------ ----------- ------------
Central governm ents
or c entral banks 347,007 6.2 382,591 6.2
----------- ------------ ----------- ------------
Re gional government
or lo cal authorities 1,128 1.9 542 0.8
----------- ------------ ----------- ------------
P u blic s e ctor entities 8 - 9 -
----------- ------------ ----------- ------------
In stitutions 171,437 23.3 179,648 29.6
----------- ------------ ----------- ------------
Corporates 3,236,876 99.5 3,353,301 99.5
----------- ------------ ----------- ------------
Retail 929,718 71.0 960,387 71.2
----------- ------------ ----------- ------------
Secured by mortgages
on immovable property 1,236,782 37.6 1,180,406 37.5
----------- ------------ ----------- ------------
Expo s ures in de fault 1,909,970 106.9 2,053,619 107.3
----------- ------------ ----------- ------------
H igher-ri sk categories 1,306,956 150.0 1,404,849 150.0
----------- ------------ ----------- ------------
Covered bonds 19,823 10.0 16,333 10.0
----------- ------------ ----------- ------------
Colle ctive inve s tment
undertakings (CIUs) 813 77.7 205 100.0
----------- ------------ ----------- ------------
Equity 101,069 185.3 80,275 237.9
----------- ------------ ----------- ------------
Other items 1,932,065 99.2 1,876,882 94.1
----------- ------------ ----------- ------------
Total 11,193,652 57.7 11,489,047 57.1
=========== ============ =========== ============
The main driver behind the overall increase in the RWA density
derived from a shift of balances from lower risk weight, such as
'Balances with Central Banks', included in exposure class 'Central
governments or central banks' to higher risk weight balances such
as 'Customer advances', mainly included in exposure class 'Secured
with mortgages on immovable property'. Furthermore the overall
density was driven upward from the increase in the density of
exposure class 'Other items' from increased risk weight of certain
properties held for sale. The risk density in the remaining
exposure classes remains fairly stable, with the exception of
exposure classes 'Collective investment undertakings (CIUs)' which
improved due to improved external ratings, and exposure class
'Institutions', which improved from improved ratings and residual
maturities.
F.13 Leverage ratio
According to CRR Article 429, the leverage ratio, expressed as a
percentage, is calculated as the capital measure divided by the
total exposure measure of the Group.
The leverage ratio of the Group is presented below:
31 March 31 December
2020 2019
Transitional basis EUR000 EUR000
----------- ------------
Capital measure (Tier 1) 2,026,872 2,129,049
=========== ============
Total exposure measure 20,316,602 21,075,511
=========== ============
Leverage ratio (%) 10.0 10.1
=========== ============
IFRS 9 fully loaded
----------- ------------
Capital measure (Tier 1) 1,810,732 1,866,593
=========== ============
Total exposure measure 20,193,093 20,859,371
=========== ============
Leverage ratio (%) 9.0 9.0
=========== ============
The decrease in the 'Total exposure measure' follows the
movements in the Group's balance sheet assets.
The 'Capital measure (Tier1)' is negatively affected mainly by
the phasing-in of IFRS 9 transitional adjustments, decrease in
revaluation reserves and ECL charges.
The leverage ratio, including the loss (prudential
consolidation) of EUR28,503 thousand for the period ended 31 March
2020, is calculated at 10.0% on a transitional basis and 9.0% on
IFRS 9 fully loaded basis.
F.14 Internal Capital Adequacy Assessment Process (ICAAP),
Internal Liquidity Assessment Process (ILAAP), Pillar II and
SREP
The Group prepares the ICAAP and ILAAP reports annually. Both
reports for 2019 were approved by the Board of Directors and
submitted to the ECB on 30 April 2020. Due to the timing of the two
reports, the business plans and ICAAP and ILAAP stress scenarios
have not been updated to reflect the impact of the COVID-19 in line
with relevant supervisory communication on this issue; however the
COVID-19 preliminary estimated impact on capital and liquidity
(based on scenarios) have been referenced commented in the ICAAP
and ILAAP reports under a separate section.
Based on the end of December 2019 ICAAP, BOC PCL has sufficient
capital throughout the three-year horizon to enable it to comply
with all regulatory ratios, both in the base and adverse scenario,
under the normative approach. Under the Economic perspective, a
small capital shortfall arises in the adverse scenario, in 2022,
which however can be neutralised by available mitigants.
The Group also undertakes a quarterly review of its ICAAP
results (as at the end of June and as at the end of September)
considering the latest actual and forecasted information. During
the quarterly review, the Group's risk profile and risk management
policies and processes are reviewed and any changes since the
annual ICAAP exercise are taken into consideration.
The Group also undertakes a quarterly review for the ILAAP
through quarterly stress tests submitted to the ALCO and the Risk
Committee of the Board of Directors. During the quarterly review,
the liquidity risk drivers are assessed and, if needed, the stress
test assumptions are amended accordingly. Any material changes
since the year-end are assessed in terms of liquidity. The
quarterly review identifies whether the Group has an adequate
liquidity buffer to cover the stress outflows. The Group's ILAAP
analysis demonstrates that the volume and capacity of liquidity
resources available to the Group are adequate.
The ECB, as part of its supervisory role, has been conducting
the SREP and onsite inspections on the Group. SREP is a holistic
assessment of, amongst other things, the Group's business model,
internal governance and institution-wide control arrangements,
risks to capital and adequacy of capital to cover these risks and
risks to liquidity and adequacy of liquidity resources to cover
these risks. The objective of the SREP is for the ECB to form an
up-to-date supervisory view of the Group's risks and viability and
to form the basis for supervisory measures and dialogue with the
Group. Additional capital and other requirements could be imposed
on the Group as a result of these supervisory processes, including
a revision of the level of Pillar II add-ons as the Pillar II
add-ons capital requirements are a point-in-time assessment and
therefore subject to change over time.
The Group was to participate in the ECB SREP stress test of 2020
which was launched in January 2020 and was to be concluded by end
of July 2020. However due to the outbreak of COVID-19 and its
global spread, EBA decided to postpone until 2021 the EU-wide
Stress Test Exercise of 2020 to allow banks to focus on and ensure
continuity of their core operations. For 2020, the EBA will carry
out an additional EU-wide transparency exercise in order to provide
updated information on banks' exposures and asset quality to market
participants. The ECB announced that it supports the decision of
EBA to postpone the stress tests exercise and will extend the
postponement to all banks subject to the 2020 stress test.
G. Definitions & Explanations
Reconciliations
1. Reconciliation of Gross loans and advances to customers
31 March 31 December
2020 2019
EUR000 EUR000
=========== ============
Gross loans and advances to customers (as
defined below) 12,708,627 12,821,838
=========== ============
Reconciling items:
=========== ============
Residual fair value adjustment on initial
recognition (Section F.4) (200,428) (201,999)
=========== ============
Loans and advances to customers classified
as held for sale (Section F.4) (167,689) (173,881)
=========== ============
Residual fair value adjustment on initial
recognition on loans and advances to customers
classified as held for sale (Section F.4) (10,741) (11,083)
=========== ============
Loans and advances to customers measured
at fair value through profit and loss (Section
F.3) (287,109) (369,293)
=========== ============
Aggregate fair value adjustment on loans
and advances to customers measured at fair
value through profit or loss (40,776) (57,436)
----------- ------------
Gross loans and advances to customers at
amortised cost as per section F.3 12,001,884 12,008,146
=========== ============
2. Reconciliation of Allowance for expected credit losses on
loans and advances to customers (ECL)
31 March 31 December
2020 2019
EUR000 EUR000
========== ============
Allowance for expected credit losses on
loans and advances to customers (as defined 2,096,18
below) 2,109,271 0
========== ============
Reconciling items:
========== ============
Residual fair value adjustment on initial ( 201,999
recognition (Section F.4) (200,428) )
========== ============
Aggregate fair value adjustment on loans
and advances to customers measured at fair
value through profit or loss (40,776) (57,436)
========== ============
Allowance for expected credit losses on
loans and advances to customers classified
as held for sale (Section F.6) (143,989) (147,952)
========== ============
Residual fair value adjustment on initial
recognition on loans and advances to customers (11,08 3
classified as held for sale (Section F.4) (10,741) )
========== ============
Provisions for financial guarantees and ( 22,112
commitments (20,880) )
---------- ------------
Allowance for ECL for impairment of loans
and advances to customers as per section 1,655,59
F.3 1,692,457 8
========== ============
3. Reconciliation of NPEs
31 March 31 December
2020 2019
EUR000 EUR000
=========== ============
NPEs (as defined below and as per Section 3,737,91
F.8) 7 3,879,508
=========== ============
Reconciling items:
=========== ============
Loans and advances to customers (NPEs) classified
as held for sale (Note 1 below) (166,714) (172,880)
=========== ============
Residual fair value adjustment on initial
recognition on loans and advances to customers
(NPEs) classified as held for sale (Note
2 below) (10,753) (11,096)
=========== ============
Loans and advances to customers measured (125, 803 ( 144,866
at fair value through profit and loss (NPEs) ) )
=========== ============
( 511,933
POCI (NPEs) (Note 3 below) (497,169) )
----------- ------------
Stage 3 gross loans and advances to customers
at amortised cost as per section F.5 2,937,478 3,038,733
=========== ============
NPE ratio
=========== ============
3,737,91
NPEs (as per table above) (EUR000) 7 3,879,508
=========== ============
Gross loans and advances to customers (as
per table above) (EUR000) 12,708,627 12,821,838
=========== ============
Ratio of NPE/Gross loans (%) 29,4% 30 . 3 %
=========== ============
Note 1 : Gross loans at amortised cost after residual fair value
adjustment on initial recognition classified as held for sale
include an amount of EUR144,330 thousand Stage 3 loans (31 December
2019: EUR150,206 thousand Stage 3 loans) and an amount of EUR22,384
thousand POCI - Stage 3 loans (out of a total of EUR22,393 thousand
POCI loans) (31 December 2019: EUR22,674 thousand POCI - Stage 3
loans (out of a total of EUR22,679 thousand POCI loans) as
disclosed in Section F.5.
Note 2 : Residual fair value adjustment on initial recognition
of loans and advances to customers classified as held for sale
includes an amount of EUR3,250 thousand for Stage 3 loans (31
December 2019: EUR3,402 thousand for Stage 3 loans) and an amount
of EUR7,503 thousand for POCI - Stage 3 loans (31 December 2019:
EUR7,694 thousand for POCI - Stage 3 loans) as disclosed in Section
F.5.
Note 3 : Gross loans and advances to customers at amortised cost
before residual fair value adjustment on initial recognition
include an amount of EUR497,169 thousand POCI - Stage 3 loans (out
of a total of EUR611,973 thousand POCI loans) (31 December 2019:
EUR511,933 thousand POCI - Stage 3 loans (out of a total of
EUR627,212 thousand POCI loans)) as disclosed in Section F.5.
Ratios Information
1. Net Interest Margin
Reconciliation of the various components of net interest margin
from the underlying basis to the statutory basis is provided
below:
Three months ended
31 March
2020 2019
(restated)
======= ============
1.1. Reconciliation of Net interest income EUR000 EUR000
======= ============
Net interest income as per the underlying basis 84,926 84,703
======= ============
Reclassifications for:
======= ============
Net interest income relating to the Helix portfolio,
disclosed under non-recurring items within
'Provisions/net loss relating to NPE sales'
under the underlying basis - 17,343
------- ------------
Net interest income as per the Unaudited Interim
Consolidated Income Statement 84,926 102,046
======= ============
341,57
Net interest income (annualised) 1 343,518
======= ============
1.2. Interest earning assets 31 March 31 December
2020 201 9
EUR000 EUR000
=========== ============
Cash and balances with central banks 4,398,781 5,060,042
=========== ============
Loans and advances to banks 455,284 320,881
=========== ============
Loans and advances to customers 10,596,536 10,721,841
=========== ============
Loans and advances to customers held for sale 23,700 25,929
=========== ============
Investments
=========== ============
Debt securities 1,781,992 1,738,007
=========== ============
( 2 3,5
Less: Investments which are not interest bearing (21,496) 9 3)
----------- ------------
Total interest earning assets 17,234,797 17, 843,107
=========== ============
1.3. Quarterly average interest earning assets
(EUR000)
=========== ============
17,538
* as at 31 March 2020 , 952
=========== ============
* as at 31 March 2019 18,242,972
=========== ============
2. Operating profit return on average assets
The various components used in the determination of the
operating profit return on average assets are provided below:
31 March 31 December
2020 2019
EUR000 EUR000
=========== ============
Total assets used in the computation of the
operating profit return on average assets/per
the Unaudited Interim Consolidated Balance
Sheet 20,430,792 21,122,822
=========== ============
31 March 31 March
2020
2019
(restated)
EUR000 EUR000
=========== ============
Annualised operating profit 211,098 212,320
=========== ============
Quarterly average total assets 20,776,807 21,910,354
=========== ============
Comparative information has been restated as noted within
section A. 'Group Financial Results - Underlying basis - Commentary
on Underlying basis' for the purposes of the underlying basis.
G. Definitions & Explanations (continued)
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 Deposit Guarantee
to DGF Fund.
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 20 May 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 EUR252 mn at 31 March 2020 (compared to EUR271
mn at 31 December 2019).
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 EUR328 mn at 31 March 2020
(compared to EUR427 mn at 31 December 2019), 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 (amounting to Nil as at both 31 March
2020 and 31 December 2019).
Group The Group consists f Bank of Cyprus Holdings Public
Limited Company, "BOC Holdings" or the "Company",
its subsidiary Bank of Cyprus Public Company Limited,
the "Bank" and the Bank's subsidiaries.
Legacy gross Gross loans relating to (i) Restructuring and Recoveries
loans Division (RRD), (ii) Real Estate Management Unit
(REMU), and (iii) non-core overseas exposures
Leverage ratio The leverage ratio is the ratio of tangible total
equity (including Other equity instruments) to total
assets as presented on the balance sheet.
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.
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 CBC.
The Bank is the single largest credit provider in
Cyprus with a market share of 41.0% at 31 March 2020,
compared to 41.1% at 31 December 2019, 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 NSFR will be enforced as a regulatory ratio
under CRR II in 2021.
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.
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 Interim Condensed 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 relating to NPE sales, including restructuring
expenses, (iv) Share of profit from associates (CNP),
and (v) Reversal of impairment of DTA and impairment
of other tax receivables.
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
during FY2019, as well as NPE sale transactions under
consideration at 31 December 2019 and 31 March 2020,
irrespective of whether or not they met the held
for sale classification criteria as at 31 December
2019 or as at 31 March 2020.
Operating profit Comprises profit before Total loan credit losses,
impairments and provisions (as defined), tax, (profit)/loss
attributable to non-controlling interests and non-recurring
items (as defined).
Operating profit Operating profit return on average assets is calculated
return on average as the annualised operating profit (as defined) divided
assets by the quarterly average of total assets for the
relevant period. Average total assets exclude total
assets of discontinued operations at each quarter
end, if applicable.
Phased-in Capital In accordance with the legislation in Cyprus which
Conservation has been set for all credit institutions, the applicable
Buffer (CCB) rate of the CCB is 1.25% for 2017, 1.875% for 2018
and 2.5% for 2019 (fully phased-in).
Profit/(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)
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 contributions to
the Single Resolution Fund (SRF) and Deposit Guarantee
Fund (DGF). 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 EUR3 mn for 1Q2020 (compared to EUR8
mn for 4Q2019). Restructuring costs relating to NPE
sales amounted to EUR3 mn for 1Q2020 (compared to
EUR10 mn for 4Q2019). Restructuring costs relating
to the Voluntary Staff Exit Plan amounted to Nil
for 1Q2020, compared to EUR81 mn for 4Q2019.
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 quarter ended 31 March 2020.
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 quarter ended 31 March 2020. 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, were published
on 29 April 2020 and are expected to be delivered to the Registrar
of Companies of Ireland within 28 days of 30 September 2020. The
Board of Directors approved the Group financial results for the
quarter ended 31 March 2020 on 25 May 2020.
Statutory basis: S tatutory information is set out on pages
30-35. 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 page 36) to allow a comparison of the
Group's underlying performance, as set out on pages 5-7.
The financial information included in this announcement is
neither reviewed nor audited by the Group's external auditors.
This announcement and the presentation for the Group Financial
Results for the quarter ended 31 March 2020 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 G.
The Group Financial Results for the quarter ended 31 March 2020
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
15 operate as cash offices. Bank of Cyprus also has representative
offices in Russia, Ukraine and China. The Bank of Cyprus Group
employs 3,566 staff worldwide. At 31 March 2020, the Group's Total
Assets amounted to EUR20.4 bn and Total Equity was EUR2.2 bn. The
Bank of Cyprus Group comprises Bank of Cyprus Holdings Public
Limited Company, its subsidiary Bank of Cyprus Public Company
Limited and its subsidiaries.
This information is provided by RNS, the news service of the
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
QRFUNAVRRRUVURR
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